During the CSX Corporation First Quarter 2025 Earnings Conference Call, operator Christa introduces the event, and Matthew Korn, Head of Investor Relations and Strategy, welcomes participants. He states that the leadership team, including Joseph R. Hinrichs (President and CEO), Mike Cory (EVP and COO), Kevin Boone (EVP and Chief Commercial Officer), and Sean Pelkey (EVP and CFO), is present, and he mentions the availability of presentation slides on their website. Joseph Hinrichs then emphasizes the company's commitment to delivering consistent, reliable, and excellent service to strengthen customer relationships, expand markets, and drive profitable growth, despite the operational challenges posed by winter weather.

The paragraph discusses the challenges faced by the company due to infrastructure projects, which led to underperformance and reduced revenues. Despite a 1% decrease in total volume, intermodal volumes increased by 2% due to more port traffic. Overall, total revenue dropped to $3.4 billion, down 7% from the previous year, mainly due to lower coal prices and fuel surcharges. Earnings per share fell by 24%. The company acknowledges its shortcomings but emphasizes its commitment to improving operations and efficiency. They stress the importance of their strong customer relationships and sound strategy, aiming to recover and deliver better results in the future.

In the call, Mike Cory addresses CSX Corporation's operational performance challenges during a difficult quarter, attributed to major infrastructure rebuilds and severe weather impacting the network. Despite these challenges, Cory emphasizes the importance of improving network fluidity to meet customer expectations and mentions ongoing efforts to enhance operations. He highlights positive safety trends, noting a decrease in FRA injury and train accident rates due to effective education and mentorship programs, which support a safety-focused culture. He then indicates a transition to discussing network fluidity metrics in the presentation.

In the first quarter of 2025, CSX Corporation faced challenges in maintaining network velocity due to harsh winter weather and yard congestion, particularly after closing the Baltimore Tunnel and experiencing flooding in the Southwest and Midwest regions. As a result, transit schedules and dwell times were negatively impacted. Despite these issues, intermodal trip plan compliance improved following disruptions from the previous year's hurricanes. The company is working to address excess inventory and improve carload trip plan compliance, which remains a priority to support current and future business. Overall, the team is committed to enhancing operations and regaining momentum to remain competitive in the market.

The paragraph discusses CSX Corporation's efforts to enhance operational efficiency and customer service amidst ongoing major projects and closures. They are implementing strategies to improve scheduling, asset utilization, and communication. Key actions include bringing additional locomotives online to balance the network and collaborating with customers to remove excess cars, thereby improving network fluidity. CSX emphasizes accountability, customer service, and operational improvements using tools like the real-time operations portal system (RTOP) to support decision-making. They remain confident in their team and assets, striving to deliver for customers and shareholders.

Kevin Boone discusses the current challenges and strategies of CSX Corporation. Despite macroeconomic uncertainties and shifting global trade policies, the company is working closely with customers to maintain resilient and efficient supply chains. Although market demand has been relatively stable, network disruptions have caused missed opportunities in key markets. CSX is committed to improvement, highlighted by its TDSI automotive terminal team winning awards for service excellence. In the first quarter, merchandise revenue and volume declined by 2%, though RPU increased by 1% due to higher core pricing gains. Fertilizer volume rose by 2%, but revenue remained flat due to a mix shift. Strong market demand for agriculture and food was present, but operational challenges hindered CSX's ability to fully capitalize on it.

In the summarized report, mineral shipments decreased by 1% due to weather, but construction and cement activities remained strong, boosting quarterly revenues by 4%. Although chemical revenues rose by 1%, volumes fell similarly, with positive demand in plastics and energy sectors partially offset by reduced asphalt shipments. Forest products experienced a 4% volume drop amid a challenging building products environment impacted by interest rates and trade policies. Metals and equipment volumes declined by 7%, and the automotive sector saw a slow recovery at the year's start with a 7% volume and 8% revenue decline. The outlook for merchandise demand is stable, with potential growth opportunities in key markets amid tariff effects and improved network performance. However, coal revenue plummeted by 27% due to lower export prices and operational challenges, with a significant year-over-year reduction in both export and domestic sectors.

The paragraph discusses recent trends in export and domestic tonnage, noting a 12% decline in export tonnage due to temporary mine outages and a 4% decrease in domestic tonnage, despite positive demand trends. Higher natural gas prices have supported utility demand, while domestic shipments to steel mills have decreased due to a soft metals market. The Australian benchmark for pricing averaged $185 per ton in the first quarter, posing a slight headwind for the second quarter. The intermodal business saw a 3% revenue decline despite a 2% increase in volume, with lower RPU due to reduced fuel surcharges and strong international shipments. Volume growth was driven by international activity, with some anticipation of tariffs but no substantial trend changes expected soon. The trucking market shows signs of recovery, which is slightly favorable for intermodal business. Overall, there are encouraging signs, but future visibility remains low.

The paragraph discusses the growth and performance of CSX Corporation. The company's inbound calls and project pipeline are growing significantly, with nearly 600 projects and 24 new facilities becoming operational in the first quarter. They anticipate starting service at up to 50 more facilities in the coming months, contributing to growth throughout the year. Despite these positives, first-quarter revenue decreased by 7% due to lower export coal prices, reduced fuel recovery, and declines in trucking and other revenues, along with a 1% drop in volume. Expenses rose by 2%, and interest expenses increased due to recent debt issuance. As a result, earnings per share fell by $0.11. They expect raw materials pricing pressures to ease later in the year.

In the first quarter, the company experienced an earnings trough, missing revenue and expense expectations due to challenging conditions like network disruptions and severe winter weather. Despite early Q2 challenges from storms and flooding, the team is working to clear congestion and improve service, which will eventually benefit revenue and expenses. Total Q1 expenses rose 2% or $38 million, with $45 million in additional costs from network disruptions and weather. Inflation contributed to a $16 million increase in labor costs, while fuel cost savings partly offset the expenses. Other costs including purchase services increased by $54 million, and depreciation rose by $15 million due to a larger asset base. Fuel costs decreased by $50 million thanks to lower prices and efficiency improvements. Lastly, equipment and rents increased by $3 million. The company is prioritizing capital investment for safety and growth, with higher property additions in Q1, including $133 million spent on a rebuild project on the Blue Ridge subdivision.

The company maintains its expectation for non-Blue Ridge spending to remain stable through 2024, with the Blue Ridge rebuild projected to surpass $400 million before insurance recoveries. While first-quarter free cash flow remained stable due to offsetting factors like a postponed tax payment, a significant $425 million tax payment is anticipated in the second quarter due to hurricane-related deferrals. After funding capital investments, the company is committed to returning almost a billion dollars to shareholders, with a strategy that considers share valuation and economic conditions. Looking forward to 2025, the company anticipates volume growth despite uncertainties from trade and tariff changes. Revenue will be influenced by lower commodity prices, but the decreased impact of lower export coal benchmarks is expected compared to the first quarter. Profitability is expected to improve as network fluidity and efficiency drive labor productivity gains throughout the year.

The paragraph is from a Q&A session following a company's presentation. Joe concludes with acknowledging that while the quarterly performance was below expectations, the team is committed to improving safety, speed, and reliability to achieve long-term profitable growth. Matthew Korn then starts the Q&A, instructing participants to limit themselves to one question. Tom Wadewitz from UBS asks about the operational challenges, specifically mentioning the strategic move with the Howard Street Tunnel investment and its impact, as well as weather and longer train strategy as potential contributors to the challenges.

Mike Cory addresses operational challenges due to compounding events, such as flooding and line closures, causing congestion. The plan involves reducing excess railcars, collaborating with customers for better service, and possibly using embargoes if necessary. They are increasing locomotive availability, deploying additional mechanical staff, transferring crews from other areas, and adjusting planned capital track activities to improve flexibility and capacity in affected regions.

The paragraph discusses a company facing operational challenges due to a series of significant events that disrupted planned capacities, such as the Howard Street tunnel closure and issues with other routes. The speaker assures efforts to resolve these issues by Q3, aligning with seasonal demand decreases. Brandon Oglenski from Barclays questions whether recovery and typical margin improvements from Q1 to Q2 are feasible. Sean Pelkey acknowledges the usual better performance in Q2 but does not provide a definite answer regarding current expectations due to ongoing challenges.

The paragraph discusses the company's financial outlook, noting that results in Q2 are expected to be better than in Q1, partly due to improved operations that reduce costs and open revenue opportunities. The speaker emphasizes the importance of the macroeconomic environment and operational improvements in influencing margins and income. In the Q&A, John Chappell asks for clarification on whether the identified one-off financial impacts for the year are additional to those highlighted in January and whether they are confined to Q1, considering recent flooding incidents. Sean Pelkey responds to the inquiry.

The paragraph discusses financial impacts and operational challenges faced by a company, emphasizing a $350 million headwind primarily due to commodity prices, especially met coal. The first quarter saw reroute costs associated with projects like the Howard Street Tunnel, totaling $20-25 million, and other costs related to weather and congestion. There's optimism for improvement in the second quarter despite some early challenges. Additionally, there is potential for increased revenue as operations normalize. In response to a question about customer contracts and tariff impacts, Kevin Boone clarifies that no contracts have been lost.

The paragraph discusses the company's focus on leveraging growth opportunities, particularly in their unit train operations, while maintaining effective communication and prioritization to avoid customer disruptions. It also addresses the impact of fluctuating tariffs and the potential for increased industrial production in the U.S., which could benefit their network, especially in the Southeast and Midwest. The company is closely monitoring market changes and adapting to shifting freight flows due to tariffs.

The paragraph discusses the benefits of decoupling from China for the East Coast and emphasizes the company's efforts to maintain strong customer service amidst difficulties like hurricanes. Despite a slight decline, the company achieved high net promoter scores due to improved communication and prioritization of customer needs. Joe Hinrichs highlights that customer connectivity has been a significant organizational improvement. He also notes that opportunities were missed in unit trains, specifically coal in January, but performance improved in February and March. Grain logistics faced challenges due to increased traffic from midwestern corridor shutdowns.

The paragraph features a discussion between Brian Ossenbeck from JPMorgan and company representatives Kevin Boone and Sean Pelkey regarding the company's revenue opportunities and financial guidance. Brian seeks clarification on whether certain revenue opportunities were lost or can still be pursued. Kevin Boone responds, noting that some opportunities were perishable but there is potential for growth in the second quarter due to strong market demand. Sean Pelkey adds that while there are opportunities, uncertainty around volume and other factors makes it difficult to predict exact outcomes for EBITDA, operating income, and margins. Both emphasize the importance of meeting demand and improving network efficiency.

The paragraph discusses the temporary impacts on the company's performance due to outages and costs faced in the first quarter, affecting the annual outlook. Despite a challenging demand environment and uncertainties with volumes, the company remains optimistic about meeting its three-year targets set in November. Christian Wetherbee from Wells Fargo asks about the feasibility of profit growth given these challenges, and Sean Pelkey avoids giving specific guidance but notes that commodity price headwinds are expected to ease as the year progresses. Additionally, hurricane impacts from the previous year may make comparisons easier in the latter half of the year.

The paragraph discusses the potential for year-over-year growth in the latter half of the year, contingent on macroeconomic factors and operational improvements. Kevin Boone notes an increase in intermodal activity, partly due to tariff-related factors boosting the international market. Ken Hoexter from Bank of America questions the sustainability of positive volume growth given a significant decline in Chinese activity, and whether industrial activity could compensate for this. Mike Cory clarifies that reported on-time performance statistics are not adjusted for external factors like construction or weather. Joseph R. Hinrichs adds that the industrial sector has been experiencing negative growth for almost two years, suggesting the potential for recovery.

The paragraph discusses the current economic landscape, highlighting increasing orders from steel plants in the US due to tariffs, which may boost US auto production and drive demand for materials like steel, aluminum, and vehicle parts. Although the housing sector remains down, slight growth is expected in the auto sector. The company anticipates continued activity in industrial development projects, with many coming online soon. Despite some challenges, coal demand and export volumes remain steady, with domestic utility demand increasing. Additionally, a strong grain harvest is driving grain volume to the southeast, and aggregates demand is expected to remain robust.

The paragraph discusses the state of various industrial sectors, highlighting a flat performance in chemicals but potential growth in others. The speaker expresses optimism about industrial development and considers the possibility of accelerating domestic production decisions due to tariffs. They note the potential benefits of increased domestic metal production, particularly aluminum, if demand supports it. They are optimistic about the medium-term opportunities and stress the importance of having an efficient network to capitalize on these chances.

The paragraph discusses the current intermodal market and expectations for yields going forward. Jason Seidl from TD Cowen raises concerns about declining international trade bookings, which might lead to shifts in the intermodal market. Kevin Boone responds by noting that the bidding season is mostly complete and suggests that pricing is unlikely to change significantly for the rest of the year. There's a possibility for improved yields if domestic business strengthens compared to international, but the situation remains uncertain with many moving parts.

The paragraph is part of a financial discussion during a Q&A session. Ravi Shanker from Morgan Stanley asks about coal contract pricing and other revenue changes. Kevin Boone explains that while every coal contract is unique, they generally have price floors, but current prices are above these floors due to recent stabilization. Sean Pelkey adds that other revenue, comprising various unpredictable items, came in lower and suggests the current rate is likely stable, around the $115 million seen in Q1. Daniel Imbro from Stephens Inc. inquires about the potential for adjusting headcount given softer volumes at the year's start. Sean is asked how headcount could adjust if volumes don't improve.

In the paragraph, Sean Pelkey discusses the impact of union contracts and headcount on compensation per employee for the company. Despite low volume movement in Q1 due to inefficient crew usage, service recovery is expected to lead to more efficient operations as the year progresses. Headcount is expected to remain stable, with some minor impacts from training. A 4% wage increase is anticipated in the second half of the year, leading to a slight decline in compensation per employee from Q1 to Q2 due to reduced overtime. This change is attributed to the resolution of weather-related issues from earlier in the year. The operator then introduces a question from Erika Harnain of Deutsche Bank about revenue opportunities.

The paragraph discusses Kevin Boone's explanation of a revenue opportunity based on improved cycle times in certain markets, estimating a potential increase of over a million dollars a day. He highlights the importance of maintaining strong customer relationships and trust, emphasizing effective communication, particularly during disruptions like storms. Despite challenges, the company's net promoter scores remain high, reflecting customer satisfaction. Boone is optimistic about retaining market share as network operations improve. A subsequent question from Walter Spracklin refers to opportunities in international intermodal partnerships.

The paragraph discusses potential growth opportunities in partner alignments, with Kevin Boone indicating that the company is well-positioned with its international portfolio and focus on growth with key partners. While there is no specific reference to new contracts, Boone highlights efforts in inland port development and adapting to the shifting market environment, such as the move away from China, which benefits the East Coast. Meanwhile, David Vernon from Bernstein asks about challenges in restoring service levels and whether they are related to resource or scheduling issues. Mike Cory responds that improving the network will be a gradual process, not an overnight fix.

The paragraph discusses the company's plans and challenges for the upcoming quarters due to disruptions like weather-related issues and flooding, which have impacted key routes. The operator introduces a question from Bascome Majors, who asks about the timeline for judging the financial results of the company's strategy amidst uncertainties and disruptions. Joseph R. Hinrichs responds by reflecting on the company's progress over the past two and a half years and highlights that their trucking and rail segments have achieved impressive margins, with 2023 rail margins at 40%, the best in the industry, and 39% the previous year, ranking second best.

The strategy focused on providing excellent customer service and maintaining high margins has been effective. There was an increase in cars online and dwell times starting late last year, influenced by hurricanes. Despite a challenging first quarter, the company remains committed to its three-year plan discussed in the prior Investor Day. The fundamentals, such as lower met coal prices and fuel surcharges, and infrastructure projects, are still in place. By improving network fluidity and maintaining strong customer relationships, the company aims to meet its goals by 2026-2027. Expectations include industrial production improvements, assuming stable met coal prices and fuel costs.

The paragraph discusses the company's current focus on demonstrating to shareholders and stakeholders their ability to improve their situation by restoring their network to industry-leading levels in terms of service and margins. Despite past challenges, the team is confident in their capability to achieve this, drawing on previous success in 2022. They are working hard to achieve these goals, with hopes of realizing growth from industrial development and economic growth by 2026-2027. Following this, Jeff Kauffman asks Kevin Boone about the potential business impact from pre-shipment orders or tariff-related accelerations, particularly focused on international intermodal and consumer products, which involve complex logistics and lead times.

The paragraph discusses the shifting dynamics of freight flows, particularly in relation to exports and the leverage of the East Coast versus the West Coast in light of changing trade patterns with China. It mentions that agricultural products may need new destinations if not going to China, potentially benefiting networks positioned for such shifts. The speaker emphasizes the fluidity of these developments and the importance of staying ahead to accommodate customer needs. In response to a query about China-related business exposure, Kevin Boone notes that the company is less dependent on China than others due to its East Coast focus, with most China-related activity being tied to international intermodal services on the West Coast.

This summary was generated with AI and may contain some inaccuracies.