CSX Corporation (CSX) Earnings

Management highlights

**Safety Performance** - Year-over-year safety results improved significantly: FRA injury rate fell 19% (even as total employee hours declined 7%), and the train accident rate improved 30%. - Management continues to prioritize safety through risk awareness, frontline employee engagement, and applied technology to pursue best-in-class performance. **Operational Productivity** - Fuel efficiency improved for the fourth consecutive quarter, driven by better locomotive utilization and expanded use of trip optimizer technology. - GTMs generated per unit of horsepower increased for the sixth consecutive quarter, average tonnage per train is higher than a year ago, and overall workforce productivity improved. - Stronger than expected 6% YoY volume growth, paired with seasonal employee availability reductions, created network tightness in some locations. While average train velocity improved 3% YoY, terminal dwell increased. Management is taking targeted steps to improve crew availability and expects sequential improvement in service metrics for the second half of 2026. **Financial and Cost Discipline** - Total expenses increased 6% YoY, while non-fuel expenses decreased 2% YoY. Operating income grew 17% YoY and operating margins expanded 240 basis points, despite 160 basis points of fuel price headwinds, leading to 23% YoY growth in earnings per share. - Cost savings were driven by reduced headcount (6% lower YoY, offsetting inflation and higher incentive compensation costs), insourcing of third-party services (third-party spend fell $23 million in Q2), and efficiency savings across operating, G&A, and technology functions. - G&E headcount will increase modestly in coming months to support higher demand and improved service, with process improvements and technology expected to absorb natural attrition in other departments. **Commercial Strategy** - CSX's core strategic priority is profitable growth, not market share growth for its own sake. All new volume must generate higher operating income, expand margins, and deliver strong returns on invested capital. - Tighter truck capacity and higher truck rates are driving increased truck-to-rail conversion, with the strongest opportunities in forest products, waste, and metals for merchandise, and domestic intermodal. Infrastructure-related investment (power infrastructure, data center buildout, IIJA-funded projects) is driving demand for minerals, metals, and construction-related products.

Guidance

- Management upwardly revised full-year 2026 guidance, now expecting full-year revenue growth in the mid-to-high single digits (up from prior lower single-digit to mid-single digit expectations). - Operating margin expansion is now expected to be greater than 350 basis points for full-year 2026, an upward revision from prior guidance. - Free cash flow growth is now projected to be greater than 80% for full-year 2026, also an upward revision. - The full-year 2026 capital spending guidance remains unchanged at less than $2.4 billion. - Core underlying pricing remains at or above plan for 2026, with fuel and product mix expected to be the primary drivers of RPU movement in the second half of 2026.

Segment performance

CSX reported total revenue up 10% year-over-year (YoY) to a new quarterly record, with total volume up 6% YoY and overall revenue per unit (RPU) up 4% YoY. Performance by segment: 1. **Merchandise**: Volume up 4% YoY, revenue grew 8% YoY. RPU including fuel was up 4% YoY, while RPU excluding fuel was 1% higher YoY. Growth was broad-based, with six of seven business units flat or up YoY: Chemicals volume up 8%, Metals and Equipment delivered 14% revenue growth on 3% higher volume, Forest products volume was flat (a marked improvement from Q1 2026). This segment contributed roughly 60-65% of total revenue based on disclosed growth contribution. 2. **Intermodal**: Volume up 9% YoY, revenue up 26% YoY, making it the largest contributor to Q2 2026 unit growth. RPU was up 16% YoY, driven primarily by fuel surcharge. Volume growth was led by the diverse domestic business, supported by new service offerings, accelerated truck-to-rail conversions, and expanded capacity from the opened Howard Street Tunnel. This segment contributed ~25-30% of total revenue. 3. **Coal**: Volume up 4% YoY, revenue grew 9% YoY, RPU increased 4% YoY driven by strong domestic contract renewals. Export tonnage increased 12% YoY due to mine restarts and record tonnage through Curtis Bay, while domestic tonnage declined 2% YoY due to lower natural gas prices and normalized customer inventories. This segment contributed ~10-15% of total revenue.

Risks & headwinds

- Uncertainty around fuel prices creates volatility for margins, as seen in the recent sharp weekly increase in diesel prices that could impact Q3 2026 results. - Unexpected stronger than expected volume growth, paired with seasonal summer employee vacation availability, created near-term network tightness and higher dwell in Q2 2026 that has pressured service metrics. - Automotive market demand could decelerate in the second half of 2026 due to normalized inventories and scheduled summer production shutdowns ahead of Q4 new model launches. - Plastics volumes are expected to moderate in the second half of 2026 after pull-forward demand in the first half of 2026. - International intermodal pricing is not closely tied to current truck market dynamics, due to long-term contracted arrangements and high industry competition, limiting near-term pricing upside in that segment.

Analyst Q&A

• Q: When can we expect to see pricing benefits from the recent tightening of the trucking market flow through to CSX's results? /

  A: Mary Claire Kenney confirmed that 2026 same-store sales pricing is already on track to be stronger than 2025, with the commercial team actively accelerating price in response to changed market conditions. Pricing acceleration has already been seen in domestic intermodal spot market (a small share of total business) and recent contract renewals. International intermodal is mostly tied to long-term contracts and is less correlated to domestic truck market dynamics, so it will not see the same near-term pricing upside. (317 characters)

• Q: Is the recent strong cost and productivity progress just capturing low-hanging fruit, or is there sustained opportunity for additional efficiency gains beyond 2026? /

  A: Kevin Boone explained that all efficiency gains require ongoing work, not just capturing easy savings. The team started by reviewing and insourcing external contractor work, which has generated material savings with a robust pipeline of additional opportunities. Management is already far along in building the 2027 efficiency plan much earlier than in typical years, and is building organizational accountability, capabilities, and visibility to sustain continuous cost improvement across the business. (359 characters)

• Q: How do you explain the mixed service metrics (higher dwell, weaker trip plan performance) alongside strong safety and productivity results, and is this pressuring pricing or renewals? /

  A: Mike Corey noted that the mixed metrics came from much stronger than expected volume growth on top of a 6% lower year-over-year headcount, paired with seasonal summer crew availability tightness. It is not a structural service issue, and the company still delivered improved safety and productivity (5% higher average tonnage per merchandise train). CSX will add only very modest headcount to add capacity without eroding prior productivity gains, and expects sequential service metric improvement, with no material impact on pricing to date. (396 characters)

• Q: With the Howard Street Tunnel open and truck market tighter, how much intermodal growth capacity does CSX have, and how is it balancing growth and pricing? /

  A: Mary Claire Kenney stated that there is large long-term opportunity for intermodal conversion from truck to rail, and recent infrastructure investments (including Howard Street Tunnel and the SMX partnership with CPKC) have allowed CSX to capitalize quickly on new opportunities. Growth has accelerated week-over-week in both new initiatives, adding a couple of percentage points to domestic intermodal growth recently. There is existing available capacity on current intermodal trains to bring on new business quickly while maintaining service reliability. (368 characters)

• Q: What is your view on incremental operating margins from the new volume you are adding today? /

  A: Kevin Boone noted that incremental margins from new volume were very strong in Q2 2026, evidenced by a 2% decline in non-fuel expenses alongside double-digit revenue growth. CSX's business model has high fixed costs, so profitable volume growth generates strong incremental margins, and this dynamic held in Q2. The team maintains a strict focus on only adding volume that delivers strong returns on invested capital, consistent with CSX's strategic priority on profitable growth over market share. (312 characters)