CSX CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Service Commitment: Committed to leading with service, but Q1 performance fell short due to winter weather and infrastructure projects; team aligned to stabilize operations, improve efficiency, and enhance coordination.
• Safety Results: FRA injury rate and train accident rate continued to decline sequentially and year over year due to education and mentorship programs.
• Network Fluidity: Velocity and dwell affected by winter weather and infrastructure projects; intermodal trip plan compliance rebounded but carload TPC negatively impacted; focus on speeding operations and rebuilding momentum.
• Customer Metrics: Intermodal trip plan compliance rebounded, but carload TPC and CSD measures need improvement; focus on improving fluidity and customer service.
• Costs and Expenses: Total expense increased 2% with $45 million related to network disruptions; labor and fringe up due to inflation; purchase services and other expense up; depreciation up; fuel cost down; equipment and rents up.
• Capital Investments: Q1 property additions higher, including spending on Blue Ridge subdivision rebuild; full-year expectations unchanged with Blue Ridge rebuild expected to exceed $400 million before insurance recoveries.

Segment Performance

• Merchandise Business: First quarter revenue and volume both declined 2%; RPU increased 1% year over year. Fertilizer volume up 2% but revenue flat; ag and food demand strong but operational challenges limited shipments; minerals volume down 1% due to weather; cement volume favorable with revenue up 4%; chemicals revenue up 1% with volume down 1%; forest products volume down 4%; metals and equipment volume down 7% with automotive production slow.
• Coal Business: Revenue declined 27% on 9% lower volume; RPU down 20% year over year and 4% sequentially; export tonnage down 12% due to mine outages; domestic tonnage down 4% with utility demand supported by natural gas prices and positive signals from customers; Australian benchmark coal price averaged $185 per ton in Q1.
• Intermodal Business: Revenue down 3% despite 2% volume increase; RPU down 5% with 3% impact from lower fuel surcharge and remainder from stronger international shipments; volume growth driven by international activity with container import flows positive, domestic effectively flat.

Guidance

• Expect overall volume growth for 2025, but near-term trade and tariff policies uncertain; Q1 expected to be a profitability trough; sequential improvement expected as network fluidity improves and efficiency drives; capex forecast unchanged; commitment to returning cash to shareholders.

Risks

• Challenges from winter weather, infrastructure projects (Howard Street Tunnel and Blue Ridge subdivision rebuild), and flooding affecting network fluidity; potential impact of macro uncertainty, trade policy shifts, and weather on operations and revenues.

Question and Answer

Q: Tom Wadewitz asked about attributing operational challenges and timeline for improvement.

A: Mike Cory discussed compounding events, working with customers, adding locomotives, and temporary adjustments to capital programs.

Q: Brandon Oglenski followed up on margin recovery.

A: Sean Pelkey mentioned Q2 expected to be better than Q1, with revenue opportunities and cost savings from improved operations.

Q: John Chappell asked about incremental costs.

A: Sean Pelkey discussed commodity price headwinds and cost components related to reroute and weather.

Q: Ari Rosa asked about lost contracts and tariff impact.

A: Kevin Boone and Joseph R. Hinrichs discussed no lost contracts, focus on customer service, and tariff-related market changes.

Q: Brian Ossenbeck asked about revenue opportunity and EBIT guidance.

A: Kevin Boone and Sean Pelkey discussed revenue recovery and EBIT guidance considering volume and market uncertainty.

Q: Christian Wetherbee asked about profit growth and intermodal acceleration.

A: Sean Pelkey and Kevin Boone discussed profit growth in back half and intermodal acceleration related to tariffs.

Q: Ken Hoexter asked about volume and on-time arrivals.

A: Mike Cory and Joseph R. Hinrichs discussed volume sectors and on-time arrival metrics.

Q: Jordan Alliger asked about industrial development and intermodal upside.

A: Kevin Boone discussed industrial development projects and intermodal partner alignments.

Q: Ravi Shanker asked about coal contracts and other revenues.

A: Kevin Boone and Sean Pelkey discussed coal contract floors and other revenue run rate.

Q: Daniel Imbro asked about headcount and cost inflation.

A: Sean Pelkey discussed headcount stability and comp per head inflation.

Q: Erika Harnain asked about revenue opportunity and net promoter scores.

A: Kevin Boone discussed revenue opportunity math and net promoter score trust.

Q: Walter Spracklin asked about international intermodal partner alignments.

A: Kevin Boone discussed international intermodal positioning and growth opportunities.

Q: David Vernon asked about service resiliency.

A: Mike Cory discussed gradual process to restore service levels.

Q: Bascome Majors asked about judging strategy outcomes.

A: Joseph R. Hinrichs discussed three-year plan and commitment to delivering on strategy.

Q: Jeff Kauffman asked about tariff-related business.

A: Kevin Boone discussed international intermodal and East Coast advantages.

Q: Scott Group asked about China exposure.

A: Kevin Boone discussed limited China exposure in volumes and revenues.