CSX Corporation Q2 FY2025 earnings call

• Network Performance: Recovery from Q1 challenges, with velocity, dwell, trip plan compliance improving. - Cost Performance: Improved cost performance, sequential margin expansion. - Projects: Howard Street Tunnel and Blue Ridge rebuild projects expected to complete in Q4, removing constraints. - Customer Focus: Mixed market conditions, but CSX driving initiatives despite market slowdowns. - Operational Improvements: Safety focus, yard inspection drones, wayside car health monitoring, and human factor derailments decreasing.

Total volume was flat compared to last year, with a 4% sequential increase driven by merchandise and improvement in total coal shipments. Total revenue was $3.6 billion, down 3% y-o-y (largely due to lower coal and fuel prices) but up 4% q-o-q. Operating margin declined 320bps y-o-y but increased 550bps q-o-q. Product segments: Merchandise: revenue and volume down 2%, RPU flat. Metals: volume up 3%, revenue down 3%. Minerals: revenue up 5% due to infrastructure demand. Ag and Food: volume up 2%, partially offset by softer food demand. Automotive: volume down 2%. Forest Products: impacted by housing market and plant outages. Chemical: volume down due to export plastics and chlor-alkali. Fertilizer: volume down 6%, but revenue flat due to pricing. Coal: revenue down 15% on 1% higher volume, RPU down 16% y-o-y. Intermodal: revenue down 3% on 2% volume increase, RPU impacted by diesel and mix.

• Overall volume growth expected for the year. - Second half cash flow meaningfully stronger than first half, supported by bonus depreciation. - Expectations for service metrics to improve further with project completions. - Continued focus on efficiency and cost discipline.

• Uncertainty in end markets (autos, housing, tariffs, interest rates). - Impact of commodity price fluctuations, especially in coal and diesel. - Weather and operational disruptions affecting network performance. - Dependence on successful completion of infrastructure projects.

Q: Thoughts on rail consolidation and shipper benefits?

A: Joe Hinrichs discussed customer service and ease of doing business as priorities, open to consolidation discussions for better service.

Q: Service recovery drivers and sustainability?

A: Mike Cory mentioned weather improvement, proactive steps like car management, yard coverage, locomotive addition, and pipeline management; sustainability tied to project completions.

Q: Guidance and volume acceleration?

A: Kevin Boone noted some outages in Q2 are resolving, expecting volume improvement as markets stabilize; Sean Pelkey discussed margin considerations with wage increases and charges.

Q: Management reorganization rationale?

A: Joe Hinrichs explained restructuring to achieve 5% efficiency, reprioritizing resources for cost discipline.

Q: Cost run rate and coal outlook?

A: Sean Pelkey discussed cost improvements from May/June, Kevin Boone highlighted positive trends in domestic coal due to plant extensions and mine restarts.

Q: Trip plan compliance and STB appointment?

A: Michael Cory expected trip plan compliance to improve; Joe Hinrichs mentioned good progress in July and expected more with project completions, no comment on STB appointment.

Q: Cost of inconvenience and future savings?

A: Sean Pelkey explained $10M/month reroute costs, expecting savings as projects complete.

Q: Pricing prospects and CPKC partnership?

A: Kevin Boone focused on service value and truck market bottoming, excited about CPKC partnership and truck conversions.