CSX Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Safety: FRA personal injury frequency rate ticked up slightly, but moderate and severe injuries were reduced, and human factor accidents were down 16% year to date due to SafeCSX program, better training, and smarter tools.
• Operational Performance: Fastest quarter for train velocity since early 2021, TPC improved (Intermodal TPC rose to 93% from 90%, carload TPC climbed to 83% from 75%), and asset utilization improved with reduced train miles and optimized horsepower utilization.
• Infrastructure Projects: Howard Street Tunnel and Blue Ridge subdivision projects were completed slightly ahead of schedule, providing full network access and greater capacity and resiliency.
• Market Conditions: Business conditions were mixed with customers facing uncertainty from shifting trade policies, weak global commodity prices, unsupportive interest rates, and a soft trucking market.

Segment Performance

• Merchandise Revenue: Revenue and volume were down 1%. Minerals volume and revenue were up 812%, fertilizer volume rebounded 7%, metals and equipment volume up 5%, while forest product and chemical markets were down 7%, and ag and food volume was down 7%.
• Coal Business: Coal revenue declined 11% for the quarter with 3% lower total volume. All in coal RPU declined 9%. Export tonnage was down 11% due to mine fires, but domestic coal had steady trends and utility coal tonnage was up 22% year over year.
• Intermodal: Third quarter revenue was up 4% with a 5% increase in volume. International business benefited from strong growth, and domestic volumes grew modestly year over year.

Guidance

• Expect full year volume growth. Fourth quarter results are expected to reflect strong operational execution and cost control. CapEx guidance of $2.5 billion excluding the Blue Ridge remains unchanged.

Risks

• Market uncertainty, including shifting trade policies, weak global commodity prices, and unsupportive interest rates.
• Persistently soft trucking market which impacts rail competition.
• Potential impacts from industry consolidation and associated risks and opportunities.

Question and Answer

Q: Brian Ossenbeck from JPMorgan asked about CSX's position versus peers regarding TransCon merger.

A: Steve Angel responded that one should run the franchise to the best of ability to build value and be ready for strategic opportunities when conditions are right.

Q: Stephanie Moore from Jefferies inquired about how CSX is positioning to capitalize on completed infrastructure projects and industry strategic changes.

A: Sean R. Pelkey mentioned the Blue Ridge project set the company up well for next year with a well-run network and building cost momentum, and discussed mitigating risks and taking advantage of opportunities in the industry.

Q: Chris Wetherbee from Wells Fargo asked about CSX being well positioned to take advantage of customer response to industry consolidation.

A: Steve Angel stated that running the business well positions CSX well from a customer service standpoint and they are working on opportunities to take trucks off the road and increase rail volume.

Q: Ken Hoexter from Bank of America asked about what CSX sees needing change and how to improve.

A: Steve Angel mentioned building a high performance culture starting with stability and working on profitability levers like efficiency, productivity, price yield, and volume.

Q: Ariel Rosa from Citigroup asked about doing things differently and opportunity in double stack capacity.

A: Kevin S. Boone talked about capitalizing on double stack capacity for market access into the Northeast and his focus on driving best in class performance, building a high performance culture, developing talent, and capitalizing on strategic opportunities.

Q: Jonathan Chappell from Evercore asked about exit rate of major cost line items.

A: Sean R. Pelkey discussed sequential benefits from Q3 to Q4 with certain costs and normalizations in other items.

Q: Scott Group from Wolfe Research asked about vision to get back to best in class.

A: Steve Angel mentioned working on price yield, volume growth, and continuous improvement within the railroad system to leverage cost structure and improve margins.

Q: Brandon Oglenski from Barclays asked about converting highway to rail opportunity.

A: Steve Angel was optimistic about cooperation with other railroads to take truck volume off the highway and saw positive signs in intermodal numbers.

Q: Tom Wadewitz from UBS asked about markets and near term optimism.

A: Kevin S. Boone talked about mixed markets, some positive momentum in certain areas, and controlling what can be controlled while hoping for better performance in markets in 2026.

Q: Ravi Shanker from Morgan Stanley asked about M&A opportunities and rail sourcing.

A: Kevin S. Boone discussed ongoing strategic work and that some opportunities have materialized as the industry progresses.

Q: Richa Harnain from Deutsche Bank asked about growth projections and customer thoughts on Howard Street Tunnel product.

A: Kevin S. Boone said they are on track with Howard Street Tunnel benefits and working with customers on conversion opportunities.

Q: Jason Sadeel from TD Cowen asked about marketing agreement with BNSF and coal positivity.

A: Kevin S. Boone talked about coal positivity due to political and regulatory environment changes and data center demand, and intermodal work with partners.

Q: Jordan Alliger from Goldman Sachs asked about customer thoughts on competitive standpoint.

A: Steve Angel responded that since he has been there, there has not been that kind of discussion yet.

Q: Jeffrey Kaufman from Vertical Research asked about cash priorities for 2026.

A: Sean R. Pelkey said they are working on 2026 plans, focusing capital on safety and reliability, and continuing strategic and opportunistic use of cash flow for shareholder returns.

Q: David Vernon from Bernstein asked about view on end to end railroad mergers.

A: Steve Angel stated that the focus is on performing well as a standalone and pursuing opportunities if economics are favorable, with a rigorous approval process to consider.