CSX Corporation Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Leadership and Strategy: Renewed the leadership team to drive value, focusing on fiscal responsibility and disciplined execution.
• Safety and Operations: Improved safety performance with declines in FRA injury and accident rates. Strong year-end fluidity and customer service metrics, including improvements in velocity, CarsOnline, Dwell, and Tripland compliance.
• Financial Results: Fourth quarter volume increased 1% but revenue decreased 1% due to coal pricing headwinds. Operating income and EPS fell significantly, with $50 million in charges for workforce optimization and technology impairments. Expenses rose $73 million excluding goodwill impairment, with $50 million in charges for separation costs and technology impairments. Headcount decreased over 3%, and overtime was under focus for cost management.
• 2026 Outlook: Focus on cost efficiency, capital discipline, and free cash flow. Expect low single-digit revenue growth, 200-300 basis points operating margin expansion from workforce optimization and cost management, CapEx below $2.4 billion, and free cash flow growth of at least 50% compared to 2025.

Segment Performance

• Coal: Volume increased 1% year over year. Domestic tonnage rose 6% due to higher power demand, while export tonnage declined 3% due to a derailment and met coal pricing decline. Revenue for coal decreased 5% with a 6% drop in revenue per unit (RPU).
• Intermodal: Revenue grew 7% year over year with a 5% increase in volume, driven by new business and faster transit times.
• Merchandise: Volume and revenue both decreased 2% due to market headwinds in chemicals, forest products, and automotive. However, minerals and fertilizers saw growth.
• Automotive: Volume declined 5% year over year due to supply constraints in chips and metals.
• Fertilizers: Volume increased 7% on improved phosphate rock production and business wins in the nitrogen market.
• Minerals: Volume remained supported by demand for aggregates and cement from infrastructure projects.

Guidance

• Anticipate low single-digit revenue growth in 2026 based on flat industrial production and modest GDP growth.
• Expect operating margin expansion of 200-300 basis points from workforce optimization, tighter discretionary expense management, and a stable fluid railroad.
• Plan CapEx below $2.4 billion, a reduction from 2025, with focus on infrastructure safety and growth projects.
• Project free cash flow to grow by at least 50% compared to 2025 due to higher earnings, normalized cash tax rate, and lower capital outlays.

Risks

• Macro Environment: Uncertainty in key markets affecting revenue growth.
• Weather Events: Potential impact of storms on network operations and service levels.
• Industry Merger: Risks associated with the ongoing industry merger review and its potential impact on operations.
• Business Mix: Challenges from mixed business performance and pricing headwinds in certain segments.

Q: On the OR improvement, can you tell us what the base OR is in 2025?

A: The starting point for 2025 is excluding the goodwill charge.

Q: How do you think about pricing and price cost spread?

A: Mary Claire is working on pricing structures, with progress seen, but contracts roll off over time, and price yield expected to improve in 2026 compared to 2025.

Q: Can you give qualification on the 200-300 basis point OR improvement guidance?

A: Unique charges in 2025 are about $150 million, with productivity initiatives driving margin expansion, and inflation expected in the 3-3.5% range.

Q: How are you preparing for the upcoming storm?

A: Senior coverage, modified operating plans, and preparations for snow and tree clearing, with confidence in handling the storm better than previous years.

Q: How are you positioning the company in the wake of the industry merger?

A: Focus on running the business well daily, managing risks, and being prepared to make the case if the merger is approved.