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F500-2021-292-CSX

Seen on railroads everywhere, the transportation company operates over 21,000 miles of railroad tracks, but also operates in the real estate industry as well.

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With some 21,000 route miles of track in 23 states, the Jacksonville, Fla. freight railroad serves customers in 23 eastern U.S. states and Ontario and Quebec provinces in Canada.

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CSX Corporation is an American transportation company focused on railroad and trucking services. The company offers rail-to-truck transfers and bulk commodity operations. It also transports a wide range of materials including chemicals, food products, minerals, automotives, and coal.

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CSX (CSX): Company Profile, Stock Price, News, Rankings

legacy

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. Matthew, you may begin.

Thank you, Krista. Hello, and good afternoon, everyone. We're very pleased to have you join our first quarter conference call. Joining me from the leadership team are Joe Hendricks, President and Chief Executive Officer Mike Cory, EVP and Chief Operating Officer Kevin Boone, EVP and Chief Commercial Officer and Sean Pelkey, EVP and Chief Financial Officer. In the presentation accompanying this call, which is available on our website, you will find slides with our forward looking disclosures and our non GAAP disclosures for your review.

With that, it's now my pleasure to introduce Mr. Joe Hendricks.

Alright. Thank you, Matthew. And hello, everyone. Thank you for joining our first quarter call. Since I came to CSX, we have been clear about our commitment to lead with service.

Consistent, reliable, excellent service is what shareholder that strengthens our relationship with customers, expands our markets, and ultimately drives proper growth. Now I prefer that commitment this quarter. The start of the year typically brings operational challenges that we manage the network through the worst of winter weather. We believe that these challenges will be more difficult this year because of the constraints associated with our two major infrastructure projects, the Howard Street Tunnel and the Blue Ridge subdivision rebuild. Unfortunately, our performance fell short of our expectations.

As a result, we left good business on the table, introduced our revenues and our inefficiencies met, we incurred more expense. We take full accountability for our performance this quarter and we are not standing still. The team is aligned. Our expectations are clear, and we are taking actions to stabilize our operations, improve efficiency, and enhance coordination across the entire One CSX team. All that said, I want to re reiterate the underlying strengths of our business.

This is still the same great network and one CSX team. Our customer relationships are strong, and the fundamentals of our strategy are sound. I wanna thank our employees for their resilience and our investors for their continued support as we move forward with urgency and clarity. Now let's go over some highlights. Let's start with slide one where we feature some of the key results from our first quarter.

Total volume decreased 1% compared to last year, but we did see intermodal volumes increased 2% on the quarter as we saw an uptick in port traffic. Total revenue was $3,400,000,000 for the quarter, down 7% from the same period last year. As we anticipated, much of this decline was due to the commodity effects of lower benchmark coal prices and reduced fuel surcharge. Earnings per share decreased by 24%, reflecting the effects of our margin from reduced revenues and our challenged network performance. We know that trust is earned through consistency.

One quarter doesn't define us. What defines us is how we respond, how we learn, and how we come back stronger. That is our focus. We're committed to delivering better results and most importantly, to executing in the quarters ahead. Now I will turn the call over to Mike to provide details around our operational performance.

Thank you, Joe, and thanks to all of you for taking the time to participate today. As Joe highlighted in his opening remarks, this was a difficult quarter for the CSX network and the team. We've talked about how we have two major infrastructure rebuilds in progress that are causing us to reorganize and reroute a significant amount of our daily traffic. As a result, we were hit by severe weather and faced other tough railroading challenges. It has become more complicated for us to recover and it's just taking us longer to stabilize our operations.

These effects are clear in our service metrics as all of you have noticed. Let me say this as firmly as I can. Improving the fluidity of the network is essential in order to deliver on our promises to our customers, and we are committed to getting this done. We expect our performance to improve from first quarter even as we manage the ongoing infrastructure projects. I'll talk more in a moment about what steps we're taking, but let's first discuss safety results for the quarter.

The first quarter saw a third straight sequential decline in our FRA injury rate, which also brought us lower on a year over year basis. The continued education and mentorship programs that we've put in place are having a measurable effect, helping our employees understand how to reduce their risk exposure every day that they're on the job. I'm pleased that our FRA train accident rate also declined sequentially and improved year over year. Our team sees this as an encouraging affirmation that our SafeCSX program is taking hold and driving positive results. We will continue our work to build a safety focused culture here at CSX, always with the goal of everyone returning home safe and sound after every day.

Let's move to the next slide. At the top of this page, you'll see metrics reflecting our network fluidity. After working through the storms in the second half of twenty twenty four, our velocity was affected early in the first quarter of twenty twenty five after closing the Baltimore Tunnel, and it continued to be challenged as we managed through the after effects of harsh winter weather. Dwell demonstrated a similar unfavorable trend over the last several weeks as yard congestion persisted, making it difficult for trains to depart on schedule. We're working hard to address the increase in cars online as having excess inventory has slowed the network.

With particular flooding on our Southwest and Midwest regions, Nashville and Cincinnati in particular, we have much to do in this regard. The charts on the bottom show important customer facing metrics. Our intermodal business is highly service sensitive. We have to get this right to stay competitive in this market. As this chart shows, our intermodal trip plan compliance rebounded nicely in the first quarter after the hurricane related disruptions that hit last fall.

The team has worked hard to keep our terminals fluid and minimize the amount of time dray drayage drivers are waiting to drop off or pick up boxes. We're encouraged by this result, but we didn't do nearly as well with carload TPC, which was negatively impacted from the quarter's fluidity constraints. This is a primary area of attention for the team. We have to deliver here in order to support our current merchandise business and the substantial amount of new business that Kevin and his team have won and expect to win going forward. Finally, our CSD or first mile last mile measure shows fairly steady performance, but we know that for our customers, every percentage point represents important freight that they've entrusted to CSX.

So we understand where we are, and we are certainly committed to getting back to where we need to be. Top to bottom, our team is focused on speeding our operations back up and rebuilding the positive momentum that comes from a fluid, balanced network. We know we're not going to get back to our true potential until we get these major projects completed, but we are doing the hard work to drive incremental improvement step by step as we go through the year. One of the first things we're doing is to get the resources in place that will enable us to run a consistent operating plan even with the two major closures to work around. We're bringing online a modest number of locomotives to help get the network in balance and reduce train delay.

This is scheduled railroading. When trains leave on schedule, everything else is able to fall in place. We're also taking steps to drive our asset utilization. Our field leaders are connecting with our customers to identify and flush cars off our network. As cars accumulated, network fluidity declined, so we're working closely with our customers and taking immediate action to get these levels back to where they need to be.

Finally, we're making sure that everyone in this organization acts according to the priority that we at CSX place in delivering customer service. There's no single measure for the railroad that accounts for everything, but for years, TPC has served us as a very good guide to effective statistics. When we miss, we hold ourselves accountable, find a solution, and make it right with our customers. We have a lot of work to do, but remember this, we have the same people and the same assets that we had a year ago, and we take a lot of pride knowing how to apply the core principles of an effective scheduled railroad. On top of that, we're adding improved tools such as the real time operations portal system that we previewed at our Investor Day.

Hundreds of railroaders across the network use RTOP every day to strengthen communication and support faster, more effective decision making. The bottom line is that we're aligned across the team, and we're gonna deliver for our customers and our shareholders. With that, I'll turn it over to you, Kevin.

Alright. Thank you, Mike. Right now, CSX and our customers are navigating elevated levels of macro uncertainty. Clearly, there's an added market volatility and global trade policy is shifting day to day. We're staying close to our customers to understand the changing landscape, partnering to ensure supply chains remain resilient and efficient, as well as looking for opportunities to grow together, including investments in US manufacturing.

Year to date, end market demand has remained relatively stable. While some areas are clearly stronger than others, we have not seen any major negative inflections. That said, we are unsatisfied. The disruptions we faced across the network resulted in missed opportunities in some of our key end markets. As you've heard, our entire team is 100% engaged, and we have confidence that we will show improvement as the year progresses.

As an example of our commitment, I want to quickly highlight the CSX's TDSI automotive terminal team, set a record with four terminals winning the auto industry's premier awards for origin and destination operations as recognized by the AAR. We are incredibly proud of our TDSI team and how they represent service excellence here at CSX. Now let's turn to the slides. Starting with our merchandise business as shown on slide six, in total for the first quarter both revenue and volume declined 2%. RPU increased 1% year over year as higher core pricing gains offset lower fuel surcharge and the effects of negative mix.

Looking across the different end markets, fertilizer volume was up 2% compared to last year benefiting from modest improvement in short haul Bone Valley shipments, but revenue was flat as RPU was affected by this mix shift. Market demand was strong for Ag and Food, but operational challenges limited our ability to meet this demand reducing our shipments compared to the market opportunity. Minerals volume was lower by 1% as weather impacted aggregate shipments, but underlying construction activity remained robust. Cement volume was favorable over the quarter supported by the ramp up of new production which contributed to favorable RPU mix and helped lift revenues by 4% for the quarter. Chemicals revenue was up 1% against a 1% decline in volume.

We saw positive demand in plastics and energy related areas such as propane and LPGs, but cold weather had an impact on asphalt shipments. Forest Products volume declined 4% reflecting an uncertain building products environment when considering interest rates and changing trading policies. Sales and equipment continued to be sluggish with volume down 7% for the quarter. Automotive production was slow to start the year and though we saw improvements in March, volume and revenue declined 78% respectively. As we look to the second quarter and the rest of the year, we're closely watching the daily changes in trade and tariff policy.

As I said before, based on what we observed from our merchandise customers now, demand across merchandise is relatively steady. There are even some encouraging recent signs with a good seasonal pickup in aggregates, strong end market demand in some of our ag markets and some early favorable effects from tariffs as steel prices have improved. If markets hold, we see opportunities to capitalize on improved network performance, allowing us to capture and fulfill more of the demand in some of our key markets. Now let's turn to Slide seven to go over the coal business. Coal revenue declined 27% on 9% lower volume as the team navigated lower export prices, producer issues and operational challenges in the quarter.

All in coal RPU declined 20% year over year and fell 4% sequentially slightly more than the 3% decline that we anticipated last quarter. We saw year over year declines in both our export and domestic businesses. Export tonnage declined by 12% partially driven by the impacts of two significant temporary mine outages. While domestic tonnage was lower by 4%, we did see positive demand trends through the quarter. Utility demand has been supported by higher natural gas prices and we see positive signals from some of our key customers for increased demand into the summer and beyond.

Domestic shipments to steel mills were also down year over year reflecting soft conditions in the metals market start the year. For pricing, the Australian benchmark averaged $185 per ton over the first quarter and currently sits around that level. On a lag basis, this would be a modest headwind to RPU in the second quarter, although we could see a slight positive yield offset if we're able to increase our deliveries to the southern utility customers. Turning to Slide eight to review the intermodal business. In this quarter revenue was down 3% despite a 2% increase in volume.

RPU was lower by 5% with a 3% impact due to lower fuel surcharge and the remainder largely due to stronger international shipments. The volume growth for the quarter was driven by international activity as we saw positive trends in container import flows sourced from our global partners. While some of this may have been due to a moderate pull forward ahead of anticipated tariffs, we do not see any real step change in the trend line until we approach the March. Domestic was effectively flat with grain in our rail asset shipments and new initiatives offsetting mixed results among some of our other channel partners. Again, we're encouraged by what we've seen over the quarter, but visibility is low into the rest of the year.

The trucking market has not inflected, but does not seem to be past the bottom, which is moderately favorable for the intermodal overall. Finally, let's turn to Slide nine for an update on industrial development at CSX. It's been very encouraging to see how our overall program has continued to progress. As you've heard us say at recent conferences, inbound calls to our team remain at very high levels. And our total pipeline of projects continues to grow, reaching nearly 600 by quarter end.

Even better, one quarter of these projects are already under contract or nearing the final site selection. Activity within this pipeline continues to move forward with 24 new facilities going live on our network over the first quarter. These new plans and expansions will ramp up over the next few years contributing to our positive outlook on growth. We expect to keep this momentum up through the rest of the year with up to 50 additional facilities scheduled to start service over the next nine months. We remain confident that as the program continues to mature and accelerate we are on track towards realizing the volume growth path we outlined at the November Investor Day.

We remain very excited about this unique growth opportunity and we'll continue our efforts to attract more and more customers who will benefit from growing their business on the CSX network. With that, let me turn it over to Sean.

Thank you, Kevin, and good afternoon. Looking at first quarter results, revenue fell by 7% or $258,000,000 from a 1% drop in volume as well as lower export coal benchmark prices, lower fuel recovery and declines in other revenue and trucking. Expenses increased by 2% and I'll discuss the line item details on the next slide. Interest and other expense was $14,000,000 higher compared to the prior year and we expect this amount to step up slightly following our debt issuance in March. Income tax expense fell by $76,000,000 on lower pretax earnings.

As a result, earnings per share decreased by $0.11 Declines in export coal benchmarks and net fuel prices drove a $04 headwind to EPS. We expect a similar commodity price headwind in the second quarter, which should ease throughout the back half of the year. Going into the year, we knew that Q1 would represent an earnings trough, both on a year over year and an absolute basis. Then difficult operating conditions faced during the quarter led us to miss our own expectations for both revenue and expense. Despite new challenges from storms and flooding early in the second quarter, our team of railroaders is working tirelessly to clear congestion and deliver the service product our customers deserve, which will drive revenue and expense benefits moving through the year.

Let's now turn to the next slide and take a closer look at expense. Total first quarter expense increased by 2% or $38,000,000 This includes around $45,000,000 of additional costs related to network disruptions, congestion and severe winter weather. These headwinds, plus the impact of inflation, were partly offset by savings from lower fuel prices. Turning to the individual line items, labor and fringe was up $16,000,000 primarily due to inflation. Headcount has remained stable over the last year, and we expect it to be about flat through the year.

Purchased services and other expense increased by $54,000,000 About half of this increase was tied to network disruptions and weather, with inflation and other items driving the remainder. Depreciation was up $15,000,000 due to a larger asset base. Fuel cost decreased $50,000,000 driven by a lower gallon price and savings from efficiency and lower volume. Gallons per GTM has now improved on a year over year basis for five consecutive quarters, driving over $50,000,000 in cumulative savings over that period. Finally, equipment and rents increased by $3,000,000 Now turning to cash flow and distributions on Slide 13.

Investing for the safety, reliability and long term growth of our railroad continues to be our first priority use of capital. Q1 property additions were higher, including $133,000,000 of spending towards the rebuild project on our Blue Ridge subdivision. For the full year, our expectations are unchanged with non Blue Ridge spending roughly flat to 2024 and the total Blue Ridge rebuild expected to exceed $400,000,000 before insurance recoveries. Free cash flow was stable in the first quarter as lower earnings were offset by cycling a previously postponed tax payment in the prior year. Now as a reminder, cash outflows in the second quarter will include a roughly $425,000,000 tax payment that was postponed from 2024 due to hurricane related tax relief.

After fully funding capital investments, we are committed to returning cash to shareholders, including nearly $1,000,000,000 in the first quarter. Our approach will remain balanced and opportunistic, factoring in an attractive current share valuation while closely monitoring shifts in demand for our services and the broader economic climate. With that, let me turn it back to Joe for his closing remarks.

Okay. Thank you, Sean. Now we will conclude our remarks by walking through our updated guidance for the full year 2025. First, we continue to expect overall volume growth for the full year. As Kevin said, demand remains fairly stable.

But the near term effects of rapidly changing trade and tariff policies are uncertain, which makes it difficult to project a reasonable range. That said, we remain very well positioned to facilitate and benefit from the continued long term trend toward expansion of U. S. Manufacturing capacity. As we have called out in the past, our revenue will reflect the challenges of lower commodity prices and changes in mix.

So the year over year impact of lower export coal benchmark should be smaller than what we reported in the first quarter. As Sean highlighted, we expect first quarter to a trough for our probability for this year as we improve the fluidity of our network as we continue to drive a greater efficiency, and we deliver labor productivity, we should see sequential improvement. Our CapEx forecast is unchanged as you heard from Sean. And as you've seen this past quarter, a balanced opportunistic approach to capital returns also remains in place. To conclude, while this core did not meet our expectations, I appreciate the commitment, focus, and the efforts of our entire OneCSX team.

That said, we recognize that the effort must translate into better outcomes, and that is where our attention is right now. We're fully committed to running a safer, faster, and more reliable railroad, and we know that doing so consistently is the path delivering the long term profitable growth we expect to ourselves. Thanks for all of your interest in our company. Matthew, we're ready to take questions.

Thank you, Joe. We'll now proceed to the question and answer session. We have to make sure that everyone has the opportunity to participate in the time that we have. We ask you to please limit yourselves to one and only one question.

first question comes from the line of Tom Wadewitz with UBS. Please go ahead.

Yes, good afternoon. Wanted to see if you could, I guess, don't know, break down into maybe high level, but kind of buckets of the operational challenges. You obviously making the strategic move with Howard Street Tunnel and the investment there and that's in effect. Is that half of the challenge on the operating side or how do you view that? Was that a greater impact?

And then you talked about weather, I don't know how big that is. I guess the other piece would seem to be, I don't know if there's some that's from like kind of longer train strategy that maybe there's noise related to that or maybe just not as good an execution. But just wanted to see if you could kind of attribute a little bit more and then also give a sense of how quickly maybe you can see improvement in the operating performance? Thank you.

Thank you for the question Tom. Look. Got no excuses for where we are. What we're dealing with are the results of significant compounding events, basically, that have built over several months, you know, right up to last week's flooding and line closure of one of our most critical lines. So what we're doing is really focusing on a series of things, and it's, first of all, reducing the cars online.

And that's what's accumulated through all these these events. And there was, like, six of them, and they're every month coming up to this point. We're working really close with our customers to identify, first of all, the excess cars in our serving yards and our active inventory, and then we're working with them where we can to provide extra service to work these cars off. And then also providing enough service so they understand and and can reduce their pipelines to help us create the fluid that we need. Lastly, you know, we we always have embargoes as an option, but that's not really our preferred, preferred move.

The next thing is we're adding locomotives into areas that we know were congested, we need that ability to be flexible to be able to move, you know, the traffic that we have. And we're also placing additional mechanical folks out in the field to to reduce the amount of time to cycle back locomotives that go to major shops. In terms of our crews, we're transferring employees from other jurisdictions as they become available into these affected terminals. We're temporarily adjusting our planned capital track and structures program to reduce activity in those affected areas. That'll allow us again to provide more flexibility or more capacity.

And, you know, to get back, really, Tom, again, I just have no excuse as to where we are other than a buildup of of a series of significant events that really took away the capacity that we had planned once we took down the Howard Street Tunnel. If you remember, it's about seventeen, eighteen trains each way prior to that with the Blue Ridge gone. And we've been affected severely in our other two westernmost routes, and that's what we're working through. So it's not an effect of any plan we had in terms of long trains or anything else. This is just a series of events that we have got to work through, and that's what the team is absolutely committed to.

And we will improve through this quarter, and and our goal is to get to the summer where we see, you know, normal seasonality of some traffic tapering off, whether it's auto or ag, to allow us to fully reset ourselves into q three. But it's gonna take gonna take the time and definitely, it's gonna get the effort from everybody from me on down. Hope that answers you.

Your next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.

Hey, good afternoon, and thank you for taking the question. Mike, maybe if we can follow-up there. So it sounds like this is going to take maybe longer than a quarter to resolve and you might need to see lower levels of demand to push through here. But I guess thinking about this from a margin perspective and sorry, maybe the question is more for Sean. But normally, you see like a 400 basis point improvement from 1Q to 2Q operating ratio or operating margin, however you want to look at it.

Is that on the table here? Or with these additional resources maybe taking longer time to recover, is that kind of off the table at this point?

Brandon, thanks for the question. I think Q1 versus Q2, typically Q2 is always better, right? The magnitude each year is a little bit different depending on how challenging the winter was in Q1 and other factors that go through there. Our expectation is that, clearly, q two results are gonna be better than q one this year. You know, I I wanna clarify one thing, which is, you know, Mike talked about putting a couple of resources here and there.

We're really not adding costs. These are very small things that, at the end of the day, when we run more fluid, we actually save costs. It's cheaper. Right? And and not only that, you know, we wanted to make it clear that there's a revenue opportunity there as well.

There's demand that we weren't able to meet in q one that as operations begin to improve, we're gonna be able to go get those opportunities assuming that the demand environment remains stable. So those things will help. You know, I think the pace of margin improvement and operating income improvement from Q1 to Q2 will largely depend on that macro environment as well as the pace of improvement that you see in operations, which will translate to cost, but also, arguably more importantly, to the revenue side of the equation.

Your next question comes from the line of John Chappell with Evercore ISI. Please go ahead.

You. Sean, I'm to stick with that topic a little bit here. I mean, in Investor Day and in January, you laid out a bunch of, you know, one off specific items for this year. That 45,000,000 that you laid out in slide 12, is that all incremental to what you'd identified in January? And is that all ring fenced to one q so we know what an appropriate starting point is for two q?

Or I guess, is there some overrun? And, you know, Mike just mentioned another flooding situation last week. So just, again, trying to figure out how much of this is incremental to the already one off things and how we think about 2Q starting, you know, going forward.

Sure. Thanks, John. The, so the $350,000,000 the biggest part of that is the commodity price headwind of about $300,000,000 We still think that's a good number for the year. Met coal prices came down a little bit over the course of Q1, hopefully found a bottom here. But we'll see a big impact again year over year in Q2, probably pretty similar to what we saw in q one from the commodity price perspective.

When it comes to the cost side, that $45,000,000 that we called out, that includes the 10,000,000 a month that we expected due to reroute costs around both the Howard Street Tunnel and the Blue Ridge. You have to remember in the first quarter, we had two months of Howard Street reroute costs with that project beginning February 1. So call it 20 to $25,000,000 of reroute costs and then another 20 to $25,000,000 of, you know, weather, congestion, you know, lack of fluidity. That's the opportunity for us going from q one to q two. I don't think you're gonna see that whole 20 to 25,000,000 come out, particularly given some of the challenges we've had to start the quarter, but you'll see it improve as we continue on in the next couple of months.

And again, don't forget, I think there's a sizable revenue opportunity for us as well as things get fluid.

Your next question comes from the line of Ari Rosa with Citigroup. Please go ahead.

Great. Good afternoon. So you mentioned some of the lost customer contracts. I was just hoping maybe you could quantify that. And then either Joe or Kevin, if you could talk about kind of where customer conversations are on the tariff impact and kind of how you see customers positioning for kind of the policy uncertainty that we're kind of working through right now?

You know, I think that would be helpful. Thanks.

Yeah. I wanna clarify that. It is an important point. There's no lost contracts that we've seen. In fact, it's more about being able to lean into some of the growth opportunities that were out there for us to capture, and a lot of that was on our unit train side of our business.

So that's where it's concentrated, but there's other instances. And I I I would also, point out that we've done a you know, given the communication that we have with the operating team and the great job that Shannon, who runs our customer service group does, we really mitigated the the real the real issues at the at the customer sites and continue to, you know, prioritize where it really makes sense, those those shipments and making sure those things are getting delivered and we're not creating disruptions for our customers. But it was really about leaning into further growth opportunities. On the tariff side, you know, it changes every day. There's a lot of conversations.

Joe, myself, and I've been spending a lot of time with our customers. We've had a number of conferences and other events, and it's, you know, it's obviously a fluid situation. There's a lot of positives that can come out of this, and, clearly, there's there's some uncertainty on the consumer side and what that means for basic consumption in The US. But there's, you know, obviously, longer term, if you see more industrial production coming to The US, that's a very, very big positive for for you for for The US and and our network because we're well positioned to to capture a lot of that activity, given where we are in the Southeast and Midwest primarily. So, I think, you know, right now, we're trying to stay as close as we can in each one of these markets, trying to understand how the freight flows are gonna change.

Clearly, with these tariffs, they will change. I think you could see a lot of benefits from decoupling from China that could benefit the East Coast potentially, and we're watching that and making sure we're staying upfront of it both with our investments and how we're thinking about that and really working with our customers to position them so they can capture the markets as they change.

Yeah. Let me just add real quick. This is Joe. You know, I think last earnings call, we talked about we had, during the fourth quarter of last year, we had our highest ever net promoter score from our customers. And we were really proud of that because that happened during a very difficult time period during the hurricanes and and everything.

We still while it declined a little bit in the first quarter, we still have one of our highest scores ever and significantly up from the year before when we were running a lot better, frankly. So it's a testament to the work that's going into our customer service and the focus we have on communicating with customers, prioritizing where they tell us to prioritize, and making sure that they know what we know so that we can, you know, plan our business accordingly. So that's a major improvement that we've made as an organization over the last several years is that connectivity with the customer and that constant communication. So when things don't go as planned, we're still in touch, we're all making sure we adjust and they adjust as as appropriate. But we'll we'll continue to to, obviously, continue to prioritize that.

As Kevin mentioned, the biggest opportunity we left on the table was really on unit trains, really, coal in January and February. We got we had much better performance in coal in March, and then really the grain, throughout the quarter because we had so many issues through that Midwestern corridor that's been a lot of traffic has pushed over from the East given the the the shutdowns we have right now. But we'll get we'll get back on that as weather certainly cooperates better but also as our network gets better. Thanks.

Our next question comes from the line of Brian Ossenbeck with JPMorgan. Please go ahead.

Thanks. Good evening. So maybe just to clarify the revenue opportunities that is that still sitting there that you can go after again and just wasn't available picked up on service? Or did you potentially lose it and then just be kind of getting back to normal? So first clarification.

And then secondly, maybe Sean, if you can update us on the guidance you gave last quarter, which was the low end of the target mid single to high single digit EPS or I'm sorry, EBIT growth from the Investor Day for this year when you back out the sort of the normalization that you called out. So given everything that's happened just wanted to see if you could update us on that as well. Thanks.

Yeah. I'll start off on the, you know, some of that revenue, I think you could say it was perishable, but a lot of it is getting back up to the demand levels that the markets are seeing right now. And so that's an opportunity in the second quarter where we see strong demand in some of these specific markets that we're meeting that demand level and they're not having to use alternatives. So some of it was perishable, but there's a big opportunity in 2Q versus 1Q.

Brian, I would just add on the second part

second part of the question. You know, I think given what we did on the volume guide, you know, and the uncertainty that's out there, I think, you know, it's that bleeds over into sort of what we're thinking, when it comes to EBIT or operating income as well as margins. I think it's challenging to pin down exactly how things are gonna play out over the course of the year. The there's opportunities there for sure, as Kevin's outlined here and, you know, Mike's talked about in terms of, improving the fluidity of the network. Both of those things are important.

The demand environment is is important as well, and all of that will feed into how well we're able to do, on a full year basis. You know, that being said, when you look at what we what we're hit with this year, some of the things that relate to the outages we've got and the costs associated with that, but also, you know, what we were hit with here in the first quarter, it's all temporary impacts. Right? These are things that will cycle. And so as we exit, 2025 and think forward to the next couple of years, we still feel good about the guidance that we gave in November on the three year CAGRs down the line.

Your next question comes from the line of Christian Wetherbee with Wells Fargo. Please go ahead.

Yes. Hey, thanks. Good afternoon, guys. Sean, maybe a quick follow-up on that and then one for Kevin. I guess, to make sure I understand, think you guys talked about potentially growing profit in the back half of the year.

I guess when you think about that, is that something that is maybe a little bit harder to do with the sort of uncertain volume environment and maybe thinking about that separate from some of the costs that you're carrying from the service challenges that you're facing? And I guess just for Kevin, when you I think you said in the remarks earlier that maybe something on the intermodal side had changed a bit in early April. Just want to get a sense of what that was or if I heard that correctly.

Yes, Christian, we'll stay away from guidance quarterly or full year guidance. Of course, that being said, Joe outlined the commodity price headwinds that we're facing will ease as we go through the year, assuming that met coal prices remain stable, fuel prices remain relatively close to where they are right now. The comps get a little bit easier in the back half, and we also had the hurricane impacts from last year in the fourth quarter. So that makes year over year growth a little easier in the second half of the year, but a lot depends on what happens in the macro and, of course, the improvement in the operations.

Yeah. On the intermodal side, the point was we saw some acceleration in late March and kind of continuing in through this month. And we believe a portion of that's probably related to some pull forward related to the tariffs, so some strength in the international market that we're seeing currently.

Your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Hey, good afternoon. Joe, maybe just talking about that same thing that the big picture here on volume. You're talking positive volume growth and 1Q was mentioned to be trough. But I guess if we start thinking about that maybe a cliff of volumes, it seems like if China is down 20%, twenty five %, when you mentioned things like, hey, we can pick up some industrial activity, I presume that's longer term or are you suggesting that there are things near term that can kind of offset that? And then just a quick number question for Mike that the on time arrivals of 55% and origination of 68%, is that adjusted for the construction projects or is that just weather impacts?

I'm just trying to understand what normal would look like. Thanks.

Ken, no, that's regular schedules. That's not adjusted for any the outages. That's just the performance that we have right now and that we need to improve. Yeah.

I can. So I'll answer the rest of your part of your question.

have to remember and recognize that the industrial part of the economy has been in kind of a negative growth environment for better part of almost two years. And so there may be some opportunity as that if that starts to pick up. What we're seeing in real time is, our order orders coming from steel plants is going up. As you might imagine, there's a lot of discussion around increased steel production in The US given the tariffs that are happening. You know, you could see a scenario where, The US certainly, you expect to see a scenario where The US auto production picks up in The United States, maybe not North America in total, but in The US.

And that will drive, both steel and aluminum, but also other parts, but also, of course, finished vehicle deliveries. You can see that scenario playing out. Housing is still, as Kevin mentioned in his remarks, still down and, you know, I'm I'm not gonna be one to try and predict when that recovers. But you could start to see a little bit of movement certainly in the auto space, and that's we'll watch that one very carefully, especially for us in the East, you know, where a lot of The US plants are in our footprint. But but medium term, we're still bullish on industrial development projects that, you know, we continue to talk about.

And as Kevin mentioned, the first quarter was a lot of activity, even in increased level of activity for their team, which that's a good sign. And so that's gonna continue. We talked about it's already, you know, 20 some coming online in the first quarter and more coming online this year. So, you know, we're watching to see what happens on the industrial part of the economy that could be helpful. But but to reiterate, coal demand volume wise is still there.

I mean, certainly met coal prices have come down, but export volumes, we've had some mild outages which affected us a little bit, but there's still some increased activity now on the domestic utility side. So coal volume's still there. It grows a very strong grain harvest, especially, you know, a lot of grain needed to move to the Southeast. So the grain volume has continued to be strong. Aggregates, we expect to continue to be strong.

Minerals should you know, and minerals should be should be okay with all the construction projects and everything going on. So we go sector by sector. Obviously, there's some weakness in some areas. We watch chemicals very closely because our largest sector and that one was kind of, you know, kind of flat year over year in the first quarter. But you can see that one hopefully holding firm, and then you've got these other areas where you can see some growth.

So in the medium term, we can see in the near term, rather, we can see some opportunity in the second quarter, and we got to make sure we can we have the network flowing to be able to realize it. Thanks.

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

CSX (CSX) Q1 2025 Earnings Call Transcript

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