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    CSX Corp (CSX)

    Business Description

    CSX Corporation is a leading transportation company headquartered in Jacksonville, Florida, specializing in rail-based freight transportation services. The company operates through four main lines of business, offering a range of services that include the transportation of merchandise, intermodal solutions, coal, and trucking services . CSX's merchandise business is the largest segment, shipping a variety of products such as chemicals, agricultural and food products, automotive, minerals, forest products, metals and equipment, and fertilizers . The company also provides intermodal services that combine rail and truck transportation to serve the manufactured consumer goods markets . Additionally, CSX transports coal, coke, and iron ore to various industrial sectors and offers trucking services through Quality Carriers .

    1. Merchandise - Ships a diverse range of products including chemicals, agricultural and food products, automotive, minerals, forest products, metals and equipment, and fertilizers.
    2. Coal - Transports coal, coke, and iron ore to various industrial sectors.
    3. Intermodal - Combines rail and truck transportation to serve the manufactured consumer goods markets.
    4. Trucking - Includes operations from Quality Carriers, providing trucking services.
    5. Other Revenue Sources - Comprises regional subsidiary railroads and incidental charges.

    Q3 2024 Summary

    Initial Price$33.48July 1, 2024
    Final Price$34.52October 1, 2024
    Price Change$1.04
    % Change+3.11%

    What went well

    • CSX has successfully negotiated early labor agreements, improving employee relations and potentially enhancing efficiency and service quality.
    • The company's focus on culture and employee engagement has led to significant improvements in employee Net Promoter Scores, operational efficiency, and customer satisfaction, positioning CSX for sustainable growth.
    • CSX is well-positioned for strong incremental margins and operating income growth due to its capacity to grow, improved service product, ability to price at or above inflation, and expected tailwinds from the trucking market.

    What went wrong

    • CSX expects a slight decrease in total revenue for the fourth quarter due to softer coal markets and lower fuel surcharges, estimating a $200 million impact year-over-year.
    • Additional expenses from rerouting and rebuilding after two major hurricanes will limit near-term margin gains.
    • Volumes have softened in key customer segments like metals and automotive more than expected, leading to only modest volume growth in the fourth quarter.

    Q&A Summary

    1. Margin Outlook and Headwinds
      Q: How will headwinds affect margins in Q4?
      A: Significant headwinds from fuel and coal, about $100 million in operating income, plus $50 million impact from the hurricane, will make it challenging to grow operating income and margins in Q4. Margins will be worse than normal seasonality due to these factors and softer auto and metals demand.

    2. Impact of Labor Agreements on Costs
      Q: Why did you agree to a 5-year labor deal early?
      A: Early agreement avoids past issues of delayed negotiations and builds better labor relations. The deal includes 4% wage increase next year, decreasing to 3% in the fifth year, and allows focus on efficiency, safety, and addressing employee needs beyond wages and benefits.

    3. Pricing Power and Customers
      Q: Can you maintain a positive price-cost spread next year?
      A: The price-cost spread has been positive all year, as strong as in the last decade. Wage inflation is expected to be less than 4%, with overall inflation around 2–3%. Positive customer discussions focus on delivering improved service to support pricing.

    4. Volume Growth Opportunities
      Q: What are your plans for volume growth and truck conversions?
      A: Successfully converting truck volumes in the merchandise franchise despite a down trucking market. Opportunities are emerging across all areas, and improved service and efficiency are attracting new business by providing value beyond price.

    5. Export Coal Demand Stability
      Q: How stable is export coal demand going forward?
      A: Expecting more price stability due to a lack of new supply entering the market. Optimistic about the metallurgical coal business as supply constraints create a healthier environment, with recent China stimulus contributing to demand.

    6. Intermodal Business and Trucking Market
      Q: What's the outlook for domestic intermodal amid trucking shifts?
      A: Seeing signs of bottoming in domestic intermodal, giving hope we've reached the low point. Anticipating a more normalized peak season, and a tighter trucking market could offer opportunities to convert more volume at better rates. ,

    7. Industrial Project Sensitivity
      Q: Are industrial projects sensitive to economic cycles?
      A: Economic cycles can impact timing, but many projects have significant capital already invested and are proceeding. Some may slip by 3–6 months, but confidence is high given the substantial investments in larger projects underway.

    8. Competitor Dynamics and Market Share
      Q: Is competitor service improvement affecting your business?
      A: Competing effectively due to stable leadership and enhanced service. Focused on retaining business and expanding the market, confident in ability to win competitively, and aiming to grow alongside customers.

    9. Employee Retention and Culture Impact
      Q: How are culture investments affecting employee retention?
      A: Employee Net Promoter Scores have improved significantly over the past two years, though there's more to do. Cultural efforts are leading to better retention, reduced attrition, and improved customer service, reflected in our best customer Net Promoter scores ever.

    10. Impact of Diverted Volumes Due to Labor Talks
      Q: How did port labor issues affect your volumes?
      A: Experienced modest impact from shipments shifting to the West Coast amid East Coast labor uncertainties. Some lost days from port shutdowns, but minimal disruption overall, and we expect to recover volumes through the rest of the quarter. ,

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Merchandise2,1632,1962,1122,1828,6532,1852,2962,231
    - Chemicals650642646--693722727
    - Agricultural and Food437415376--407406416
    - Automotive274323308--293336301
    - Forest Products261257243--262269259
    - Metals and Equipment239240225--220230208
    - Minerals173191190--174207202
    - Fertilizers129128124--136126118
    Intermodal4994925175522,060506506509
    Coal633637594622,484632563553
    Trucking233227218204882215221214
    Other178147131122578143115112
    Total Revenue3,7063,6993,5723,6814,6573,6813,7013,619
    KPIs - MetricFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Train Velocity18.517.717.618.3-18.218.218.6
    Dwell9.09.39.69.6-9.710.210.3
    FRA Personal Injury Frequency Index1.040.810.980.57-1.271.251.22
    FRA Train Accident Rate3.473.253.752.10-3.812.622.92

    Executive Team

    NamePositionStart DateShort Bio
    Joseph R. HinrichsPresident and Chief Executive OfficerSeptember 2022Joseph R. Hinrichs has over 30 years of experience in the global automotive, manufacturing, and energy sectors. Before joining CSX, he worked at Ford Motor Company from 2000 to 2020 .
    Sean R. PelkeyExecutive Vice President and Chief Financial OfficerJanuary 2022Sean R. Pelkey has been with CSX for over 18 years, having joined the company in 2005. He has held various finance management roles, including Vice President of Finance & Treasury .
    Kevin S. BooneExecutive Vice President and Chief Commercial OfficerJune 2021Kevin S. Boone joined CSX in September 2017 and has more than 20 years of experience in finance, accounting, mergers and acquisitions, and transportation performance analysis .
    Michael A. CoryExecutive Vice President and Chief Operating OfficerSeptember 2023Michael A. Cory is a seasoned railroad executive with approximately 40 years of operations experience, having worked at the Canadian National Railway Company from 1981 to 2019 .
    Stephen FortuneExecutive Vice President and Chief Digital and Technology OfficerApril 2022Stephen Fortune is responsible for leading CSX's technology strategy and IT systems operations. He spent 30 years at BP, most recently as Chief Information Officer of the global BP group .
    Nathan D. GoldmanExecutive Vice President and Chief Legal OfficerNovember 2017Nathan D. Goldman directs CSX's legal affairs, government relations, risk management, public safety, environmental, and audit functions. He will retire effective January 1, 2025 .
    Diana B. SorfleetExecutive Vice President and Chief Administrative OfficerJuly 2018Diana B. Sorfleet is responsible for human resources, people systems and analytics, total rewards, facilities, and aviation. She has been with CSX for over 12 years .
    Angela C. WilliamsVice President and Chief Accounting OfficerMarch 2018Angela C. Williams is responsible for financial and regulatory reporting, freight billing and collections, payroll, accounts payable, and various other accounting processes .
    Michael S. BurnsSenior Vice President, Chief Legal OfficerJanuary 2, 2025Michael S. Burns has been with CSX since 2006, advancing through roles of increasing responsibility. He will assume his new role effective January 2, 2025 .

    Questions to Ask Management

    1. Given the expected $200 million year-over-year revenue headwinds from lower fuel surcharge and softer coal markets in Q4, how do you plan to offset these impacts to maintain revenue and margin growth, especially considering additional expenses from hurricane rebuilding efforts?

    2. With the upcoming construction on the Howard Street Tunnel next year, which will cause network disruptions and reroutes, how will you mitigate the operational challenges to ensure service levels remain high and that margin improvement goals for 2025 are not adversely affected?

    3. Can you elaborate on the rationale behind locking in a 5-year labor agreement with 3.5% inflation rates now, especially as inflation is coming down, and how this will impact your operating costs and competitiveness over the agreement period?

    4. Given that on-time originations and arrivals have eroded into the low 70s and upper 60s, how are you addressing these declines in service levels, and what specific measures are being implemented to improve operational performance and meet customer expectations?

    5. Considering the stabilization of export coal prices at lower levels and the expected headwinds from lower fuel prices next year, what strategies do you have in place to drive revenue growth in your coal segment, and how sustainable is this demand in the face of global market volatility?

    Share Repurchase Program

    Program DetailsProgram 1Program 2
    Approval DateJuly 2022 October 2023
    End Date/DurationNovember 2023 N/A
    Total Additional AmountN/A$5 billion
    Remaining Authorization$0 $3.6 billion
    DetailsCompleted Active, funded by cash on hand, operations, and debt issuances

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      1. Volume Growth: Modest volume growth expected, supported by favorable markets like chemicals and agriculture, despite softer volumes in metals and automotive .
      2. Revenue: Anticipates a slight decrease in total revenue due to lower fuel and coal prices, with an estimated $200 million revenue effect year-over-year .
      3. Operating Margin: Additional expenses from rerouting and rebuilding after hurricanes will limit near-term margin gains .
      4. Capital Expenditures (CapEx): Aiming for $2.5 billion in total CapEx for the year, with additional capital needs for hurricane rebuilding .
      5. Capital Returns: Commitment to a balanced approach to capital returns via buybacks and a growing dividend .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Total Volume and Revenue Growth: Expected in the low to mid-single-digit range for the second half of 2024 .
      2. Operating Margin Expansion: Anticipated meaningful expansion year-over-year in the second half .
      3. Capital Expenditures (CapEx): Forecast remains at approximately $2.5 billion for the year .
      4. Economic Profit: Expected to increase in the second half compared to the prior year .
      5. Coal Revenue Per Unit (RPU): Expected to decline mid- to high single digits sequentially in the third quarter .
      6. Labor Costs: Union employees receiving a 4.5% wage increase effective July 1 .
      7. Intermodal and Merchandise Revenue: Merchandise and intermodal revenue excluding fuel was up 5%, with expectations for continued growth .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Total Volume and Revenue Growth: Expected in the low to mid-single-digit range for the full year .
      2. Intermodal Growth: Steady growth expected, supported by stable consumer demand and improved port activity .
      3. Coal Market: Actions to mitigate export volume limitations due to the Port of Baltimore situation .
      4. Profitability and Operating Margin: Aims to grow operating margins over time, despite near-term challenges .
      5. Capital Expenditures (CapEx): No change, remains at $2.5 billion for the year .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Volume and Revenue Growth: Anticipates growth in the low to mid-single-digit range .
      2. Coal Revenue Per Unit (RPU): Optimistic but conservative due to market volatility .
      3. Intermodal Business: Growth expected in both domestic and international segments .
      4. Capital Spending: Increase to approximately $2.5 billion for the year .
      5. Operating Margins: Focus on margin improvement through profitable volume gains and cost control .
      6. Free Cash Flow: Impacted by about $380 million of federal cash tax payments deferred from 2023 .
      7. Headcount and Resources: Aims to hold headcount flat, focusing on efficiency improvements .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Norfolk Southern Railway - Operates throughout much of CSX's territory and is mentioned as CSX's primary rail competitor .
    • Other railroads - Operate in parts of CSX's territory and exert pressure on price and service levels depending on the specific market .
    • Motor carriers - Compete with CSX by operating similar routes across its service area .
    • Barges, ships, and pipelines - Compete to a less significant extent .