Q4 2024 Earnings Summary
- Completion of the Howard Street Tunnel project in 2025 will enable double-stack intermodal service along the East Coast, significantly enhancing CSX's capacity and opening new markets. This is expected to fully recover the approximately $100 million operating expense within a couple of years and drive substantial growth starting in 2026. ,
- Customer satisfaction is at an all-time high, with Net Promoter Scores reaching consecutive records in the third and fourth quarters, despite recent challenges. This reflects CSX's commitment to customer service and positions the company for long-term volume growth as customers invest more in rail solutions.
- Supportive regulatory environment with advancements at the FRA and STB is expected to facilitate the adoption of new technologies in inspections and operations. CSX anticipates that leveraging these technologies will improve efficiency and safety, contributing to future growth opportunities.
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| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -3.8% | Total revenue declined from $3,680M in Q4 2023 to $3,539M in Q4 2024, reflecting a shift in the revenue mix. While merchandise revenue remained nearly flat, the dramatic surge in coal revenue suggests that gains in one segment did not offset declines elsewhere—possibly due to lower contributions from fuel surcharges or intermodal services that have affected previous periods. |
Merchandise Revenue | +0.4% | Merchandise revenue remained essentially stable, increasing slightly from $2,182M to $2,191M, which echoes prior period trends where volume and pricing factors nearly balanced out each other, indicating consistent performance in this segment. |
Coal Revenue |
| Coal revenue surged from $62M in Q4 2023 to $499M in Q4 2024—a more than 700% increase. This dramatic change likely reflects a rebound in global benchmark coal prices or significantly higher demand, marking a stark revision compared to the very low base in the previous period. |
Operating Income | -16% | Operating Income (EBIT) fell by approximately 16%, declining from about $1,320M to $1,106M. This drop is attributed to rising cost pressures and discrete expense items that outweighed modest revenue gains, consistent with earlier observations of margin compression in prior quarters. |
Net Income | -17% | Net income decreased by roughly 17%, from $886M to $733M, driven by weaker operating performance and elevated costs. This outcome mirrors the negative impact seen in operating income and indicates that any positive changes in specific revenue segments were not sufficient to offset overall profitability challenges observed in previous periods. |
Basic EPS | -15.6% | Basic EPS dropped from $0.45 to $0.38 (a 15.6% decrease), reflecting the contraction in net income combined with share count dynamics. This aligns with the previous period’s performance where reduced profitability has directly affected earnings on a per-share basis. |
Share Repurchases | +285% | Share repurchases jumped from $581M to $2,237M—a sharp 285% increase—indicating that management significantly accelerated buybacks. This radical uptick, compared to the more modest repurchase activity in Q4 2023, suggests a strategic decision to capitalize on market conditions and deploy excess cash, contrasting prior periods when the focus was perhaps more balanced between growth investments and capital returns. |
Dividend Payments | +331% | Dividend payments increased from $216M to $930M, a rise of approximately 331%, reflecting a robust commitment to returning capital to shareholders. This substantial jump, compared to previous periods, indicates that despite operating challenges, the board is confident in sustaining strong cash flows and is shifting to a more aggressive distribution strategy. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS Growth | FY 2025 | no prior guidance | High single-digit to low double-digit EPS growth | no prior guidance |
Operating Income Growth | FY 2025 | no prior guidance | Mid- to high single-digit operating income growth | no prior guidance |
Volume Growth | FY 2025 | no prior guidance | Low to mid-single-digit volume growth | no prior guidance |
Coal Revenue | FY 2025 | no prior guidance | Tied to current market levels; upside if coal prices exceed $200 | no prior guidance |
Labor Costs | FY 2025 | no prior guidance | Cost per employee up ~4.4% in 2H FY 2025 | no prior guidance |
Tax Rate | FY 2025 | no prior guidance | 24.5% | no prior guidance |
Depreciation | FY 2025 | no prior guidance | Expected to increase at a similar rate quarter-over-quarter as in Q4 2024 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Total Revenue | Q4 2024 | Slight decrease of ~$200 million year-over-year | Decreased by ~$141 million year-over-year (from $3,680 million in Q4 2023To $3,539 million in Q4 2024) | Beat |
Operating Income (EBIT) | Q4 2024 | Expected to be worse than normal seasonality | $1,106 million in Q4 2024Vs. $1,320 million in Q4 2023, indicating a year-over-year decline aligned with “worse than normal seasonality” guidance | Met |
Capital Expenditures | FY 2024 | $2.5 billion in total CapEx for 2024 | $2,529 million | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Coal price and volume headwinds | Q3: Ongoing declines in global metallurgical coal benchmarks; 7% drop in coal revenue. Q2: Coal revenue down 12% YOY, some offset by higher export. Q1: Domestic coal shipments down 17% YOY, Baltimore port closure impacted volumes. | Discussed a US$300 million impact from lower export coal prices and volume challenges (e.g., mine outages). Potential rebound above US$200 in 2H25. | Recurring; persistent headwinds with slight optimism for rebound |
Operating margin expansion and cost management priorities | Q3: Operating margin of 37.4%, cost focus remained strong. Q2: 39.1% margin; holding support costs flat. Q1: 36.8% margin; incremental improvement despite disruptions. | Margin expansion unlikely in early 2025; some improvement possible in 2H25. Focus on cost controls, fuel efficiency, and negotiating purchased services. | Consistent emphasis; cost discipline continues |
Intermodal growth | Q3: Gains from truck-to-rail conversions, East Coast port focus. Q2: Actively pursuing conversions amid soft trucking, leveraging strong East Coast import activity. Q1: Highlighted new opportunities in truck-to-rail conversions and strong port partnerships. | 4% volume growth driven by truck-to-rail conversions and East Coast port expansions; focuses on capturing market share. | Ongoing priority; moderate momentum |
Baltimore port closure impact | Q3: Not specifically mentioned. Q2: Key Bridge collapse continued to constrain Port of Baltimore operations. Q1: Closure caused US$25–30 million monthly revenue impact, mostly in export coal. | Not mentioned in Q4 2024. | No longer mentioned |
EV market delays | Q3: Projects delayed 3–6 months, but not broad-based. Q2: Minor EV delays noted; confidence in broader portfolio. Q1: No mention. | No mention in Q4 2024. | No longer mentioned |
Supportive regulatory environment and technology adoption | No mentions in Q3, Q2, or Q1. | Emerged as a new topic; STB chair appointment considered positive. Plans to integrate more technology in inspections and collaborate with unions. | New topic |
Record-high customer satisfaction | Q3: Highest NPS since the program started, despite challenges. Q2/Q1: Not mentioned. | Net Promoter Score at all-time high in Q4. Credited to proactive communication and resilience amid disruptions. | Emerged in Q3 and continued strongly |
Howard Street Tunnel project costs versus capacity | Q3: Brief mention of upcoming reroutes and disruptions. Q2/Q1: Not discussed. | Expect increased 2025 costs from accelerated construction. Long-term benefit through double-stacking capacity on the East Coast. | Ongoing project with short-term costs and anticipated long-term growth |
Uncertainty in industrial production | Q3: Impact on metals and auto due to high rates, volume disruptions from storms. Q2: Economy described as more fragile than earlier in the year. Q1: Not specifically mentioned. | Q4 commentary on muted industrial output, persistent high interest rates, mixed volumes (positive in some segments, weaker in others). | Recurring; caution around slowing economy |
Labor agreement wage increases | Q3: 4.5% wage increase took effect midyear; manageable via efficiencies. Q2: July wage hike increases costs. Q1: 4.5% rise acknowledged as a near-term cost headwind. | 4% YOY labor inflation expected. Mitigation via cost controls (e.g., overtime reduction, lower health costs). | Recurring; ongoing impact on profitability |
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Operating Income Outlook
Q: Will operating income grow this year despite headwinds?
A: Management acknowledges that without the $350 million headwinds, they would deliver solid growth in operating income this year. With low to mid-single-digit volume growth and 50% to 70% incremental margins, they are set up well. However, due to challenges like utility coal headwinds and mine issues, they expect to be towards the lower end of their mid- to high single-digit operating income growth guidance. -
Margin Outlook
Q: Can margins improve in the second half despite early headwinds?
A: Management states that margin improvement is unlikely in the first half due to concentrated headwinds, especially in Q1. However, in the second half, if the environment remains stable and they achieve low to mid-single-digit volume growth, margins could improve. -
Coal Outlook Impact
Q: How will coal prices and outages affect earnings?
A: Current met coal prices have declined, impacting contracts tied to these prices. The recent mine outage, including a fire at one of their mines, is expected to be mitigated by sourcing from other locations, with the mine coming back online in the second half. They hope met coal prices will rebound above $200 in the back half of the year. -
Howard Street Tunnel Benefits
Q: What are the long-term benefits of the tunnel project?
A: The Howard Street Tunnel project, accelerated to complete in 2025, will allow CSX to run double-stack trains along the East Coast, removing a major bottleneck. This is expected to significantly contribute to growth in 2026 and 2027 through increased capacity, efficiency, and access to new markets. -
Pricing Outlook
Q: What is the pricing outlook compared to last year?
A: Management feels confident about pricing. In merchandise, they continue to leverage their service product. Met coal prices have come down, affecting contracts linked to these prices. In intermodal, there's stabilization with contractual rates starting to move up slightly. -
Network Readiness
Q: Will the tunnel project affect service metrics?
A: CSX has rerouted traffic in preparation for the tunnel work and doesn't expect significant impact on service metrics. Despite challenges like hurricanes, the network is fundamentally on the right track, with stable staffing and productivity improvements ahead. -
Volume Outlook and Headwinds
Q: Are there additional volume pressures due to outages?
A: Q4 volumes were impacted by hurricanes, with a $50 million impact, including $30 million in revenue. They don't anticipate significant volume disruptions from the Howard Street Tunnel or Blue Ridge outages, as efforts are made to preserve volumes. -
Regulatory Opportunities
Q: Are there regulatory changes that could boost productivity?
A: CSX is optimistic about the regulatory environment under new leadership at the FRA and STB. They see opportunities to implement technology in inspections, enhancing efficiency and safety, which could generate significant productivity gains in 2025 and 2026. -
Truck Capacity Impact
Q: How does tightening truck capacity affect results?
A: Tightening truck capacity impacts intermodal and merchandise segments. In intermodal, pricing lags the market due to contract durations, so significant benefits may start next year, with some possible as they exit this year. In merchandise, customers seeking cost savings may accelerate truck-to-rail conversions. -
Customer Response
Q: How are customers reacting to network investments?
A: Customers are excited about CSX's investments, which will allow them to reach new markets. Despite absorbing additional costs, service levels are maintained. Net Promoter Scores have reached consecutive all-time highs, reflecting strong customer confidence. -
Employee Cost Modeling
Q: How should we model employee costs this year?
A: Adjust the Q4 cost per employee by adding back about $1,500 for incentive compensation adjustments to get a run rate for the first half. Potential savings from reduced overtime and lower health and welfare costs may improve this further. Apply a 4.4% wage inflation in the second half for full-year modeling. -
Industrial Development Pipeline
Q: Any updates on customer projects and developments?
A: Contrary to expectations of a slowdown, activity in new customer projects remains healthy. CSX is working on a number of new projects, indicating continued strength and potential growth opportunities.