CSX Corp at Stephens Investment Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Daniel Imbro - Stephens, Inc. - Analyst : <_ALACRA_META_ABSTRACT>So I'll start with Q&A. Please ask questions as we go. I want it to be interactive if you have questions. And this is webcast, so we'll pass around a microphone for audience questions if you have them just so we can have the transcript to be accurate. But yes. Well, Kevin, I want to start a little bit maybe high level. Since the Analyst Day coming off a bit, a lot of focus on long-term growth and opportunities. But when you look across the network and execution, just how is service handling the disruption this year? Maybe more of a state of the union on the rail itself and then we'll get into Q&A after that.

Question: Daniel Imbro - Stephens, Inc. - Analyst : It's great. Well maybe moving a little bit in more near term to start it off. Let's say quarter-to-date. So volumes are still down modestly but improving week-to-week as we move away from the hurricanes. Your outlook assumes modest volume growth if I recall correctly this quarter. So how are you feeling about trucking versus that in the quarter? And how are conversations going with shippers as you think about -- you mentioned going and selling the business?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Yes. I don't blame you if you do not want to call it out. Leave me to be wrong. Well, I do want to ask about intermodal a little bit. You mentioned the second strongest week in years. Can you talk about -- you guys have gained a lot of share in the business, in your service. Obviously, the truck market is tightening. When you maybe rank order the drivers of that improvement, like how do you think about how much is CSX specific and maybe share gain versus the intermodal market itself improving a bit due to the truck market or anything else?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And you mentioned the Meridian there. But for those who may be less familiar with it, can you just unpack or talk a little bit about what that is, why that's now an opportunity for you guys, how it came to be. And then really, what it opens up in terms of new lanes in that business for you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : That's helpful. And while we're on intermodal, as I think about the focus on revenue per carload, and that's been challenged here for a while. Part of it's in mix, part of it's just been a competitive pricing backdrop. How do you view the puts and takes as we view the sequential move to 4Q and into next year? Can we get back into a more inflationary revenue per carload growth on the intermodal side into next year? How do you think about that shaping up?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Yes, I was going to ask that. Historically looking at past cycles, what is the typical lag before we see the truckload market tighten and then we see it in your report? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : Got it. At the start of the quarter, you mentioned one of the disruptions was the strike. And while that was nice to be passed, it is just pushed to January. So curious, I'm not sure if you have any update, but how you're hearing negotiations are going? Do you think there's any potential we avoid a disruption again in January? Or do we just replay this playbook again to start 1Q, given what you see out there now?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Maybe moving off of intermodal, thinking about metals and auto remain topical. They've been the weak spots for the whole industry really for the last few months, and it sounds like into 4Q. Curious, one, how are those customers thinking about a time frame when that picks back up? Are those customer conversations getting any better, rates come down? Are you thinking these headwinds stay into first half of next year? Just how do you think about those markets actually shaping up?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Helpful. So we don't need -- we don't foresee a near-term macro improvement in those markets, but the investment you guys are making and some of the visibility you have gives you more confidence looking a little further out, fair to say?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And in your mind, when you think about it, that's the hole in the portfolio right now, those are the weak categories, those are all interest rate sensitive. Is that really the biggest linchpin you think that catalyzes demand of those categories? Or is there something else you guys are seeing, whether autos have inventory issues, things like that? What are the things that need to change that would necessitate an increase in those end markets?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Sorry, can we get a microphone real quick cause we're webcast. Unidentified Participant Just on coal, maybe just what your outlook and forecast? And then maybe how the new administration, like there's obviously big power needs or power growth across your guys' service territory, how that might change the outlook for that over the next four years? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : I'm glad we shifted to coal. There was too much talk about affordability. For a recovering autos analyst, I can't keep going back there. But if I do think about maybe coal pricing, that's obviously been topical for the last six months. We saw a big drawdown in export coal pricing. How do you see that backdrop shaping up? Can you remind us how you expected the fourth quarter to look for pricing backdrop? And then how we're seeing that play out so far just to help level set that?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And I know you guys haven't shared it as much, but you talked in the past about moving up the minimum contracts around your export coal. And as I think about where we are at the $200-ish level, are we near the floor, that sensitivity getting lessened if there were declines from here? How should investors think about the sensitivity of export coal pricing from today's level?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Helpful. And then you mentioned that $3.50 benchmark for when nat gas prices get there, we'd see domestic coal. Is it binary that we get there and it flips or as we've even moved up towards $3, how do domestic coal -- how do demand pick up at all? Have you seen any trend change there?

Question: Daniel Imbro - Stephens, Inc. - Analyst : That's helpful. Moving over to the merchandise side. If I look back at the Analyst Day, two weeks ago, you laid out a pipeline of projects coming online. And do you think the pipeline has changed from the one you guys laid out about previously? Just how do you feel about the business coming on to the rail today? And what's the feasible timeline you think of some of those projects fully materializing into more merchandise carload volume?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And earlier in this discussion, you mentioned how metals are becoming a bigger piece of the business, I think, over time and minerals, I think, were a bigger pie, piece of that pie. Is that more CSX seeing an opportunity there and proactively growing into that with some of your projects you're doing or happens to be what's coming on to the rail? Just from where you were, curious how much a proactive growth you had in certain categories because of whatever you see as an opportunity versus what's coming to you.

Question: Daniel Imbro - Stephens, Inc. - Analyst : And merchandise pricing, always topical, but remains a question for investors, especially just given competitive dynamics out there. I guess how do you feel about price cost here today on the merchandise side? And how do you feel about that into next year as maybe inflation -- headline moderates, hopefully? How do you feel about your ability to continue to get price cost next year?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And I think the answer here might be both, but I'm hoping it isn't. When I think strategically from your seat, though, when you look at the service outperformance for years now, it's been a couple of years of really strong service. Do you hope that gives you more pricing power as you go to bid on the same business? Or is that more of a way to keep pricing more stable and drive more share to the rail because you're more differentiated? What is the priority when you go to market? How do you view pitching that service agreement you've had for a couple of years and technology you have when you go to customers?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And maybe to go back to the idea of partnering more with your customers. That was a big theme, I thought, from the Investor Day was that partnership. And something -- I think it was Christina, who spoke about it. Forgive me, there were a lot of speakers. What was the real estate projects you guys are working on and really investing for your customers proactively? For those who may have missed it, can you just talk about what some of those investments you're making are and how the customer response has been? I'm curious to hear that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : Yes. I don't know anyone knows what's going to happen with CARB yet, so we'll see. Well, maybe shifting over to the cost side of the equation and how you guys are handling that right now. Maybe start in the near term. You mentioned some disruption from hurricanes here in 4Q. I think you said about $50 million, if I recall correctly, on the last call. I guess we are about a few weeks out from the month end of the quarter. How are we trending there? How are we tracking versus expectation from a cost and an operations standpoint recovery from the hurricane?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And maybe net of those headwinds, I think you guys had expected margins to slightly deteriorate sequentially. Are these costs isolated though and revenue headwinds to the fourth quarter? I guess I want to make sure about that, nothing lingering into 1Q. And then can you remind investors what the normal 4Q to 1Q margin progression is and what the puts and takes are as you look at the network today as investors should think about that?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Makes sense. And I had to ask. Sorry, Matthew, I had to go there. Maybe from a productivity standpoint, it's been a bright spot. I feel like you guys have grown carloads in excess of headcount growth even -- especially when you exclude the Quality Carriers headcount for a while here. How much longer can we continue to grow productivity? I guess that's the first question. When you look at the operations across the network, where is there still that faster trim or opportunity? And I think you're expecting modest head count growth in 4Q, but just curious maybe longer term, how you think about headcount growth and maybe decoupling it from carload growth?

Question: Daniel Imbro - Stephens, Inc. - Analyst : And you mentioned there's a few pockets to add headcount maybe across the network. But overall good. Is there still opportunity to take down headcount anywhere when you look across, whether it's on service or anywhere else? Where do you see opportunity to actually reduce the cost? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : That's helpful. And how about on the equipment side, you mentioned you think you can grow volume without maybe adding more train starts. But longer term, you guys have been investing in modernizations and getting more fuel efficiency. Is there still either an optimization of the fleet you can do investments on that side that would drive cost efficiencies as you look forward to support volume growth?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Helpful. And I know you talked about this a few times, but I do want to follow up just on the union agreements that you and others have done this year. It's a little bit different cadence than the last negotiation cycle. And while maybe it is a higher headline rate than some investors expected, it feels like it does give you flexibility around the work rules. And so can you talk why you did that again this year? And then maybe as you think about the work rule offsets, should we think about that as limiting maybe the comp per employee growth next year as you just think about how that actually impacts the business? Or how should we think about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : Makes a lot of sense. Well, we haven't really talked about it yet, but we've mentioned a few times. But two weeks ago, we did have an election, a bit of a big deal here in the US. Just curious, other than regulatory may be easing, which you talked about a few times. Any puts and takes on potential legislative policy discussions you've heard that will be good or bad for the rails and the overall backdrop as you see for CSX?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Hopefully, we'll see that play out. If I look back at the Analyst Day, maybe talking numbers a little bit here. You guys got, I think,

Question: Daniel Imbro - Stephens, Inc. - Analyst : And so when you think about the implied acceleration without getting numbers around it in years two and three, is that -- that's more top line driven? That's not more cost-driven coming down? That's more top line accelerating?

Question: Daniel Imbro - Stephens, Inc. - Analyst : Great. Let me wrap it up. Just on capital deployment. I mean for CSX for years, feels like share repurchase has been a very steady piece of the return for investors. It feels like we have visibility into margin improvement over time, we have visibility into volume growth getting better. I guess, how do you think about capital deployment? Does that make share repurchase more attractive today given the accelerating returns you see in future years? Or how do you guys view that balance for investors? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 19, 2024 / 3:00PM, CSX.OQ - CSX Corp at Stephens Investment Conference

Question: Daniel Imbro - Stephens, Inc. - Analyst : Makes sense. Well, I know we are up on time. But Kevin, thank you so much for joining us.