CSX Corp Q4 2024 Earnings Call Transcript

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

Question: Tom Wadewitz - UBS Investment Bank - Analyst : Yes. I wanted to see if you were pretty clear on some of the headwinds, and it sounds like a lot of those are in 1Q and first half. How do you think about full year margin performance -- and if you kind of come out with some strengthening in volume in second half, can you see it potentially improve? Or is that tough to do given how meaningful some of the headwinds are?

Question: Scott Group - Wolfe Research - Analyst : So similar question, but not about margin, just about like operating income dollars. Do you think we grow operating income this year? Or is that I get down a lot in the first quarter. It sounds like up in the back half. When you add it all up, do you think we'd grow operating income this year?

Question: Chris Wetherbee - Wells Fargo - Analyst : I want to pick up on the comment that you mentioned. I think you said that ex some cost items you'd be in the sort of the mid-single digit or the lower end of sort of the EBIT range. I guess I want to make sure I understand that dynamic in the context of low to mid-single-digit volume growth. So I guess when we think about some of the other puts and takes that would drop from revenue down to -- or volume down to profit, can you talk maybe a little bit about the pricing outlook that you think about '25 how that compares to 2024?

Question: Ari Rosa - Citi - Analyst : Great. So I just actually wanted to stay on that line of questioning. Maybe you could talk about the impact of tightening truck capacity. And what's usually the lag in terms of where we would expect to see that reflected in results? And specifically, I assume it would be reflected primarily in intermodal. But if you could talk about kind of other areas where we might see that impact kind of flow through results would be appreciated?

Question: Brandon Oglenski - Barclays - Analyst : Joe, I'm sure investors are excited here at the opportunity long term for growth. But obviously, with some of the earnings headwinds when GDP is up, that might be a little frustrated in the near term. But maybe can you talk to what this tunnel project will ultimately yield getting beyond some REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:30PM, CSX.OQ - Q4 2024 CSX Corp Earnings Call of the hurricane damage in the Blue Ridge region? And should we be thinking that 2026 could actually be that much better when you think about margin opportunity, incremental margins, pricing, volumes, et cetera?

Question: Brian Patrick Ossenbeck - JPMorgan Chase & Co - Analyst : So I guess maybe one for Mike. Should we expect is this tunnel project gets underway. There are going to be some meaningful deterioration or adjustments that we're going to see in some of the service metrics. Just trying to figure out how that would play out considering it is such a big REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:30PM, CSX.OQ - Q4 2024 CSX Corp Earnings Call undertaking in the compressed for time. And then maybe just also get your thoughts on just the general health of the network having absorbed a couple of hurricanes, a couple port strikes or one near miss. And just your thoughts on staffing levels because it sounds like you're already pretty well staffed up into next year. So getting through all this in the near term, how do you feel like the network is positioned to hit that growth when it does come back perhaps in the back half of the year?

Question: Jonathan B. Chappell - Evercore ISI Institutional Equities - Analyst : Sean, hate to get into Manisha on certain model line items. You said cost per employee will be aligned with labor inflation. So I assume you mean like 4-ish percent. That said, you have a really, really tough comp in 1Q, '24 was up 7% and then a super easy comp in 4Q '24, was down 4% because REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:30PM, CSX.OQ - Q4 2024 CSX Corp Earnings Call of the incentive comp. So -- do we think about it as 4% on average, but try to get the quarterly cadence more aligned with typically kind of lower cost per employee in the first quarter and peaking in the fourth quarter due to the annual bonuses incentive comp?

Question: Ken Hoexter - Bank of America - Analyst : Two quick ones to clarify and then my question. I guess clarifying, Kevin, did you say coal at these levels, the [191], is that down 3% sequentially -- is that based on these levels? Or does it go lower if rates hold at these low levels? And then you mentioned some outages, some mine outages. Does that include the recent fire at one of your your minds? I presume that's what you meant when you said some mine outages. And then I guess, Sean, my big question is -- you kind of talked mid-single-digit growth, I guess, that would have been about $260 million add to EBIT, offset by about $300 million discrete item. So I just want to understand, are you sending the -- I just want to understand your messaging is it that the base case EBIT is down [$50 million] from the $5.35 billion that you've got for the target? I'm just trying to put together all the numbers you're throwing out there?

Question: David Vernon - Sanford Bernstein - Analyst : So we've probably kicked this a couple of times. But Kevin, is there any way you can help us understand those [$300 million], how much of that is volume? How much of that is price? Kind of what you're making in there roughly, the slices of pizza and a slice pie kind of thing. And then if you think about the outlook as we look into merchandise intermodal it feels like the Q4 numbers ended a little bit below the full year numbers. I'm just wondering if if you're also seeing some volume pressure because some of the Blue Ridge outage and maybe even some volume because of the service issues that might be happening with the Howard Street tunnels. Should we be thinking that there's some additional sort of volume headwinds building into 2025 here with related to stuff? Is it -- or is it just purely just operating cost?

Question: Bascome Majors - Susquehanna Financial - Analyst : Can you talk a little bit about the regulatory opportunity under the new regime, either at the FRA and the STB? And anything that has been held up or slow play that could generate needle-moving productivity for CSX in 2025 or '26. .

Question: Ravi Shanker - Morgan Stanley - Analyst : One. So a couple of years of a meaningful amount of discrete items now, and I recognize that a lot of these things are either issues outside of your control or investments in the future. But what are your conversations with customers like on some of these bottlenecks and the understanding -- is there a risk of share shift as a result of this? Or kind of how do you think this plays out in the coming years?

Question: Jordan Alliger - Goldman Sachs - Analyst : I just wanted to come back to the EBIT growth question again. We had suggested taking that $350 million net headwind off of the adjusted 2024 and growing by mid-single digit, which sort of is the low end of the mid- to high single digit that you talked about at your Investor Day. But off that base, like I'm just curious like what gets it to the to the upper end of that mid- to high single digit. Is it more of a volume issue? Is it a productivity issue? Like just sort of curious how you think about framing the range?

Question: Walter Spracklin - RBC Capital Markets - Analyst : So I just want to come back to the Investor Day pre-year for compound annual growth rate targets that you gave, particularly on earnings per share. So you gave us high single digit to low double digit. If we look at that and just take the midpoint at 10% of 2024, it gets us to [$243 million] for 2027, which is where consensus was. My question, I guess, is with the dip down now in 2025, it would imply you're going to have to run at a low teen for '26 and '27 to get back to that [$243 million]. And my question is, is that is the Investor Day target of [$243 million] still relevant, given where we are in -- where we're kind of stepping down in 2025, therefore, have that low teen growth rate in '26 and '27. Or do we say, no, the world's changed a little bit since Investor Day and we should really model off a lower growth rate than that?

Question: Daniel Imbro - Stephens - Analyst : Kevin, maybe one more on the volume outlook. I guess there's a lot of headwinds out of your control, but I can ask one on the auto side. We've navigated elevated inventories for a few quarters. here and it's weighing on autos and metals. I guess any updates on when your customers are expecting that production to actually return to growth. This year, inventory is rationing down out there in the field? Just what are you hearing you're seeing from your field as you think about that segment hopefully returning to growth at some point in 2025? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 9:30PM, CSX.OQ - Q4 2024 CSX Corp Earnings Call

Question: Jeffrey Kauffman - Vertical Research - Analyst : I'm going to go back and beat the dead horse a little bit here, but from a slightly different angle. You've talked a lot about the cost associated with Howard Street and Blue Ridge weighing on this year, and that cost is coming in a bunch of different areas. The outer route miles and the fuel burn the extra crew, the asset-related costs, extra locomotive extra cars -- can we talk about, I guess, kind of the same way once Blue Ridge is fixed once Howard Street is done, can we try and quantify the savings on the other side. So for instance, you're going to have double stack where you didn't before. You should be able to drive more cars through there with fewer trains. Fewer assets, you should get to go out there and play for a business that you weren't really eligible to do before. As I look at the net unwind of these projects and the opportunity for '26, can you do anything to quantify that benefit the same way you quantified the cost of '25?