CSX Aktie

Good morning. Next up, we welcome CSX and Kevin Boone, EVP and CFO, as he reclaims his CFO seat in October that he held from 2019 to 2021 with a quick step into the CMO seat in between. We welcome Kevin for his fifth time at our event, along with Matt Korn up here in the front row from Investor Relations, also for his fifth time and CSX for the 18th consecutive year attending the conference and 23rd time in the 25 years we've hosted the event. So truly thank you for your steadfast commitment to the conference.

And what an outlook for CSX, right? New CEO, Steve Angel, continues to press the culture of the organization to be better. It has easy comps against some of the Blue Ridge subdivision work and Howard Street Tunnel project for about $150 million in easier cost comps. So let's dig in and see what's going on. So Kevin, I'll turn it over to you. Just to understand you have a few thoughts and updates to start. But maybe please include 3 key thoughts or takeaways you want us to walk away with as well?

Yes. So when we came in -- well, first of all, thank you for having us. I also have Angie Williams here in the audience. That's with the company. She's our Chief Accounting Officer. I've been coming to this conference for a long time, even when you had it in Boston, even as an investor before I moved over to the corporate side. So thank you for having me.

When we came into the year, we put a plan together pretty quickly with Steve coming on board, and we obviously guided to low single-digit revenue growth. And we also had a very ambitious plan, aggressive plan around improving our margins. So 200, 300 basis points of margin improvement. And as you saw, we delivered on at least in the first quarter and continue to have a plan to deliver on that, and we took up our guidance.

On the revenue side, we adjusted mainly due to the fuel surcharge and what we've seen with the war outbreak and what that's done to the price of oil. But we've also seen some favorability in some specific markets, mainly tied to the energy markets and what's happening there. So some favorability, chemicals and other areas.

And on the cost side, despite some of the margin headwinds that fuel surcharge does create from a margin perspective, we did take that guidance up to the higher end of the range. So very happy with what we did in the first quarter. One quarter doesn't make a year, so a lot more to do.

And then 3 things that I think about as a CFO, coming back into this role, Obviously, on the revenue side, Steve has been very clear that we need to go out there and get value for the great service product that we're delivering. And so a lot of focus by Maryclare and the team around that. Revenue growth is about volume and price, and that's important to cover our cost, cover our cost inflation. And as we deliver a better service, we expect to get value for that. So that's been a big emphasis, I know, since Steve has been on board and really pushing the team in that area.

On the cost side, I got into it. We had a great performance in the first quarter. Really across the board when you look across mechanical, engineering, our transportation costs, Mike and the team fully engaged. What we're trying to do as a finance organization is give them the visibility and the tools to really go after those costs and really measure them and create processes around it. So once we find the efficiency that we don't let it creep back into the system. So a lot of great work there, a lot more to do. We're building the pipeline already for 2027 in terms of the cost initiatives that we want to deliver. And so I think some of the success we've had has given us the leeway to start thinking about the next year and years ahead and really putting a plan together and being really thoughtful about it.

And really, we always want to make sure the service, safety and all those things are prioritized when we do all these cost efforts. And I think we've done a great job so far of doing that. And then finally, capital is part of that as well. And capital efficiency. I think you'll see a multiyear strategy around how we get better about maintenance capital, using a lot more data analytics to really inform our decisions out there. I think today and historically, we've replaced a lot of the railroad or a lot of track and rail based on going out there and looking at it and less based on data.

And I think Mike is a data junkie. And so some of those tools, and obviously, with the AI and all of those things that are coming our way. It's giving us more visibility. And as you can imagine, if you can extend the life of your railroad with obviously, preserving safety and making sure safety continues to improve. There's huge returns impacts. When we think about ROIC is a metric that is very much aligned to our compensation going forward and something that Steve has used previously in his career. And it's something that we talk a lot about internally. And so there's a numerator and the denominator. And if you can affect both, you're going to make a lot of progress. So that's what we're really focused on.

All right. So not much is what you're saying. So great stuff. I appreciate that.

So I'm going to change subjects from kind of results to what's going on in the backdrop. But as the industry looks to potential consolidation, obviously, CP was here just arguing their view pretty hard on it doesn't need to be done. But how does CSX position itself competitively in the Eastern U.S. in light of what's going on?

Yes. I think a lot of the things that you've seen us and some of the success we've had recently has been I think, wrongly tied to the mergers. I think the team -- I was obviously part of the sales and marketing organization. Some of the things where we talk about the Southeast business on the intermodal side, that had been in the works for 18 months. So I would argue that had really nothing to do with the announcement on the merger.

And we're always looking for ways to grow. And similarly, the SMX, very -- that was in play. That was a discussion that happened long before the announcement of the merger. And you're going to continue to see us, as an organization, lean into those opportunities where there -- where we can grow our volume. That hasn't changed. And nothing with the merger is going to change that -- our goals there. And so we'll continue to find.

We'll work with all the partners that are available to us, short lines, other Class 1s, if there's more volume, if there's truck conversion opportunities out there to add new service that has a return that meets our thresholds, we'll go after it. And I think you can continue to see us do that. And that strategy hasn't changed.

Let's talk about your network performance right now. You mentioned Mike Cory a couple of times, but just the result of what's going on, I guess, your carloads are up 4.5% quarter-to-date, about 200 basis points above our target. But more importantly, for CSX at last week, 132,000 carloads. That was, I think, the second or third best week since week 25 of 2018. So you're talking about 8 years of catching up on carloads. Talk about what's driving that performance? Is it weather? Is it better ops? Is it winning share from peers? Is it now easy comps against the construction you did last year? Maybe just talk about what's going on.

Yes. I think it's a lot. I would first tell you that Mike is not satisfied where the railroad is today. I mean, obviously, year-over-year, we've had improvement, but he would say there's a lot more to do, a lot of optimism around there to continue to improve the service product. And that will lead to more wins. So you've seen a number of things that have happened post war. You've seen the trucking market tighten. Certainly, that is helping on the domestic side. We're seeing a tough comparison year-over-year on the international side.

Imports are slightly down in our business right now. But domestically, supply, you're finally seeing that coming out of the market after what the worst trucking cycle that you probably witnessed in your career. And then the one -- worst one certainly that I've seen. And we're seeing some of the benefits even beyond intermodal areas like forest products where they can make a decision daily, whether they use rail or truck, we're seeing that start to convert over to rail. And with our service product and what we're delivering, we're pretty optimistic that, that can continue here.

There are some benefits that we're seeing from low-cost energy in the U.S., that advantages some of the chemical producers here in the U.S. globally. We've seen an initial pull in demand from the domestic customers for their domestic customers, and we anticipate that there'll be some international pull on some of those products. When we have natural gas-based production versus the world where the world is mainly oil based when you look at Asia and other areas, that really advantages the U.S. from a production standpoint, and we're the beneficiaries of that.

I'd also say we're very optimistic. We talked about it on our earnings call on the industrial development side. And look, in this environment where you have secure energy, low-cost energy. I don't think there's a better place in the world to invest in today. Labor, I call energy, the new labor, right? People used to chase labor costs around the world from a manufacturing standpoint. I think they're going to chase energy cost and having secure energy, cheap energy, definitely advantages our network. And we have a great the Southeast, other parts of our network in the Midwest has a great work base to handle some of those projects. So we're optimistic. We see some of those coming online and ramping up over the next year or so into 2027.

So when you think about some of the volume wins right now, right, your peer in region, maybe a little discord, employees don't know what's going on. And so that might affect service. So you're winning some -- I presume some relative share just given that status, right? So how do you ensure when the -- whether the merger goes through or not, in 1.5 years when they settle down that you don't give back that share?

Yes, I think what we've seen a lot of it is we want to grow the pie. And I don't think -- we're not out there. We certainly will win with service, but we think we have a unique value proposition that we're delivering. We're not out there to undercut our service and discount the things that we're doing and all the hard work that Mike is doing. So we're out there. We're very much what you think you've seen is some depressed markets. We have some leading market share in some areas that have been hurt over the last few years.

If you look at the chemical producers, some of those, you just look at their stock price, right, year-to-date, what they've done. So they benefited from what has happened in the world and their advantaged kind of supply, the cost advantage versus the global producers, and we're benefiting from that. So we don't see major share shifts occurring within the rails. It's more about growing the pie and going after that truck volume.

Let me take a step back. In your opening comments, you talked about kind of the underlying market. How would you define the freight environment today? Is it still uneven demand? Or are you seeing more consistent recovery across some of the end markets?

Yes. I would call it cautiously optimistic. Coming into the year, we -- it was hard to tell in the first quarter. We had a lot of weather impacts that created a lot of volatility in January, February. And then coming out in March, and then we saw some better trends, probably almost across every market that we had. And when you look at our merchandise today, almost every market is in growth with the exception of forest products, where we saw some rationalization in production last year. And obviously, there's a lot of exposure to housing there as well. So that market, while better, you've seen some sequential improvement and less negative growth, I would say. That one is still a headwind.

And then I talked about the tough comps on the export side. But on the coal side, with utility demand, AI, all those things, we're seeing strong demand out there. We'll see if we get a hot summer, that always helps as well. But we had an unusually cold winter that helped from a demand perspective. The unfortunate part was coal gets frozen. You can't move it as much, but we'll catch that up as well. And then the international markets, I would say, are stable. We haven't seen a real uplift there. I do think where you see Australian coal prices and where you see the U.S., it's the largest gap we've seen in a long time. Hopefully, that converges and it converges upwards, but we'll see.

We certainly don't have that in our outlook, but that's an opportunity for us too and as well, and we have 2 mines, as you remember, that were down last year that are now back up. So we're seeing incremental volume from both those mines. And so I would say, internationally, on the coal side, stable and pretty -- we'll see if we get some better pricing as we move into next year.

And we're going to blame the groundhog for that extended cold weather because it's not been fun up here. Talk about the culture change brought to CSX by Steve, and what's different in the organization, right? Obviously, we know you've moved back to CFO and Maryclare to CMO seat. What else do we not see that's going on?

Yes, we have a -- Riz Chand, who just joined us. I think he's been on the job for a few weeks here on the CHRO side, so leading our human resources, that area. Talent is still a huge focus for Steve and developing talent across the organization. So very excited to work with him. He's bringing a lot of great ideas. He has some railroad experience, but he also has a lot of experience outside the industry that he's bringing to the organization. And really making a best-in-class organization around how we develop people, how we think about that, how we compensate folks, all of those things to align to our goals.

In terms of Steve and the culture he's bringing, he continues to say almost every week, make the important things the important things, and it starts with delivering financial results because that allows us to do a lot of things. It allows us to invest in our people. It allows us to invest in our network, allows us to invest in customer service and serve our customers better. And so those are the things we're focused on is as you drive financial results and you get more competitive in the market, you have the ability to go out and get more volume and grow the business.

And so those are the things that starts with delivering results and being part of a winning culture. I think we're all excited about that. It's nice to win. It's nice to put up a good quarter, and you can feel the energy around the building. Certainly, that's been fun. Now we got to sustain it. And that's the challenge for all of us, and I think we're up for it.

So let's talk about some of those financial goals then, right? So you target revenue growth in mid-single digits. That's what you talked about. But is that solely a bump from fuel? Or does that relate to what you were talking about in some of the underlying industrial?

Yes. I think largely, right now, it's from fuel, but there are a few markets where we've seen some better where we're more optimistic than we were coming into the year. I'd point to chemicals. We were optimistic on the aggregate side, but we still see a very strong market there. Pipe on the metal side. It's been very strong. You can imagine LNG export projects, all those things with what's happening in the energy world. We're seeing a lot more activity in that area. The metals market is pretty solid. Tariffs, all those impact those markets.

And then domestic coal, fairly strong winter. We'll go into the summer, expect that to be doing well. So across the board, there's a volatile market out there, a volatile world, so you don't want to get ahead of yourself. So we're going to control the things that we can control and continue to focus on those things. And there's substantial things that are out of our control like energy prices and those things, but it is something that at least in the near term, we see some positive trends for us.

Okay. And then let's talk about core revenues, right? So revenue per car were slightly negative in first quarter, turned positive to low single digits in 2Q, I think, was your comment. But now with fuel kind of up, maybe talk about the contribution of fuel versus core pricing?

Yes. We didn't actually give -- Matthew reminded me, we didn't actually guide yield into the second quarter. But obviously, from a fuel surcharge perspective, we will see some favorability versus where we were in the first quarter. And there will be a slight fuel lag. Remember on the merchandise side, 2-month lag that we'll experience.

So this should be the last quarter where we see a significant fuel lag unless we get $150 oil, and nobody wants that. But what Maryclare said is that we expect better core pricing this year versus last year, and I mentioned that in my opening comments. It's a big focus of the team for us. We've had a highly inflationary environment over the last few years, and we want to make sure we're recovering that inflation through price.

So you target -- I guess, let's take that, right? So if core pricing is doing well, volumes are trending a little bit ahead, you target operating margin gains at the top of your 200 to 300 basis point annual target despite pressure from higher surcharges. Maybe talk about what's leading that update to focus on costs.

Yes, we had a really great performance on PS&O and really across the board, a lot of focus across the organization and a lot of people involved in some of those efforts. A lot of focus on the energy cost. Mike put up a record fuel efficiency number and a record for first quarter. And from a fuel efficiency standpoint, we continue to see favorability there from a fuel efficiency. And there's fuel efficiency outside of locomotives, where we have a lot of emphasis on our vehicle fleet out there, over 300 vehicles, trucks. And within the first quarter, we saw 20% less miles as we focus on that fleet and the usage and utilization there. So -- and now we're looking at the utility spend, right? We have a pretty significant utility spend, how do we get that down.

So it only magnifies the benefits when energy costs are this high right now. And then I look around to what Mike has been able to do and his team and Doug and Carrie and everybody around just looking at the workforce and finding opportunities to drive efficiencies on that end. I would say engineering, we're in the very early stages. We did have some leadership changes there that I think we're all excited about and what can happen on the engineering side and the value that can come. I think that's a multiyear journey, particularly around the capital, as I talked about earlier, but a lot of efficiency opportunities around how we spend in that organization.

And then technology is with everything that's happening in the world and a lot of discussions, and we're trying to prioritize the things that can happen the most value near term, from an AI perspective and all those tools. But when you think about a network where there's a lot of unsupervised people out there working, the more tools you can to manage the network, the better off we're going to be.

And if we can centralize some of that decision-making and make the best decision for the network, those are huge. The benefits are very, very good. And then we're using AI on the pricing side as well and using those tools. And I know Maryclare has been working on a project here and early signs are very encouraging on giving us more visibility on pricing and how we go to market and being more thoughtful around that. So a lot of different categories. I think from my perspective is how do we prioritize the ones that can deliver the most value?

Where is technology going? What should we be doing now with what AI can do today? And what should we do next year because every month you wake up, and there's a new model that can do more. All those things we're trying to figure out. But it's an exciting time. Technology will unlock a lot of the future, I think, benefits that we can experience across almost every part of our business. And I don't think there's an industry that's more ripe for using some of these tools to really manage a network that's very complex.

Let me bring that in near term for a second, right? So for -- that was kind of a good view on kind of the potential for the year and maybe even beyond. But you typically generate 410 basis points of margin improvement from first quarter to second quarter, given the robust performance in the first quarter, which was beyond targets, are we looking at half that level? Can you come close to normal? Is there a guide that you've talked to in terms of relative to historical performance where you pan out?

Yes, I wouldn't -- I think we covered this a little bit on the earnings call, but we did have a very good first quarter. We continue to believe we'll build some of that momentum. Obviously, higher fuel prices from a margins perspective, that will start to flow through and that -- obviously, we're going to do everything we can to offset with efficiencies on fuel, but that can have a negative pressure on your margins optically there.

And then we've talked about some of the other costs, incentive comp will go up a little bit sequentially after delivering a pretty positive first quarter. And then we talked about these other costs related to the transaction. And unfortunately, we're having to pay advisers, consultants and other things to obviously give us the best perspective and a lot of smart people working on the transaction that's pending out there in the market today. So those things are nuances. We always expect second and third quarter to be our best quarters from a margin perspective. That doesn't change. That should continue. But there is just -- from a sequential basis, there's a few things that we pointed out.

That will hit 2Q results, or level of improvement.

Yes. That's right.

That's right. Okay. Service levels, you opened up kind of talking about how well things are running. I mean, it seem to be generating pretty robust levels. Velocity is up 10% year-over-year dwell, down 6%. How directly as CFO, do you see that translating into cost savings?

I think I obviously got the experience in '17, '18, '19, as we ran better, the costs that just naturally drop out. When you have less recrews, when you have -- you're using -- utilizing your workforce much more efficiently, cost just naturally come out of that. There's -- across mechanical, even engineering, you just see costs fall out as you're running a better network. And so that will continue. We have very discrete items that we're going after, and I talked on the first quarter call, there's over 100 kind of initiatives that we have across the organization to drive cost improvement. And we're really checking a lot of those boxes today.

And the other one that -- it's hard to measure. It's hard to put a dollar value up against it, but I know it's there as you run a better network overall, cost us naturally have an ability to fall out. So the better Mike and his team performed, you'll see that cost performance come out.

Yes. You mentioned in your last answer on the cost, AI and the potential. And also you mentioned a couple of times on coal demand and things. So maybe talk about -- we saw the importance of technology in the CPKC merger a year ago in the summer? How are you using AI to lower costs? You kind of threw out a couple of things. Maybe are there specific projects you would highlight so we can understand the scale and speed that you're deploying?

Yes. I think one of the ones that Mike's particularly excited about right now is crew management, right? Managing that workforce. They're our most valuable asset and making sure that we have the people in place to run the trains on time, all those things are important aspects. And there's a lot of data involved in that and understanding how the workforce is trending, retirements, all those things. that AI is just really ripe for. And so you can put a lot of data in there and you can get a lot of insights. Using Excel for that is not always the ideal tool. And so that's -- I know Mike is probably working on it right now as we speak, but he's been pretty amazed at what the early signs and the visibility that he's gaining from using some of these tools out there in the market.

And the other area, it sounds like a small, but it's actually a larger cost area for us is how we monitor our vehicles. Our vehicle fleet that I talked about earlier. We have GPS devices on there. We're really using data tools on how we maintain them. We're spending -- last year, we spent over $13,000 per truck in maintaining and maintenance. It's a crazy number to me. How are we looking at that? Are we selecting the right vendors? Are we holding the vendors that are we not getting ripped off?

I can tell you we're getting ripped off on oil change every once in a while, a lot of oil changes. How are we putting more tools around that, that we can hold our vendors accountable, how we can hold our employees accountable for how they drive. When we first started monitoring vehicles, we had a lot of people that are driving 90 miles an hour and over. And last week, we had 0. That wear and tear on the cars, but more importantly, safety, right? From a safety perspective, these things are good. And you can go after it. You can talk about it. I've seen us do this before, where you go after a cost area and you talk a lot about it, and then you move on the next one. And then the costs creep back into the system, and that's the important thing that we're building these tools in this process that you don't have that -- those costs come back into the system.

So those are 2 areas where we're using a lot of data and, I would say, AI capability to monitor those processes and give us more insights as a leadership team and how we manage those costs.

Headcount is at just shy of 23,000. Thoughts on the headcount through the year. Is it flattish despite the mid-single-digit volumes?

Yes, I think we see opportunities. We do have some people in training, and we'll continue to replenish where we have upside and demand. But where you're seeing a lot of demand occur right now is in our manifest. So we have capacity on our trains. When you look at our train length today, Mike would tell you, across -- almost across the board, we have the ability to grow. And so if you see some of our chemical customers go from 10 shipments a day to 12, 14, 15, that's pretty easy for us to handle as a network.

Well, it's easy for me to say. The ops folks probably would tell you it's not that easy. But it's easier, still the same switch, still going out there, getting that volume. So that's where we see the upside versus where we were today. And so that fits nicely into the network when we think about it. I'll say on the intermodal side, it's been -- Carrie and her team have been phenomenal handling the additional volume that's come through our network. And obviously, with the Howard Street Tunnel opening up, we just ran a double stock train last week.

In that market, we're incredibly excited about what we can do there. We had previously outlined 75,000 to 125,000 of additional loads. That will take -- Maryclare will tell you that will take 2 to 3 cycles in term bid cycles to deliver that kind of growth, but we're optimistic, and we've already seen initial wins in that area. And then -- you had Nadeem here a little bit earlier in SMX, right? That's another area on the intermodal side, where we see a lot of opportunity to grow as they market Mexico into the Southeast. That service is second to none, in terms of speed and the investments we made from a train speed and efficiency there. So we're excited about that. So a lot of growth opportunities kind of across our network right now.

What was the number of intermodal loads from the tunnel was 75,000 or...

75,000 to 125,000 kind of given a range.

Range.

And it also gives us the capability, and we have a unique position in Baltimore at the port, and there's a lot of investments happening there. So you'll see from Baltimore to Chicago is the fastest route today. So we have a lot of customers that are excited about utilizing that ability and capacity.

So let me step back and I guess, go back to -- in CSX just conception. I know coal has changed dramatically and some other things. But CSX used to run 7.5 million carloads about 20 years ago on an annual basis. We're targeting about 6.5 million this year. So I get coal declines, PSR, elimination of equipment, employees are down 25% from the peak, yet up 20% from the lows. How do you think about capacity availability on CSX's network in today's market, given the stuff that Mike has done? And where do you expect the flows to come from?

Yes. I think Mike would tell you -- I know Mike could tell you that we have room to grow almost across every corridor that we have. And we continue to make investments in some yards that are low-cost investments that continue to bring out capacity there. When you talk about a lot of the carloads that are down are the coal side, but we are seeing opportunities across almost every market. When you think about what's happened during that time period, we had to continue to have the industrial -- you had offshoring on the industrial economy. I think that we're really optimistic.

Steve has got a lot of perspective from his previous life on the industrial gas side. And I mentioned it before, I think we're hearing from customers, there's no better place to invest. Now policy-wise and other things, we got to get out of our own way and create a little more certainty, right? The worst thing for investments as having uncertainty. But tax policy is very positive right now from being able to fully depreciate structures on your CapEx.

You also have the energy supply and everybody is looking for energy. When we talk to -- we have a great industrial development program, when we talk to customers. Energy is first, second and third on the list in terms of making sure that, that's available. And we have opportunities across our network for that. So when I think about the trends that have occurred over the last several decades, you've had offshoring of our industrial base. You've had coal declines. I'm optimistic that a lot of these secular headwinds that have faced the railroads, particularly our network, we're uniquely positioned.

Southeast is where people want to develop a lot of the projects, Midwest. We have 2 -- I would say 2 of the 3 largest growth areas in the U.S. in terms of industrial production, Texas being the other, where we obviously don't have a position there, but we're uniquely positioned to take advantage of it. And we happen to have 2/3 of the most valuable consumers in the world on our network. So all of the products want to go to where we have our railroad going. So those are opportunities for us to take advantage of. I think we have a lot of opportunities there. We've got a great sales team to go after that. But I do think some of the secular headwinds that we've faced are changing.

Okay. So let's talk about some of the financials, right? So a 3x leverage, I think, give or take, right, at the end of the quarter. What's your target? And CapEx was down -- I guess, your CapEx target is $2.3 billion, down 20% year-over-year, and now it's 16% of revenues. Is that the right run rate? So 2 questions, one on leverage, one on CapEx.

Yes, let me take CapEx first. There is a lot of opportunity on CapEx to get a lot more efficient. I will continue to say this. Mike is a believer, we're all a believer within the organization. We've got to do it in a thoughtful way. How do we deploy capital, safety is going to be always the primary focus. But the way we distribute capital, and we made a lot of -- I got to tell you, Doug's come in there, shared a lot of perspective. We've had a lot of efficiencies that we've gained already, but we're going to be really thoughtful in the next 3 years and now we spend capital. And we want to -- the more efficient we get on maintenance capital, the more we can reinvest in growth in other areas and technology and other things that make us even more competitive and allow us to go out and deliver more growth through those investments. So this is a multiyear journey.

I do think there's a lot of opportunity just as much as there is on the OE side, I would say there's -- on a percentage basis, it's probably even more on the capital side. And then on the leverage side, we had been on, I would say, 3x is on the higher end of where we would like to be. Given our success this year and our guidance, you'll see that come down pretty substantially. So we've always said the credit rating agencies like you in that 2.5 to 2.75x. That's probably an area where we'll operate in over the long term.

So we have some debt due later this year. We'll make a decision whether we just go ahead and pay that down or we'll be opportunistic given where the interest rates are and all those things and make that decision. But lot of opportunities. The great part is, as we drive CapEx lower, have those opportunities, our free cash flow conversion. We also took that guidance up as you will see. We have a lot of opportunity to get in the near 100% is always my goal. Probably won't get quite to that level. But traditionally, you'll remember in the years prior, you had 50%, 60% cash conversion on net income. We expect that to be much higher going forward. And it's a big opportunity and the quality of earnings goes up with that. And hopefully, that argues for a higher multiple over time.

So you bought back just over $220 million in the first quarter, which was double fourth quarter's level but below $750 million in the first quarter last year. Is that -- what's the right run rate? Is it a $2 billion buyback run rate? What's the...

I think we'll be opportunistic in the market. We're going to continue to be in the market every quarter, but you always want to have firepower when you have market dislocations that are out of your control and be able to step in on those moments. And we've done a really good job over the year. We updated our Board on our buyback history. You saw that we re-upped our authorization there. And so we'll continue down the same path that we delivered over the last few years. And when you look at our average share price that we've repurchased our stock at, we've been highly successful.

So you mentioned and when I asked about the operating ratio, you mentioned kind of incentive comp ramping up in the second quarter. Have you put a dollar number on that? Or cost -- dollar number on costs coming back into 2Q?

We haven't. That's a little bit of a catch-up item and then that will normalize through the remainder of the year.

Okay. So if I were to try to sum up here, I guess, volumes trending in mid-single digits. I don't know if that's a target for you for the full year or not, but that's kind of where you're trending now a little bit well ahead of our target. So Southeast, a growth area in the U.S., you talked about core pricing staying strong. I think you said 3% to 4%. Did you give a number on the core pricing?

On the core pricing, better...

Okay. So core pricing better but above inflation, you said right?

Yes, improved over year-over-year.

Improved year-over-year. Costs, you're working on the 100 projects still. Would you put $100 million number on that, too? Or was that just 100 projects?

We didn't put $100 million.

Just 100 to make sure...

You would expect our efficiencies this year to be in excess of that or driving?

Okay. So 100 projects that you're still working on and looking now at '27 to see what the potential future projects are. CapEx, really a big focus on controlling the costs, getting that free cash flow up, leverage target down to 2.5x. Anything else you want to kind of highlight in that?

No. Again, a highly focused team. We're focused on delivering results. One quarter doesn't make a year, so still a lot of work to do, but I'm excited about all the things that we have going on. And I'll just say that I've never seen such alignment at the top in terms of the team coming together, whether it's Mike, Michael Burns from our legal department, just across the board. Riz, who just came on board, and obviously, Steve and Maryclare, just we have one common goal, and we're all working together, collaborating, challenging each other and -- but I want to drive results. And it's good start.

Awesome. Appreciate you being here. Thank you.

All right. Thank you.

Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation First Quarter 2026 Earnings Conference Call . [Operator Instructions]

And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. You may begin.

Thank you, Abby. Good afternoon, everyone. We're very pleased to have you join our first quarter 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Mike Cory, EVP and Chief Operating Officer; Kevin Boone, EVP and Chief Financial Officer; and Maryclare Kenney, Senior Vice President and Chief Commercial Officer.

In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them.

With that said, I'm very happy to turn the call over to Mr. Steve Angel.

Good afternoon, and thank you for joining our call. I'm pleased with the strong start to the year that our rail rotors have delivered. We made great strides in safety and manage through weather challenges. And we advanced our efforts to improve efficiency and streamline our cost structure. The progress we've made can be seen clearly in our quarterly results. Volume and revenue grew year-over-year, while operating expense moved substantially lower, which led to significant margin expansion and EPS growth. Solid earnings and continued capital discipline helped drive higher free cash flow. Altogether, this represents an encouraging first step toward our goal of best-in-class performance. At the same time, we recognize that we're still early in this process and market conditions remain uncertain. As Maryclare will discuss conflict in the Middle East and rising energy prices are creating opportunities for some of our customers, but this has also added to broader concerns about inflationary pressure and potential effects on consumer sentiment.

What remains constant is our focus on execution. Our team is responding to customer needs by expanding our service offerings, improving transit times and converting freight from truck to rail. We're also moving forward on a wide range of cost initiatives as we push to develop the productivity muscle required to sustain performance over the long term.

I'll now pass along to Mike Cory to cover our safety and operational highlights.

Thank you, Steve. Slide 5 shows highlights for our safety and operational performance. [indiscernible] class performance starts with safety, and we've made good progress in the first quarter. Our FRA injury rate improved by 13% compared to last year, and that's with a 9% reduction in people hours, and our train accident rate improved by over 30%. Operating safely benefits our employees and our customers, and it allows us to run a more fluid efficient network. We remain committed to developing a culture at CSX, where effective risk awareness, and safe operating practices are consistent across our organization. Operationally, we successfully managed through the severe winter storms that covered most of the Midwestern and Northeastern United States through the quarter. Our key metrics compare favorably to last year when closures due to that Blue Ridge reconstruction and the Howard Street Tunnel project impacted our resilience.

Train speed, dwell, cars online, all improved on a year-over-year basis. We also delivered record first quarter fuel efficiency of 0.97 gallons per 1,000 gross ton miles and achieved a 0.93 gallons per 1,000 GTMs in March, our best performance since 2021. Performance at our intermodal terminals has been very good even as we've absorbed substantial new volume. For example, the team at Fairburn in Atlanta handled a 15% increase in intermodal lips with our expanded domestic business in the Southeast, while maintaining service our customers can count on. As well, the team has been very effective in finding and eliminating inefficiencies. Our engineering and network groups have been improving productivity substantially through more efficient use of work blocks and better overall coordination with our transportation groups. We've seen double-digit efficiency improvement in rail and tie installation to start the year through disciplined curfew execution.

I'm extremely proud of this team and what we've accomplished and there's so much more that we're working toward. We've got great momentum, and our goal is to build on these successes as we progress through the rest of the year.

With that, I'll turn it over to Kevin for financial results for the quarter.

Thank you, Mike, and good afternoon. As we -- as both Mike and Steve noted, 2026 is off to a strong start. Volume and revenue are up while costs are lower across the company. These results reflect significant work in partnership through out CSX to drive efficiencies in nearly every part of the business while maintaining our commitments to safety and customer service. Total revenue increased 2% on 3% volume growth as pricing gains and higher fuel recovery were offset by business mix impacts. Total expenses fell by 6% from the steps taken to improve our cost structure and improve network fluidity. As a result, operating income increased 20% with earnings per share up 26%.

Turning to the next slide. Total first quarter expense decreased by $153 million compared to the prior year. The variance includes over $100 million of year-over-year efficiency savings plus other benefits from real estate and the lapping of network disruption costs, partly offset by inflation and higher fuel prices. Labor costs were 1% lower as a 5% reduction in headcount, paired with a $10 million reduction in overtime expense offset inflation. PS&O savings were broad-based, benefiting from increased accountability for discretionary costs, eliminating wasteful spend and improved asset utilization. As an example, CSX's vehicle fleet is 7% smaller relative to the end of 2024, including opportunities we found to turn in costly equipment rentals that will reduce both operating expense and capital spend.

We will continue to press on these costs at the individual asset level and new tools will support accountability and address unsafe and inefficient driving practices. We are bringing cost control to the front lines of the organization and educating our leaders on costs beyond their own budget. As Mike mentioned, our engineering group has found ways to drive efficiency, including less use of overtime labor, which will reduce capital spend this year. Along the same lines, we are improving visibility of freight car hire expense. So our field leaders can support the network center and managing the cost pool of over $1 million of spend per day. While fuel expense was a headwind in the quarter when higher diesel prices, we delivered a record first quarter fuel efficiency and remain focused on reducing both locomotive and non-locomotive fuel spend.

As we move into the second quarter, we do expect some nonseasonal expense from incentive compensation, timing of contractual locomotive costs, including overhauls and advisory costs related to industry consolidation. As Steve noted, we are focused on creating a sustainable efficiency process that provides our leaders with tools and data visibility, while empowering these same leaders to take action. We are not lacking opportunity to continue to improve as we look forward to the years ahead.

With that, I'll turn it over to Maryclare to review revenue results.

Thank you, Kevin, and good afternoon, everyone. Our business performed well in the first quarter due to the great work of the commercial team and our strong partnership with the operations group. Early on, cold weather and storms weighed on shipments in certain markets, but our network was resilient. We stayed connected with our customers and finished March with momentum supported by new business, reliable service and favorable trends in select markets. We've had a good start to the year, and we see several positive indicators entering spring. Looking forward, we remain nimble and customer-focused while executing on initiatives to expand our network reach, improve our customers' experience and drive profitable growth.

Slide 10 covers first quarter volume and revenue performance. Overall, total volume was up 3% in the quarter, while revenue was up 2%. Business mix impacts led to a 1% decline in total revenue per unit. In merchandise, volume was flat year-over-year, while revenue and RPU grew 2%. Same-store pricing was in line with our expectations, though total merchandise revenue per unit was impacted by mix. Looking at some of the individual markets, minerals growth led merchandise, up 4% in volume, supported by cement and salt shipments. Chemicals was supported by higher frac sand shipments as data center demand drives natural gas production and strength in plastics as domestic producers benefited from overseas supply chain disruptions.

Fertilizers saw gains as phosphate exports out of the Boone Valley improved. On the other hand, forest products continued to drag with volume down 9%. We are facing difficult comps as we cycle closures that occurred in 2025, while demand remains impacted by weak housing. One emerging positive here is that shippers are looking more to rail conversion as they weigh the impacts of higher fuel and trucking costs. Intermodal was strong this quarter, with revenue up 5% on a 6% increase in volume. New business with key customers benefited us in both international and domestic markets. Mix was also a factor with RPU down 1% as we saw substantial growth in our inland ports business, which tends to be shorter length of haul.

Finally, revenue for our coal business declined 1% on 1% lower volume with domestic tonnage slightly up and export slightly down. Utility coal demand remains high and strong operational performance in March supported customer restocking, but export shipments were impacted by cold weather that temporarily reduced loadings. Sequentially, global met coal benchmarks remained largely flat, but coal RPU benefited from a favorable mix of Southern utility deliveries.

Slide 11 covers highlights of our market expectations for the rest of 2026. Starting with merchandise, we see near-term opportunities in chemicals as domestic plastic producers have a stable supply of feedstocks and look to capitalize on global supply imbalances. Commodities like aggregates, cement and construction steel remain in high demand for infrastructure projects. Our metals business should also benefit from the ramp-up of new facilities we serve. Housing affordability remains a real headwind, particularly with our Forest Products business, where we've seen additional closures year-to-date. Automotive continues to be pressured by lower production and the extended retooling of a major plant on our network. Our Intermodal business has good momentum with tighter trucking supply and higher diesel prices creating tailwinds for freight conversions. Customers are also responding well to new faster service options. We continue to look for ways to enhance service on both traditional intermodal lanes and new offerings. We are completing the final infrastructure improvements on the former Meridian and Big B railroad, and we will soon be launching improved service with CPKC on our SMX product. SMX provides truck competitive transit between major markets in the Southeast, with Dallas and Mexico and recent investments will enhance both speed and efficiency. Additionally, the final infrastructure improvements around the Howard Street Tunnel clearances are nearing completion. When complete, we will shave a day off our East-West transit and will connect markets in the Southeast with the markets in the Northeast more efficiently than ever before.

Our international performance has been strong against challenging year-ago comps. So energy cost inflation poses risk to consumer demand and imports. Export coal should see the benefits of reopened mines. Power demand remains strong, supporting domestic utility volumes. We do have two facilities on our network now scheduled to shut down in the second quarter, but client life extensions prevent potential upside. Global met prices remain relatively stable, and we expect that to persist amid challenged global steel demand.

On the next slide, I'll provide an update on our industrial development program. Our team is positioning CSX Rail as a compelling solution for new and expanding manufacturing facilities. Our pipeline of approximately 600 active projects remain strong. 21 projects went into service over the first quarter alone, which should contribute an estimated 33,000 annual carloads at full ramp. For the full year, we expect approximately 100 projects to enter service. This is a very strong year with multiple facilities coming online that were approved 3 to 4 years ago. For context, these 100 projects are expected to contribute roughly 50% more volume at full ramp than last year's 85 projects combined. The map on this slide gives detail on our Q1 projects and service, including highlights for three key projects. We worked with Keystone Terminals, a bulk commodity terminal in Jacksonville, Florida to develop a new rail extension enabling synthetic gypsum shipments to move on our network. Martin Marietta expanded a rail-served aggregate loading facility in Green Coast Springs, Florida with new rail infrastructure.

With strong demand in this market, this facility is expected to reach full ramp by the end of 2Q. We also supported Diamond pet foods with a multistate site search that settled in Indiana. Our team worked with the company to develop a complete track design that was incorporated into their site plan. I'm proud of the depth of work across our sales, marketing and industrial development team as they continue to build the strong customer and community relationships that underpin our growth efforts.

With that, I'll pass it back to Steve.

Thank you, Maryclare. Now we'll review our updated guidance for 2026 on Slide 14. Our revenue performance was in line with our expectations and showed favorable trends as the quarter progressed. We remain encouraged by the opportunities ahead for the balance of the year. The change to our top line outlook is largely driven by higher-than-expected energy prices, particularly diesel, which will begin to lift fuel-related revenue starting in the second quarter. Including fuel and assuming diesel prices follow the forward curve as of this week, we now expect full year revenue growth in the mid-single digits versus low single digits previously. As you know, higher fuel increases our revenue and expand our expenses, which can pressure reported margin. That said, we are pleased with our cost performance year-to-date, and as Kevin described, we have a broad range of productivity efforts underway that position us well for next year and beyond. As a result, we will anticipate year-over-year operating margin expansion of 200 to 300 basis points, but we now expect results to trend toward the high end of that range. We still expect total 2026 capital spending to be below $2.4 billion, and we now anticipate free cash flow to grow by more than 60% compared to 2025.

In closing, I want to thank everyone at CSX for their contributions to a successful quarter. We remain focused on our goals and are confident in our ability to continue this momentum through 2026 and beyond.

And with that, Matthew, we will open it up for questions.

Thank you, Steve. We will now proceed with a question-and-answer session. [Operator Instructions] Abby, with that, we're ready to begin.

[Operator Instructions] And our first question comes from the line of Chris Wetherbee with Wells Fargo.

I guess just looking at the guidance here, maybe we'll start where you guys wrapped up. And by our math, fuel sort of adds about 100 basis points to the operating ratio or takes away 100 basis points from the operating margin as we think out through the rest of the year. And so to maintain it and then obviously biased towards the high end is a good outcome. I was hoping maybe you could sort of outline some of the productivity opportunities that you've uncovered maybe could put some numbers around it, that would be great. But also sort of what's left to come, I guess, as the year progresses and how we should be thinking about that sort of upper end of the 200 to 300 basis point range as we go through the next several quarters?

Yes, Chris, thank you. Obviously, very, very happy with the start to the year. When we convened in the fourth quarter and came up with a plan, that plan consisted of different initiatives. And obviously, that's a lot of work by a lot of different people throughout the organization coming together and driving that progress. And quite frankly, I think a lot of the things that we knew were there. We happened -- the team delivered maybe even more quickly than we thought they would. And so you're seeing that in the first quarter results here. I think your math around the fuel surcharge is relatively directionally correct. Obviously, a lot of uncertainty of where fuel will end up through the rest of the year. But when you look at the initiatives, clearly, you saw a lot of progress on the PS&O line item, and that's a lot of work everywhere. I talked about vehicles. When you look at energy costs, that is one that we're really talking a lot about internally of not only locomotive fuel but fuel related to vehicles and other areas, utilities utility spend is a big part of our spend as well. So I would say energy over the next few months is going to be in the crosshairs of everything we're trying to do to try to drive efficiencies, vehicle spend, as I mentioned, but the list goes on and on, and we continue to develop that. What our progress has done, it's given us the opportunity to now think about 2027 and starting to build that pipeline. So I'm excited about that progress. I can't thank Mike and his team enough for all their work. It's been a group effort to go after it. And I expect us to continue down this path. We got to hold on to these initiatives. So that will be the big focus as we continue through the year is delivering on the plan that we set forth in the fourth quarter.

And our next question comes from the line of Ken Hoexter with Bank of America.

Really great to hear and great job on the cost side and the progress there, exciting to watch the potential. The -- if we think about, Maryclare, the service, the Howard Street Tunnel Port of Baltimore project, maybe just talk about timing and scalability of when the double stacking is going to be fully launched and loaded? And then how quickly can we see it, right? Because you're already posting kind of mid-single-digit growth now what can the system handle? And how quick can we see that volume ramp up?

Yes. Good afternoon. So I'd say on the Howard Street Tunnel. We talked a little bit about it before, but really excited about this project. It's been a long time coming and the operating team really did a phenomenal job last year getting the work on our end completed. The last bridge should be complete in the next week or so, and then we will have double stack access. We talked about it before, there's a couple of things that unlocks for us. One, it's additional capacity and efficiency on the East-West corridor. So you think about going from Western U.S. to Baltimore, vice versa, even Chicago to and from Baltimore. It essentially doubles our capacity there, and it's also going to take about a day out of our current transit. So we're really excited about that. It also grants us the efficiency on the I-95 corridor. So we have really fast service, great service from Florida up into New Jersey and Baltimore. Once again, we'll have double the capacity there. And so we're excited to unlock that. But the third kind of component here is it allows us to efficiently serve markets that we really cut it before. And so we're adding connection points when you think about places like Atlanta up into the Northeast and when I say Northeast, New Jersey, Chambersburg, Philadelphia, places like that. And so that is newer service that we have not traditionally offered because we couldn't be efficient with that in the past. And so that will take some time to build. We've been talking to our channel partners and shippers for a while about this. They're very excited about it. We're coming to the tail end of this year's bid season, but we're seeing some traction, and that will continue to build over the course of the next year or so. From my past experience, I'd tell you, new services typically takes a couple of good seasons to really see it get to kind of full ramp.

And our next question comes from the line of Stephanie Moore with Jefferies.

I wanted to maybe touch on what you're seeing from an overall macro and freight environment. I believe your guidance, at least the prior guidance did not assume any kind of macro recovery. I'm assuming the current revenue guidance also doesn't assume any macro recovery. Just wanted to get your sense on what you're seeing in the market, the level of conservatism with that underlying assumption.

Yes. I'll get a little update on the markets. I talked about some in the prepared remarks. But I'd say as we came into this year and we talked about back in January. We saw opportunities in a few markets, but we also saw broader headwinds with industrial production. And so kind of base lining what we said in January, we talked about areas around infrastructure investment, we still felt very positive about. So you think about aggregate side of the business. You think about metals that go into construction. So pipe, plate, rebar, those areas we felt good about. And then we felt good about our domestic intermodal business as well with truck conversion opportunity and new services that we had launched. We said on the other side, though, a lot of our business is tied to housing and automotive. And those markets have been pretty bleak. I would say, as we sit here today, we haven't really seen improvement in either of those areas. And so auto production still right now is forecast to be down about 2% this year. We've mentioned a few times, we have a large plant on our network that is down for the year for retooling. And so that's another headwind for us. And when you think about the housing side, it's an affordability issue. Interest rates are still high, and they've bounced back up a little bit after everything that's happened in the Middle East. And so those are still headwinds. Additionally, in our Forest Products business, we talked last year quite a bit about the fact that we had paper and pulp mill closures that we have to overlap, and we won't really surpass those until later this year. So those elements from the beginning of this year haven't changed. I would tell you what I would say, we have seen a bit of a difference in is one, with the conflict in the Middle East. We saw improvement at the tail end of last quarter and into the beginning of this quarter in the plastics business. And so feedstocks, domestic producers have opportunity, I think, here. We're not sure how long that will last, but that has been a more positive upside than what we expected coming into this year when we originally had seen global oversupply in that area. The second area I'd mention is with higher fuel prices, that does increase the value proposition of rail. And so I'd say we're more optimistic today than what we were in January in terms of truck conversion opportunities probably primarily in our domestic intermodal business, but some other areas to like our Forest Products segment.

And our next question comes from the line of Scott Group with Wolfe Research.

So -- I don't know, Steve or Kevin, we've seen just such massive inflation in that PS&O line in the last 4 years. And I guess, you just touched on it a bit earlier, but like seeing some good progress in the first quarter on lowering that? Like is this a good -- the $660 million, is this a good run rate, or is there more opportunity to go on sort of fixing this PS&O line? And then maybe if I can, just like near term, there's just a lot of noise. We had a gain in Q1. We've got fuel moving around. Any thoughts on how to think about sort of sequential margin improvement in Q1 to Q2?

Yes. The PS&O makes up -- there's a lot of different things that are in there. And I would say, Steve would say we're never done there. I have the procurement team continues to push our vendors for value, and that's going to continue here in earnest. But it's -- as I mentioned before, there are a lot of different components. It was an area that we definitely -- and the team definitely saw a lot of areas for improvement. In terms of the sustainability of this, we're going to continue to go after. And as I mentioned earlier, Mike and team, along with the finance team and others, we're already pivoting to 2027 and looking at all the cost line items and seeing where there's opportunities. And so there's absolutely more to come on that. We're going to layer it in and be very, very thoughtful on how that -- and how we think about those costs. But those are things that we'll continue to identify here. Looking at second quarter, I mentioned some of the things within PS&O that, obviously, we won't have the real estate gain that occurred in the first quarter of $44 million. Didn't mention the overhauls on the engine side, that will be a little bit higher than what we saw in the first quarter. Transaction cost, related costs that I mentioned. I would also say fuel at the higher levels for the second quarter, which we anticipate being higher than what they were on average for the first quarter will, by default, have some pressure on the margin side of those things, too, just given where fuel prices are today. But as I mentioned, too, that only motivates the team to go after those costs and drive more efficiency in those areas. So I do think the focus right now is to deliver the plan that we laid out here in the fourth quarter and make sure that the team and everybody is being held accountable to that and then starting to build the pipeline for the years ahead and making sure we have visibility to continue the cost efforts going forward.

And our next question comes from the line of Brian Ossenbeck with JPMorgan.

Maybe just one quick follow-up for Kevin to start. The gain on sale. I know this can be lumpy. Is that sort of what you expected coming into the year in terms of a run rate for the rest of the quarters? And how should we be thinking about that in the back half of the year, I guess, since you said it's not going to occur into 2Q. And this is a broader question for Mike. Obviously, a lot of productivity gains are starting to come through. So maybe the dwell time being a little bit elevated and some of these terminals that we're looking at doesn't have as much of an impact as we might thing from the outside looking in. But I want to get your perspective because while there's easier comps year-over-year and is still improving out of tough weather, some of the areas are up quite a bit in terms of the dwell time. So I don't know if that's mix perspective is that reworking some of the yard and the systems, but I would like to hear your thoughts more on that point in particular.

All right. I would say are of the real estate. I think we did anticipate this coming into the year, the $44 million. I wouldn't expect -- there's nothing in the plan or the forecast or anything of this size, the remainder of the year. We always have some small things that that come through and Christina and her team do a great job of identifying those things, but nothing as material to this point. There's always things out there and whether we're able to convert them and pull them forward, we'll see. But not currently in the plan for this year.

Yes. Thanks for the question, Brian. As Kevin talked about before, our productivity initiatives are really broad-based, and they're across all operations. And really, the overall focus is on waste cutting overhead and especially improving our capital efficiency. So we've been really disciplined with our work teams, our engineering work team start times and the full completion of their allotted time. And just as an example, this year, we've been close to 100% on our curfews, the track outages this year versus I'd say, 70%, 60% the last preceding years. In some cases, we don't get the work done, and that's a safety liability and then the overall cost is tremendous. So in some cases, to get this work done this year, we've impacted our train and yard plans because we're installing new methods of performing the work. So closing down the line or a portion of the yard for 24 hours and working continuously has caused some rerouting of trains and traffic, and it has caused delay. Now that's not a design, but it's more so a learning opportunity at this point to gain that efficiency to see if we can do it. And the plan going forward is to build the right plan about -- around the work that we're doing and the things we're learning from. So the focus in the last 30 to 45 days on these efficiency opportunities is really starting to show us where not -- only do we have to dig in and improve, but it's also showing us places that we need to maybe do some capital work. And so some examples that we were actually in progress of doing but our yard in Cincinnati, we're completing power switches this year, and we've started to begin the work in Nashville in the same way. We've identified that work on sidings over some of our busy southern corridors to increase activity, our focus is always on improving those operating metrics. And as much as we're deeply engaged on safety and service, we're just driving equally as hard on the internal metrics, but we're trying different things to create overall productivity. And I'm very well -- very aware of the dwell and the train speed, and that is a huge focus for us, and we'll bring that back in line. But we're not going to stop trying to get smarter and better in how we deploy all our costs.

And our next question comes from the line of Brandon Oglenski with Barclays.

Steve, you're another quarter into the job here, and I know you and the team have aspirations here to drive higher return on invested capital. I guess this question is a little bit open ended, but I'd like to get your input on it. As you look at it today to drive a higher ROIC in the future, is it really like asset productivity, is it improved business mix or pricing, cost efficiencies or all of the above. I mean I would love to get some direction on that.

Sure. So as you know, you got a numerator and a denominator in return on invested capital. And I've had a lot of experience with this over the years. The best way to drive return on invested capital is to drive the numerator. And that's improving our operating margins, our operating margin performance, growing operating income, that's the top line. And you've seen our guidance for the year. You've heard both Kevin and Mike talk about the fact that we're working on 2027 productivity initiatives as well as executing during 2026. And that, to me, is really the secret to driving that top line to make sure that we build that productivity muscle so that we can count on that contribution year in, year out. And then on the capital, the denominator side, it is being more prudent in terms of how we spend capital. Certainly, that has an impact. We have Mike talked about how we are performing our engineering work in concert with transportation so that we're much more efficient and effective in terms of how we execute some of these significant projects. I would say we were in a kind of in a mode where we had lots of projects going on simultaneously, not really making the progress we needed and bringing them to conclusion and by working more in a block mode, we're able to execute large projects more quickly, more efficiently, spend less dollars and get the benefit of that investment. So that's just one example of what we're doing on the capital side. Kevin is heavily involved in managing the capital funding process. We look at every project now. Everyone has to stand on its own. We follow them individually. We're going to make sure we're executing the way we need to execute. And then really longer term, when you look at capital spend, I think predictive analytics can play a major role in terms of making sure that we focus our capital spend certainly in the infrastructure side. And we can focus the capital spend, and we can prioritize that spend based on what's needed not necessarily what we think we need to do from a maintenance standpoint, but what the analytics and the data tells us, we need to prioritize in terms of our spend. And as we move down that path as we do a better job with that, I would expect that our overall capital spend would be lower year-over-year because we're spending the money on the right things as opposed to what we believe, based on our experience, we need to spend the money. So all that's kind of a long answer to say that that's how I think about return on invested capital. We've said we want to be best-in-class and a lot of metrics, that's one of them. And the way to do that is continue to drive that numerator North grow our earnings year-over-year, manage our capital spend very effectively, and that's how we'll do it.

And our next question comes from the line of Tom Wadewitz with UBS.

I wanted to ask a bit about on the pricing side. There's been a pretty substantial and rapid tightening in the spot market in truck, and I think contract rates going up quite a bit, too. For Maryclare or broader, how do you -- how should we think about the time lag between that? Is there that way you could see in intermodal or merchandise in pricing? Is there some of that that can benefit you in second half, or is this really like it's great to see, but we should expect more pricing in '27. And then I guess maybe just within the quarter, are you seeing any kind of change in underlying pricing in merchandise I know you talked about mix being a headwind, but just like is that kind of similar to what it's been or any change there?

Yes. Thanks for the question. So we talked about pricing last quarter as well. And I'd say it's an area I looked at as I came into this role. And I think we've said before that we expect on a same-store sales basis pricing to be better this year than what we saw last year. We deliver an important service product for our customer, and it's important that we ensure that we're pricing appropriately and getting the value for the service that we deliver. I'd say it's a look at merchandise pricing over the course of this year. Discretionary pricing, what we can touch has been solid, and that will benefit us as we get later into this year and certainly into next year. We've mentioned before of our total book, it's only 50-or-so percent that we can touch on any given year. And so we can't at any given time. So we can't touch everything at the same time. And so there is a lag effect. I'd say as you think about the intermodal side of the business, we continue to focus on price there just as we do in other markets. But it is different than other segments. And for example, when you think about international intermodal, it's pretty heavily concentrated. It's primarily contracted under long-term deals, and it's not really highly correlated to changes in the truck market. And so that's a little bit of a different area for us.

And our next question comes from the line of Ari Rosa with Citigroup.

Congrats on some strong results here. Steve, I'm curious, just an update on the M&A situation. Last year, we heard a lot of concern that a TransCon merger could leave CSX at a competitive advantage, or I'm sorry, a competitive disadvantage. Clearly, a lot of good progress going on. But as we step back and think about kind of what the business looks like a year from now, 2 years from now, 3 years from now, to what extent is that a concern? What steps are you taking to kind of position the business for that? Maryclare talked about the kind of build in the intermodal business that opened up by the Howard Street Tunnel and some of the opportunities there. Just give us your updated thoughts on kind of where vulnerabilities might lie, and how CSX is kind of positioned for that future if it does unfold?

Number one is doing what we're doing today and continuing to execute at a high level in the base business. Maryclare talked about some of the growth opportunities that we have, of which there are quite a few. Obviously, there's uncertainties out there in the market and so forth. But we feel pretty good about our growth opportunities. We feel pretty good about how we're operating our focus on capital, et cetera, et cetera. So a lot of things are going positively in that light. The way I think about the merger, and again, you've heard me say this before, it's a long process. The one I was involved with took 3 years from beginning to end. So a lot of time is going to lapse between now and some conclusion whatever that is. I would look at any industry consolidation and say that if you're in that industry, there's going to be some challenges you got to go manage. There's going to be some opportunities to capitalize on. And I suspect if this merger goes through, we'll see both. But it's going to take a good bit of time. We don't know what the end result is going to be. I think in the interim we're just going to focus on execution and make sure that whatever happens down the road, we'll be going into that situation from a position of strength. And that's always been my philosophy, and that's where we'll be.

And our next question comes from the line of Richa Harnain with Deutsche Bank.

So I wanted to ask about the projects that are expected to contribute. I think Maryclare, you said 33,000 in annual carloads at full ramp. When do you expect to get to full ramp? And if you have a total of 100 projects expected for the year, will the incremental 80 or so have the same impact as the '21? I mean at that contribution level, we could get to very strong carload growth implied on an annual basis. So I just wanted to make sure I wasn't missing anything understanding the cadence of that. If you can drill into that, that would be great.

Yes, thanks for the question. I'd say every project is a little bit different, right? And so when we talk about the 21 projects that are across multiple different business units. And when I think about our industrial development efforts last year or what we've seen this year, what we've got in the future pipeline, they vary. There are some larger projects. Last year, we talked about an auto plant that came online that over time once it gets up to full ramp will be pretty sizable. I started out with one vehicle. And so it will take time for that to bring them. We also have other projects when you think about some of our areas where it's a few thousand carloads, right? It's smaller in scale, smaller on revenue. And so the good thing about this is it's a pretty diverse pipeline, and we're excited about that. It's not heavily correlated or concentrated in one particular area. And so as we think about changes in the market, that gives us a benefit as we think about the future. So we're excited about it. I'd say that's probably all we're going to get from a guidance perspective at this point on ID, but we're certainly excited about the pipeline that we see, and it's an area that we'll continue to develop as we go forward.

And our next question comes from the line of Jonathan Chappell with Evercore ISI.

Maryclare, the one segment we probably haven't touched on from a pricing or yield perspective is coal, up about 3% sequentially. That's the first time in several years, basically flat year-over-year, also the first time since '22. Is this a function of some of the index headwinds finally easing? Is it a mix benefit? Is it sort of commodity price volatility kind of helped coal maybe vis-a-vis oil and a long way of getting to, is this kind of the start of a recovery, or when you think about coal RPU for the rest of this year, think about 1Q and extrapolate that?

Yes, thank you. So I'd say, we talked about on our last call the fact that on the export coal side. Last year, we saw the benchmarks come down throughout the course of the year. So by the time we got to -- in the fourth quarter, they were pretty substantially lower than where they started in January of the year. What I'd say is what I've seen from fourth quarter into first quarter of this year is the primary benchmark that we're tied to on the high-vol side, it's been relatively stable. So we had probably the biggest year-over-year impact in the first quarter. And as we saw those benchmark prices come down last year, that gap will close some if benchmarks stay where they are today, which is our current expectation, and what's kind of in our forward thoughts. I would say on the domestic side of the business, we do see good demand out there. So there's strong demand for power, data centers and continued investment in that infrastructure is going to continue to pull on the power. So we feel good about domestic demand. We've mentioned before, there's a couple utilities on our network that our plan to close this quarter. But with the power demand that's out there right now, we expect there could be some extensions associated with those. And so how we see domestic overall market strong, but in terms of impact for us, part of it will be determined on whether or not we see these closures come about or we see the extensions on those facilities.

And our next question comes from the line of Jason Seidl with TD Cowen.

Questions for Mike. Mike, we have the bridges opening up here to enable you guys to run double stack, and you've made some changes on freight flows around Chicago. What else is sort of on track for the remainder of the year that will help productivity and obviously push margins?

Thanks, Jason. Well, in Chicago, just to clarify, we're just streamlining our service by really running direct from origin points in CSX to our connecting carriers and belt lines for processing to other carriers. We've always used bell carriers to forward traffic, and now we're combining all the traffic that comes from outside of Chicago, through Chicago with the Bell carrier. It just reduces handlings, reduces time on all the traffic and on the reverse, it works the same way. So across the rest of the network, what we're really looking at, as I said earlier, is a cross-section of productivity initiatives, and we've got some really good teamwork going on. Our engineering group is delivering quite a bit of efficiency that we see extrapolating out through the year, and they're working extremely good with our network group. So Casey Albright, Doug or Herchuk are really driving. We learn more efficiencies every day, Jason, I'll put it that way. The things that we don't know or what we're going after. And on the intermodal side, really speeding up to Maryclare's earlier points about offering faster service lean, getting that new business we're going to be putting expansion into our Atlanta terminal Fairburn in Atlanta. Kerry Kroger and the team, driving some good results there. Look, we're looking for as much productivity in terms of reducing handlings, speeding up traffic and getting rid of these inefficiencies that have been inside of all of operations, not just through dwell and train speed, but there's a lot more that's out there that's within the entire group that we're going after.

And our next question comes from the line of Walter Spracklin of RBC Capital.

So Maryclare, just a question for you. I noticed that obviously, you touched on the on the pipeline of projects that you have in the works? And I'm just trying to separate what you would get in terms of growth from company-specific projects in total versus what you're seeing in terms of pressure in the macro. Obviously, the net is that you're guiding for flat. Just curious if that's plus 2 on projects, minus 2 on macro, or something less or more than that. Again, just trying to isolate for your company-specific growth so that hopefully, when the market improves, and we see some macro improvement, we can layer your company-specific opportunities on top of that.

Yes, thank you. So I would say, we told you about the projects that we've got in the pipeline. When I think about where we've been -- we've added good strong business over the course of the last several years through ID, and we expect that to continue. I think we've received questions over time around with broader macro forces that impacted industrial development. And what I'd say on our side is our pipeline has continued to remain strong. We have seen in a few areas where projects have ramped a little bit slower than what we originally expected due to the macro economy. I think what we have to take into account here and without kind of getting into specifics of one versus the other, we had closures that impacted our network last year as well. And so that was primarily concentrated, and we talked about those in the pulp and paper mill side of the business as some of our customers were driving efficiency within their own business. But still net of that, we see incremental opportunity with ID. And so I can't project the full future in terms of will we see something else happen this year in the matter of a closure, but for right now, we think this is certainly a net positive for us.

[Operator Instructions] And our next question comes from the line of Ravi Shanker with Morgan Stanley.

Just a 2-parter for Kevin. I think you highlighted some cost headwinds in your commentary, incentive comp and a couple of other things. Can you just give us a little more color there on quantity and timing of those items? And also, you guys have said a couple of times that you're pivoting to 2027 and the productivity actions. Can you just unpack that a little bit more? Kind of is that because the 2026 [ cake ] gets pretty much baked and kind of any incremental gains that are going to come in 2017, or is it because the nature of those actions are more long term?

Yes. Well, first, just kind of unpacking the second quarter commentary. The things I would like to point out, again, the engine overhaul is that we pointed out some additional costs with obviously, transaction cost. And then I did highlight that on the fuel side, with the higher fuel price, you'll see some of that flow through from the margin profile. And so outside of that, probably not going to be a little bit more specific, but I would say probably from a PS&O perspective, on a sequential basis, not the normal seasonality that you would see there based on some of those items I discussed. Why I'm talking about, and why the team is talking about the efforts around 2027 is, yes, we do have a plan in place for '26. Are we going to hopefully find things. As Mike said, he's finding things all the time. Yes. What we want to do is create a muscle, as Steve said, in the cadence of continuous improvement. And so obviously, those things that we want to do in 2027, we got to start now and have a plan together by the middle of the year, so we can execute on that. And obviously build momentum, and we talk about exit rates in any given year, and we want to build an exit rate in the '26 and in '27 to make sure we're delivering on year-over-year improvement consistently. And so that's going to be something that the team is focused on for the remainder of this quarter and going into next year. And obviously, the 100-plus initiatives that we have for this year, we got to make sure we stay on track and continue to add to those as well.

And our next question comes from the line of David Vernon with Bernstein.

So if we think about the framework for the guidance, the 5% top line, obviously, or including fuel. I'm just wondering if you're also getting a little bit more optimistic or less optimistic on the volume side. And as I say a disaggregation between sort of price and quantity in the updated guidance. And then Mike, when you look at the headcount of the staffing level you're at right now, are you at a level where you feel comfortable being able to handle sort of low single-digit growth, or are we going to be needing to kind of refill the talent pool a little bit? I'm just wondering how you're thinking about head count underlying the guidance that you gave us today?

On the revenue side, I think Maryclare and both Steve kind of highlighted that the majority of our upward pressure on our guidance in terms of the revenue or upside that we talked about, it's largely around the fuel side of things and energy costs, but those are impacting positively some markets. Certainly, there's a lot of moving parts to the economy right now. We're watching that. But Maryclare to touch on that we exited the first quarter positively. And we'll see if that continues. We're hopeful that continues. And some of that, a small amount of that has been embedded in our forward guidance, and then I'll to it over to Mike.

Yes, David. Look, we feel comfortable right now with our crude headcount levels, we may see an uptick in in the T&E labor in Q2 to Q3, where we see generally a little bit of higher volume and some peak vacation time. But we're going to continue to carefully manage our attrition levels. And we're always looking for ways to be effective and productive with our workforce, but we're staying very close with Maryclare and her team to ensure we're hiring for volume where we need it. So we're comfortable right now though.

And ladies and gentlemen, that concludes our question-and-answer session as well as today's call. We thank you for your participation, and you may now disconnect.

All right. You guys can all take your seats. We'll get started here. We have CSX up next. We've got Maryclare Kenney, who is the new Chief Commercial Officer. So very excited to have you here today.

Thank you.

Thanks for coming. Bill Slater is in the audience reprising his old role here for a change. So thanks very much for making it here. I know it's a little bit difficult. But with the weather, there's been a lot of disruptions. We thought would have been out of them by now, clearly not. But how is the network running overall? And what sort of service do you have in your team to sell and bring to the market?

Yes. Thanks, Brian. So first of all, thanks for having me. Excited to be here. I would say overall, the network is running well. We've certainly seen some weather impacts this year. So I think as I think back as we start off the year, first part of January is actually pretty good and then got hit with 2 storms kind of back to back that impacted both the network, but also some of our segments of the business with customers having challenges being able to load and kind of keep up with our typical volumes.

We kind of recovered from those initial storms, had a few more impacts over the course of February. But I'd say the operating team has done a really nice job building resiliency into the network and really getting it back up to strong levels of service performance.

From a market perspective, there are certainly certain areas that have been more impacted by the weather issues than others. I'd say aggregates. So when you're trying to get rock out of the ground and it's frozen, that can become a challenge. So we've seen a little bit of a slower start than what we had planned within that market. Waste has a little bit more impact from the weather. And then I would say on the coal side, while higher natural gas prices and demand with cold weather pulls demand for coal, we definitely saw some impacts end of January, early February from frozen coal. So we're starting to recover from that as well.

I didn't know if frozen coal was -- could happen.

Yes. Unfortunately, it does not make it easy to unload coal when it's frozen. So it creates challenges, both on the producer side and the distribution side at the end.

So other than weather, obviously, energy prices, energy price uncertainty has been the next big topic. So a couple of questions here. Maybe we can start with some of the end markets that are impacted already or could be if this continues. Maybe there's some positives there, but probably uncertainty. So which ones are you kind of focused on now that could be impacted by what's going on in energy markets?

Yes. I would say as we think about where energy prices are, anything that has kind of a higher demand pull there could certainly be impacted. When I think about our broader segments, certainly, we're keeping an eye on chemicals, you think about plastics, that area, there's more energy pull into it and so higher prices could certainly impact. There's also the consumer aspect when you think about the chemicals business, right? And so once again, as you think about higher energy prices impact to the consumer, that could certainly impact that portion of the business.

Another area that's obviously very consumer-focused is intermodal. And so one we'll keep an eye on as things continue to progress.

Another area that has kind of more of the demand on the energy side is certainly the metals business. There's a lot that goes into manufacturing there, although we've seen a pretty good start in terms of several segments that we have within our metals portfolio. So the scrap side of the business, our pipe side of the business, we're still seeing a lot of demand there.

And then the other piece I would say, though, when you think about higher energy prices, higher natural gas prices, that does create some positivity for domestic coal. And so we do think the demand for domestic coal will remain strong throughout the course of this year.

I would say, as we think about our particular business at CSX, there are a couple of utilities that we're supposed to retire on our network this year. So we see the high demand there. We think it will remain strong over the course of the rest of this year. I think the big question for us is these utilities that were planned to retire, do they actually retire this year? Or do we see extensions? There has been some of that by the Department of Energy over the course of the last year. Those have typically been kind of 90-day type of extensions. So you don't have a long horizon to look at in front of you. But we feel like if those remain online, we could definitely see some strength within our domestic utility business this year.

So just on those retirements, is that something -- it doesn't sound like you have too much visibility to and it's just a 90-day like push and push.

Unfortunately, that's what we've seen so far is it's typically a 90-day cycle. And so right now, we've got visibility out until kind of late spring on a couple of these locations, but we're keeping a close eye on it. I do think the demand on the grid is pretty strong out there right now. And so we feel optimistic about the fact that we might see some of these extend further, but just exactly how long is hard to pinpoint at this point.

Then the other side of higher energy prices is obviously on revenue, fuel surcharges and then clearly on the expense side. So maybe you can give a little comment on what the pass-through is because it's gone up pretty significantly. And clearly, you're burning this fuel as you're making the service deliveries and whatnot, and that's real time. So any thoughts on how that could play out here now that seen this pretty big spike?

Yes, absolutely. So certainly, there's been recent volatility on the fuel side. I think as we look at it today, where current fuel prices are, we'd see about a $20 million to $30 million headwind to the current quarter, and that's really based on our fuel surcharge program really re-indexing up to current highway diesel rates that are out there. We do feel confident though, while it's an impact to this quarter right now that we will recover that over the course of this year.

Right. Because the surcharge has a lag, it's in the contracts and so we make up for it.

It does, yes. It's just a timing piece.

Okay. Your current outlook is basically for flat industrial production. We've seen a couple of months of improving PMI, which has been a nice change. I don't know if that's been put in the back seat because of the energy price volatility, but what's sort of your view of the industrial markets now that we've seen a little bit of improvement?

Sure. So I would tell you, we did a lot of examination kind of planning as we came into this year. And where we are 2.5 months into the year is pretty close to where we expected to be.

I would say, as I think about the broader markets, maybe kind of starting on the merchandise side of the business, we talked about on our earnings call earlier this year, headwinds that we saw coming into this year with industrial production being rather anemic. While there are some signs of maybe some slight improvement, I wouldn't say we see any robust change in the marketplace right now. We called out a couple of areas. So when you think about our business, we're particularly tied to automotive and to housing.

Automotive, unfortunately, continues to face headwinds. As I think about this year, I think the most recent numbers that I saw production is forecasted to be down about 1.5 points. Sales are forecast to be down about 2%. I would note for CSX, and we mentioned it before, but we do have a pretty large auto plant on our network that is down this full year for retooling and will be down into the first quarter of next year. And so that's a headwind for us.

But I would say more broadly, as you look across automotive, there's just not a lot of signs for strong improvement. I think you think about affordability, you think about interest rates, it's definitely impacting that market. Seeing similar when you think about housing and housing also ties into several areas of our business. And so right now, I would say, as we talk to our customers, the biggest kind of correlation is within our Forest Products business. About half of that is building products. I would say there, there's not a lot of optimism for 2026. I think most of them are focused on what are we seeing maybe as we get to 2027.

And then I just maybe mention within our Forest Products business, the other side that's not building products is the paper and pulp side. We talked about that quite a bit last year. And so we do have headwinds still this year really through the third quarter as we work to overlap some of the mill closures and plant closures that we saw in 2025. So really when you think about those kind of 2 major areas, housing and automotive, we're not seeing a lot of -- a lot different than what we expected coming into this year.

There's a couple of areas though, of the business that we feel -- still feel pretty optimistic about. We talked about it previously, but when you look at infrastructure investment in the U.S., that is still strong. We see that kind of pull through when you think about the minerals portion of our business, so in particular, aggregates and cement there. This should kind of be the peak year of IIJA infrastructure spend. And so we expect that area to be strong, while it had a little slower start to the year than we expected because of the winter weather, we still feel pretty optimistic about full year market trends there.

And then I mentioned earlier, but I would say on the metal side of the business, it's kind of puts and takes, there's obviously input from that segment, both on the aluminum side and the steel side that goes into automotive. But we're seeing pretty robust growth with the scrap portion of our business and with broader infrastructure investment pipe bar, rod, some of those areas, we feel more optimistic about for this year.

Anything that you're focused on in terms of supply chain and autos related to some of the chips? I feel like that's come up every once in a while. And I thought it was percolating as perhaps something to watch in the current quarter, maybe the next one. Any issues there that you're watching as well?

We're always keeping an eye on that. Ever since we came out of COVID, that's the first time I really got a better education on the importance of semiconductors and chips. But -- so it's something we're definitely keeping an eye on. I would say most recently, January was a little bit of a slower start automotive. I think some of that was slower kind of ramp-up of production coming out of the holiday season.

And then we did still see a few of our customers having impacts associated with aluminum shortages. That, I would say, is probably the bigger area right now that we're watching than the chips. And I would say we saw improvement over the course of February, and we're optimistic as we think about March and beyond, but hopefully most of is now behind us. Like I said, we're not expecting kind of robust production this year, pretty in line with what we saw last year for the broader industry, a little bit less on us. And so I think right now, the chips are probably manageable, but it's definitely something to keep an eye on.

So the volume outlook has got some uncertainty, maybe some headwinds to it, just generally speaking, but inflation still relatively high for the rail industry. Truck market is getting a bit better. So where do you see with all that together, where do you see rail pricing as you're having conversations with customers, the service products increasingly better and more consistent? Like I'm sure you're getting some pushback, but are you able to at least still keep rail pricing above inflation in these conversations?

Yes. So I would tell you, as I think about pricing for CSX, I would say we absolutely expect our pricing this year to be stronger on a same-store sales basis than what we saw in 2025. Mix is always going to play an issue. And I talked about before some of the markets that are growing and some of the markets that are not as strong. And so when you think about our minerals side of the business, that is a lower RPU area for us. We're going to probably see more growth there this year than we're going to see on the chemical side or the forest products side, which tend to be a higher RPU business for us.

But it is an area that we are focused on. I would say, as Steve comes into the role, I think many people have asked him about it. He and I have had several conversations. We've really looked at all of our internal processes and controls. And we feel good about kind of the trajectory that we're on in terms of focus around pricing and ensuring that as Mike and team are delivering a really strong service product that we're receiving the appropriate value associated with that service.

I think as we think about the broader marketplace, we're constantly watching what's going on from a truck capacity perspective. That obviously has a huge influence on many segments of our business, but in particular, the intermodal side of the business. I would tell you, I think talking to channel partners, I think they feel more optimistic sitting here today than they did this time frame last year. But I would also say over the last couple of years, there was a lot of expectation each year for kind of a back half recovery. So I think people are a little bit watch and see right now to see what happens. You had weather impacts that impact trucking prices, et cetera.

But I do see some positive turn there. The one piece I would say is we do see a lag impact, right? So pricing decisions, one, we can't touch every element of our business every year. There's portions of the business we can touch. There's a timing piece to that as well. So there's decisions on contracts and things that are made. And if there's more of a trucking impact, say, in the back half of this year, you'll see a kind of a lag impact to some of that pricing.

So you mentioned the channel partners, probably still a little bit of lag, as mentioned in the pricing for them as well with the spot truck market. But maybe you can elaborate a little bit on like their optimism or what they're seeing. It sounds like not really counting on the back half recovery, again, for the fourth time, but it does seem like there's some real reasons to be optimistic. I don't know if that's really translating in how they're doing in the bid season or what they're hearing on their end of the conversation.

Yes. I would say I think what we've seen so far in bid season has been positive. We're seeing more bids this year, seeing more opportunity. And I think shippers are really taking a closer look at what business do they have moving road that is suitable for intermodal. So I'd say cautiously optimistic is where we are right now. And I think our channel partners are in line with that. But I do expect as we work through bid season, we'll continue to see more opportunities.

How is the Howard Street Tunnel expansion fitting into all that? I think it's ramping up with full double stacking at the end of the second quarter. So 100,000 loads or something like that over time. But what -- how quickly can that ramp up? And sort of what's been the reception to that project coming online faster than I think most of us had really thought.

Yes. Well, I will tell you, I am super excited about Howard Street Tunnel. So I've been with the company 14 years, started in intermodal. And quite frankly, years ago, wasn't sure we'd actually see the day. So thrilled that we've got this project almost complete. Mike Cory and his team did a phenomenal job of getting the majority of that work on our network done in really about 9 months of last year.

As I think about the opportunity going forward, there's really several components to it. And so when you think about it, double stack is going to provide both efficiency and capacity on our network, both on kind of east-west lane as well as north-south. So from a west-to-east perspective or east-to-west perspective, we've traditionally had to run single stack with anything coming out of Chicago going to Baltimore across our B&O route. That really impeded us in the past from being able to take kind of efficient double-stack service from kind of Western origination points all the way through into Baltimore.

Basically, what had to happen was if a shipper wanted to go from somewhere in the West to Baltimore, it would go to a Chicago ramp for either BN or UP. It have to get dropped off the train, rubber tire crosstown over to our ramp and then get loaded single stack to Baltimore. So now with that -- once we have that opening there, we'll be able to run across the B&O with double-stack trains and not have to do that operation in Chicago. So driving efficiency there.

On the 95 quarter, we moved a good amount of traffic already between Florida and the Northeast markets on our network. Now we'll have double the capacity there. But what it will also allow us to do is efficiently connect some other markets in the Southeast that, quite frankly, didn't make sense before to try to provide service for because of the lack of efficiency that we had in single-stack operations. And so we're offering new lanes of service from Atlanta up into the Northeast. So think about places like New Jersey, Philadelphia, Chambersburg.

And so we've been having the conversations with our channel partners and directly with shippers around what's to come. As you mentioned, we do still have one little piece of work that's being finalized right now. There was one bridge that had to be completed. We expect that to be finished probably later next month, and then we'll be able to kind of unlock these new solutions.

So we're excited about it. We're already talking to customers so they can be looking at it in the current bid season. And then what I'd say to you, though, is based on past I have, when you start offering new products and services, it typically takes a couple of bid cycles to kind of really get up to your full kind of ramp trajectory.

Got it. Well, the other area I want to ask you about in terms of new service is the Southeast Mexico Express with CPKC. I think that's starting to ramp later this year as well. It seems like a pretty significant connection between some pretty big end markets. What are some of the opportunities that this would unlock? And again, will this take a little bit of time to ramp or given the size of these markets, can this actually be a little bit more meaningful in the short term?

Sure. So we actually started service late '24. So we've been moving for just over a year from both an intermodal perspective and a carload perspective. And we work closely with CPKC. I would tell you, while we had kind of southern connection points, we really didn't have a very efficient interchange location for the intermodal side of the business when you think about kind of coming out of Dallas or Mexico to and from the Southeast, primarily Atlanta, Florida and now we're looking at Charlotte.

And so creating that connectivity has allowed us to offer a really efficient service. We've seen that grow over the course of this past year. We're looking at other service offerings. I mentioned Charlotte that we're going to add to that transit. But what I would say is we've also been investing ever since the STB approved the purchase of the MNBR back in 2024, we've been working on the infrastructure associated with that line.

And so Mike and his team, once again, have been kind of hard at it, improving the infrastructure so we could increase the speed and also improve the reliability. And so as we think about that and where Intermodal is in competition with truck, with that improved reliability and speed, we see more opportunity to convert traffic over the highway going forward.

So this is more of a step change in terms of the consistency and the speed and the opportunity the investments are done?

So once the investments are done, it's track speed will come up, and that will also improve our ability to reliably serve that -- those markets. So we do see -- and we're talking to our channel partners and shippers right now, now that we've had that in place for about a year is how do we continue to work with them to target specific shippers that have historically moved traffic over the road and get that converted to the rail.

So what is the general truckload conversion strategy with the CSX? You have quality carriers, which was a little bit of a conversion, but not necessarily intermodal or chemicals, but still all in the same bucket. Is it new services? Is it new investments? Like clearly, this has been around for a long time. The market opportunity is still very big, but it's always sort of underdelivered just broadly speaking for the industry. So how are you approaching this in new -- in your new expanded role?

Yes. So I would tell you, I spent a number of years up against the intermodal and automotive side of the business, and intermodal is extremely competitive with truck, right? But I would tell you, as I picked up the carload side, I see opportunity there as well. And so it's not exclusive to intermodal. We're looking at our merchandise business, and it's really about working closely with our customers, really understanding their full book of business what they're moving over the road today and understanding why. What is it that's driving the solution as opposed to rail and then trying to determine what would it take for CSX to be able to help them convert more to the rail.

Going back to 14 years ago, when I joined the company, I'd tell you the first customers I met with, and it's something I've heard from every single customer since then is the most important thing to them is consistent, reliable service. That is really what they're looking for. And so I think CSX with investments we've made, but with the work of the operating team, we've really improved the service product over the course of the last couple of years.

And our focus is on continuing to deliver a very highly reliable service offering across our lines of business. I think the reason more traffic has moved over the road in the past is because, quite frankly, the railroads haven't done a stellar job of proving over an extended period of time that we can deliver that consistency and reliability. As I look out across the other railroads, I think service performance has really improved across the board over the course of the last year or so. And I can speak for us alone, but saying that, that is going to be a core area of focus for us going forward.

As we think about the intermodal side of the business, we do have a national accounts program where we engage directly with shippers. So we have a wholesale model of sales, so we work through our channel partners. But we also engage directly with the shippers. And our national accounts team calls on those shippers. We have an optimizer tool, where we basically will take the shippers, if they provide their truckload file. We can run it through our optimizer. It evaluates what business that's moving over the road today is most suitable for intermodal conversion. So that's looking at length of haul, it's looking at dray distance off of our ramps.

And then we really have like a consultative approach with the shipper to discuss with them what are the opportunities where we see the best options for them to convert and deliver the best service product. And so that isn't something new. We've been doing that for several years now, but it continues to be an area of focus for us is to show the shippers what out there is and be very clear and direct with them in places where it makes sense to convert the traffic versus lanes that are more suitable to stay over the road.

Just coming back to coal for a second. I mentioned some of the baseload demand and natural gas will obviously impact that as well from the domestic utility side. But the export prices, I guess, they're always volatile, but particularly for thermal coal right now, given what's going on in the world. Is that an area where you have some additional opportunities or exposure? And then on the met side, I mean, it's -- prices come down quite a bit, but I think that's a different benchmark than what your coal would be tracking the low vol versus the high vol. So maybe a little bit more on the export opportunity as you see it?

Sure. So as we think about the export side of the business, we feel pretty good about where the volume is. We had a couple of locations on our network that came back up at the tail end of last year. And so our producers have additional coal that they can move to the export markets. I think the broader export demand has been relatively stable, where we saw the bigger impact last year was on the pricing side. We have a lot of our business that is tied -- bigger portion is met, but tied to export benchmarks. And what we saw was those benchmarks come down considerably from early portion of last year to the later portion of the year. And so that directly impacted our business.

As I think about where we are right now, I took this role at the end of October. I've been very closely watching the benchmarks ever since that time frame. And I would say we've seen some stability on the high-vol side of the business, which is where we're primarily tied to. We don't have as much to PLV. We saw in the PLV side, the Australian benchmark that had kind of diverged a bit from high vol in the fourth quarter of last year. It was accelerating faster while high vol was kind of staying relatively flat, relatively stable.

Recently, PLV has started to come back down. So they're getting a little bit closer to one another versus where they were in Q4. But I would say what's important for us is, in particular, that high vol side, it has stayed relatively stable. We don't -- we are expecting it to be relatively close to where it is right now, balance of this year, and that's kind of what's built into our planning.

Right. Got it. Clearly, there's going to be a lot of focus on M&A, transcontinental rail mergers for the next foreseeable future. Do you feel -- is there an opportunity as shippers looking to diversify supply chains. there's an opportunity for CSX to pick up market share from Norfolk during this period of time?

Yes. I would tell you, I mean, we're really focused on running a good network and running a good business. I mean there's a lot that's going to go on. It's going to go on for an extended period of time. I think for me and my team, it's focused on our customers, focused on working with our operating team to deliver a really good, robust service product for customers and identify new solutions for them.

So I think the way we look at it, what happens in the industry right now, I can't necessarily control. And so let's focus on what's important to us, and that's making sure we're delivering a superior service product to our customers. We're running an efficient railroad that we're delivering best-in-class safety side. It's incredibly important to both our people and our customers, and then really making sure we're delivering innovative solutions to our customers to be able to grow the business. That's where our focus is and that's where our focus is going to be for the foreseeable future.

Some of the services seem to be at least in reaction to the merger announcement with BNSF. So should we expect to see or more of those in the works or possible? And I guess how are the ones that have already been done performing so far versus expectations or to the initial plan?

Yes. So I'd say, I think there's been a lot of questions on the BN Southeast products that we delivered. First of all, we've been very happy with the results. I think we've seen the business perform well, and our customers have been very happy with the service products. So really kudos to both operating teams and how well they've worked together to create and deliver that solution. I would mention that the service there was in discussions well before all the industry merger talk. I was involved in those discussions in my prior role.

And what I'd tell you is we're always going to look for ways to collaborate. Is there some big partnership to be announced? No, there's nothing that we're expecting to put out there. But I think it's important that we're always collaborating with the other railroads. And I'd tell you, I spent a number of years as the VP of Intermodal and Automotive, and I had very regular engagement and interaction with both the Western rails and the Canadian rails on what are potential new service offerings, what are customers looking for?

And even on lanes of service that we have today, how do we continue to elevate the experience to allow customers to convert more over to rail. So I don't see that changing. I think it's incumbent upon us to work well together and to really collaborate to create solutions for our customers.

So one of the big solutions has been promised in the merger and as we talked about earlier, has been underperforming for the industry overall is just the truckload conversion. So do you feel that M&A or at least a bigger scale transaction is really one of the biggest ways or the clearest ways to unlock some of the conversion? Or is it less about that more complicated in terms of like how you actually bring it to market and the other factors that shippers really care about?

Yes. I would just say, I go back to what I mentioned earlier is what shippers fundamentally care about is consistent reliable service. That is the most important thing I have heard from pretty much every shipper I've ever interacted with. And so I think that's where the opportunity lies is for the rails to continue. We've been doing a nice job, but CSX has been very focused on how do we elevate the service product. We've got to maintain that over an extended period of time. It can't be -- you've got a great service product for 6 months or -- you have to be able to show shippers that you can consistently perform.

And so when they're choosing a truck, they're choosing the truck for the reliability for the speed. We're not going to be as fast, but we can certainly be reliable. And so I think that's where the opportunity is, not just for us on our core network, but also working with the Western and the Canadian carriers is how do we continue collectively to bring that better service product to market so that shippers really have the opportunity to move more of their freight to rail and really capture the benefits of a rail solution.

Just going back to intermodal for a second on the international side. What is sort of the differentiated approach you have versus competition in the East and both in terms of like the ports and the rail network. Obviously, we've seen a lot of changes in terms of labor disruptions in U.S. and Canada. But the port strategy, I think, often doesn't get or at least the import strategy doesn't get a huge man attention when it comes to rail, it's fairly complicated. There's a lot of different parts involved. So -- how do you see that playing out here over the next couple of years?

Yes. So I would tell you, we've had an approach where we're collaborating and working with all of the major steamship lines in the world, but we're also working very closely ports. A larger portion of our traffic today does come from East Coast and Gulf ports. But if a shipper wants to bring traffic, IPI through the West Coast, we work closely with the Western railroads to make sure we're delivering the appropriate service product from interchange into the Eastern markets.

I would say that collaboration with the ports has been incredible important to us. And so it's constant dialogue with them on how they're planning, how they're preparing, how they're investing and working with them so that we're really providing to the steamship lines and to the shippers, I would say, comprehensive geographic coverage, right?

And so when you think about how the ports are kind of grouped along the East Coast, there's certainly inland markets that make more sense from 1 or 2 ports versus other ports based on if you're in the north, you're in the south. We try to make sure for all of these major markets that we really have a comprehensive solution. And the approach we've taken is to try to essentially be kind of core agnostic. So letting the steamship line and the shipper decide which port makes the most sense for them to move through and we're giving them the right solution to the inland market.

I would say what's a little bit different for us. I think where we've been a little bit more focused is also that beyond kind of the major markets that have traditionally moved international intermodal. We've also been focused on how can you convert some shorter-haul opportunities that have traditionally moved truck to intermodal. And so that has been in partnership with East Coast and Gulf ports around what we call inland port solutions. We've launched several of those over the course of the last 8 or 9 years, and we've seen really good traction with those.

And so those are typically a public-private partnership investment involving the state or the port to really identify markets inland, traditionally where there's truck, but where you have kind of some anchor traffic that has kind of heavy import export connectivity. And so we continue to look at those solutions. We've grown the ones that we implemented in '17, '18, '19, but we're also looking at are there other places that make sense to invest as we think about the future.

So just on that point with investing for the future of the industrial development pipeline with a big focus on the Investor Day. I think it's always been a big focus for rails in general, but maybe more visible now in recent times with the broader focus on growth. I think there's 21 new sites or something like that, you guys just qualified earlier this week or late last week. So how has that changed? Obviously, it takes a long time to get these up and running and site selected volatility in tariffs and imports and everything else in between, like, has that really changed how some of these projects are developing? Like where does that stand now maybe versus where we were last time we spoke about this at Investor Day?

Yes. So I would tell you, we're actually -- we're very happy with where our pipeline is today. So we're still sitting at about 600 projects or so in the pipeline. So we really haven't seen even with kind of all of the noise that's out there in the broader economy, we still see kind of a robust pipeline in front of us there. I would say that's varying stages from somebody who's just announced that they want to do something and it might still be like a secret coding project to ones where we're actually turning dirt and putting rail in and getting ready to move products. So that's kind of the full spectrum there.

We've really not seen though a material change in terms of the number of products -- projects. So we continue to see inquiries come in. Christina and her team do a fantastic job working with economic developers, working with shippers to identify new opportunities. I would say there's a couple of locations where we've seen in, I'd say, the back half of last year, some of the projects ramp a little bit more slowly than what we had previously expected. But I would say the number of projects has not fallen off at this point.

We do continue, and you mentioned the select sites that we just announced yesterday, our team is still very proactive and working with local economic developers as well as property owners to make sure we're qualifying sites because I think the most important thing when you think about somebody who's looking to move forward on a project is that they have something that's pretty easy to get up and running, that isn't a multiyear horizon to get permitting and access, whether it's water, it's energy, it's things of that nature. And so our team is constantly to try to figure out how do we help improve that process to make the time frame kind of decision to implementation faster than what it is today.

Okay. Well, that's a good place to end. Thanks very much, Maryclare for joining us today.

Thank you very much. I appreciate it. Have a great day.

Thank you.

Good afternoon, everyone. We're going to get this keynote lunch started here. So appreciate everyone coming down to Barclays 43rd Annual Industrial Select Conference. This is our third day. So thank you for making it through. It's been a very eventful conference again. I'm Brandon Oglenski, airline and transport analyst. But I just wanted to very quickly thank our corporate access and event marketing teams. There's a lot of folks that work around the clock at Barclays that really made this event possible. So thank you, Martel and to all of your team and Aaron Bruno and everyone else.

So today, we're going to have a keynote with CSX and new CEO. Steve is not foreign to this conference. In fact, he has been here before in his capacity at Linde and Praxair historically and started your career at GE and on the Board of Vernova, correct?

Yes.

So Steve's got quite a bit of perspective here. I really appreciate you coming and spending a little bit of time with us today.

Thank you, Brandon.

So definitely have a lot of questions about railroads, M&A, CSX, your new job. But maybe more broadly, given that this is such a great industrial conference, the themes that we've been hearing over the last 3 days of like AI disruption, reindustrialization, and yet we haven't seen really much industrial production growth for the last 3 years. So just from your perspective, are these big themes going to drive some growth across these industries? Or are we just looking at another 2026 of flat growth?

Let me just start with start kind of with the AI question. When I -- and there are some people in this room that I think are better positioned to answer that question than I am on AI. But I'll just tell you what I observed because to your point, I just came off -- I was at the GE Vernova Board meeting yesterday. And every Board meeting has some discussion around the impact of AI, the impact of automation, the impact of robotics. And I would say everybody is kind of figuring it out. I think it's -- I do think it's going to be the traditional industrial businesses that potentially could benefit the most. When you look at simple things like the way they prepare proposals, which can be very complex in certain industries, AI can help a great deal there. The whole customer service, the whole backroom, the way they manage their entire fleet of assets, the whole service side of the equation, the repair side of the equation.

If I talk to people -- I sit around a table and ask people like the people in this room, I said, "Do you think AI really is going to bring benefit to what you do?" And I get a lot of extreme positives in terms of real-time applications that they're using, that can save either a lot of time, more efficient, whatever, better customer service, the whole gamut. And I was kind of surprised myself because I thought I'd get something more high level in terms of their opinions and their views. They gave me very practical applications. So I do think about it in terms of -- there's a lot of discussion about AI and the company is leading that charge, but I really think it's going to be a lot of the traditional older industries that could reap the most benefit from the whole AI side. You asked me about industrialization. And I can tell you, I'm in the railroad today, but I used to think about this in my prior job in chairing that Board and so forth.

When you look around the world, there really isn't much growth. China was a growth engine. China is not a growth engine today. Europe has never been a growth engine. It's not going to be a growth engine. So I hope I don't offend anybody by saying that, but I've lived -- I've seen that movie for so long. I know what's going to happen. A lot of people talk about India. Yes, India is growing. It's nowhere near on the scale of China or the U.S. or the EU. It's a positive.

But what I kind of figured out in my old job, I said really all roads lead back to the United States because when -- in terms of growth potential and sustained growth, the U.S. is still your best bet. And this tariff noise aside, which I do think creates issues in terms of people's willingness to commit capital. The latest tax law that went into effect basically cemented a low tax rate for business. It also provided accelerated depreciation benefits.

So if you're a global company and you're sitting here thinking, I need to grow. A lot of companies ask that question. They go under strategy reviews, the Board meetings. A lot of it is about how do I grow? And if you think through that, your best bet is going to probably be in the United States. And now there are benefits to doing that, which I just described. Is it happening? If it is, it's a very low level today. And I do think all the tariff noise creates enough doubt in people's mind that maybe we should wait, let's see how this plays out. Let's let all these things be decided and then we can decide whether or not to pull the trigger.

But when I look at the long-term prospects of the United States, I think it's in a favorable situation. So we'll see how fast it comes. It isn't coming in '26. I certainly didn't build it in my guidance that I gave for '26, but I have to think it's going to come. And so I think if you're looking for a positive, I'm usually not a guy that goes around sprinkling positives in meetings like this. But if you're looking for a positive, I think that is a positive.

Appreciate that response, Steve. I guess you've been at CSX now about 4 months or 5 months?

Yes. I'm an expert.

Well, as an outsider to the railroad industry, what's been your perspective thus far?

It's -- I mean, there's nothing like railroads anywhere, anywhere on the planet. I've never seen an industry like this. In many ways, railroads are the heartbeat of the American economy. And the U.S. was built on railroads. There's a lot of lore and history in this industry. You're not going to walk into the offices at Meta or Google and meet fourth and fifth generation employees. I mean it's that kind of heritage. It runs that deep. And it's a fascinating industry. And I enjoy it. I used to sell many years ago, actually, the last century. How about that? You don't have many people sit up here and can relate back to the last century. But I sold locomotives when I worked for GE to the railroad industry. And I got a chance to interact with all of the characters, saw how they ran the railroads, their operating philosophy, really got an appreciation for the history of the railroads and the importance to the American economy.

And a lot of times, people would ask you, especially after career as long as I've had, what was the best job you ever had? But you didn't have that question on there, did you?

No.

Okay. So what's the best job you ever had? A lot of people would think, well, CEO of Linde, CEO of Praxair or whatever. Actually, I think one of the most fun jobs I ever had. interesting jobs when I sold locomotives to the railroads back in the late '90s. And so that kind of was an attraction to me. It never really left me, even though I went off and had a long career with GE and other electrical products and industries, then chemical industries and whatnot, that never really left me.

Well, and I guess what attracted you to CSX? Can you talk to that process?

Well, I flunked retirement. I tried that. It's boring. I chaired a couple of Boards. It's boring. It's -- I'm kind of wired for the day-to-day. What I really enjoy is working closely with the teams, helping them solve problems, making progress. I don't want my whole day to be about solving problems, but that doesn't bother me too much either. So I kind of like the grind of the business, working with the teams, progressing the business, learning the business. I think it's a fascinating business, fascinating industry, fascinating company.

So I was not out actively seeking. I had -- people would call me and say, how would you -- would you be interested in this company? And I'm not going to throw names out there because it wouldn't be a good thing to do. But would you be interested in this company? And I think about it and I go, "No, I don't really like what they do. I don't like the product." In some cases, I knew something about the culture. I don't really want to be part of that. But when this hit me, I remembered what it was like in the old days, and I remember the fact that I really think it is a fascinating industry. So everything about this industry is fascinating to me. And so that brought me off the sidelines.

Well, specific to CSX, how did you find the culture when you arrived?

Great group of people, like I said, fourth, fifth generation employees. They love what they do. There's something about -- there's a magnetism about the railroad industry. People come to work in the railroad industry, they don't leave. And if they leave, a lot of them come back because I just think there's something about this industry that's very attractive to people. And once it gets in your blood, you stay. But it's a great group of people in Jacksonville, Florida and all up and down our system on the East Coast.

I think they're very receptive to leadership. They want people to come in that care about what they do, that are going to be there for a sustainable period of time. And work with them and stabilize the business and improve the business and kind of restore performance to where it has been in the past. But they take a lot of pride in what they do in the company. And as I come into it, I really want to help. I kind of want to help everybody accomplish what they want to accomplish. Obviously, I want the company to be successful, and that's kind of how I'm wired. But it's been a great reception, and I couldn't be happier with that. No regrets after 4 months, how about that?

Well, we've covered CSX for quite some time. And your predecessor when he took over a few years ago, CSX was running quite well. And then obviously, you had some network issues, some investment projects. But nonetheless, the company maybe wasn't running quite as well as it could be. Do you think today you've got that resolved?

I wouldn't say I've got everything resolved after a short period of time. And keep in mind, everything I do is working with somebody else. I can't -- I don't know how to do anything, but I can work with the team, help focus them on what's most important and help them execute. But if you look -- there was some misfortune for the CSX team back to the hurricane that unfortunately created those floods in Appalachia that wiped out a 60-mile corridor rail. And if you think about that, something that stood for 150 years is gone with 40-foot floods that roar down that tight little Canyon and wiped out the entire rail system.

And if you want to think about heroic efforts, a lot of times you want to go build a project, you say, well, show me the drawings, let me look at the drawings. There are no drawings. There's nothing. You're going to rebuild a railroad from scratch, from people who have experience, intuition, can get the right teams together, and they did all that in 1 year. And the reason that's important is we basically have 2 corridors that connect us north and south, and that was one of them. So if you take that out, you can imagine the issues, you know the issues. You were here, Matthew was here, you saw the issues that created an entire railroad system.

But as of the end of September last year, reopened that subdivision. They also completed a project called the Howard Creek Tunnel that enables double stacking through that system. So there were some major infrastructure projects that were -- particularly the Blue Ridge was completed last year that helped alleviate a lot of the issues that we had last year that we don't have this year. So I think it's always a very positive sign when those things are behind you, and you can look forward to a stable railroad, a railroad that runs more fluidity, it has more resilience because of the completion of those major projects.

We also made some moves on the executive leadership team as well. Do you feel you have the right people in the right place?

Yes. And if I said no, people would be worried about that. But look, I've been around long enough that you can walk into a business, you can spend some time with the people. And you can kind of quickly figure out who's in the right spot. And is this -- I mean, I look for 2 things. I mean, if you talk to Heidrick & Struggles, Korn Ferry, you talk to people, they'll give you 64 attributes you should look for in any kind of leader. I look for 2 things. I look for people who have great leadership skills. And there's a lot that goes into that statement, but people that are great leaders of people. And then I look for people that can move the needle.

So in its simplest form, when I look at Matthew, I said, "Does he have great leadership skills? Can he move the needle?" And the answer is yes, by the way. So -- but I look at that, and I start with the most important jobs. It kind of makes sense, doesn't it? And you kind of work through that. And if you don't, you need to make a change. And if there's anything I've learned over a long career is you're better off making those changes sooner than later. And so it looks like I made a lot of radical changes quickly.

To me, I was very thoughtful and deliberate in terms of how I went through that. But at the end of the day, that's what I'm trying to figure out, do I have someone who's got outstanding leadership skills and can they move the needle in that role? And I want to make sure with the key positions in the company, and I start with that, that I get that right. Then you kind of work down the rest of the organization.

So in any company, and I did this at Linde and I do this at CSX as well, I kind of look at what are the 20 most -- 20, 25, pick a number, most critical positions to get right in the company. And then you kind of go through and you look at it from the standpoint of, okay, who's in that role? Do we have the right people in that role? The answer is yes. Let's work with them. Let's develop them. And if we don't, then we need to make a change, and we need to build a pipeline of talent underneath that.

And I'll give you an example in the old -- in my Linde life, I would look at one of the key 20 positions in the company was the person that ran China. And -- but it wasn't the person who ran Asia. And I say, don't take this personally, but the individual running China is more important to me than you running -- sitting in Singapore running Asia. So you got to have that thought process around what are the critical positions, do you have the right people in the critical positions and build a pipeline of talent underneath it so that it can -- you can have sustainable performance. And a lot of these things are basic, but you kind of learned over time that it's important to do. It's important to spend my time and the time of the organization to get those things right.

Well, you came into the industry in a pretty interesting time, too, because as we all know, there's a pending merger application with Union Pacific and Norfolk Southern, which, in our view, would be very transformative and obviously change up an industry dynamic that has been in place for a number of decades now. I guess what's your broader perspective on rail M&A?

Well, I've been -- I was a proponent of M&A. I mean, I led a merger where I put Praxair and Linde together. I'm going to answer your question, but there's a couple of points. It's a long process. People forget that. From the time I picked up the phone and called my peer at Linde till the time we were able to run the company without restrictions, it took 3 years. And a lot of that was a regulatory approval process. Some of that was social issues that need to be sorted out, a lot of stuff. But it's a much longer process than I think people give it credit for. And it was -- it took me -- I ran Praxair for 10 years before I did that.

So when I look at this, I think any time you have consolidation inside an industry for the rest of the participants, it can create some challenges in terms of risk that you need to go manage, which is what CSX will do, but it also creates opportunities at the same time. And so you kind of need to manage the risk, manage the challenges and capitalize on the opportunities. And it's going to be a long process. We really don't know how it's going to play out in the end. I don't know what conditions may be part of that. I don't know how this whole thing gets resolved. Keep mind kind of new to the industry. I've worked with regulatory authorities before. I do know they listen to customers very closely. So whatever customers are going to have to say about this pro or con, they're going to listen very carefully to that, but it's a long process.

And so you've got to -- what do you have to do in the interim, somebody like me, you're running the company well every day. And that's our focus. And what I like about CSX, first of all, I wouldn't trade our geography with another railroad anywhere. I like our footprint. I like our infrastructure. I like where we are. If you think in terms of industrial development, which we started off this conversation with reindustrialization, if it's going to happen, it's going to happen on our network. And it is -- we do see those opportunities coming along. We work on a lot of it from a development standpoint. But it's going to be a long game. It's a long process. It takes time. There's a lot of opinions that are going to have to be factored in. There's a lot of comments that people are going to have to wade through, and you'll have to see how this plays out in the end from a condition standpoint.

And having been through this, I went through this with Linde and Praxair, and I know with my Board, you have a lot of Board meetings when you got mergers going on. And one thing I had a line across the chart, and I said, if the value creation falls below this, I should pull the plug. And I probably showed them that math, that thermometer probably 8 times because it was important to me because I went into this with a certain set of assumptions that value is going to be created, and I need to make sure that, that was real. And every drop of the shoe, turn of the screw, this regulatory authority decided this. Sometimes it works in your favor, sometimes it's more negative than you think. I went back and make those adjustments. And I'd say we started off this merger discussion. We approved this value creation. So where are we now based on the latest information. And that goes on for many months and even years before I got to the final resolution of that.

So that's why I always caution people that it's a long process. And we may have 5 people, maybe not that many at Jacksonville that work on this every day, and I got 23,000 people trying to run a railroad better. And so we have lots of opportunity to improve CSX as a stand-alone company, which is where we're focused. And we'll participate in this consolidation phenomenon that's taken place. And we'll be well positioned. I'm confident we're going to be well positioned no matter how it shakes out. But I'm not going to get hyper focused on that when I know what I've got to do every day and can do every day running CSX.

I want to ask specifically about the plan at CSX. But let's say, we fast forward a year, 1.5 years, merger is approved. Is this a significant competitive dynamic that you view negatively?

I don't know what the conditions are. I don't know what may happen between now and then. It's -- how about this, Brandon, it's a hypothetical, I'm not going to answer.

Okay. Well, have you spent any time with customers, I'm sure you have, at CSX?

Yes.

What's been the feedback that they are providing you?

It's kind of interesting. That's a very interesting question because some of these are very sophisticated customers. What I've probably heard more than once is they're going to keep their options open. And so they're not going to make any statements or express a strong viewpoint until at some point down the path. And keep in mind, it's still early days. You know this. It's we're going to have an application that's going to be filed again. I forgot what the date is by such and such a date and then the clock starts and then they go through the valuation process. But I think there's -- I think I would -- and it would make sense. I think keeping your options open probably is a smart thing to do at this point for anybody, and it's too early to declare anything.

Okay. I guess, feedback specifically too on what CSX could do better, regarding service...

There's always opportunity. I mean, -- every day, you can -- one thing that's nice about this industry is there's a lot of information. There's a lot of data available. And so I can go in every day and see what's the train velocity, how many cars do we have online? What's the dwell time, trip compliance, on-time departures, on-time arrivals. If you add 2 hours, what's the percentage? And there's been certainly improvement. And it kind of goes back to an earlier question you asked me. As we came into this year, we have had some stability that we didn't have certainly during the early part of '25 that we're benefiting from. But as I look at that and I look at the improvement, I mean, we're nowhere near and Mike Cory and his team that run operations will tell you, we're nowhere near where we could be or what we can be in terms of our potential.

I think the improvement is great. And I definitely recognize the team for a lot of good work they've done, a lot of hard work they've done. And you probably -- some of you probably noticed, we had some severe weather in the eastern part of the United States that pushed all the way down to places like Jacksonville, Florida. We had heavy snows and severe cold. And that's a difficult environment when you're running trains in the middle of the night at 10 degrees below and your crews have got to go out there and man that train. So it was a challenging environment, and I thought they did a great job coming through that.

So that gives me encouragement that we can weather things like that, no pun intended, and we can kind of build from that going forward. But back to your specific question, I do think we have opportunity on the service side. And of course, the better we are at service, the more consistent we are at service the better our prospects are at increasing volumes and being able to penetrate markets like you know as well as anyone, like the intermodal market because if you ask -- I have asked those customers, how they feel about rail service. And what they will say is it's not the cost, it's not the service when you provide it, it's the consistency of service. So I think being consistent in our performance, I think, is really important. And I know that hasn't been our history over sustained periods of time, but I think consistency of service is really important.

And by the way, if there's any audience questions, just raise your hand. I think we have mic runners. But Steve, I guess I still want to come back to this idea, though, because I've covered the rails for so long. If we look at volume growth relative to economic growth, the industry really hasn't shown a lot of expansion. Now there's been a shift in coal because obviously, we used coal a lot more to generate power. That's more nat gas today. But even then the merchandise business hasn't shown a ton of growth. I guess from your perspective, can CSX get to a better volume profile in the future?

Well, if you look at our guidance, I've often said, I love growth, but I trust costs. And we guided to kind of a low single digit and said we're going to increase operating margins 200 to 300 basis points during the course of the year, and we're going to increase free cash flow 50%. But we didn't put a lot on the top line. And what I'll say is, Brandon, that there's a lot of industrial companies that are struggling with growth because industrial production has been flat pretty much around the world and in the United States for several years. So it's not a phenomenon, I think, that's unique to the railroads.

So what I look at -- and I don't think of it in terms of, gosh, I need mid-single-digit growth to really be able to deliver the kind of operating performance I want to deliver. a little bit of growth is all we really need. And if we get a lot of growth, if the macro economy blesses us, if housing starts pick back up, automotive picks back up, GDP picks back up because interest rates came down enough that it triggers some economic activity. If that happens, then by working so hard on productivity and leaning out our cost structure, I know those margins fall through very heavily. So that's the way I think about it.

So I don't come at this as, gosh, I need 5% volume growth. I come at the standpoint of we just need a little bit of volume growth every year, a little bit of price every year, productivity every year, and we can deliver the kind of result we want. If I look kind of within the merchandise category, you asked a very good question. I don't think it's any secret. And there's like 100 categories within chemicals alone. I don't think there's any secret that chemicals has struggled globally. There's an oversupply situation coming from China that weighs on that industry. Obviously, a lot of chemicals go into housing starts, automotives, the broader industrial marketplace. And it's a mature industry, just like you brought up coal, which is seeing a little bit of a rebirth of the domestic side for reasons that we all understand, but it's kind of a mature industry.

I think forest products is kind of a mature industry. And unfortunate for us, and part of this is why was inherent in our guidance is we've got the full year effect of plant closures in pulp and paper that really started in 2025. But then I can also go through it and see pockets like minerals, which is basically rock aggregates that are used to build out infrastructure. Go back to what I said earlier. We have a great geographical footprint, and a lot of that infrastructure is right here in the Southeast. So that's a market that's growing for us. Fertilizers happens to be a market that's growing for us because we've got some new phosphate production that's come online that's helping us. We said domestic coal is seeing a -- doing a little better. Obviously, our intermodal growth is better year-over-year, and there's some good reasons for that.

So it's a little bit of a mixed bag. At the end of the day, I'm not sitting here saying, gee, if you just give me 5% volume, I'll be fine. I'm sitting here thinking I don't really need that much. I'll take it. And if it comes, we'll capitalize on it. But I think I, like a lot of probably people in the railroad industry and people in broader industrial world, generally speaking, have gotten used to having a low-growth environment to work in.

What are the financial metrics that you are holding the team accountable to? What do you like to look at? Because railroad investors will fixate on the operating ratio or the EBIT margin.

Yes. And that's kind of a bit humorous to me because it's an operating ratio, which no other industry uses that, by the way. And so I go, well, isn't that kind of like operating margins flipped upside down. So what they're focused on is how they're compensated, which is -- and we simplified the compensation structure. We -- it was -- and I've seen this play out before on other companies because I've been on a bunch of boards. I've had a lot of things. And people like to add things to the compensation structure around. I'm not picking on any one thing. I'm just saying sustainability, diversity, you name it. They come with lots of things they want to hold management accountable for. And they think, well, if I just make it part of the incentive compensation scheme, they'll do.

The problem is the organization loses track on what's most important. And so one of the things I did with the team was we simplified the metrics. So the most important metrics to me are operating income growth to get earnings per share growth, I need operating income growth. I don't think I got to explain that to anybody. Operating income percent margin. And the reason that's important is, to me, that says what's the quality of the business you're running? How good a job are you doing running your business? And the best metric for that is operating margin. So I've always found that very important.

And then the other metric, and I talk about annual incentive is safety. It's a sacred responsibility in this industry, and you have to get that right. So safety is an important metric and the other 2 on the financial side, operating income, dollar growth, operating income percent, I think, are the most important. And the other things we had are gone. We had some other stuff, they're gone. And then on the long-term incentive side, it's really for performance shares, it's down to 2 metrics. It's return on capital. It is a capital-intensive industry. So I think return on capital is a very important metric for this industry. In my old job, I used to say it's the truth sum. It's -- it encapsulates all the decisions you made in the past, good or bad and the quality of the business you're running today, and that all gets netted out in a return on capital metric. So I think that's a very important metric, and then total shareholder return, which I think people in this room, I don't have to explain that one to them either.

So that's it. I mean the metrics are very simple. And the reason that's important, I know you get this is, you got to be able to stand up in front of the organization and say, what I've said is the most important things in running the railroad, it's also how you're compensated. So everything I repeat and harp on every day is also how we're compensated. And by the way, this is how we're doing. When I said we need to improve x number of basis points of return on capital, this is how you do it. You got a numerator, you got a denominator. This is how it works. We're going to improve the quality of the business. We're going to get more productivity, more pricing, more operating income, and we're going to manage our capital tightly. We're going to be very disciplined. And guess what, you get an improved return on capital performance out of that. So that was a longer answer than probably you were anticipating, but...

No, I appreciate it. We're down to just a few minutes left. What is the right level of return on invested capital for CSX?

Well, in a regulated industry, that's probably -- you got to give a thoughtful response to that. Higher than what it is today. If you go back to Linde is at 25%, about 2x the next competitor. I'm not guiding that. Matthew looks up, thank you. But I do think we can improve every year. Just like I think we can improve operating margin percent every year. I do think we can improve return on invested capital every year. And I think doing these things, and then it's not all about financial metrics, right? You got to have -- you got to be very safe. You got to have good service. You need to have an engaged workforce if you want to have sustainable performance. All of those things are important. You got to have the highest integrity and ethics and you never compromise on that. All of those things are very important and kind of a continuous improvement mindset that we can get better. There's plenty of potential. I know there is, everybody believes there is. We can get a little bit better all the time every year, and we keep moving these metrics north.

And just given the unionized nature of the business with all your frontline employees, what's achievable with the unions?

Well, it's interesting when I went through the merger with Praxair and Linde, I basically was told, well, "Steve, you know that codetermination is the law of the land in Germany." And works councils are represented all the way up to the Board of Directors. And it's really impossible to do anything. And I thought some of that, not that I'm relaying it to this, but I thought some of that was a smoke screen because when you really sat down with them and said, this is kind of how we're performing, we would like to do better here. You kind of go, yes, I understand that, but how are you going to do it?

So actually, they asked very good questions. They would say things like, okay, Steve, I buy into, we need to be more cost competitive. We need to do those things so we can win more business, we can provide better service to customers. The business will be better off going forward in the long term. So show me though, the organization chart looks like this today. What will it look like in the future? That's a good question. So we go back and go through that iteration and you come back and say, this is what it looks. And they go, okay, well, now we got to go through the social hierarchy in terms of who occupies the chart.

But it's very sophisticated. But I didn't -- I never felt sitting there talking to them like they're diametrically opposed to everything I say. And I don't believe that's the case here. I mean, I've been out of road trains. I haven't done enough, and I've met with people talk to people. They're good people. And I think you really have to have an engaged workforce. And again, I'm not here to do things drastically. I'm not here to say operating -- we get 10,000 basis points out of operating ratios next year. That's not how I think. I think everything has to be done in balance. We've got a lot of criteria we want to perform well against, a lot of metrics, and we can do that together and kind of holistically, but just do it in a very intentional way. And I believe that if we work in a very respectful way, if we engage them, I think we can do a lot. So long-winded answer, but that's my answer.

Stephen, and on that note, I think we're running over time here, but...

Yes. Thank you, Brandon.

I appreciate you coming down. Thank you.

All right. Thank you.

Hello, and welcome to the CSX Corporation Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Matthew Korn, Head of Investor Relations. Please go ahead.

Thank you, Sarah. Good afternoon, everyone. We're very pleased to have you join our fourth quarter earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Mike Cory, EVP and Chief Operating Officer; Kevin Boone, EVP and Chief Financial Officer; and Maryclare Kenney, SVP and Chief Commercial Officer.

In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and non-GAAP disclosures. We encourage you to review them. And with that, I'm very happy to turn the call over to Mr. Steve Angel.

Good afternoon, and thank you for joining our fourth quarter call. This has been a challenging year for CSX and for our industry overall, with subdued demand and limited growth opportunities persisting across many of our key markets. Against this backdrop, our service levels remain positive in the fourth quarter, and we delivered modest total volume growth. However, reported operating income, operating margin and earnings per share were all lower year-over-year.

As noted in our press release, these results included approximately $50 million in expenses related to important actions we've taken to adjust our cost structure, deliver better financial results and position the railroad to succeed. We are committed to delivering stronger performance into 2026 as we build on our key accomplishments. We've renewed the leadership team, putting the best people into the best positions to drive value. And we're aligned in driving greater physical responsibility and disciplined execution across the company.

We've stabilized service on our network at high levels, delivering consistency and reliability for our customers while realizing clear productivity gains. We've capitalized on the strength of our service to win business, and we will be ready and able to respond when demand increases. As we move forward, you will continue to see us take thoughtful actions to drive greater profitability and cash flow and build momentum into the year ahead.

And now I'll turn it over to Mike.

Thank you, Steve. So let's take a quick look at our safety and operational metrics on Slide 5. Our operations team is improving safety performance through focused execution of our safety plan. The left portion of this slide highlights meaningful full year declines in both FRA injury and accident rates with the fourth quarter posting the year's best metrics. We know that an outstanding safety record is a clear indicator of effective management at every level, and we're taking solid steps towards our goal of reaching best-in-class performance for the industry.

The right portion of the slide shows strong year-end [ fluidity ] and customer service performance. Velocity, Cars Online, Dwell and Trip Plan Compliance all showed substantial improvement from Q1 to Q4. These are encouraging trends as we enter 2026, running a cost-effective, efficient network while delivering consistent, reliable service is essential to our success.

We're maintaining this balance and preserve our operational momentum while ensuring CSX has the capacity available when the industrial cycle turns.

Kevin will now review our quarterly results in more detail.

Thank you, Mike, and good afternoon. I'm excited to be back in the CFO role and have an opportunity to work with this team. As Steve mentioned, over the last couple of months, we have taken steps to align our cost structure to the current business environment. The team is fully engaged and I'm encouraged by the momentum we are building with opportunities to drive efficiencies in nearly every part of our business as we enter 2026.

Now let's move to the fourth quarter results. Volume increased 1% with revenue down 1%, driven by business mix headwinds and coal pricing. Fourth quarter operating income and earnings per share fell by 9% and 7%, respectively, against adjusted prior year figures. These results included approximately $50 million or $0.02 of charges for actions taken during the fourth quarter to optimize our workforce and technology portfolio.

Now let's turn to the next slide for a closer look at the expense line. Fourth quarter expenses increased by $73 million or 3%, excluding the 2024 goodwill impairment. As mentioned, the quarter included approximately $50 million of charges comprised of $31 million of separation costs in the [ later line ] and $21 million of technology impairments in PS&O. We continue to see opportunities to drive efficiency in our labor costs as we prioritize safety, customer service and profitable growth.

Ending rail headcount finished the quarter down over 3% as we continue to align to the current business environment. Additionally, overtime remains a focus for Mike's team as we look for ways to provide better visibility and tools to manage these costs. We have identified meaningful opportunities to reduce nonlabor spending with well over 100 diverse savings initiatives across the company, including cutting outside and professional service spend, improving asset utilization and maintenance efficiencies as well as enhancing controls around all sources of discretionary spend.

2026 expenses will also see year-over-year benefit from cycling network disruption costs, third and fourth quarter separation costs and fourth quarter technology impairments. Depreciation will be relatively stable year-over-year as normal increases to the asset base are offset by favorable results from an equipment life study, asset retirements and targeted reductions to technology and aviation assets. We are encouraged by the cost improvements identified as we move through the quarter.

Similar to our focus on cost, capital spend and driving free cash flow remains a significant area of opportunity. Working with Mike and his team, we are developing improved oversight to ensure every dollar of capital is spent efficiently and aligns to our strategic priorities, including safety, customer service and driving profitable growth.

With that, I'll turn it over to Maryclare to review our revenue results.

Thank you, Kevin. I'm happy to be here and excited to have the opportunity to lead the professionals in our commercial organization. The railroad is running well, and we have many opportunities ahead. With that said, as you've heard from Steve, we continue to navigate the challenges of a mixed industrial demand environment. The strength of our relationships is critical when uncertainty is elevated and our voice of the customer surveys show that our team has been doing an excellent job at staying close to our customers and being responsive as conditions change.

Turning to Slide 10, Let's cover fourth quarter volume and revenue performance. Overall, total volume was up 1% in the quarter, but revenue was down 1% as negative mix and weaker export coal prices led to a 2% decline in total revenue per unit. Our merchandise franchise, where volume and revenue were both down 2%, continues to face market-driven headwinds. Revenue per unit was modestly higher and was also affected by mix as growth was strongest in low RPU areas such as minerals and fertilizers. We continue to see softness in chemicals and forest products, where volume was down 6% and 11%, respectively.

The industrial chemicals market remains weak, and many of our customers are carefully controlling freight spend as they manage through inflation and tariff pressures. In Forest Products, we continue to see the effects of plant closures, particularly with pulp and containerboard that occurred up until the start of the fourth quarter. Despite these headwinds, our team has had success at winning incremental business, and we anticipate benefits from new facilities ramping up in 2026.

Automotive volume was down 5% year-over-year. While we saw some manufacturers gain momentum through the quarter, supply constraints with chips and metals limited output at other facilities. That said, we've been encouraged by the continued strength in fertilizers and mineral shipments. Fertilizer volume was up 7% on improved phosphate rock production and business wins in the nitrogen market.

Minerals volume remains supported by demand for aggregates and cement for infrastructure projects. Our intermodal franchise really drove our growth this quarter, with revenue up 7% year-over-year on a 5% increase in volume. We've been winning new domestic and international business as we brought faster transit times and more connectivity to our customers. Finally, our coal business grew modestly in the quarter with volume up 1% year-over-year.

Domestic tonnage increased by 6%, driven by a substantial increase in domestic utility volume supported by growing power demand and higher natural gas prices. Export tonnage declined 3% in the quarter with the derailment in late October impacting shipments for a short time. Revenue was down 5% on a 6% decline in RPU, primarily due to a decline in met coal benchmark pricing. Notably, the discount for East Coast met coal indices widened versus Australian pricing this quarter, which impacted our yield.

Now let's turn to Slide 11 and talk about the key components of our market expectations in 2026. Starting with merchandise, we are positioned to benefit from consistent strength in infrastructure project activity in key regions served by CSX that's driving demand for materials such as cement, aggregates, plate and scrap metal. More uncertain are conditions in the housing and automotive markets, which affect many commodity markets. Consensus forecasts call for a modest decline in housing starts this next year and affordability and overall demand levels continue to impact the prospects for North American light vehicle production.

Our merchandise volumes will also reflect the cycling of facility closures, largely in the forest products and metals areas that occurred through 2025. We've been encouraged by the success we've had in intermodal, where the team won new business in 2025 as we expanded our network reach through new operational agreements and our strong service has allowed us to provide a faster service product.

At Howard Street, the first of 2 bridges being raised to support double stack capability is now complete, and our customers are excited about the opportunities coming [ later this way ]. They're bidding on business now for volume to start moving double stack through the tunnel in Q2. Still, the markets reflect the reality of a still soft trucking market, where we're watching the supply-driven increase in truck rates carefully. We also need to be aware of the risk of a slowdown in imports after the pull forward of activity that occurred through 2025.

For coal, we're pleased to have 2 important mines on our work back open after extended outages. These mines provide good quality met coal for the export market, though global steel markets and benchmark prices remain subdued. Domestically, many utilities continue to buy more thermal coal given increasing power demand. We do have coal plants on our network scheduled to retire this year, but we have seen some closures get delayed. Overall, we see good potential in 2026, but we expect the best results will come from our own specific initiatives.

Our visibility is limited, but from what we can see and hear from our customers today, there's no short-term catalyst on the horizon to lift the major industrial markets. Our team will work hard to make the most of every profitable opportunity and we will be ready to respond when macro conditions improve.

Now I'll hand it back to Steve to talk through our outlook.

Thank you, Maryclare. Now we'll review our guidance for 2026 on Slide 13. We have a well-running railroad and a good pipeline of growth initiatives. However, as Maryclare discussed, the near-term outlook across many key markets remain soft. As we plan for 2026, we do not anticipate any meaningful improvement in macroeconomic conditions. So we are assuming low single-digit revenue growth for the year based on flat industrial production, modest GDP growth and fuel and benchmark coal prices consistent with current levels.

We expect to deliver year-over-year operating margin expansion in the range of 200 to 300 basis points. This is from a combination of workforce optimization, tighter management of discretionary expenses, our drive for efficiency and the benefits of a more stable fluid railroad. With our Blue Ridge project complete and focused efforts on capital discipline in place, we plan for 2026 CapEx below $2.4 billion, a substantial reduction from last year. Our CapEx priorities are unchanged: invest in our infrastructure for safety and reliability and invest in growth and productivity projects that pass our financial criteria.

For free cash flow, higher earnings, a more normalized cash tax rate and lower capital outlays should drive growth of at least 50% compared to 2025. Finally, let me address the multiyear targets that were offered at the company's 2024 Investor Day. The opportunities ahead for CSX are strong. When we execute on the core fundamentals of service, cost discipline, operating efficiency and prudent capital deployment, we will create shareholder value over the long term.

That said, the macroeconomic environment and the industry dynamics were meaningfully different than compared to today. I am replacing our 2025 -- 2027 targets with the guidance we've given for 2026 only. I will continue to evaluate our outlook as we make progress toward our goal to be the best-performing railroad in North America.

With that, Matthew, we will open it up for questions.

Thank you, Steve. We will now proceed with the question-and-answer session. Now to ensure that we maximize everyone's opportunity to participate, we ask that you please limit yourselves to 1 and only 1 question. Sarah, with that, we're ready to begin. .

[Operator Instructions] Your first question comes from Tom Wadewitz with UBS.

Great. Just I guess 1 fine point on the OR improvement, if you could tell us what the base OR is in '25 kind of just like what's included. But I guess the real question, if you will. How do you think about pricing and price cost spread I think, Steve, focus on price and productivity are kind of 2 hallmarks of your approach. How do you think about the opportunity to have some traction on the price initiatives and see pricing above cost inflation in 2026.

Yes. Tom, on the base -- the starting point for 2025 is obviously ex the charge that we took on goodwill. So that's the starting point that we have in the adjusted number that we disclosed.

And on your questions on price and productivity. So as we think about price, I mean, certainly, you would like to be able to cover the cost of inflation in any given year and actually do better than that. In terms of kind of where we are in the pricing initiatives, Maryclare Kenney has taken the ball on that and has already put some new structures in place that I think are definitely going to help in terms of our price yield.

As we look at what we have in the plan for 2026 versus 2025, price yield will be higher in 2026 over 2025 than it was in 2025 over 2024. So we're making progress, I think, on the pricing front. It will be a bit slow going, but I think we'll continue to make progress as we work harder on the whole price management equation. And in terms of these contracts have a roll-off in certain time frames that would probably take until about this time next year before we had a chance to touch every contract and stress test, if you will, in terms of what the right price is versus the value we're bringing to that customer.

The next question comes from Brian Ossenbeck with JPMorgan.

Maybe one for Kevin, in the 200 to 300 basis point guidance for improvement, can you give us some qualification to how much of that you think is already baked in based on some of the onetime items or the things you know are rolling off? And sort of what are you expecting for inflation within that guide? Because you look at the ALIF index, for example, that's starting to pick up a bit here. So can you give us a little bit more color in terms of the building blocks there and sort of what's already spoken for? And what are the assumptions underlying the rest of it?

Yes. No, when you look at some of the unique charges that occurred in 2025 between the severance, the technology write-off that we disclosed as well as some of the costs related to the Blue Ridge and the Howard Street Tunnel, you can roughly assume those are [indiscernible] $150 million. What we're doing, what our guidance implies is a much greater initiative around productivity and a big focus across the organization to drive that.

And so you'll see our productivity numbers if you do the math, have a fairly significant increase in step-up. When we think about what's happening on the inflation side, on our labor side, that's pretty self-explanatory on the union side. The industry has obviously embedded labor inflation. Next year, you'll see another wage increase in the 3.75% range. We're also experiencing a little bit more health care inflation going into '26 versus '25. So I would say, on the labor side, that's pretty consistent with what we saw last year, maybe a little bit higher than last year.

And then on the nonlabor side, a lot of efforts by the procurement team and others to drive that a little bit lower. So we expect a little bit lower inflation on the nonlabor side. So overall, I would look at inflation probably being in that 3% to 3.5% range.

The next question comes from Scott Group with Wolfe Research. .

The low single-digit revenue growth for the year. Any just sort of rough thoughts on volume versus yield in that? And then maybe, Steve, just a bigger picture, like the guide this year, I guess, implies like a [ 64 to 65 ] OR. Now that you've been here a few months, do you have a feel for like what you think the longer-term operating ratio should be? Should this be a [ sub-60 ] OR railroad in the next few years? Or is not -- is that -- how should we think about that? .

Scott, this is Maryclare. I'll take the first part. So I think as we think about next year, we're looking at modest volume growth going into the year. I covered some of the macro environment that we're seeing out there. And while we're optimistic about certain areas and we see growth opportunities in places like intermodal, places where you see infrastructure investment like our minerals markets. And I think there's some potential on the domestic utility side. When you think about the need for power generation as well as natural gas prices are. Those are kind of more positive for us. But then as I talked about, when you look at more of the industrial economy, we still see a lot of headwinds out there. So at this point, we'd say really modest volume growth next year.

Yes. And on the -- I'll just talk in terms of operating margin percent. Look, we want to expand it every year. And if we're doing the right things on price management and productivity, we will be able to do that. And I have confidence in this team. I have confidence in our ability to build solid productivity programs to be able to grow operating margin a certain percent every year, and I could give you a number now, but I think I'll wait and talk about that later. .

But the objective is best-in-class performance. And you know what that is with respect to operating margin. I know what that is. I have confidence we can get there. The question is over what time frame we'll make progress every year. What I would like to do, I mean, we have a very solid plan, as Kevin described, and we put a ton of time into building this plan for the environment that we're facing and to make sure we could deliver an outcome that we would be proud of.

So that's where we are. But what I would like to see over the course of time is how well we can execute to those plans. I have confidence we can, but I'd like to experience that a few quarters, if you will, just so I can get grounded and confident in our ability to build, I'll call it, sustainable productivity over time. And I think we can do that, but give me a little time to get more confident in our ability to do that.

The next question comes from Ariel Rosa with Citigroup. .

So we're looking at -- I apologize because it's a little bit short term, but we're looking at potentially a pretty nasty storm coming up. Not too long ago, we saw CSX's network face a pretty big setback given some storms. I'm curious, maybe Mike is the best one to answer this question. Just how are you preparing for the storm? And how do you get confidence -- maybe it's an opportunity to talk about kind of how you're running the network differently now versus say, 12 to 18 months ago, but what are the risks that these types of events could present setback? And how do we get comfortable that this isn't going to be a big obstacle in Q1?

Sure. Thanks for the question, Ariel. As we've said, like the network is going into this in much better condition than last year when we started facing storms. So just to give you just a view of what we see, we're going to see ice on our southern portion of our network basically going from Nashville right across through Alabama, through Georgia. And then in the middle section of our network, we're going to experience or we see right now from the weather reports, we're going to experience heavy snow right from Indiana through Kentucky, right across PA, Western Maryland, Virginia, all the way up to the I-95.

So in terms of precautions [indiscernible] detail. I mean we're going to have senior coverage right around the clock in all of our key areas, including our network center, we've gone over from snow clearing to tree clearing, generators, everything that we need in each location, in each facility that we see the storm coming through. We've modified our operating plan, working with our customers, notifying them because they're going to have the same conditions that really assets for us right now are going to be the most crucial thing that we protect.

At the same time, we expect to see power outages, highway closures. We're going to see cold right after that. So I do not see us coming out of this probably for a few days. If we get it Sunday, we're looking at midweek to recover. But I'm very confident, especially with the condition that we're going in that we will come through this with no issues. This is not going to lead us into 4 months of trouble like it did the year before, even if there is some consecutiveness to it. We have everything in place. And what we learned last year, we're putting into effect throughout the beginning and right through the storm.

The next question comes from Brandon Oglenski with Barclays.

And I guess, Mike, it's not shocking that it snows in January. So I'd ask maybe more importantly, like how are you approaching the operations differently this year, especially with like new leadership concepts at the company, how do you get back to those best-in-class metrics that the railroad had 3 or 4 years ago. .

Yes, thanks for the question. I think you can see by the metrics we have now, we're running as good as we have 3 or 4 years ago. But really, I mean, it's a focus on asset utilization, it's a focus on oversight and to the key measures that we look at every day, really, that's what we've done. What we learned through that exercise was to make sure that we take action as soon as we can on the issues that are preventing us from being fluid.

And that's from making sure that we don't bring equipment in when we shouldn't. It's making sure we have our excess equipment in places to be able to respond to issues we have. And that's generally what we did to come out of the second quarter is -- first and second quarter issues we've had. But I don't see us really tolling on the storm coming up. I appreciate your concern, but we're ready for it. And again, I see us coming through it very well.

The next question comes from Ken Hoexter with Bank of America.

So Kevin, it sounds like a lot of programs, I think you mentioned 100 different ones. But just so we don't get lost in kind of minutia. Can you maybe talk dollar amounts for buckets so we can, I don't know, track something. Is there workforce optimization or a headcount target? Anything from Mike Cory on the op savings? And Kevin, you mentioned nonlabor spending.

Maybe you could just maybe parse that out a little bit. So because if we've got very low volume growth, very low pricing growth, how do we get that 200 to 300 margin basis points, I guess, you take out maybe 100 basis points or so from the the $100 million that you spent this year, but if you can bucketize some of that stuff to help us walk through and what to expect.

Yes. When you look at the majority of the productivity that you obviously can solve for after the $150 million that I pointed out that naturally just comes out that won't repeat in 2026. It's very, very highly focused on the labor line and the PS&O line. And so a lot of activity in those 2 areas, I would say, largely equally divided. .

You'll probably see on an absolute basis, on an absolute dollar basis more come out of the PS&O line because you're going to have less inflation, core inflation in that line versus labor, which I talked about a little bit earlier, given obviously, our union labor contracts and what we're seeing on the medical side on that area. But those are the areas we're certainly focused on driving cost improvement across line items, depreciation, more or less, it will be in the flat range as we pointed out.

And then certainly some areas of improvement. Mike will always tell you on the fuel side, we're looking for every opportunity to continue to get more fuel efficient. And then on the rent side, there's some opportunity as we run better, certainly, from a car hire in other areas that we expect to drive improvement there, too. So the good news is a diversified portfolio of opportunities. I guess the bad news on that side is we've got to stay very, very focused across all of these areas to make sure that we're capitalizing on those.

And my full expectation as we move into -- later into this month in February and March, we're going to come up with an additional list that will obviously hopefully drive further improvement in the back half of the year and then create some opportunities as we move into 2027.

The next question comes from Stephanie Moore with Jefferies. .

Great. I think I would be a bit remiss not to ask at least about the major merger that is underway for this industry. If you could maybe talk about how you are positioning the company in the wake of what could be a pretty transformational deal. So in the near term, while it's under review, what are the opportunities that you all can take advantage of. And then, of course, I'm sure you're also having to somewhat scenario analyze what would be like if the deal is approved. And in that way, what is the strategy for CSX as kind of the sole East Coast merger? East Coast rail. Thanks.

And made a call, it took 3 years before the final restriction was lifted. So for 3 years, we were kind of in deal purgatory. And what you have to do is make sure that you're running the business to best your ability every day. And that's kind of the key in this process. I don't know what conditions are going to be required for approval. That remains to be seen. I think this is a long process, and we'll find out what that is. And then when you get to the end of that, the -- if the merger is approved, you still have to execute.

So I think it's a long process, as I said, there are going to be opportunities we can take advantage of. We see some today that we're taking advantage of, whatever risk are out there, we'll certainly manage those. We'll mitigate those. We'll have plans for those as the time comes forward for us to make our case to the appropriate authorities, we'll certainly be prepared to do that. And then the focus is just making sure that we can be as competitive as we can be. But at the end of the day, we can create value by running CSX better every day.

So you can set the merger aside, we're going to manage that. We're going to work through that. We're going to have many, many quarters to talk about that probably. But what we know we can do now is run this company better every day, and we feel really good about our ability to do that.

The next question comes from Jonathan Chappell with Evercore ISI. .

Kevin, maybe Maryclare, can you just help us a little bit with coal RPU? It feels like the way that we're calculating it now is a little bit different than the last several years? And what are you thinking about as baked into that revenue growth? Do we see -- and this is from both a 1Q and a full year perspective. Is it kind of stabilized from this 4Q exit rate? Or is there some improvement baked into what's a very important yield line item. .

Yes. So it's very clear. I'd say if we think about RPU going forward, there's always a mix element that comes into our business. And so as I think about going into 2026, talked about some of the markets that we feel a little bit better about as well as ones that we see more risk. And so Intermodal, we feel good about. When you think about some of our merchandise side of the business, we see some impacts there of probably stronger growth in some of our lower RPU business, like minerals and fertilizers and more softness in some of our higher RPU business when you think about our forest products business, our chemicals business, talk a little bit more about next year. We've got overlaps that we saw closures over the course of 2025, quite a few of that in our forest products line of business.

We see auto down next year from a North American light vehicle production perspective. And we also have a large plant on our network that will be down over the course of next year. So that will certainly impact where we see volume growth versus decline and that comes into play. I would tell you, Steve spoke earlier about how we're thinking about pricing. We've had a lot of conversations there. We've looked at our processes and controls and Mike's delivering a really good service product right now and customers value that. And so we're going to take that into account as we think about going forward. And you also know there's a portion of our business that we can touch every year. So that will impact from a timing perspective.

Yes. I'll just add on the coal RPU just as a headline, we went through a year where we're lapping some pretty difficult comps, and that will be -- largely -- we'll be through that by the first quarter on that side. So we'll see a lot more stable, maybe slightly down. But again, to Maryclare's point, it's a lot about mix and obviously, with a stronger southern utility demand, that is helpful as well from the length of haul. .

The next question comes from Chris Wetherbee with Wells Fargo.

Maybe I want to come back to a question that was asked earlier in the call and maybe think about it a little bit differently. I guess, Steve, you talked about best-in-class and when you think about it from a margin perspective, we kind of know where the benchmarks are. CSX was there probably 5 or 6 years ago for a few years. And I know things are different, mix is different. There are some other dynamics in the market relative to them. But I guess, as you've been there for 3-plus months now and had a chance to kind of think about the business, is there anything meaningful that you see that sort of prevent the ability to get back to those levels, whether you think about sort of the different customer mix, how things are changing, if there's anything from a network perspective we should be thinking about, I guess, the productivity and you have to kind of get some reps in before you feel comfortable with how that can be sustainable. But anything sort of maybe insurmountable that you see right off the bat.

I mean in an answer, no, I don't see anything insurmountable. And it's not like I'm sitting here thinking that we're going to go back to the heydays of coal, and that's how we're going to accomplish. That's not what I'm thinking. I'm thinking about basically take the mix we got and through some of the strong initiatives that Maryclare talked about earlier, finding some growth through our own actions.

Obviously, anytime you get a little help from the economy, that would certainly help a great deal towards moving those operating margins up faster. But I really don't sit here and think I need to have a lot of help from the economy. I think our own growth initiatives is doing a better job on price management and working the productivity equation very hard. And both Mike and Kevin have talked about certain actions that they've taken. But I can lay out something that says we should be able to get there. But again, I want to see the kind of proof in the pudding. And I think that will happen. But that's kind of how I think about it.

The next question comes from Jason Seidl with TD Cowen.

Maryclare, I guess, is going to be one for you. We're going to go back to the coal side, but I want a clarification first. I think you said it was -- [ you were calling ] from muted growth and then you said next year. I'm assuming you were talking '26 and not '27.

Yes, '26, sorry.

Okay. Not a problem. I've done that a bunch of times already this year. I wanted to just ask a question, given the storm and some of the impacts that we've seen at least over the last 2 days with natural gas futures, just how long do natural gas prices have to stay elevated until we see a flow-through on the volume side? And what's sort of the best way to monitor that? .

Yes. Thanks, Jason. I would say, as I think about the coal side, both with greater power demand that we're seeing here and the increase in the natural gas prices, certainly supported recently about this upcoming storm. We feel good about the volume demand on the domestic utility side. I would say one of the things that we're watching here though is there were some plant closures that were supposed to start happening this year.

We expect those will get delayed. But for how long, that's a little bit uncertain. I think there's going to be more demand and more opportunity for us. I think the piece we'll have to watch is how much can actually be supported by the producers going forward.

The next question comes from Ravi Shanker with Morgan Stanley.

Steve, it's understandable that you pulled the long-term guidance given [ what macro has ] done in the last couple of years. But is that still the right template to think about earnings growth in the long term when macro is normal? Or do you think something has changed with the business where it could be better or worse than that initial guidance?

No, I don't I don't think anything that's changed in the business where we can't come back and lay out a longer-term guidance or longer-term algorithm. I don't see anything that's fundamentally changed the business that would prevent us from doing that. It's just caution on my part that I want to make sure that we can execute the plans in front of us before we start talking about a longer-term picture. But I'm not sitting here thinking that we need to get away from that any kind of longer-term guidance because there's something fundamentally wrong in the business. I don't see that.

The next question comes from Jordan Alliger with Goldman Sachs.

Just sort of curious, can you maybe talk a little bit more about the double stack opportunity, perhaps sort of update, if anything, on the sizing. And I know you said people are putting bids out for the second quarter. Any additional sense for how we should think about the timing of how that could ramp into your business in order of magnitude.

Yes. Thank you. So I'll tell you, we're really excited about Howard Street Tunnel. I've been here 14 years and excited to see it come to fruition. And there's a couple of opportunities there. One, we're adding new connectivity from the Southeast up into the Northeast. And so we've announced new lines of service but it's also going to improve our service product from Chicago to and from Baltimore. It's also enabled us to allow efficient double-stack service from the West Coast all the way through to Baltimore versus having to do a [indiscernible] crosstown in Chicago.

So we're excited about the opportunities that are out there. We're talking to our customers today, both channel partners and shippers. But what I would tell you is based on past experience, it typically takes a couple of bid cycles to really for customers to kind of see the opportunity and convert more business. So we expect to see growth this year and going into the future. I would say, both on our domestic and in the future on the international side of the business as well.

The next question comes from Walter Spracklin with RBC Capital.

I wanted to come back to the revenue growth profile of low single digit. I know whenever I think about pricing in the rail industry, I kind of consider it in the 3.5% area, and then you do assume some volume growth, it would seem. So just curious, is there a mix effect at play here where we should build in some negative mix? Or are we seeing that core pricing number that's typically north of 3%, somewhere below 3%? I know Maryclare, you flagged truck pricing. I don't know if that's -- I mean, truck pricing is catching a bit here. So I'm just curious as to how the -- you decompose the revenue growth versus what you would have seen typically in the past.

Yes. What I would say is mix is always going to play a role, right? And so as I talked about this year and what we're seeing, we expect some of the stronger growth to be in our lower RPU segments. And so that is going to absolutely have an impact on us. On the intermodal side, that's lower RPU minerals and fertilizers, a little bit lower RPU for us. We are when you think about chemicals, when you think about forest products, when you think about automotive, there's headwinds out there.

We're going to go after opportunities that we see and make sure they're accretive to the business, but mix is certainly going to impact where we see the growth come in 2026, and that will have an overall impact on the business. Kevin touched a little bit on coal side earlier. I just mentioned on that. I do think that not only is there domestic utility opportunity this year provided these closures that are scheduled to get pushed back. But I would also say on the export side, last year, we saw the numbers -- the benchmarks come down pretty significantly over the course of the year. I think what we've seen is some pretty recent stabilization there.

I guess I would call out that PLV has jumped up a bit. But I think it's important to note that when you think about our business, we're more heavily indexed to high vol. And I would say that's been more stable as opposed to seeing any significant increase at this point.

The next question comes from Bascom Majors with Susquehanna.

Steve, last quarter, you gave us some thoughts early on in your tenure about your compensation philosophy and how it kind of applied to the rail model. Now that you've gotten through a few more months, you're in planning, can you talk a little bit more tactically about how you and the Board have talked about changing the incentives for senior management, both on an annual basis and a go-forward long-term basis? How are they different today than they were over the last few years.

Well, we're basically in the process of rolling up the new metrics kind of as we speak. But if you -- to your point about what I discussed last time about most important, and it's really inherent in our guidance, right? I talked about operating margins as being very important in terms of demonstrating that we can continue to improve the quality of the business. And so that's an obvious metric, operating income dollars, that's what translates into net income and earnings per share.

So that's obviously -- that will always be an important metric. Safety will always be part of the mix. And if I had to pick 3 metrics that are most important to us, sitting here at this time, it'd be those 3, including safety. That's really on a year-to-year basis. And as you look into the longer term, which we call kind of 3 years. And you've heard me say, and those of you who've heard me say this for many years, some of you return on capital, I think, is the [ truth of serum ] for any capital-intensive business. So return on capital is very important. And it's total shareholder return, how well are we doing compared to the S&P 500 Industrials. I think that's important to all of us. So kind of in a nutshell, those are the metrics that are most important.

And I've always liked to focus the organization on a handful of really important metrics as opposed to having 8, 10, 12, as I've seen other companies do over time. And I think that's -- if you want to -- if you want to motivate the organization, if you want to incent the organization, you need to have metrics that are very meaningful and reinforce that every day.

The next question comes from David Vernon with Bernstein.

Steven, if you can maybe kind of address the cadence of OR improvement expected as we get through this year? Should we expect a kind of year-over-year across the board? Or is it going to be a little bit more back or front-end weighted? And then if you could put a hard number around what the benefit -- the run rate benefit you're expecting from the cost actions you've taken to date. I think that would help us kind of better understand the bridge for kind of what's organic or volume dependent on what's already kind of in the bag.

Yes. When you -- certainly, there are comparisons when you think about what has occurred in 2025, and I would obviously highlight first quarter given some of the storm activity and other things that occurred to us as a quarter where we should have good year-over-year performance probably above the average for the year. This is a continual process. As we move through the year, we continue to expect to get better and drive more cost out of the business. And we'll see if the -- what the revenue story is.

We're obviously not assuming a whole lot, but there's a lot of activity around that as well. the framework that I would use from a margin perspective is the $150 million that I certainly highlighted as not going to reoccur next year, I highlighted 3% to 3.5% inflation in our business, and you'll see that more pronounced on the labor side versus the nonlabor side, and I think you can effectively back into what we're assuming from a productivity standpoint from there.

The next question comes from Dan McKinney with Deutsche Bank.

This is [ Nayan ] Kind of sticking with the OR progression, I think it was really encouraging to hear about the over 100 diverse savings initiatives that the team identified, but it also sounds like there's potential for more. But as it relates to the full year outlook, of the 200 to 300 basis points of OR improvement, can you help us bridge from 2025, like are these cost savings considered? How much is it depending on the market versus what's within CSX's control? Any color there would be really helpful.

We're not depending on the market. This is a plan that is based on the things that we can control, which is encouraging for us and this team, we're going to focus on those items and we haven't talked about the potential for some of these markets to improve. But what we're really focused on is creating the operating leverage when the markets improve to quite frankly, deliver higher incremental margins than what we've done in the past.

And I'm fully confident given all of the things that we're doing that every incremental dollar of revenue that Maryclare Claire and her team are able to deliver that will come in at a very, very high incremental margin, given all the costs things that we're focused on.

Going back to the 100 different opportunities, it's really across everything from vehicle spend over time. focus on rental equipment, travel, Mike and his team, Doug, Casey, Terry, all of them have brought ideas to the table. And now it's building the process, the -- on a monthly basis, they hold our teams accountable to delivering it. Very confident that we can do that and providing better tools, quite frankly, to the operating team and every team across this organization, so they have visibility to where the costs are.

And I'm feeling better and better about that every day. I know Mike and I collaborate on that every day. I'm sure there's things that we don't know about today that we'll continue to identify. And so our goal is to build the momentum through the year. And when that volume comes back, we're going to have a network that can handle the volume, most importantly and really deliver the incremental margins.

This concludes the question-and-answer session and will conclude today's conference call. We thank you for joining. You may now disconnect.

With our next presentation here, we've got CSX. Pleasure to have them join us again at our conference. We've got Mike Cory, EVP of Operations. We've got Kevin Boone, CFO. And -- I think just to get things started, Kevin has some -- a slide or a couple of slides on the trends in the business. So why don't we start with that, and then we'll jump into the fireside chat.

Yes. So if we could pull up the second slide here or the next one, everybody knows that slide. Tom, you didn't set me up very well here, but the market here, I wanted to give a quick update on the fourth quarter. Everybody knows where the industrial economy right now is. It's a pretty mixed bag, right? We're seeing a lot of challenges in some markets, some opportunities in others, but it's a very, very mixed bag. The industrial economy has been struggling this year, and we have a diverse portfolio, which makes it obviously challenging in some areas, and then we're going after opportunities. And I know Maryclare and her team, my former team, are out there finding every opportunity that is available.

So if we just go through the markets real quick. We are seeing some opportunities on the metal side. That market has been fairly strong for us. Scrap and other areas are benefiting our business today. Minerals and the fertilizers markets, both strong. I would say on the mineral side, we have a unique network in terms of our exposure to the Southeast markets and data centers, other things are impacting that market as well. So strength in those markets. Everybody is well aware of where the intermodal markets are today. We've had strength in the international market today. That's probably weakening here, a lot of impacts from tariffs, other things that we're seeing. So a little bit weaker market than what we saw in the first half of the year with ebbs and flows, trying to get ahead of tariffs and then -- but we still see some strong opportunities on the domestic side with some wins that we have been out there in the market and other opportunities that the team has continued to go after.

Some of the weaker markets that we see are the chemicals, forest products, those areas really touch a lot of the industrial economy, and that's where we've seen some slowness there. Really housing and then the auto side of the business is really the 1 -- 2 areas that we've seen some weakness that continues to persist. The good news is it feels we're at the lower end of the cycle in those 2 areas. So at some point, we should see that those markets rebound. I'm not calling for a rebound necessarily next year. We'll see, but there is cyclical opportunity in those businesses, and we're well set up, I think, to benefit from that.

And then you have coal. We've seen some very strong natural gas prices that will continue to carry our business in the Southeast, in particular, strong demand there with natural gas prices almost at $5, which is very supportive of coal burn. Then the international market has stabilized. We're finally lapping some of the strong pricing conditions that we faced last year and the negative headwinds there. So as we move into next year, that headwind hopefully is going to abate. It should abate just based on easier comps. The other thing, Mike is very aware of what happened on our coal side. We did have a derailment that impacted our business for a short period of time on the coal side. we have kind of scaled that at around $30 million EBIT impact for the quarter. The team did a great job, and Mike might touch on it a little bit on getting that railroad back up and running and being able to serve our customers.

And then the automotive market, you've heard in the news a lot about a couple of impacts. One, the aluminum plant fire that impacted one of our customers probably disproportionately. And then the chip issue that is now being resolved, but we probably saw some disproportionate impacts to a couple of our customers that we have strong positions with. So if you -- in total, that adds up to about $40 million in headwinds that we'll see for the quarter there. But I know the team is out there doing the best they can to offset that. But I want to give a quick update on the markets, and that's what we're seeing.

Yes, that's great. That's really helpful. So the $40 million EBIT impact you identify, are there kind of offsets to that? Or that's kind of a net impact to like we look at our -- where our earnings number is for 4Q and then we just take that out?

Yes, I think that's -- I would look at it as more of a kind of a onetime event in terms of that. We're always looking for offsets, obviously, from a cost side and then additional revenue, but those are things that -- and a lot of it is deferred revenue. You'll see that coal, just not enough time to catch it back up in the quarter. And then hopefully, automotive, we'll see. It's not that we lost volume, it's deferred volume in the next year.

Okay. But kind of take those 2 pieces out of where we're at on 4Q, and that will give a little better picture of where the business is.

Yes. and then look at the trends in the other markets as well.

Okay. Great. How do you think about, I guess, the markets where you would potentially have some optimism that they improve. So I see you've got a couple of markets in the red and some neutrals. Do you think some of those markets, where would you be a little more optimistic that either kind of project-driven, kind of easy comps? I know you had some forest product shutdowns, this plant shutdowns this year that probably give you some easy comps. But if you were going to anticipate some improvement in some of the areas that are neutral or weaker, where do you think that might come from as we go into '26?

Yes, you touched on it. One of the markets I really look at is the box plants, right? They touch a lot of it. They're a little bit leading indicator of the industrial economy. So that's one that I'm really waiting for a rebound. We're at pretty low volumes right now today in those markets. And you touched on, we've seen a number of plant closures that occurred this year. And that's probably been the biggest surprise coming into this year is with tariff uncertainty, we saw a number of different markets and plants or a number of customers make the decision to shut down plants that were probably going to be shut down over the next 5, 7 years and pulled forward all under 1 year.

So we'll be lapping that. Some of that will carry forward into the next year and -- but we do have the industrial development side of our business that's ramping up, and we're quite positive on as we get into next year, and we look at more of an opportunity as we get into '26 and then '27 should be even a better year than '26. But there's -- the chemical market has been one, obviously very, very challenged as well. And those -- I would say those 2 forest products, our Forest Products business and our Chemical business probably offer the most cyclical upside when the markets come back, we will see a strong rebound. I think Mike can touch on this, but those are 2 markets where we feel very, very good about where we are in terms of adding volume to existing trains. So incremental margins will be very strong in that business, and we're well prepared to handle it.

So if we kind of think about a flat underlying industrial market in '26, hopefully, it's better than that, would you expect some of your industrial development to kind of fall to the bottom line? And I think you've kind of historically said, okay, maybe 1 to 2 points of volume from industrial development. Is that like a reasonable anticipation that, that shows up in your industrial?

Yes. I think that's the plan. It will be partially offset by some of the closures and lapping those. So if we had a closure in July, we'll have to lap that for 6 months, but that has slowed down materially from that side. You always see some rationalization of the business every year, but we probably had a higher level. I know we had a higher level last year than we normally would. I think that's going to slow down dramatically because you did pull forward a lot of that absent the economy obviously faltering further and having our customers making different decisions. But no, I do think it will be obviously a positive to our business, partially offset by some of the closures that I mentioned.

Okay. So maybe it's a little less than the kind of 1 to 2 points, but there'll be something that's...

On a gross basis -- on a gross level, I think 1 to 2 points and then offset on a net basis by some of the closures.

Okay. All right. What about the -- you've had some nice wins in Intermodal. You've had good momentum there. I think there is some impact from customer positioning related to UP-NS. And so I guess we think of J.B. Hunt in particular, I know it's a little broader than that and then some new services you opened in the Southeast and now Mid-Atlantic and the Northeast. So how do you think about momentum in Intermodal and kind of how much more there is to go that kind of you see further sequential growth in '26?

Yes. Maybe I'll kick it over to Mike just to talk about how well the networks, I think, handled the -- and you're going to give me a couple of minutes, Tom.

Yes, [indiscernible] market.

And then I'll come and touch on...

The network is operating very well. And last year was my first year experiencing hurricanes and had enough of them that this year, we haven't had any. Back to the point on Intermodal, our Intermodal speed, our performance in the terminals, our performance with the truck turns has been impeccable, to say the least. And we expect to be able to grow on top of what we have. There is capacity. Some intermodal lanes are very heavy or heavier. But overall, our ability to absorb the incoming volume is there without any additional assets. And so with the speed, we've been setting records for both dwell and speed across the network. We're just waiting for the volume to come and we're ready to kick it in. So the network is running very well.

When you think about train length and intermodal, is it like what it is today? And I know it's like averages, so it's like train by train, but maybe what's the average train length in intermodal? And what does your system handle on average?

We can generally handle like a 14,000-foot network for Intermodal. So we have lots of capacity. We try to keep them within. It depends on some of the locations, but 12,000 to 14,000 feet is the norm. We're not anywhere near there at this point. We still have lots of capacity in that front.

And maybe just touching on the Intermodal, some of the strength we've seen and some of the opportunities we've seen. They actually have been across different partnerships. We announced the Southeast business with the BN Northeast opportunity as they speed up their network on their side, we're the beneficiaries of that. We think that's going to convert a lot of truck volume for us. We're already seeing the early signs of that. We've done something with the CN that we announced. We've obviously have the Meridian Speedway with CPKC. So all these things are adding up to a lot of opportunities to grow that business. And so we're excited about the momentum we're carrying into next year. I know there's additional opportunities we're looking at, but we're taking calls from everyone on how we can advantage our network versus the competition out there.

Do you think we've already seen a lot of the kind of incremental gains or more than incremental in the numbers we're seeing in 4Q? Or do you think there's like a further building off that 4Q base?

I think the service improvements that we've announced over time, those will build more truck conversion. So we'll see some incremental opportunities from that. But the transitioning of business, yes, that's largely been done, the shift, and we'll start to grow off of that. And I can tell you from speaking to all the customers that experienced the shift, they've been very, very happy with the service and very, very happy with the move over to our network.

How do you think about the work that needs to be done to leverage the additional capacity from the Howard Street Tunnel and your just new capability on that, with a pretty significant trucking lane, I would think. How do you think about how long does it take to do that? Do you expect that to -- is that a pretty big opportunity?

Yes. It's a market that we haven't been in for historically because you can't compete if you don't have double stack capability. So if you look at our network today, the big hole in our network was making that connection into the Northeast. So I think Atlanta into the Northeast, that really wasn't a market we could compete in. And then coming across from Chicago, again, it's going to create some opportunities for us. So our existing customers are going to benefit from that. Mike can maybe give an update of where we are on finishing that project. So we'll start to see hopefully some volume here next year, but I think we're on track.

Yes, we're still on track for the end of Q1 with the city finishing off their bridges and then we're ready to go.

So where are you at in 4Q on the expense side from -- you had talked about, I think, like $10 million a month for -- when you had the 2 projects going on and I think those are completed. Is there still some impact from that expense in 4Q? Or has that all fallen out of the numbers?

Yes. I think we said previously about $10 million of kind of costs are going to lag into the fourth quarter, just kind of residual costs. So $10 million if we were on a run rate of $10 million a month, so it would have been $30 million. Now it's only $10 million for the quarter.

Is there any that carries over into '26 or not?

No.

It should not be.

Okay. All right. Mike, what does the Blue Ridge sub do for you? And how do you think about what the network can do given both the capacity from Howard Street Tunnel and Blue Ridge sub? You were in a tough spot in '25, particularly when you got hit with some weather, right, that you had a network with less than normal capacity and less resilience. But how do you think about when you flip that the other way and you get not only the capacity back, but even more?

I think you're seeing it now, Tom. You're seeing it in our train velocity. You're seeing our ability to move the coal that's available for us to move much faster on the right route. And the capacity that we have up there, again, is -- we're still not even close to what we can move through that corridor. What we were doing before by rerouting via the Chicago to Nashville zone, it just put undue pressure that made us very fragile, and we are no longer fragile. And again, like I just refer back to, you see how the railway is running today. This is what we expect and with the ability to grow volumes on top of it.

So how do you think about the -- I guess, my -- going to a bit of a different topic that I want to drill into. But -- so you have a new CEO, CEO's reputation is very strong, very favorable. I think some of the feedback I get from investors is price and productivity have been kind of hallmarks of his approach at Praxair and Linde. And so how do you think about productivity opportunity in 2026? And is that kind of manifested in T&E headcount and you can just run better and that fits with your capacity position that's better as well? Or how do we think about that productivity that might kind of partially linked to the new -- the focus of the new CEO as well as your own opportunity?

It's just a tremendous opportunity. We're so much aligned in terms of the detail, making sure that we align our resources properly to get the efficiencies out of them. It's just been fantastic for the first month and change. And so our focus, as we speak right now, we've got people together looking for synergies that we maybe didn't look at the same way prior. And with Steve, our focus is on service and productivity and price. There's no question about it, and it's uplifting.

Yes. I can vouch that those have been the focus in his first few weeks on the job. He came from an industry, obviously, that in a lot of ways, it's very similar to ours, focused on price when they deliver value, and we're always looking to deliver better service and get paid for that service, and that's a big focus. I think he's going to lean into the tools so we can really make sure we understand where there are pricing opportunities and better look at that. And so investments on the technology side, I think, to help us there.

And then on the productivity, I mean, Mike and I, over the last number of weeks since I've been in this role, we're finding opportunities almost everywhere. And having that support from Steve to really go after it, I think, has energized the team. And so we're seeing -- I know the teams are back in Jacksonville right now working on a number of items that we've kind of laid out that we want kind of definite answers by Friday. And that list continues to grow in terms of opportunities that we're finding.

But the alignment is really just the same. It's safety, service and efficiency, and that's the beauty of it.

How do you think about the impact to the organization from Steve coming in? I know he hasn't been there long, but he seems pretty energized. Is it -- how do you think that's affected the organization and the leadership team?

Yes. I look back at -- I equate it to sports, people like to be on a winning team, and he's got clearly a track record of winning. And I think that excites a lot of people, especially the leadership and all the managers and all those that are around that they want to win in the market. We want to be the best railroad in the industry, and we want our customers to think we're the best railroad and give us to the business because we're the best railroad and most reliable. So I think there's a lot of energy around the building, at least I know and I think out in the field as well.

100%. Really, it's about building that culture that we know that we can build, and that's a winning culture. And that's what Steve is all about, and we're very welcome to it.

Okay. Great. Kevin, I'm trying to remember back to when you were CFO the first time around. But if I recall right, I think you had some pretty effective initiatives on overtime that there was, I don't know, excess overtime or opportunity to reduce overtime expense. And so this time around, maybe there's some more opportunity in that bucket. But how do you think about as CFO, like some of the cost buckets where you see particular opportunity?

I'll let Mike because we've been in it together every day going through this. It's a lot of, I would say, small and medium-sized opportunities that add up to a lot of dollars overtime. Overtime is one of them. I think we always focus on operating expenses, but capital is a huge one for me and a huge one for Steve, too, capital discipline on how we spend our dollars that manifests in depreciation over time. But I think there's big opportunities, and Mike and I are very much aligned on that where we can be much more efficient in our capital spend. That gives us opportunities to spend money on investments that have a high return or even returning more cash to shareholders. So I think you'll see a lot more opportunity coming out of that. But when we think about vehicles, overtime, rentals -- yes, rentals, just general spend, I think there's just that discipline that we're going to bring back to the organization around some of those things that this is kind of like it's your own money.

And as Kevin mentioned, our focus on the technology side is to get that visibility for people. So there is accountability and the controls are in place. And that's one of the big -- that's probably the most important thing we're working on right now. But you mentioned overtime, I'll just give you a little flavor. So our overtime for road train was down 30% last month versus last year. It's a huge focus, Tom. Doing it right the first time.

Okay. So you said down 30% over the last month year-over-year?

Yes. Now we had a tough year last year, remember, with the storms. But all that to say, though, it's just reflective in the speed of the trains.

Is that like a $5 million impact, $10 million impact? I'm sorry, Matt, I have to ask that. I mean just like ballpark it for me. I just don't have a sizing of that. Is that small or big?

I think it's kind of low single digit, I would look at it that way.

Okay. All right. Let's see. When we look at -- look through the earnings model and think of the levers and come out with our earnings for '26, one of the challenges, I think, for the railroads the last couple of years has been the price/cost spread that historically, rails are great at price and very good at cost, too. And so that tended to be favorable a lot of time. But I think kind of coming out of COVID and the last rail contract, that went upside down. And you've had a tough truck market as a backdrop, right? It's hard to raise rates when a big competitor is lowering rates or keeping rates low. So how do you think about that? How optimistic are you about price/cost spread being positive in 2026? And what do you think are kind of key levers to achieve that?

I feel very good about some of the cost initiatives that we have. And that's -- those are the things that we can control. On the price side, one of the biggest impacts that we've seen this year just from an RPU impact is obviously the export coal market. And I don't want to call it -- you never can call that market, but we are at lower levels today. So the risk from a pricing perspective and significant downward pressure that you could see from that market is obviously much less than what we started with coming in out of '25. So that's an opportunity for us. The domestic market is very strong. We expect to get value there. So I would expect that to both be positives for us that were probably more of a headwind coming into '25 and even more so than what we expected.

And then you mentioned the truck market and intermodal is obviously the one that competes most directly with truck today. And just the fact that rates are stable is helpful, right? That's where you have to start and the fact that customers aren't getting further rate reductions on the trucking side is going to bring us opportunities to convert that volume. I've always said if you're competing or you're trying to shift business where the customer is getting value by doing nothing, it's a very tough value proposition. You're going in there, you're getting maybe a 20% reduction to their truck spend, but their truck rates are going down 10%. So they're looking like heroes for doing nothing and not impacting their supply chain at all. I think now we're in the next phase, hopefully, where customers are looking for that next value lever, and you'll see some of that impacting the intermodal side.

Then on the merchandise side, it's in -- there's opportunities, obviously, I've talked about the tools on the technology side. Steve is highly, highly focused on that area. He made it clear to the team that there's going to be a lot of more rigor. He's also made statements around this is an industry that should cover our, obviously, cost inflation and industries that are solely focused on market share aren't the best performing businesses out there, right? You think about autos and other industries where the market share is a key focus, not the best margins. So it's good to bring that rigor. It's good for everyone to understand that's the focus for -- from the top down on what he's trying to achieve, and I think we're all aligned to that.

So is that a -- you think you will have price above inflation in '26? Or is that TBD or what?

I think we'll manage the cost and what we can control. And I think we'll see some pricing opportunities as well.

Okay. They're maybe optimistic and you certainly see opportunity, I guess, on that.

Clearly. I mean, just in the absence of some of the things I said, I think it should be a better environment from that dynamic versus '25.

Okay. All right. What about the kind of timing, you mentioned like technology tools. I don't know if you want to talk a little bit more about that related to price, I think. And also just like, okay, so Steve has taken a different approach than Joe did in terms of prioritizing price, maybe focus -- granular focus on price. How long does that take to come through and affect the marketing group and how they do things and what we actually see in the numbers on pricing?

Yes. I think, look, not every contract comes up for renewal every year. So you look at opportunity by opportunity, and it's a competitive market, and we have the best service out there. So we're going to compete, right, where we have to compete and deliver value, but we expect to get value for that better service over time, and that's going to be a huge focus for the team. And there's a lot of ways to deliver value for our customer outside of price. There's turning their assets quicker. There's getting more on-time delivery, right, where they take cost out, all those things, and we want to participate in that in terms of price going forward. So those are things that we'll continue to look at.

From a technology standpoint, we're going through a very much a deep dive on every technology project. And if this doesn't help us grow the business or deliver efficiencies and productivity, it's going to not be a priority for us going forward. And that's -- we want to put all our dollars against those 2 initiatives. And that's where we're all aligning as a team is how -- we want to spend our money on those things that can drive our business forward from a growth perspective, but also deliver cost benefits. And I think that's going to recalibrate a lot of the way we're thinking about our capital spend going forward.

Right. Okay. Do you think there's opportunity for a significant change in the approach on price? Or is that -- I mean, presumably, you're a Head of Marketing and price is something that we ask you about every quarter. So it's kind of hard to imagine we're already focused on that. But is there room for the kind of change from the CEO spot to really have a big impact on price?

Look, I mean, I was always -- obviously, I understand the math, right? Pricing is pretty impactful. And Steve has pointed that out to the team, like you can reduce costs. And obviously, pricing is another lever that he's seen a lot of success in his career being successful on that side. I think it's always been a focus, but to hear it from the top down, I think obviously, expectations and those things are helpful. And then having the alignment around how we're going to spend our capital to maybe hopefully deliver better tools to monitor that and be more effective in that area is, I think, helpful as well.

Okay. So we will take questions. If there are any questions from the room, you're welcome to raise your hand or you can use the QR code on your table, and then I should see something pop up here in the iPad. So yes, if anybody has a question, just raise a hand or popping into the system here. Let's see. I think the -- I guess the -- we've got UPs here later today, and we were thinking, well, maybe they'll have their filing ahead of that. I guess not, I didn't see it this morning, but maybe it's coming out on Friday. We'll have some weekend work to do with several thousand pages to process. But how are you thinking about the position that CSX wants to take in this process? I mean, obviously, you'd say, all right, well, if there's one transcon railroad, there should be 2. So that might be a consideration. We've seen BN take a pretty aggressive approach with even the recent filing about saying UP isn't kind of, I think, living up to their obligations for even UPSP access that was granted way back, whatever, late '90s. So how are you thinking about the CSX approach in this process?

Do you want to...

I'll just start, the first thing as we've been speaking about this morning is to be the best we can be. That's the most important thing to make sure our franchise is the best-in-class. We're doing everything we can to improve service, reduce cost, get the pricing we need and then take it from there.

Yes. I think the most important point is to be in a position of strength no matter what happens. And I think what we're focused on is being able to compete, right, and allow our customers to use our network and the best-in-class service. And that's how we'll look at all the, obviously, detail that comes out. I actually thought they're going to file right before Thanksgiving and try to ruin our weekend, but that didn't happen. So we'll see. There's a lot -- it's going to be a long story.

It's a long road ahead. We have a very, very -- we have a network that's obviously very valuable to all the railroads out there. We have -- we serve 2/3 of the U.S. population where all the freight wants to go is within our network, and that's very valuable to a lot of different partners that we have out there. And so we're going to capitalize on it in every way we can, whatever that needs going forward. So we'll evaluate. UP is also an important partner of ours. We'll continue to work with them and move freight because there's a lot of customers that we serve on each side that still want that service to remain. So those things are our focus. We'll obviously want to protect our competitive position going forward and evaluate the filing when it comes out.

If there's kind of 1 or 2 things that you'd say, hey, this is a really important element that we need to protect or something maybe to pay attention to an issue within the filing and within the review process. Is it keeping gateways open? Is it -- what do you think is an important element that we should look at in terms of preserving CSX's position?

Yes. I think if the customer has the option to use CSX today, they should have the option to use CSX in the future, right? And that has a lot of different forms. There are some network things that I think the UP has even highlighted from a network perspective that I think they're probably addressed in their filing. We'll wait for that, but gateways are important. The opportunity to interchange business with the UP that we do today, that continues into the future. So all those things we'll be interested in making sure that those are addressed in the filing and obviously, in our arguments going forward.

Okay. Let's see. You talked a bit about -- I think you have some optimism on CapEx and that, that number can potentially come down or you can have some efficiency opportunities. Can you add a little more flavor on is this the kind of maintenance spend on the system? Is this locomotives and car spend, you can just spend the assets faster? How do you think about where, in particular, the opportunity is for capital efficiency?

I'll start with -- there certainly is in the -- on the track side, Tom. It is a big chunk of our overall capital hardening of the infrastructure every year. And our focus is this year to bring that cost down, the efficiency up again for next year. So we're expecting and we will see improvements there, no question about it. The deployment, to Kevin's point, of specific capital to get the right return is the #1 focus after that. And that's something that as we get together more as a team and we get our focus in the right location, we're going to drive more efficiency with what we put into the ground versus maybe what we've done in the past. But from a track perspective, absolutely, our focus is to reduce that envelope and get the same work out of what we did before.

How much are you spending in that category if you just say basic system or basic, I don't know, system maintenance?

Over $1 billion.

Over $1 billion?

Yes, nearly half of our CapEx.

Okay. And is that single digits efficiency opportunity or bigger than that?

Yes.

I think so, yes. certainly over time. I mean, it goes beyond even just the basic track, it's the bridges, it's across the board. All of it. What our team on the finance side is trying to give Mike more insights towards how the spending is going, creating more budget, more rigor around how we analyze it, how we can learn from projects that we do well and how we learn from projects that we didn't do so well and replicate, obviously, the things that we do well and then eliminate things where we don't. Projects are really hard to evaluate. How do you know you spend the right amount of money when you repair the bridge or you do the right. How do you create that rigor around it. And I think organizations can think about OE expenses a lot different than capital, and we want to have the same rigor around both.

Cash is cash.

Cash is cash, at the end of the day. You can kind of see that slide sometimes that, hey, if it's capital, I pay a little less attention to it. But if it's operating expenses, I pay a lot more attention to it. So having that same rigor around both I think, is going to be helpful. That's where I can help Mike get more visibility. He's asking for that data every day and where I think we're doing a better job of providing...

And it allows that visibility just allows us to put better controls to get deeper into the organization, and that's back to the culture. We want the person delivering the work to understand that they own the company as well, and it's their money. And that's where we'll get the benefit.

Okay. I get one more scan here in the room. I don't know if anybody has got a question, please raise a hand or send a question in. Is Steve a big share buyback guy?

Yes. I think he certainly is a big cash flow. He's very vague on cash flow. And if we generate excess cash flow, he likes to return that to shareholders. I think that's been its history, if you look at his track record over time and creating value. So a lot of rigor around cash flow, returns based, right? He wants to look at these projects and whether it's capital or other things to make sure they have the right return to support it. And he wants, obviously, the post audits, all those things that can occur so the organization learns from it. But he is in the weeds on the business.

He has gotten up to speed very, very quickly. meeting with a lot of folks beyond Mike and I to understand the leadership team, understand the talent, spending a lot of time just across the business, really getting known and asking a lot of questions, quite frankly. So it's been an exciting time to get them up to speed and getting his perspective on a lot of things. The businesses -- I mentioned this before, the industries are very similar in a lot of ways. He's kind of sharing his perspective of what made, obviously, Linde successful in his time there.

When we think about -- if I go back, I don't know, 4 or 5 years, approximately, you were the industry leader for OR, and you ran at a high 50s OR for, I want to say, 2 years. You have some things you can't control, export coal pricing can be a powerful conversion and contributor to EBIT. So you don't know where that's going to be. I think some of the cycle stuff would come back on truck pricing and everything. But are you optimistic that you can get back to a high 50s OR and you can kind of be at the kind of pinnacle level achieved by CSX before? Or is that something where you say, hey, we got to be careful because there were some kind of unusual factors that lifted us then?

Yes. There were some unusual factors that lifted us there, but I think we're all competitive. I know Steve is the most competitive there is. So we've got to look at our cost structure, right? And how do we continue to improve our margins. And I think that's what we're doing. There's technology. There's other things that we need to really embrace in a much more rapid pace, in my opinion, going forward. And capital spend is a part of that, too.

How do we get more discipline there because eventually, that capital spend materializes in the depreciation that runs through the income statement and our margins as well. But no, I think there's a lot of opportunity for improvement. We all believe it from a cost perspective. And then when the markets come back, I think you're going to see a cost structure that's really going to be -- benefit the incremental margins, and that's what we're kind of positioning ourselves for.

That's what we control is the cost.

So when you have executive team discussions on this, is it like, hey, let's figure out how we're going to get there? Or is it more like, hey, let's just go year-by-year and see what we can do next year? How do you think about that kind of executive discussion about OR and even considering where you were at the peak?

We don't have them on OR, Tom. We have them again, to Kevin's point, on the cost structure and the controls we're going to put in place and the changes we're going to make. That's really our discussion. It's not -- it doesn't -- we can't control the OR per se on so many factors. It's costs we can control, though.

Yes. OR is the outcome of a lot of initiatives. And I think that's where we're -- you see Steve focusing on is the individual initiatives that end up adding up to obviously better OR performance.

Yes. That would be the outcome.

What's your favorite productivity metric, Mike? And what -- let's say, it's GTMs per employee, that's kind of a simple one that we would -- I don't know how simple, [indiscernible] use one, is that...

It is. I like them all, though. I like train size, I like tonnage, I like length. Locomotive productivity is big. Dwell is important, but when you're -- they're not necessarily all our equipment. And so sometimes you can overpay to move cars fast. But when you look at the productivity of the locomotives, the productivity of the cars, the productivity of the people, those are the things that those are my favorite.

So do you think you can approach kind of prior peak levels on GTMs per employee or how...

Some of that might be hard. I mean '20 and '21, you had a shortage of people. So really, your service suffered pretty dramatically, but you did get that benefit. We want to balance that out. But yes, definitely, I see road for improvement. No question about it.

Any other metrics you can kind of get back to where you were or exceed?

Well, right now, we are, like for locomotive utilization, we're better than we've ever been. And dwell, really same thing. But the overall productivity is our focus on all those assets. And yes, we can get back on the other ones.

Yes. Okay. Great. We're almost out of time, but why don't I kind of end here with anything maybe I didn't ask you about or anything that you'd like to emphasize right at the end now.

Yes. I mean the only thing I would point out with Mike, Maryclare and myself, you have a team that's able to work very, very well together, and we're all aligned around what can drive the business forward. And it's a lot of fun to be able to be transparent with each other, challenge each other. We're not always going to agree on everything, and that's a healthy environment. And then with Steve's leadership and his perspective on -- he knows -- I say this, I went home to my wife when we announced Steve was coming to the company. He knows what good looks like in every way. And that's not just what good operations look like or what a good CFO group looks like or HR, it's across the board. And I think that's exciting to get his perspective on all those areas and really implement change because there's a lot of opportunity, I think, for positive change to occur over the next few years.

It's all about that winning culture, and that's what makes it so great to come to work every day. Team we're building, the way people feel, especially after we went through what we went through, and we built grit these people learn that you can get through things and come out on the other side much better than you thought you could. That's the benefit of it all.

Right. right. Okay. Multiple ways to win. All right. Mike, Kevin, thank you so much for coming. I appreciate it.

Thank you. Great to see you.

My name is Dan Moore. I'm the senior Transportation analyst here at Baird. I have the privilege of having Kevin Boone and the company here at CSX today. Thank you for being here.

Fortunately, they made it in. No problems, clearly last night. So that's good. I know travel has been difficult for everyone for a variety of reasons.

So, look Kevin, it's been a heck of a year, right? A lot to process as an analyst, a lot to process as a management team. CSX has certainly seen some change with respect to management. There's a lot going on in the U.S. rail complex from the standpoint of proposed mergers. Can you talk a little bit about -- what all that means for CSX, given the change in management and some of the strategic considerations that accompany M&A and Ultimately, what you may think that could mean for '26?

Yes. Well, first of all, thanks for having me. Yes. I remember being at this conference in Trump's first turmoil when he was -- when he won that election. So I was on the investor side. So I go way back with this conference. But there has been a lot of change. That's been an interesting year. Not only in the industry, but just with our customers and the tariffs, no tariffs, more tariffs. All those things have been pretty dynamic. And coming from the commercial side now back to the CFO overall certainly have a lot of perspective from that end.

What Steve has been clear in his -- what he's told the teams internally, and we just had a leadership meeting last week is we're going to run the best company we can and he has clear targets around that, and we've talked a lot about that internally of how can we drive efficiency, how can we grow the business profitably and focus on the things that are most important. And he has a phrase that he says a lot, is make the most important things, the most important things. And I think that's pretty refreshing to the team and -- when I talk to Mike and others, I think there's a lot of energy around that. We want to be at the top of our game, no matter what happens in the industry, and we'll wait to see how all these things play out, but we want to be in a position of strength. And that's, I think, what you'll see us really focus on over the next year as all these things evolve as we get the filing that's coming soon from the UP-NS. So we'll be in a position of strength to be able to react in whatever way we need to. But highly focused on shareholder value, creating as much shareholder value, whether it's on a stand-alone or other options.

Right. And maybe to dovetail on that and spend another minute just talking about Steve and his areas of focus out of that leadership meeting. What do you see as his areas of focus, the opportunities really specifically that he's prioritizing. So maybe taking a step further into that, how CSX might operate differently under his leadership compared to the last couple of years. Leadership changes inevitably bring ships in perspective. And anyway, what have you observed so far? I know it's still early days, but what should investors expect going forward?

Yes. He is laser-focused. His work ethic, it is pretty incredible. We're all trying to keep up with them. But he's got a lot of curiosity about learning the business, and he's met with dozens and dozens of people to understand the business. A lot of questions, a lot of listening. But he is very financially focused. He wants to understand operationally what are the drivers of our cost. Certainly, spending time with our new CCO, Maryclare, on pricing dynamics, he understands it from its previous industry, how important that is. So we want to understand that a lot more. But really looking across the business, understanding the talent that we have in meeting with the talent and understanding what our key objectives are and really setting the targets from a financial standpoint.

We're doing a lot of discussion there, obviously, in the middle of our planning period right now. We have a board meeting in December, where we present our initial look at what that plan looks like. So a lot of work being done on that right now. But a lot of questions. He comes from an industry that was very focused on safety. So that remains a priority for him. And he comes from an industry that, quite frankly, served a lot of the customers that we serve. And so he understands our customers and their businesses. So he's asking all the right questions, which is very, very helpful.

Right, right. infrastructure. So the infrastructure narrative, I think, has been a very prescient one for CSX. You've completed 2 major projects recently completed may be a strong word, but very close to complete. Still got the double stack in front of us. But Howard Street Tunnel, Blue Ridge subdivision. I think that's expected to result in meaningful growth not only in the fourth quarter but certainly in '26 and beyond. There's also the cost-out component. You've been carrying more costs with you because of some of these investments. Can you talk about what that means in terms of operating performance and the opportunities you see now that these projects are beginning to find their way to completion?

Yes. I think 2 unique projects. One was planned for, for a while, right, the Howard Street Tunnel and then one, obviously, was a result of a once-in-100-year storm. Starting with Howard Street Tunnel, we've obviously completed the tunnel portion, the bridges, which are being done by the city. Those will be done. Late in the first quarter. So hopefully, by second quarter, we'll be running double stack through that whole corridor. And when you think about the cost, we had about $10 million a month this year and costs. So we're complete with that. So think about $100 million in savings or costs going away as we get into '26, will be helpful. And a lot of that was just out of route miles. When you think about, we had to reroute a lot of our freight creates congestion on other lines that aren't used to that much capacity.

So there's a lot of efficiency, fluidity, benefits that we'll see coming out of that and a lot of resiliency in our railroad, having another corridor open. So when we think about the opportunity for growth, Maryclare will tell you, it takes time. I will tell you, coming from that role, it's going to take time to -- as bids come out for the intermodal as we start in the second quarter, we're going to go after new lanes and new opportunities. We're going to have a very, very efficient route from east to west and then north to south, which is going to create a lot of opportunities for us to work with some partners of ours to really unlock some truck volume that we see moving today.

So that's -- we're really excited about that. We've probably been talking about Howard Street Tunnel for 40 years. There's been people around for 50 years that have been talking about that. So very, very happy to get that done. Blue Ridge, really, that's -- obviously, that line was wiped out by the -- by the hurricane impact, and we made a decision to rebuild that line because it creates a lot of resiliency in our network. And when you have storms, you have other things you want to reroute, it really, really is helpful to have an alternative. And I think that's the strength of our network. Mike would tell you that coming from the Canadian side where they had a single line if that line got taken out, there was not a lot of alternatives. When you look at our network, we have a lot of alternatives when things go when weather happens, other things. We do see a couple of growth opportunities there, but not nearly as large as Howard Street Tunnel working with a couple of customers that are interested in operating on that line, one intermodal opportunity that I'm pretty excited about. That will come hopefully and start in the next year.

And the double stack, when does double stack -- when will you be double-stacked complete?

Cleared? By the second quarter of this year.

Okay. Service improvements. So, yes. I think the service improvements that CSX has realized over the last year have been nothing short of best-in-class. The opportunity to parlay that into growth opportunities, getting deeper with customers. Can you talk about the level of service that Mike's help the network achieve and ultimately, what that does for your organization as investors think about the growth opportunity that exists apart from the infrastructure projects going forward?

Yes. I mean we had our bumps and obviously, with 2 lines out with storms earlier in the year, had -- had a few issues there. What we've done from a recovery standpoint is nothing short of phenomenal.

It's amazing.

I mean they come out of that. I think Mike beats himself up a little bit too much of that short brief period that we had. He's -- he's a competitor, and he likes to be best in the industry, and he's done a phenomenal job. That team between Casey, Cory and [ Care ], we're all working very well together. And I know Maryclare has a great relationship on the commercial side. So it's -- when we take -- there's nothing better than to have an aligned operating team when you're going into a customer and trying to sell a service. And Mike is a very, very good tool in that we've taken to a number of customers that are very important to us and having the ability to sell that and sell his commitment to service it's kind of -- it's separated us in the market, I believe. And when these markets return, and I'm sure we'll talk about that, I think we're going to be well positioned. We talk about a lot of resiliency in our network and making sure we have the T&E employees. We have the locomotives ready to serve the customers when this hopefully cycle turns. When you think about where we are today, we have a lot of our key segments that are arguably at cyclical lows, and we're thinking a lot about when that growth returns that we're prepared.

And I have more confidence today than I ever have in the 8 years I've been at CSX that we're going to be prepared to handle it. The other thing that gives me confidence is Mike has created stability among the leadership out in the field. So our when you think about the MTOs and the superintendents out in the field and they're getting to know the customers and there's a lot of stability that really helps from a service perspective. And the customers really see that disruption when people are leaving or there's not continuity out there. So we're only continuing to grow on that. And I would -- if Mike was sitting up here today, he would say he expect things to get even better from a train speed, dwell and all those things.

Yes. It strikes me that improved service is also a proxy for better pricing, even if that's an intermediate-term type outcome. Price cost has been something the industry has struggled with. I think everybody has struggled with inflation through the COVID period. Could you talk about just the price/cost narrative, how you're thinking about price cost going forward, particularly in light of the service improvements that you guys have realized?

Look, we want to -- and Steve has reiterated this, we're not -- he mentioned industries where they're solely focused on market share. Those aren't necessarily the most successful industries. We're focused on driving business that has a good return that allows us to reinvest in our business. And that's something that he's reiterated. Price is important, price in terms of capturing our inflation, which has been extraordinary to your point, over the last few years. It's a competitive environment where everybody is talking about growth. Everybody wants volume, but we're not going to move volume at the sake of below our cost or go aggressively there. We're earn our customers' confidence and continue to deliver that. So there's a lot of dynamics there. It hasn't been a good trucking market, as we've all known. We faced that for a while now, the longest kind of down cycle, I think, that anybody in this room can remember. So -- but we're prepared to capitalize on that when it comes. With that said, Matthew and I were going through a list of the truck conversions we've had this year. And the list is pretty healthy despite the challenging market where you're getting down truck rates still to go and convert to rail says something about your service and says something about the value you can provide there.

So we're optimistic that that's a lever that will really turn on once we see maybe a healthier trucking environment with supply starting to come out. I know there's a little bit of noise on a court ruling that occurred here recently. But supply does seem to be coming out. A lot of our customers are saying that. We just need the demand to come back a little bit here.

Yes, yes. Partnership announcements. There have been a number of joint service and partnership announcements, collaboration announcements recently involving CSX. I suspect you're not waiting to execute on those. Talk to us a little bit about the opportunities embedded in these collaborations and what investors may or may not fully appreciate about the increased level of cooperation across your partners and as you think about opportunities for growth.

Yes. I mean from day 1, when I was in that commercial role, I thought there was always an opportunity to work better with our Class 1 peers. And I think a bit of an issue when I first started the job is nobody was operating very well. So there wasn't a lot of -- initiatives or a lot of reception from our peers to go out and start new service or think about that. So this isn't anything new. People like to associate, obviously, some of the industry change, but things are different. I would say this is things that we've contemplated for the last 4 years, and now we're able to execute on it. For example, the recent intermodal win in the Southeast, that was something we worked on for 12 months. It wasn't something new. The timing happened to be around an announcement that came out from our competitor and the UP, but those are coincidental, if anything. The most significant thing that I can think of from a -- and I wouldn't even call it partnerships, just general working together better as Class 1 was the Meridian Speedway connection with what the CPKC.

New interchanges aren't created every day, and that's been significant for us to connect Mexico and in other parts of the Southwest into our network. So that's a significant one. So you'll see us continue to push with all the other Class 1 railroads and UP remains a very important partner with us, and we'll continue to work with them. If there's a business to be had we're going to go after it. And I think what's changed and what's more of a driver today maybe than perhaps all these announcements going around industry consolidation is we're all operating well as an industry. And so I think you're allowing the commercial teams to lean into new opportunities and not being constrained by operational difficulties or things that are going on. And so I think that's what you've seen from us.

There's -- it strikes me. There's also been a lot of discussion around increased competition in the East, I think, to some extent, maybe a function of these collaborations and just some of the shifts that are occurring with respect to domestic intermodal. Norfolk Southern has certainly discussed this on their call and they may look to defend those markets ahead of a potential merger. One could also argue that there's business that could shift from between CSX and NS as a partnership -- partnerships force realignment with respect to domestic intermodal partners. Can you talk a little bit about the competitive environment in the East, domestic with respect to domestic intermodal -- what's occurring right now and what the implications of that are for CSX and domestic intermodal as a whole?

Yes. I mean a lot of moving parts right now. There's a lot of alignment, obviously, with our partners and other things. I think going back first, Steve's focus and our focus as a team is running the best intermodal operations as we can. And I think when you go back the last 6, 7 years, the consistency of our intermodal network is second to none. And I think our customers appreciate that and I've seen that. And when you look at some of the recent ones that we have announced, that was business that we enjoyed before and there's speculation. That's a business that's not naturally moving on our network. It's unnatural and there's an advantage on the other railroad.

We would strongly disagree with that. I would -- the customers that have moved over with that business recently would tell you the service has been phenomenal, and they haven't seen a deterioration in that service level.

Right.

And we're actually offering them new markets like Florida, which we have a unique offering into. So a very, very efficient service offering. If you're not aware, BN has a haulage agreement into Atlanta. That creates a lot of efficiency that's existed for a long time, and it's really capitalizing on that relationship and helping our customers find really efficient ways to deliver value to their customers. So -- that's where we are. We're going to continue to contemplate. We're working with partners, whether it's the BN, CPKC, CN on ways to speed up the network. And I think you'll see opportunities for us to do that to be more truck competitive. Take time out of the -- how long it takes to get from L.A. into our network. Those things are a big focus of ours today. And we think we're making a lot of strides.

And Mike and his team are very, very close to their counterparts over there, and that helps, right? The ability to collaborate on the operating side, I think it's been a challenge in our industry for a long, long time. We're always worried about what the other -- if the other person or the other railroads may be making a little bit more than I am, and that can get in our way sometimes. And I think you're seeing a lot more collaboration around that.

Yes. Makes sense. Another question I wanted to focus on was just the general notion of strategic optionality. It's no secret that Steve has a reputation for getting deals done that you thought possible. And I'd say there's still some who believe that CSX and BNSF could be ultimately best served by pursuing a merger. I recognize that any transaction requires 2 parties. But when investors ask about the potential for future consolidation, how would you like to frame that discussion?

Yes. I think going back to some of my initial comments, Steve has been very clear in the direction for our company is focus on all the things that we can do well, right, and put us in a position of strength, no matter what the environment looks like in a year or 2 from now. And that's going to be the best -- that's going to serve our investors the best, it's going to serve our employees the best, our customers invest and align around that. And then we obviously have to be open to all options. And whatever that looks like, that creates the most value for our shareholders and all stakeholders for that matter. And we want to be able to compete, right? And we have to continue to obviously, can communicate with our customers, make sure that we're making the investments and being able to reinvest in our network to create options for our customers. And those are the things, quite frankly, that we continue to focus on, and that Steve's reiterated over and over again internally.

Right. We've got a few minutes left here, quite a few people in the gallery. I'd like to give everyone an opportunity to ask questions to the extent anyone has any they'd like to present to Kevin?

[indiscernible]

Question was anything on the buyback front as Ancora pushed for anything there?

I don't think you'll see our strategy change there. We've been very opportunistic when we've seen opportunities. We certainly believe in the long-term story for CSX, and we generate healthy free cash flow, and I think you'll continue to see us to be in the market.

Any other questions? [indiscernible] Group. Capital budgeting, it's at the time of the year. You find yourself back in a role of thinking about those really important investment decisions that need to be made in the upcoming year. How are you thinking about this capital budgeting cycle, particularly in light of tax bill, whether or not there are any implications associated with that. But more importantly, I guess, maybe just from a strategic standpoint, new leadership where are you guys planning on focusing capital investment in '26?

Well, first, we got through a very large capital -- 2 very large capital projects, right, which are going away. So that's helpful. I do think -- there's a lot of focus on, obviously, operating expenses at every company. I do think coming back into this role that you'll see a lot of focus on capital discipline. It's really one area where I think we can be a lot more efficient and how we replace rail, how we spend our capital, and it's something that in my first 1.5 weeks, 2 weeks, have really spent a lot of time focusing on. So I think there's an opportunity to become a lot more efficient there. Cash is cash at the end of the day. I think you'll see Steve very focused on returns on invested capital. So that's an area that he's really focused on from his previous life. And obviously, capital plays into that in a way that really is important, right, to the calculations it's in the denominator.

So -- that's an area where I think there's opportunity. And when you look at the last 5, 6 years, I think we can do better. And you'll see a lot of focus from me and Steve in that area going forward. And then when you look at our opportunities for investment, we'll continue to invest in the business for growth where it makes sense. We don't see anything on the horizon that's large or necessarily significant. But if those opportunities to invest come up, we'll certainly look at them. But nothing on the horizon like a Blue Ridge or Howard Street Tunnel that we see.

Automation. It's a subject that's garnering a lot of attention, a lot of focus from investors and companies. You talk about efficiency and productivity. And I'm just curious, at a high level, where do you see opportunities for cost out I don't necessarily think of AI as being impression narrative for the rail industry. But clearly, there are aspects of your business that are high touch and that can be automated. There are areas of the business that technology can probably effectuate improvements in productivity. Could you spend a couple of minutes just talking about the opportunities you see for enhanced productivity and reduced cost in back office and other areas to the extent that it's relevant?

Yes. We're going through a digital transformation at CSX and cloud transformation and putting all of our data in a place where we can access it easily. And we've had -- we've lived on the mainframe for a long time, and these systems don't really talk to each other, right? And it's really hard to aggregate data in a way where you can make -- where you can have decisions being made in real time. And Mike, I think, was surprised of our lack of systems and the lack of real-time visibility, and we've come a long way. under his direction to have some of those tools that are helpful going forward. But when I think about all the things that -- and we're a network and having all this data together and then those decisions are now becoming a network decision rather than individuals in each of their regions or each of their terminals making decisions that might be good for their terminal, but not good for the network.

I think that's a huge opportunity for us. going forward. And then when I think about automation, if you go out to your rail yard today, we're doing the same things we're doing 100 years ago, in terms of how we switch cars and other things, and you look at that over the long term. And all these technologies to a large extent, exist today in other industries that you could apply here. You obviously have to have a willing regulator that will allow you to do those things. And I think we're optimistic that some of the technologies, particularly around the safety and inspection and other areas are going to be hopefully more receptive to those going forward because it is good for safety. And look, accidents cost us a lot of money, too, right? And it's not only good for our employees, which Steve has reemphasized over and over again, his goal is to get everybody home safe at night, but those things go hand in hand, and that creates a much more efficient network when you have less accidents, less incidents on the railroad.

So it's across -- a broad range. The G&A side is the easy one. Everybody sees it. There's opportunities there that we'll look at over the next couple of years. But I do think technology as a opportunity to drive costs down, and we're at the very, very early innings of that. We haven't really had an opportunity to execute on that yet. But it's my expectation, I know it's going to be Steve's expectation that the technology efforts and what we spend on technology so far will start to drive cost out of our business.

Right. I've got one more question to ask, but we've only got 2 minutes left. To the extent anybody has a question they want to ask. I'll give you one more opportunity to do that. In the back of the room? Got a couple?

[indiscernible]

If you don't mind speaking up a little bit?

I'm just a little as there have been like a better sense of working safety [indiscernible] operate more quickly [indiscernible]

Yes, I think you'd be surprised at how many companies are still mainframes. But I agree, it's a very complicated endeavor. It's not just a lift and shift. If you're going to do it right, so it's been a multiyear kind of endeavor for us. And you have to -- first, we're running a network, right? And we can't -- you want to have 0 failure. So you have to make sure that the networks are reliable that you're going to, and we've run into those issues as we tested it. Fiber can be cut, all those things. You got to make sure that those who aren't going to stop your railroad from running. So -- it's been maybe slower than we all had hoped, but you got to make sure that it doesn't impair the business operations.

[indiscernible] how do you plan [indiscernible] .

Yes. The question was basically, how are we going to compete in intermodal with the potential UP-NS merger, and I think it's working with the partners and creating a seamless customer experience, and we've come a long way with that. When you think about the haulage agreement that BN has on us all the way into Atlanta, that's a pretty seamless experience. That's -- and so we're thinking differently when you think about another haulage agreement into the Northwest Ohio, similar experience. Taking -- when you think about cross towns in Chicago, density actually helps our networks. When you're building a whole train, and you can just hand the train off and run seamlessly. There shouldn't be a lot of difference between that and what the UP-NS could offer. And there are some advantages in our network, and we're going to really play up to those. There are some advantages in some of the other Western railroads networks. And how do we take advantage of those collectively together to work together to win share in the market.

And so those are the things that we're discussing not only with obviously the other Western carrier, but the Canadians as well is we all want to be in a position to compete. And I think we're doing a really good job. I think you'll see a lot of key lanes. We're going to be faster or the most competitive.

We are out of time. All right. Kevin, thank you for being here.

I appreciate that. Yes, thank you.

Ladies and gentlemen, thank you for standing by. My name is Colby and I will be your conference operator today. At this time, I would like to welcome you to the Q3 2025 CSX Corporation Earnings Conference Call. [Operator Instructions] Thank you.

I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. Please go ahead.

Thank you, Colby. Good afternoon, everyone. We're very pleased to happy to join our third quarter earnings call. Joining me from the CSX leadership team are Steve Angel, 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 that accompanies this call, which is available on our website, you will find slides with our forward-looking and non-GAAP disclosures. We encourage you to review them. With that, I'm very happy to turn the call over to Mr. Steve Angel.

Thank you Matthew. Hello, everyone. We're happy to have you join our third quarter call today. First, I want to recognize Joe Henricks. He led this company through some difficult times and worked with this leadership team to make some real progress. Now we are all eager to move forward from a solid position.

My connection to this industry goes way back. My career started at GE, where I worked directly with locomotives and rail operations, that experience gave me a deep appreciation for railroading that has stayed with me. I spent the last couple of decades leading large industrial companies, specifically industrial gas companies, but the interest in rail never faded. There are some similarities between the industrial gas business and the railroad industry.

First of all, safety. It isn't just a nice thing to do. It is a sacred responsibility. Everyone must come home safe at the end of each and every workday. Industrial gas and railroads are both capital-intensive businesses. Our strategy at Linde was to build network density in targeted geographies. That is how you leverage your infrastructure to generate ever higher returns on capital. That concept applies to the railroad industry as well. I think of pipelines and railway track the same way. own the pipelines provided they were in the right locations, had a strong advantage over their competition. Same for railroad tracks.

Another similarity is our vision. At Linde, our vision is to be the best-performing industrial gas company in the world. And we achieved that in some cases, by a large margin over the next best competitor. At CSX, our vision is to be the best-performing railroad in North America. I like that. And when we say best performing, I'm certainly talking about financial performance, operating margins, return on capital, cash flow, but I'm also talking about safety, customer service, employee engagement integrity and ethics. And I don't see any of these as being mutually exclusive. You can be best in class in all these areas and every important aspect of running a great railroad company. How do you do it? It takes a concerted effort. Sounds trite, but you have to make the most important things, the most important things. Focus, execute, grinded details repeat build a strong, stable foundation and get better every day, and build a disciplined, high-performance culture, and you build a talent pipeline that will sustain the culture long after you're gone.

That's enough about me. I'll turn it over to Mike.

Thank you, Steve, and thanks to everyone for joining us today. First, I want to recognize the very good work of our teams across the network. Their dedication and their execution have really led us to deliver one of our strongest operational performances in recent years. And we're building on that great service cost momentum from last quarter, and it's really paying off. We're seeing improvements across the board, but it's really exciting to see the railroad become more efficient and even more responsive to our customers' needs, especially given the current market conditions.

We can turn to the next slide. As Steve noted, safety is our largest shared responsibility. Our FRA personal injury frequency rate ticked up slightly from last quarter, but the bigger picture is very positive. Through September, we've seen a solid reduction in moderate and severe injuries with fewer cases requiring employees to miss work. This shows our SAFE CSX program is working. Our culture is shifting to be more proactive, data-driven and safety-focused and daily operations. On the train accident front, this quarter was the best since the end of 2023. Human factor accidents are down 16% year-to-date, thanks to targeted efforts, better training and smarter tools that help our people make safer decisions.

Next slide. Now let's take a look at the operational performance. This was our fastest quarter for training velocity since early 2021. For all time hit at the lowest point since mid-2023 and average daily cars online were the lowest since 2020, that shows how disciplined the team has been in running a balanced, efficient network, even while major construction continued on the Howard Street Tunnel and Blue Ridge Subdivision. Tip Plan Compliance continued to improve. Intermodal TPC rose to 93% from 90% and carload TPC climbed to 83% from 75%. These are strong gains, a result of the fluidity of the network.

Next slide. I'm proud of how this team has kept momentum on improving asset utilization, with market changes and mix shifts, our ability to be efficient and nimble is extremely important and was evident last quarter. Through disciplined asset and cost management, we reduce train miles and optimized horsepower utilization running efficiently without impacting customers. These improvements show up in our solid fuel productivity and horsepower management. Car month per day also improved, reflecting both faster train velocity and our unwavering focus on our operations.

Let's go to the next slide. And finally, I want to highlight 2 major wins for us, Howard Street Tunnel and the Blue Ridge Subdivision projects, both were extremely complex efforts and finished slightly ahead of schedule, a tremendous accomplishment, and I want to give a big thank you to everyone on our team who is involved to make that happen. With these projects complete, we now have full network access, positioning us for greater capacity and resiliency as we go forward. In closing, I couldn't be prouder of the team. The momentum this quarter is real, and we're going to keep it going. We're not done improving, innovating or delivering for our customers and shareholders and each other.

So with that, I'll hand it over to Kevin.

All right. Thank you, Mike. As Mike just mentioned, we are excited that both the Howard Street Tunnel and Blue Ridge projects are complete. As we move forward, customers will see benefits from reduced out-of-route miles that will improve on our best-in-class service levels. Starting in the second quarter of 2026, we begin -- we will begin to capitalize on double-stack clearance through Baltimore that will expand our intermodal service offerings into the Northeast region. Looking across the markets we serve, business conditions are mixed. Customers face uncertainty and headwinds from shifting trade policies, weak gold commodity prices, unsupportive interest rates in a persistently soft trucking market.

Now let's turn to merchandise revenue on Slide 8. Revenue and volume was down 1%, with RPU flat, as core pricing gains were offset by lower fuel surcharge and unfavorable mix. On the positive side, minerals volume and revenue were up 8% and 12%, respectively. The team continues to capitalize on strong demand in aggregates and cement by leveraging our unique footprint into the Southeastern market. Fertilizer volume rebounded due to improved production at a key phosphate producer, which helped drive 7% growth in the quarter. Metals and equipment volume was up 5%, driven by increased wallet share combined with new capacity on our network. Increased automotive production drove 1% higher volume. And moving forward, production levels are expected to remain relatively steady from year-end with minimal anticipated impacts from the aluminum supply challenges. Broader market softness and tariffs continue to impact our forest products and chemical markets, where we have some customers that have rationalized production for both volume -- for both, volume was down 7% compared to the prior year. A positive core pricing has mitigated revenue declines. Ag and food volume was down 7% as the strong Southeastern crop has provided feed buyers a robust local supply. We've also seen increased competitiveness in the ethanol and weakness in certain food and consumer products. In the fourth quarter, we expect a stronger export market and improving domestic grain trends from the Midwest harvest.

Now let's turn to Slide 9 to review the coal business. Coal revenue declined 11% for the quarter on 3% lower total volume. All in coal RPU declined 9% year-over-year. But as shown in the slide, the headwind from export benchmark pricing continues to diminish as we move into the fourth quarter. Export tonnage was down 11%, largely due to reduced production associated with mine fires we noted earlier in the year, but recent trends have been encouraging. Our operational performance has been very strong, and we are pleased with the recent reopening of a key export mine. Domestic coal business continues to see steady trends through the year. Steel and industrial tonnage was down 15% year-over-year due to softer market fundamentals and reduced domestic steel production. On the other hand, utility coal performed well over the quarter with tonnage up 22% year-over-year. Power demand remained supportive, helped by higher natural gas prices.

Turning to Slide 10. Intermodal performed well despite a soft trucking market and muted pricing Third quarter revenue was up 4% on a 5% increase in volume. Our international inter business benefited from strong growth with key customers. Tariff impacts and general consumer demand remain watch items. Volumes have softened in recent weeks, which looks largely in line with typical seasonality. Domestic volumes grew modestly year-over-year, primarily due to new service offerings. Following a successful bidding season for our IMCs and strong eastbound volumes, we expect continued strength in our domestic business in the near term. As we look ahead to the end of the year and start of 2026, we are excited about the opportunities to leverage the strength of our network performance, win in the marketplace and find ways to create and creatively convert more business to the railroad.

Now let me turn it over to Sean to discuss the financials.

Thank you, Kevin, and good afternoon. Third quarter reported operating income was $1.1 billion and earnings per share was $0.37. These figures include $164 million and $0.07 per share from impairment of the remaining goodwill related to quality carriers. I'll now speak to adjusted third quarter income statement, excluding the goodwill impairment charge. Revenue was lower by about $30 million or 1% as 1% volume growth and an increase in other revenue were offset by headwinds from unfavorable mix and coal pricing. Adjusted expenses increased by 3%, and I'll discuss the details on the next slide. Interest and other expense was $19 million higher compared to the prior year, while income tax expense fell by $46 million on lower pretax earnings and a lower effective rate that was driven by renewable energy and state tax credits. As a result, earnings per share fell by $0.02, reflecting a combined $0.02 of discrete unfavorable impacts, $35 million of restructuring, severance and regulatory advisory expenses and approximately $25 million of network disruption costs related to the recently completed Blue Ridge and Howard Street projects. CSX is well positioned in building momentum. Year-over-year headwinds ease into the fourth quarter and strong operational execution and cost control provide a positive setup for improved results.

Let's now turn to the next slide for a closer look at expenses. The total expense variance includes the $164 million charge based on impairment testing completed during the quarter. Despite the difficult trucking market, quality carriers has helped drive truck-to-rail conversions, maintained industry-leading share and stable pricing across its end markets. We're working closely with the QC team to aggressively identify additional efficiency opportunities, that will support an improvement in near-term financial results while still positioning quality carriers to fully capture the upside when the trucking market recovers. Expenses, excluding the impairment increased by $71 million or 3%, including approximately $60 million of severance, network disruption and other costs noted on the prior slide. This expense management reflects solid fundamentals and disciplined execution, delivering increased volume with a lower rail headcount and year-over-year efficiency savings across the expense base.

Turning to the individual expense line items. Labor and fringe was up $9 million year-over-year, including $22 million of management and executive severance. These costs plus the impact of inflation were mostly offset by lower incentive compensation and efficiency savings, reflecting lower rail head count and network-driven improvements in T&E overtime and ancillary costs. Headcount will hold stable to slightly lower sequentially in the fourth quarter, while cost per employee will see a normal seasonal increase as the benefit of lapping restructuring and severance costs will be at least partially offset by higher incentive compensation expense. Purchased services and other costs increased $54 million year-over-year. This was driven by cycling a prior year favorable inventory adjustment as well as network disruption costs this year. Trucking casualty and freight damage claims and inflation, plus $13 million of restructuring and advisory costs, slightly offset by higher property gains. Importantly, the team delivered significant PS&O efficiency savings which were broad-based. Continued execution and the easing of network disruption costs will help partially offset the normal sequential increase in PS&O in the fourth quarter despite $5 million to $10 million in regulatory advisory costs. Depreciation was up $8 million due to a larger asset base. Fuel cost was up $5 million, driven by additional consumption due to network reroutes and a slightly higher price per gallon, partly offset by improvement in gallons per gross ton mile. Finally, equipment and rents decreased by $5 million year-over-year with higher costs from inflation and the negative impact of re-routes on car cycle times, offset by savings from improved fluidity and increased income generated from company-owned real estate. We're encouraged by the structural cost improvement the team delivered in the third quarter. These efforts position us well to build upon strong resource utilization, and identify additional efficiency opportunities.

Now turning to cash flow and distributions on Slide 14. Targeted and efficient investment in the safety, reliability and long-term growth of our railroad is our highest priority use of capital. Property additions are higher year-to-date, including $440 million of spending towards the rebuild project on our Blue Ridge Subdivision. In total, spending to rebuild the Blue Ridge is now expected to exceed $500 million before insurance recoveries. Year-to-date, free cash flow was $1.1 billion, which includes over $850 million of cash outflows for Blue Ridge and previously postponed tax payments. Lastly, CSX remains committed to shareholder distributions and has returned over $2 billion year-to-date.

Now for a review of our guidance. Given solid network momentum, new business wins and expanded service offerings we still expect to deliver volume growth for the full year. Recall that our fourth quarter performance in 2024 [indiscernible] made hurricanes. We expect our fourth quarter results to reflect the strong operating performance and cost efficiencies that we have driven through the year. There's no change to our full year CapEx guidance of $2.5 billion, excluding the Blue Ridge. Finally, we expect to continue our demonstrated long-term track record of powerful cash generation combined with a strong investment grade credit rating that enables value creation through the opportunistic use of share repurchases, while also annually reviewing the dividend with steady increases for over 20 years.

With that, let me turn it back to Steve for his closing remarks.

We are encouraged by the progress made this quarter. Our team did a great job at working together and responding effectively to the test faced earlier in the year. The railroad is running well, and we have a strong foundation to drive further improvements. While the underlying economy is mixed, our customer service is strong, and we have excellent relationships with those customers. We are working closely with numerous partners to help accelerate the build-out of industrial capacity on our network. And our commercial team is actively developing new solutions that will help us expand our reach and gain share. We've received quite a few inquiries on strategic opportunities. we will, of course, pursue anything we believe can create compelling value for our shareholders. We are confident in our path forward and energized by our vision to be the best-performing railroad in North America.

With that, Matthew, we will open it up for questions.

Thank you, Steve. We will now proceed with the question-and-answer session. To ensure that we maximize everyone's opportunity to participate, we ask that you please limit yourselves to one and only one question. Colby, we are ready to begin.

[Operator Instructions] The first question comes from the line of Brian Ossenbeck from JPMorgan.

So Steve, maybe to start off with the obvious one. You've been through an industry for that had complex M&A, as you mentioned, there are some similarities there to railroad. So stepping into the role realizing you only been there for a couple of weeks. How do you believe the company is positioned versus your peer obviously pursuing a TransCon merger? And do you feel like that's part of the mandate in terms of why you're brought into this position in the first place or that something that interested you given your prior history?

Yes, thank you for that question. So if you alluded to my history, and if you go back and look, I ran Praxair for 10 years before we concluded a merger with Linde AG. And so you could say I was very patient. But the way these things work, these strategic opportunities, you got to wait for the right timing. You got to wait for when the conditions are right. So what you do in the interim, you run the company to the best of your ability every day and you create value that way. And so if and when that time comes, you're going into that discussion from a position of strength. So that's really how I think about it. You've got to run the franchise you have the best your ability to build value that way, keep your eyes open for strategic opportunities. And when they come, you put yourself in a good position to capitalize on it.

Your next question comes from the line of Stephanie Moore from Jefferies. .

I wanted to touch on -- as you think about 2 things that are happening. One is the completion of your large infrastructure projects. And then two, as was obviously noted some changes from a strategic standpoint in the industry. So maybe, Steve, if you wanted to talk about how you're positioning the company to potentially capitalize on both of those factors. One is directly in your control and then the other might be in response to some of the actions of your peers.

You want to take the first question?

Sure. Yes. Stephanie, happy. This is Sean. Happy to kind of talk a little bit about Blue Ridge and Howard Street. And I think obviously, that sets us up very well as we go into next year. The network recovered really well this year. It's operating about the best that it has in quite some time, which is great, and we're building cost momentum on top of that. Now you've got both our North-South routes that are open it will take us into Q2 next year before we get that double-stack capacity from Howard Street. But that's exciting because it means cost reduction, it also means ability to sell into that. So a well-run network hopefully going into a year next year where we start to see a little bit of momentum build really helps us out. And I think that's something to build on longer term as well.

And I'll take the second part of the question. So as you think about what's taking place strategically in this industry, when you have the prospect for a merger, whether it's this industry or any industry, there are pluses and minuses associated with it. There are risks and opportunities that come out of any type of consolidation within an industry. And so it really behooves us to mitigate those risks and capitalize on those opportunities. I think a lot of it remains to be seen. I was interesting enough, I was involved in the industry, though, can generally when the first merger that I remember took place, it was UP and SP. I think it was back in the late '90s. And that in goes so well. That didn't go swimmingly. And I think a lot of what's taken place with the STB in terms of the new standards that are now in place with respect to what's in the public good, demonstrating enhanced competitiveness and what might take place downstream that really came about as a result of that. So I think it's interesting to watch, obviously as they move forward with their application, and they have to demonstrate the standards that need to be met. We'll have an opportunity to review that what you can rest assured is we're going to make sure that we're competitive no matter what. So I talked about mitigating risk, taking advantage of the opportunities -- but we also want to make sure that we have a chance to present our case in terms of what we need to be competitive going forward. And that's what we'll do.

Your next question comes from the line of Chris Wetherbee from Wells Fargo. .

I guess, maybe a question for Steve and maybe Kevin, I'm kind of curious, as you guys go through this period, Steve, you noted maybe some inbound strategic opportunities I don't know if that's coming from the customer side or maybe other partners in the rail industry. But as you think maybe customer response to what's going on with consolidation in the industry, you think CSX is well positioned to take advantage of that as we go through a period of uncertainty over time? I guess, how do you guys think strategically about the opportunity that's in front of you as a stand-alone right now while we're seeing integration going on in the industry?

Well, I mean, it all starts with running this business to the best of our ability, and that positions us well from a customer service standpoint, Mike talked about the way the railroad is running today, and we feel very good about that going forward. Yes, I think there's some opportunities. You could certainly say that maybe some of these opportunities are coming forward as a result of what might take place from a merger standpoint. But I think the opportunity set has always been there for railroads to work more closely together to take trucks off the road, for example. And so we see those opportunities. We're working on those opportunities. You can look at our numbers and see we've already had some success, and I think that's definitely additive to our base case going forward, and we'll continue to pursue those opportunities.

Your next question comes from the line of Ken Hoexter from Bank of America.

It's Ken Hoexter from BofA. Steve, welcome. Congrats on the new role. It seems like service from Mike Cory's presentation is operating well. It sounds like things are progressing kind of actually very well given the improvements major costs are leaving the network as Sean detailed, and maybe Sean can maybe detail the expenses, where we are now, how quickly they leave. But what do you look at and aim to do is, is it maybe is it selling quality to improve to improve? Is there something on operations that as you went through the process, the interview process that you were focusing on that was not right. Maybe talk to us about what at CSX, you see that need to be changed? Is it the culture operations? What are you brought in and what do you hope to do?

Well, I think as I said in my remarks, I think the team really responded well to some challenges during the course of the year. And I think they turned into a solid quarter. So I always -- when you come into a situation like this, and I talked a lot about driving productivity, efficiency, best-in-class, best operating margins, all of those things. You do that by building a high-performance culture. And -- but you got to start with stability. And whether if you're talking about operations, you talk about the company, you must be stable. Because if you're not, you're not going to have a chance to work on continuous improvement every day.

So I like what I've seen in the team and the performance with respect to that during the third quarter, but really during most of the year, I think that gives us a good foundation going forward. And from that, you -- it's really working all the profitability levers, efficiency, productivity, price yield, volume, then you get into capital efficiency and all of that. And it's just that's what running a business is all about. That's what excites me. And again, it all starts with a solid foundation in a great company and a great industry, and it's about building a high-performance culture and becoming best-in-class.

Your next question comes from the line of Ari Rosa from Citigroup.

And Steve, let me echo the congratulations on the new role. Just if I could ask kind of 2 separate but related questions. So following on Ken's point, is there anything that you see doing differently versus what's already been in place because we understand that network is running quite well and then in terms of the opportunity to double stack and some of the opportunities that are opened up by the new projects. Could you speak to -- and maybe this is actually a better question for Kevin, but how much opportunity there is there in terms of actually filling that capacity given the completion of these projects now?

Yes, let me take the second one. We've been talking about probably double stack. We have people here that have been here for 40 years about opening up the last kind of part of our network that needed that clearance for a long, long time. And so we're very excited about what that creates in terms of market access for us into the Northeast. And you'll see us obviously start to market that during this season. In the second quarter, we'll start that -- that service, and we'll grow into it. So it won't be an overnight phenomenon, but we expect to work with customers, and they're very excited about what we can offer there. And then I'll also add to Blue Ridge, it's on us, and it's on the sales team to capitalize on that route. And there's opportunities in the works, too, that we're working on to continue to drive and obviously get a return on that reinvestment that we had to make.

And with respect to your first question, the way I would describe my priorities is drive best-in-class performance, and I talked about that and all that, that entails. Build a high-performance culture, develop a strong pipeline of talent and then capitalize on strategic opportunities that can create compelling value for our shareholders. So that's my focus.

Your next question comes from the line of Jonathan Chappell from Evercore.

Sean, you cleared a lot of the disruption period. It seems like the costs are going to start to melt off really quickly now, but these 2 big projects are done. You laid out a couple guideposts, so to speak or -- sorry, margin improvement year-over-year in 4Q and also EBIT growth next year with the absence of any type of volume. Can you help us think about the exit rate on some of these important cost line items starting in 4Q and going into '26, you read that PS&O section in your release, and there's just like a litany of things that you can't really tell if they're onetime or not. So just any kind of help you can provide the major cost line items for 4Q in addition to what you've already noted and how we think about the run rate into $26 million.

Yes, Jonathan, let me see what I can do there. In terms of Q3 to Q4, so the unique items in this quarter, you had severance and restructuring costs of about $30 million, you got the advisory cost of $5 million. That $30 million is roughly 20-ish in labor, roughly $10 million in PS&O. Then you had the ongoing cost from the network reroutes and so on and so forth. That was 25% in the quarter, about half of that was in PS&O. We'll have a little bit of that, that lingers into fourth quarter, call it about $10 million with demobilization and sort of some final costs coming through there. So between that, you've got about sort of $45 million of sequential benefits that you'll see from Q3 to Q4. I will note that you saw the other revenue line that was strong this quarter. That probably normalizes back down to kind of $120 million to $130 million. And then incentive comp will likely be a little bit higher, 10% to 20% higher in Q4. So that's how to think about the sequentials. Those items kind of net out when you pull it all together. But at the end of the day, I think underlying all that is strong cost momentum, and we're seeing it in labor with head count down volume up. We'll see that likely continue into Q4. You're seeing PS&O efficiency. You saw strong gains in fuel efficiency. Car cycle times are better, that's impacting rents. All of that provides a nice setup as we get into next year. And just to tie a bow on that, all of that network disruption and whatnot probably gives us about $100 million out of the gates going into next year of costs that will not repeat.

Your next question comes from the line of Scott Group from Wolfe Research.

So Steve, you've said best-in-class multiple times today. And it sounds like, in your mind, that's inclusive of margins. I'm not sure you're like ready to give like all the details yet. But just at a high level, like is when you sort of to your initial look, is this a cost opportunity? Can we get back to a better pricing algorithm? Or are you just thinking more of a volume growth and operating leverage kind of story. I just want to understand like your vision of how you get back to best-in-class.

But I'm still working on it. I haven't got there yet. So -- but the way I would think about it, Scott, is obviously, price yield as a part of the equation. Volume growth is important to leverage our cost structure and the margins fall through more heavily as we get -- especially as you get the right kind of volume through the system. I think, again, the railroad is running well. And so with that as a basis, you can really work on continuous improvement within the railroad system. I think that falls through and those are kind of the levers to profitability. And so that's -- I really think in terms of improving operating margins year-over-year. And I think if you work all 3 of those levers, you're able to grow your margin some basis points, I haven't put a number on it yet, but some basis points per year, and you can get to best-in-class or if you're not best in class, you're rivaling best-in-class. And so that's really the objective.

Your next question comes from the line of Brandon Oglenski from Barclays.

And welcome to railroad and Steve. I guess I was wondering if you could give us your initial impressions of the commercial strategy at CSX because if you've put that recent history of books for railroads, we can generally see these carriers getting price, you can get some cost efficiencies. But I think what's proved elusive for a lot of CEOs and maybe your predecessor is really converting that highway to rail opportunity. What do you see as maybe potentially limiting volume for the group? And how are you going to pursue that differently?

Well, I can't say for sure how I'm going to pursue it differently, but there are some opportunities that are here with or other railroads working together to really take the friction out of the system. And I think it's a fair question why it didn't happen in the past. I think there could be several reasons for that, but it does seem to be a concerted effort working with several of our partners to really take that truck volume off the highway and onto rail. And we're starting to see some of the benefits of that. I think if you look at intermodal numbers this quarter, it looks pretty good. And I think the projection going forward looks pretty positive. So I'm optimistic based on what I've seen. I understand it really has -- if you go back historically, we really haven't had this level of cooperation as we're seeing today. I've seen a lot of people in this building that are from the other railroads, and I think we're clearly working together to make this happen. So I think there's reimproptimism.

Your next question comes from the line of Tom Wadewitz from UBS.

Yes. So I guess, Kevin, you're not getting as much airtime as you normally too, so maybe I'll give you one. How do you think about markets and just kind of where you think they may go? I mean you've got fairly considerable weakness chemicals, metals forest products. Is there any kind of reason for optimism near term? Any signs of improvement or kind of things that you may be move beyond? And I guess, as you look at it, maybe into '26, do you think carload can kind of rebound? Or should we be thinking more about intermodal as the growth driver?

Thanks, Tom. I have gotten a little less airtime. But look, there's -- I think in my opening comments, I talked about a lot of -- it's a mixed bag. The team has done an incredible job on the aggregate side and cement side, and we're continuing to capitalize on our -- not only our footprint but just some of the strategic things we're able to achieve over the last year, and that's really showing a lot of momentum. And I think that can continue. There's a lot of confidence there. We've had some unique items that have really impacted us this year. We've had a few closures on us that I mentioned, pretty concentrated in the forest products area, which everybody is familiar with some of the consolidation that's happened in that market. I do think that market with a little bit of bump from the economy could come back for us. I'm not predicting that at this point, but some of these markets that are very low in terms of the cycle where they are.

Chemicals has been one of those that we've highlighted all year long that have faced a lot of pressure from tariffs and other things. And I think just more certainty around where everything lands in terms of what the tariffs look like, what the new rules going forward will create some certainty around investments and other things that will be helpful to our business. The metal side, the team has done an excellent job of going after some market opportunities with the EFs and scrap opportunities there. So I think we're controlling what we can control. Some of these markets undoubtedly have been hit over the last couple of years, and we've been able to offset them. I think the one thing that's probably surprised us this year is some of the temporary closures. We've had a number of outages, temporary outages on our network, whether it's in the coal side with 2 mines or on the chemical side, we've really faced some challenges. And the hope there is that we'll see some better performance as we move into next year. So not here to call the cycle. We had a -- we had one of our customers, obviously, talk about trucking capacity starting to come out. That's good to hear. We'll see if that materializes in the next year. That would be extremely helpful for a lot of our markets where we compete against truck. We've been probably the longest down cycle that all of us have seen in a long, long time.

So on the domestic coal side, that story was a challenge a year or 2 ago, and I think there's a lot more optimism on what we can do there in terms of utilization of the plants we serve today. So A lot of great work by the team, a lot of strategic thinking. We'll continue to lean into where we find opportunities. And to Steve's point, we'll continue to work with all of our partners to create opportunities. The good thing is, I think overall, the rail industry is performing pretty well versus where we've been in the last few years, and that gives us all the opportunity to lean into those opportunities to convert mortal share across the network.

Your next question comes from the line of Walter Spracklin from RBC Capital.

Yes, Walter Spracklin here. My question here is for Mike. Like Steve mentioned best-in-class and Kevin indicated that sort of the capacity improvements might take maybe in the midyear next year. But is it unreasonable to think that operations can perhaps reestablish a little quicker than that? Would you say whether there's anything stopping you getting continued improvement through fourth quarter and perhaps being in a position to run the railroad at a fairly optimal performance level from an operational standpoint through 2026?

Thanks for the question, Walter. To get it to optimal, we're running very well right now. I'll just go back. It's our fastest quarter for doing velocity since 2021. Our cars online at the lowest in 5 years. Our dwell is down about as low as it's ever been. We expect improvement on each and every one of those. Now these projects are going to give us capacity, but really resiliency as well. We've suffered the first quarter with 2 of those 2 routes out. We may normally only handle 20% of our volume that could have handled about 40% at that time with what we were infected with between Cincinnati and Birmingham. So our focus is always going to be to execute, grind, sweep the corners, continue to improve on every one of those things, but it's all that together. So Walter, expect to continue to improve, like we got -- still have weather coming up against the storm season is not over, and we have winter, but we learned a lot that capacity will essentially not just get its resiliency, but it gets us table. And that's where we've been this last 2 months. And as Steve said, that's the basis for us to improve on. So that's it.

Your next question comes from the line of Ravi Shanker from Morgan Stanley.

Just a clarification on an earlier comment that you made in response to M&A question. Did you say that you're already seeing opportunities because of the merger? If you can just clarify that or expand a little bit? And also, how far at once do customers think of their rail sourcing or rail versus truck shift or intra-rail kind of share shift? Is that something that is kind of done pretty practically on a year-forward basis? Or is that something that can be long-term planning as well?

Yes. In terms of what you've seen in the market, these are things that the team consistently has been working on for the last few years. I think some of them have materialized, obviously, in the short term, but we have a very strategic thinking team that has had these ideas. I think some of them probably haven't materialized because the industry had to get to a place where we're thinking about growth from an operations standpoint. A lot of struggles, obviously, through COVID and digging ourselves out of the hole with the workforce. And I think this is a natural progression out of that, that we're now as an industry leaning into that. And I think we have a team that's forward leaning on that is bringing ideas to the table and really working with every partner that can benefit and grow the business for the CSX franchise. So a lot of opportunities there. I'm trying to understand the second question, but maybe I'll pass on that one.

Your next question comes from the line of Richa Hernain from Deutsche Bank.

I want to go back to your Investor Day some time ago, you shared some pretty exciting stats regarding the growth outlook, particularly in intermodal the ability to grow maybe above GDP. Just as we fast forward from then to today and considering how will your service metrics have improved despite some of the headwinds that you've undertaken and all of that? I mean, how should we think about those growth projections? I mean, could they be stronger? And I know, Kevin, you said that they're going to be selling Howard Street Tunnel during this bid season and potential to sell in Q2 of next year. But any inkling from customers as far as how they're feeling about that product. And again, that ability to sort of grow stronger than maybe you thought a couple of quarters ago?

We did lay out some of the benefits that we expected to see from the Howard Street Tunnel in that presentation. So I think we're on track. And now it's up to the team to deliver on that. In terms of -- we have a great service right now, and it all begins with the service team, and we're able to dynamically go after these opportunities as they come along. And we're always talking to customers about markets and where they see the opportunity. And we got one particular customer that's highlighted that within the East that they see a huge conversion opportunity and we're highly interested in that. We're highly interested in working with everyone to convert that. Obviously, it's got to have a return. It's got to be attractive to all parties make the investments that might be required to go after it. But there's a lot of work being done. I think we have the best team up against it to understand where those opportunities are, and you're seeing a lot of momentum. That's playing out in our weekly volumes.

Your next question comes from the line of Jason Seidl from TD Cowen.

Steve, congratulations on the new role there, definitely exciting for you. I'm going to turn it back over to give some time there to Kevin. Kevin, can you talk a little bit about the marketing agreement with the BNSF and sort of how we should think about the build as you move through '26? And then I guess, are you guys looking to tie that freight up longer than the normal sort of 1-ish year on a domestic intermodal front in terms of contracts, given that you might have a competitor coming out after that? And I guess a follow-up on the coal you mentioned, I think you've seen a little bit more positive the positivity on the coal due to sort of increased demand for domestic coal and data centers? Or is it something else?

All right. Let me handle the coal one first. I think you've clearly seen a shift in just the political environment, the regulatory environment there. And I think that provides opportunities for better utilization in some of the -- obviously, the utilities that we serve. Data center is a hot topic right now everywhere, and that's certainly one of the demand pulls on electricity demand right now. So we're very positive on that market. Weather does impact that one. So we always look for a cold winter in the South. That's always helpful. So normal weather is a good thing. And we kind of -- that played out this year. And so we continue to work with the plants that we serve, they advantage them in the market to take more capacity there. So a lot of success, a lot of good work by the team to really go after that opportunity.

The intermodal side, again, some of the things that we've announced recently have been in the works for a long, long time. Team has been constantly having discussions with partners around how we can create the best-in-class service and more options for our customers to reach markets in a more efficient way. And so I think that's an outcome of not something that we recently started, but things that we started last year and that have really materialized here recently. We've got a lot of other ideas. We're continuing to work on those things. I think the velocity of those things maybe to Steve's point and our ability to execute them quickly is maybe improved with basically the industry in a better position to grow with the service, and we lead the way with our best-in-class service in the East. So you'll continue to see things where there's opportunities for us to go and capitalize on.

Your next question comes from the line of Jordan Alliger from Goldman Sachs.

Just sort of curious, I know you've only been in the seat for a couple of weeks or so. I'm sure I would imagine some customers, maybe some larger customers have been calling to CLO and what have you. I'm wondering, given what's going on with UNP and Norfolk Southern, any read from folks you might be speaking to externally in terms of giving you thoughts on what might be good from a competitive standpoint for you guys?

I would say, since I've been here, we haven't had that kind of discussion.

Your next question comes from the line of Jeffrey Kauffman from Vertical Research.

Steve, welcome aboard. Best of luck to you. And I figured I'd ask question, Sean here. just based on the idea that you're not going to have the Blue Ridge expenditures next year and you're not going to have these congestion costs and there are some things you're excited about. It looks like cash flow could double if the world goes right, maybe up 50% to 70% if it doesn't. Not that you've spent it before you earned it, but can you tell me about cash priorities for 2026? Are there projects that you haven't been able to get to there at the top of the list, you want to bring debt down to a certain level? Or would more of that free cash flow probably be aimed at shareholder capital return?

Jeff, I appreciate the question. As you can probably imagine, we're working through our plans for next year as we speak. We'll give you an update certainly on that as we move along here. But just stepping back, I think the good news is we don't have any major construction projects that are planned for next year with the Howard Street and the Blue Ridge complete there's nothing anywhere close to that scale that's on the horizon for us in 2026. So we will continue to maintain capital discipline focused that capital on safety and reliability and then look for projects that help drive strong returns and support the growth that we're looking to deliver. So it will be more of the same on that without the significant spend on those big projects. And then after that, we've been fairly consistent in our approach here, strategic and opportunistic use of cash flow to lean in when it's possible on share repurchases, and we've looked on an annual basis at the dividend and raised it modestly for 20-plus years. So you'll see more of the same from that, I think, from our perspective.

Your next question comes from the line of David Vernon from Bernstein. .

So Steve, I wanted to ask you and maybe in the broader team, a bigger picture question around the industrial logic on end-to-end railroad mergers. How do you view that? And do you think it's possible to recreate those economics through partnership arrangements like you guys have been doing with the airline deals with BN and CN? One of the other passions that come out and obviously said they're not very interested in the merger and they're asking customers to object. I'm trying to get a sense for kind of where you shake out on the topic of whether or not the end-to-end railroad merger is actually a good thing to pursue.

So the way I think about it is, and I was reading your entire question here is that, we have -- the whole focus is really performing well as a stand-alone company. And then we talked about some of these opportunities we've talked about it several times through the course of this that I think, are very interesting to us, see a good bit of potential and provided economics are favorable, we'll continue to pursue that. So I think that's how we'll drive shareholder value. Now if there's a better path to drive shareholder value, downstream, we'll certainly pursue that. But it's kind of hard to really say, standing here today, how all this is going to shake out because there's a lot of it that hasn't been determined yet. There is a very rigorous approval process that 2 parties are going to have to go through. And when I read the language of the evaluation criteria from the STB, it's pretty onerous. So I think there's a lot -- I think it's really too early to address some of which you've got up there. But I can say right now, we can improve the performance of the base business, capitalize on the opportunities in front of us, and if there's a better path to shareholder value that presents itself later on, we will 100% pursue that.

Your next question comes from the line of Bascome Majors from Susquehanna.

Steve, when you think about your philosophy on incentivizing your team, what do you think the right annual and long-term incentive structures are for senior management, the railroad industry and really CSX specifically?

Well, I think if you go back to my earlier comments, obviously, profitability, operating margins, I mentioned that. I think if you -- I think growth is important to this industry. And if you're able to get the right kind of volume, the right kind of growth, there's tremendous leverage down the P&L statement. Those are metrics that matter. An industry like this, you always have to have safety. I don't think you should ever take that for granted. I think calling that out and having 1,000 or so people, at least from a management level compensated based on safety performance is a very important metric. Customer service has not been the hallmark of this industry historically. So therefore, having -- calling that out as a metric that's important I think is a good idea, and that's what we have here today. I think long term because this is a capital-intensive industry, a return on capital metric makes the most sense to me. That's what I'm familiar with, and that's what we utilized in my past life, and I used to say that return on capital is the truth serum. It kind of encapsulates all the decisions you've made in the past plus the decisions you're making going forward and how well -- and what kind of returns you're earning on your capital base. So I, for one, like return on capital for an industry like this.

This concludes today's question-and-answer session as well. This concludes today's conference call. You may now disconnect.

Thanks for joining us here. I'm Brian Ossenbeck, I cover Airfreight and Service Transportation for JPMorgan. We're excited to have a fireside chat here with CSX. We have Joe Hinrichs, who's the President and Chief Executive Officer; Sean Pelkey, CFO; we've got Matt Korn, Head of IR and Strategy in the Office as well here.

So it's great to have you guys here. I know we've got some slides to go through. It's a little bit maybe early for our friends on the East Coast, but I'm sure you can wake up and get them up to speed because a few things going on in the industry. So why don't we go ahead and kick off with the slides of the presentation, talk about the network, and then we'll jump into the conversation.

So thanks again for coming back to London.

Thanks for having us, Brian. Sean is going to take us through a couple of slides.

Yes. Thanks, Brian, and great to be here. I wanted to take just a few minutes upfront kind of level set. We've got investors here, and many of them know us very well, but some don't as much. So I just want to give everybody kind of a sense. We'll go through forward-looking disclosures here, which will cover all of our comments.

But just want to give folks a sense of when you think about East Coast railroading, what is it that makes CSX different and unique? And I think there's a lot of things on this page. I'll spend just a second on them. I think one of the most powerful is, we're the best run railroad in the East and arguably in North America in terms of our operating discipline and the efficiency at which we run our operations.

We also have a fantastic reach. When you look at our network, we've got the core triangle that goes across from Chicago to New York down the I-95 corridor, the Eastern seaboard and right up the southeastern part of our network. But we also extend all the way up into New England with our recent acquisition of Pan Am Railways and all the way down into the state of Florida uniquely.

We're in a position right now where we've got a number of railroads that are very interested and eager to work with CSX; we'll talk more about that as we get into the conversation. But we are leveraging that competitive position that we're in. We've announced a couple of partnerships that we've already entered into, and we're working on a number of other things as well that we think will serve us very well in the near and the midterm as we go forward.

Our business is quite diversified. A majority of what we move is within the segments that make up merchandise, that's driven by the industrial economy, which in the United States has not been particularly robust in the last couple of years.

That being said, in 2023 and '24, both of those years, our merchandise business exceeded the pace of industrial production growth, which is the first time that we've been able to deliver that kind of outperformance in over a decade. The intermodal business is a growth segment for us. It is up in the third quarter here and doing quite well for us. We just announced a partnership with BNSF that will drive even more growth as we get into the fourth quarter, and we'll get into the details of that.

And then the Coal segment is an interesting one as well that we've said likely to be flat over the next couple of years, but domestic is holding up a lot better than we expected it to going into the year, that's kind of a combination of weather-driven drawdown in utility stockpiles, but also the fact that there's been huge electrical generation needs in the eastern part of the country.

With the advent of AI and increase in data centers, it's driven an extension of the life of the coal plants that we serve and an increase in the overall demand. The export market has been down a little bit for us this year, which is due to global conditions, but also due to some unique idiosyncratic issues on our network, namely 2 fires at major mines that serve export production and output for CSX that will reverse as we get into next year.

One of the most exciting stories that you'll see on this page is the industrial development story. You've heard a lot about the President's priority on bringing manufacturing back to the United States, and we often get asked, is it real? Are you seeing it? And the answer is yes, absolutely, we are.

We've seen a ramp-up in the amount of inbound calls that we've been getting over the last year or 2 relative to customers that are looking to expand facilities that are already on our network or build brand-new facilities. And I think CSX has a distinct competitive advantage here. Not only do we have that network reach that I talked about in the breadth, but we also have an extraordinarily strong team and a regional footprint to partner with developers and local authorities, local governments to bring new manufacturing facilities to our network.

So we've got sites across the Southeast and the Midwest. That heat map shows you where all of this activity is taking place. And if you overlay our network, which are those blue lines in the Eastern part of the United States, you'll see we are almost perfectly aligned with where all of this is occurring.

We've had about 60 projects that have started up already this year. We had several that started last year as well. There's a multiyear ramp-up from those projects. And what we've said is, over the next couple of years, all of this should net us 1 to 2 percentage points growth, mostly in merchandise, but highly diversified. It is not concentrated in a single segment, it's across many, many of the markets that we serve within merchandise.

And I'll leave you with this, which is: It's been a challenging year for the industrial economy in the U.S. and also for CSX this year relative to the expectations that we had going into the year. But as we begin to look forward to turning the page into 2026, there's a lot to be excited about.

The picture that you see there is the Howard Street Tunnel, our major infrastructure project, that we've been talking about for a decade. We broke ground on the project officially February 1. We will be completing that project roughly in the next 10 days. So very exciting to get to the end of that. That's a 150-or-so-year-old tunnel that now is going to be double-stacked cleared.

We've got a couple of bridges that we've got to raise, not us, but the state's got to raise over the next couple of months. But once that is complete, we'll have full double-stacked clearance on the I-95 corridor; big volume opportunity there and big efficiency gains.

We've had a number of plants this year that have idled capacity a little bit longer than expected. I think a lot of that has had to do with the uncertainty in the U.S. economy. We'll cycle that as we go into next year. Industrial development ramps up. And we'll leverage the performance that we've delivered so far this year to drive some nice growth as we get into 2026.

So with that, Brian, we'd be happy to take your questions.

Great. Thank you, Sean. So I'll probably go back to some of the slides to refer them a little bit, but just maybe focus more on the near term. The network is obviously bounced back pretty well, which we'll talk about in more detail, but just relative to where you thought you were tracking for the third quarter from a carload perspective, maybe from a cost perspective because some of these are actually probably coming back better than certainly we thought, but maybe even yourself. So what's sort of the state of the quarter and how you're progressing into the end of the year here?

Yes, I can take that one. So I think from a market carload perspective, it's been a little bit mixed. Intermodal has been off to a solid start to the third quarter, we're up a little bit. And international, particularly over the last month-or-so has been doing fairly well. The domestic side, we've sort of been flat, domestic intermodal has been flattish.

That being said, the new partnership we just announced with BNSF, we just started moving some new freight a couple of days ago. We'll have another ramp up as we get to the beginning of October. So you'll start to see that show up in the weekly numbers here very, very soon.

Domestic coal, I mentioned, that continues to be strong, particularly the utility coal side. Steel and industrial, not as much on the domestic side. Export has been down a little bit, but in line with our expectations. I would say the segment that's been off probably the most has been merchandise as a whole, but specifically within merchandise, ag and food and chemicals. Though this month, knock on wood, chemicals has held up a little bit better. So we'll see what that foretells for the fourth quarter.

A little bit of negative mix within merchandise as well that you'll see show up in the revenue per unit this quarter, nothing dramatic. But -- and then on the cost side, you saw a very, very good momentum. We had about 550 basis points of sequential margin improvement from Q1 to Q2.

When we were struggling operationally in Q1, came out of that in Q2, there's a little bit of a swing that we get on the cost side. We talked about maybe $20 million of PS&O benefits that were unique to the second quarter, we won't see in the third quarter. But overall, on the cost side doing very well, continuing to drive efficiency gains and the network is running well. So you'll see more of the same from Q2 going into Q3.

The only thing I'd caveat on the cost side is the restructuring is now complete. We talked about kind of $15 million to $20 million of restructuring charges, we'll be within that range. But we also have about a $10 million charge we're going to take because we made the choice to change outsourced tech vendors and there's a termination fee of about $10 million related to that, that will drive better efficiency and lower costs on a go-forward basis. So it's the right decision for us, but that will drive an impact in the quarter.

And the other thing I'd point to is, with all the things going on, that I'm sure we'll get into here, advisory fees will be part of the expense base in Q3 and Q4, probably $5 million to $10 million-or-so each quarter.

And the restructuring was more of the corporate office and labor force is not -- the bigger restructuring...

Correct.

We took a 5% management reduction in our costs in early July and affects the third quarter for the restructuring.

It's been a while since coal has been a positive, at least to talk about for a couple of quarters. It seems like it's always volatile for reasons we all know. But is there something more constructive for domestic as we get to these power generations? Obviously, not aware of any new plants being built. If anything, maybe some of the retirements just get pushed out. So is that something we should be a little bit more optimistic on or is it maybe not something we want to count too much on?

So 2 things are driving the domestic coal volume increase lately. One was a hotter summer. And so the domestic utilities, especially in the South, use more coal. So as Sean mentioned, we're replenishing the piles they used. That's part of it. And there's been some extensions. I think you'll probably see of utility plants that were failed to close have been extended.

One more recently that was a couple of months. We'll see if it gets it again. That's because of power needs and also because the political environment has changed. So I think you will see some extensions going into the near future, which could help with that as well.

What's exciting for us, too, is when the Blue Ridge reopens in a few weeks, that's a normal path for -- the most efficient path for a lot of that coal to go to the South utilities. So we're anxious to get that back up and running again. But definitely, domestic coal has been stronger in the quarter than we anticipated, and that likely may happen again in the next quarter if we continue to see some of these extensions.

So the network obviously was in a pretty tough spot for a while. It certainly bounced back a lot better than we had thought. And if you look at our op dashboard we put out each week, like you guys have been the best of anybody for the last couple of weeks. So certainly noticeable, but you're doing this before these big infrastructure projects are finished, right? So what happened to really get that turnaround? I think there was some skepticism that usually rail networks when they get into challenges like that, take a while to also get out of them.

Yes. I mean, I think one of the things that surprised a lot of people was how quickly we were able to rebound. If you look at our numbers operationally, even in the third and fourth quarter, they were very competitive. But February, we had -- we started to see a significant decline, and that carried over into March and early April.

The team really came together and put some processes in place, but also just regrouped and with the reality of what we were dealing with at the time and was able to really overcome that. Importantly, I think it's another example of why we get a benefit of all the activity we've done in investing in our employees and our relationships.

If you can get your employees engaged and motivated to be a part of the solution, they can get a much faster recovery, which is what we saw. And so it's very sustainable. These are the same processes that we've been running for quite some time. If you go back and look at our data in '23, we probably had the best year we've ever had, and we're now running at those levels really since May. And hopefully, we will continue that. I don't see a reason why.

Now the exciting thing for us is this is all happening while we have those 2 North-South routes closed. So what that will do when they open back up is make more natural routing of trains and take some of the out-of-route miles and the cost out that Sean mentioned, but it also gives us a lot more resiliency and redundancy if something were to happen somewhere.

Because really what happened to us last year was just the sequence of things kept getting worse and worse. And so Milton and then Helene and then some bad winter and then the flooding in the Midwest, and it all kind of kept pushing our problem into the same areas where the weather was hitting us. But now that we have the cars online down dramatically, we have the dwell times, the velocity where we want them to be, we have a lot more resiliency in our network. So I think you should expect to see continued performance around the levels that we're used to and that we have been performing for the last couple of years.

And Brian, as we look forward, I think one of the things that's really exciting is where we're at from a technology perspective. We've got a real-time operations portal, which allows Mike and the entire operations team to see where are the trains, what's running late, how can we catch it up and fix things. But the methodologies that we're using are still good old-fashioned railroading. It's getting on the phone, calling the terminal managers, adjusting things on the fly.

We're investing in some technologies now that will allow us to model out what's happening on the railroad to help predict what decisions are going to make the best network-wide impact for us. We're making some very quick advancements in that. And I think by the end of the year, we'll have some prototypes out there that we'll be able to start using to help continue to make operational improvements.

And in particular, when we see challenges across the network, whether that be weather or whether it be a locomotive that has a stoppage, what decisions do we make in order to maintain the health and fluidity of the network?

The human brain cannot simulate all the scenarios that we deal with on a daily basis. And so we get asked all the time about AI or technology, where does it have the most ripe opportunity in railroading? And this is one of them is in decision-making on a real-time basis because you may think you're making the right decision for Toledo, but that train is going to go all the way to Jacksonville. And so how do we optimize all the decision-making that we do, a really exciting time for us.

But as Sean said, we've been making major investments. It's not just the will to put AI or to put that kind of learning into place, you have to have the data -- you have to have the data in the right place, we're getting the data in the cloud, getting all the data organized. We had a very traditional mainframe data center kind of methodology.

We had lots of old systems that weren't talking to each other. We're investing in all of that. And so that's going to give us tremendous capability going forward. That will be a next big step opportunity for us is to be able to make those simulated best decisions in real-time and across the benefit of the network, not just the local yard.

And how about the technology just in the field? Because for a while the industry was not really able to move much of anything forward, whether it's automated inspections, some of the wheel cars, stuff like that, like it seemed like it made a lot of sense from a safety and a cost perspective. But is that now on the agenda? It seems like the industry is pushing that a little bit more forward, which makes sense. So is that another possible technology...

No question. We lost 4 years of advancement really across this industry when it came to technology, during the last administration. They just were not open to anything that might someday possibly affect someone's job. And we really, as an industry, are excited about the partnership we have with the Department of Transportation and the FRA right now on working through how to improve safety.

If you look at the major reasons why we have derailments, it's usually track related, separation or cracks or whatever or something around bearings, both of these technologies -- but technology can help significantly, wheels and bearings. Both these -- on the track inspection side, in bad weather, all conditions, all the time, automatic track inspection keeps working.

Our goal is to keep our talented employees working, but have them fixing problems, not finding them, let technology find those problems much more accurately and efficiently, and that's the goal that we're all working on.

But you mentioned labor, obviously, is part of the technology discussion. But a little while ago, you've been -- you're coming up on what your 3-year anniversary, I think one of the more debatable things at least from the investor community was moving forward with labor negotiations maybe a little bit different than in the past. Now with the benefit of hindsight, I think we've seen just about everybody match that.

So was there an advantage from being a first-mover having -- like you mentioned, people getting back in the system and helping the network? Like is that one thing? Are there other things that we should continue to think of here?

Yes. I think when it comes to labor negotiations, there's almost always an advantage for going first. One, the unions are more collaborative and want to find solutions if they have a willing partner. And second of all, you just get the noise and the anxiety out of the system, which is -- can be counterproductive, especially when there's so much discretionary effort in an industry like ours out in the railroad in the network.

Importantly, there was a lot of work done, though, as an industry going into the negotiations about what the important topics were. So there wasn't a misalignment, I think, from the entire industry perspective. It's just a willingness to go forward and get things done. I think when you talk to employees, unions and customers and even government officials and regulators, all of them have a bad taste in their mouth of what happened last time.

It took almost 3 years, had twice the threat of a strike, had to go to Congress. There's a lot of anxiety. Took 3 years in some cases for people to get a raise. They got them in arrears, but it just didn't feel the same. Our employees told us loud and clearly they didn't want to go through that again. It was really important.

And so what was really good about this agreement was it's been pattern, so it's been consistently across all the other agreements have done nationally have been all the same economics, which is important for all of us collectively and the unions themselves. But it also was really important to get behind us so that when we had the issues we had, we could get to our workforce and say, "Hey, we are one CSX, we're one team, let's go together and work to fix this -- get this network back where we're capable of." And you saw how quickly we were able to do that.

And lastly, I'll say that spirit of partnership is really important to make efficiencies because if you're fighting for years over the economics or other issues related to a national contract, you don't spend any time working on the local issues because the union will just say, we're not working on it until you [indiscernible] And now we're working through how do we make each yard more efficient?

How do we look for the -- combine our pools of people? How do we better utilize our really talented employees to be more efficient? And we have a lot of that going on, including how do we implement electronic bidding in the north of our network where we didn't have that before. Now that's coming forward. So we're able to move forward on other things that are more CSX specific because we have the national negotiations behind us.

So one of the other areas we've seen a lot of partnership, of course, is with the M&A, the Transcon merger that's been proposed. We've seen a number of different announcements. So before we get further into the details, the one question we get and try to think through is can a partnership, and this is, I guess, what we're going to see play out real-time, but pros and cons of mergers, obviously, there's quite a bit on either side, depending you talk to.

But from your perspective, what do you feel like a non-merged partnership in the spirit of cooperation that we're seeing in these press releases, like can that compete against potential UP-NS merger when you look further down if that's the steady state of where this all ends? Of course, there's a lot happening between now and what that means, but how do you approach it here and now as you start to launch some of these partnerships?

So the way we were thinking of it all along is what problem are we trying to solve? Obviously, you want, from a CSX perspective, to get more efficient, to improve your margins, grow volume, profitably grow the volume, those things. But from an industry perspective, what problems are we trying to solve?

And a lot of it has to do with this notion of how do we get back to growth? How do we get back to converting business that should be on rail that's on truck today or other modes? And what we're really excited about is that we have an industry now that's talking about solving those problems, whether it's the interchanges and the inefficiencies there or just the spirit of partnership to go and find new solutions or ways to go about this.

And for the longest time, the industry was so focused on each railroad's own piece of the pie, and that pie was getting smaller, but we were all focused on can we marginally get a bigger piece of that pie? And the real opportunity here is can we find an opportunity to grow that pie significantly? And the largest opportunity has been pronounced by a lot of people is this what they call the watershed, which is volume that goes through the interchanges or through the different regions of the different railroads.

And one of the most exciting things going on right now is the partnerships that we have about trying to go after that business and solve these problems. For the longest time, all of us thought it didn't make any sense to have the inefficiencies of the interchanges that we have. But we've tolerated them and that we've kind of -- because of our own existence for lots of different reasons.

But the threat or the concept of a transcontinental railroad has put all of the other railroads in a position where we need to be able to -- if that ever comes to fruition, we need to be able to compete. And so now everything is on the table to say from a -- and the problem to be solved is from the customer standpoint, how do you offer the same level of service that one could possibly offer if they're in control of the entire transcontinental railroad.

There's nothing physically or technically stopping us from solving those problems today. You need willing partners that are willing to go make it happen. And I believe we have willing partners now wanting to make that happen, and we're working on it as we speak. From a technical and a physical standpoint, just how do you not have all that waste at the interchange.

The recently announced agreement that we just started this week, the new service with BNSF, that train comes from Phoenix to Birmingham, Alabama, it has BNSF locomotives on it, it's a complete intermodal train. We just do a crew change in Birmingham and take that train with their BNSF locomotives over to Atlanta, to the Fairburn terminal, unload all that, then load the boxes back, bring it back and then give it back to BNSF.

So it's not going through Chicago where that volume went through Chicago before and had to be trucked between 2 different rail yards. And so how do we now go after every single waste that's in our system and don't tolerate it, it's going to provide better service for customers, more competition for truck, hopefully more volume for railroads and get trucks off the roads, but also make those interchanges a lot more efficient.

And we also then need to rationalize our capacity at these interchanges. How do we make it more efficient that way because we all have so many assets that we've grown up with over time. So the short line -- the short answer here is that the 3 other railroads, CN, CPKC and BNSF and CSX have come together to say, "Okay, if the STB does approve this UP-NS transaction, how do we collectively compete with that and what's it take to do that?"

And we don't have to wait for an STB approval. We don't have to spend $2 billion of capital to make that happen. We don't have to pay a premium. We don't have a breakup fee risk. How do we do all of this as one team trying to figure out to do that? And that is exciting. And is there -- are there benefits, if you have control of the entire experience? There could be. We have to then offset that by saying what does it take to compete with that? And that's the work that we're all working on making happen.

So obviously, there's more willingness because of the transaction or the announcement of the transaction, however it takes shape. But in terms of the practicality of it, maybe you can use the Birmingham as an example, like with the haulage rights, which I think a lot of us are still getting up to speed on how that's different than trackage rights.

But maybe you can get a little bit of detail on how that came to pass, how many more of those can potentially be put in across the network? Because I think that's really what the industry is now evolving into, which was maybe not even discussed before. So is it too early to even tell how much is potentially...

The trackage rights are typically more permanent and actually require STB approvals and things of that nature. But haulage agreements can be reached any time, and they're not as permanent and they're a lot simpler. Sean needs to make sure the economics make sense for all parties, of course.

But the -- there's so much opportunity if you just have willing partners to find solutions. And again, the objective here is to say what's the fastest, most efficient, best route for the customers? And how do we make that happen? And so of course, it doesn't make sense if you're going to go to Atlanta to go up to Chicago, get stuck in Chicago and then come back to Atlanta. But where are all the other -- and there are lots of them, a lot of those opportunities.

Nothing against Chicago, but there's a lot of interchange traffic there and a lot of things happen and a lot -- there's a lack of connectivity that probably we need to fix. But the most important thing is just to say what's the best, fastest -- the best route, the fastest route and the lowest cost route for everybody involved and how do we do that efficiently and offer that to customers?

Some of that may be on UP and some of that may be on BNSF or CPKC or CN to the East. Our objective at CSX is to have the most efficient, fastest network in the East and to be the preferred partner for customers and for the other railroads to want to work with. And as long as we make that happen, we're in a good position. And that's what we're focused on. And that's what's exciting about this.

But now that we have willing partners, we get to step back and say, "This doesn't make any sense. Why do we do it this way," and not be beholden to the past. And that's what the most exciting thing what's going on right now is to be able to make that happen. That's the nature of competition. It forces you to change, adapt, innovate and we're starting to see that.

There are a lot -- to answer your question, Brian, there are many opportunities like that to go after, and you'll hear more about that over time. From our standpoint, we need to sequence these things in a way that we can manage them so that we're -- because we're the beneficiary of a lot of this. So we need to make sure that we're able to manage it in a way that continues to execute well for customers and to perform well for customers. So we're working hard to make sure that we're sequencing those things so that we can execute.

I'd just add on the economics of haulage, and haulage is just one of the options on the menu for how we solve some of these issues that Joe is talking about. But on haulage specifically, acknowledge, yes, your revenue per unit on that move is going to be lower than your average within that business segment, but it's because it's not our assets, right?

It is our track, it is our crew. But the return -- the margins are attractive and the returns on assets on those moves are actually quite attractive. So it can definitely work as a solution, not the only one to unlock some of the value that's out there.

So the one service you just were talking about earlier that started, I think, this week, and we'll see more volume shift over in the next month and into next quarter, is there a way that we can think about conceptualizing the size of that? Is it an example of what that might look like? I think it's another train service being put into place. Obviously, it's converting from a different service over the rail. So what should we think about in terms of relative size? Are we going to start to see these be meaningful, be able to quantify the quantum?

So we haven't quantified it yet, and we're not going to go through and quantify each individual opportunity. But what I will say is you're going to see it start to show up in the weekly numbers, and you'll get a very good sense of the magnitude of the opportunity. Not all of them will be discernible in the weekly volumes, but this particular partnership with BNSF will be.

The other one that's interesting, Joe, I think, is the CN one that also came out with Memphis to Nashville, which I think is, at least from my perspective, is kind of emblematic of how maybe the perception of the industry and how they're working together is changing. So can you give us a little bit more background about that, how it came up?

Yes. So all 3 of those railroads are working with us right now. We're spending time with our operations and our commercial teams, and we're just -- everyone is getting to the table saying, what's the flow of traffic and where can we find opportunity to work together and how can we demonstrate this efficiency across the interchanges and whatnot.

And what came up was CN has a lot of volume that moves from Prince Rupert to Memphis that wants to get to Nashville, but it stops on Memphis because that's the end where their business ends. And so we said, "Well, we have a train running every day from Memphis to Nashville that's not full." So we could just take it to Nashville and offer that service and take trucks off the road and offer a better service as long as we do that seamlessly, and we share an intermodal terminal, we kind of cross a lot of work together there with CN in Memphis.

And so that was what we announced. So that's truck conversion. It's incremental margin for us. It's a better service experience collectively for the customer. It's a win for everybody. Now in the past, the railroads were always looking for to make sure if they did anything, it was 50% had to be -- benefit you. And what's going on right now is we're all looking for all the opportunities to serve customers better and to demonstrate that we can work better together to grow the whole pie.

So there may be an example where this more benefits CSX, and we're working on other examples that will benefit CN or CPKC or BNSF. A lot of the traffic flows from West to East. So in the near term, you're going to see a lot more of the volume in the East because -- but over time, if we can work on this interchange and this watershed, it benefits everyone.

So that's all the work that's going on. And that's the difference that's happening right now. We couldn't get railroads to kind of just work on growing the whole pie because it was always about, well, make sure I get the biggest benefit. But now we're working together collectively to say, let's just make it all better for customers, for the economy and for society and demonstrate we can do this through these partnerships.

What's sort of the feedback from shippers and customers now that it seems like it's almost a brave new world in some ways from a railroad perspective? Obviously, things are still changing, there's a lot of uncertainty, but we've seen several headlines filings, shippers voicing their concerns and big ones against potential merger and what that might mean for them. So is that an opportunity? Are they trusting of putting more freight on the rail networks or does it still need to show us the service, the reliability?

Well, at the highest level, I think the service improvements across the entire industry have been pretty meaningful in the last couple of years, especially compared to coming out of COVID. So that's good for all of us. Certainly, we think we've been leading the way over the last several years in that regard.

I think in general, the customers want more business on rail. It's safer, it's better for the economy, it's better for the environment and in most cases, it should be lower cost. What they've always been looking for is more repeatability, reliability, dependability of the service levels and also a partnership that is more conducive of how a customer relationship should be.

And so we've been working hard on that. I think you'll see that changing in the industry. I think that will be a good thing. I won't speak for all the different associations and groups that have come out regarding the proposed consolidation. But I think that what you're seeing is customers are preferring -- many of them preferring this partnership agreement because it still allows for a lot of the basic tenants of the existing network to be there, but also us working on the inefficiencies that are impacting customers. So we've seen very positive response from customers so far on what we've been announcing and what we've been working on with all the other railroads.

In terms of new interchange points, which I guess would be another aspect to the whole network dynamics, the shifting, you can do partnerships, you can do haulage rights, but like actually creating new interchanges. We saw one with CPKC and yourselves in Myrtlewood, which took a little bit of time to get put into place. But are those -- are they ready-made ones for that? Is this part of, obviously, the network...

Yes, I think this is -- again, this is the rethinking that's going on is just get the maps out and say, what's the best route and can we make it happen? And if you get out of thinking the way they always -- the paradigm of how we always do it, we should be able to avoid Chicago more than we do. Nothing against Chicago personally, but I mean, just traffic flow-wise.

We should be able to -- if we're not establishing new interchange points, are we establishing new crew change points, which -- and how do we do that, whether it's haulage or whether kind of agreements like that. It's all about getting the traffic across the interchanges efficiency -- again, efficiently so that we can compete with someone who might be able to do that on their own.

And that rethinking is really critical right now because you don't have to go there necessarily. It might not be the most efficient route, but we always did that way because it was the easiest or more natural. And importantly, for us, especially, if we can get some meaningful more volume, this is largely -- a lot of this is intermodal, okay? Not exclusively, but lot of this is intermodal.

If we can get a lot more intermodal volume, which I think will come CSX way, that density provides new solution opportunities because it wouldn't make sense if you had a 5,000-foot intermodal train to go around Chicago because you want to combine it to make a 10,000-plus foot train. But if you have enough volume that wants to go around Chicago, you can make that train go around Chicago, but you don't need to go to Chicago.

So a lot of this is a lot of give and take between where the volume flows are going to go. But certainly, we're excited about the partnership opportunities that are being presented to us about that will bring more volume opportunity to CSX, which then will create the opportunity for new solutions. So a lot of these things go together. We create density, we can create new solutions. And that's what the work that's going on with all the other parties right now.

And when we think about working with the other parties, what's the speed to market to service? Like part of the idea of the strategy with not doing a merger is you can do it quicker, but the industry is not typically known for innovation or speed historically. But as we're talking about on stage here, a lot of things are changing.

So will this be a gradual process? Will it take some proof of concepts to really get more support behind it? Obviously, there's probably some capital involved, maybe some rationalization. So I know we're in still early innings, but do you feel like this momentum is going to build or are we going to have to see this a little bit slower steps...

Yes, I believe the momentum will build. I think it will be cadenced. I mean, because, again, we need it to be -- can't be disrupted to the system because it needs to be managed. But I think it will build. I know it's going to build because the stuff we're working on. The more structural changes will take some more time if there are -- if those are what we decide to do.

But as far as service offerings and the rerouting and all of that, that can happen pretty quickly and is happening pretty quickly. I mean the CN stuff we announced -- we made the decision and announced it within like a couple of weeks, and then it's happening. I mean, literally, that's how fast.

The BNSF stuff was in the works for many months, many months ago. But once we kind of collectively made the decision, it didn't take that long to execute. So I think you'll see a lot -- especially with intermodal, you'll see a lot of that.

On the carload side, again, contracts come up, we'll work around that. But those routes are pretty well established. But I'm encouraged by what we're going to see. There may be new solutions that we haven't thought of yet, technology or otherwise that may take a little more time. But the good news is that right now, the spirit is: let's not assume anything has to be the way it is today, everything is on the table. And what's the art of the possible? What's it take to create a seamless experience for the customer? And that's the mindset that all the railroads have right now.

And so yesterday, we saw the preliminary proxy come out, several hundred pages. We'll have several thousand pages in the filing when that comes out later, your application rather for UP-NS. Does that really -- are you going to find anything new and exciting in there? Does that really change the course of the strategy? Obviously, there's still a lot of moving pieces. So I'm assuming something would change. But do you kind of already know potentially...

So I haven't read it yet, I've been busy, but I'm going to try and read it on the plane right back to the U.S. later today. But there weren't any surprises. At least our team that's gone through it, didn't see any surprises. We're all waiting for the application to the STB. I think that's the real meaningful data information.

What's being proposed, what are the scenarios, what are the conditions or whatever words you want to use. So we're waiting for that. I mean we -- obviously, that's pretty important for us to see before we have really a strong opinion one way or another on certain things. In the meantime, as Sean mentioned, we have a number of resources in place working on our thoughts around the proposed consolidation, our thinking around competitiveness and different locations and things because we want to be prepared for the STB process.

So we're spending a decent amount of money with advisers and lawyers and whatnot going through everything to make sure that we're prepared because obviously, this is important for all of us. But we didn't see anything in that, that was anything that was surprising to us. But again, the real important document is the application itself, so we can really see what they're proposing in detail, and then we can take a look at what that means for CSX and for the industry and then what we propose as solutions to some of those things.

So there's some misconception that you compete with the Western railroads and actually partners you're doing a lot of interchange work. But in this case, maybe the idea is that you -- one of them be buy as your competitor in the East. So does that -- are you worried about foreclosing opportunities? Obviously, the review process is going to look at that pretty extensively, but you have a big chemical franchise, UP has a big chemical franchise.

So there's, I guess, reasons why the market thought that would be a natural pairing. So if that's not the case, is there certain end markets or areas that are more at risk if you were looking at that versus the status quo?

Yes. So I mean I'd like to say that, first of all, we do have a very strong interchange business with Union Pacific. I anticipate we'll still have a strong interchange business with Union Pacific, no matter how the STB rules because the customers vote on the routes and the partners. And there's a reason why we have significant interchange business with Union Pacific today, chemical franchise being one of them, autos being another, it's because we -- the customer votes for CSX and in this case, UP, for the route, for the offering, for the service.

And I would anticipate that will still be the case for certain scenarios in the future. As long as CSX continues to be the best running railroad in the East, we'll have lots of options with customers who want to do business with us. And I'm pretty confident the STB will be looking at this very carefully to make sure that customers still have options in the East, no matter what scenario plays out.

And so yes, that -- some of those franchises are really important to us, they're important to CSX. The nature of competition will bring new solutions, presumably on all sides. So we want to be a part of that or be able to compete with that. But we're confident that our ability to serve our customers, our current route system, our current relationships, current service levels are all going to help us with customers who will eventually decide where the traffic flows because we lose sight of the fact that the customers are the ones that decide which partners they pick to move the goods.

And we offer them solutions, they pick a choice. So the key is to be able to offer them competitive solutions. But I'm confident that one of those competitive solutions will still maintain the ability for Union Pacific and CSX to move freight together. And so that will have to play itself out as it plays out. But I'm sure the STB will be looking very closely into that. And that will be a large ask we know because they talked to us about it via the customer groups is to maintain that ability to choose which route is best for the customer.

Right. But there's no single -- I mean the perception is a single line back to the concept of control that a single-line service can beat everything and so therefore, you're potentially not the most competitive in the East, but then pair that against what the shippers want and what they're asking for from a balance perspective. So I think that's...

Well, it's our job and our partnership with the other railroads to be able to offer a competitive solution that doesn't disadvantage us or another railroad in that interchange or that business. Again, we're talking about right now, 25% to 30% of our revenue comes from interchange, 75% to 70% of our revenue today is within our region. So that's not going to change.

We're talking about the piece that should grow the interchanges -- that goes across the interchanges, but it's our collective jobs to offer a solution to the customer that competes with, if there is a combined entity, both in terms of operational effectiveness and routes and timing and speed and cost, but also in terms of the experience.

So we have to find a solution that makes it seamless for the customers to deal with 2 railroads if they're going to have an option of dealing with 1. So that's technically feasible. It's an interface, but we got to find those solutions. So that's the stuff we're all working on together to be able to offer to customers.

Technology, one bill those sorts of things?

Yes. Again, part of that is the STB process itself by billing. And so that will be part of the conversation if they do and if the STB does move forward with allowing this consolidation is how do you allow the other railroads to compete on pricing and offerings as well, that will be part of the conversation. Again, it's our responsibility to offer the customers something that's competitive, and we will -- that's our commitment to do so.

So maybe we can finish up with going back to the watershed, which I think before this year, a lot of us hadn't really focused on that and the industry hadn't really focused on it as well. So reasons why you think that wasn't the case? I mean, clearly, there's more emphasis on it, maybe more excitement about it.

But was this just harder to do, margin dilutive? Like if customers were asking for it, I thought the railroad industry might have already progressed down this path. But what's really changed? And I guess, how quickly can that market be addressed?

Well, this has always been interested to CSX. As a matter of fact, Sean and the team, before I got there, had a consultant doing a full analysis of this 4 years ago or something like that. So we already have a lot of that data. We refreshed it lately. It was hard to do, and you need willing partners on both sides.

And a lot of this has to do with the interchanges. And so if you weren't in for fixing the interchanges, then you really couldn't compete for that watershed. And now we have motivated partners to do that. So I think the moment is right. We've got to take advantage of it. And the devil is in the details.

It's by lane, by customer, and we're all going through that. But if you have motivated railroads to find solutions, I believe we'll find those solutions. And so that will be good for the industry collectively for everyone, and it will be good for customers and for the society as well. So that's an exciting time for us, and that's one of the big opportunities we're all working on.

Well, certainly, it's an exciting time for the industry and also for CSX. So thanks for making time to come to London...

Thank you for having us, Brian. Thank you all for being...

Thank you.

Thanks a lot.

Great. Next up, we have CSX railroad. I'm very happy to welcome back Laguna, CEO and President, Joe Hinrichs. Joe, thanks so much for coming back to Laguna.

Thanks, Ravi. Thanks for having us.

Absolutely. So we have a little surprise for you, which is a slide deck in front of you, and Joe is now going to go through those.

Yes. Sorry, we didn't have presentation capabilities today.

That's on us, not them.

Yes, it's all right. Just I want to give you a little bit of data for those who are here. We're going to not spend a lot of time on it, but the first slide of the deck on Slide 4 just kind of shows you the operational metrics. It's kind of an update to everybody to all the investors and to everybody interested, we're having a very strong third quarter operationally.

Essentially, from the beginning of May on, our railroad is running about as well as it ever has. And you can see in the metrics. I'm not going to go into it, but velocity is really strong right now with dwells getting back to where we were in '23 and what we measure for customer service, trip plan compliance is really strong. And the cars online have come out really well. This is really important because this is all happening before we open up the other projects, the other big projects we're working on.

So it shows you the capability of our network even without those relief valves that are going to be pretty meaningful, Howard Street Tunnel and the Blue Ridge projects, they're going to be completed here pretty soon. So that's good. The second slide is just a reminder of what's been going on because we often get a conversation around what are the things we can control and what we don't control. And so this is Slide 5, which shows you that over the last trailing 12 months, there's over $1 billion of things compared to '22, which is when the peak earnings cycle was for pretty much all the railroads that aren't repeating.

Some of that's real estate transactions, big real estate transactions we had in '21, '22, like the Virginia real estate, but also met coal prices have come down. We'll talk about that probably. And supplemental revenue, which was really peaked during COVID, the post-COVID period and then fuel surcharge. So those things will dissipate over time and will fade out. And so we should get back to stronger earnings when some of those things aren't going against us on a kind of an annual basis.

And the last slide is just a reminder of -- at our Investor Day in November, which seems like such a long time ago, a lot has happened since -- we talk extensively about how excited we were about the 3-year period. And we even talked about '25 being more of a transition year, but '26 and '27.

This is just a reminder of in '26, all the things that are not going to repeat that happen in '25 or that are set up for success, whether that's the opening of the double stacking through the I-95 corridor when Howard Street Tunnel opens in the -- fully opens in the second quarter of next year, but also the nonrecurrence of costs we had this year due to the hurricanes and the projects and also a lot of the new business is coming our way that I'm sure we'll talk about with some of the new work we're doing with some of the railroads.

And just we think there's a lot more supportive. Interest rates should be coming down, should be more supportive environment. So we feel really good about '26, and this is just a reminder of all the things that are going to either not repeat or be in our favor for '26. So that's just a quick synopsis of kind of what we brought just to have a little data with you and give you an update on where we are on the operations side. So great to turn it back.

Awesome. Thanks, Joe. Maybe we start with this, right? So this improvement in service that you've seen, obviously, really impressive. Can you just talk about a few steps you took to achieve that? Kind of is it just a case of you getting used to the disruptions and kind of getting past that? Or what drove that?

So yes, if you go back and look, I mean, the start of -- we've been running well for a couple of years. I think you can look at the data. And what really disrupted us was first, Milton and then Helen kind of backed our network up. I mean in of themselves, they weren't that dramatically disruptive, but they backed our network up in key areas in the Southeast, especially.

And then when the Blue Ridge was taken out, that was one lane that we had to now move trains away from. And then what happened was so we moved more trains away from the Blue Ridge because we weren't anticipating that to be down. And then we moved a bunch of more trains when we took the Howard Street Tunnel down in February.

At that same time that we moved a bunch of trains to our central part of our network because there's only really 4 North-South. So 2 of the North-South routes are closed. So everything is going basically through the Midwest and through either Nashville or Birmingham, Alabama or up to the Midwest. And then we had these subsequent storms that kind of time perfectly.

So we were backed up, everything gets pushed to a certain part of our network, and that network kept having major storms, floods in Kentucky and Tennessee, some storms. And we made some mistakes. I mean we should have put more locomotives out in February, March. We did in March, but we should have put them out in February. So, probably a month too late. We had some in storage, some things like that.

So we regrouped in late March and said, hey, let's just -- let's go back to where everything needs to be. And within a few weeks, we had it all stabilized. And we put in additional steps on a daily basis to manage the network, and we've kept them in place, and they've been working really well. And what I'm really proud of the team is because there was a little bit of a belief that until the projects got completed, we couldn't go back to where we were. And we were able to break through that. And we were able to demonstrate you can actually get back to our leading industry performance without even these projects being completed.

And then once they get completed, we should be able to take another step. So pretty excited about it. I think the testament to the work we've done with our workforce because they really rallied together. And if you have a workforce that's with you, you can get a lot done quickly. If they're not with you, then it takes a lot longer. And I think you saw how quickly we were able to get things back up.

Got it. So as you pointed out, the genesis for the starting point of all this was 2 big hurricanes last year, obviously, going into hurricane season now. So are you -- there's a message that if something similar happens this year, you'll be in better shape because you have more locomotives?

We're in a lot better shape now. It's not just locomotives. If you look at our data, we were letting the dwell in the third, fourth quarters of last year, we were testing some things by letting the dwell go up a little bit to build longer trains to build fast and get faster velocity, if you go look at the data. That made us a little more vulnerable. And then the worst hurricane hit us in 20 years happened.

So that's a learning, but also it's just a reality. So right now, our network is in fabulous shape, knock on wood, it is hurricane season. Some Mother Nature can do what she wants to do. But so far, it's been a pretty quiet season. Hopefully, it will be that way for the rest of the year. But our network is in far better shape. The cars online are lower, the dwellers at some of our best levels. So our network is a lot better shape, and we're only a few weeks away from opening up the rest of it. So that should give us a lot of resiliencies. So I think we're in a much better shape.

Got it. Maybe you don't get time to talk about this as much on conference calls given the time constraint. But let's talk about Blue Ridge and Howard Street Tunnel, right, kind of -- why did you guys decide -- remind us again, why did you guys decide to go down that path? How long did it take to assess that and kind of what that timeline is going forward?

So let's start with Blue Ridge because that was a surprise, right? When you look at our -- if you put the map of our network out, we have a North-South route right down to I-95. So basically, Rocky Mount, North Carolina up through -- up to D.C. and up through Baltimore, et cetera, really important route. Then we have that Eastern Tennessee, Western North Carolina route, which is the old Clinchfield line, which is where the Blue Ridge is. And then the rest -- our 2 North-South routes are really Nashville South then through Birmingham. So if you look at a map and you say, well, the Blue Ridge route has gone, you're from I-95 all the way over to the middle of Tennessee. And that's a wide gap. And if something ever were to happen, a major derailment got forbid or a hurricane or something, it makes our system incredibly vulnerable.

And so -- it didn't take us very long to do the math around we need to have this -- if you do the math just on how many trains go through every day, you'd say maybe it doesn't make sense. But if you're talking about a 198-year-old company and we're going to be around for 198 years more, we need that resiliency, we need that capability. So it's been more expensive than we anticipated, to be honest, when we first looked at it because it just took so much fill because it just wiped out everything.

But the team has done a fabulous job. I was there last week. The team has done a fabulous job, and it's, I'd say, ahead of schedule. It will open up in the first week of October, which we haven't said. We said early first quarter -- fourth quarter. So we're in great shape, and the team did a fabulous job. And it was built in the 1910s. So it's -- now it's a lot more resilient. I mean it was just dynamite and shovels, and now we've built it, so it's resilient.

Howard Street Tunnel is different. So we've been working on Howard Tunnel for over 10 years, the desire to double stack and also to do it because it was built in the 1890s and it needs to be redone. It has a lot of problems with a drainage, et cetera. The original plan for Howard Street that was developed for the last couple of years was to do it over 3 years, shut it down over 12 hours every night. And we just physically couldn't get a plan to make that work.

So we came up with a different plan, which is just to shut it down for what we thought would be 9 or 10 months. It's going to end up being a little shorter than that and just do it and get it done. Now there's a couple of reasons for that. One, we want to get the intermodal capability sooner. Also, we're on the hook. It's a federal private-public partnership. And so we were on the hook for any overages. And that -- those dollars were years ago before all the inflation hit.

And so if we have gone 3 years, it likely would have been significantly more expensive to go over. And third, we just didn't physically know how to do that. I mean the way you think about this is you go in, you dig it lower, you bring in a new piece and you put it back together every night for 3 years and try to run trains through there, impossible. Our engineers didn't have to do it. So the good news is it's going to get done -- actually, it will be -- we're going to run a train through there last week of September. It's also new news.

So we're going to beat the clock on that. We're really excited about it. The team has done a fabulous job. And it happens to be coinciding with a time where a lot of Southern utility coal likes to go that route. That's why it was built. And there's more domestic coal business right now in the Southern utilities. So the timing is pretty good. So we're pretty excited about it on the Blue Ridge.

The Howard Street -- back to the Howard Freight, sorry, the Howard Freight will be running at the end of September. And by second quarter next year, the bridges will be cleared and we can double-stack. And with all the work we have going on with all the other railroads for a lot of more intermodal business, the timing is going to work out great.

Got it. So Blue Ridge seems like more of a network resilience investment. Howard Street looks like a growth investment. Have you gone out and sold that capacity on Howard Street already? Kind of what are customers telling you about the potential there?

So we haven't sold it yet, but we're -- those discussions are happening. They know it's coming. So I guess we have sold it in a way that we've given the time frame. And as we said at our Investor Day, we think it's 75,000 to 125,000 extra units every year. That maybe even could be some upside given all the work that's going on with some of the other railroads right now.

We just don't compete through that quarter on to major -- like Atlanta, New Jersey, we don't even try. So a lot of that will be truck conversion, some share, but a lot of it will be truck conversion. So really excited about it. And the Blue Ridge, what's going on with domestic coal utilities actually might be timed pretty well. We didn't know that, but because there are some utilities now staying open longer and so we'll run more coal through there. So both of them, I think, could add to a little bit of growth, but obviously, the Howard Street being a much more prominent one for sure.

Got it. So let's shift gears and just talk about the demand environment right now, kind of what are you seeing out there? Obviously, very, very choppy macro situation. We've had a couple of rails go already, and they sound a little bit squishy on volumes depending on end market in the third quarter here. So similar to this, do you want to give us a little bit of a run-through as to what volumes?

So it's -- I'd say it's a mixed bag. Intermodal has been -- growth has been strong, more on the international side than domestic, which we have good strong partners on international. So international intermodal has been a growth story for us in the third quarter. Domestic has kind of held in there, but intermodal -- international has been strong. You'll see more intermodal growth in the fourth quarter for us with some of the more recent announcements.

As I said, domestic utility coal is up. Export coal is down a little bit. Some of that is because of pricing and the environment. Some of that's because we've had a couple of mines that were single-served by us that went down this year. One is coming back this month. So that's good, but it doesn't really affect third quarter, but it should hopefully affect the fourth quarter.

Autos have been kind of mixed. We've lost some share in autos this year, not because of contracts, but because of the mix of customers we serve versus Norfolk Southern. But we think that will get better in the fourth quarter. Metals have been not as weak as they were in the first half of the year, but still weaker. What's been strong, aggregates, so concrete minerals, that kind of thing. Obviously, our presence in the Southeast helps there. Ag business has been okay in the third quarter. It was stronger in the first half of the year.

And if you go and look about some of the other things, forest products, we've had some closures of pulpboard and paper plants with some of the restructuring going on in that business, which has impacted our volumes, plus housing has been soft. So merchandise has been a little lower than we expected. Intermodal has been stronger than we expected. I'd say domestic coal has been stronger than we expected. So on balance, we are seeing a little bit of growth in the quarter, but that's more intermodal and a little less merchandise.

Got it. Any share shift in particular to consider or especially given the disruption that you've had?

I think you'll see more intermodal business come our way in the fourth quarter. I think in the third quarter -- oh, I didn't mention chemicals. That's the other big one. Chemical has been a little softer in the quarter than we certainly anticipated. It's a big part of our business, but we still have -- we still have the largest market share there, but chemical has been a little softer for us, too.

So I think in the near term, hopefully, with the mines coming back on one this month, probably the other one at the end of the year, the export coal business, we should start to see a little more volume coming.

Got it. You said international intermodal is strong for you. I think a couple of rails so far have highlighted strength there as well, but have also flagged that, that may be some level of preordering or prestocking. Are you seeing any signs of that? Do you have a sense of where the significant...

Yes. I mean I'd say it's been choppy, but we're not seeing -- we don't anticipate a softening in the intermodal business. Now we've also announced a number of new lanes, which will be a volume growth for us. But we don't see -- our international business has been holding up pretty well, and we don't see that changing. We also had some new inland ports, which has helped a little bit, too. So I would say it's been a little choppy. It's been harder to predict to be sure. But I'd say we feel pretty good about where we are in intermodal.

Got it. So given the improvement in the service metrics, given the new lanes you've launched, but also in a choppy environment, how do we think about some of the puts and takes on the OR side kind of going into the second half of the year, kind of any particular moving parts?

So I mean, we did announce in the second quarter earnings that we have a restructuring charge from the management reductions. So that will hit us in the third quarter. Obviously, we had the labor increase of the 4% on the first of the 5% for the union employees. We have all our contracts done but one, and we hope to have that one done shortly. So that's the kind of the added cost side.

The efficiency of the network is running really well. And we've had a lot of discipline, as you saw in the second quarter around our costs, whether it's PS&O, whether it's overtime, some of the variable discretionary things. So I think we feel pretty good about the run rate we're on as far as the operating network goes and that.

But we will have some of those couple of things hit us in the third quarter. I feel pretty good about where we are. We keep our network running. We get the other -- we still have the $10 million a month of rerouting costs, but certainly, we should see most of that go away in the fourth quarter.

Understood. So let's shift gears and talk about everyone's favorite topic du jour, which is the potential rail merger that they announced. Just I'll just open end and ask you kind of thought so far.

Yes. We haven't said a lot publicly about it because I think it's premature to say too much because we haven't even seen the application to the STB, which I saw the transcripts from yesterday. So we'll see when those get published. I mean, there'll be -- I'm sure there'll be a proxy disclosure and then there'll be the application. So we'll have a lot more information.

So my view since I started in this industry, and I think if you look at anything I've said publicly for the last 3 years, I've been imploring this industry to work better together to grow the pie for all of us and to serve customers better.

If you go look at all my public remarks and even my private remarks, the first 6 months I was on the job, I flew to Omaha to meet with UP, I flew to Dallas to meet with BNSF. I had meetings with both CN and CPKC CEOs. Can we work together? I'm new. I don't have any old biases. I don't have any -- it didn't work before. Let's just go do things. And the only one we really got to do something was the CPKC out of that.

Of course, they had just formed their entity and they were motivated. So we did the new interchange and we did the hydrogen joint venture to run a JV on the locomotives. But now we have an exciting time where there is motivation and there is activity amongst all the rails to work together to grow the pie. We can debate on how we got here. But what's exciting for us is that we're -- our operating metrics are the strongest in the East. Our customer relationships are the strongest in the East. Our union relations are strongest in the East.

And we're the preferred partner now on the East of 3 railroads. I don't want to speak for them, but I mean, as far as the activity level goes right now. And that's pretty exciting. And so the opportunity here is to grow the pie for all of us. So how can we finally go work on these issues that have been around for a long time, the inefficiencies of the interchanges, the cost timing, handling the interchanges and the openness to talk about everything, whether it's assets, why do we have so many yards at all the interchanges because we have to have our own, but why does it have to be that way.

So we're now at a point where the industry is willing to talk about things that hasn't been talked about before. And a lot of that was largely driven by what's in it for me, view of the world? Like if -- when I -- when we were dealing with railroads, if the other railroad wasn't getting the majority of the benefit, even if they got a benefit, they weren't interested, which is all you get in this long haul, short haul, who gets the longer service, all that kind of stuff.

But right now, we have an opportunity where people are saying, you know what, let's just work together to go work on these issues. And you've already seen a number of announcements. There'll be more about, all right, let's just go after all this business that is theoretically out there. It's -- I think a lot of that's overstated because there's reasons why people use truck.

But for various reasons, having been run a business for years that moved a lot of material at Ford, but there's still a lot of opportunity out there. And so the exciting thing for me and for us, I think, right now in this industry is let's just -- let's go grow the pie and get more efficient doing it but serve customers better and go after some of this truck conversion that should be out there for us.

In order to work better, do you need to get married? Or can you just do it while dating?

So that's a great question. I get asked a lot. I mean, if you just -- if you stay focused on the interchanges, so that's where a lot of the attention is, there's nothing physically stopping us from making the interchanges efficient and fluid. Right now, we do things like goes into a yard A for other railroad and then it gets trucked over on intermodal and then it gets in our yard and then it gets -- and it's so inefficient.

But that's because we accept it. It's not because it's physically required. Physics don't say you have to do that. And so there's nothing physically stopping us from making the interchanges or even going around the interchanges. There's nothing technically stopping us. Again, it's more desire and will and partnership. Now you have to work through, okay, who shares what cost and who gets what benefits and you have to be able to do that. So you need partners who are willing to step back and say, you know what, we just want to make the whole pie bigger and let's get our -- all of us get our fair share of that.

So I don't -- you can do that. Now some will say, is it easier to control the whole thing? If not, I mean, perhaps. But it's nothing physically stopping us. And what I'm excited about right now is the conversations that we're having are very open to, okay, what's it take and what's in the art of the possible. why do we have 3 yards in Chicago and Railroad X has 6 yards in Chicago?

And why can't we just share those assets? Why can't we just get more efficient? Or why do -- why can't we just steel wheel everything? And what's it take? So the conversation has moved from what's in it for me to what would you have to believe to make it work? And that's an exciting opportunity for all of us.

Got it. Just a follow-up on that. So what is stopping it from happening now? There just needs to be a contract or a piece of paper that people need to sign and say, you do this, I'll do this. Or is it a technology problem?

No, it's not a technology problem. And technology can enhance it, especially from the customer's view. So one of the -- so I didn't talk about the customer side. Ideally, from a customer standpoint, they would like to see it as one entity, but nothing is stopping us from doing that. There are some Rule 11 and other things for pricing. But as far as the experience, it just again, it's a will. Do you want to -- are you willing to do that? Are you interested in doing that? Can you do that?

And I think that's another step that hopefully, over time, the industry will be able to do. But some of it is contractual, some of it is just -- let's just do it. You need -- in some cases, you may need a haulage agreement or you may need some kind of agreement on what you're going to do with locomotives. But the teams know how to do that. We've been doing it for a long time.

I'll give you an example. We don't talk about it a lot, but for years, we have a haulage agreement with BNSF, where their train comes into Birmingham, it's intermodal train, comes into Birmingham, Alabama, their locomotives stay on it. Our crew jumps on it, takes it to Atlanta. And their locomotives take the -- take it back from Atlanta with our crew back to Birmingham. We just changed crews and then it goes. I mean we've been doing that for years.

And it's on our track. It's our engineering conductor, but it's their locomotives, and it works really well. And there are -- so there's lots of things that can be done. It's just -- you got to want to do it and you got to be willing to recognize that if we grow the whole pie, we're all going to benefit and let's not argue over 51 versus 49 or 49 versus 51 versus -- let's just make it better for everybody.

Got it. Speaking of the just do ethos, you just did it with BNSF and CN. So can you just talk about both of those partnerships you just announced and what that brings to the table?

Yes. So I'd even go before that and obviously, the CPKC interchange in Myrtlewood as well. I mean that's the spirit of which we've been trying -- this is what predates a lot of the UPMS conversations. it's just the spirit by which we've been trying to go to work, including we have a great current interchange business with Union Pacific, and it's a very healthy business. I want to acknowledge that.

But our spirit of partnership has been there with everybody. And now we have more motivated partners. And of course, we're motivated too, and we're finding new solutions. The one with CN this week, a little misinterpreted yesterday from the transcripts that I read. Right now, a lot of traffic goes from Prince Rupert down to Memphis and then it gets trucked from Memphis to Nashville.

And so while we're having these conversations and he goes -- you start having real conversations with each railroad saying, "Hey, where is this volume and where does it go? And look at lane by lane, like there's a lot of volume being trucked from Memphis to Nashville. We have a train running from Memphis to Nashville that has capacity on it. Why wouldn't we just put it on our train?" And that's the extent of it. smart business, no incremental cost, create value for customers, take trucks off the road. I mean, everybody wins.

And you're starting to see a lot of those things. I'm not minimizing it. I'm excited by it. On the BNSF side, there's a lot more potential because obviously, they have the largest intermodal business in the West with the partnership with J.B. Hunt. And there's -- they're the fastest in the West. We're the fastest in the East. So we can see lots of scenarios where we can create really competitive offerings for customers and move across the network, especially when we get the Howard Street Tunnel opened up access to the East.

And of course, we have the strongest access to the Southeast, which is where a lot of the growth volume is, Atlanta, Charlotte. We're the only Class 1 with tracks in Florida. You can see a lot of that attractiveness. So we're pretty excited about it with everybody and excited about working with everybody, including the work we do with Union Pacific.

Yes. Got it. Sounds good. Any questions from the audience? Yes, one in the back.

I would love to hear from you from a broader perspective, if you look back at the industry, the last 15 years, very little volume growth. We understand the coal situation, but even other than that, so what do you attribute that relatively bad performance compared to the GDP or anything? And what needs to be different going forward, other than the BNSF partnership?

Yes, sure. So I mean, maybe it's a little easier for me to opine on it because I wasn't here for most of that time period. But looking back and talking to everybody and learning, let's be honest, the last 10, 15 years, the main focus of the industry has been restructuring the business to get a lot more efficient and to create better margins, which in of itself isn't a bad thing, but that was the #1 focus.

And you can see all the activist activity and all the things that went on to drive that obsession with OR improvement, which is, again, in and of itself is not bad. But there wasn't, at the same time, a same drive to grow volume. It was about -- and so a lot of the volume growth that happened during that time period was truck competitive and that margin difference compared to the carload business is different.

And so I said this many times, it really depends on what are people incentivized and motivated to do. And this industry has been incentivized and motivated to optimize OR for the last 10-plus years. Again, I'm not criticizing it because look at the efficiencies and the operating margins that we have that we didn't have 10, 15 years ago.

But if your only pursuit is every quarter trying to show a little better OR, then intermodal business is not going to be your priority or other truck competitive carload business, let's say, because the pricing dynamics are different. And so we've got to find this right balance where the business that the carload business, the merchandise business, the business that has the strongest margins doesn't deteriorate.

So we capture that. We keep making it more efficient. And we go after the incremental volume, which has good incremental margins, by the way, but might not be quite as good as coal or chemicals or some of those other things. And that's where the industry has struggled. And by the way, you need industry collaboration to make a lot of that happen because it's not just -- whereas 70% to 75% of our revenue on any quarter is within our region, so within our control, there's still 25% to 30% every quarter that is interchanging with one of the other railroads.

But a lot of that watershed opportunity people talk about or that truck competitive look at our market share within our region is higher than market share across the regions. And people assume that's for either the interchange inefficiencies or because this fight over who gets what benefit from West to East. If we can get rid of those things, we can go back to that.

But the intermodal opportunities or that watershed opportunity is not going to be the same margin as the traditional carload business. So what we have to demonstrate and investors have to believe is that we can do both, not deteriorate the performance of the traditional carload business, which has very healthy margins and add incremental growth with good incremental margins.

But maybe not quite as good as 40%, maybe 30-some percent, but still really healthy compared to your cost of capital and still creates value and get EPS growth and cash flow growth, which then can be returned to shareholders or reinvested for more growth.

So that's what's happened from my view of the world is that if you look at what happens in this industry, if your -- we talk about margins, but if your OR margins deteriorate for any period of time, people are going to swarm in and get those margins way back up right away, which again, that accountability is isn't an awful thing.

But if we don't get outside of that, we're going to get the same thing over and over again. We're going to talk for 10 years more about it'd be nice if we could grow. But this quarter, you better have 40-plus percent margins. And so what we got to show to you is we can do both. I believe we can, and I believe we have an opportunity right now in this industry to demonstrate that. We have motivated players to grow the pie. And so part of the thesis in the past was in order to grow that other lower-margin business, still very healthy margins, it would deteriorate the margins of the other business. And we got to demonstrate to you that, that doesn't happen. Does that make sense?

Where you -- sorry, does it come a point where you take the OR out of your executive team compensation out of the investor guidelines so that you can really focus on growth?

Well, I think we're the only Class 1 that does that, actually. Our incentives are based on margin growth, not on operating ratio. Again, it's minus. I mean, so the numbers -- you can do the math, but it's what's your mindset. But as I showed you, at the same time, we've been growing volume. We were the only railroad last -- Class 1 railroad that grew volume last year versus 2019.

We're the only U.S. Class I that grew merchandise volume in the last 2 years. So we have been demonstrating you can do that. But we had all this other noise going on of coming off of peak earnings for things we didn't control. So it's gotten lost. But I'm not here to debate OR versus -- I mean, there's numbers. What's really important is what are you incentivized to do and what are you motivated to do. And I believe the industry now is motivated to profitably grow. And we've got to demonstrate we can do that by working together.

But why not take the OR margins out and just focus on operating profit dollar growth rather than margin?

Well, you can debate that with your other partners, other investors. We have op income growth as one of our incentives at CSX. I'm not making that up. You can go look. So I think our incentives are in line with what you're talking about. We've got to collectively go do it. Now it would be nice if the industrial economy would help us out a little bit. The ISM PMI has been below 50 for 32 out of 34 months. And so we haven't had a lot of tailwinds.

But we're aligned with that thinking. We've got to be able to demonstrate you can continue to run a very efficient railroad, optimize your margins, pricing, everything on the carload business and grow and go after that truck competitive business, whether it's carload or intermodal and do both and grow EPS and return more capital to shareholders. And ultimately, if we can show profitable growth, the multiple should expand as well. So that's the thesis. But now we have industry partners that also are now motivated to do the same. So hopefully, we can demonstrate we can do that. That's our plan.

So Joe, maybe just to wrap up here. I know you guys are obviously full steam ahead trying to get Howard Freight and Blue Ridge done. It's going to be understandable, a huge prize for you guys. So forgive me for asking this, but what's next? Like are there more projects like that to come? And do those projects potentially get on pause until you see if the North American radar industry is going to be completely transformed?

So we don't have any major projects. Also the great project in Chicago opens up in November. I talked about that one. So that has been on for years. So we are really in a moment where we're actually going to have all our major projects done, readiest future. And we don't have any major projects planned. I mean, unless Mother Nature decides that she wants to do something else.

So I think we're in good shape there. And we got to keep working on the Quality Carriers business, the trucking business has been under a lot of pressure for the last few years. Keep taking advantage of Pan Am that we now have running on our network, and that's growing. We feel good about that. So now it's just about taking advantage of all these opportunities to grow the business with a network that's running really well and that is free to run very well.

Got it. Just on the point very quickly, you mentioned Quality Carriers. Obviously, it was a very strategic acquisition for you. But as you said, has been having some challenges. What are those challenges? What are the solutions? And is there -- is one of the solutions potentially kind of a strategic option or something else?

Well, I mean, like we always say, we're always open to what creates value for our shareholders. The timing of the Quality Carriers acquisition was timed at the peak of the cycle. In the last 3 years, the trucking business, as you all know, is under pressure. It's a well-run business. It's a leading market share in the special chemical business, but it's not a majority of market share.

But pricing has been difficult. The intermodal business has been growing every month, and we feel good about that. We bought more affiliates to help expand their -- with the market being depressed. We've been able to buy more affiliates so to bring more in-house. we think the business is structured well for recovery, but it's been a lot longer than we expected.

So we're going to keep working on taking costs out, keep working on growing the business, but obviously, look for the truck business rates to come back, that will help. It also helped the railroad business, too. But we've been waiting on that for a couple of years now. So I don't know -- I don't have any crystal ball to be able to tell you when that's going to happen. But again, good business, poorly timed acquisition probably, but you can't -- you don't know that, but we'll keep working it.

Got it. So the wait continues for the cycle, and we'll also be waiting for some regulatory filings, too.

It will be -- yes, it will be very -- there will be no shortage of activity in the railroad industry for the next months.

Joe, thanks so much.

Thank you appreciate it, Ravi, thanks. Thank you, everybody.