CSX Corporation (CSX) Q4 2025 Earnings Call Transcript
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Overview
The earnings call presents mixed signals. Strong points include improved fertilizer volume and positive intermodal service expansion. However, automotive volume decline and revenue per unit drop due to coal pricing are concerns. The Q&A reveals management's cautious approach towards long-term guidance, with some uncertainty about coal volume and revenue growth. The absence of specific long-term OR targets and unclear cost-saving impacts further contribute to a neutral outlook. The market's reaction is likely to be muted, with no significant short-term catalysts to drive strong positive or negative movement.
Key Financial Performance
Volume Increased 1% year-over-year, driven by business mix headwinds and coal pricing.
Revenue Decreased 1% year-over-year, attributed to negative mix and weaker export coal prices.
Operating Income Fell by 9% year-over-year, impacted by $50 million in charges for workforce and technology optimization.
Earnings Per Share (EPS) Decreased by 7% year-over-year, influenced by the same $50 million charges.
Expenses Increased by $73 million or 3% year-over-year, excluding goodwill impairment, due to $31 million in separation costs and $21 million in technology impairments.
Rail Headcount Decreased by over 3% year-over-year, aligning with the current business environment.
Intermodal Revenue Increased by 7% year-over-year, driven by a 5% increase in volume and new business wins.
Coal Revenue Decreased by 5% year-over-year, with a 6% decline in revenue per unit due to lower met coal benchmark pricing.
Fertilizer Volume Increased by 7% year-over-year, supported by improved phosphate rock production and business wins in the nitrogen market.
Automotive Volume Decreased by 5% year-over-year, affected by supply constraints in chips and metals.
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Operating Highlights
Intermodal Growth: Revenue up 7% year-over-year on a 5% increase in volume due to faster transit times and more connectivity.
Coal Business: Modest growth with volume up 1% year-over-year. Domestic tonnage increased by 6%, driven by higher power demand and natural gas prices.
Infrastructure Project Demand: Consistent strength in infrastructure project activity driving demand for materials like cement, aggregates, and scrap metal.
Intermodal Expansion: Expanded network reach through new operational agreements and double-stack capability improvements.
Safety and Operational Metrics: Full-year declines in FRA injury and accident rates. Improved velocity, cars online, dwell, and trip plan compliance.
Cost Structure Optimization: $50 million in charges for workforce and technology optimization. Rail headcount down over 3%.
Expense Management: Over 100 savings initiatives, including cutting professional service spend, improving asset utilization, and enhancing controls on discretionary spend.
Capital Expenditure Reduction: 2026 CapEx planned below $2.4 billion, focusing on safety, reliability, and growth projects.
Free Cash Flow Growth: Expected growth of at least 50% compared to 2025 due to higher earnings, normalized cash tax rate, and lower capital outlays.
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Risk or Challenges
Subdued Demand and Limited Growth Opportunities: The company is facing subdued demand and limited growth opportunities across key markets, which has negatively impacted operating income, operating margin, and earnings per share.
Cost Structure Adjustments: Approximately $50 million in expenses were incurred to adjust the cost structure, which includes workforce optimization and technology impairments. These adjustments reflect challenges in aligning costs with the current business environment.
Market-Driven Headwinds in Merchandise Franchise: The merchandise franchise experienced a 2% decline in both volume and revenue due to market-driven headwinds, including softness in chemicals and forest products, and plant closures in forest products.
Automotive Supply Constraints: Automotive volume was down 5% year-over-year due to supply constraints with chips and metals, limiting output at manufacturing facilities.
Export Coal Pricing and Revenue Decline: Export coal tonnage declined 3% in the quarter, and revenue was down 5% due to a 6% decline in revenue per unit, primarily driven by weaker export coal prices and a widened discount for East Coast met coal indices.
Housing and Automotive Market Uncertainty: Uncertainty in housing and automotive markets, including a forecasted modest decline in housing starts and affordability issues, is expected to impact demand for related commodities.
Soft Trucking Market and Import Slowdown Risk: The soft trucking market and potential slowdown in imports after a pull-forward of activity in 2025 pose risks to intermodal growth.
Coal Plant Retirements: Scheduled retirements of coal plants on the network could impact domestic coal volumes, although some closures have been delayed.
Macroeconomic Conditions: The company does not anticipate meaningful improvement in macroeconomic conditions for 2026, with flat industrial production and modest GDP growth expected.
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Guidance & Outlook
Revenue Growth: Low single-digit revenue growth expected for 2026, based on flat industrial production, modest GDP growth, and stable fuel and benchmark coal prices.
Operating Margin Expansion: Year-over-year operating margin expansion anticipated in the range of 200 to 300 basis points, driven by workforce optimization, tighter management of discretionary expenses, efficiency improvements, and a stable railroad.
Capital Expenditures (CapEx): 2026 CapEx planned below $2.4 billion, a significant reduction from the previous year, with priorities on infrastructure safety, reliability, and growth/productivity projects.
Free Cash Flow: Free cash flow expected to grow by at least 50% compared to 2025, supported by higher earnings, normalized cash tax rates, and reduced capital outlays.
Market Conditions and Volume Expectations: No meaningful improvement in macroeconomic conditions anticipated for 2026. Merchandise volumes to benefit from infrastructure project activity, but housing and automotive markets remain uncertain. Intermodal growth expected from new operational agreements and expanded network reach. Coal business to see potential growth from reopened mines and increased domestic utility demand, despite subdued global steel markets.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the base OR for 2025 and how does management view pricing and price/cost spread for 2026?
A:The base OR for 2025 excludes the goodwill charge. Management aims to cover cost inflation and improve price yield. Pricing initiatives are expected to yield better results in 2026 compared to 2025. Contracts will be reviewed and adjusted over the next year to optimize pricing.
Q:Can you provide details on the 200 to 300 basis point guidance for improvement and inflation expectations?
A:The improvement includes $150 million from non-recurring charges in 2025. Inflation is expected to be 3% to 3.5%, with labor inflation at 3.75% and slightly higher healthcare costs. Non-labor inflation is expected to be lower due to procurement efforts.
Q:What are the expectations for revenue growth and operating ratio (OR) in the long term?
A:Revenue growth is expected to be low single digits, with modest volume growth and headwinds in industrial markets. Management aims to expand operating margins annually and achieve best-in-class performance over time, though specific long-term OR targets were not provided.
Q:How is the company preparing for an upcoming storm and ensuring network resilience?
A:The network is in better condition compared to last year. Precautions include senior coverage, snow and tree clearing, generators, and modified operating plans. Management is confident in handling the storm without prolonged disruptions.
Q:How is the company approaching operations differently to achieve best-in-class metrics?
A:The focus is on asset utilization, oversight, and addressing issues promptly. Management is confident in maintaining fluid operations and achieving best-in-class metrics through disciplined execution.
Q:Can you provide details on the cost-saving programs and their impact on margins?
A:Cost-saving programs target labor and PS&O lines, with additional focus on fuel efficiency and rent reductions. The $150 million from non-recurring charges in 2025 will not repeat in 2026, contributing to margin improvement.
Q:What is the company's strategy in response to a major industry merger?
A:The company is focused on running its business efficiently and competitively. Management will address merger-related risks and opportunities as they arise, while prioritizing operational excellence.
Q:What are the expectations for coal revenue per unit (RPU) and volume growth?
A:Coal RPU is expected to stabilize after lapping difficult comps. Domestic utility demand is strong, but plant closures may impact volumes. Export coal benchmarks have stabilized, with potential for growth.
Q:What is the company's long-term earnings growth outlook?
A:Management believes the business fundamentals support long-term earnings growth. However, they are cautious about providing long-term guidance until they see consistent execution of current plans.
Q:What is the potential impact of the Howard Street Tunnel project?
A:The project enables new connectivity and efficient double-stack service, improving service products and creating growth opportunities in domestic and international intermodal markets.
Q:How does mix and pricing affect revenue growth?
A:Mix impacts revenue growth, with stronger growth in lower RPU segments like intermodal and minerals. Pricing initiatives are being enhanced, but headwinds in higher RPU segments like chemicals and automotive are expected.
Q:What are the key metrics for senior management incentives?
A:Key metrics include operating margins, operating income, safety, return on capital, and total shareholder return. Management focuses on a few meaningful metrics to drive organizational performance.
Q:What is the expected cadence of OR improvement in 2026?
A:OR improvement is expected to be stronger in the first quarter due to easier comps, with continued progress throughout the year driven by cost-saving initiatives and operational improvements.
Q:How does management plan to achieve the 200 to 300 basis points of OR improvement?
A:The plan is based on controllable factors, including cost-saving initiatives across various areas. Management aims to create operating leverage for higher incremental margins when markets improve.
Q:Review of Unclear Management Responses
A:Management avoided providing specific long-term OR targets, citing the need to observe execution over time. They also did not provide detailed dollar amounts for cost-saving buckets or specific impacts of the Howard Street Tunnel project, emphasizing the need for more time to assess outcomes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Angel President
Angel afternoon
CFO role
CSX Angel
CSX capacity
CSX demand
CSX industry
Coast coal
Consensus forecast
Cory EVP
Depreciation expense
Forest Products
Intermodal network
Maryclare result
Mr Angel
Slide
activity
afternoon CSX
cement
charge
cost structure
cycling
facility
fertilizer
forest product
franchise
housing
infrastructure project
mineral
opportunity efficiency
portion slide
power demand
safety customer
separation
shipment
spend
stack
step
success
technology impairment
tonnage
visibility
CSX Transcript
CSX Corporation (CSX) Q4 2025 Earnings Call Transcript
Unknown1-22
The earnings call presents mixed signals. Strong points include improved fertilizer volume and positive intermodal service expansion. However, automotive volume decline and revenue per unit drop due to coal pricing are concerns. The Q&A reveals management's cautious approach towards long-term guidance, with some uncertainty about coal volume and revenue growth. The absence of specific long-term OR targets and unclear cost-saving impacts further contribute to a neutral outlook. The market's reaction is likely to be muted, with no significant short-term catalysts to drive strong positive or negative movement.
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The earnings call presents a generally positive outlook with strong financial metrics, strategic growth plans, and optimistic guidance. CSX is focusing on efficiency, cost management, and capitalizing on infrastructure projects like the Howard Street Tunnel, which are expected to drive growth. Additionally, shareholder returns through repurchases and dividends are planned. Despite mixed market performance, the company remains optimistic about coal demand and intermodal growth. The Q&A session supports this positive sentiment, highlighting strategic opportunities and margin improvements. Overall, these factors suggest a positive stock price movement.
CSX Slides
CSX Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
