CSX (NASDAQ:CSX) reported first-quarter financial results on Wednesday. The transcript from the company’s first-quarter earnings call has been provided below.
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View the webcast at https://events.q4inc.com/attendee/150238523
Summary
CSX reported strong financial performance with volume and revenue growth, and a significant reduction in operating expenses leading to margin expansion and EPS growth.
The company is focused on strategic initiatives including improving service offerings, reducing costs, and enhancing productivity, particularly through operational efficiencies and intermodal expansion.
Future guidance indicates mid-single-digit revenue growth driven by higher energy prices, with expectations for operating margin expansion and significant free cash flow growth.
Operational highlights include improved safety metrics, record fuel efficiency, and handling increased intermodal volume, particularly in the Southeast.
Management emphasized a focus on execution, cost discipline, and long-term productivity improvements, while acknowledging uncertain market conditions and inflationary pressures.
Full Transcript
OPERATOR
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. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one a second time. Thank you. Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. You may begin.
Matthew Korn (Head of Investor Relations and Corporate Communications)
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, Chief Executive Officer, Mike Corey, EVP and Chief Operating Officer, Kevin Boone, EVP and Chief Financial Officer and Mary Claire Kenney, Senior Vice President and Chief Commercial Officer. In a 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 railroaders have delivered. We made great strides in safety and managed 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 Mary Claire 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 Corey to cover our safety and operational highlights. Thank you Steve. Slide 5 shows highlights for our safety and operational performance Best in 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 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 thousand gross ton miles and achieved a 0.93 gallons per thousand 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 lifts 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 insulation 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 return it over to Kevin for financial results for the quarter.
Kevin Boone (EVP and Chief Financial Officer)
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 and partnership throughout 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 efficiency, higher fuel recovery were offset by business mix impacts. Total expenses fell by 6% due to 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. PSO 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 given 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 non-seasonal 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 Mary Claire to review revenue results.
Mary Claire Kenney (Senior Vice President and Chief Commercial Officer)
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 Bone 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% and 1% lower volume with domestic tonnage slightly up and exports 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 markets in the Northeast more efficiently than ever before. Our international performance has been strong against challenging year ago comps. Though 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 plant life extensions present 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 remains 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 three to four 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 in 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 Cove 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 multi state 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 teams 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.
Steve Angel (President and Chief Executive Officer)
Thank you Mary Claire. 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, higher fuel increases our revenue and our 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, 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, 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 the question and answer session. In order to ensure that we maximize everyone’s opportunity to participate, we ask that you please limit yourselves to one and only one question. Abby. With that, we’re ready to begin.
OPERATOR
Thank you. And yes, if you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you’d like to withdraw your question, press Star one again. If you’re called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it’s Star One to join the queue. And our first question comes from the line of Chris Weatherby with Wells Fargo. Your line is open.
Kevin Boone (EVP and Chief Financial Officer)
Yeah, hey, thanks. Good afternoon, guys. You know, I guess just looking at the …
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