Ladies and gentlemen, thank you for standing by. My name is Abby and I'll be your conference operator today. At this time, I would like to welcome everyone to the CSX Fourth Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise and after the speakers' remarks, there will be a question-and-answer session. Thank you. And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin.

Thank you, Abby. Hello, everyone, and good afternoon. Welcome to our fourth quarter earnings call. Joining me on the call today are Joe Hinrichs, President and Chief Executive Officer; Mike Cory, Executive Vice President and Chief Operating Officer; Kevin Boone, Executive Vice President and Chief Commercial Officer; and Sean Pelkey, Executive Vice President and Chief Financial Officer. In the presentation accompanying this call, which is available on our website, you will find slides with our forward-looking disclosures and our non-GAAP disclosures for your review. With that, it is now my pleasure to introduce Mr. Joe Hinrichs.

All right. Thank you, Matthew, and hello, everyone. Thank you for joining our fourth quarter call. As we look back and review 2024, we see that our railroad faced a significant number of challenges during the year, including weaker commodity prices, a bridge collapse, and multiple hurricanes. We had another year where US industrial production was effectively flat, reflecting mixed end markets across our customer base. There were also some labor disruptions across the North American supply chain, which added economic uncertainty. But it's so impressive that through all of this, our ONE CSX team continued working together to improve our overall business. We have been resilient, adapting to changing markets and operating conditions, while remaining focused on our commitment to customer service. Last year was different than we planned, but we are proud of what we achieved and how we achieved it. We are confident because we know that our momentum continues to build and we are ready for the important year ahead of us in 2025. Now as shown on the first slide, we achieved a lot over 2024. CSX achieved 2% volume growth for the year, outpacing the industrial economy yet again. We accomplished this even with a number of constraints on our coal franchise, including the collapse of Francis Scott Key Bridge in Baltimore. Our leading merchandise business delivered 3% revenue growth, even after absorbing the effects of a much lower fuel surcharge, soft metals market, and the hurricane disruptions. We delivered strong consistent customer service and our customers have responded. You heard this for yourselves at our recent Investor Day and you can see it in our financial results as we are able to price according to the value we are delivering. Operationally, we worked across our network to reduce waste, unlock capacity, and improve responsiveness. We took more steps in building a successful culture that can deliver more sustainable, efficient performance and drive more positive momentum for the business. We also led the rail industry in reaching early agreements with our labor unions on our five-year contracts, working together to value our employees, avoid the prolonged labor battles of the past, and provide certainty for our customers. Now we can review some of the results of the fourth quarter. Slide 2 highlights key metrics for our fourth quarter compared to last year. As we expected, our underlying operations performed well, but we did see the impacts of substantially lower coal and diesel prices. Hurricane effects also weighed on revenues and expenses for the quarter as we noted in our October call. Total volume grew by 1% versus last year in the quarter. The largest contributor was growth in intermodal volume, which gained 4%. Quarterly revenue declined by 4%, largely due to lower global coal prices and a decline in fuel surcharge. Earnings per share declined 7% on an adjusted basis, excluding the effects of the goodwill impairment this quarter. Overall, we executed well through a difficult period. However, we are not satisfied with these results. We have a clear vision of what we want to achieve at CSX as we shared with you at our recent Investor Day and we are committed to delivering on that vision for the benefit of our customers, our employees, and our shareholders. Now, I will turn the call over to Mike to discuss our operational performance.

Thank you, Joe, and I really appreciate you all taking the time today to participate. So first, I want to thank our team for the tremendous efforts through the quarter and the year and I'm really truly proud of this team. From weather to structural challenges like the Blue Ridge or Howard Street Tunnel, they worked together to minimize the impact on our customers and they did all of this while controlling costs and building a safer work environment for our employees and the communities they operate in. Let's go to the first slide. The fourth quarter saw a sequential decline in FRA injuries, which reflects our continuing initiatives around transforming our safety culture. However, the full-year rate remained elevated compared to last year. A positive result of our efforts has been a significant reduction in our employees' lost time associated with injuries. We finished 2024 with the lowest total workdays lost in the calendar year in company history. For FRA accidents, we saw a quarterly year-over-year increase, but finished largely flat on an annual basis. We strongly believe that our work in the field on hazard identification and exposure controls combined with our focus on newly hired and trained employees will continue to reduce significant injuries and accidents. And through improved efficiency in our capital work, we continue to harden our main lines and infrastructure more effectively. We clearly see how our Safe CSX initiative is creating positive fundamental changes in both our safety leadership and the workplace environment our employees are in. Over to the next slide. On this slide, you can see the impact of the strong hurricanes that passed through much of our service areas at the beginning of the quarter and flowed through to our customer service metrics. Much of the impact to our trip plan compliance came directly from our inability to deliver cars to customers due to the effects of the storm. Our customer switch data shows that we maintained relatively good first and last mile switching considering the challenges. However, it remains our focus for improvement. I'm confident that our team will deliver in these metrics as we progress through the year. I'm also very pleased with the progress that we've made in developing our field employees to be more responsive to customer needs. As this development takes hold, we have a much better understanding at the local level on how to manage costs through proper service processes. Over to the next slide. As I stated earlier, 2024 brought various weather-related challenges over the last two quarters that have affected our overall operating metrics. We entered Q4 still dealing with the residual effects of the previous storm such as the Blue Ridge reroutes. Hurricane Milton in particular caused long periods of recovery for the various commodities to move into and out of Florida. This resulted in increased well for our traffic in our largest volume state. It also affected other parts of the network as we were unable to run our regular cadence on some flows throughout the storms up to recovery. On the velocity side, we were able to maintain, excuse me, we were able to continue increasing our capacity and maintain our speed through very close management of our train starts. This also benefited our locomotive utilization and overall transportation, engineering, and mechanical costs. As we worked hard in adverse conditions to maintain our network fluidity, we also drove strong improvements in efficiency. The top right of the slide shows the gains we've made in fuel efficiency, which has resulted in millions of dollars in savings in this last year. The chart on the bottom reflects how we're using less power per ton of freight moved, another indicator of better operating efficiency. Further, over 2024, our engineering, transportation, and network teams worked together to improve our work block performance. This resulted in substantial improvements in the amount of rail, ties, and ballast per manhour compared to the previous year, and we're seeing great productivity gains here, but there's still much more improvement that we expect to get going forward. For the Howard Street Tunnel, we've commenced rerouting traffic and our start date of February 1st is on target. This project was initially planned to take three years and create extensive daily track outages over one of our key corridors. I'm extremely proud of the team for being able to turn this around from a three-year project to one that will take six to eight months for the tunnel to be operational. We will benefit from this improvement forever and far faster than originally planned. At the Investor Day, I spoke about the opportunities at Cumberland. The team is 90% complete with the site's reconfiguration and the results have been great. Already, we've doubled the number of cars processed per day, meeting our initial target. And with completions still to come, we are focusing on much more in terms of improvements. Overall, I'm extremely pleased with our progress on many of the fronts. All our initiatives discussed at Investor Day are proceeding, and while 2024 had numerous challenges, we made fundamental improvements in many areas that will benefit us over the long run. We've increased transparency in the relationship between cost and service for our operating managers. As a result, our service continues to improve while our costs stay in line with expectations. Our Safe CSX program is well underway and the team is defining and implementing key process changes with our operating employees, bringing benefits to employee retention, as well as improving reliability and resiliency across our network. Considering the various challenges that came about last year, I'm very pleased and confident in the operating team's response and their collective work in both restoration and tackling our initiatives going forward. So looking forward, I believe we're well positioned to deliver our objectives in 2025 and beyond, and we're all looking forward to capitalizing on the opportunities as they present themselves. With that, over to you, Kevin.

All right. Thank you, Mike. First of all, I do want to thank the entire sales organization for all their hard work throughout 2024. As Joe and Mike have described, we faced numerous challenges across our network this past year and our team responded with a steady commitment to serving our customers, highlighted by our fourth quarter Voice of the Customer survey where we saw the Net Promoter Score reaching an all-time high. We continue to see mixed conditions across the markets we serve. Industrial output remains muted. Interest rates are still high and the truck cycle has yet to inflect. With that said, we hear optimism from our customers as they consider the potential for supportive domestic economic policies and we continue to see strong activity into 2025 with new project inquiries into our industrial development group. Our focus remains to drive outgrowth in the markets we serve, continuing our track record of exceeding industrial production. Let's review merchandise business as shown on Slide 8. For the fourth quarter, revenue and volume were flat compared to last year. But on a full-year basis, revenue was 3% higher with a 1% increase in volume. Looking across the end markets, chemicals remained strong in the fourth quarter, consistent with the full year performance with volume increasing 6%. Robust demand for plastics and LPGs has driven much of the growth throughout 2024. Minerals volume was supported by positive demand for cement and aggregates and forest products volume was up 3% as CSX capitalized on continued demand in paper markets and pulp board. On the other side of the markets, volume for fertilizers business was impacted this quarter as supply chains here in Florida felt the lingering effects of hurricanes. Performance within metals remained sluggish as it has been all year, largely due to continued soft demand for steel. Volume for our automotive business declined 2% for the quarter as higher dealer inventories have led to lower build rates. Looking ahead to 2025, we are seeing strong demand signals in our ag and fertilizer segments along with continued strength in minerals and chemicals. Interest rate-sensitive markets, including automotive, metals, and housing, continue to remain challenged. While we anticipate a slower start in the first quarter, we do expect moderate merchandise carload growth for the full year, supported by steady service-driven conversions and new industrial development projects that should accelerate as we exit 2025. Now let's turn to Slide 9 to review the coal business. Coal revenue declined 20% for the quarter on 7% lower volume as we've navigated the effects of reduced global benchmark pricing and production issues. All-in coal RPU declined 14% year-over-year and 4% sequentially in line with previous guidance. Export volume fell modestly, largely due to lower supply availability from certain coal mines with temporary geological issues limiting production. That said, for all of 2024, export coal volume grew by 9%, even considering the impacts of the Key Bridge and the shiploader outage at Curtis Bay. Exports represented more than half of our coal carloads for the full year, a first for CSX. Domestic shipments were pressured during the quarter, driven by lower natural gas prices and ample utility stockpiles. More recently, we have seen colder winter weather that has begun to reduce utility stockpiles, providing incremental opportunities as we move into the summer months. As we look into 2025, we anticipate a decline in coal volume with the weakest year-over-year performance in the first quarter. This includes temporary production outages at a couple of its CSX-serve mines that will mainly impact the first half of 2025 from a year-over-year volume perspective. Based on current global benchmark prices, we expect all-in coal RPU to be down roughly 3% sequentially in the first quarter. As we have highlighted previously, we also see a couple of plant closures at domestic utilities that are scheduled for later this year. Despite these challenges, our utility customers are facing accelerating growth in power demand across areas of our service network, where data center build-outs are in progress. Lower utilization rates at existing CSX-serve utilities do provide opportunities to work with customers to meet increased demand. Turning to Slide 10 to review the intermodal business. Fourth quarter revenue declined 5% on a 4% increase in volume with lower diesel prices year-over-year significantly impacting revenue per unit by 7%. Our domestic intermodal business performed well for the quarter, converting traffic from over-the-road even in this challenging truck market. We have many initiatives underway, including continued growth in our direct business, new volume related to our Myrtlewood interchange, future improvements in double-stacking capabilities into the Mid-Atlantic, and many others that make us optimistic about our growth ahead. Within international, orderly performance remained robust, allowing us to deliver strong growth for the full year as we gain from alignment with our key customers. Overall, we continue to compete and win intermodal business. Our inland port initiatives remain on track and we're excited about the prospects of closer alignment with our channel partners. As the political and trade landscape shifts, we will remain in close contact with our customers, ensuring that we will be able to adapt to their needs. As we look ahead to 2025 and beyond, there's a lot to be excited about. With that, let me turn it over to Sean.

Thanks, Kevin, and good afternoon. Reported operating income and earnings per share both fell by 16% in the fourth quarter, impacted by a $108 million or $0.04 impairment of goodwill related to quality carriers. I'll now speak to the fourth quarter income statement on an adjusted basis, excluding the goodwill impairment charge. Revenue was lower by about $140 million or 4%. Declines in fuel and export coal benchmark prices as well as business interruption from the hurricanes drove a combined impact of around $200 million. Despite these challenges, the team delivered an eighth consecutive quarter of 3% plus growth in combined merchandise and intermodal revenue, excluding fuel. We remain focused on operating efficiently and delivered an adjusted expense reduction of 2% with more details on the next slide. Interest and other expense was stable compared to the prior year. Adjusted income tax expense decreased $33 million. The effective tax rate of 22% included a $26 million benefit, largely driven by the revaluation of the state deferred tax liability. Our expected tax rate going forward continues to be 24.5%. As a result, adjusted earnings per share fell $0.03, including a $0.06 combined impact from hurricanes, net fuel price, and lower export coal benchmarks. Let's now turn to the next slide for a closer look at expenses. Fourth quarter adjusted expenses decreased $40 million. Turning to the individual line items, labor and fringe was $26 million lower, driven by lower incentive compensation expense and other items, partly offset by inflation. As expected, headcount increased slightly from the third quarter attributed to the timing of train and engine employee hiring aiming to qualify the new employees ahead of the 2025 summer vacation season. We expect to absorb volume growth in 2025 with average headcount remaining stable versus current levels, while cost per employee will be higher year-over-year in line with labor inflation. Purchase services and other expenses increased $43 million. The variance includes approximately $25 million of smaller impairment charges, which were largely offset by a favorable legal settlement. Additional variances were driven by inflation, expenses related to the timing of locomotive modernizations, and storm recovery costs. Depreciation was up $17 million on a higher asset base, in line with the rate of quarter-over-quarter increase we expect in 2025. Fuel cost was down $86 million, driven by a lower gallon price and a fourth consecutive quarter of year-over-year efficiency savings. Finally, equipment and other rents increased by $7 million, while property gains were $5 million unfavorable in the quarter. Now turning to the discussion of full-year adjusted results on Slide 14, revenue finished 1% lower for the year on 2% volume growth while adjusted operating income was 3% lower and adjusted earnings per share increased by $0.01. This includes over $400 million of operating income headwinds from the discrete items we have discussed throughout the year. As a result of our increasingly collaborative approach with customers, consistent operational execution, and cultural improvements flowing to our frontline employees delivering the service product, our customers are rewarding us with steady and profitable volume growth. In fact, volume increased in all four quarters for the first time in 10 years, while full-year merchandise and intermodal pricing gains were once again above cost inflation. At the same time, we remain highly focused on controlling costs, eliminating waste, and improving efficiency. Mike and the operating team made impressive strides in fuel efficiency during 2024, resulting in approximately $45 million of savings. PS&O costs increased by just $50 million versus 2023, inclusive of headwinds from prior-year insurance recoveries as well as storm-related costs in 2024. Core PS&O expense was stable in the face of inflation and 2% higher volume, benefiting from numerous initiatives across operating and G&A functions. PS&O will be pressured in 2025 by the Howard Street Tunnel project as well as ongoing locomotive modernizations and cloud computing expenses, but we are committed to unlocking further savings. Our headcount stabilized during 2024 with volume gains outpacing employee growth over the second half of the year and we expect to continue delivering labor productivity gains going forward. Turning our attention to 2025, this company is headed in the right direction. We're building a strong culture, serving our customers at high levels, pairing new business wins and industrial development opportunities with ongoing efficiency to deliver strong bottom-line performance and investing for the future. That said the three considerations listed on this slide could drive significant net unfavorable impacts this year. As we enter the year, export coal benchmarks and fuel prices are working against us. And if they remain stable, it would result in a combined $300 million impact versus 2024 with nearly half of that in Q1 alone. On the flip side, we expect a roughly $50 million net operating income benefit from cycling unique events, including hurricanes and the Key Bridge collapse, net of anticipated higher incentive compensation in 2025. Finally, as we've outlined before, major construction projects on the Howard Street Tunnel and Hurricane-impacted Blue Ridge Subdivision will drive an incremental $10 million per month net impact into Q4. Q1 operating income will be our trough, well below prior year. Results will improve from there, and we expect to return to year-over-year growth in the second half. At our Investor Day in November, we presented a theme of proven model with powerful momentum and profitable growth. Despite the discrete pressures, the ONE CSX team remains confident in our long-term guidance. Let's now discuss cash flows and distributions on Slide 16. Investing in the safety and reliability of our infrastructure is our highest priority use of cash. Additionally, 2024 capital spending included increased allocations towards rolling stock and other return-generating investments that support a pipeline of future growth and efficiency opportunities. The 2024 infrastructure figure also includes around $50 million of initial spend on our Blue Ridge Subdivision following the devastation caused by Hurricane Helene. We now expect total cost to exceed $400 million before insurance recoveries as we work diligently to reopen this important route that will serve our customers for generations to come. Strong cash flow also supported close to $3.2 billion in shareholder returns for the year, including over $2.2 billion in share repurchases and $900 million of dividends. The share repurchase program once again outperformed with CSX purchasing shares at a 2% discount to the market price in Q4, delivering value to ongoing owners. Our economic profit finished lower for the year, largely due to the discrete items mentioned on the prior slide. Our goal is to increase economic profit over time, which has been shown to strongly correlate with outsized shareholder returns. With that, let me turn it back to Joe for his closing remarks.

All right. Thank you, Sean. We will finish up our prepared remarks by discussing our expectations for 2025. As you heard from Kevin, many markets remain uncertain as we look ahead at the full year. Operationally, we are undertaking substantial projects to rebuild the Blue Ridge Subdivision after Hurricane Helene and expand the Howard Street Tunnel in Baltimore. That said, the momentum we have built with our leading customer service gives us confidence that we can deliver volume growth in the low to mid-single-digit range, driven by our merchandise and intermodal business We expect volumes in the first quarter to show the effects of weather and a slow start for the auto industry and then build over the course of the year. Given scheduled coal plant closures and a number of mine production issues, we do anticipate coal volumes to be lower year-over-year in 2025. Next, consistent with our commentary over the last few months, we expect full-year revenue to be impacted by lower global benchmark pricing for coal and reduced fuel surcharge, particularly in the first half of 2025. Mix will also be a factor as the intermodal business has the lowest RPU, but is likely to show the fastest growth this year. Our efforts to drive efficiency improvements and manage controllable costs will continue. As Sean discussed, the Blue Ridge rebuild and the Howard Street Tunnel project will add expense over the year, but our team is working hard to deliver productivity gains. And given our current outlook, we expect to hold our headcount effectively flat for the year. We plan on CapEx being roughly flat year-over-year, excluding spend on the hurricane recovery, which we report out throughout the year. And finally, our capital allocation priorities remain unchanged. We will continue to invest in the safety and fluidity of our network, execute on high return growth projects, and opportunistically distribute excess capital to our shareholders. To sum up, I am proud of how the ONE CSX team responded to the challenges that we encountered over 2024. There are great opportunities ahead in 2025 and the longer term. We will execute and deliver on them on behalf of our customers and our shareholders. I have no doubt that CSX will continue to move forward and we look forward to keeping you updated on our progress. We'll now be happy to answer your questions. Matthew, let's begin the Q&A process.

Thank you, Joe. We will now proceed to a question-and-answer session. To make sure that everyone has the opportunity to take part in the time that we have, we ask you to please limit yourselves to one question. Operator, we're ready to start the process.

Thank you. Your first question comes from the line of Tom Wadewitz with UBS. Your line is open.

Yeah, good afternoon. I wanted to see if you were pretty clear on some of the headwinds and it sounds like a lot of those are in 1Q and first half. How do you think about full year margin performance. And if you kind of come out with some strengthening in volume in the second half, can you see it potentially improve, or is that tough to do given how meaningful some of the headwinds are?

Hey, Tom, it's Sean. So, yes, I mean, I think clearly the headwinds are going to be concentrated here in the first half of the year, worse in Q1 than Q2. So first half of the year, I think margin improvement is sort of out of the question unless something changes with commodity prices or what have you. As we get to the second half, yes, I mean, I think it's quite possible we see not only growth in operating income, but margins as well in the second half assuming that the environment that we're operating in remains stable. The core fundamentals remain in place. We're going to grow volumes low to mid-single-digits and that will be very supportive to operating income and margin growth over time, particularly as some of these headwinds ease, given the capacity that we have on the network to absorb that growth.

And your next question comes from the line of Scott Group with Wolfe Research. Your line is open.

Hey, thanks. So similar question, but not about margin, just about operating income dollars, do you think we grow operating income this year or is that I get down a lot in the first quarter, it sounds like up in the back half. When you add it all up, do you think we grow operating income this year?

Hey, Scott. So obviously, we didn't give specific guidance on what that's going to look like over the course of the year. What I would say is, if those headwinds that we outlined of $350 million weren't there, we would deliver pretty solid growth in operating income this year low to mid-single-digit, volume growth at 50% to 70% incremental margins that we talked about at the Investor Day is a good setup. We do have some other challenges this year in terms of some of the utility coal headwinds that Kevin outlined, the mine issues that we've got right now as well as some of the closures later on in the year. So that makes this year a little bit worse. But going forward, we feel pretty good about being able to hold those coal volumes relatively stable with some opportunity in exports. So on an adjusted basis, what I would say is, if you were kind of looking at our Investor Day guidance of mid-to-high single-digit operating income growth, this year, we'd be towards the lower end of that if you adjust for the discrete headwinds. And then in the following years, we'll see a bit of a rebound, particularly as we cycle some of the issues around or some of the costs related to the construction projects we've got going on this year.

And your next question comes from the line of Stephanie Moore with Jefferies. Your line is open.

Great. This is Joe Hafling on for Stephanie Moore. Thanks for taking our questions. Maybe stepping away from the guidance for a second, relative to when we last spoke on your Investor Day, I was wondering if you could highlight any incremental conversations you guys have had with customers related to the industrial development pipeline, if there's any tangible things you can point to just relative conversation with customers you've been having over the last couple of months post-election? Thanks.

Yes, I think when we're coming into this year, obviously, given the political landscape changing pretty rapidly here. We thought there might be a pause in activity and new projects going out for bid. We've actually seen quite the opposite. We've seen that really stay healthy and where a number of new projects have come our way that we're working on and the group is very, very busy. So I think that's a big positive for us. Obviously, there's a long tail to those projects. You have to get them permitted and then get them underway. But we see that strength that we noted at the Investor Day really continuing in the first quarter here and hopefully accelerating with some of the obviously a policy that may take place here in the next few months.

And your next question comes from the line of Chris Wetherbee with Wells Fargo. Your line is open.

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

Chris, I'll start and then maybe kick it over to Kevin on the pricing side. Yes, so essentially, what I was saying there is, if you take those $350 million of headwinds, assuming commodity prices on the coal and fuel side remain flat, you've got the network disruption as well as some of the things we're cycling from last year. And adjust for that, we'd be roughly in the kind of lower end of the mid to high single-digit range, plus or minus a little bit depending on what happens over the course of the year with the economic environment, but we feel very good about pricing. And I'll give Kevin an opportunity to speak to that.

Yes, I think the merchandise sector remains unchanged. We are still competing in the market and utilizing the service product we offer. The most noticeable difference from last year is the decline in commodity prices for coal. Our contracts reflect those price changes, so we have observed that decrease. We are hopeful for some improvement, but the market remains highly dynamic. On the intermodal side, it’s positive to see some stabilization and possibly slight increases in contractual rates. I'm not here to predict the cycle, as others are more equipped for that. However, looking ahead through this year and into the latter half, we may see more support than we did last year in 2024.

And your next question comes from the line of Ari Rosa with Citigroup. Your line is open.

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

Yes, the most obvious one is intermodal, but there is a lot of work that the team is doing on the merchandise side from a truck conversion point of view. And when you think about an environment where in the do-nothing scenario, a customer can get savings by staying with truck, even though the value proposition might be greater with rail, that there's not a lot of momentum to do that. Going into this year, I think some of our discussions are on the merchandise side can really accelerate as customers are looking for additional cost savings and we can really lean into that. So I'm optimistic that's going to be the case and that's the market that we can have a little bit of a supportive market, which we've been fighting the last couple of years here will be very beneficial to us. Intermodal, when we look at our pricing, it does lag the market a bit here. So contracts even though the shorter-duration ones can be a year and a lot of that takes place in the first part of the year. And so, if we start to see some momentum, the bigger impact probably starts next year, but we could see some benefit as we exit this year.

And your next question comes from the line of Brandon Oglenski with Barclays. Your line is open.

Hey, good afternoon, everyone, and thanks for taking the question. Joe, I'm sure investors are excited here at the opportunity long-term for growth, but obviously, with some of the earnings headwinds when GDP is up, that might be a little frustrating in the near term. But maybe can you talk to what this tunnel project will ultimately yield getting beyond some of the hurricane damage in the Blue Ridge region? And should we be thinking that 2026 could actually be that much better when you think about margin opportunity, incremental margins, pricing, volumes, et cetera?

Thanks, Brandon. I believe what you've heard, including from other transport sectors, is that even though GDP has been increasing, the industrial part of the economy has remained stagnant or declined in recent years, which aligns more closely with the merchandise aspect of our business. The interest rate-sensitive areas like automotive continue to lag behind pre-pandemic levels, alongside the housing market and steel. We are hopeful that either interest rates will decrease or there will be policy changes that will benefit the industrial sector, potentially leading to growth this year for the first time in a while. This will certainly affect us. At a broader level, the Howard Street Tunnel project is one of our most significant initiatives. As Mike mentioned, we've been waiting a long time to advance this project, which we initially planned to span three years but have now expedited to one year, set for completion in the 2025 calendar year. This acceleration means that 2025 will incur additional costs related to rerouting and serving our customers during the process, but we will also reap the benefits much earlier than anticipated, which will be advantageous in 2026 and 2027. These benefits include the ability to operate double-stack trains throughout the East Coast, including connections from Chicago. Currently, we are unable to transport double-stack trains from Chicago to the East Coast due to constraints like the Howard Street Tunnel and certain bridges in that vicinity. This project addresses one of our key competitive disadvantages in our intermodal business, restricting our access to densely populated areas on the East Coast. If we consider the recently opened MBR interchange, which resolved another competitive weakness in our intermodal operations, as well as the Howard Street Tunnel, we will address our two most significant competitive disadvantages in our network by the end of 2025. This is an important development, as we currently have to reroute our double-stack trains through Upstate New York, which poses challenges, especially during winter, and results in longer outer route miles. Presently, we cannot operate double-stack trains along the I-95 corridor, making this project even more critical for us. We look forward to the advantages this will bring, which will enhance our potential for profit growth in 2026 and 2027, alongside industrial development and the efficiency measures we are implementing across our network and with our customers. We remain optimistic about the future of this business and supportive of the targets we presented at our Investor Day in November. As Sean indicated, while 2025 may represent the lower end of our projections, we firmly believe that 2026 and 2027 will be more favorable for achieving our goals. Thanks.

And your next question comes from the line of Brian Ossenbeck with JPMorgan. Your line is open.

Hey, afternoon. Thanks for taking the question. So I guess maybe one for Mike. Should we expect as this tunnel project gets underway, there are going to be some meaningful deterioration or adjustments that we're going to see in some of the service metrics? Just trying to figure out how that would play out considering it is such a big undertaking in a compressed period of time? And then maybe just also get your thoughts on just the general health of the network having absorbed a couple of hurricanes, a couple of port strikes or one year miss and just your thoughts on staffing levels because it sounds like you're already pretty well staffed up into next year. So getting through all this in the near-term, how do you feel like the network is positioned to hit that growth when it does come back perhaps in the back half of the year? Thanks.

Thanks for the question, Brian. I won't ask you to repeat the first part, but I can hardly remember it. Just joking. Regarding the tunnel, we have already taken steps in the fourth quarter to begin redirecting traffic away from it, so we're prepared. The costs Sean mentioned are related to maintaining some customer commitments and rerouting, which incurs a haulage fee. However, I don't anticipate a significant impact on the metrics. We've effectively moved everything off, so what you see is what we have now. As for the networks, this year has been interesting. We started focusing on crew starts in the second quarter, evaluating our train operations and capacity. Our goal was to reduce crew starts in line with our service offerings, which we accomplished. However, as crew starts or train starts decrease, dwell times increase, so we made adjustments. During the middle of the year, especially in the first set of hurricanes, we performed well. Those fundamental principles are still intact. There were weeks without disruptions from the hurricanes where I was very pleased with the railroad's overall performance. Looking ahead, our headcount remains stable, and we have productivity improvements on the horizon. After experiencing some recent snow, we're back on track heading into the Christmas shutdown, in a good position. We took proactive actions with our customers who reduced their needs, allowing us to decrease starts further. Our focus is primarily to operate a safe railroad, ensuring employees are prepared for work and able to perform their duties. Additionally, serving our customers is crucial; however, productivity is key as we've made significant progress. We've managed through challenges posed by storms, and the team is committed to the principles that led us to our previous successes before the storms began. Overall, I'm pleased with the network. There's always work to do with various ongoing issues, but fundamentally, we're moving in the right direction.

And your next question comes from the line of Jon Chappell with Evercore ISI. Your line is open.

Thank you. Good afternoon. Sean, hate to get into minutia on certain model line items. You said cost per employee will be up aligned with labor inflation. So I assume you mean like 4%-ish. That said, you have a really tough comp and 1Q '24 was up 7% and then a super easy comp in 4Q '24 was down 4% because of the incentive comp. So do we think about it as 4% on average, but try to get the quarterly cadence more aligned with typically kind of lower cost per employee in the first quarter and peaking in the fourth quarter due to annual bonuses and incentive comp?

Sure, Jon. Here's my perspective. I would take the fourth quarter figure and add back the incentive compensation adjustment, which is approximately $1,500 per employee. That provides a solid run rate for the first half of the year. We might actually perform slightly better than that in the first half due to two factors: one, our close monitoring of overtime to minimize it and other unproductive expenses, and two, it seems likely that health and welfare costs will decrease this year. Moving into the second half, I would take that first half run rate and increase it by about 4.25 to 4% to account for wage inflation. This approach should give you a reliable model for the entire year.

And your next question comes from the line of Ken Hoexter with Bank of America. Your line is open.

Good afternoon. I have two quick clarification questions and then my main question. Kevin, did you mention that met coal at these levels, specifically 191, is down 3% from the previous quarter? Is that based on the current levels, or would it decrease further if rates remain low? Also, you mentioned some mine outages. Does that include the recent fire at one of your mines? I assume that's what you were referring to. Sean, my main question relates to your comments on mid-single-digit growth. I understand that would translate to about a $260 million increase in EBIT, offset by approximately $300 million in discrete items. I want to clarify whether you are indicating that the base case EBIT is down $50 million from the $5.35 billion target you provided. I'm just trying to piece together all the numbers you've mentioned. Thank you.

All right. That was quite a bit of information. Let's start with the coal question. At current levels, that reflects our guidance. We hope to see some improvement moving into the second and third quarters, aligning more with the cost curves of both our producers and global producers. Frankly, we believe it is likely undervalued at this moment, and we anticipate that it should balance out above 200 as we approach the latter half of the year. We'll see if that occurs. Regarding the outage you mentioned, yes, it is related to the recent one, and we expect it to come back online in the second half of this year. I must say that our team is doing an excellent job of seeking alternative sources, and we expect to compensate for some of that demand with production from other mining locations. Therefore, we do not anticipate that to result in a complete loss. We aim to find sufficient opportunities to offset most of that headwind we expect. Over to Sean.

Yes, Ken. Your calculations are very precise. It's a bit early in the year to provide such a tight range. Generally speaking, if you look at the adjusted number for 2024 and subtract the $350 million, then consider mid-single-digit growth, there might be factors this year that could negatively impact that. Specifically, challenges with coal and the incentive compensation could add another $30 million to $40 million in expenses this year compared to 2024. There are numerous other variables to consider as well. We are highly focused on managing costs to navigate the significant headwinds we face in the first half of this year. There are levers we can pull, but we are also monitoring economic conditions. Therefore, there are various potential outcomes we could model from this point. As the year progresses, we will gain clearer insights into where things will settle and will be able to provide more detailed information.

And your next question comes from the line of David Vernon with Bernstein. Your line is open.

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

Let me handle the first part. That was quite a bit again. The $300 million that Sean highlighted in his opening comments was related to the met coal price, and then obviously the fuel surcharge was significant. Those two items aren't related to volume in that market, and then I'll hand it over to Sean.

Yes. And I think, David, what you're pointing to in terms of the momentum there in Q4, you got to remember, the hurricanes were a pretty big impact. We talked about a $50 million impact with roughly $30 million of that being revenue. The revenue number was probably even a little bit higher than that when all was said and done. So that was a big piece of it. I don't mean Mike and Kevin, you correct me if I'm wrong, but I don't think we're anticipating any volume disruption from the shutdown of the Howard Street Tunnel. In fact, the work that we're doing and the costs that we're adding are to preserve that volume and allow us as we clear up that a pinch point in our network to actually be able to identify and pursue some growth opportunities that Kevin and the team are looking at.

And your next question comes from the line of Bascome Majors with Susquehanna. Your line is open.

Yes, thanks for taking my questions. Can you talk a little bit about the regulatory opportunity under the new regime, either at the FRA and the STB. And anything that has been held up or slow play that could generate a needle moving productivity for CSX in 2025 or '26? Thank you.

Yes, Bascome, this is Joe. I'll take that one. First of all, you've already seen some activity regarding the longstanding waivers, which is significant. We need to introduce more technology in inspections within this industry and collaborate with our union partners to make that a reality. There’s a lot we can do to enhance efficiency and safety while ensuring our teams have plenty of work. That’s a key point. Additionally, with Patrick Fuchs now appointed as STB Chair, we believe we have someone very familiar and engaged in our industry. We're looking forward to working with the STB, which is focused on data and finding ways to positively grow our business. As for the FRA, David Fink, who ran Pan Am before it was purchased by CSX, is knowledgeable about the business and aware of the challenges railroads encounter regarding technology and investment. Overall, we feel encouraged by the supportive environment for the industry concerning safety and technology as we collaborate to progress. It’s clear that the best approach is for us to work collectively to increase volume on the railroads, which benefits safety, boosts efficiency in our economy, reduces the number of trucks on the road, and lessens the burden on taxpayers for road funding. This understanding is shared among the people we are currently working with, and I believe that the outlook for the next several years is very positive for us to achieve more advancements than we have in the past four years.

And your next question comes from the line of Ravi Shanker with Morgan Stanley. Your line is open.

Great. Good afternoon, everyone. So it's a couple of years of a meaningful amount of discrete items now and I recognize that a lot of these things are either issues outside of your control or investments in the future. But were your conversations with customers like on some of these bottlenecks? And are they understanding? Is there a risk of share shift as a result of this or kind of how you think this plays out in the coming years?

Yes, I think from our customer discussions, there's a lot of excitement. You heard the service is not really going to be impacted. There's additional costs we have to absorb to maintain the service and maintain the level of service that we have provided, but these are significant investments that are going to allow them to reach new markets that they haven't had the opportunity to move on, on the CSX network. So I think there's a lot of excitement for our customers to see that we're willing to invest in our network, quite frankly, and that always hasn't been the case. So we continue to invest in the core infrastructure and invest there, but we're actually extending our network and creating single-line service that we haven't had the opportunity to deliver in the past. So there's a lot of excitement. And I know our teams are excited to kind of deliver on that growth.

Yeah, this is Joe. Let me add real quickly to that. I mean, I'm really proud of the team, how both our operating and marketing sales teams have worked together. I mean if you look at the third and fourth quarters, we had two pretty impactful hurricanes and some other things. But if you look at the data from our customers, actually, our Net Promoter Scores in third quarter and fourth quarter were consecutively the best we've ever had. And that even though we had some disruptions and we had issues and you see it in some of the data, the work we're doing to put the customer first along with safety, of course, and to really work on finding solutions even if we have issues, it goes a long way to them seeing the commitment we have. And that's really important for long-term growth that the customers see that we're committed to when we have disruptions or have issues that we were proactively communicating with them. We're working to find solutions and that makes them feel a lot better about investing back into rail and looking for longer-term growth and we're seeing that play out. So yes, we've had a lot of discrete items, as you mentioned. I mean, for a couple of years now, we're looking forward to stop talking about fuel surcharge and met coal prices year-over-year or quarter-over-quarter, but we're continuing to see volume growth and that's consistent exactly with what we're hearing from our customers. Our service levels are leading to volume growth. That volume growth has strong pricing with it and we're continuing to get efficiency gains. We get some of this noise out of the system. I think you'll see the power of this network.

And your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open.

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

Yes, thanks for the question, Jordan. I think you know assuming commodity prices are not the driver good or bad versus where they are right now, what makes the year a little bit better. I think it's us continuing to push to drive even more efficiency across all of the groups between operations and G&A. We were able to hold purchase services and other costs essentially flat on a core basis last year. That takes a lot of work when you've got volume growth and you've got inflation up against you. So keeping a very, very close eye on those things. We've got initiatives built into the plan, but we're sitting down every day looking at ways that we can continue to sort of find opportunity, negotiate new agreements that help us on the purchase service side to reduce costs. So that's one. And then the other, I would say is on the volume side, certainly looking at the economy, but also the momentum on the trucking side, as Kevin talked about, do we start to see that turn? And these industrial development opportunities are coming online and the ramp in those volumes, the customer wins that we've got. We've got a number of those in the pipeline for this year. If our hit rates higher, that obviously helps us grow operating income as well.

And your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open.

Thank you, operator. Good afternoon, everyone. I want to revisit the Investor Day three-year forward compound annual growth rate targets you provided, especially regarding earnings per share. You indicated a range from high-single-digit to low-double-digit. If we consider the midpoint at 10% for 2024, that brings us to 243 for 2027, aligning with consensus. My question is, with the decrease expected in 2025, it suggests you would need to achieve a low-teen growth rate in 2026 and 2027 to reach that 243. Is the Investor Day target of 243 still applicable considering the step down in 2025, or should we adjust our expectations to model a lower growth rate based on the current situation?

Yes, Walter. I appreciate the question. As I mentioned earlier, we are maintaining our guidance. The numbers you referred to indicate reasonable growth in EPS, ranging from high-single-digit to low-double-digit. I want to clarify a couple of points. First, we are facing $10 million a month in network disruption costs this year, which is a challenge, but this will turn into a benefit for us in 2026 once we complete construction and increase our volume and efficiency. Additionally, our three-year guidance is based on the assumption that commodity prices, including export coal and fuel, remain stable throughout that period. Currently, both prices are lower than their average in 2024. We expect to return to those average levels by 2027. If met coal prices remain below 200, hitting our targets will be difficult. However, barring that scenario, we are confident in our three-year guidance.

And your next question comes from the line of Daniel Imbro with Stephens. Your line is open.

Yes, hi. Good evening, guys. Thanks for taking the questions. Kevin, maybe one more on the volume outlook. I guess there's a lot of headwinds out of your control, but I was going to ask one on the auto side. We've navigated elevated inventories for a few quarters here and it's weighing on autos and metals. I guess any updates on when your customers are expecting that production to actually return to growth? This year inventories rationing down out there in the field. Just what are you hearing or seeing from your field as you think about that segment hopefully returning to growth at some point in 2025?

Maybe I'll take this and allow Joe to chime in since he's also knowledgeable in this area. We've noticed a slower start to the year, which is reflected in everyone's carloads. This situation is certainly impacted by the weather affecting auto loading, which has posed challenges. Consequently, this has not been beneficial to the volumes we've observed recently. We do anticipate improvements from the current levels we’ve seen over the past few weeks. However, it raises questions about the direction of rates, affordability, and related factors. While I wouldn’t say there’s a lot of optimism, I also don't think there's significant pessimism about it getting much worse. Essentially, it feels like we'll see more of the same, but we will determine how things develop throughout the year.

Yes. Thanks, Kevin, and well said. I mean you think about it right now, I think the estimates are for sales this year to be in the low-16 million range and the production to be in the mid-15s, so that maybe adjusts some inventory or just takes into account everything that happens with imports and everything. But before the pandemic, those sales, SARs were 17 million plus for a number of years in a row and production was pretty close to that. And so there's a lot of potential there. We just have to see it realized and that means interest rates have got to come down and has to be a balance between all those things. So we have an administration now that is very focused on autos and US manufacturing and interest rates. So let's see how that plays out. Probably is a big issue for '25, but what could it look like for '26 and '27 is a big opportunity. Thanks.

And your final question comes from the line of Jeff Kauffman with Vertical Research Partners. Your line is open.

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

Yes, Jeff, I appreciate the question. And you're right, obviously, as we get past this, it's going to turn into a very nice positive for us. If we sort of look at the cost savings opportunity and then combine that with the growth opportunity that's out there, taking a kind of a midpoint of what we think that revenue opportunity is, I would say, within a couple of years, we will have fully recovered that $100 million of, call it roughly $100 million of operating expense that we're going to take on this year. So and that's just the initial growth opportunity. There's obviously more capacity that we're adding beyond that. So to my earlier point, it does turn into a nice positive for us over the three-year period.

And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.