At this time, I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. Please go ahead.

Thank you, Audra. Good afternoon, everyone. We are very pleased to have you join our second quarter 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and 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 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. And with that, I'm very happy to turn the call over to Mr. Steve Angel.

Good afternoon. Thank you for joining our earnings call. This quarter, CSX continued to make progress toward our goal of best-in-class performance. Stronger demand led to volume growth across our business, and we managed this growth while delivering strong safety and productivity outcomes. times. These results reflect the hard work and dedication of our railroaders as they serve our customers safely and reliably. For the quarter, volume increased 6 percent and our revenue increased 10 percent, reaching a new quarterly record. At the same time, we improved operating efficiency and maintained strong cost discipline, driving substantial margin expansion and double-digit growth in operating income and earnings per share. We are proud of our accomplishments so far this year, but our objective is to build an organization that can consistently deliver strong performance over the long term. There are many areas across the business where we can improve performance, and network fluidity and service are among them. Plans are in place to address opportunities for improvement, and we expect to see steady progress throughout the quarter while maintaining our focus on profitable growth our solid volume growth this quarter reflects the benefits of our commercial initiatives network investments and the execution of our team across the railroad our priority is achieving profitable growth not gaining market share for its own sake i believe that industries that become too focused on market share eventually drive out profitability At CSX, what's most important is that the business we add increases operating income, expands margins, and delivers good returns on invested capital. Mike? Thank you very much, Steve, and good afternoon, everyone.

The railroad made solid progress in safety and productivity this quarter, as shown on slide five. Our team continued its consistent and disciplined approach to managing risk and controlling cost, even as the amount of volume we handled grew substantially. The strength of our safety culture is the foundation for everything we do at CSX, and our year-over-year safety performance was impressive in the second quarter. Our FRA injury rate improved by 19% compared to last year, even as our base of total people hours declined by 7%, and our train accident rate improved by 30%. We see opportunities to build on these results through continued focus on risk awareness, field-level engagement, and applied technology as we pursue best-in-class performance. We managed stronger-than-expected growth in the second quarter, with volumes increasing 6% year-over-year. Handling this growth while experiencing seasonal reductions in employee availability created tightness in certain areas of the network. And while our average velocity improved 3% compared to the prior year, we also saw an increase in dwell. We're taking clear steps to improve the consistent availability of our crews and with the effective management of resources we expect sequential improvement in our service metrics. Network productivity continued to increase this quarter. The metrics on the right side of this slide highlight the specific gains our team delivered. Our fuel efficiency improved year over year for the fourth straight quarter as we improved locomotive utilization and continued to to maximize the use of TripOptimizer. We increased the number of GTMs we generated per unit of horsepower for the sixth quarter in a row. Our employees were more productive and we moved more tonnage per train compared to a year ago. Overall, our team stepped up as customers brought more business to CSX. We ran safely and efficiently, and I expect fluidity to improve as the year progresses. Kevin's now gonna review our financial results and over to you, Kevin.

All right, thank you, Mike, and good afternoon. As both Mike and Steve noted, the CSX team delivered another strong quarter, including higher volume, record revenue, and lower non-fuel expense. These results reflect continued partnership across the business to improve safety and drive cost efficiencies while meeting increased demand from our customers. Total revenue increased 10%, benefiting from higher fuel surcharge combined with both volume, growth, and higher pricing across our merchandise, intermodal, and coal markets. Total expenses increased by 6% with a 2% reduction in non-fuel expenses. Putting it all together, operating income increased by 17% with operating margins improving 240 basis points despite 160 basis points of fuel price headwinds. This strong performance drove earnings per share growth of 23% in the quarter. Let's now turn to the next slide for a closer look at expenses. total second quarter expenses increased by 138 million dollars compared to the prior year this includes an increase of 177 million for fuel driven by higher diesel prices net of savings from a record-setting quarter fuel efficiency labor costs increased by 40 million dollars with a nearly 90 million combined impact from higher incentive compensation and inflation these Its headwinds were mostly offset by savings from a 6% lower headcount, with declines across both management and craft employees. G&E headcount will increase modestly in the coming months to support our service product with improved demand, while we expect to leverage process improvements and technology to absorb attrition in other areas of the business. PS&O expenses were lower again in the second quarter, with efficiency savings across each of our operating departments, as well as our GNA and technology functions. Discretionary costs remain under intense review, and managers across the company are being empowered with tools and visibility to take action on wasteful spending and other cost opportunities. For example, spend on third-party services across our operations team was lowered by $23 million in the quarter, benefiting from better utilization of our internal maintenance functions and detailed reviews of contractor activity that discipline also applies to our corporate functions with savings and external technology labor corporate communication support and legal fees the business also demonstrated an ability to efficiently absorb higher volumes with a 12 reduction in our intermodal terminal cost per lift moving to the third quarter incentive compensation expense will step lower sequentially, largely offset by the 3.75% union wage increase. And within PSNO, we expect fewer property gains and insurance recoveries, as well as higher costs for locomotive overhauls in the second half relative to the first. As Steve noted, we are focused on our service product while embedding a culture of continuous improvement.

Our accomplishments here to date put us in a position to invest in initiatives that drive further productivity in 2027 and beyond with that i'll turn it over to mary claire to review our revenue results thank you kevin and good afternoon everyone before i get into the results i want to recognize the hard work of our commercial and operation teams who worked closely together to handle volumes that exceeded our expectations heading into the second quarter we saw favorable trends emerging in select markets what started as a narrow supply driven improvement in market conditions broadened through the spring, resulting in strong volume growth across the business. Customers are increasingly turning to rail for their supply chain needs, and we are focused on earning their business through competitive service offerings and reliable execution. Turning to slide 10, I'll walk you through second quarter volume and revenue performance. Overall, total volume was up 6% in the quarter, revenue was up 10%, and revenue per unit was up 4 percent total revenue per unit excluding fuel declined one percent compared to the prior year due to mix as intermodal grew at more than double the rate of other business units in merchandise volume was up four percent year over year while revenue grew eight percent merchandise rpu excluding fuel was one percent higher as solid pricing helped offset negative mix including fuel RPU was up 4% year-over-year. Strength was broad based across merchandise, with six of our seven business units growing or holding flat year-over-year. Chemicals volume increased 8% compared to last year, supported by plastics exports and demand for waste by rail. Metals and equipment delivered a standout quarter, with 14% revenue growth on 3% higher volume, driven by increased customer production and new plate mills and favorable mix from higher military and equipment moves forest products volume was flat year over year a significant improvement from the first quarter as conversions increased on tighter truck capacity and higher fuel costs intermodal continues to build momentum and was the largest contributor to unit growth this quarter with revenue up 26 percent on nine percent higher volume and rpu up 16 year-over-year driven by fuel surcharge our diverse domestic business drove our volume growth as new service offerings continue to ramp and truck to rail conversions have accelerated faster service and expanded network capacity enabled by the howard street tunnel have positioned us well to capture this business Finally, coal revenue grew 9% on 4% higher volume. Coal RPU increased 4%, primarily due to strong domestic contract renewals, as Hampton Roads benchmark prices were relatively stable during the quarter. Export tonnage increased 12% year-over-year, driven by mine restarts and a best-ever four-month stretch of tonnage through Curtis Bay. Domestic tonnage declined 2% as lower natural gas prices and normalized customer inventories, modestly tempered, otherwise healthy demand. As we look to the second half of the year, our commercial initiatives continue to create opportunities for us to grow the business, including new service offerings, the ramp-up of industrial development projects, and investments in our transload and terminal network. Our opportunities to convert business to the railroad continue to grow as tighter truck supply and higher rates are highlighting the value proposition of rail on the merchandise side this is most prominent in forest products waste and metal we also expect strength and conversions to support domestic intermodal volume steady construction activity continues to support minerals and metals an investment tied to power infrastructure and data data center build out is driving demand in domestic coal crack sand and heavy equipment agricultural exports are another area's strength, with record U.S. corn shipments through Chesapeake continue to continue through year-end. That said, we do see the potential for momentum to slow in some markets. Following a quarter of strong production in automotive, normalized inventories and summer shutdowns are leading to a softer start to the second half, ahead of new model launches in the fourth quarter. In chemicals, we expect plastics' volumes to moderate following pull-forward activity in the first half. Meanwhile, coal fundamentals remain strong. Power demand and recent plant life extensions will support domestic utility burn. New business winds are driving growth in domestic steel and industrial markets, and export volumes are expected to remain steady, benefiting from improved mine supply. Finally, on the outlook for revenue per unit, underlying core pricing remains at or above our plan. With most of our contract renewals for the year already complete we expect fuel and mix to be the primary drivers of our pu in the second half as any flow through from truck rate pricing to yield typically takes time to materialize overall trends for the back half of the year remain encouraging and we're focused on converting those opportunities into long-term growth for the railroads with that i'll turn it back over to steve thank you mary Claire.

Now we'll review our updated guidance for 2026 on slide 13. Based on our results year-to-date and our expectations for the balance of the year, we are adjusting our 2026 outlook higher. We now expect full-year revenue growth in the mid to high single digits, operating margin expansion of greater than 350 basis points, and free cash flow growth of greater than 80 percent our outlook for capital spending remains unchanged at less than 2.4 billion the updated outlook reflects strong volume growth improved financial performance and the continued focus on productivity and cost control that you've heard about in today's call we continue to see opportunities to strengthen service execution improve productivity and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time. Finally, I want to thank our railroaders for their hard work and dedication this quarter. These results were made possible by their commitment to safety, integrity, and serving our customers efficiently. Matthew will now 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. Audra, we are ready to begin.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to start your question, simply press star 1 again. We'll take our first question from Stephanie Moore at Jefferies.

Stephanie Moore Great and good afternoon. Appreciate the question. I guess maybe starting on one of the last points here in the prepared remarks about just the pricing opportunity in the back half, understand that the benefits you're seeing mix and fuel wise and maybe not necessarily seeing some of the truckload benefits yet. So maybe just help us understand when we would expect to maybe see some of those benefits come through as the underlying environment certainly has seemed to heat up a bit here in the last couple months or so. Thanks.

Thanks for the question. So, yeah, as we think about pricing, we've said earlier this year and we reaffirm it today that, you know, we expect our team store sales pricing to be stronger this year than it was last year. I think as I think about our merchandise portfolio, the team recognizes, you know, the value of the service that we provide and, you know, they're leaning in having conversations with customers and uh continuing to accelerate price i think you know there's a lot of obviously conversation out there in terms of the truck market we did see truck capacity tighten um i say in particularly over the course of the last couple months with regulatory enforcement um i'd say on the intermodal side we're near the tail end of the domestic intermodal bid season for 2026 and i'm not i'm not going to get into 2027 at this point um but i would say we have seen um pricing accelerate in our domestic spot segment which is a smaller portion of our business but we've also seen it on some of our recent real asset contract renewals um the team is constantly evaluating you know what market conditions look like and like i said they they recognize the importance of ensuring we're getting the value for the service we provide um i do think it's important um on the intermodal side to remember that not all areas of that business have the same market dynamics uh for example i tell you international i think i've mentioned this before is heavily concentrated it's competitive and it's primarily contracted under long-term deals so that is not as highly coordinated to to the truck market as you might see on domestic we'll go next to chris weatherby at wells fargo hey thanks good

afternoon um you know maybe wanted to get your perspective on sort of productivity and cost control progress from here. So obviously some really good momentum so far in these first two quarters of 26, particularly seeing it on the PSNO line. I guess as you think about the bigger picture opportunity, is this sort of just low-hanging fruit that you're capturing now? I guess you've been there a couple of quarters now, have a better sense of what maybe the bigger picture opportunity is. Wondering if maybe you can comment on what you think you can continue to sort of generate out of the business as we maybe look into the second half and potentially beyond to 27.

Kevin, why don't you take that one?

Yeah. I would say expenses and efficiencies are never low hanging. There's a lot of work that goes into the efforts. Obviously, coming into the year, we had a plan and we're delivering on that plan, which I'm encouraged about. And I could say we looked outward first. We're looking at all of our contractors, everything that we pay outside of the company first. And quite frankly, Mike and his team have come to the table with ideas on insourcing, and we found opportunities to insource activity and use our employees to do that work, and that's materialized in the savings as well, and we see other opportunities there. The pipeline is robust. We're currently in the process of building out our 2027 plan and efficiencies, bringing the whole team together. We obviously have targets that we're setting for ourselves internally and goals there. I would say we're about halfway through that process and moving on, you know, probably a lot earlier than we normally would in any other year that I've seen. And it's really about creating the muscle. It's about creating, you know, the accountability throughout the organization, ownership, you know, common goals. And, you know, from a finance perspective, it's about us providing the tools and the visibility for Mike and his team and others to really go out and get those costs and understand where those cost opportunities are. so a lot of collaboration we're excited we're reviewing those tomorrow again our status update and more to come on that we'll go next to scott group at wolf research hey thanks um i just want to follow up on the pricing question so first question i think answered a lot about intermodal pricing i want to ask about merchandise um we're seeing better volumes there i'm sure they have

some competition with truck market like do you think merchandise price should be accelerating as well um with intermodal and and so maybe you know to in an aggregate basis you know you said hey we we think same store pricing better in 26 than 25. i don't maybe it's too early to ask this but would you think we see another acceleration in overall same store price in 27? yeah thanks Scott.

So I would say, yes, I'll reiterate this year better than last year. I would say, you know, we're constantly looking at the markets and having discussions with customers. They want us to reinvest in the business. They understand inflation. I would tell you, we have seen improvement in several markets as we've gone throughout the course of this year, but too early to get into 27 at this point.

Next, we'll move to Brian Austin back at JP Morgan.

Hey, afternoon. Thanks for taking the time. Question for Mike. You know, we see some of the KPIs, some of them moving in what we'd historically see, not a good direction, the trip plan, the cars, the dwell, but clearly setting record fuel, locomotive, safety, and a solid result. So just wanted to see if you can kind of square the KPIs that we normally see, maybe a little bit of a more mixed picture, and you still think there's some improvement. With sort of the impact on the business, is this really affecting pricing renewals? The service looks at least a little challenged in some areas, and was this any impact from the surprise in volume growth? Thank you.

Yeah, thanks for the question, Brian. And I'll turn the second piece over to Mary Claire on any effect, ma'am. But, you know, you're correct. Our service metrics aren't where we want them to be, and particularly terminal dwell and trip plan performance. But, you know, the short version of that is the demand came in much stronger than we expected and we were tighter on crews in some of our locations. You know, volume was up 6% across the network and higher in some individual locations while the headcount was lower than last year. But we managed through that by being safer and more efficient. You know, we increased our average tonnage per merchandise train by 5%, and we improved our workforce productivity. And while we were doing that, it added pressure, obviously, to our service metrics. And I tell you, that's our area of opportunity, and we're extremely focused on it. It's not a structural service issue, and certainly not to minimize the importance of it, but we were very productive and just not as fluid as we needed to be. So the forward work is pretty straightforward for us. The fluid network provides reliable service at the cost that we need. And this isn't really about choosing one or the other. It's about meeting our customers' needs effectively and productively. We're going to keep improving on the safety and productivity gains we earned, but our goal is to create the capacity where the demand profile requires it. So that's going to include a little modest increase in our team headcount to support that service product. However, we expect the productivity to increase. And again, we're being deliberate about it. We aren't going to overcorrect and reduce the productivity. The team has really worked hard to earn, we're focused on creating the consistency that our customers need and deserve. So the bottom line, the quarter showed that we can handle stronger volumes and do it safely and efficiently, and while we count on those two things to continuously improve, our next step is really to convert that into more consistent fluidity and service, and that's going to prepare us for productive growth. So that's what we're focused on, and I see us sequentially improving our operating and service metrics, no doubt about it, but over to you, Mary and Claire.

Yeah, and I just add that, you know, the team's obviously staying very close with customers and with our operating team. Mike and I spend a lot of time together. Our teams spend a lot of time together, and we're constantly reviewing service. We're talking through if we see an area that is an opportunity, how do we work through it together, and then making sure we're staying close to the customer.

We'll move next to Ken Hexter at Bank of America.

Hey, great. Good afternoon. So great job on the higher volumes, but I guess maybe just to clarify that the 350 basis point target, That includes the gain on sale, right? So what about $93 million this quarter? And then, Mike, on that point of hiring faster, do you need to hire faster given the 6% jumping carloads? I mean, isn't this the time where you need to start planning ahead for not just what may come, but if the truck market keeps tightening and we keep getting a spillover, can you meet that with productivity? Or do you need to start hiring faster given the lead time? You have to start working on that.

Yeah, just to clarify on the margin side, it does include, obviously, the results that we reported in the first half, including some of the real estate gains, as you mentioned. It wasn't $93 million in the quarter. It was much less than that in the second quarter, but in the first half of the year, it was about that amount.

Let me take that. This is Steve. So any kind of headcount increase is very modest. And one thing that happened, I think Mike covered it, is the summer months are where we have a lot of vacations. and those people have really come back, so it's concentrated in just a few months, and that's right at the same time that we saw that acceleration in demand, so we kind of got caught a little bit there. But those people are back at work, and any creases we're contemplating are going to be very modest. We'll be in good shape going forward, and in fact, as you look at our service metrics today, they're definitely improving.

Our next question comes from Jonathan Chappelle at Evercore ISI.

Thank you. Good afternoon. Kevin, you called out two cost line items somewhat specifically. So on labor, it feels like it's going to be roughly flattish as the incentive comp declines, but then you have the annual wage inflation. And then PS&O, I guess you kind of insinuated that's going to be higher without the gains on sales, some of the locomotive work, etc. We would typically, I think, maybe expect to see the 3Q margin improving, especially when you have this type of volume acceleration, the strong start that you've had to July. Given some of those costs, things that you've just noted, maybe some of the hiring, fuel volatility again, would you expect to see a kind of normal seasonal trend as we go through the second half of this year? Or, you know, some of maybe the lower hanging fruit of the heavy lifting has already been done in the first half?

No, I wouldn't say that. I think we have a lot of good initiatives that we're going to continue to carry through on the PS&O side. I think you're spot on on the labor side. Incentive Comp largely will offset some of the labor increases that we have starting in July 1 with our union labor workforce. But otherwise, you know, I think you'll see typically some of the same seasonality. I think typically you'll see third quarter maybe a little lower than second quarter. Really, the big factor here on the margin side will be the fuel. You know, we've seen a lot of volatility in the fuel price. Certainly, we face the fuel lag in the second quarter of the year, and that should go away. But all bets are off on where the fuel could go. We saw a pretty dramatic increase this past week. But all else equal, I think we'll see some benefit quarter over quarter, and that's probably going to help our margin story a little bit as well as we move from second quarter to third quarter.

So probably a little bit better than the typical seasonality when we see a little bit deterioration from an operating income perspective. second to third quarter we'll move next to tom waterwitz at ubs uh yeah good afternoon so i wanted to swing back a little bit to the pricing side um i i think maybe mary claire if if i ask it in the way that you kind of frame where we're at on merchandise pricing maybe that'll help us to think about what the upside could be so you know if we think about uh kind of a range of merchandise pricing you've achieved over time i don't know if the low ends you know one percent the high end is five or six, something like that. Obviously, if I'm off on that, please correct me, but where do you think you're at on the range of pricing gains in 26? Just so we can have a sense of, as you see some of this tighter truck market and maybe some strength in your markets, how much upside is there in pricing when you look to 2027 and in particular on the merchandise segment?

Yeah, thanks. So we're not going to put out a number associated with pricing, But what I would tell you is the team is closely looking at it. I think in several markets, the fundamentals have changed over the course of the last several months. And so it's something that we watch closely. We have a highly skilled team on the marketing side. They understand their markets. They're constantly having conversations with customers. And, you know, we're going to make sure that we continue to price the value of the service and make sure that as people are looking to bring more to rail, we're taking that into account.

We'll take our next question from Brandon Oglinski at Barclays. hey good afternoon thanks for taking the question uh mary claire maybe i can ask one of you too uh looks like your units are running up maybe six and a half percent right now early in the third quarter i guess how can you compare that you know to your annual revenue guidance here and i know you called out you know some headwinds in the back half but are we just running maybe even ahead of expectations right now yeah thanks i would say right now um you know we called out a couple of areas that we're watching so merchandise and intermodal improved in the second quarter i'd say on if we think about the balance of year the tighter truck capacity should create

some additional opportunities on domestic intermodal we've we've taken that into account as we think about balance of year and in certain areas of our merchandise portfolio i'd say we saw probably the the strongest acceleration due to truck conversion in the forest product segment in Q2 versus where we were in Q1. You know, when I think about where, you know, as we're thinking about the future, there's two areas in merchandise that were a little stronger in the second quarter than we anticipated that we're keeping our eye on. And I mentioned in the prepared remarks of chemicals and its automotive, I'd say on the chemical side with the war in Iran, we saw an uptick in plastics as people were looking to pull ahead. Inventories now, we're keeping a close eye on those. they could moderate as we get into the back half and so that's an area we're keeping focus up against and then on the automotive side you know overall automotive demand really hasn't improved so the current outlook for north american light vehicle production is still to be down just under two percent for the year um it was slower first quarter it accelerated some in the second quarter but we're watching those trends coming out of shutdown some inventories are high and so we're keeping an eye on that. So, that could decelerate a bit. But I think as we think about the rest of the markets, you know, there's better fundamentals we see out there now than where we saw, you know, starting out this year.

We'll move next to Walter Spracklin at RBC Capital.

Yeah, thanks very much. Good afternoon, everyone. I was going to come back to Mike on the capacity side. You talked a little bit about labor and hiring, but I was wondering if you're seeing any pinch points from a structural standpoint? Anything that might make you look a little bit harder at the CapEx? And I know you held it constant this year, but, you know, when growth comes on, sometimes you find some pinch points that you weren't, didn't know were there before. And is there any evidence for that at all?

Thanks for the question, Walter. No, in terms of structural issues, no. We're always looking at our capacity. And actually, we're working very hard to define and make better our capacity modeling. But in terms of the network itself, we showed with the volume we brought, with the exception of some locations where we were very tight on crews, we can handle it and we can handle more. So we'll continuously to look at our demand profile and work hard to find out the capacity that we have and obviously exert everything we can out of it. But in terms of structural, no, we're in good shape going forward, and that's how we see it.

Our next question comes from Ari Rosa. at Citi.

Hi, Mary, Claire, I was hoping you could talk about the intermodal opportunity, maybe staying on the idea of available capacity. Now that Howard Street is open, obviously the trucking market has tightened a lot, especially in the east, and we heard JB Hunt speak to that. Just talk about how you're balancing the desire to grow volume against the pricing opportunity and how much available capacity is on the network. Like, how should we be modeling that over the next couple of quarters? Thanks.

Yeah, thank you. So I'd say when we think about domestic intermodal this year and longer term we see opportunity out there we talked about that go back to even a couple years ago when we talked publicly about where we saw domestic intermodal there's a good amount of traffic that moves over the highway that is suitable for intermodal conversion um certainly we're coming out of a you know what was a pretty soft truck market it's tightened pretty significantly over the course of the last several months and we're having a lot of conversations with customers i tell you the investments we've made in our infrastructure have allowed us to capitalize on opportunities probably, you know, pretty quickly over the course of the last few months. I'm closely watching as the team goes out there and sells against Howard Street Tunnel and the new connectivity that we've put in place, what that looks like on a weekly basis. We've talked about over the last couple of calls some of the new services that we've put in place, including the partnership with CPKC on SMX. And when I look at, you know, SMX and Howard Street Tunnel over the course of the last few weeks, really over the course of the last couple of months, we've seen growth week over week in both of those areas. And then as I look at the last couple of weeks, you know, it's adding about a couple of points, I would say, in terms of domestic intermodal growth. And so we see additional opportunity there. Howard Street's still pretty early for our customers, and it was later in the bid cycle when that was unlocked this year so as we go into the back end of this year we go into next year we see additional opportunity um i think as we think about you know i know pricing is a hot topic today as we think about that and and going forward you know we're we're constantly watching the market evaluating the market not everything comes up at the same time i talked earlier about the bid season associated with domestic intermodal and that comes into play in terms of capacity it's a constant conversation with mike and his team. I would say as I think about our intermodal trains, you know, they're out there running today. There's capacity on many of our trains, and so it gives us the ability to bring on business pretty quickly within that area and still be able to support it from a reliability and a consistency perspective for our customers.

We'll go next to Richa Harnheim at Deutsche Bank.

Hey, yeah. Thanks, everyone. Thanks for the time. So, I just wanted to discuss more about, like, customer feedback. You know, the value proposition for Intermodal is pretty clear, but more broadly, I guess, how are customers feeling? What's driving them to CSX? Does it feel very company-specific? You know, you've optimized your product portfolio, you're exposed to specific projects, or does it feel like there's true macro uplift here? And then just, you know, I just wanted to clarify that there's no fear around broad-based pull forward. Mary-Claire, I think you gave us a lot on plastics and auto, but, you know, wanted to confirm you don't feel like that was, there was broader pull forward out there given the high level data we see from the ports. And then, you know, along those lines, maybe also comment on the competitive environment and how that's affecting your ability to optimize demand in this environment. Thank you.

Yes, I'll try to remember all of that. You're starting on the intermodal side. Like I said, I think there's good opportunity for intermodal conversion. We have a wholesale channel of sale. We work with our channel partners. We have lots of conversations with them. We also have a BCAO national accounts team that talks directly with shippers and so we're constantly working with them evaluating what they're moving over the road looking at their truckload files and advising them on what are the best lanes that are suitable for intermodal conversion and so we do continue to see opportunities there and with a tighter truck market the value proposition that intermodal provides i think um you know is really strong and it will be an area of opportunity as we proceed through this year into next When I think about the broader markets, I mentioned a couple in terms of automotive and plastics. What I would say is, you know, talking maybe a little bit about forest products, you know, that's an area coming into this year we saw the biggest headwinds. I wouldn't say that the demand has necessarily strengthened, but the supply really has. And so we do continue to see opportunities within that area as we think about tighter truck capacity out there. And then we've said many times this year about several of the other areas of the business more tied to infrastructure. So think about metals going into data centers, infrastructure investment, your plate, your rebar. That we continue to see strength there, expect that to maintain. And same with the minerals perspective.

So a lot of funding with IIJA, a lot of investment continuing in that area. and so we don't we don't see a material change in that going forward we're positive about that we'll take our next question from jason seidel at cowen thank you operator um steven team good job on the quarter uh mary claire wanted to talk a little bit more uh about two things you brought up number one you mentioned sort of your spot intermodal business maybe you can remind us the percent of the total um that is and also you referenced uh your smx advantage business with the CPKC. Just curious, sort of, what sort of is the longer-term opportunity with that? And especially given that, you know, we saw the FMCSA, you know, eliminate thousands of sort of individual carriers overnight earlier this year that violated cabotages. I was wondering if you're getting a lot of questions from maybe new people that might want to ship cross-border intermodal from Mexico.

Yeah, on the spot piece, I'd say that it's a very small portion of our business. So, it's a small element of our domestic intermodal side. But it, you know, it's an area that we've seen acceleration recently. In terms of SMX and CPKC, I mentioned we've continued to see growth. We saw good volumes as we started the program a little over a year ago. We've been very happy as we've come into this year with the acceleration that we've seen already. And like I said, similar to Howard Street Tunnel, it's something that is building upon itself and we're seeing growth week in and week out.

We think as we've improved the service in recent months and we've added additional lanes of service to smx as we get into the back half of this year and start into next year's bid season we're going to continue to see additional growth in that area we'll move next to harrison bauer at sesquahanna earlier comments you provided a merchandise rpu x fuel i was curious if you can offer what intermodal rpu x fuel was or said another way what your renewals particularly in the domestic business were like, and then maybe taking a step back off of that, if truckload sees two strong bid seasons of over double digit renewals, what's the ultimate opportunity for pricing within your domestic intermodal business without sacrificing maybe some of that opportunity for truckload conversions? Thank you.

Yeah, I think I mentioned that fuel was the driver on intermodal RPU in this past quarter. I would say, as we think about the future, I mean, the truck market has just recently tightened. And so, you know, when we think about our bid season, it's not different than what you hear from some of the other large trucking companies out there, ones that reported recently and ones that will report. You know, the bid season kicks off towards the end of the year, and we start seeing pricing then, and it's coming up to the kind of tail end of it right now. And so I would say the market dynamics have shifted as we've been in bid season for domestic intermodal this year. As we think about the future, there's some business we can reprice each year. There's some that is in multi-year agreements that have, you know, specific things tied to it. And so, you know, we're going to lean in, as I've mentioned, but I think that's about as far as we're going to go at this point on domestic intermodal pricing.

And our final question today comes from David Vernon with Bernstein. hey good afternoon guys thanks for taking the question so Kevin I wanted to get your sense for how you're feeling about the operating leverage on the incremental business that's coming in and there's a lot of sort of some stuff you guys have done this year which is commendable around headcount reductions and expense reductions but you know when I think about the the freight revenue growth in relation to the profit growth X some of those one-time items maybe the incrementals aren't so great I'm just wondering how you're feeling about you know the leverage you're getting on the new business and how much of the 54 million efficiency gains is really kind of volume driven versus more cost takeout driven?

Yeah, I mean, when I do the math, quite frankly, our incremental margins were very, very strong when you excel fuel for your overall expenses to be down 2% and, you know, and the growth that we achieved in the quarter. That's, you know, the incremental margins i'm quite pleased with uh if you do that math so um you know as we move forward this is a model that has a lot of fixed costs and as we bring volume on it and it's got to be profitable and it supports obviously our reinvestments in our railroad uh we expect to generate uh powerful incremental margins and so i think you did see that in second quarter if you do the math um and look at the fuel impact that that occurred and and moving forward obviously that net fuel impact will be less going forward, so it won't be as quite of a headwind as we saw in the second quarter. But I see line of sight, it's a strong, powerful incremental margins. It's a cost discipline. Obviously, as we build, take on the volume, not all volume is created equal, to your point. So we're looking for volume that supports our reinvestments and returns on invested capital as a real focus for this team.

And we do have one more question, And that comes from Baskin Majors at Stevens.

Yeah, thanks for taking my question. Steve, I'd be curious on your perspective as an outsider now 10 months into being an insider at the railroad. You know, relative to what you were thinking when you came in and accepted this role, you know, where do you still think there is a lot of opportunity to do things differently in an old economy, established industry? and where maybe have you sort of given up where there's too much friction or just processes that are too ingrained to really change?

Well, I would say as a 10-month veteran, I'm encouraged about the progress we've made and really what we have ahead of us. And I always think of it in terms of, you know, there's opportunity to improve everything. And I've always found that to be true. And, you know, in operations, I think it's probably a never-ending endeavor to continue to improve operations. And, you know, Mike Corey's a 40-year veteran. He knows all about it. And I'm always amazed how much he knows about the railroad, railroads, and how to operate the railroads. And, you know, there's always going to be opportunities to improve that. And, you know, we talked about that a little bit today, some of the things we're doing to improve. Pricing, you know, Mary Claire had to answer about 18 pricing questions today. But I really think, you know, that's a muscle we're building. I think we're getting better every day at that, you know, building price management capabilities. She's all over it. This is an area where AI can really do some good with good price analytical tools so we can get a little better at that. I always think about pricing in terms of, you know, making sure that we, you know, understand the value we're providing the customer. What is the value we're providing? What is their next best alternative? Are we earning good returns? You know, do we have the capacity to serve? And all that goes into those decisions, and you make those decisions surgically. You know, it's not a blanket, you know, we're going to do X percent price across this segment of the market. you know, those are all surgical decisions. And of course, we want profitable business. We want good returns on capital, as Kevin said, and continue to reinvest the business. I think on the productivity side, Kevin talked a lot about that. Mike did too, to some degree. And I think there's a lot of opportunity on the productivity side. I think, you know, we obviously, the team responded great, you know, so far this year. But as we look at, you know, we're talking about 20, tomorrow we're working on 27. We'll be talking about benefits that will carry forward to 28. So, you know, it's really all about, you know, building that productivity muscle, and I think that's, you know, that's an opportunity for improvement. But, you know, all businesses, you know, great businesses have opportunities for improvement, and we're no different than anyone else.

And this concludes today's question and answer session and conference call. Thank you for your participation. You may now disconnect.