Csx Corp (CSX) November 11, 2026 Conference Transcript

Good morning, everybody. We've got a few more people coming in. I'm sure the doors will close here in a moment. But in the interest of staying on time, my name is Dan Moore. I'm the senior transportation analyst here at Baird. I think I know most of you in the room. We have Kevin Boone, CFO of CSX, joining us today. Pleasure to have you here. Thank you for being here. Thank you for everyone's attendance. Hopefully the conference is going well. You know, I had put together a list of questions here. One question I just kind of wanted to start off with. It's big picture, very interesting backdrop. Not a normal cycle, not being driven by interest rates, certainly not being driven by lower fuel prices. You know, the tenants that normally undergird economic activity and acceleration, just uniquely different this cycle. I was wondering if maybe we could, in fact, just start off at a very high level talking about where you think we are in the cycle, how the cycles may be different, the durability of it as you're thinking about 27, where you're seeing strength, however you'd like to kind of unpack the high-level view of the business.

Yeah, well, first of all, thank you for having me. I'm joined here with Matthew Korn, head of IR. I've been coming to this conference for a long time, even sat in the audience. 10, 12 years ago. I may have joined you. Nine, yeah, nine years ago, I started at CSX, so just had my nine-year anniversary.

Congratulations.

You know, when you take a step back, traditionally, even when I follow the railroads from the other side, you would think there are two important markets that you always kind of watch for the railroads. It's, you know, the autos are very, very important, and then housing, right? It touches a lot of. The different markets that we serve, whether it's chemicals, forest products, all those markets on the merchandise side that are very important and key, and we haven't necessarily seen that this year. Those markets with interest rates going up have not been supportive. What we've seen is other areas, you know, there's infrastructure spend. We continue to see that come through. Our aggregate business is strong, and we've done a really good job of going out and capturing business. I think, you know, you see it on the truck side. It's an unusual cycle. Supply-driven cycle, which is a first that we've seen in a long time. I don't know if we've ever seen a supply-driven cycle like we are seeing right now. And that's certainly supported our merchandise business this year. We've seen truck conversion that has materialized in certain areas of our business. Forest Products is one we talk about a lot. But that's pretty unique. And then the consumers remain strong. We've seen that with our intermodal volumes, and that continues. And then we have the value proposition that is helping us on that side, too. Our competition with truck is obviously the differentials in price have driven some opportunities for us. And then you add on top of that the investments we've made, and I don't know if you can point to a railroad that's made more investments over the last two to three years in terms of growth, and those are starting to pay dividends, whether it's the Howard Street Tunnel. You obviously have the SMX coming over from Mexico and our relationship with CPKC on that endeavor. Those continue to grow, and you'll see benefits as we go in the next couple of years. So all these things are coming together. I think, you know, from a backdrop of an industrial economy, we're not seeing a lot of tailwinds right now. Hopefully, as interest rates come down, you might see some activity from the auto side and from the housing side and start to help our business, which would be really where the real cycle could take off for us.

Right, right. Well, and that probably provides a little bit of an entry into the next question. And when I think about this year, or maybe even a statement, when I think about this year, part of it was you guys making, to your point, a lot of investments in previous years, really kind of laying the groundwork for potential growth this year. A lot of things came in line of sight to make that opportunity a very real one, a very substantive one. And so in some ways, I feel like this year has been a cost story. And then at the same time, we've had this growth that I think to some extent has surprised maybe some folks. I think we've kind of been very much on board with it. But as we think about 27 and the path ahead, typically. You know, typically, when you go from a cost story and an investment story to a growth story, price follows. And so I think for a variety of modes, investors are very curious about the pricing opportunity going forward to the extent that we continue to see a fairly robust, fairly healthy volume backdrop. So maybe if we could just spend a few minutes talking about pricing, where you see opportunities going forward, and where maybe there is an opportunity where people may perhaps believe there is, for that matter.

Yeah, I mean, first, I would probably frame 2026, certainly cost was part of the story. We made a lot of investments in the team from a senior leadership perspective, and, you know, I think, and we'll probably get into it, we had a technology issue a couple weeks ago. That's next. And the way the team has come together, I've never seen a more collaborative team. We've been able to work together, driving growth opportunities. We're in each other's office every day collaborating. And quite frankly, I've seen nine years of what it's looked like, and this has been the best it's ever been. We brought some new team members on. We have a new leadership on technology. Yeah, I get to work closely with him on the HR side. Riz coming in has brought fresh perspective as well. So the employee experience, too, is something that we're really going to lean into, and that's important as well. And then looking at our investments, return on invested capital is something that everybody's hearing a lot at CSX. Like, we want to make the investments. They have to have the appropriate return to support it. And we're creating a muscle. This is not a one-year endeavor in terms of the call side. We've got to have continuous improvement every year, and Steve reiterates that to the team on a daily basis. This is a muscle we've got to flex every year. Did we do a lot this year? And Steve said on the last earnings call, probably we've had an incredible year. We've done a lot. There's a lot more in the pipeline, over 100 opportunities. Will that opportunity be as large as what we've seen this year? Probably not, but we continue to build that. So I'm, you know, I'm aggressive, and I'm optimistic that we'll continue to find opportunities. The team is. The team wants to win, and, you know, you can see it around the building. It's fun to be part of a winning team. That energy is different, I think, than what we've seen in the last few years. And so that's been exciting for all of us, us coming together. In terms of price and what we've seen, you know, Steve has a lot of background in previous industries. It's important that we cover our cost inflation, and cost inflation has been high. And quite frankly, when you look at the last two or three years, price has not been above necessarily inflation. We're taking it. I think that goal is there. It's achievable. It's a competitive market. We've got to deliver the value for the customer on the service side, and then the price is the outcome of that delivering service. So we're working towards that. But I do think in this backdrop where you have the trucking side capacity tight, you know, I've been proud of how we've handled a lot of volume this year. We've grown a lot. The industry has grown. It's been good. Service metrics have been good. Service metrics have been good. We didn't help them a couple weeks ago. You know, I had to apologize to Doug and Casey many times for the technology outage. But to see them come together, and you saw it in our car loads last week, we're recovering. We feel pretty good about it. It'll take us another couple weeks to probably dig out the inventory and those things, but it was a pretty incredible effort that we were able to achieve. So I think we're more optimistic as we get into next year. It's a slow, you know, we've got to deliver the value on the service side, but it's something that we have to push on to make sure we're covering our costs.

So, notwithstanding last week, service metrics have been really good, but I know a lot of people in the room and listening in and what have you later on looking at transcript are going to want some context around what happened, you know, with IT. And so, maybe if you can unpack that just for a minute, give us some perspective on what occurred, what it impacted, you know, IT issues are always transient. Transient. And so, you know, it's come, it's largely gone, it sounds like, but maybe you could just spend a minute or two talking about that a little bit more.

Yeah, you know, a number of months ago, I've gotten the opportunity to work a lot more closely with the technology, and Steve Watkins, who leads our technology team as a technical expert, and it's been great. You know, the environment and technology is obviously very dynamic with AI and what's happening there. The threat environment is much, much higher. This had nothing to do with the threat environment. Just to make that clear, because there has been those things happening out in the world. That was the first thing we wanted to make sure, that there wasn't somebody from the outside that was in our systems or creating disruption, and we focused a lot about that. So I'm glad that wasn't a good case. This was more related to our cloud services. What it didn't impact was that PTC wasn't impacted, our dispatching was not impacted, but a lot of other systems were. And so that created a lot of challenges for the operating team to run trains. And so we saw that for an extended period of time. So we know what the root cause is. We have a fix for that. We're going to do a lot of soul searching in terms of how we even look at other opportunities to make sure that one of these incidents doesn't happen again. And, you know, I was just discussing with Steve the other day, we're having to patch our systems a lot more often now. They call it a zero-day or zero-hour kind of patch where there's a vulnerability that AI has identified for everybody in the market, you know, whether you have a Microsoft product or some other product out there. And you've got to immediately patch it, right, because it's a vulnerability. And, you know, we had maybe one or two of those a year. I think we've had like 14, 15 in the last couple quarters.

Yeah, it's going to be ongoing.

And so the change environment, and we're getting better at that. The team, we're making some investments there on the technology team to make sure we harden that infrastructure. We're going to bring in experts from the outside and say, hey, what are we missing? Is there anything we're missing? So it's going to be a... We're going to have to continue to run ahead of what's happening there on the threat environment and make sure that, you know, we're ready to operate. Because the worst thing you can do is set our operating team back. We were humming. We were doing very well on the operating side, and so I hate taking that momentum from them. And they've been great partners in all of this. We all came together. You know, when it immediately happened, we looked for volunteers to kind of go out and help from a dispatch and calling crews and other things. We had 90 volunteers come to the table immediately, so it really was a rallying cry for the team, and very proud of what they were able to do and achieve, and I think it's, you know, we'll move on from there, and hopefully we won't hear about it again. That's the objective.

Yeah, well. All good context. I think the next question I'd like to just maybe discuss a little bit, and it's already been brought up, intermodal, a very unique backdrop, a lot of growth, particularly in the east. You're seeing that from the IMCs. That's where the most truck competition takes place. It's kind of your wheelhouse. You guys have poured tremendous investments in the network so that you can handle more intermodal, so you can handle more traffic in general. Can we talk just a little bit about, you know, how you see that market developing as we roll into 27, no pun intended, and then, you know, price, again, I think there's a big pricing opportunity. I think everybody does, and intermodal as we think about 27. It's not the same pricing opportunity that truck has on an absolute basis, but there's a catch-up there for everybody. And so maybe if we could talk about that for a minute.

Yeah, you know, again, we talked about it a little bit. The supply-driven cycle is a unique one. And when we think about our hiring needs, conductors, other things, the environment going forward is going to be much different, right? Typically, you've seen a cycle, things get tight, you go and find drivers, and the cycle ends. I don't think it's that easy. We own a trucking business. We see those challenges day to day. We own a more specialized trucking business that, in a lot of ways, should be able to recruit easier than your general intermodal players. Or trucking players, TL side. So I think this is a secular trend, and I think we're seeing customers realize that they need to have more freight on the railroad because that insulates them from some of this volatility going into next year. Do we think bidding season's coming up, right, in fourth and first quarters? There's a heavy time for bid season. We generally will lag what our customers, our partners will receive in pricing. So you'll start to see that hopefully materialize. Mary Claire will also point out that we have two very different markets. We have the domestic intermodal market, which we're talking about right now, and then we have the international market, which is very, very different. Those contracts are not necessarily tied to the dynamics that are happening right now, to the trucking dynamics. And so that's still a great market for us, but just not going to be tied to that. So that will dilute the impact somewhat of what the domestic market could do. We're realizing, you know, on our pricing that we can touch right now, we're realizing positive price. Other things will lag going forward. So, and we're also trying to, you know, our service has been great. We've, we look at a lot of stats. We're much more focused on the driver time on terminal. That's been a big focus for us, and it will be going forward, and that drives a lot of value for our customers, too, but consistent service, if they can continue to see that, and then driving forward and getting price for the value we're delivering, I think, is the focus for the team right now.

It's been in development, obviously, within the IMC community. Schneider's come out with an announcement recently. I'm sure that's, to some extent, related to the pending merger. Curious, how do you feel about your partnerships? How do you feel about capacity? And if we see continued growth and intermodal, we've argued in 27, we could come find ourselves at a point where the market gets very, very tight. Just curious how you're managing that transition, what that means, you know, for the business and how you fill that hole.

Yeah, I think when you look at that business, first you've got to make sure. That you're getting the appropriate return on investment. We're not in the business of growth for the sake of growth. So that's key. And how do you deliver value to customers? Price is a component, but how do you get that truck, that driver off terminal? The largest cost for them are that drayage cost. How do we get those down? How do we create efficiencies for them where we can share in those efficiencies? We have, I think, arguably the best service in the East. We're not going to give that away, necessarily, but we're going to partner with those customers, our partners, to go and win business. The beauty of Intermodal is it's the BCO, and they're making decisions every year or every month or every day of choosing their partners, right? And it can be very dynamic. And so if the BCO can make a decision, they're going to use one partner one year and another. So we're going to compete for that business. The business that moved on us this year with that particular customer that you mentioned, that's business that's available to go after. And so we'll look at ways where we can advantage our partners that are willing to work with us and what are the things that we have to do. We have the most reliable service. I think we're going to continue to deliver that in the next year. We have the most focused team. I can assure you that we're aligned and focused on growing right now. And I think customers see that value, and we'll capitalize on it. I think we'll advantage the partners that stick with us.

Yeah, all fair. Maybe to unpack some of the other verticals, just opportunities for growth, opportunities for price, specifically, if you care to mention anything, and where maybe there isn't as much opportunity. And so whether, you know, it seems like there's been a, to some extent, a change in the backdrop for coal over the last 12 months with build-out of AI and domestic utility infrastructure needs. Curious how that affects the business over the next couple of years. I know that's been a very long-term, secularly challenged business. You guys have, you know, had some success there as well, though, in the last 12 months. And I think beyond that, everybody would like to get more context around the other verticals of the business, and now you think about growth opportunities going forward.

Yeah, you know, the coal business, particularly on the domestic side, is going to be largely weather-driven, so hopefully it gets real cold here in Chicago. Right. It's coming. This weekend, I heard it's going to snow. So those things, you know, those dynamics will play out. Natural gas prices matter. You know, you have associated gas with higher oil. All those factors kind of play in, and it's, you know, one area's going up, one's going down. We have a very advantaged network in terms of our export capability. When you look at our outlets from an export capability, we're advantaged in the East. You know, we serve really four major terminals that allow us to reach those markets. And there's still a lot of demand coming from markets like India and others that we continue to serve. Pricing is a dynamic there. We're watching. We always watch that. You know, we saw very, very high prices a few years ago, and those have come down pretty dramatically from here. There's been a lot more stability in the past year. Hopefully over time, there's a little bit of price. opportunity because where you look at the cost curves and where, you know, the global market is, I think it suggests that prices should come up over time. We're certainly not going to embed that in our 2027 assumption. But hopefully that's more opportunity than risk from here. But it's, you know, it's a global market. There's a lot of geopolitical factors that can go into it. But longer term, we see probably more opportunity on the export side in that market, maybe hopefully a more stable domestic environment, but we obviously realize the dynamics that occur there. And then AI is going to be a huge draw on the power plants. And when you look at utilization of some of the plants we serve today, there is certainly opportunity for that to go higher if power demand continues to pick up. And so that's what we're looking at. How do we advantage those plants? Because they're serving a grid, and it's a cost play, and making them as competitive as they can be so they can continue to serve their markets is important for us. You know, if I take a step away on the merchandise side, I mentioned it before, the fact that we're doing so well, this will be, you know, we've been pointed out a couple of times, this will be our third year of volume growth. And so a lot of the things I think we put in place. Over the last few years, take time to kind of start developing, and you're seeing that on the industrial development side. That's been contributory this year. It should be even more contributory next year to our growth story. Very excited about some larger projects that will start to come online here. We'll continue to get some wins, some that we can't publicly talk about right now, Matthew told me, because the customer hasn't talked about. But I'm excited about some of those things. We have a great team over there. We made some investments a few years ago to really develop that team and make sure we have. The people out there in the market identifying those things. And we continue to see a good pipeline there. It hasn't necessarily slowed down.

I know you started the year talking about 600, you know, individual industrial project opportunities. It sounds like it's still.

Yeah, I don't think that has materially changed. You know, I think what the market would like is a little more certainty. And there's been a lot of volatility this year, and so making those investments in an uncertain backdrop, it makes it more difficult. We'll see what the political dynamics now are shifting. The wind is shifting here a bit. So how that looks, but we got enough of a visibility in the next few years that gives us a lot of confidence that those will be helpful to our growth story going forward. And I will say this over and over again, when I first started at CSX, we were in this, you know, we were in a path where every year we were losing business, right? We were seeing business go off the railroad, and I think we can start netting up, which would be very different from what we've seen historically for the business. So, that's exciting. There's markets within merchandise like waste. You know, our metals business is very, very strong. You've seen investments continue to occur there. When I talk about industrial development, that'll continue to help us. You know, the tariff impact has been helpful. In some of these markets, we've seen that benefit. The investment in the U.S. industrial economy has helped us. So, we've seen that materialize in a number of these markets. Then there's other ones. You know, the chemicals has been, you know, we saw some uplift with the disruption that occurred in the Middle East and the war there. You know, that's been steady. There's opportunity, hopefully, to continue to drive growth there. It's not going to be a large, you know, it's not going to be a huge growth market for us, but it's a steady, nice market where we have competitive advantages throughout that. Forrest Products has been a challenging market. We saw a lot of shutdowns last year, but now we're seeing a little bit of growth as they've pivoted more to the rail versus truck. And I think you've seen some consolidation, and I think you'll start to see some investments in that industry as well, which we will take advantage of, hopefully, from that side. And ag, you know, ag kind of comes and goes with a crop cycle. You know, we don't have as large of a franchise as some of the Western. Rare roads, but we have a very robust franchise in the southeast where we serve that and some export business as well, and those have been healthy, and we still see some opportunities over the medium-long term to continue to grow those markets. So I'm very, you know, I'm optimistic. I know Marie Claire is optimistic about those markets over the long term. And then, you know, I already touched on Intermodal, so don't either do that again, but I think of any market I didn't touch on, Matthew?

I think you touched on them all. Yeah, there's been a lot of discussion about M&A, obviously, over the last year plus. That's certainly had some influence in terms of your strategic alignment. It's given you growth opportunities that, in some cases, that didn't exist previously. I'm just curious how those relationships have continued to evolve, given some of the announcements you made earlier in the year, and if there's any additional takeaways from those, how you feel about the growth opportunities with the alignment that you have.

Right. Yeah. Yeah. I mean, we're open for growth. Open for business every day. From everyone, right? You know, regardless, if there's good business to go after, we're going to be on the forefront of that. You know, I think what we've seen is a very healthy industry that's been able to handle growth. And, you know, we can run a great network, but a lot of our business also moves over other networks as well. And so if we're running a really good network and somebody else isn't, that experience is not going to be good for the customer. So what we've seen is a very, you know, all the railroads really pretty healthy this year. And so that's helped us kind of achieve our growth targets. And we've got a really creative team. I like to think that we're open to ideas, finding different opportunities for growth. I think, you know, a lot of the things that we've done over the last year have been associated with a merger. I can tell you almost all of them were being worked on prior to any announcement of a merger. Maybe I take a little bit of offense to that because I was part of a lot of those things. Did some of them maybe get accelerated? Maybe, perhaps, by a few months or a quarter or two, but they were all in the works. Again, we're not differentiating between anybody. If anybody has a growth opportunity to work on, we're going to be at the forefront of doing that and working with partners across it. It's a dynamic market out there, and first, you've got to start with a healthy industry that's moving well, operating well, and that gives us a lot of opportunities, and I think that's what we've seen this year.

I can't help but ask another M&A question, and so this one isn't necessarily a CSX one, but there's a lot of, I think, a lot of questions around concession. You know, obviously, UP and NS, there's going to be a concession ask here in the next week or so. Any expectation for how big that number could be when it's reviewed in hindsight? And then maybe we can just talk a little bit about after that, you know, key focus areas for 27, things we should be looking for out of CSX in 27 strategically in terms of milestones and success.

Yeah, you know, first, you know, we have our filing. It's in a week. And, you know, I think what you've seen from us is take a very measured, fact-based approach to this process, an objective approach. And I think that's what you'll see in our filing. Again, we continue to say, you know, the merger as proposed creates a transcon. Entity that's going to compete with regional railroads, and that creates potentially less options for customers. And that's what we're focused on. And I think at the end of the day, it will have to be evaluated on its merits. We're going to help customers make that analysis, and I think you'll see it in our filing, a very thoughtful, well-laid-out case in terms of what's problematic in this particular merger as it's proposed today. In terms of next year, you know, I hate to say it in a lot of ways, it's more of the same, but, you know, we got started, you know, late last year when Steve joined CSX, and it was full speed ahead, and there's a lot of improvements we can do on what we've achieved so far. I look at the capital side as a, you know, we're making a lot of progress there. I can't tell you how much the team has been engaged. We want to spend capital and maintain the railroad in the safest way we can, but there is tremendous opportunity to do it in a more efficient, productive way. And that allows us to have spend capital on investments and other things that have opportunities for us to grow our business. And so, huge, huge focus. ROIC, we talk about it almost daily around the company, and it's, you know, embedding that in people and how they think about the business going forward is key for us. You know, that muscle, as you know, we're already starting to, I'm already, you know, Steve actually in our executive meeting the other day was already starting to talk about 28. Wow. And how we're going to, what we need to do in 28, right? Gosh, I don't remember ever talking about, you know, the next year at this time and so early, so it's good. You know, we're building a pipeline, a multi-year pipeline of opportunities, and what do we want to achieve and how do we get there? How do we put the right people in the right place? I'm excited about some of the, you know, growth that we've had on the management team and putting really talented people up against new challenges is something that I think we're going to see big dividends going forward. So a lot of investments there, which I'm excited about. A lot of work to be done. It's been a long year. It's been a rewarding year. It's nice to see a little bit of energy or a lot of energy around the company. I think people like to be a part of a winning team. People are seeing that, right? Certainly, stock price is one indication, but just we compare ourselves to our peers, and that's been a good outcome this year.

Well, you guys have had a lot of success. Certainly wish you all the success in the year to come. We appreciate you being here. Thank you for your time today.

Thank you for having me.

Good conference.

All right. Thank you.