CSX Corp (CSX) — Q2 2025 Earnings Call Transcript

Thank you, Tiffany. Good afternoon, everyone. We're very pleased to welcome you to our second-quarter conference call. Joining me from the leadership team are: Joe Hinrichs, President and Chief Executive Officer; Mike Cory, EVP and Chief Operating Officer; Kevin Boone, EVP and Chief Commercial Officer; and Sean Pelkey, EVP 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 my pleasure to introduce Mr. Joe Hinrichs.

All right. Thank you, Matthew, and hello, everyone. Thank you for joining us for our second-quarter call. When we last spoke, we acknowledged the challenges we were facing on our network, and we made a commitment to act decisively to turn it around. What you'll see in the numbers and the momentum behind them is a result of deliberate and effective actions taken to return our network back to the efficient, well-run operation needed to provide superior service for our customers. This quarter shows what is possible when you pair clear priorities with decisive action, and the results are a testament to the ONE CSX culture we've been instilling across the business. Now turning to Slide 1. As we think about what we accomplished in the quarter and what we see out in front of us, four things come to mind. First, as I've already highlighted, we are proud of how our network performance has bounced back from the challenges of the first quarter. As Mike will cover later on, our velocity, dwell, trip plan compliance, and other metrics have steadily trended upward. In some areas, we are approaching or surpassing some of the best levels we've seen in recent history. This recovery reflects the strength of our operations and the team's ability to overcome challenges. We have to keep pushing, but this has been a great result. Second, the entire CSX team's commitment to working efficiently helped us deliver improved cost performance that supported meaningful sequential margin expansion. We will continue this focus throughout the year. Third, we are very pleased with the progress being made at our Howard Street Tunnel and Blue Ridge rebuild projects. We expect completion in the fourth quarter, which will remove two key constraints from our network. Finishing these two projects will open back up two of our four North-South routes. And as you know, we're excited about removing the last impediment to double stack intermodal on the I-95 corridor. Finally, as Kevin will discuss, we know that customers are facing mixed markets with activity holding strong in certain areas and slowing in others. That said, at CSX, we will continue to drive forward across all of our initiatives. We will not sit back and wait for the markets to turn. Now let's turn to Slide 2, where we feature some of the most important results from our second quarter. Total volume was flat compared to last year, and we saw a 4% sequential increase in the quarter, driven by merchandise and improvement in total coal shipments. Total revenue was $3.6 billion for the quarter, down 3% from the same period last year, largely due to lower coal and fuel prices. Quarter-over-quarter, total revenue improved 4%, in line with the increase in volume. Our reported operating margin, which includes our trucking business, declined by 320 basis points compared to the second quarter of 2024, but increased by 550 basis points sequentially, supported by the solid cost performance that accompanied our operational improvement. Earnings per share decreased by 10% year-over-year, but grew by 29% quarter-over-quarter. Now after a difficult start to the year, I am proud of all that we have accomplished, but we also cannot let our foot off the gas. We are committed to maintaining this momentum. Now that our network has stabilized, we are positioned to pursue more opportunities to grow the business. To do that, we will run safer, faster, and more consistently. We will provide attractive, profitable solutions for our customers even when economic conditions are uncertain. As we move forward, we will make sure that our execution remains effective and efficient. As an example, as part of our normal business review process, we recently reorganized management resources across several areas to improve alignment with the businesses and accelerate decision-making. These are positive steps towards our goal of sustainable, profitable growth. With that, let me turn the call over to Mike to discuss our operational performance.

Thank you, Joe, and thanks to all of you for participating today. So after a difficult first quarter, the team has effectively responded to our recovery plan that we presented on our last call. While we still have many opportunities for improvement, I'm really proud of the work the team has accomplished so far and truly appreciate their efforts. So let's go over to the next slide. Throughout challenges of late winter and into the spring, we remained committed to safely running our operations. Leading with our SAFE CSX values, our focus on eliminating significant injuries has resulted in a reduction of both life-changing injuries and missed workdays. Also, improved alignment and engagement in safety leadership is occurring throughout the operations organization. Our managers and craft employees are learning how to have meaningful conversations about exposure reduction, leading to a culture that is eager to identify and mitigate hazards before they become exposures. However, improvement in our train accidents has not followed suit. Most of our incidents occur in the slow-speed environment of our yards and result in little damage to infrastructure or equipment. However, they still are disruptive to the operations of our network. We continue to further implement yard inspection drones that will assist in identifying conditions that lead to track-cause derailments in our yards, and we continue to work on improvements to our wayside car health monitoring systems to prevent impact from equipment failures. An important area we have seen great improvement in is our human factor derailments, which continue to decrease. Over the next slide. Train velocity continues to improve while being affected by the rerouting of traffic off our two corridors. Our cars online and dwell continue to improve and are back at levels experienced prior to our disruptions. Reducing cars online was a key focus during our recovery period, but we did so in a way that minimized customer supply chain impacts by avoiding the use of disruptive embargoes. We accomplished all of this while experiencing weekly volumes in line with our prior years. Our recovery is a true testament to the hard work and dedication of every railroader at CSX. As we move into the third quarter, our efforts are concentrated on operating efficiently across our network. Over the next slide. Our efforts over the last quarter have improved our service measures. But while we're not yet at the TPC performance we strive for, our view is these measures will continue to improve as we enhance our dwell and train velocity. With the completion of our network projects, we expect these numbers to improve. With respect to our local service delivery, we continue to work very closely with our customers to ensure our service to them is everything they need for success. And on to the last slide. At this time, both our major projects are tracking on schedule. The Howard Street Tunnel portion of our I-95 project will be done in time for the fourth quarter, and the Blue Ridge subdivision used primarily for access to and from the Carolinas will also be ready for the fourth quarter. While these projects unlock significant capacity for the entire network, we're also upgrading our capacity and throughput at our yard in Indianapolis with the extension of the hump pullback. While this project is small in nature relative to the other two, it will give us the ability to hump more cars with fewer handlings at a very critical yard in our network. The entire team has accomplished much more over the last three months, but we're not done with converting opportunities that we have to make this railroad run better. And with that, I'll turn it over to Kevin.

All right. Thank you, Mike. First, I want to thank the entire operations team for their hard work. Our service levels are approaching record levels, and our ability to communicate across our teams and react to any disruptions has never been better. Many of the industrial markets we serve continue to face challenges with uncertainty around tariffs, trade, interest rates, and the overall direction of the economy. Our focus remains on the customer and driving strategic discussions that deliver value to our customers and new growth opportunities to the CSX network. Now let's review our end markets. Turning to Slide 9. Merchandise in the second quarter saw both revenue and volume decline by 2%. RPU was flat as lower fuel surcharge and negative mix were offset by core pricing gains. Our metals market and equipment volume was up 3%, while revenue was down 3%. We captured volume from positive trends in the steel market, while lower equipment and higher scrap volumes did impact RPU. Continued infrastructure demand in the Southeast and strength in new cement production led to 5% revenue growth for the Minerals segment. Ag and Food volume was up 2% compared to last year as operational execution enabled us to fully capitalize on strong grain demand into the Southeast region of our network. This was partially offset by weaker consumer demand in food products, including alcoholic beverages. Automotive volumes were down 2% for the quarter. Volume gains from a contract win with a new North American auto plant were more than offset by lower overall industry demand and production challenges at some CSX-served plants. Forest products have been impacted by challenges in the housing market and an overall sluggish demand environment. We continue to see industry plant consolidation along with several extended plant outages concentrated in the second quarter. Looking at the second half, we anticipate less downtime and expect to continue to drive incremental opportunities through our strategic partnerships with industry leaders. Chemical volumes decreased due to lower shipments of export plastics affected by an extended unplanned outage at a customer location, as well as a decline in chlor-alkali shipments. Fertilizer shipments declined by 6% as we experienced softer phosphate volumes due to customer production issues, though revenues remained flat due to positive core pricing and mix. As we move into the third quarter, we will continue to monitor tariff policy and expect to see mixed demand within end markets, including autos and housing, which remain well below long-term demand levels. One area of the business that we continue to see reasons for optimism despite the uncertainty in the economy is our industrial development pipeline. We are still seeing great progress in that area with another 25 projects that went into service in the second quarter, bringing the total for the year to 49. As we look to the back half of the year, we have another 30 that are nearing completion and additional projects on top of that, which may go in service depending on permitting and construction timelines. These facilities consume raw materials or produce finished products for a wide range of markets, including natural gypsum, aggregates, rolled aluminum, steel, and food and beverage. And with support from recently passed tax legislation, we expect to continue to see more projects added to the roster for years to come. Now let's turn to Slide 10 to review the coal business. Coal revenue declined by 15% for the quarter on 1% higher volume as we continue to face headwinds from lower global benchmark pricing. All-in coal RPU declined 16% year-over-year and fell 2% sequentially, slightly below previous expectations. The Australian benchmark averaged $184 per ton in the quarter versus $242 in the same period last year. Our export business was also impacted by production constraints. We knew 2025 would be challenging for this market, but we remain hopeful we will benefit from mine restarts towards the end of the year. Our domestic markets were mixed as the utility coal segment was well supported by high burn rates, higher natural gas prices, and faster cycle times. At the same time, our steel and industrial markets were impacted by unfavorable source shifts and softer steel market fundamentals. Moving forward, we expect the domestic segment to be supported by growing power demand and the deferral of coal plant closures. Turning to Slide 11 to review the Intermodal business. Second quarter revenue declined by 3% on a 2% increase in volume as lower diesel prices and unfavorable mix dragged on RPU. Our international business performed well with solid year-over-year unit growth supported by increased activity ahead of tariffs, especially early in the quarter. In recent weeks, we've seen a pickup in container arrivals as we expected, with exporters reacting to changes in tariff policy. Domestic volumes were effectively flat year-over-year as the ongoing soft trucking market remains a drag and interchange business from West Coast arrivals softened. Looking ahead, we're excited about the momentum we're building and expect to drive several new opportunities, including truck conversions through the new Myrtlewood interchange. Overall, just as Joe described, we're facing mixed markets into the second half of the year, but are taking a proactive approach with our CSX-specific initiatives. Our service levels are allowing the team to drive positive engagement with our customers as we continue to convert wallet share opportunities. It's important to highlight that our total Net Promoter Score with customers over this last quarter was the highest it's ever been. It is clear that they see and appreciate our return to industry-leading service, and that we accomplished this through teamwork and great communication across the ONE CSX team. We are also excited about the reopening of the Howard Street Tunnel and Blue Ridge subdivision later this year, which will improve on the positive service levels customers are experiencing today. We expect to achieve double-stack clearance through the Howard Street Tunnel in the second quarter of 2026, following the completion of bridge clearance work. This will open the CSX network to new markets and drive incremental growth opportunities. Now with that, let me turn it over to Sean to discuss financials.

Thank you, Kevin, and good afternoon. Looking at second quarter results, revenue fell by 3% on flat volume as weaker export coal benchmark pricing, lower fuel recovery, and unfavorable mix all contributed to lower yields. Expenses increased by 2%, and I'll discuss the details on the next slide. Interest and other expense was $9 million higher compared to the prior year, while income tax expense fell by $40 million on lower pretax earnings. As a result, earnings per share fell by $0.05. Included in these numbers is Quality Carriers, which, as you know, has a continued margin drag on our results and has been impacted by a challenged trucking market. We are working closely with the team to drive improved results. I also want to touch on sequential performance against the first quarter. As Joe mentioned, our railroaders worked tirelessly to help our network recover from an extremely challenging start to the year, and these efforts carried through to our financial performance. Operating income increased by $242 million from Q1, and margins improved by 550 basis points, both well ahead of normal sequential seasonality. This reflects strong momentum, particularly when you consider that April was challenged by flooding across the Midwest, with a gradual recovery in operating performance through the month that resulted in a strong May and June. Let's now turn to the next slide and take a closer look at expenses. Total second quarter expense increased by 2% or $38 million against the prior year. This variance includes around $10 million per month of network disruption costs, plus the impacts of inflation and higher depreciation, partly offset by savings from lower fuel prices. Looking on a sequential basis, our service recovery during the quarter was complemented by improved efficiency as expenses fell 4% or over $90 million from the first quarter despite a 6% increase in gross ton miles. Mike and the team delivered for our customers while also driving improved rolling stock utilization and operating with a rail headcount that was lower versus the first quarter. Turning to the individual expense line items. Labor and fringe was up $25 million year-over-year, mostly driven by inflation. An additional increase is attributed to our trucking business, where headcount was higher primarily due to the conversion of previously independent affiliates with offsetting savings in the PS&O line. Rail headcount was lower on both a year-over-year and sequential basis. Despite a higher workload with fewer employees, monthly overtime expense fell by over 15% in May and June relative to the first four months of the year. Also, as a reminder, cost per employee will step higher in Q3 as the majority of our unionized employees now covered by new labor agreements received a 4% wage increase effective on July 1, and labor expense will include accrued wage increases for the remaining employees. This will result in roughly a $20 million sequential increase to labor and fringe expense in Q3. Third-quarter labor and fringe will also include a charge of $15 million to $20 million related to the management restructuring Joe mentioned earlier, which will help position our workforce for 2026 and beyond. Annualized expense savings should be approximately $30 million, resulting in minimal net impact this year when you account for the Q3 charge. Purchase services and other expenses increased by $19 million year-over-year, which includes about half the total network disruption costs as well as inflation and volume-related expenses, partly offset by multiple net favorable variances. The line also saw a significant improvement from the first quarter, benefiting from lower locomotive costs and other items on top of normal seasonal trends. Depreciation was up $17 million due to a larger asset base. Fuel costs were down $32 million, driven by a lower gallon price, partly offset by additional gallons consumed due to network reroutes. Finally, equipment and rents increased by $9 million year-over-year, reflecting costs from seasonally higher volume and other items that were partially offset from the benefit of sequential improvements in payable car cycle times of 5% and 12% in our merchandise and automotive fleets. We're encouraged that both operational improvements from Q1 as well as structural efficiency opportunities are resulting in cost momentum. As we continue to invest in emerging technologies, we expect to deliver further savings that will support strong incremental margins in 2026 and beyond. Now turning to cash flow and distributions on Slide 15. Investing in the safety, reliability, and long-term growth of our railroad continues to be our highest priority use of capital. Year-to-date, property additions are higher, including around $295 million of spending towards the rebuild project on our Blue Ridge subdivision. Excluding Blue Ridge, capital spending is still expected to be roughly flat to the prior year at $2.5 billion. Free cash flow is lower year-to-date as a result of the increased total CapEx and a decline in net earnings, as well as a smaller impact from the relative size of previously postponed tax payments in each year. As we look forward, second-half cash flow will be meaningfully stronger than first half and is partially supported by now permanent bonus depreciation. This should positively impact our cash flow by approximately $250 million in the second half, and we expect continued benefits in future years. After fully funding our capital investments, we are committed to returning cash to shareholders, including close to $1.7 billion year-to-date. This reinforces our ongoing balanced and opportunistic approach to shareholder returns. With that, let me turn it back to Joe for his closing remarks.

All right. Thank you, Sean. We will conclude our remarks with a review of our guidance, which is effectively unchanged from the previous quarter. And we continue to expect overall volume growth for the full year. As we have discussed, markets are mixed overall with some very stable while others are showing some signs of softening. With our fluidity improved and incremental contributions expected from new projects and new service offerings, we feel very good about our momentum. Consistent with our past statements, there will be a smaller year-over-year impact from lower coal and fuel prices over the second half of the year as export coal benchmarks and diesel moderate over the back half of 2024. Our intense focus on efficiency, including labor productivity, will continue through the rest of the year. Summing up, we are encouraged by the progress made this quarter. Our team did a great job of working together and responding effectively to the tests we faced earlier in the year. We delivered a strong operational recovery and truly demonstrated the benefits of the ONE CSX culture that we have been building. And finally, we know there's been a lot of rumor and speculation about consolidation in the railroad industry in recent weeks. While we cannot comment, we want to be clear that at CSX, we are absolutely focused on delivering shareholder value and are always open to anything that can help us achieve this objective. We have a strong franchise that we believe is the best in the East, and we are making it stronger every day. Our customer service is industry-leading, and we have exceptionally strong relationships with those customers. We are working closely with numerous partners to help accelerate the build-out of industrial capacity on our network. And our commercial team is actively developing new solutions that will help us expand our reach and gain share. We are driving forward with major network projects that will prove to be valuable investments. Our Howard Street Tunnel project will allow us to compete in key intermodal markets. The Blue Ridge rebuild will ensure network balance, and our operations team continues to unlock added efficiency yard by yard and region by region. While we are confident in CSX's path forward, we welcome all opportunities that would allow us to deliver value for our shareholders, drive profitable growth, and serve our customers better. We actively evaluate these opportunities for their upside potential. This has been and remains the focus of our management and our Board. With that, Matthew, we're ready to take questions.

Thank you, Joe. We are now opening the floor for questions. Let me begin the process.

Congratulations on the significant service recovery here over the last couple of months. Joe, I think you have a unique perspective as a former shipper, current railroad to offer some additional thoughts on potential rail consolidation. So as a former shipper, what are some of the pinch points or the benefits you think that potential consolidation transcontinental, as we've all seen, could bring to the shipper community? And then in your current seat at CSX, obviously, there's a lot of momentum currently, and you've got some initiatives across the network. But where do you think there are some opportunities to add more value that shippers don't really have right now that you might be able to do through something more strategic?

There's a lot to discuss, Brian. Thank you for your questions. Firstly, you're correct; I have over 30 years of experience in the auto industry and have long been a customer of rail services. When I first joined this company, I emphasized that our primary focus has been on enhancing customer service and simplifying the process of working with the railroads, which is essential for fostering profitable growth in our industry. We will not speculate on mergers or similar topics. However, it is clear that customers expect railroads to offer improved service that is more reliable and consistent, and they want us to simplify how they engage with us regarding rates and operations. There are opportunities for collaboration across the entire rail ecosystem to advance this goal. As I reflect on my nearly three years in this role, I still believe there is significant potential for us to enhance our collaboration within the industry to better serve customers, grow profitably, and compete more effectively against trucks. Again, I won't outline specific strategies, but as mentioned in our previous remarks, we are open to exploring all options and discussions on how to best create value for our shareholders, grow the business profitably, and improve customer service. I look forward to these opportunities. Thank you.

Congrats on the strong quarter here. Folks, maybe for Mike or Joe, it would be helpful, I think, if you could just talk about what you're doing differently that drove the improvement in service. To what extent was that kind of a function of better weather versus proactive steps that you took? And how do you think about the sustainability of that service performance? And how much can we see kind of a further step-up when the construction projects are finished?

Thank you for the question, Ari. The improvement started with better weather, but we had already begun our initiatives before that, around mid-April. Essentially, we focused on four key areas. First, we prioritized the cars in our system, whether they were with customers or in our yards. We collaborated with our customers to enhance service where possible, which helped us manage our pipeline more effectively and maintain fluidity on our mainline. In our yards, we increased oversight, operating around the clock to address every opportunity and reduce oversights, knowing we were working at overcapacity. We also selectively added some locomotives and ensured our bulk network was efficient for coal and grain, which helped maintain yard fluidity. Additionally, we created more capacity on the road by adjusting our engineering work gangs. We were compressing a significant number of trains onto available tracks, losing some capacity. While weather setbacks and shutdowns, particularly at Howard Street, impacted us, our operation remains structured to optimize connectivity among the field, network, and senior management. As we look ahead, we anticipate improved metrics and a better capability to serve our customers, allowing Kevin and the team to pursue more business. We are actively creating more capacity and expect this to progress after the construction closures are done.

This is Eric Morgan standing in for Brandon. I wanted to inquire about the guidance. You're still predicting a volume increase for the year, which suggests some acceleration in the business compared to the second quarter. I recall you mentioned some unexpected outages in the second quarter. Are these issues now being resolved, or are you noticing any overall momentum across the business lines? Additionally, if you do see sequential volume improvements, as I believe the guidance indicates for the third quarter, do you expect to enhance the operating margin as well?

Let me address the first part of that, and then I'll turn it over to Sean regarding margins. It was an unusual quarter for us overall in the second quarter. We faced several outages across different business units. On the metal side, we felt some of that impact. In the fertilizer sector, we see solid demand fundamentals, and we're optimistic about improvements from core customers who have run into production challenges recently. We anticipate that these improvements will start to appear in the third and fourth quarters. We also experienced a significant number of unplanned outages in the forest products area, particularly in the paper mills, which we expect to improve as we enter the latter part of the year. Similarly, in the chemicals sector, a major customer faced production issues, but we hope for a rebound as we move into the third and fourth quarters, and we're already noticing some early signs of recovery. So, the short answer is yes; these factors have influenced our situation. Additionally, we encountered some demand declines in the latter half of last year, and we will soon begin to compare against those results, which might make for easier comparisons in some markets. We're also seeing efforts from our team to drive conversions despite a very weak truck market, which is commendable. These factors will also have an impact on us.

Yes. Just to add on in terms of the margins, this is Sean. Obviously, the volume helps. And any time we're able to grow volumes and keep cost discipline and keep the resources the same or lower, that's going to help from an incremental margin perspective. That said, normal seasonality, Q2 to Q3, Q2 is typically kind of the peak for both operating income and operating margin. Part of the reason for that is you've got the wage increases that go into effect in Q3. That will happen again this year. I quantified that at about $20 million. We've also got that restructuring charge that will hit in Q3, $15 million to $20 million in labor. And then on the cost side, one other thing I'd point to is we talked about net favorable items in purchase services and other in the quarter. That's probably going to be about a $20 million headwind going into Q3 versus Q2 as well. So those will be a couple of things that work against us. And then export coal pricing will be a factor as well. We'll see where that goes from here.

I wanted to circle on your commentary about reorganizing management resources. If you could just talk a little bit about what drove maybe those decisions? Is this an effort to go after maybe some incremental business, being able to respond to customers more quickly? Any additional color there would be helpful.

Sure, Stephanie. Thanks. This is Joe. We recognized in the first quarter that whether due to the fuel prices or export coal prices or even some of our operational issues that our revenue wasn't coming in at the level that we were expecting. So months ago, we embarked on a process that we've been working on for a while, which is around how should we be structured to efficiently operate the business. And so we challenged each of the different business segments within CSX to find about 5% of efficiency by reorganizing and prioritizing where we were going, but also then having to stop doing some things and reorganizing. So it took us a few months to get all that work accomplished, but I'm really proud of how the work was done. And there are more significant changes, like, for example, engineering inside operations or in technology, some of those areas where we really had to reprioritize some of our resources and really given what's going on. But I feel really good about how it was done, and it just happened to be times where we did it in early July. Again, it's all part of the discipline of the cost structure of our business. And you saw that in the operations in the quarter, you saw that in the decisions we made on the management structure, and you'll continue to see us be disciplined in cost. We watch our revenue versus our costs very carefully, and we'll take actions as appropriate.

So Sean, I just wanted to follow up; your comments on sequential costs were helpful. However, April appears to be a challenging month, and perhaps May as well, as the operating metrics seem to improve significantly throughout the quarter. I assume this indicates that costs also improved during the quarter. Is there a way to consider the exit cost run rate in comparison to the average cost rate? Does this provide some offset to the cost items you mentioned? Or are we looking at this the wrong way? Additionally, Kevin, you seem to have a different perspective on coal given the current situation with power. Could you share your thoughts on whether we need to reevaluate our view on coal moving forward?

Scott, I'll take that first part. I think you're in the right direction there in terms of, yes, April was more challenging from both a weather perspective and operational fluidity. Yes, we carried a little bit of extra cost, but it was pretty small in the grand scheme of things. You didn't hear us call it out here in the results that $30 million of kind of reroute costs that we had includes a little bit of overhang in April. So yes, May and June were better. We got a lot of focus in terms of cost discipline, which the actions that we took in terms of the management restructuring, some of the things we're doing on the operating side. I mentioned overtime reductions. There's a lot of things throughout the business that we're focused on that have already yielded some results here in Q2. So it wouldn't necessarily model significant run rate improvements from Q2 into Q3. I think we're in a good spot as we stand right now. We feel good about how this sets us up going into next year as well when we really see a good opportunity not only to kind of grow the top line but also to see that flow through into strong earnings growth.

Regarding the coal aspect, I believe Scott is referring to the domestic situation. It is certainly true that we are observing more favorable trends than we had anticipated for this year. When we examine our utilities broadly, especially in the South, they are currently operating at approximately 40% utilization, and there are indications that this rate may increase. This is encouraging. We are noticing signs from several specific utilities that we serve. In fact, I know Mike and his team are working on the operating plan to ensure we provide enough coal for those plants. We are also hearing about extensions to the operational life of some plants that were previously slated for closure in the coming years. All of this is promising and helps to alleviate some of the pressure we’ve faced on the export side, which has been affected by this year's price fluctuations and the two temporary mine outages we have experienced. We expect these mines to come back online in the fourth quarter.

Sean, I know trying to forecast commodity prices is a fool's game. But in prior quarters, you typically give the sequential outlook on coal RPU, which is obviously very important. And then also, is there any way to quantify the "smaller" revenue headwinds from combination both at coal benchmark and diesel prices as we think about 2H versus 1H?

Yes, Jonathan, I think when you think about total coal RPU, mix can play into that for sure. But based on kind of what we're seeing right now, probably see a similar RPU in Q3 versus Q2, maybe down a little bit depending on where the benchmark heads, but it would be a modest decline in total coal RPU. And then in terms of those headwinds, between commodity prices, you're looking at $200 million in the first half, that's going to be more like $100 million in the second half with about two-thirds of that concentrated in Q3. The comps are a little bit easier as we get into Q4, which is why we think there's a good opportunity to return to year-over-year growth in Q4.

I wanted to ask you, Joe, about making the railroads easier to deal with. You mentioned earlier the ease of doing business. When considering the difference between working with a single-line railroad and interline service, do you think ease of doing business is what sets them apart? Many people often say it's more challenging to work with two different railroads. Do you agree with that, or do you believe it doesn't significantly impact the shipper experience?

Yes, Tom, I'm not going to comment on anything related to a merger of the transcontinental railroad. I'll stick to what I said before. We see many opportunities to collaborate and enhance the experience for our customers, and we're open to discussing all those possibilities. Our focus is on creating value for our shareholders and finding ways to grow profitably, and we believe that better customer service contributes to that goal. There are various ways to provide improved customer service. I'm looking forward to those discussions and making progress in that area.

Certainly, a lot going on, Joe. I appreciate those thoughts and insights. Maybe, Kevin, the thought on the state of the consumer. We heard a lot about air pockets of volumes that stalled intermodal, and then it wasn't really as big or quick of a snapback. It looks like your volumes are trending up 2% overall for the quarter-to-date. It sounds like you're targeting a little faster. Maybe just dig into that. How is the consumer doing? And then the Howard Street Tunnel, it sounded like 2Q '26 is when you expect that to open. Is that a delay from your end? It sounded like the project will be done in 4Q, but you expect volumes in 2Q? Just trying to understand the timing of when we'd see intermodal ramp on that.

Yes, that's a good question about the Howard Street. We will be able to run trains through the Howard Street Tunnel in the fourth quarter. To introduce double stack capability, we need to clear two remaining bridges. We will return to the previous operational status and expect to introduce the new capability on the intermodal side in the next year. We're focused on launching new services. The current state of the consumer is complex, and we're all trying to gauge it. Two key markets for us are autos and housing, and we recognize their current conditions. We had hoped these markets would support our business trends more than they currently do. Despite this, I believe we've managed to hold up relatively well, and eventually, we will benefit from these markets. Discussions about interest rates are prevalent, and lower rates would significantly impact both markets. Intermodal has seen volatility due to tariffs, and we will look to our trucking partners to determine how peak season will shape up. We remain optimistic as we are actively seeking new business opportunities and not waiting for market conditions to improve. We are taking proactive steps to identify those opportunities and increase our market share.

Could you provide some insights on the other revenue run rate and how you expect it to trend in the next few quarters? Also, thank you for the details on the second and third quarter, but could you clarify if there were any surprising positive factors in the second quarter, particularly towards the end? I'm interested in understanding if there were any specific items influencing the performance, especially given your commentary during the quarter, as it appears the revenue performance was better than anticipated. Are there any significant factors we should consider as we move from the second quarter to the third quarter?

Yes, Ravi. So let me take the other revenue first, which benefited in the second quarter from the improvement in operations. What that did for us is it decreased the reserve for freight and transit as cycle times improved. So there was a bit of a benefit within that line that wouldn't necessarily continue unless we saw further improvement in our cycle times from where we are today. So I would project somewhere between $115 million to $120 million a quarter on the other revenue line is probably our best guess outside of any unique items that pop up there. And then in terms of other items in the quarter that were unexpected and unique, I did mention within purchase services and other, we did have a number of different moving parts, which were net favorable to us in the quarter, things like some favorable casualty results, real estate sales that were relatively minor but positive on a net basis. Add that together, that's probably about a $20 million headwind going into Q3. So those are the two things I'd point to. But broadly speaking, I think what you're seeing is a team that's really energized around the progress that we've made in operations and how that's translating to service to the customer, how we're being able to sell that and then focused on costs up and down the business from operations all the way into G&A and technology and other areas.

Mike, I want to stay on service a little bit. So congrats on the turnaround for sure. How should we think about sort of trip plan compliance for 3Q, given that you had a rough start to 2Q, but you put in some sequential gains on the carload side. Are you guys looking to sort of match the prior year numbers? And I guess on an off-topic one, Joe, since you have your ear so close to the ground, are you hearing anything in terms of the potential appointment for a fifth Board member for the STB?

Thanks, Jason. I'll take the first one. Yes, to answer your question, yes, we expect to get our trip plan compliance in both the merchandise and the intermodal back to where they were even better. It's certainly going to help once we get our two projects done. And we're tracking well, but it's never good enough because this is the commitment to the customer. So big focus for us. But as we get the railroad continue to improve, continue to get capacity and fluidity, we expect those numbers to be better than they were.

Yes, thanks, Jason. I'm really encouraged by the trip plan compliance results so far in July in a heavy vacation period. So it's been encouraging to see the continued progress there. And as Mike said, we expect even more progress once we get the projects done in Q4. Regarding the STB, yes, we have a great relationship with the STB Board. In fact, one of the things that was really exciting to hear from STB was that during the first quarter, when we had some of our challenges, they did not hear from one customer about CSX. In fact, they had customers call them and complimenting CSX on how we were handling it. They had no complaints, which is a testament to how the team worked together to take care of our customers, even though we weren't performing at the levels we expect. We're not going to comment and speculate on the fifth Board member. That's for someone else to talk about, but we're looking forward to continuing to work forward to create value for our shareholders.

Kevin, I think you talked a little bit about this before, but maybe you could dig a bit into the sort of outlook on the volume side. What you think in the second half is sort of where the opportunities for growth for you to get to that full year back to positive? It sounds like there's a couple of moving parts there. Obviously, the consumer is tough to call. But what's your take as you think about peak season?

We noticed that some markets began to decline in the third and fourth quarters of last year, which presents somewhat easier comparisons in these markets. We experienced unusual activity levels in the second quarter, particularly in forest products and chemicals. However, there are promising opportunities in the fertilizer market due to solid demand fundamentals supporting production growth, which would benefit our business and volumes, as well as our customers. I specifically mentioned a chemical customer from whom we anticipate increased volumes in the latter half of the year. Having clarity around tariffs is crucial, especially with the announcement regarding Japan and the upcoming developments in Europe, as it affects our export plastics. Certainty in that area will be beneficial as we approach the latter part of the year. The demand on the domestic side remains strong, and we expect this to carry into the second half. Additionally, we plan for a couple of mines to resume operations, contributing more volume as we enter the fourth quarter. Overall, our opportunities are quite diversified across various markets.

I just want to go back to the detail on the cost of inconvenience here. You'd mentioned $10 million a quarter, but does that capture everything, the reroute miles, the lost revenue, the extra crews, the extra time, etc. I'm just trying to get a profile of what costs will melt away in 4Q, what costs will melt away next year? What costs, if any, may melt away in 3Q?

It's $10 million a month, and that has been the case for most of the year. This will continue until the projects are finished. It includes all costs related to the reroutes, and there really hasn't been much lost revenue. We've effectively managed to find solutions for our customers to reduce the impact of lost revenue. Earlier this year, in the first quarter, in addition to the reroute costs, we faced weather and congestion costs estimated at $20 million to $25 million. Therefore, if you consider everything, the overall impacts of about $120 million to $125 million will disappear as we move towards 2026. Furthermore, we anticipate improvements in the network and overall efficiency as these projects are completed. As Kevin mentioned, the Howard Street project will also bring various benefits. We will experience operational advantages from day one when we start double stacking next year, and we will also be able to utilize the new capacity we've created. There's a lot to look forward to in 2026 and beyond.

That aligns well with my question regarding your Investor Day targets of roughly 10%. Considering your performance this year, which appears to be in the negative 5% to 10% range, can we refer back to your Investor Day guidance as a benchmark for assessing 2026? As we refine our projections for your earnings growth for next year, factoring in from a two-year view and addressing some of the one-time or discrete items from this year, is it reasonable to anticipate a mid-teens growth in earnings for next year?

Walter, thank you for your question. When you mention 10%, I'm interpreting that as referring to EPS, and our guidance is in the high single digits to low double digits, so that's certainly within the expected range. Achieving that will require strong growth in 2026 and a solid performance in 2027, considering some challenges we've encountered this year. It's probably premature to pinpoint exactly where we'll end up next year, but I did discuss it in response to Jeff's question about the opportunities we have right from the start, which should lead us to low to mid-single-digit growth in operating income and EPS without any additional efforts. We have an industrial development pipeline, as Kevin mentioned, with around 50 projects already in place and another 30 expected in the second half, along with hundreds of projects down the line over the coming years. Taking into account easier comparisons from earlier this year and the reduction of headwinds, 2026 should position us for double-digit growth; however, I won't make any further projections until we have a clearer understanding of the economy and its developments. We'll certainly provide updates as we approach that timeframe.

So regarding the prospects for better pricing, I understand that a lot of the pricing was impacted by mix and fuel in the previous quarter. However, as we consider the service improvements that have gained some momentum for the second half of the year, can we anticipate some positive outcomes in net pricing?

I can assure you that we are highly focused on this matter. When we have a strong service product that adds value for our customers, it makes for an easier conversation. Covering our costs is certainly important, but we must continue to deliver value to our customers. We need to see if we can help them optimize their assets or reduce costs in other areas that will justify the value they receive. I'm optimistic that we've hit the bottom of the truck market, which should influence and speed up these discussions. Currently, there are several opportunities in a highly competitive trucking landscape. Just last week, a customer mentioned that they have experienced three consecutive years of decreasing trucking rates, which they recognize is not sustainable. This situation will play a role as we move into the latter half of the year. I hope to see some momentum building, which we can carry into next year.

We're receiving many inquiries regarding freight flow information. Kevin, could you help me understand what percentage of your revenue currently comes from west of the Mississippi, specifically west of St. Louis?

I think what we've said is over half of our business touches another railroad. I don't think we'll go in more detail than that currently. We can certainly follow up, but I think we'll leave it at that.

You've spoken about CSX specific projects supporting volume growth. I was just wondering, have conversations with customers increased, paused, or decreased as a result of the current tariff structure? And perhaps within that, could you size the opportunity you have with the CPKC partnership and over what time frame it should ramp up in maturity?

Yes, I believe the new tax policy is beneficial. Clearing up tariff uncertainties should encourage investment, given that there's already a demand built up. More importantly, it will boost confidence in completing projects already in our pipeline, presenting a significant opportunity for us. Regarding the CPKC Myrtlewood connection, we recently held another cross-functional team meeting and identified several truck conversions and opportunities that are currently not being handled by rail that we're actively pursuing. We're excited about the progress we've made and are witnessing these conversions take place. Although the sales cycle is lengthy, we are optimistic that, in the near term, we will capitalize on certain opportunities, and we expect to see further acceleration as we move into the latter part of this year.