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CSX Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Volume growth of 2% for the year, outpacing the industrial economy.
- The company delivered an adjusted expense reduction of 2%.
- Chemicals remained strong in Q4, with volume increasing by 6%.
- Minerals volume was supported by positive demand for cement and aggregates, and Forest Products volume was up by 3%.
- Strong cash flow supported close to $3.2 billion in shareholder returns for the year, including over $2.2 billion in share repurchases and $900 million of dividends.
- Operating income and EPS both fell by 16% in Q4, impacted by $108 million or $0.04 impairment of goodwill related to quality carriers.
- Coal revenue declined by 20% in Q4 on 7% lower volume due to reduced global benchmark pricing and production issues.
- Quarterly revenue declined by 4%, due to lower global coal prices and a decline in fuel surcharge.
- EPS declined 7% on an adjusted basis, excluding the effects of the goodwill impairment this quarter.
- The company expects volumes in Q1 to show the effects of weather and a slow start for the auto industry, and then build over the course of the year.
- Volumes in Q1 are expected to show the effects of weather and a slow start for the auto industry, and then build over the course of the year.
- The company expects to return to YoY growth in H2.
- The company expects to deliver volume growth in the low- to mid-single digit range driven by merchandise and intermodal business.
- The company plans on CapEx being roughly flat YoY, excluding spend on the hurricane recovery, which will be reported out throughout the year.
- The company expects to have stable commodity prices, both export coal and fuel, over the three-year guidance period.
Q&A Highlights from CSX Corp Earnings Call Q4 2024
- Analyst asked about margin performance for the full year, considering the headwinds in the first half, and if strengthening in volume in the second half could improve margin performance.
- Sean Pelkey, Chief Financial Officer, stated that the headwinds are concentrated in the first half of the year, with Q1 being the worst, and margin improvement is unlikely in the first half. However, the company expects to see growth in operating income and margins in the second half, assuming the environment remains stable and the core fundamentals remain in place. The company plans to grow volumes low- to mid-single digits, which will be supportive of operating income and margin growth over time.
- Sean Pelkey, Chief Financial Officer, stated that the headwinds are concentrated in the first half of the year, with Q1 being the worst, and margin improvement is unlikely in the first half. However, the company expects to see growth in operating income and margins in the second half, assuming the environment remains stable and the core fundamentals remain in place. The company plans to grow volumes low- to mid-single digits, which will be supportive of operating income and margin growth over time.
- Analyst asked about the pricing outlook for 2025 compared to 2024, considering the puts and takes that would drop from revenue to volume to profit.
- Sean Pelkey, Chief Financial Officer, stated that if the company adjusts for the $350 million of headwinds, it would be in the lower end of the mid- to high-single digit range, plus or minus a little bit, depending on the economic environment. The company feels good about pricing and expects to continue to compete in the market and leverage its service product. Kevin Boone, President of Merchandise and Intermodal, added that the commodity price for coal has come down, and the company has seen some stabilization and contractual rates starting to move up slightly on the intermodal side. However, he cautioned that the market is very dynamic and the company is not calling a cycle.
- Sean Pelkey, Chief Financial Officer, stated that if the company adjusts for the $350 million of headwinds, it would be in the lower end of the mid- to high-single digit range, plus or minus a little bit, depending on the economic environment. The company feels good about pricing and expects to continue to compete in the market and leverage its service product. Kevin Boone, President of Merchandise and Intermodal, added that the commodity price for coal has come down, and the company has seen some stabilization and contractual rates starting to move up slightly on the intermodal side. However, he cautioned that the market is very dynamic and the company is not calling a cycle.
- Analyst asked about the impact of the tunnel project on CSX's margins and profitability.
- The Howard Street Tunnel Project is a significant investment for CSX, which is expected to yield benefits in 2026 and 2027, including the ability to double stack trains on the East Coast. The project will also address competitive disadvantages in CSX's intermodal business, such as the inability to double stack and reach high-density sectors of the East Coast. The company is confident in its ability to grow profits in 2026 and 2027, despite the higher expenses associated with the project in 2025.
- The Howard Street Tunnel Project is a significant investment for CSX, which is expected to yield benefits in 2026 and 2027, including the ability to double stack trains on the East Coast. The project will also address competitive disadvantages in CSX's intermodal business, such as the inability to double stack and reach high-density sectors of the East Coast. The company is confident in its ability to grow profits in 2026 and 2027, despite the higher expenses associated with the project in 2025.
- Analyst asked about the impact of mine outages on CSX's coal business.
- The company is experiencing some outages at its mines, including a recent fire at one of its mines. However, the team is working to find other sources to offset the demand that remains, and the mine is expected to come back online in the second half of the year. The company does not expect the outage to be a full loss, and it is confident in its ability to manage the challenges it faces in the coal business.
- The company is experiencing some outages at its mines, including a recent fire at one of its mines. However, the team is working to find other sources to offset the demand that remains, and the mine is expected to come back online in the second half of the year. The company does not expect the outage to be a full loss, and it is confident in its ability to manage the challenges it faces in the coal business.
- Analyst asked about the breakdown of the $300 million revenue impact on CSX's met coal price.
- Kevin Boone explained that the $300 million revenue impact was primarily due to the met coal price, and not related to volume. He also mentioned that the fuel surcharge was also a factor.
- Kevin Boone explained that the $300 million revenue impact was primarily due to the met coal price, and not related to volume. He also mentioned that the fuel surcharge was also a factor.
- Analyst asked about the impact of the Howard Street Tunnel shutdown on CSX's volume.
- Sean Pelkey responded that the shutdown is not expected to have a significant impact on volume, and that the company is working to preserve the volume and identify growth opportunities.
- Sean Pelkey responded that the shutdown is not expected to have a significant impact on volume, and that the company is working to preserve the volume and identify growth opportunities.
- Analyst asked about the relevance of CSX's Investor Day target of $243 million given the current market conditions.
- Sean Pelkey stated that the company is sticking with its guidance, and that the $10 million a month of network disruption costs are a headwind for 2025 but will reverse in 2026, turning into a net benefit for the company. He also mentioned that the three-year guidance assumes stable commodity prices for both export coal and fuel, and that the company feels good about its three-year guidance.
- Sean Pelkey stated that the company is sticking with its guidance, and that the $10 million a month of network disruption costs are a headwind for 2025 but will reverse in 2026, turning into a net benefit for the company. He also mentioned that the three-year guidance assumes stable commodity prices for both export coal and fuel, and that the company feels good about its three-year guidance.
- Analyst asked about the status of production growth in the auto and metals industries, specifically regarding inventory levels and customer expectations.
- Kevin S. Boone, Executive Vice President and Chief Financial Officer, responded that the company has seen a slower start to the year, with carloads down due to weather and loading challenges. He also noted that the company expects to see improvement in inventory levels but that there is uncertainty around rates and affordability.
- Kevin S. Boone, Executive Vice President and Chief Financial Officer, responded that the company has seen a slower start to the year, with carloads down due to weather and loading challenges. He also noted that the company expects to see improvement in inventory levels but that there is uncertainty around rates and affordability.
- Analyst asked about the potential savings that CSX Corp could see once the Howard Street and Blue Ridge projects are completed.
- Sean R. Pelkey, Executive Vice President and Chief Operating Officer, responded that the company expects to recover the $100 million of operating expense that it will take on this year within a couple of years. He also noted that the company sees a growth opportunity beyond the initial recovery and that the projects will turn into a positive for the company over the three-year period.
- Sean R. Pelkey, Executive Vice President and Chief Operating Officer, responded that the company expects to recover the $100 million of operating expense that it will take on this year within a couple of years. He also noted that the company sees a growth opportunity beyond the initial recovery and that the projects will turn into a positive for the company over the three-year period.
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