CSX Corp Earnings - Q4 2025 Analysis & Highlights
CSX Corp.'s Q4 2025 earnings call highlighted a challenging year with subdued demand, leading to lower operating income, operating margin, and earnings per share despite modest volume growth. The company is focused on cost structure adjustments, workforce optimization, and efficiency initiatives to drive stronger performance in 2026, with a particular emphasis on improving operating margins and free cash flow amidst a soft macroeconomic outlook.
Key Financial Results
Fourth quarter operating income and earnings per share fell by 9% and 7%, respectively, against adjusted prior year figures.
These results included approximately $50 million, or $0.02, of charges for actions taken during the fourth quarter to optimize the workforce and technology portfolio.
Fourth quarter expenses increased by $73 million, or 3%, excluding the 2024 goodwill impairment.
The quarter included approximately $50 million of charges comprised of $31 million of separation costs in the labor line and $21 million of technology impairments in PS&O.
Business Segment Results
Total volume was up 1% in the quarter, but revenue was down 1% due to negative mix and weaker export coal prices, leading to a 2% decline in total revenue per unit.
Merchandise franchise volume and revenue were both down 2%, facing market-driven headwinds.
Revenue per unit for merchandise was modestly higher but affected by mix, with strongest growth in low RPU areas such as minerals and fertilizers.
Chemicals and forest products saw softness, with volume down 6% and 11%, respectively.
Automotive volume was down 5% year-over-year.
Fertilizer volume was up 7% due to improved phosphate rock production and business wins in the nitrogen market.
Minerals volume remains supported by demand for aggregates and cement for infrastructure projects.
Intermodal franchise revenue was up 7% year-over-year on a 5% increase in volume.
Coal business volume grew modestly by 1% year-over-year.
Domestic coal tonnage increased by 6%, driven by a substantial increase in domestic utility volume supported by growing power demand and higher natural gas prices.
Export coal tonnage declined 3% due to a derailment in late October.
Coal revenue was down 5% on a 6% decline in RPU, primarily due to a decline in net coal benchmark pricing.
Capital Allocation
CapEx for 2026 is planned to be below $2.4 billion, a substantial reduction from last year.
CapEx priorities include investing in infrastructure for safety and reliability, and investing in growth and productivity projects that meet financial criteria.
Industry Trends and Dynamics
The industrial chemicals market remains weak, with customers controlling freight spend due to inflation and tariff pressures.
Forest products continue to be affected by plant closures, particularly in pulp and containerboard, that occurred up until the start of the fourth quarter.
Automotive output was limited by supply constraints with chips and metals.
The trucking market remains soft, but supply-driven increases in truck rates are being watched carefully.
There is a risk of a slowdown in imports after the pull forward of activity through 2025.
Global steel markets and benchmark prices for met coal remain subdued.
Many domestic utilities continue to buy more thermal coal due to increasing power demand.
Some coal plant closures on the network scheduled for this year have been delayed.
Competitive Landscape
The company is positioning itself in the wake of a major merger in the industry.
The focus is on running the business to the best of its ability every day, regardless of merger conditions.
The company aims to be as competitive as possible and create value by running CSX better daily.
Macroeconomic Environment
The macroeconomic environment and industry dynamics were meaningfully different in 2024 compared to 2025.
The near-term outlook across many key markets remains soft.
No meaningful improvement in macroeconomic conditions is anticipated for 2026.
The industrial economy still faces many headwinds.
There is no short-term catalyst on the horizon to lift the major industrial markets.
Growth Opportunities and Strategies
The company has renewed its leadership team to drive value, physical responsibility, and disciplined execution.
Service levels have been stabilized at high levels, delivering consistency and reliability for customers.
The company has capitalized on its service strength to win business and is ready to respond when demand increases.
Thoughtful actions will be taken to drive greater profitability and cash flow.
Safety performance is being improved through focused execution of the safety plan.
Asset utilization and maintenance efficiencies are being improved, and controls around discretionary spend are being enhanced.
The company is positioned to benefit from consistent strength in infrastructure project activity, driving demand for materials such as cement, aggregate, plate, and scrap metal.
New facilities are expected to ramp up in 2026, bringing benefits despite headwinds in forest products.
Intermodal has seen success in winning new domestic and international business by expanding network reach through new operational agreements and providing faster service.
The Howard Street Tunnel project completion will support double-stack capability, with customers bidding on business for Q2.
Two important met coal mines on the network are back open after extended outages, providing good quality met coal for the export market.
The company has a well-running railroad and a good pipeline of growth initiatives.
Financial Guidance and Outlook
Low single-digit revenue growth is expected for 2026, based on flat industrial production, modest GDP growth, and fuel and benchmark coal prices consistent with current levels.
Year-over-year operating margin expansion is expected in the range of 200 basis points to 300 basis points.
This expansion is from workforce optimization, tighter management of discretionary expenses, efficiency drives, and benefits from a more stable fluid railroad.
Free cash flow is projected to grow by at least 50% compared to 2025, driven by higher earnings, a more normalized cash tax rate, and lower capital outlays.
The 2025-2027 targets have been replaced with guidance for 2026 only.
Modest volume growth is expected for 2026.
Inflation is expected to be in the 3% to 3.5% range, with labor inflation being higher than non-labor inflation.
Depreciation expense will be relatively stable year-over-year.
