Railway executives lost $1 million in revenue per day in the first three months of the year, and the reconstruction of a major tunnel project.
“We were hit in the first quarter; it was a tough winter,” Sean Pelkey, executive vice president and chief financial officer, said in a speech at the Bank of America conference in New York. “We missed a $100 million revenue opportunity due to restrictions on the internet, a million dollars a day.”
The Railroad (NASDAQ:CSX) was rebuilt through the 60-mile line in eastern Tennessee and eastern North Carolina after destroying the area in September 2024.
Pelki said the reconstruction is expected to last until completion in October or November "for much of the year." “There’s a lot of work there,” he said.
The redevelopment of the Howard Street Tunnel in Baltimore also hurts network performance. Construction of the tunnel that can accommodate Doublestack trains is expected to be completed within eight months, slightly higher than planned, Pelkey said. "Some permits need to be completed and there are work on some bridges; we rely on the country for that. We see the start of the fourth quarter of reopening."
After a tough start to the year, CSX saw a reset in April.
“We need fewer cars online, sitting in the yard and in the facilities of our customers,” Perki said. “We’re seeing 80% of the trip length compliance for the fourth week in a row; we were at 60 events earlier this year. We’re restoring the scheduled rail, and not we got rid of it, we’re dealing with difficult operating conditions.”
Normal seasonality increases in quantity in products such as coal trains, metals and fertilizers.
Just as the winter retreated, the CSX was hit by even worse weather, from flooding to tornadoes in parts of its territory.
“The team was knocked out in Jacksonville (the center of operations in Florida) and we were like, ‘Barring, do we have to deal with this now?’ For example, we did see some effect.
Pelkey said China and the U.S. are expected to have a less impact on the East Coast-based CSX. "The West Coast warehouses will probably have a lot of inventory to the east. If we see some calm intermodal transport across Chicago, there may be an opportunity to buy some incremental business and combine the train."
The company recently signed a new contract with the Locomotive Engineer and Training Fraternity (Blet) that has brought its conductors to Smart-TD, the only union without a new deal. Pelkey notes that the calf has one agreement throughout the system, while the conductor has multiple agreements, such as some employees working on the Northwest train, while others working north in certain terminals, the legacy of the carrier’s predecessor, railroads. Pelkey said the company believes that having all single system contracts is preferred.
Even if health care costs are lower, CSX will have a wage inflation rate of 4.24% this year, an increase in labor costs and is expected to grow by less than 3%. “We can offset this with (freight) pricing gains, and over time it will drop.”
While freight volume growth was off 1% in the first quarter, it is up 3% so far in the second quarter, and the railroad is expecting growth for all of 2025, said Pelkey, “We are encouraged by the demand picture, trade and tariffs in terms of trade and demand. Aggregates, grain and intermodal are very, very strong so far this year before hitting that 'air pocket' caused by tariffs.”
The cold winter helped CSX move more coal, loading coal for six consecutive quarters so far, accounting for 11% of the total load. Pelkey said CSX is moving more export coal after the collapse of Key Bridge in 2024, which hurts the business at the port of Baltimore, a key burden on international cargo. CSX processed 44 million tons of exported coal in 2024, and is predicted to be 10% better in 2025. The railway made some system investments, including at the Curtis Bay Terminal in Baltimore, to improve reliability. "In the past decade, we have increased coal exports in total by 10%."
Among other products:
Fertilizer shipments grew by 12% due to steady demand after CSX passed the impact cycle of customer fires in 2024.
Now, the metal business that provides 60%-70% order-filled for automobiles and construction is now 90%.
Car volumes increase through unit numbers, competing with what Perki calls "below-cost trucks" at $1.49 per mile.
International intermodal transport is the biggest driver of double-digit numbers so far, while domestic intermodal transport has risen slightly.
Pelkey said the reliability of intermodal service in the first quarter paid off in terms of volume growth, highlighting the intermodal service provided by partnerships with CPKC (NYSE:CP), as well as cross-border connections connecting Mexico, Texas and the southeastern United States.
Although Pelkey did not provide guidance for the second quarter, he said CSX expects the first quarter to grow sequentially as volumes are collected and served. From November, the company's Investor Day guidance "we are still right", Pelkey said.
Pelkey said a total of 40-50 industrial projects will start with the CSX network this year, with 24 online since the beginning of the year and 37 in the channels. "The annual operating rate will support 1-2% batch growth," he said, adding that CSX has 600 projects at each stage of development.
As speeds decline and residence time increases, the number of trucks on the network soared to 140,000 in the first quarter. To clear the yard, the CSX added 45 failed locomotives, rebuilt 20 and added engineering hours over the weekend, Pelkey said.
Pelkey said tactically that CSX combines trains, which can improve business here and tend toward AI and advanced analytics to improve operations.
“Railways haven’t unlocked that capability yet,” he said. “Many decisions were made using visibility tools, but not happening in the future. We want to speed up the focus on the technology, leverage data, and think we can do that this year.”
While CSX handled 7.5 million carloads a year two decades ago, that total fall to 3.5 million in 2024. Pelkey said the railroad has capacity to grow volumes in the mid-single digits over the next several years, and has made investments, for example, adding sidings along its Southern corridor, improvements at Cumberland Yard in Maryland to speed processing of cars and spending on its network of Transflo bulk transloading terminals, to capture customer needs.
The company has no plans to buy new locomotives, but will continue to rebuild, for example, the AC4600 and SD60 units over the past five to six years, as well as the Redeploy Power not Storage.
The company employs about 23,000 people, and Pelkey said it expects that number to remain stable. “'Flat' employees allow us to grow, with their ability within that head count level. Employee efficiency is a key indicator of us and the industry. We are looking for ways to improve efficiency.”
As for stock buybacks, Perki said the company would not give a number, but instead planned to become opportunism at an attractive price. He added that CSX has no specific leverage targets, but feels “feel good” about its debt rating and continues to have conversations with rating agencies.
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