CSX Corporation (NASDAQ: NASDAQ:CSX) reported a solid third quarter performance despite facing challenges from two hurricanes. The company saw a 1% increase in total revenue to over $3.6 billion, driven by a 3% rise in total volume and a 6% increase in merchandise revenue.
Key Takeaways
• Total revenue increased 1% year-over-year to over $3.6 billion
• Operating income grew by 7%, with earnings per share up 12%
• Operating margin reached 37.4%
• Total volume increased by 3%
• Merchandise revenue rose 6%
Company Outlook
• Modest volume growth expected in Q4, driven by chemicals and agriculture
• Overall Q4 revenue projected to decline due to lower fuel and coal prices
• $50 million cost impact from hurricanes expected in Q4
• Rebuilding costs projected to exceed $200 million
• Long-term growth optimism, with more details to be shared at November Investor Day
Bearish Highlights
• Coal business faced 7% revenue decline, with 2% drop in volume
• Intermodal revenue decreased 2% despite 3% volume increase
• Decline in demand for metals, particularly in automotive sector
• Anticipated $100 million operating income headwind from fuel and coal in Q4
Bullish Highlights
• Strong performance in merchandise sector, particularly chemicals and agriculture
• Export coal shipments rose by 10%
• International intermodal shipments performing well
• Successful truck-to-rail conversions in merchandise franchise
• Positive trend in merchandise pricing
Misses
• Total coal revenue fell 7%
• Modest decline in coal revenue per unit expected in Q4
• $50 million cost impact from recent hurricanes in Q3
Q&A Highlights
• New five-year agreement with 3.5% inflation lock to improve labor relations
• Wage inflation forecast to exceed 4% in 2024
• Potential intermodal pricing increases next year due to trucking market challenges
• Ongoing shift of freight movement from West Coast to East Coast
• Improvements in employee Net Promoter Scores and reduced attrition rates for new hires
CSX Corporation reported a resilient performance in the third quarter of 2023, despite facing operational challenges from two hurricanes. The company saw a 1% increase in total revenue to over $3.6 billion, driven by a 3% rise in total volume and a 6% increase in merchandise revenue.
CEO Joe Hinrichs highlighted the company's strong cost control and operational efficiency, which led to an operating margin of 37.4%. Operating income grew by 7%, with earnings per share increasing by 12%.
The merchandise sector showed strong performance, particularly in chemicals and agriculture, which saw a 9% volume increase. However, the coal business faced headwinds with a 7% revenue decline and a 2% drop in volume. Intermodal revenue decreased 2% despite a 3% volume increase.
Looking ahead, CSX anticipates continued momentum in certain markets but acknowledges challenges in others influenced by the interest rate environment. The company expects modest volume growth in the fourth quarter, driven by favorable markets in chemicals and agriculture. However, overall revenue is projected to decline due to lower fuel and coal prices.
The impact of recent hurricanes is expected to cost the company $50 million in the fourth quarter, with rebuilding costs projected to exceed $200 million. Despite these challenges, CSX remains optimistic about long-term growth and plans to share more details at the upcoming Investor Day in November.
CSX also highlighted its focus on employee engagement and culture, reporting improvements in employee Net Promoter Scores and reduced attrition rates for new hires. The company has successfully maintained merchandise intermodal revenue growth for seven consecutive quarters, even amidst challenges like severe weather events.
As CSX navigates market conditions and operational challenges, it remains committed to delivering customer value through improved service and operational excellence.
InvestingPro Insights
CSX Corporation's solid third-quarter performance, as reported in the article, is further supported by data from InvestingPro. The company's impressive gross profit margins, highlighted as an InvestingPro Tip, are reflected in the reported gross profit margin of 48.41% for the last twelve months as of Q2 2023. This aligns with CSX's strong cost control and operational efficiency mentioned in the earnings report.
The article notes CSX's resilience in the face of challenges, which is consistent with another InvestingPro Tip indicating that the stock generally trades with low price volatility. This characteristic may be attractive to investors seeking stability in their portfolio.
CSX's commitment to shareholder value is evident in its dividend history. An InvestingPro Tip reveals that CSX has raised its dividend for 20 consecutive years and has maintained dividend payments for 44 consecutive years. The current dividend yield stands at 1.35%, with a 9.09% dividend growth over the last twelve months.
While the article mentions some headwinds in certain segments, it's worth noting that CSX remains profitable, with a P/E ratio of 19.45 and a return on assets of 8.61% for the last twelve months. These figures suggest that despite challenges, CSX continues to generate value for its shareholders.
For investors interested in a deeper analysis, InvestingPro offers 11 additional tips for CSX, providing a more comprehensive view of the company's financial health and market position.
Full transcript - CSX Corporation (CSX) Q3 2024:
Operator: Thank you for standing by. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation Third Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Strategy. You may begin.
Matthew Korn: Thank you, operator. Hello, everyone, and good afternoon. Welcome to our third quarter earnings call. Joining me on this call are Joe Hinrichs, President and Chief Executive Officer; Mike Cory, Executive Vice President and Chief Operating Officer; Kevin Boone, Executive Vice President and Chief Commercial Officer; and Sean Pelkey, Executive Vice President and Chief Financial Officer. In the presentation accompanying this call and 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.
Joe Hinrichs: All right. Thank you, Matthew, and hello, everyone, and thank you for joining our third quarter call today. First, I want to thank our entire ONE CSX team who've been tireless in helping our employees and their communities recover from the hardships caused by two hurricanes in a matter of weeks. Helene, in particular, had a big impact on our network, and we'll talk more about that today. We have largely recovered, and we have made sure that CSX has been able to support our railroaders who have needed the systems for themselves and their families. That said, there's more work that we will need to do to repair and replace some of the physical infrastructure that we lost, which Mike and Sean will discuss later on this call. Now stepping back and looking at this entire quarter, I am proud of what we accomplished. Our aim was to grow volume, revenue and operating margin compared to last year, and that is exactly what we delivered. Our merchandise franchise continues to grow at an impressive pace, benefiting from our service leadership and the numerous initiatives that Kevin and his team are pursuing to bring new business to CSX. Operationally, our efficiency and cost controls remain solid we're still only getting started with some of the ways that we are using valuable, real-time data to optimize our network. We have had our challenges. This quarter, we had to adapt and respond to significant weather events, equipment issues at our coal terminal and lower diesel prices. Throughout, we've kept our focus on our long-term goals to deliver consistent, sustainable, profitable growth over time. Now let's go over some of the highlights. On Slide 1, it shows our key results from our third quarter compared to last year. Despite the severe weather, we were still able to publish some very good results across the Company. Looking across the highlights listed on this top line. Total volume grew by 3% versus last year, where by strong performance in our core merchandise business where volume also grew by 3%. Merchandise revenue grew by impressive 6%, supported by 3% growth in volume and favorable pricing. Our operating margin reached 37.4%, inclusive of our trucking business and improved 180 basis points compared to last year, demonstrating strong year-over-year expansion as our guidance indicated. Now these charts summarize a solid quarter for CSX. Total revenue reached over $3.6 billion for the quarter, up 1% from the same period last year, even with lower fuel surcharge and coal prices. Operating income increased by 7% compared to last year as we delivered strong general margins from top line growth and cost control. Earnings per share grew by 12%, supported by solid results for the business and our commitment capital returns. Our results this quarter demonstrate strong execution that we build powerful momentum behind our proven operating model. We remain motivated as a team, keeping in mind that I've told you since I joined CSX over two years ago, talented people working together as ONE CSX team with a common goal can accomplish just about anything. Now, I'll turn the call over to Mike to provide details around our operational performance.
Mike Cory: Thank you, Joe, and thanks to all of you for joining us today. So, here's a rundown on the operating activities in the quarter. Let me start first, though, by thanking our ONE CSX team for their extremely hard work and their teamwork to deliver solid results through a challenging quarter at times and specifically in certain locations. So, let's go to the first slide on safety. For FRA injuries, not much has changed since the last quarter in terms of metrics. Although we see a higher frequency than our desired target, we're finding the injury severity rate is lower. And as a result, we've seen a reduction in lost days of work for injured employees. For FRA train accidents, we continue to see a year-over-year decrease in incidents. Our biggest improvement has been driven by a reduction in human factor, yard train accidents. Through our safe CSX initiative, we are improving our ability to reduce workplace exposures, and this will continue to drive positive results across the network. We recorded our lowest number of human factor train accidents in September and human factor incidents are our leading cause. And that progress is really great, and it's a great achievement by our employees here at CSX. So looking at the next slide. Our rail road remains fluid, albeit we have had and still have some weather-related challenges. Our overall velocity considering the effects of the weather showed the resiliency of our network. Our ability to maintain our fluidity came directly from the effective response of our field forces and our ops teams and manage changes to our service plan to provide needed service to our customers in an efficient manner throughout this period. Collectively, we're able to ensure our strategy of safe restoration of service was accomplished without injury or accident. And while network speed is extremely important, our focus has been equally strong, ensuring our major engineering work gets accomplished according to the plan. With multiple weather constraints, we were able to stay on plan while maintaining our network velocity. While our dwell metric was affected by weather, we did see an increase of 3% more carloads and moved it with 2% less train starts. So, we continue to manage the inventories in our yards for our customers and always, always look for a more efficient way to move the cars. Whether aside, the team is focused on service and efficiency, and the lessons learned from our response and actions as a team will certainly help in the development of our operating leaders going forward. Over to the last slide, we continue to work with our sales and marketing team to align our operations with the needs of our customers. Excellent service and cost discipline are always at the forefront. Our metrics do reflect weather-related difficulties However, our field forces, as I mentioned earlier, worked extremely efficiently to get us back operating as fast as possible. But the big thing is we did this collectively as a team, with our service group staying close to our customers and communicating important two-way information throughout. Our vast network resilience and faster recovery over our network has allowed us to remain in line with our customers' needs throughout this weather. And I'm very proud of how well the entire team has come together and work to provide service throughout some challenging disruptions. Communication between our service network and field operations team is very strong and continues to strengthen. These last couple of months have provided plenty of opportunities to show what we can do with and for our customers. So, all in all, I'm very proud of the team, and I'm thankful for their efforts in this tough, but very good quarter. Thank you, and over to you, Kevin.
Kevin Boone: All right. Thank you, Mike. In the third quarter, as Joe and Mike both mentioned, we were presented with a number of challenges from storms, a strike at our East Coast ports and another temporary outage at our Curtis Bay terminal. We are very proud of the level of communication throughout the CSX team and our focus on serving our customers through these challenges. This was highlighted by our most recent customer survey out just this week with our Net Promoter Score at the highest level since we started measuring. With major storms impacting our network, we are working with our customers on the rebuilding efforts to ensure CSX is able to deliver the building materials and other essential supplies to the areas where they are needed. There's been a lot to manage through even for a railroad with experience of CSX. But working together, we've been able to find creative solutions to keep freight flowing. At a high level, market conditions remain a bit mixed we are seeing continued strength in some of our merchandise markets. And while truck rates appear to have bottomed, there remains a soft market. Diesel and natural gas prices remain low and benchmark coal prices have moderated. All that said, we grew total volumes and revenue over the quarter as our service-led initiatives continue to bring new business to our railroad. The team has continued to build momentum by working with our customers as we're going to continue to push hard against the mixed economic backdrop. And I'm excited about our upcoming Investor Day, where you will hear more from our commercial leaders who are laying the foundation to deliver profitable growth for CSX. Let's first review our merchandise business, as shown on Slide 7. As a whole, merchandise continues to be a great contributor for us. As we anticipated, volume growth accelerated this quarter, supported by new business wins, truck conversions, and the ramp-up of industrial development projects. Revenue gained 6% compared to last year, driven by a 3% gain in volume and solid pricing. Note that with lower diesel prices, fuel surcharge was a drag on both total revenue and reported RPU. On a core basis, our same-store basis, our merchandise pricing remains solid. Chemicals continued its positive performance for the year, delivering a 9% volume increase year-over-year. We see consistent broad strength across plastics, industrial, industrial chemicals, LPGs and waste. And ag and food, the second half inflection has taken off as we had hoped with volume also up 9%, led by grain and feed ingredients that customers turn to the Midwest for supplies. Close collaboration with our operating team has ensured consistent service as the strong seasonal demand has kicked in. Those products also saw great year-over-year growth with healthy improvement in pulp board demand contributing to a 9% volume gain. Some of this new forest product business is shorter length of haul, which was a factor in 3Q reported RPU. Results in our Minerals business were mixed with volume up 1%. Cement is doing very well, supported by construction demand and the ramp up of new customer facilities, but wet rainy weather was a modest drag on aggregate shipments over the quarter. All that said, the underlying long-term trend remains very favorable. Other markets we serve are facing more near-term challenges. As we've highlighted through much of this year, the metals market, particularly steel, remains soft with sluggish demand, ample supply and low commodity prices. One reason for softer metals demand is a weaker-than-anticipated automotive market where conditions have deteriorated. Volumes inflected negatively for us this quarter and mix was also a modest headwind to auto RPU. As Joe mentioned at an investor conference last month, the industry has seen consumer demand diminish by high retail prices and interest rates which has led to higher dealer inventories and slower production. Our belief is that interest rate easing cycle will help these markets normalize. Lastly, total fertilizer volume continued to trend negatively in the third quarter. So, we were able to pick up some favorable spot moves. For the remainder of the year, we expect to see a carryover of solid year-over-year momentum in chemicals, ag and food, forest products and Minerals, while trains and metals continue to be challenged in the near term. Now let's turn to Slide 8 to review the coal business. For the third quarter, total coal revenue declined 7%, a 2% decline in volume. As shown in our financial report, we saw export and domestic shipments move in opposite directions with export tonnage increasing by 10% year-over-year and domestic tonnage decreasing by 12%. Low natural gas prices continue to limit the utility burn. All-in coal RPU was down 5% compared to last year and 7.5% sequentially, in line with our guidance last quarter and largely driven by the declines in global benchmarks for metallurgical coal. Looking ahead to the fourth quarter, market seem relatively stable. Utility stockpiles are sufficient and though natural gas prices recently approach the $3 mark, do not anticipate any near-term step-up in volumes. Export demand remains consistent, particularly from buyers in Asia and the Australian benchmark has stabilized around the $200 level toward the end of the last quarter. Given the lag in our export contracts, we anticipate a modest to low single-digit sequential decline of all-in coal RPU in the fourth quarter. Turning to intermodal on Slide 9. Total revenue declined 2% year-over-year, while volume increased 3%. International shipments grew at a solid mid-single-digit rate, while domestic shipments ended up effectively flat for the quarter. As we talked about in past calls, we did see a shift towards West Coast arrivals over the summer, which lifted our transcontinental interchange businesses to the East. We also opened up new business with several customer partners. Overall, we did see the domestic business gain modest momentum over the quarter but activity with some of our main channel partners remains relatively soft. Total intermodal RPU decreased 5%, largely due to lower fuel surcharge and a mix with international outgrowing the domestic business. We're pleased to see a relatively quick short-term solution for the ILA as we did see the effects on our volumes during the strike. The trucking backdrop has remained challenged through 2024, but we do see signs of market conditions bottoming and are well prepared to handle more volumes as the market continues to improve, and the team continues to find new business for the CSX intermodal network. Summing it up, the team performed very well this quarter, especially given the number of external challenges we faced. Still conditions for the fourth quarter are mixed, with certain markets continuing to show positive momentum while other markets remain challenged, including those markets more impacted by the current interest rate environment. We remain consistent throughout market cycles is our commitment to serving our customers and we remain confident that our creativity will continue to create opportunities next year and well into the future. We look forward to sharing more with you in November. Now I'll turn it over to Sean.
Sean Pelkey: Thank you, Kevin, and good afternoon. I'd like to start by reiterating our appreciation for the tireless work of our fellow railroaders to help friends, communities and the network recover from the devastating impacts of the recent hurricanes. From a business standpoint, Helene impacted revenue by $10 million to $15 million at the end of the third quarter and drove a small amount of incremental expense. It appears the fourth quarter storm-related impacts will be larger than Q3 and with a current estimate of around $50 million. That includes storm recovery and rerouting costs near $20 million as well as roughly $30 million of net revenue impacts. Additionally, a significant rebuild process is already underway for miles of track and multiple bridges across our Blue Ridge subdivision. While we're still evaluating the scale and timing of these capital expenditures, our early read is that rebuild costs will likely exceed a total of $200 million, and the construction will take us into next year. Now to the discussion of the third quarter results. Capitalizing on powerful momentum generated over the last several quarters, the ONE CSX team delivered 7% operating income growth in the quarter, with EPS up double digits. Our proven operating model and increasingly collaborative approach with customers delivered profitable growth at strong incremental margins. In fact, combined merchandise and intermodal revenue, excluding fuel, has grown by at least 3% for seven consecutive quarters, including 5% growth in the most recent quarter. Total revenue increased by 1%, impacted by lower coal revenue as well as declines in fuel recovery, other revenue and trucking. Expense momentum continued as costs were down 2% with more detail to come on the next slide. Interest and other was stable compared to the prior year while income tax expense increased $16 million, with higher pretax earnings, partly offset by a lower effective rate. Let's now turn to the next slide and take a closer look at expenses. Total third quarter expense fell by $36 million. While lower fuel prices were a key driver, other costs were up just slightly as efficiency gains and other items mostly offset costs from inflation and 3% volume growth. Turning to the individual line items. Labor and fringe was up $45 million due to inflation and higher total head count. The sequential cost increase from the second quarter was driven by the July 1 union wage increase along with higher incentive compensation. Employment levels have remained stable throughout this year with carload growth of 3% in excess of 2% head count growth in Q3. I would also note about half of the year-over-year head count increase is from quality trucking conversions of outside party drivers to company drivers. Adjusting for this head count would have been up just 1% versus the prior year. Purchased services and other expense decreased by $25 million driven by lower casualty expense and a favorable inventory adjustment in the quarter, with ongoing efficiency gains, mostly offsetting inflation. Depreciation was up $13 million due to a larger asset base. Fuel costs decreased $73 million driven by a lower gallon price and improved efficiency. The operating team delivered our best quarter of fuel efficiency in three years, benefiting from both tactical operating initiatives and increased utilization of fuel-saving technology. Equipment and rents decreased by $3 million, while property gains were unfavorable by $7 million. Now turning to cash flow and distributions on Slide 13. Free cash flow continues to be strong at over $2.2 billion. Investing for the safety, reliability and long-term growth of our railroad continues to be our first priority use of capital. After fully funding these investments, we remain committed to our balanced and opportunistic approach to returning cash and have distributed over $1.9 billion to our shareholders year-to-date. Economic profit highlights our priority to grow operating income while maintaining capital discipline and pursuing high-return investments while lower year-to-date economic profit grew in the third quarter. We remain focused on increasing economic profit over the long term and are confident that focus aligns with the interest of our shareholders. With that, let me turn it back to Joe for his closing remarks.
Joe Hinrichs: All right. Thank you, Sean. Now I will finish our prepared remarks by going over the guidance updates for the remainder of the year. As I outlined at the beginning of the call, we are proud of what our ONE CSX team delivered in the third quarter. As planned, we grew volumes, revenue and operating margin. Now going into the fourth quarter, near-term conditions look modestly more challenging. As I mentioned at an investor conference last month, we knew that lowered diesel prices and the decline in global benchmarks for met coal will be a drag on revenue over the second half and the fourth quarter specifically. Since then, we've gone through two hurricanes in our service region, and have also seen volumes softened in a couple of key customer segments like metals and automotive, a bit more than we were expecting. Practically, this means that we expect modest volume growth in the fourth quarter supported by favorable markets like chemicals and ag as Kevin talked about, that continue to perform very well for us. Lower fuel and coal prices, together with that modest volume growth are leading us to expect a slight decrease in total revenue for the fourth quarter. As we show here, we estimate that lower fuel surcharge and the total effects of a slightly softer coal market will lead to roughly $200 million in revenue effects year-over-year just on their own. Our merchandise franchise continues to run very well, and our operations team is pushing ahead with efficiency measures that are having real benefits. However, slightly lower revenue combined with additional expenses as we reroute and rebuild after the hurricanes are going to limit our near-term margin gains. We are still aiming for $2.5 billion in total CapEx this year. As Sean described, we will likely see some additional capital needs for hurricane rebuilding, some of which will occur in 2024 calendar year. Finally, there is no change to our commitment to a balanced opportunistic approach to capital returns via buybacks and a growing dividend. Let me close with this. We give many updates today. There is some near-term uncertainty in the market, and we are rebuilding after two major hurricanes. So we have had to adjust our short-term assumptions in response. All that said, the bottom line is that CSX is running very well, and we are building momentum across the railroad. This continues across the second half of 2024, and we'll keep building into 2025. We are excited and just in a few weeks, we'll be hosting many of you at our Investor Day in Amelia Island, we are going to give you more detail on our strategy to deliver sustainable, profitable growth. We encourage you to bring your best questions for the whole team. For now, we're ready to answer your question about the quarter. Matthew, please start the Q&A process.
Matthew Korn: Thank you, Joe. We will now proceed to our question-and-answer session. As you all can appreciate, to make sure that everyone has the opportunity to take part in the time that we have, we ask you to please limit yourselves to one and only one question. Operator, we're ready to start the process.
Operator: The floor is now open for questions. [Operator Instructions] Your first question comes from the line of Brian Ossenbeck of JPMorgan. Your line is open.
Brian Ossenbeck: Just wanted to ask a big picture question about price cost and your ability or how strongly you think you can get back to a positive spread in price cost next year. You have the labor negotiations that have already set a price for increase on the average comp side. So maybe you can give us a little bit of sense in terms of how those conversations are going with customers now that, that market is already being set in the market? And if there's anything on the other side you have to get out of those negotiations when you work towards more of the work rest tools?
Sean Pelkey: Brian, it's Sean. I'll start and then kind of kick it over to Kevin to talk about conversations with the customers. But just when you think about price cost, we've been consistent saying all year long, that spread between dollars of price and cost of inflation has been positive all year long and about as positive as we've seen in the last decade. So, we're not necessarily seeing anything negative in that regard and not seeing a turn in that either so that's very favorable. In terms of kind of the setup in the inflationary environment for next year, wage inflation. We expect north of 4% next year, these tentative agreements, some of which have already been ratified or at 4% midyear next year. We have 4.5%. We just increased here in July. So that will carry forward. That's 4.25% for next year for wages. Health and welfare expenses look like they may actually be lower than that. So, I think wage inflation, including health and welfare will actually be less than 4%. And then inflation across the rest of the book likely to kind of be in line with what you're seeing in terms of overall PPI, maybe call it, 2.5%, 2% to 3%, somewhere in that ballpark. So, it's not like the equation is extraordinarily challenging. And I think -- kick it over to Kevin to talk about conversations and how that's going with the customers.
Kevin Boone: Yes. I think there's a couple of factors. Certainly, I think we've been highly successful this year and exceeded our plan coming into the year despite a trucking market that obviously has been more persistently down than what we had thought. So, I think that's probably an opportunity next year. So, it's a watch item, but probably more an opportunity than a risk. Hopefully, as we move through the year. And that's where we're competing today more and more versus that truck. And so that would be a helpful dynamic for us. But overall, we do expect inflation to come down over time, and that would be reflected in some of our price, but we still obviously look for ways to cover our costs and do those things in the right way, but really focus on delivering service. And if we deliver the right service and that service continues to improve, then customers see the value in that and we're able to price to that service.
Joe Hinrichs: And Brian, it's Joe. One last thing. You mentioned work roles at the end there, three-part question. The reality is, Mike, myself, many of us believe that in order to have the real meaningful conversations with our union partners on safety and work rules, you have to get beyond the wages and the benefits conversation. And that's one of the reasons why we've been so fortunate to reach these type of agreements, and be able to get past that so that we can then spend the time over the next several years working together on improving our efficiency, improving our safety, but also listening to our employees on their needs for work rules for work-life balance, those kind of things we're scheduling. And we're excited about the opportunity to do that in partnership once we get past the kind of national bargaining type topics of general wage increases and benefits. And Sean mentioned that we're really excited about the fact that we're actually going to be able to reduce some of the health care-related costs associated with our union employees next year. So, a lot more to come on that.
Operator: Your next question comes from the line of Ari Rosa of Citi. Your line is open.
Ari Rosa: So, I'm curious, obviously, we're dealing with a loose trucking market. It's been that way for a while. In terms of upside to intermodal pricing for next year, maybe you could give us some indication on how those conversations are progressing with customers? And then obviously, 1% revenue growth is a little bit soft, is there anything you can do in terms of mix to maybe accelerate that beyond that kind of low single-digit type number, whether it's focusing more on the merchandise side or again, fixing that mix on the intermodal pricing?
Kevin Boone: Yes. Well, obviously, the success we've had in merchandise is a very good mix factor for our business. And you'll hear in November that there's a lot of exciting things that we see but within our merchandise markets and what we're doing and the teams that got a lot of great work, but I won't to preempt that today, and we'll share that in November. But when we think about intermodal pricing, there was an intermodal customer of ours that spoke yesterday, and they're certainly closer to the market dynamics on a day-to-day basis than maybe we are. But I think there is some hope that at least we brought them here and at some point next year, we would anticipate some increases because the truckers out there aren't very profitable right now, and they end up having to cover their costs at some point. So, we're seeing probably slower than people expected supply coming out of the market, and that will adjust, and I think that will provide opportunities to convert more volume in the East and hopefully at better rates. And as you know, in many cases, we're tied to that. So, we have some spot market business and others, we follow the price as our customers benefit from that. So, it will be a gradual path forward, but I do think it's probably a better backdrop than what we saw in 2024.
Operator: Your next question comes from the line of Jonathan Chappell of Evercore ISI. Your line is open.
Jonathan Chappell: Sean, you throw a lot of numbers at us on the short-term stuff, $200 million from fuel and coal and then the $50 million from the hurricane impact. I know it's still early in the quarter, I know there's a lot that can happen. But when you take those things, mix in kind of the softer auto and metals, when you talk about revenue being down moderately and operating margin reducing. So, I'm guessing that's deteriorated sequentially. What kind of magnitude are we looking at there? Are we talking about tens of basis points or substantially greater based on what you see today?
Sean Pelkey: Yes, Jonathan. There are a lot of numbers. So yes, and you got them all right. So, thank you. So, Joe mentioned the revenue headwinds, those are year-over-year in terms of fuel and coal. That probably translates into about $100 million of operating income headwinds year-over-year in Q4. nd then add on that, what we're estimating for now to be roughly $50 million from the hurricane, that's a significant headwind on a year-over-year basis that will make it challenging to grow operating income challenging to grow margins. What that means on a sequential basis is normally, you would see seasonality Q3 to Q4 margins might get a little bit worse. They'll probably be worse than normal seasonality as a result of all the dynamics that we're seeing there including the impact of the storms. In terms of how much worse, I think we're still working through cleanup and recovery, still hoping that we can recover some of the revenue that's been lost and obviously, keeping focused on efficiency efforts. Mike mentioned, even with volume up 3%, we took starts down 3% in the third quarter. So, there's a lot of momentum there. There are some things that we can do to help offset it. But it will certainly be worse than normal seasonality in terms of margins and operating income Q3 to Q4.
Operator: Your next question comes from the line of Scott Group of Wolfe Research. Your line is open.
Scott Group: So, Mike, as you're trying to balance service and efficiency, any thoughts on head count trends from here and overall sort of cost trends? And then, Sean, I know you had a comment about the comp per employee stepping up sequentially, any thoughts on how to think about that going forward?
Mike Cory: Let's start with headcount. First of all, our focus is on retention when it comes to headcount. Overall, we're hiring for attrition, people leaving and it's actually at an escalated rate than what we want. So that's a big focus is to bring that rate down because there's churn in the headcount, people that are here for two years and so and then they leave. Second, we're good in pretty much every location with a couple of locations in the Northeast that we're still hiring for. It's not a big number. But I don't see -- I see our head count getting better for that matter as we get more fluid. You got to remember -- maybe you don't, but in July, we probably had our best operating and customer service metric month throughout the year, and then we got into all these difficulties. So, getting the railway back in shape here over the next few weeks is job number one. The cost that you referred to -- our focus is to continue to deliver the service, but make sure that we're extremely efficient not hung up on anything other than the cost it takes us to get there and what they need. And so I see the cost continuing to be a betterment there, it's just with the disruption to our network. As Sean has mentioned, this next quarter is going to be not where we want to be, but the approach we've taken where we've minimized the amount of starts through all this disruption still handled more volume. I see more of that, yes. No question.
Sean Pelkey: Yes. And I'd just add on the head count piece there, Scott. We normally -- at least last year, we saw an increase in head count from Q3 to Q4. We'll probably see an increase this year, just very modest. And the reason for that is you've got the train and engine hiring pipeline, what we're hiring for right now essentially is midyear next year, vacation peak so those folks will get marked up and qualified right about the time and attrition gets a little bit higher about that time. But that will be modest, we still expect volume to grow in excess of headcount, especially when you normalize for the quality company driver piece that I talked about. In terms of comp per employee, we normally see a little bit of a step up Q3 to Q4, and that's related to a few different factors. The first is that you start winding up some of your capital programs. So, we have employees that charge more of their time to operating expense at that time of the year, vacations as well. And then I would add on to that, this year, the impacts of the storm driving some higher overtime in the early weeks of the quarter here. So all those factors, I don't think it's going to be significant, but we should see a little bit of an increase in labor per employee.
Operator: Your next question comes from the line of Tom Wadewitz of UBS. Your line is open.
Tom Wadewitz: Two questions really for Kevin. How do you think about the sensitivity of you're doing this multiyear work and industrial development, a lot of -- kind of, I guess, a long-time horizon work? Do you think there's some degree of sensitivity those projects to the cycle? It does seem like you talked about a mixed outlook, and it seems like there have been some weakening in certain markets in 3Q, is that something that people slow down projects? And I don't know if there is some kind of election-related impact. But just wanted to see if you could offer any thoughts about maybe how cycle and other uncertainty might affect how rapidly projects come on in '25, '26.
Kevin Boone: Yes. I think -- it's certainly a factor. And I think we've seen announcements, obviously, on the EV side, which is actually -- you'll see this in November, a very small portion of our portfolio, and we've adjusted for that when you see the portfolio. But that is a factor. I mean, with the economics, what the economy is doing at the time will either accelerate or decelerate some of these. But when the shovel is in the ground and the capital is already being put to work, those projects want to obviously go to utilization and get a return. And we're seeing a lot of these projects have shovels in the ground currently. So, we have a lot of visibility that they're going to happen. Could they slip by three months or six months? I think that's possible. We're not -- I don't think we're seeing it in a broad way other than maybe the EV, obviously, announcements that we've seen, but those are 6 to 12 months ago. So yes, I think that's a factor, but I think we feel very, very confident given what we've seen in the capital already spent in a lot of these larger projects for us that those are going to be tailwinds for us. And we'll give you a lot more visibility to that in November.
Operator: Your next question comes from the line of Brandon Oglenski of Barclays. Your line is open.
Brandon Oglenski: Joe, I know you addressed this with the first one, but maybe I think it's worth coming back to the new five-year agreement that you guys signed with, I think, 3.5% inflation locked in. A lot of investors just question like why go early there, especially as inflation is coming down, like couldn't you get a better deal if you waited? But in your response, you said like there's things we're looking to do differently here. And I know when you came to this industry two years ago, you said, look, labor relations are something I want to focus on. So, can you elaborate on what you hope to get out of this on the other end?
Joe Hinrichs: Sure, Brandon. Thanks. I mean, first of all, when we all travel the network and talk to our employees, I can tell you the single largest thing, other than safety, which is always a topic of conversation that employees told us was they didn't like what happened last time. They didn't feel at any way, shape or form part of ONE team and didn't feel like they were appreciated in value. They went three years without a raise during very highly inflationary time period and during COVID, when they were essential workers and all the things that happened there. And both the union presidents that we spoke to and the union leaders and the employees all said, we don't want to do that again. And I can tell you, having been there on the days they were voting, Congress told us, don't come back here again. So that's a long way of saying that it's really important to remember that no one was satisfied or happy with what happened last time. So if we just go on the same path we've always been, we'll repeat that. And we'll say, once again, everyone was unhappy. And as Mike talked about, one of the most important things that we do for our network is stabilize our employment levels, get the experienced people to stay and create an environment where people want to be here to help us provide great service and do it safely and efficiently. All those have come from people who are motivated to be part of the team, but also who have experience and stay here. So, we sat down as an industry and talked a lot about what happened last time, and we endeavored as a coalition to try and reach a voluntary agreement early with willing Union Partners, which was over several -- we weren't able to do it as a coalition, but then quickly we were able to do that with CSX. And as you saw in Oakland Southern and BNSF followed pretty quickly. The good news here is there's been basically a pattern established, for lack of a better word, of what the economics are going to be. Sean mentioned, there's going to be some health care reduction costs coming to us and to our employees next year, which is great. But also, we start with the 4% next year, but the fifth year is at 3.0% and that's really important. So, it goes 4%, 3.75%, 3.5%, 3.25%, 3% that's really important because yes, inflation is coming down. You have to remember that we're in an environment where people are seeing these headlines from Boeing (NYSE:BA) or the ILA or other things that are bigger numbers because they're going back to periods before COVID in some cases where they didn't get extensive raises. So, there's a lot of mixed messaging out there. Our view is this is the right approach for CSX, it's the right approach for how we're working as ONE CSX team to make sure our employees feel valued and appreciated and respected and listened to and that our belief is that you get the national agreements out of the way on the wages and benefits and then you can go to work on how you work together to improve the efficiency of the network, work on safety, as Mike talked about, and also listen to other issues that need to be resolved. We have five years to work on that now without the noise of the national negotiations. If you look at what happened last time, we never really got too many of the local work rule stuff because we -- took three years through the national agreement. So that's how we're looking at it. I think you can see the efficiency that we saw in the third quarter and the incremental margins on the volume in the third quarter were substantial. And that's the power of this network when we have our employees and everybody working together to serve the customer efficiently.
Operator: Your next question comes from the line of Christian Wetherbee of Wells Fargo. Your line is open.
Christian Wetherbee: I know it sounds like fourth quarter from a margin standpoint, difficult to make year-over-year headway given some of the headwinds that you're talking about which makes sense. I guess when you think about it for a full year, I think that probably means sort of little margin in '24. I know I'm asking you guys to look out a little bit here, but kind of conceptually, with the environment that we have today with sort of weakness in some areas, maybe some strength in some company-specific strengths in other parts of your network. Is this the type of environment that you think you can consistently grow margins in? I guess what are the sort of puts and takes that you think you need to see as we move into '25 for that to continue to happen or resume to happen again?
Sean Pelkey: Yes, Christian, thanks for your question. Obviously, for '25 specifically, we're still in the middle of the planning process, so it's a bit early to kind of definitively say anything. But what I would say, broadly speaking, and longer term, we'll highlight this at the investor conference in a few weeks as well is the setup for CSX in terms of where the service product is at how that's impacting the customer experience and the interactions that that's creating, which translate into growth opportunities, not to mention continuing to be able to price at or above inflation is very supportive. The other piece of that, of course, is the fact that the network has capacity. We have locomotives, we have crews. Like Mike mentioned, there are some places we're still hiring. But for the most part, we're only hiring for attrition, we've got line of road capacity. So, you take all that together, it's a good setup for strong incremental margins. There's always things, we can't control that could make it more challenging or easier for us to achieve margin improvement and operating income growth, which, frankly, is the first goal. Operating margin is really sort of the outcome of all of it as we grow into the existing capacity. Fuel prices are down. If you look at where they're expected to be next year, it should be another headwind for us. Export coal prices seem to have stabilized. But if you carry that out to next year, that would be a headwind for us next year. We're going to do a lot of construction on the Howard Street Tunnel next year in Baltimore that will cause some reroutes, some network disruption, not to mention the rebuild coming out of these storms. So, there are some things that will make it a little more challenging. We may see some tailwinds from the trucking market. We're watching that closely and hopeful that the environment there is a little easier next year than it was the previous year. But certainly, longer term, having the capacity to grow and continuing to deliver a consistent high level of service to the customer is a winning equation for us.
Operator: Your next question comes from the line of Daniel Imbro of Stephens. Your line is open.
Daniel Imbro: I guess, Kevin, I wanted to dig into just the volume growth side. I mean you mentioned some share wins in truck to rail conversions. I'm curious if you can just add more color around maybe the cadence of wins or what categories they fell into during the quarter. And then I think there's some concerns out among investors around merchandise pricing. So, I'm curious how is merchandise pricing out in the market today? And are you seeing business that you're winning being more price competitive than past bids? Or there's any change in that as you win this business?
Kevin Boone: Yes. We certainly compete every day, right? And we have a great service product that's only getting better, and that's obviously been reemphasized by some of the surveys that we do with our customers. So that's certainly a lot easier environment to sell into that than in an environment where your service isn't great. And we experienced that a couple of years ago where we were challenged with obviously head count and some other things. So, nothing's changed from that perspective, and the team is focused on that. We want to deliver value to the customer and the value -- when we're able to do that through service, the customers are willing to pay for it. And we're always looking for ways where we can provide value outside of price, can we cycle their assets and reduce their capital spend and do other things that create efficiencies for our customers. And those are great discussions that we have all the time and probably more so today that with Mike and his team are being very helpful in those conversations. So, there's not a big dramatic change in that. As we go into next year, as I mentioned, the trucking market, Sean touched on this, I think that's helpful. We are successfully converting truck volume in our merchandise franchise, which I can say is probably more than what we've done since I've been in this role. And we've got a momentum around that. What could even inflect that higher is certainly a tighter trucking market where customers aren't seeing savings by doing nothing. When you sit around and you have to do nothing, you're getting savings, you're not as compelled to maybe move some of that freight over to the rail. When that changes, and that environment changes, I think the team is really ready to capitalize on that. So, I think that's -- we're hopefully in the early innings of that. But despite all of those headwinds on the trucking market, we have converted in areas across the board, and you're seeing it in our numbers, forest products in other areas, metals and equipment. We expect some great conversion there over time by the team, and we see those opportunities more and more as we move into next year and the years beyond that.
Operator: Your next question comes from the line of Jordan Alliger of Goldman Sachs. Your line is open.
Jordan Alliger: Just a question. You indicated in your remarks that you're seeing a modest improvement or uptick or something along those lines for domestic intermodal. I'm wondering if you can give a little more color on that kind of looking now relative to international, which I know had been really driving things in intermodal. And is it enough to sort of move the needle on your yield for intermodal at this point?
Kevin Boone: I think at this point, we're safe to call that it feels like the bottoming, certainly, and that gives us hope that we've reached that how -- what the inflection will be and look like. That's a watch item for us. There was talk and pull forward, we're not hearing about that as much, but that's TBD. We expected hopefully a more normalized peak season, but that's a watch item for us, but we're optimistic that, that will occur, and we're planning for that as well. So, we do think the fundamentals don't support a lot of the trucking supply out there, and that's going to rebalance certainly, probably took a lot longer to rebalance given some of the influx of profitability they experienced during the pandemic. And so, they were sitting on a lot more cash to ride this cycle out than maybe previous cycles. Hopefully, I think you'll learn through the earnings calls with the other truckers and others that they're seeing some stability as well. But we're seeing stability, I wouldn't say an inflection at this point.
Operator: Your next question comes from the line of Stephanie Moore of Jefferies. Your line is open.
Stephanie Moore: I was hoping you could talk a little bit about some of the diverted volumes that you called out ahead of just the labor negotiations and potential strike in the East Coast. Maybe if you could talk about the impact that you did see during the quarter? And then kind of what you're hearing and seeing now in terms of those volumes returning back to normal flows and normal to the East Coast?
Kevin Boone: Yes. I mean it was a little bit modest. We did see some shipments naturally move over to the West Coast, and then we would have benefited from that moving from the West to the East, but it was relatively modest. We did see some impact, obviously, with the port shutdown on the East Coast. You saw that for a few days and then I've got to tell you that our operating group on the intermodal side was ready to ramp back up immediately. So very little disruption coming out of it. But those were some lost days that we would expect to recover through the rest of the quarter but it did impact us on a near-term basis.
Operator: Your next question comes from the line of Ken Hoexter of Bank of America. Your line is open.
Ken Hoexter: Maybe you talk a little bit about export coal demand and the stability in the market given the growing importance and volatility, how stable can we look at this level of demand? Because obviously, we talked about the benchmark pricing and what happens on the yield side. And then Joe, Mike, you mentioned the service levels multiple times. How do we align the service levels with what we get to see, which is the erosion in the on-time originations and arrivals down into the low 70s, upper 60s, maybe you can just walk us through that?
Kevin Boone: Export coal, my favorite subject. I think when you look at this market over a long period of time, in any cyclical market do you see supply response when the prices are really good and then you obviously see demand response when the macro is not so great globally. What I do think is different going forward is you don't see the supply response like you did in the past. Obviously, the financing and other investments aren't there to bring on new volume into the market. And I think that's a better backdrop for the market we serve and the mines that we serve today in the global competitive environment. So, I'm hopeful that, that creates more price stability longer term. And the other thing is their cost his risen globally as well. And so, I think the natural price for coal is probably going to stabilize above where it is today, and that gives me hope that we'll see better pricing environment going forward. Certainly, what you've seen here recently is a China stimulus, and that's been the talk, right? And they are a big consumer of coal in the global market. And that has given some optimism there that, that could recover. So, it's a global -- we compete in the global market. Our customers compete in the global market, but I do think the supply or the lack of supply response going forward is probably a healthier environment for us and makes me optimistic on our met business, in particular, that we'll see that more stable in the future.
Joe Hinrichs: Sorry, it was a two-part question. Look, Ken, to put it as basic as I can, we really focus on the CSD number. So, if you want a number, that's the one -- that's our first and last mile. That's the one we say customer basically lets us know what they need and we bring it. So how we get the cars there on the trains, regardless of the weather conditions, we have a big automotive network that we don't necessarily -- we run a scheduled plan, but it changes quite a bit between loading. So, we don't change the train schedules other than to modify to where they're going to. So, the on-time performance isn't as important as the car cycle and that's how we look at it. So yes, you're right. We want to be like -- seven out of 10 trains are running on time, what we're watching for is to make sure the cars that are on those trains are getting to where they need to fulfill the customers' needs. You can take dwell, you can take car velocity, all those things, you're trying to balance it, first of all, the service product you promise to deliver, and that's really back to the CSD number. That's the one we look for that. And then how we get it there, we're trying to do it the cheapest and most efficient way. So, I'm not saying it's not important, but we have been very those last not just those weather here, but this last six months since I've been here, we have been really trying to find a way to fund the efficiency and the service. And the numbers right now, I'm not going to say they're blurred. They're all important, but we're balancing each one. And yes, disruptions hurt our on-time performance and that has been reflected this last quarter. Like I said, if you go back to July, you can start to see where we're going. So, it is a focus, but it's one of a few that we balance to get those end results.
Operator: Your next question comes from the line of Ben Nolan of Stifel. Your line is open.
Ben Nolan: Yes. I wanted to ask a little bit just on pricing. It seems like the one area or one of the areas where we actually have been able to get a little bit better pricing is on the chemical side. Is that -- chemical specifically, is that just a function of a healthy market where there is some pricing ability? Is it maybe starting to see some impact from quality or just maybe talk through how the chemical part of the business is evolving?
Kevin Boone: Yes. I think there's a lot of factors that obviously play in the RPU length of haul, all those things. I don't see the chemical market really that different from some of our other merchandise markets where we've been successful. So, I know optically maybe on an RPU basis, that appears to be the case. But I think when you look at across that merchandise portfolio, there's really not a big deviation between the markets as our service continues to get better, as I mentioned before, as we deliver, as we can cycle their cars faster and save them capital, all those things factor in and deliver value to the customer in other ways where we can monetize that through price.
Operator: From the line of Jason Seidl of TD Cowen. Your line is open.
Jason Seidl: I wanted to talk a little bit about intermodal yields. I mean there was a lot of movement of freight from the East Coast to the West Coast in anticipation of the port strike. Do you see that switching back? And if so, what sort of impact should we expect on the yields? And then I guess I'd throw a quick one here, too. How are you feeling going to that January 15 date the ILA, do you think it could be Strike fears 2.0?
Kevin Boone: I don't have any inside look at how that's going, but it certainly will be a watch item for us. I'm hopeful that obviously, the agreement will become well before that and create some -- and eliminate some of the uncertainty that, that could create again for us. When I think about freight and the movement of freight, it naturally wants to move to a certain port and efficiently. And so you've seen the East Coast outperform the West Coast over time. Some of that's because of the manufacturing shift you're seeing, some of that away from China and other parts of the world and more naturally wants the land on the East Coast. I think that continues from everything as you see us trying to decouple from China and those factors, and that's a great thing for us. If you look at the investments that are being made on the East Coast versus the West Coast, I think those are supportive of outgrowth, and we'll participate in that as well. But in many ways, we're somewhat agnostic if again, if freight wants to move in the west and move to the East Coast, that's not a bad thing for us. That would traditionally would truck and so that's an opportunity for us. I do think over time, as we continue to see the East Coast volumes continue to increase, I think we can push more into Chicago and other areas. That's an opportunity, and we'll see that further play out here over time. And then the underline port strategy that we have is going to create a lot of value, and it's going to open up opportunities for our customers look differently at shifting even more freight over to the East Coast because we can efficiently move it in inland with our East Coast ports in a very, very efficient way. So, I don't think we'll get through this noise on the -- obviously, the labor negotiations. But overall, I think the trend continues and we're going to benefit from that as a railroad.
Operator: Your next question comes from the line of Bascome Majors of Susquehanna. Your line is open. Bascome, perhaps your line is in on mute. Your next question comes from the line of Walter Spracklin of RBC Capital. Your line is open.
Walter Spracklin: Just curious on the competitive marketplace. I know there was a lot of discussion on truck, but I know your main competitor on the rail side is affecting quite some meaningful changes that is leading to impacts on their service. I'm wondering if you're seeing that come up in the marketplace at all? Are you seeing any -- is there any larger contracts that are coming up that you see as either an opportunity or a risk here? Just to get a better handle on how much of an improvement in your competitors operations is affecting or impacting you in terms of winning or losing business in the marketplace.
Kevin Boone: Yes. I think -- look, as I mentioned before, we compete every day. We compete knowing that we have very, very good service that continues to improve. And I think the customers have seen that stability in the leadership team that we have though, the consistency of our message and what we're trying to achieve and they understand our objectives, which is to grow with them. I think that's very helpful when you get into those discussions that they understand where we're going and that there's still going to be stability among the leadership team and the team that we've built. So, we continue to have a very, very effective cost base. We can compete when we need to compete both on service and cost. And I think in those cases, we're going to be very, very competitive, and we're going to be winners in that situation. So, we're focused, obviously, on other opportunities, too. We want to grow the pie. We want to grow the market. We want to move the freight that's not moving on rail as well. And I think having those discussions along with retaining our own business is really helpful in retaining that business. So that's where we're focused on right now is growing the pie. And I think we're going to have a lot of success. We've had a lot of success this year, and we're going to continue to have that success as we move into next year and the years beyond that.
Operator: Your next question comes from the line of David Vernon of Sanford Bernstein. Your line is open.
David Vernon: So, Joe, it sounds like you invested a lot in the culture part of the equation. I'm wondering if you can share some perspective on how some of the churn rates or turnover rates, however you guys measure them internally, internal Net Promoter Scores, that kind of stuff, has changed as a result of those investments?
Joe Hinrichs: Yes. Thanks, David. I mean First of all, we look at many metrics, but as we've talked about many times, culture is kind of hard to measure. I've likened it to love, which is you kind of know it when you feel it, but you can't really measure it. That being said, we see it in many ways. For example, we do Net Promoter Scores with our employees. And both on our management side and our union side, those numbers have moved meaningfully in the last two years. They're not where we want them to be on the union side. And we still have work to do there, but they've come up significantly from where they were just two years ago. Mike mentioned what we're looking at in the form of attrition, both in our new hires, but also mid to longer term hires. Attrition rate on new hires is really important to us because we invest six-plus months of training in them as a conductor. And if we lose them, after all that, we have to start again, especially in some key sites so that's really important. But it's more than that. I mean, if you look at the efficiency gains we're getting on, quarter-over-quarter over quarter this year, and importantly, Kevin mentioned it, the best Net Promoter scores we've ever had since we've been measuring on our customer side, those are all impacted by attitudes and the work that our employees do. And if they feel part of the team and feel listen to and valued and appreciated, they're going to give us a better outcome for our customers and better efficiency in a safer environment for everybody. So, it's hard to measure with one thing, but I can tell you that we feel very strongly that we're seeing the efforts that we put in and the results that come from that. We've had roughly 20 family days, there were 30,000 people attending, it's the kind of environment where people want to be a part of. People are telling us over and over again, they're proud to wear CSX gear in their communities again. All those things are important for retention and attracting talent, but they're also important for how people work together. I've said many times, this is a service business and service business must really work hard on their cultures and their employee engagement because the employees are the ones who provide the service. And if you would have seen all the notes we've received this year, from our employees thanking us for reaching out to every employee in the regions impacted by the hurricanes, making sure they need anything, whether it's a generator or it's water or anything. And the notes I'm receiving and our team is receiving and they know they're not a number. Those things are important in our business. They're important for attrition -- sorry, they're important for retention, but they're also important for the energy that we have that feeds into ultimately our customers. So, we believe it's working and you can see it in the numbers. And Sean mentioned we have seven quarters in a row now where we've grown merchandise intermodal revenue by 3% or more at seven quarters in a row in an environment that's been complicated and you also see it in the resiliency of our network and how quickly we respond to issues and how quickly we can get back up and running. I mean -- the last thing and you've heard a lot about weather and hurricanes today, and you probably -- you don't want to hear any more about it, but the people that have been around here a long time, 30-plus years, are telling me that the impact of Helene on our network is the second most impactful hurricane they've seen at CSX, Katrina being the worst. I tell you the scale of things we're dealing with. And yet we're talking about an impact of $50 million in the quarter. As Sean noted, Obviously, we have some significant capital cost to rebuild the network, but that's people working together with a spirit and a motivation. It doesn't come if people don't feel like they're part of ONE CSX team. So, also been getting national agreements done before they expire. That's never happened in the railroad industry. Those are examples of things that are happening because of our culture and because of how we're working together. Ultimately, that plays out in the customer service we deliver in the safety, we actually deliver. And Mike mentioned it, our severity rate is down dramatically in injuries over the last several months. That's really important. The injury rate hasn't really moved, but severity rates moved dramatically. That's the kind of thing you get when people are working together and their culture builds from there.
Operator: Thank you. This concludes our time that we have for Q&A. And with no further questions, this concludes today's conference call. We thank you for your attendance. You may now disconnect.
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