CSX Corporation

Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] And I would now like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. You may begin. Matthew Korn: Thank you, Abby. Good afternoon, everyone. We're very pleased to have you join our first quarter 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Mike Cory, EVP and Chief Operating Officer; Kevin Boone, EVP and Chief Financial Officer; and Maryclare Kenney, Senior Vice President and Chief Commercial Officer. In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them. With that said, I'm very happy to turn the call over to Mr. Steve Angel. Stephen Angel: Good afternoon, and thank you for joining our call. I'm pleased with the strong start to the year that our railroaders have delivered. We made great strides in safety and managed through weather challenges. And we advanced our efforts to improve efficiency and streamline our cost structure. The progress we've made can be seen clearly in our quarterly results. Volume and revenue grew year-over-year, while operating expense moved substantially lower, which led to significant margin expansion and EPS growth. Solid earnings and continued capital discipline helped drive higher free cash flow. Altogether, this represents an encouraging first step toward our goal of best-in-class performance. At the same time, we recognize that we're still early in this process and market conditions remain uncertain. As Maryclare will discuss, conflict in the Middle East and rising energy prices are creating opportunities for some of our customers, but this has also added to broader concerns about inflationary pressure and potential effects on consumer sentiment. What remains constant is our focus on execution. Our team is responding to customer needs by expanding our service offerings, improving transit times and converting freight from truck to rail. We're also moving forward on a wide range of cost initiatives as we push to develop the productivity muscle required to sustain performance over the long term. I'll now pass along to Mike Cory to cover our safety and operational highlights. Michael Cory: Thank you, Steve. Slide 5 shows highlights for our safety and operational performance. Best-in-class performance starts with safety, and we've made good progress in the first quarter. Our FRA injury rate improved by 13% compared to last year, and that's with a 9% reduction in people hours, and our train accident rate improved by over 30%. Operating safely benefits our employees and our customers, and it allows us to run a more fluid, efficient network. We remain committed to developing a culture at CSX, where effective risk awareness and safe operating practices are consistent across our organization. Operationally, we successfully managed through the severe winter storms that covered most of the Midwestern and Northeastern United States through the quarter. Our key metrics compare favorably to last year when closures due to the Blue Ridge reconstruction and the Howard Street Tunnel project impacted our resilience. Train speed, dwell, cars online all improved on a year-over-year basis. We also delivered record first quarter fuel efficiency of 0.97 gallons per 1,000 gross ton miles and achieved 0.93 gallons per 1,000 GTMs in March, our best performance since 2021. Performance at our intermodal terminals has been very good even as we've absorbed substantial new volume. For example, the team at Fairburn in Atlanta handled a 15% increase in intermodal lifts with our expanded domestic business in the southeast while maintaining service our customers can count on. As well, the team has been very effective in finding and eliminating inefficiencies. Our engineering and network groups have been improving productivity substantially through more efficient use of work blocks and better overall coordination with our transportation groups. We've seen double-digit efficiency improvement in rail and tie installation to start the year through disciplined curfew execution. I'm extremely proud of this team and what we've accomplished, and there's so much more that we're working toward. We've got great momentum, and our goal is to build on these successes as we progress through the rest of the year. With that, I'll turn it over to Kevin for financial results for the quarter. Kevin Boone: Thank you, Mike, and good afternoon. As we -- as both Mike and Steve noted, 2026 is off to a strong start. Volume and revenue are up, while costs are lower across the company. These results reflect significant work and partnership throughout CSX to drive efficiencies in nearly every part of the business, while maintaining our commitments to safety and customer service. Total revenue increased 2% on 3% volume growth as pricing gains and higher fuel recovery were offset by business mix impacts. Total expenses fell by 6% from the steps taken to improve our cost structure and improve network fluidity. As a result, operating income increased 20% with earnings per share up 26%. Turning to the next slide. Total first quarter expense decreased by $153 million compared to the prior year. The variance includes over $100 million of year-over-year efficiency savings plus other benefits from real estate and the lapping of network disruption costs, partly offset by inflation and higher fuel prices. Labor costs were 1% lower as a 5% reduction in headcount paired with a $10 million reduction in overtime expense offset inflation. PS&O savings were broad-based, benefiting from increased accountability for discretionary costs, eliminating wasteful spend and improved asset utilization. As an example, CSX's vehicle fleet is 7% smaller relative to the end of 2024, including opportunities we found to turn in costly equipment rentals that will reduce both operating expense and capital spend. We will continue to press on these costs at the individual asset level and new tools will support accountability and address unsafe and inefficient driving practices. We are bringing cost control to the front lines of the organization and educating our leaders on costs beyond their own budget. As Mike mentioned, our engineering group has found ways to drive efficiency, including less use of overtime labor, which will reduce capital spend this year. Along the same lines, we are improving visibility of freight car hire expense, so our field leaders can support the network center in managing the cost pool of over $1 million of spend per day. While fuel expense was a headwind in the quarter, given higher diesel prices, we delivered a record first quarter fuel efficiency and remain focused on reducing both locomotive and non-locomotive fuel spend. As we move into the second quarter, we do expect some nonseasonal expense from incentive compensation, timing of contractual locomotive costs, including overhauls and advisory costs related to industry consolidation. As Steve noted, we are focused on creating a sustainable efficiency process that provides our leaders with tools and data visibility while empowering these same leaders to take action. We are not lacking opportunity to continue to improve as we look forward to the years ahead. With that, I'll turn it over to Maryclare to review revenue results. Maryclare Kenney: Thank you, Kevin, and good afternoon, everyone. Our business performed well in the first quarter due to the great work of the commercial team and our strong partnership with the operations group. Early on, cold weather and storms weighed on shipments in certain markets, but our network was resilient. We stayed connected with our customers and finished March with momentum, supported by new business, reliable service and favorable trends in select markets. We've had a good start to the year, and we see several positive indicators entering spring. Looking forward, we remain nimble and customer-focused while executing on initiatives to expand our network reach, improve our customers' experience and drive profitable growth. Slide 10 covers first quarter volume and revenue performance. Overall, total volume was up 3% in the quarter, while revenue was up 2%. Business mix impacts led to a 1% decline in total revenue per unit. In merchandise, volume was flat year-over-year, while revenue and RPU grew 2%. Same-store pricing was in line with our expectations, though total merchandise revenue per unit was impacted by mix. Looking at some of the individual markets, minerals growth led merchandise, up 4% in volume, supported by cement and salt shipments. Chemicals was supported by higher frac sand shipments as data center demand drives natural gas production and strength in plastics as domestic producers benefited from overseas supply chain disruptions. Fertilizers saw gains as phosphate exports out of the Bone Valley improved. On the other hand, forest products continued to drag with volume down 9%. We are facing difficult comps as we cycle closures that occurred in 2025, while demand remains impacted by weak housing. One emerging positive here is that shippers are looking more to rail conversion as they weigh the impacts of higher fuel and trucking costs. Intermodal was strong this quarter with revenue up 5% on a 6% increase in volume. New business with key customers benefited us in both international and domestic markets. Mix was also a factor with RPU down 1% as we saw substantial growth in our inland ports business, which tends to be shorter length of haul. Finally, revenue for our coal business declined 1% on 1% lower volume, with domestic tonnage slightly up and exports slightly down. Utility coal demand remains high and strong operational performance in March supported customer restocking, but export shipments were impacted by cold weather that temporarily reduced loadings. Sequentially, global met coal benchmarks remained largely flat, but coal RPU benefited from a favorable mix of southern utility deliveries. Slide 11 covers highlights of our market expectations for the rest of 2026. Starting with merchandise, we see near-term opportunities in chemicals as domestic plastic producers have a stable supply of feedstocks and look to capitalize on global supply imbalances. Commodities like aggregates, cement and construction steel remain in high demand for infrastructure projects. Our metals business should also benefit from the ramp-up of new facilities we serve. Housing affordability remains a real headwind, particularly with our forest products business, where we've seen additional closures year-to-date. Automotive continues to be pressured by lower production and the extended retooling of a major plant on our network. Our Intermodal business has good momentum with tighter trucking supply and higher diesel prices creating tailwinds for freight conversions. Customers are also responding well to new faster service options. We continue to look for ways to enhance service on both traditional intermodal lanes and new offerings. We are completing the final infrastructure improvements on the former Meridian & Bigbee Railroad, and we will soon be launching improved service with CPKC on our SMX product. SMX provides truck competitive transit between major markets in the southeast with Dallas and Mexico, and recent investments will enhance both speed and efficiency. Additionally, the final infrastructure improvements around the Howard Street Tunnel clearances are nearing completion. When complete, we will shave a day off our east-west transit and will connect markets in the southeast with markets in the northeast more efficiently than ever before. Our international performance has been strong against challenging year-ago comps. So energy cost inflation poses risk to consumer demand and imports. Export coal should see the benefits of reopened mines. Power demand remains strong, supporting domestic utility volumes. We do have 2 facilities on our network now scheduled to shut down in the second quarter, but plant life extensions present potential upside. Global met prices remain relatively stable, and we expect that to persist amid challenged global steel demand. On the next slide, I'll provide an update on our industrial development program. Our team is positioning CSX rail as a compelling solution for new and expanding manufacturing facilities. Our pipeline of approximately 600 active projects remain strong. 21 projects went into service over the first quarter alone, which should contribute an estimated 33,000 annual carloads at full ramp. For the full year, we expect approximately 100 projects to enter service. This is a very strong year with multiple facilities coming online that were approved 3 to 4 years ago. For context, these 100 projects are expected to contribute roughly 50% more volume at full ramp than last year's 85 projects combined. The map on this slide gives detail on our Q1 projects in service, including highlights for 3 key projects. We worked with Keystone Terminals, a bulk commodity terminal in Jacksonville, Florida, to develop a new rail extension, enabling synthetic gypsum shipments to move on our network. Martin Marietta expanded a rail-served aggregate loading facility in Green Cove Springs, Florida with new rail infrastructure. With strong demand in this market, this facility is expected to reach full ramp by the end of 2Q. We also supported Diamond Pet Foods with a multistate site search that settled in Indiana. Our team worked with the company to develop a complete track design that was incorporated into their site plan. I'm proud of the depth of work across our sales, marketing and industrial development teams as they continue to build the strong customer and community relationships that underpin our growth efforts. With that, I'll pass it back to Steve. Stephen Angel: Thank you, Maryclare. Now we'll review our updated guidance for 2026 on Slide 14. Our revenue performance was in line with our expectations and showed favorable trends as the quarter progressed. We remain encouraged by the opportunities ahead for the balance of the year. The change to our top line outlook is largely driven by higher-than-expected energy prices, particularly diesel, which will begin to lift fuel-related revenue starting in the second quarter. Including fuel and assuming diesel prices follow the forward curve as of this week, we now expect full year revenue growth in the mid-single digits versus low single digits previously. As you know, higher fuel increases our revenue and expand our expenses, which can pressure reported margin. That said, we are pleased with our cost performance year-to-date. And as Kevin described, we have a broad range of productivity efforts underway that position us well for next year and beyond. As a result, we will anticipate year-over-year operating margin expansion of 200 to 300 basis points, but we now expect results to trend toward the high end of that range. We still expect total 2026 capital spending to be below $2.4 billion. And we now anticipate free cash flow to grow by more than 60% compared to 2025. In closing, I want to thank everyone at CSX for their contributions to a successful quarter. We remain focused on our goals and are confident in our ability to continue this momentum through 2026 and beyond. And with that, Matthew, we will open it up for questions. Matthew Korn: Thank you, Steve. We will now proceed with the question-and-answer session. [Operator Instructions] Abby, with that, we're ready to begin. Operator: [Operator Instructions] And our first question comes from the line of Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess just looking at the guidance here, maybe we'll start where you guys wrapped up. By our math, fuel sort of adds about 100 basis points to the operating ratio or takes away 100 basis points from the operating margin as we think out through the rest of the year. And so to maintain it and then obviously biased towards the high end is a good outcome. I was hoping maybe you could sort of outline some of the productivity opportunities that you've uncovered. Maybe if you could put some numbers around it, that would be great. But also sort of what's left to come, I guess, as the year progresses and how we should be thinking about that sort of upper end of the 200 to 300 basis point range as we go through the next several quarters? Kevin Boone: Yes, Chris, thank you. Obviously, very, very happy with the start to the year. When we convened in the fourth quarter and came up with a plan, that plan consisted of over 100 different initiatives. And obviously, that's a lot of work by a lot of different people throughout the organization coming together and driving that progress. And quite frankly, I think a lot of the things that we knew were there, we happened -- the team delivered maybe even more quickly than we thought they would. And so you're seeing that in the first quarter results here. I think that math around the fuel surcharge is relatively directionally correct. Obviously, a lot of uncertainty of where fuel will end up through the rest of the year. But when you look at the initiatives, clearly, you saw a lot of progress on the PS&O line item, and that's a lot of work everywhere. I talked about vehicles. When you look at energy costs, that is one that we're really talking a lot about internally of not only locomotive fuel, but fuel related to vehicles and other areas, utilities, utility spend is a big part of our spend as well. So I would say energy over the next few months is going to be in the crosshairs of everything we're trying to do to try to drive efficiencies, vehicle spend, as I mentioned. But the list goes on and on, and we continue to develop that. What our progress has done has given us the opportunity to now think about 2027 and starting to build that pipeline. So I'm excited about that progress. I can't thank Mike and his team enough for all their work. It's been a group effort to go after it, and I expect us to continue down this path. We got to hold on to these initiatives. So that will be the big focus as we continue through the year is delivering on the plan that we set forth in the fourth quarter. Operator: And our next question comes from the line of Ken Hoexter with Bank of America. Ken Hoexter: Really great to hear and great job on the cost side and the progress there. Exciting to watch the potential. The -- if we think about, Maryclare, the service, the Howard Street Tunnel, Port of Baltimore project, maybe just talk about timing and scalability of when the double stacking is going to be fully launched and loaded? And then how quickly can we see it, right? Because you're already posting kind of mid-single-digit growth now. What can the system handle? And how quick can we see that volume ramp up? Maryclare Kenney: So I'd say on the Howard Street Tunnel, we talked a little bit about it before, but really excited about this project. It's been a long time coming, and the operating team really did a phenomenal job last year getting the work on our end completed. The last bridge should be complete in the next week or so, and then we will have double stack access. We've talked about it before. There's a couple of things this unlocks for us. One, it's additional capacity and efficiency on the east-west corridor. So if you think about going from Western U.S. to Baltimore or vice versa, even Chicago to and from Baltimore. It essentially doubles our capacity there, and it's also going to take about a day out of our current transit. So we're really excited about that. It also grants us the efficiency on the I-95 corridor. So we have really fast service, great service from Florida up into New Jersey and Baltimore. Once again, we'll have double the capacity there. And so we're excited to unlock that. But the third kind of component here is it allows us to efficiently serve markets that we really couldn't before. And so we're adding connection points when you think about places like Atlanta up into the Northeast. And when I say Northeast, New Jersey, Chambersburg, Philadelphia, places like that. And so that is newer service that we have not traditionally offered because we couldn't be efficient with that in the past. And so that will take some time to build. We've been talking to our channel partners and shippers for a while about this. They're very excited about it. We're coming to the tail end of this year's bid season, but we're seeing some traction, and that will continue to build over the course of the next year or so. From my past experience, I'd tell you, new services typically takes a couple of bid seasons to really see it get to kind of full ramp. Operator: And our next question comes from the line of Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to maybe touch on what you're seeing from an overall macro and freight environment. I believe your guidance, at least the prior guidance did not assume any kind of macro recovery. I'm assuming the current revenue guidance also doesn't assume any macro recovery. Just wanted to get your sense on what you're seeing in the market, the level of conservatism with that underlying assumption. Maryclare Kenney: Yes. So I'll give a little update on the markets. I talked about some in the prepared remarks. But I'd say as we came into this year and we talked about back in January, we saw opportunities in a few markets, but we also saw broader headwinds with industrial production. And so kind of baselining what we said in January, we talked about areas around infrastructure investment, we still felt very positive about. So you think about aggregate side of the business, you think about metals that go into construction. So pipe, plate, rebar, those areas we felt good about. And then we felt good about our domestic intermodal business as well with truck conversion opportunity and new services that we had launched. We said on the other side, though, a lot of our business is tied to housing and automotive, and those markets have been pretty bleak. I would say as we sit here today, we haven't really seen improvement in either of those areas. And so auto production still right now is forecast to be down about 2% this year. We've mentioned a few times, we have a large plant on our network that is down for the year for retooling. And so that's another headwind for us. And when you think about the housing side, it's affordability issue. Interest rates are still high, and they've bounced back up a little bit after everything that's happened in the Middle East. And so those are still headwinds. Additionally, in our forest products business, we talked last year quite a bit about the fact that we had paper and pulp mill closures that we have to overlap and we won't really surpass those until later this year. So those elements from the beginning of this year haven't changed. I would tell you what I would say we have seen a bit of a difference in is one, with the conflict in the Middle East, we saw improvement at the tail end of last quarter and into the beginning of this quarter in the plastics business. And so feedstocks, domestic producers have opportunity, I think, here. We're not sure how long that will last, but that has been a more positive upside than what we expected coming into this year when we originally had seen global oversupply in that area. The second area I'd mention is with higher fuel prices, that does increase the value proposition of rail. And so I'd say we're more optimistic today than what we were in January in terms of truck conversion opportunities. probably primarily in our domestic intermodal business, but some other areas too, like our forest products segment. Operator: And next question comes from the line of Scott Group with Wolfe Research. Scott Group: So I don't know, Steve or Kevin, we've seen just such massive inflation in that PS&O line in the last 4 years. And I guess you just touched on it a bit earlier, but like seeing some good progress in the first quarter on lowering that. Like is this a good -- the $660 million, is this a good run rate? Or is there more opportunity to go on sort of fixing this PS&O line? And then maybe if I can, just like near term, there's just a lot of noise. We had a gain in Q1. We've got fuel moving around. Any thoughts on how to think about sort of sequential margin improvement from Q1 to Q2? Kevin Boone: Yes. The PS&O makes up -- there's a lot of different things that are in there. And I would say, Steve would say we're never done there. I have the procurement team continues to push our vendors for value, and that's going to continue here in earnest. But it's -- as I mentioned before, there are a lot of different components. It was an area that we -- I definitely and the team definitely saw a lot of areas for improvement. In terms of the sustainability of this, we're going to continue to go after it. And as I mentioned earlier, Mike and team, along with the finance team and others, we're already pivoting to 2027 and looking at all the cost line items and seeing where there's opportunity. And so there's absolutely more to come on that. We're going to layer it in and be very, very thoughtful on how that -- and how we think about those costs. But those are things that we'll continue to identify here. Looking at second quarter, I mentioned some of the things within PS&O that, obviously, we won't have the real estate gain that occurred in the first quarter of $44 million. I did mention the overhauls on the engine side that will be a little bit higher than what we saw in the first quarter, transaction cost, related costs that I mentioned. I would also say fuel at the higher levels for the second quarter, which we anticipate being higher than what they were on average for the first quarter will, by default, have some pressure on the margin side of those things, too, just given where fuel prices are today. But as I mentioned, too, that only motivates the team to go after those costs and drive more efficiency in those areas. So I do think the focus right now is to deliver the plan that we laid out here in the fourth quarter and make sure that the team and everybody is being held accountable to that and then starting to build the pipeline for the years ahead and making sure we have visibility to continue the cost efforts going forward. Operator: And our next question comes from the line of Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe just one quick follow-up for Kevin to start. The gain on sale, I know this can be lumpy. Is that sort of what you expected coming into the year in terms of like a run rate for the rest of the quarters? And how should we be thinking about that in the back half of the year, I guess, since you said it's not going to recur into 2Q? And this is a broader question for Mike. Obviously, a lot of productivity gains are starting to come through. So maybe the dwell time being a little bit elevated in some of these terminals that we're looking at doesn't have as much of an impact as we might think from the outside looking in. But I want to get your perspective because while there's easier comps year-over-year and it's still improving out of tough weather, some of the areas are up quite a bit in terms of the dwell time. So I don't know if that's a mix perspective, if that's reworking some of the yard and the systems, but I would like to hear your thoughts more on that point in particular. Kevin Boone: All right. I'll take care of the real estate. I think we did anticipate this coming into the year, the $44 million. I wouldn't expect -- there's nothing in the plan or the forecast for anything of this size the remainder of the year. We always have some small things that come through and Christina and her team do a great job of identifying those things, but nothing as material to this point. There's always things out there and whether we're able to convert them and pull them forward, we'll see, but not currently in the plan for this year. Michael Cory: Yes. Thanks for the question, Brian. As Kevin talked about before, our productivity initiatives are really broad-based and they're across all operations. And really, the overall focus is on waste, cutting overhead and especially improving our capital efficiency. So we've been really disciplined with our work teams, our engineering work teams start times and the full completion of their allotted time. And just as an example, this year, we've been close to 100% on our curfews, the track outages this year versus, I'd say, 70%, 60% the last preceding years. In some cases, we don't get the work done, and that's a safety liability and then the overall cost is tremendous. So in some cases, to get this work done this year, we've impacted our train and yard plans because we're instilling new methods of performing the work. So closing down a line or a portion of the yard for 24 hours and working continuously has caused some rerouting of trains and traffic, and it has caused delay. Now that's not our design, but it's more so a learning opportunity at this point to gain that efficiency to see if we can do it. And the plan going forward is to build the right plan about -- around the work that we're doing and the things we're learning from. So the focus in the last 30 to 45 days on these efficiency opportunities has really started to show us where not only do we have to dig in and improve, but it's also showing us places that we need to maybe do some capital work. And so some examples that we're actually in progress of doing, but our yard in Cincinnati, we're completing power switches this year, and we've started to begin the work in Nashville the same way. We've identified that work on sidings over some of our busy southern corridors to increase fluidity. Our focus is always on improving those operating metrics. And as much as we're deeply engaged on safety and service, we're just driving equally as hard on the internal metrics, but we're trying different things to create overall productivity. And I'm very -- we're all very aware of the dwell and the train speed, and that is a huge focus for us, and we'll bring that back in line. But we're not going to stop trying to get smarter and better in how we deploy all our costs. Operator: And our next question comes from the line of Brandon Oglenski with Barclays. Brandon Oglenski: Steve, you're another quarter into the job here, and I know you and the team have aspirations here to drive higher return on invested capital. I guess this question is a little bit open-ended, but I'd like to get your input on it. As you look at it today to drive a higher ROIC in the future, is it really like asset productivity? Is it improved business mix or pricing, cost efficiencies or all of the above? I mean, I would love to get some direction on that. Stephen Angel: Sure. So as you know, you've got a numerator and a denominator in return on invested capital. And I've had a lot of experience with this over the years. The best way to drive return on invested capital is to drive the numerator. And that's improving our operating margins, our operating margin performance, growing operating income. That's the top line. And you've seen our guidance for the year. You've heard both Kevin and Mike talk about the fact that we're working on 2027 productivity initiatives as well as executing during 2026. And that, to me, is really the secret to driving that top line to make sure that we build that productivity muscle so that we can count on that contribution year in, year out. And then on the capital, the denominator side, it is being more prudent in terms of how we spend capital. Certainly, that has an impact. We have -- Mike talked about how we are performing our engineering work in concert with transportation so that we're much more efficient and effective in terms of how we execute some of these significant projects. I would say we were in a kind of in a mode where we had lots of projects going on simultaneously, not really making the progress we needed and bringing them to conclusion. And by working more in a block mode, we're able to execute large projects more quickly, more efficiently, spend less dollars and get the benefit of that investment. So that's just one example of what we're doing on the capital side. Kevin is heavily involved managing the capital funding process. We look at every project now. Everyone has to stand on its own. We follow them individually. We're going to make sure we're executing the way we need to execute. And then really longer term, when you look at capital spend, I think predictive analytics can play a major role in terms of making sure that we focus our capital spend, certainly on the infrastructure side, we can focus the capital spend and we can prioritize that spend based on what's needed, not necessarily what we think we need to do from a maintenance standpoint, but what the analytics and the data tells us we need to prioritize in terms of our spend. And as we move down that path, as we do a better job with that, I would expect that our overall capital spend would be lower year-over-year because we're spending the money on the right things as opposed to what we believe based on our experience, we need to spend the money. So all that's kind of a long answer to say that that's how I think about return on invested capital. We've said we want to be best-in-class in a lot of metrics. That's one of them. And the way to do that is continue to drive that numerator north, grow our earnings year-over-year, manage our capital spend very effectively, and that's how we'll do it. Operator: And our next question comes from the line of Tom Wadewitz with UBS. Thomas Wadewitz: I wanted to ask a bit about on the pricing side. There's been a pretty substantial and rapid tightening in the spot market in truck and I think contract rates going up quite a bit, too. For Maryclare or broader, how do you -- how should we think about the time lag between that? Is there that and what you could see in intermodal or merchandise in pricing? Is there some of that, that can benefit you in second half? Or is this really like it's great to see, but we should expect more pricing in '27? And then I guess maybe just within the quarter, are you seeing any kind of change in underlying pricing in merchandise? I know you talked about mix being a headwind, but just like is that kind of similar to what it's been or any change there? Maryclare Kenney: Yes. Thanks for the question. So we talked about pricing last quarter as well. And I'd say it's an area I looked at as I came into this role. And I think we've said before that we expect on a same-store sales basis, pricing to be better this year than what we saw last year. We deliver an important service product for our customer, and it's important that we ensure that we're pricing appropriately and getting the value for the service that we deliver. I'd say as I look at merchandise pricing over the course of this year, discretionary pricing, what we can touch has been solid. And that will benefit us as we get later into this year and certainly into next year. We've mentioned before, of our total book, it's only 50 or so percent that we can touch on any given year. And so we can't [ touch ] given time. So we can't touch everything at the same time. And so there is a lag effect. I'd say as you think about the intermodal side of the business, we continue to focus on price there just as we do in other markets, but it is different than other segments. And for example, when you think about international intermodal, it's pretty heavily concentrated. It's primarily contracted under long-term deals, and it's not really highly correlated to changes in the truck market. And so that's a little bit of a different area for us. Operator: And our next question comes from the line of Ari Rosa with Citigroup. Ariel Rosa: Congrats on some strong results here. Steve, I'm curious, just an update on the M&A situation. Last year, we heard a lot of concern that a transcon merger could leave CSX at a competitive advantage -- or I'm sorry, a competitive disadvantage. Clearly, a lot of good progress going on. But as we step back and think about kind of what the business looks like a year from now, 2 years from now, 3 years from now, to what extent is that a concern? What steps are you taking to kind of position the business for that? Maryclare talked about the kind of build in the intermodal business that's opened up by the Howard Street Tunnel and some of the opportunities there. Just give us your updated thoughts on kind of where vulnerabilities might lie and how CSX is kind of positioned for that future if it does unfold? Stephen Angel: Number one is doing what we're doing today and continuing to execute at a high level in the base business. Maryclare talked about some of the growth opportunities that we have, of which there are quite a few. Obviously, there's uncertainties out there in the market and so forth. But we feel pretty good about our growth opportunities. We feel pretty good about how we're operating, our focus on capital, et cetera, et cetera. So a lot of things are going positively in that light. The way I think about the merger, and again, you've heard me say this before, it's a long process. The one I was involved with took 3 years from beginning to end. So a lot of time is going to lapse between now and some conclusion, whatever that is. I would look at any industry consolidation and say that if you're in that industry, there's going to be some challenges you got to go manage. There's going to be some opportunities to capitalize on. And I suspect if this merger goes through, we'll see both. But it's going to take a good bit of time. We don't know what the end result is going to be. I think in the interim, we're just going to focus on execution and make sure that whatever happens down the road, we'll be going into that situation from a position of strength. And that's always been my philosophy, and that's where we'll be. Operator: And our next question comes from the line of Richa Harnain with Deutsche Bank. Richa Talwar: So I wanted to ask about the 21 projects that are expected to contribute. I think Maryclare, you said 33,000 in annual carloads at full ramp. When do you expect to get to full ramp? And if you have a total of 100 projects expected for the year, will the incremental 80 or so have the same impact as the 21? I mean at that contribution level, we could get to very strong carload growth implied on an annual basis. So I just wanted to make sure I wasn't missing anything or understanding the cadence of that. If we can drill into that, that would be great. Maryclare Kenney: Yes. Thanks for the question. I'd say every project is a little bit different, right? And so when we talk about the 21 projects, they're across multiple different business units. And when I think about our industrial development efforts last year, what we've seen this year, what we've got in the future pipeline, they vary. There are some larger projects. Last year, we talked about an auto plant that came online that over time, once it gets up to full ramp, will be pretty sizable. It started out with one vehicle. And so it will take time for that to ramp. We also have other projects when you think about some of our areas where it's a few thousand carloads, right? It's smaller in scale, smaller in revenue. And so the good thing about this is it's a pretty diverse pipeline, and we're excited about that. It's not heavily correlated or concentrated in one particular area. And so as we think about changes in the market, that gives us a benefit as we think about the future. So we're excited about it. I'd say that's probably all we're going to get from a guidance perspective at this point on ID, but we're certainly excited about the pipeline that we see, and it's an area that we'll continue to develop as we go forward. Operator: And our next question comes from the line of Jonathan Chappell with Evercore ISI. Jonathan Chappell: Very clear, the one segment we probably haven't touched on from a pricing or yield perspective is coal, up about 3% sequentially. That's the first time in several years, basically flat year-over-year, also the first time since '22. Is this a function of some of the index headwinds finally easing? Is it a mix benefit? Is it some of the commodity price volatility kind of helped coal maybe vis-a-vis oil? And a long way of getting to, is this kind of the start of a recovery? Or when you think about coal RPU for the rest of this year, think about 1Q and extrapolate that? Maryclare Kenney: Yes. Thank you. So I'd say we talked about on our last call, the fact that on the export coal side, last year, we saw the benchmarks come down throughout the course of the year. So by the time we got to the fourth quarter, they were pretty substantially lower than where they started in January of the year. What I'd say is what I've seen from fourth quarter into first quarter of this year is the primary benchmark that we're tied to on the high-vol side, it's been relatively stable. So we had probably the biggest year-over-year impact in the first quarter. And as we saw those benchmark prices come down last year, that gap will close some if benchmarks stay where they are today, which is our current expectation and what's kind of in our forward thoughts. I would say on the domestic side of the business, we do see good demand out there. So there's strong demand for power, data centers and continued investment in that infrastructure is going to continue to pull on the power. So we feel good about domestic demand. We've mentioned before, there's a couple of utilities on our network that are planned to close this quarter. But with the power demand that's out there right now, we expect there could be some extensions associated with those. And so how we see domestic overall market is strong. But in terms of impact for us, part of it will be determined on whether or not we see these closures come about or we see the extensions on those facilities. Operator: And our next question comes from the line of Jason Seidl with TD Cowen. Jason Seidl: Questions for Mike. Mike, we have the bridges opening up here to enable you guys to run double stack and you've made some changes on freight flows around Chicago. What else is sort of on track for the remainder of the year that will help productivity and obviously push margins? Michael Cory: Thanks, Jason. Well, in Chicago, just to clarify, we're just streamlining our service by really running direct from origin points on CSX to our connecting carriers and belt lines for processing to other carriers. We've always used belt carriers to forward traffic, and now we're combining all the traffic that comes from outside of Chicago through Chicago with the belt carrier. It just reduces handling, reduces time on all the traffic. And on the reverse, it works the same way. So across the rest of the network, what we're really looking at, as I said earlier, is a cross-section of productivity initiatives. And we've got some really good teamwork going on. Our engineering group is delivering quite a bit of efficiency that we see extrapolating out through the year, and they're working extremely good with our network group. So Casey Albright, Doug Ryhorchuk are really driving -- we learn more efficiencies every day, Jason. I'll put it that way. The things that we don't know are what we're going after. And on the intermodal side, really speeding up to Maryclare's earlier points about offering faster service lanes, getting that new business. We're going to be putting expansion into our Atlanta terminal, Fairburn in Atlanta. Carrie Crozier and the team, driving some good results there. look, we're looking for as much productivity in terms of reducing handling, speeding up traffic and getting rid of these inefficiencies that have been inside of all of operations, not just through dwell and train speed, but there's a lot more that's out there that's within the entire group that we're going after. Operator: And our next question comes from the line of Walter Spracklin with RBC Capital. Walter Spracklin: So Maryclare, this question is for you. I noticed that, obviously, you touched on the pipeline of projects that you have in the works. And I'm just trying to separate what you would get in terms of growth from company-specific projects in total versus what you're seeing in terms of pressure in the macro. Obviously, the net is that you're guiding for flat. Just curious if that's plus 2% on projects, minus 2% on macro or something less or more than that. Again, just trying to isolate for your company-specific growth so that hopefully, when the market improves and we see some macro improvement, we can layer your company-specific opportunities on top of that. Maryclare Kenney: Yes. Thank you. So I would say we've told you about the projects that we've got in the pipeline. When I think about where we've been, we've added good, strong business over the course of the last several years through ID, and we expect that to continue. I think we've received questions over time around with broader macro forces that impacted industrial development. And what I'd say on our side is our pipeline has continued to remain strong. We have seen in a few areas where projects have ramped a little bit slower than what we originally expected due to the macro economy. I think what we have to take into account here and without kind of getting into the specifics of one versus the other, we had closures that impacted our network last year as well. And so that was primarily concentrated and we talked about those in the pulp and paper mill side of the business as some of our customers were driving efficiency within their own business. But still, net of that, we see incremental opportunity with ID. And so I can't project the full future in terms of will we see something else happen this year in the matter of a closure. But for right now, we think this is certainly a net positive for us. Operator: [Operator Instructions] And our next question comes from the line of Ravi Shanker with Morgan Stanley. Ravi Shanker: Just a 2-parter for Kevin. I think you highlighted some cost headwinds in your commentary, incentive comp and a couple of other things. Can you just give us a little more color there on quantity and timing of those items? And also, you guys have said a couple of times that you're pivoting to 2027 and the productivity actions. Can you just unpack that a little bit more kind of -- is that because the 2026 cake is pretty much baked and kind of any incremental gains are going to come in '27? Or is it because the nature of those actions are more long term? Kevin Boone: Yes. Well, first, just kind of unpacking the second quarter commentary, the things I would like to point out, again, the engine overhauls that we pointed out, some additional costs with obviously, transaction costs. And then I did highlight that on the fuel side, with the higher fuel price, you'll see some of that flow through from the margin profile. And so outside of that, probably not going to be a little bit more specific, but I would say probably from a PS&O perspective on a sequential basis, not the normal seasonality that you would see there based on some of those items I discussed. Why I'm talking about and why the team is talking about the efforts around 2027 is, yes, we do have a plan in place for '26. Are we going to hopefully find things? As Mike said, he's finding things all the time. Yes. What we want to do is create a muscle, as Steve said, and the cadence of continuous improvement. And so obviously, those things that we want to do in 2027, we got to start now and have a plan together by the middle of the year, so we can execute on that. And obviously build momentum. And we talk about exit rates in any given year, and we want to build an exit rate into '26 and '27 to make sure we're delivering on year-over-year improvement consistently. And so that's going to be something that the team is focused on for the remainder of this quarter and going into next year. And obviously, the 100-plus initiatives that we have for this year, we got to make sure we stay on track and continue to add to those as well. Operator: And our next question comes from the line of David Vernon with Bernstein. David Vernon: So if we think about the framework for the guidance, the 5% top line, obviously, we're including fuel. I'm just wondering if you're also getting a little bit more optimistic or less optimistic on the volume side and if there's any disaggregation between sort of price and quantity in the updated guidance. And then, Mike, when you look at the headcount of the staffing level you're at right now, are you at a level where you feel comfortable being able to handle sort of low single-digit growth? Or are we going to be needing to kind of refill the talent pool a little bit? I'm just wondering how you're thinking about headcount underlying the guidance that you gave us today. Kevin Boone: On the revenue side, I think Maryclare and both Steve kind of highlighted that the majority of our upward pressure on our guidance in terms of the revenue or upside that we talked about is it's largely around the fuel side of things and energy costs. But those are impacting positively some markets. Certainly, there's a lot of moving parts to the economy right now. We're watching that. But Maryclare did touch on that we exited the first quarter positively, and we'll see if that continues. We're hopeful that continues. And some of that -- a small amount of that has been embedded in our forward guidance. And then I'll throw it over to Mike. Michael Cory: Yes, David. Look, we feel comfortable right now with our current headcount levels. We may see an uptick in the T&E labor in Q2 to Q3, where we see generally a little bit of higher volume and some peak vacation time. But we're going to continue to carefully manage our attrition levels. And we're always looking for ways to be effective and productive with our workforce, but we're staying very close with Maryclare and her team to ensure we're hiring for volume where we need it. So we're comfortable right now, though. Operator: And ladies and gentlemen, that concludes our question-and-answer session as well as today's call. We thank you for your participation, and you may now disconnect.