Closing Bell - Closing Bell Overtime+ CSX CEO Joe Hinrichs 1/25/24

Episode Date: January 25, 2024

CSX CEO Joe Hinrich discusses the company’s quarterly earnings results, his thoughts on the broader economy, and more.

CSX with some modest upside on Q4 earnings and revenue. Our Morgan Brennan joins us here at Post 9 this morning with the CEO. Hey, Morgan. Hey, Carl. That's right. And joining me, or joining us, I should say, Joe Henricks of CSX. Joe, it's great to have you on Post Earnings. I'm going to just jump right in. Q4 revenue down, volumes up. For 2024, though, you're forecasting revenue growth and volume to grow as well. How does that speak to the timing and magnitude of a freight recovery this year? Yeah, we're feeling optimistic, actually. What we saw in December was interesting. Chemicals, forest products, international modal, intermodal all year long were down until December. We started seeing an inflection positive. Autos, coal, metals, and minerals have been positive all year,

and we see that continuing. So we're actually feeling pretty good about what we're seeing on the demand side right now. So on a day where we're getting our first fourth quarter GDP reading, it's coming in 3.3 percent, so much stronger than everybody expected. That sounds about right to you? It does. We saw domestic intermodal pick up last seven, eight months, sequentially every month. And as I said, you know, autos, metals, minerals, some of those things and chemicals, plastics more tied to consumers started to see an inflection in December. So starting off well into the year, obviously the Arctic weather didn't help us a little bit there in the last couple of weeks, but we're feeling good about what we're seeing on the demand side. It's interesting to

hear you say that because we know railroads are so tied to the industrial part of the economy. There's been a lot of soft macro data around the industrial side of the economy. We've even had some cautious, I'll call it, commentary from some companies in this earnings season so far. Do you think we're seeing stabilization, even a potential bottom as we head into 2024? And how much are fiscal tailwinds from infrastructure, Inflation Reduction Act, CHIPS Act, actually, as those materialize this year, how much are those going to contribute? Well, I think they will contribute. If you look at last year, things like cement and rocks and minerals tied to construction were up. And we see that continuing very strong for us here in the southeast.

If you think about other parts of the business, industrial production was flat last year. Our merchandise volume was up. So on the strength of our market share and our service gains, we're seeing that. But if we can get chemicals, we can get some forest products like housing related, pulpboard, et cetera, to see some inflection positive, that can really contribute to what we're seeing. So fundamentally, if you look at the last couple months, we're seeing some strength. I do want to get into the service piece of this, but first, one more macro question for you, and that is on the intermodal side, which tends to be more consumer skewed part of the business. What are you expecting this year

in terms of, I guess I'll call it a normalization of inventories for retailers? And as we've seen East Coast ports, which you're tied to, take some of that market share from the West Coast, does that continue? Yeah, I think you'll see the East Coast ports continue to see volume growth. They've been investing heavily in their infrastructure to be able to support that. If you look at our fourth quarter, it was the first quarter of the year where we actually had intermodal volume was flat year over year. So the previous three quarters was down. A lot of that had to do with international intermodal. As I said earlier, that finally came back in December. We'll be lapping easier comps this year, but it looks like international intermodal should show growth this year. And domestic intermodal has

shown strength sequentially now for a number of months. We see that continuing in 2024. Do you see any impact or ripple effects from what's happening in the Red Sea and the attacks on the cargo ships there and any major disruptions in terms of shipping and delay into the U.S.? We haven't seen it yet. We're talking to all our customers. Clearly, we see more activity going south of Africa now, but that will play out as it gets here. But if more things end up going into the ports, either west or east, it'll help us actually on the rail side because the population center of the United States is in our territory. So if things come to the west coast, it'll ship over on rail. And if it comes into the east ports, depending on where it comes in, it may go on rail longer. So there's a possibility it could help us, but right now we haven't seen much yet. So this past year, we saw

operating ratio creep higher, but we also saw your service metrics improve, as one analyst put it, industry-leading service at CSX. How does that contribute to market share gains this year? And what does that mean in terms of your ability to continue commanding pricing? Our thesis all along, Morgan, has been if we can get to a level of customer service, new levels of customer service that our customers haven't seen before, we can talk our customers into having the conversation with us again about growing volume with us. So much volume has moved the truck over the last 10, 20 years, as we all know. And it comes down to providing a reliable, repeatable service to our customers.

So we're trying to lead in that way. And I'm really proud of the work the OneCSX team is doing there. That should lead to continued market share gains and volume opportunities for us. We saw that last year. We gained share in key areas like metals and autos and coal. And we should see more of that play out in 2024. But we believe that's foundational to what we're doing. Our staffing levels now are the levels we've been targeting after four years of being

short. So we feel good about our operating performance to be able to support that going forward. Okay. Joe Henricks, CSX President and CEO. Thanks for joining us. Thanks.