Good afternoon, ladies and gentlemen, and welcome to the CSX Corporation 4th Quarter 2019 Call. As a reminder, today's call is being recorded. During this call, all participants will be in a listen only mode. Following the presentation, we will be conducting a question and answer session. For opening remarks and introduction, I would like to turn the call over to Mr.
Bill Slater, Chief Investor Relations Officer for CSX Corporation. You may begin.
Thank you, and good afternoon, everyone. Joining me on today's call are Jim Foote, President and Chief Executive Officer Mark Wallace, Executive Vice President of Sales and Marketing Kevin Boone, Chief Financial Officer and Jamie Boychuck, Executive Vice President of Operations. On Slide 2 is our forward looking disclosure followed by our non GAAP disclosure on Slide 3. With that, it is my pleasure to introduce President and Chief Executive Officer, Jim Foote.
Thank you, Bill, and good afternoon. I want to begin by thanking all of our CSX employees for another great job this quarter. They continue to show that they are the best operators in the industry. For both the Q4 and full year, they once again broke their own records and set new all time low operating ratios. Our service is the best it has ever been and getting better.
The key here is reliability. Our operating a simpler, more efficient network, we are able to offer rail users a service that is truck like inconsistency, but with lower cost and more environmentally responsible. More shippers are selecting us for their shipping needs, and we have tremendous opportunity for growth. Let's now turn to Slide 5 of the presentation. Our financial results are straight forward with only a few unique items, which Kevin will point out in a few minutes.
4th quarter EPS declined 2% to $0.99 The operating ratio improved by 30 basis points to a new record of 60 as continued operating momentum offset top line headwinds. For the full year, EPS increased 9% to $4.17 and the operating ratio improved by 190 basis points to 58.4. These are truly great results considering the industrial economy's second half performance. Turning to Slide 6. 4th quarter revenue declined 8% year over year due to the continued impact of the softer industrial economy, intermodal lane rationalizations and coal headwinds.
Merchandise revenue and volume declined 3% as growth in ag and food and minerals markets was more than offset by declines in chemicals, auto and other markets. The Philadelphia refinery explosion and GM strike accounted for more than twothree of the volume declines in the quarter. Intermodal revenue declined 9% on 7% lower volume, primarily due to the impact of lane rationalizations implemented around the 2018 peak season. We have now lapped the impact of these changes. Coal revenue decreased 22 changes.
Coal revenue decreased 22% on 17% lower volumes, with declines in both export and domestic markets due to the impact of lower export demand and benchmark prices as well as low natural gas prices. Lastly, other revenue declines resulted from lower storage The full year personal injury rate declined 15%, and we reduced the full year train accident rate by 41%, including setting another company record in the 4th quarter for the lowest accident rate. This progress is a result of concerted daily on the part of the employees performing the work. At the same time, we still see areas where additional improvement is needed. In 2020, we will maintain a rigorous safety program focused on continuing education of our workforce, further strengthening rules compliance and empowering employees to have the courage to act if they see something unsafe.
As I have said before, we will never be satisfied with our performance if just one of our employees gets injured while at work. Moving to Slide 8. Let's review our operating performance for the quarter. CSX set new all time company records for both velocity and dwell, achieving significant year over year improvements as well as strong sequential momentum. The combination of these improved metrics helped significantly increase car miles per day as we continue to translate incremental operating efficiencies into higher asset utilization across the network.
We also continue to set fuel efficiency records operating below 1 gallon of fuel per 1,000 GTM despite typical seasonal headwinds in this quarter. CSX is the only U. S. Class 1 railroad to have crossed this threshold. Fuel efficiency remains a key focus for the team, given the combination of financial as well as significant environmental benefits from reducing fuel consumption.
And we believe opportunities remain to get even better going forward. Reducing emissions is important to us, our customers and the communities we serve, and we are proud to have been recognized by various institutions as leaders in sustainability for the transportation space. On Slide 9, most importantly, we are translating these operational improvements into more reliable service for customers. Trip plan performance set new records again this quarter, with 83% of our merchandise cars and 95% of intermodal containers hitting their hourly trip plan targets. Additionally, we successfully completed the rollout of individualized trip plan performance data to our merchandise and intermodal customers.
Feedback on the tool has been very positive, and we believe providing this unique level of transparency to our customers will continue to differentiate CSX's best in class service. I'll now turn it over to Kevin, who will review the financial results.
Thank you, Jim, and good afternoon, everyone. Turning to Slide 11, I'll walk you through the highlights of the summary income statement. As Jim mentioned, total revenue was down 8% in the 4th quarter. As the impact of lower intermodal and coal volume as well as reduced fuel recovery, lower other revenue and unfavorable mix more than offset the benefit of pricing gains in merchandise and intermodal. Moving to expenses.
Total operating expenses were 9% lower in the 4th quarter, a significant achievement that reflects CSX's ability to react changing markets while delivering record service levels. Overall, these results reflect the company's sustained operating improvements and significant gains in labor and asset efficiency. Labor and fringe expense was 3% lower with average headcount down 7% or nearly 1600. Efficiency gains were strong in the quarter, partially offset by inflation, other costs and incentive compensation, including acceleration related to certain retirement eligible employees. Our ongoing refinement of the operating plan continues to drive savings from fewer crew starts, enabling a 9% year over year reduction in the active train and engine employee base and driving a 7% improvement in crew utilization, as measured by gross ton miles per active train and engine employee.
Through workforce efficiency and management execution, we reduced overtime across the operating department by nearly 15% sequentially or approximately 30% versus the Q4 2018. Additionally, the average active locomotive count was down 10% year over year in the quarter. The smaller fleet combined with fewer cars online and freight car repair efficiencies a 9% reduction in the mechanical workforce, while also reducing mechanical overtime expense by over 40 percent. Finally, we cycled a unique benefit in the prior year related to the railroad retirement tax refund. MS and O expense improved 20% versus the prior year.
Continued improvements to the train plan, combined with increased network fluidity, have enabled an 8% reduction in crew travel and repositioning expenses. On the mechanical side, the lower locomotive counts also drove savings in MS and O, including a 26% reduction in locomotive materials and contracted service expense versus the Q4 of 20 18. Real estate and line sales were $10,000,000 lower in the quarter. We continue to see a pipeline of real estate While the While the impact of these transactions will remain uneven from quarter to quarter, as you remember, in March of 2018, at our investor conference, we guided for $300,000,000 in real estate sale proceeds over 3 years. We will significantly exceed this guidance with our expected 2020 results.
Fuel expense was $37,000,000 favorable or 15% year over year in the quarter. These savings were driven by a 7% decrease in the per gallon price, but were further aided by lower volume and significant efficiency improvements. Our enhanced focus on utilization of distributed power and energy management software combined with train handling rules compliance drove a 4th quarter record fuel efficiency. Full year 2019 fuel efficiency was also an all time best for CSX. Looking at the other expense items, depreciation was relatively flat year over year.
While we did recognize $10,000,000 in additional expense this quarter due to a 2019 depreciation study, this was more than offset by other items, none of which were individually significant. We expect depreciation expense to increase approximately $50,000,000 to $60,000,000 in 2020, reflecting the continued impact of the recent study as well as a higher net asset base. Equipment rents expense increased 9% as the impact of inflation and other items more than offset the benefit of lower volume related costs and efficiency gains. Equity earnings increased $7,000,000 in the quarter due to higher net earnings at our affiliates. Looking below the line, interest expense increased primarily due to higher debt balances, partially offset by a lower all in coupon.
Other income decreased $4,000,000 as the company recognized a $10,000,000 make whole premium on the early redemption of $500,000,000 of long term notes in October. This was partially offset by increased income from higher investment balances. Income tax expense decreased $45,000,000 due to lower pre tax earnings and further aided by certain state tax matters and federal legislative benefits. Absent unique items, we would expect an effective tax rate of approximately 24.5% for future quarters. Closing out the P and L, as Jim highlighted in his opening remarks, CSX operating income declined 8% year over year in the 4th quarter, reflecting the challenging volume environment.
Despite the tough backdrop, the company delivered another record operating ratio of 60%, a 30 basis point improvement over the Q4 2018. Finally, turning to Slide 12. Turning to the cash side of the equation on Slide 12. In 2019, capital investment declined 88,000,000 or 5% year over year. While overall capital investment declined, investments in our core track, bridge and signal infrastructure saw an increase of 13% as we continue to prioritize investments that provide safe and reliable train operations.
Overall, our reduced asset intensity, especially in rolling stock, has enabled us to sustain lower levels of capital investment without safety or reliability. The level of PTC spending has also come down significantly in the last 2 years. Free cash flow heads continue to be a key focus for this team. Generating operating productivity while driving improved capital efficiency differentiated free cash flow conversion. Growth in CFX's core operating cash flow generation, including improvements in working capital, drove a 9% increase in adjusted free cash flow to $3,500,000,000 in 20 19.
We returned over $4,100,000,000 to shareholders in 2019, including nearly $3,400,000,000 in buybacks and over $750,000,000 in dividends. Additionally, we are exiting 2019 with nearly $2,000,000,000 of cash and short term investments, which combined with another year of substantial free cash flow generation, provides significant opportunities to reinvest in the business and continue to return cash to shareholders. With that, let me turn it back to Jim for his closing remarks.
Great. Thank you, Kevin. Let's turn to Slide 14 and our outlook for 2020. We expect underlying economic demand to remain relatively consistent with current levels. It took industrial activity a while to cool off, and it will take a while to heat back up.
Based on this, we expect full year revenue to be flat to down 2% versus 2019. This forecast includes more than $300,000,000 of top line headwinds from the coal business, driven primarily by lower export coal volumes and pricing. For the first half of the year, the merchandise business will continue to lap the higher economic level the higher level of economic activity from the first half of twenty nineteen, but we expect merchandise volume growth positive in the second half of the year. We expect intermodal volumes to increase in 2020 as we have now fully lapped the lane rationalization impact and look to grow the reengineered network. As to the operating ratio, our goal was to operate as efficiently as possible while ensuring we maintain our reliable service product.
Our focus is on growing the business, and in that context, we are targeting cost efficiencies that will not inhibit service. There are additional cost levers out there for us to pull, but we must make sure we are well positioned to capture new business and respond to demand when industrial production moves up. Looking at the 2019 operating ratio results, we again outperformed our real estate target of approximately $100,000,000 a year. Adjusting for this outperformance implies a baseline operating ratio of 59%. Despite roughly $300,000,000 of operating income headwinds in 2020 related to export coal and non core items such as lower real estate gains, higher depreciation and lower other revenue, we still expect to realize capital allocation, our first call on cash is maintaining the integrity and reliability of our railroad.
As Kevin noted, in 2019, we again significantly increased investments in rail infrastructure, spending more on rail, ties, ballast and signals, and we expect to maintain this level of investment going forward. In total, we project capital expenditures for the year of $1,600,000,000 to $1,700,000,000 in line with our 2019 targets. In the absence of any high return growth projects, we expect the next principal use of cash flow will be the continued return of capital to shareholders through both dividends and additional share buybacks. Importantly, we are committing to doing so in a way that maintains our strong investment grade credit rating.
Over the last 2
years, we have accomplished many exciting things at CSX and fundamentally transformed the way the company does business. However, none of us are resting on that success. In fact, we have only scratched the surface of this company's potential. I believe the best is yet to come for CSX as we continue our journey to becoming the best run railroad in North America. Bill?
Thank you, Jim. In the interest of time, I would like to everyone to please limit themselves to one question and one follow-up only if necessary. With that, we will now take questions.
Thank you. We will now be conducting the question and answer session. Our first question comes from Brandon Oglenski from Barclays Capital. Your line is open.
Hey, good afternoon everyone and congrats on a pretty good year relative to pretty difficult conditions. Jim or I don't know if Mark Wallace is on the line, but do you guys mind digging a little bit deeper into your macro assumptions behind the flat to down 2% revenue assumption? And I think you did call out some headwinds in coal as well. Do you mind just repeating that again?
Yes, sure, Brendan. It's Mark. So going into 2020, we expect a continuation of the current macroeconomic trends to continue. We know the consumer economy remains strong, but PMI and IDP and other macro indicators suggest that we're not going to see a near term increase in industrial activity. IDP is projected to be relatively flat for the year, and December was 47.2%, which was the 2nd worst since 'nine and the 5th consecutive month signaling a contraction.
So given this, we're not forecasting a hockey stick recovery, but any improvement in the macro environment would be upside for us. Despite these challenges, we're going to continue to get better at what we can control, providing high quality service to our customers and executing. We have not changed our outlook for long term revenue growth. Intermodal, as we've said many times, we think we can grow 2 ish times GDP and merchandise GDP plus. So we're going to stay close to our customers, watch things and see if sentiment improves throughout the year.
But clearly, as I said, we're not forecasting any type of big recovery in the year.
Okay. And I guess it's a related follow-up. Mark, can you just tell us how the marketing strategy and sales strategy has changed at CSX, especially related to intermodal and merchandise?
Yes, sure. I mean, in 2019, we spent a lot of time revamping the entire sales and marketing organization. We've changed a lot of people, brought in some great talent. We've actually developed a strong marketing team, no longer a pricing team as we've discussed in the past. The marketing team is doing a fantastic job, working hard doing actual marketing activities and looking for opportunities to gain share and from truck and going after them and providing the sales team with those leads and those opportunities to grow our share as we are leveraging this fantastic service product that Jamie and his operating colleagues have provided the sales team to sell.
On the intermodal side, again, as Jim has alluded to, we're through our lane rationalizations that began in late 2017. We have a great intermodal network that we're leveraging, and we're excited to sell our, as Jim said, our 95% plus trip plan compliance or trip plan performance numbers and even higher in some other in some lanes, exciting and customers are taking note and we're executing and doing really well with our intermodal customers there.
Thank you.
Thank you. Next, we have Tom Wadewitz from UBS. Your line is open.
Yes. Good afternoon. I wanted to see I appreciate the detail on Kola perspective. I think the $300,000,000 is a revenue number. Any thoughts on how we might think of that in terms of an EBIT number?
Is that presumably a fairly high incremental margin? Is that a 50% incremental margin? Or how do you think about the EBIT headwind related to the coal revenue comment that you provided?
Hey, Tom, it's Kevin. We've really never broken down the profitability between our different segments, but we've always said that the coal business is obviously a very attractive business for us, and we're going to continue to move as much coal as we can. But that's probably as far as we want to go there on the profitability side.
Okay. What about, I guess, thought in terms of the pricing assumption you have for seaborne? I mean, it seems like you see Queensland benchmark look like I think it went down to or the market went down to the 130 area. You've kind of I think come back to 150. Is there any sense within that coal headwind kind of what you're assuming broad brush for the seaborne prices for met?
Yes. Tom, it's Mark again. The met benchmarks, and again, met is about 65% of our export coal. The metchpark prices have continued to decline as the global production has weakened, and currently, they're about $150 As a reminder, our contracts reprice quarterly, so you should expect to see a bit of a drag on the RPU into Q1. But that's kind of where it is, and we'll see what happens throughout the year.
As a reminder, this time last year, the met prices were coming into the Q1 of the year were about $2.20
So you just assume they kind of stay where they are today. Is that the right way to think about it?
Correct. Yes. So we'll see the overall for coal, we're going to see a step down in the Q1. But sequentially throughout the rest of the year, we don't think it's going to get any worse on the RPA.
Okay. Thank you for the time. Appreciate it.
Ken Hoexter from Bank of America Merrill Lynch. Your line is open.
Great. Hey, good afternoon. And just maybe, Jim, looking at the expense side, you've kind of accelerated costs here. But if volumes are going to be down, maybe you can talk about if most of the PSR gains are over, how do you think about moving along with reducing expenses in light of these reduced volumes in contrast to your statement about being cautious about not going too far to be prepared for the rebound? And specifically like in the employees?
Yes, I'll ask Jamie to give a little color on it here. But there are significant amount of cost reduction embedded in that guidance that we provided. Just to offset inflation and other cost increases that we set out in terms of the increases in depreciation, etcetera. But this game is not over,
And we're going
to do the first and foremost thing is to make sure that we're well positioned to provide a really good quality product to our customers in the future. And again, I'll let Jamie offer a little more color on specific initiatives.
Absolutely. Ken, we're continuing to look for good improvements this year on fuel, definitely towards our car higher end of things. We're finding as we become more fluid out there and the railroad moves better, our bigger yards are able to do more for us. So, we're looking at getting rid of more out of route miles. Our locomotive fleet continues to go in a great direction as we utilize and get more miles out of our engines, which again turns into fewer asset costs with respect to repairs and parts.
And really, it just keeps on chipping away each and every day. We're getting involved and getting into what's going on out on the ballast line. And that's probably the most important piece that the team is doing is, as we're getting on the ballast line and we're walking out there and looking at each industry, looking at how we switch them, how can we do things better. And by getting out of headquarters and making sure that all of the right team, including myself, is out there each and every week taking a look at what we can do different and better, not only does it give us that opportunity to continue to reduce costs, but continue to improve the product that we're able to supply Mark and his team to get out there and gain some more business as we keep on moving along.
Thanks, Shneur. But I guess maybe I was trying to be more specific on the employee side, right. So employees were down over 1500 year on year. Is that something you see accelerating at this point given the volume declines? Or is that holding I just want to understand, given Jim's commentary over not taking out too much to be prepared for the rebound.
Well, as we've said before, our focus is on labor cost, not just headcount reduction. We made a significant reduction in the labor cost and not just targeting heads. So we'll continue to look for ways to reduce our labor costs. And as we did in this quarter and as we'll do in every quarter that we have to manage the company, We'll do what's necessary around here based upon what we see in terms of business activities. Right now, we've kind of given you guidance that we think, especially on the merchandise side of the business, there's going to be some reasonable stability sequentially in terms of where the volume line should be and an increase on the intermodal side.
And we'll manage the headcount according to that. If it goes sideways or downward, you guys get the numbers every week. And if you miss a week or something, we'll point it out to you which direction the numbers are going in.
Great. And just a quick follow-up, Jim. The arrivals really jumped or maybe Jamie from 53% on time 2 quarters ago to 85% now. Is there something beyond just execution that you're kind of that want to highlight? I mean, I guess on the positive side, something really strong performance there.
I mean, look, the team is executing. The guys are out on the ground taking a look at everything we can.
We'll probably I can tell you right now, we're
going to crank the times a
little bit. We're going to
pull some times out of our trains. We're going to get things moving faster on the network with respect to cutting out some hours on how long it takes to get across the network. And that number might bump a little bit into the next quarter because we tightened things up. So that's a gauge for us to make sure that our assets and people get to the other end so we can turn them back. But at the same time, when I see that number start to go up, it tells myself and the team that on the service design side, we can take a look at removing some hours and times from our trains getting across the network.
Appreciate the thoughts. Thanks, guys.
Allison Landry from Credit Suisse. Your line is open.
Thanks. Good afternoon. So obviously this year you have a number of headwinds that you outlined and that was really helpful. But I just want to understand and also you talked about more to do on the cost side, but just broadly speaking, do you need a more normal volume environment in order to really leverage those costs and get the OR even lower, somewhere in the mid- to high-50s? How should we think about that in terms of the different revenue environments?
Allison, it's Kevin. Clearly, we've outlined more cost savings that we think and there's runway to continue to do that. The model we're setting up here is we're positioning ourselves for growth and really to leverage that when the growth comes. And so I think we're very excited about the model we've created. There's a lot of leverage in this model to really drop the revenue at a high incremental margin.
That's what we're looking forward as Mark and the team are diligently pursuing growth opportunities for us. So but as Jim just explained too, if the volume environment gets worse than what we expect, we all know we have to react. We did it last year. We came into 2019 thinking revenue was going to be $500,000,000 higher. We had to react after in the second quarter.
And Jamie and the team pulled together. We came up with a new plan based on the volume
the math the math
will just work out in terms of what the margins are should the business levels come back. We're building a tremendous company here with great operating leverage to take advantage of incremental volumes when they come back.
Okay, that's definitely helpful. And maybe just on that point, but specifically to your expectations for intermodal volume growth this year, if truck rates remain weak for some period of time through 2020, is there a point at which you might be willing to give a little bit on price to maybe drive some of that traffic into the network or where you just wait for capacity to shore up and then wait for the volumes?
No, listen, Alison, we're not going to be cutting prices to grow the business. I think the team here is CSX has worked way too hard to do everything we've done to provide our customers with exceptional service out there. A large portion the vast majority of our intermodal network on the domestic side is under long term contracts anyway. We're not looking to grow by just going out and slashing rates. That's not our game plan.
That's not what we're going to do. But the truck environment is still pretty loose. It's about as we saw it last quarter. We don't think there's going to be any meaningful snapback or tightening there. But clearly, if that happens, it will be a demand driven environment or event and that would be good for intermodal if that happened.
Thank you.
Amit Mehrotra from Deutsche Bank. Your line is open.
Thanks, operator. Hi, everybody. Kevin, just wanted to quickly confirm the $300,000,000 for coal, that was a revenue number, right?
Absolutely. Yes, that was a revenue number.
Okay. Yes, that makes sense. And it's obviously implied 15% decline. Any help on how we can maybe you can provide some color on what's the split between the volume and revenue per yield on that? What's the makeup of that?
And then I thought you had said last quarter that D and A expenses were going to tick up sequentially by about $15,000,000 We obviously didn't see that. Just wondering what if there's any impact to the Q1 and what should we think about from a sequential from a D and A perspective?
Yes. I'll hand the D and A question on. I might pass off the coal question to Mark. You want
to do the D and
A first? Yes. On the depreciation, we did expect from the Life study to have a little bit of uptick here in the Q4, which was offset by some smaller items. So we basically netted out to 0. I did guide for 2020 in the $50,000,000 to $60,000,000 range incremental depreciation year over year.
So we'll see some bump up from the life study and some incremental capital spend next year. That's the expectation. So no change to the 2020 expectation there.
Amit, on the coal side, let me run through the coal environment and hopefully we can get to your
Okay.
Starting with export, as we've talked about before, it's been a tale of 2 cities between met and thermal. As we guided through the year of 2019, our expectations for export coal was around 40,000,000 tons. We slightly missed that number coming in around 38,000,000. I tried to round it up to 39,000,000, but Kennen will allow me to. So it had to be 38,000,000.
But we now expect this year to deliver low 30s for 2020. As I said, we expect the declines both for met and thermal, but probably larger for thermal than on the met side. On the thermal side, again, it's 1 third of our export shipments, where we've seen large volume declines given low natural gas prices and mild winters in Europe, obviously impacting the cold demand there and the API2 benchmark, as we talked about a little bit earlier, is $55 per ton, so really low. On the met side, again, mostly a price story, not a volume story, but a price story. Back to my comment earlier, the prices have continued to slide down to about $150 per ton today.
So that's kind of what we see on the export coal front.
Okay. That's very helpful. And then just one follow-up for me. Kevin, we saw, I guess, a pretty sizable uptick in the labor and fringe per employee. I know there was you called out some acceleration incentive stock comp.
So I'm just wondering what's the right way to think about that line item in 2020, because you have regular inflation, but you guys have also been kind of focusing on managing over time. And with the volume environment being what it is, there could be some crosscurrents there. So if you can just talk about that and if I missed it, just help us think about how headcount will be at the end of 2020 as well? Thanks.
You talked about the incentive comp adds a little bit of headwind to that number when you calculate it. The other thing that you have to remember in the Q4 is we have a lot of our capital teams engineering side that go over into vacation. And once a lot of their labor through the year is going towards capital, but once they go on vacation, it starts to hit our OE expense. So there is a bit of seasonality to our per employee cost. And so that's what you saw there in the 4th quarter.
But it
was a year over year number.
It was up over 4% year over year, right?
Yes, I think some of that impact as well. And then obviously the inflation that hits that within that number, there's a little bit of mix as well. But going into next year, I wouldn't see any significant rise in our per employee cost. What was the other part of the question?
Just the year end headcount in 2020?
Yes. I think, look, we have a lot of momentum, obviously, that we've carried through the 2019 that will go into 2020. We'll continue to focus on managing attrition. There's a process here where we look at every job that comes available and ask ourselves, given the new model, whether that job is necessary. So we'll continue to evaluate those with a lower volume, side.
It's not all about headcount. It's about over time, which side. It's not all about headcount. It's about overtime, which we saw some great success in Q4. We have big targets year to continue to drive the overtime down as well.
So it's across the board on the labor savings.
Okay. All right. Thank you for the time, gentlemen. Appreciate it.
Brian Ossenbeck from JPMorgan, your line is open.
Hey, thanks for taking my question. So, Mark, I wanted to ask you about the pricing environment, especially given the softness here at the start of the year in rail volumes in the industrial economies you mentioned. Last quarter, you gave some indication of same store sales and how they were trending. So just given the backdrop and what we're seeing on the rail indices from a pricing perspective, I wanted to see what you thought was kind of the current market temperature when it came to price, realizing you just commented on not gaining volume for price. So just so you see the market would be helpful.
Yes. No, I was going to repeat that, but we're not. So but within merchandise and intermodal, our same store sales pricing in Q4 was about in line with what we saw in Q3, which again was the strongest, I think, I said back then was the strongest we had seen in the past 3 years. And our contract renewals, the pricing on our contract renewals that came up in the quarter exceeded our same store sales pricing. So clearly, the team is doing a great job to value the product for the service that we're offering to customers and we're pleased and I am pleased with the great work that the team is doing on the pricing side.
And in terms of the inflation indices, do you have a lot of exposure in the contracts that are just going to naturally reset lower in this coming year or is that not?
No, I mean, on the thermal side, those are annual contracts, so they will reset sort of now. On the MET, as I talked about earlier, they reprice every quarter, but clearly so the met benchmarks being $140 ish or $150 a ton in Q4 will sort of reset those contracts in Q1. So,
Okay. Thanks, Mark.
Scott Group, Wolfe Research. Your line is open.
Hey, thanks. Good afternoon. So I think you talked earlier about $300,000,000 of operating profit headwinds. So I presume that's coal plus any of the discrete cost stuff. I just want to review that discrete cost thing.
So I got real estate and depreciation, but maybe Kevin, can you just walk us through any of the other discrete costs headwinds that you see in 2020?
Yes, I think we obviously, we called out the real estate sales this year in 2019, we realized roughly $160,000,000 The guidance for that is $60,000,000 which I talked about in my opening comments. The depreciation step up of $50,000,000 to $60,000,000 versus what we saw in 2019 are the items outside of coal that we've really kind of called out.
Anything on the other railway revenue or the other income that you want us to be thinking about?
Yes, I think where we're run rating today is probably a consistent a good way to think about it going into next year. So there will be a little bit of headwind on the other revenue side as our customers, the merge costs have lowered, gone down over the year. So we'll have a little bit higher other revenue in the first half of the year and kind of normalize to where we are right now.
Okay. And then just lastly, when we get back to revenue growth, what are the right incremental margin? Sounds like you're positioning yourself, you said, for incremental margins. Is that 50%, 60%, 40%, how should we think about incremental margins when we get back to revenue growth?
Probably the best incremental margins that other businesses would be envious of.
At some level, it doesn't matter where the business comes, but we have a lot of trains that have capacity. So obviously, in those costs you add to it, a little bit of car hire, a little bit of fuel. But I think the incremental margins will be quite attractive.
Thank you, guys.
Chris Wetherbee from Citi Research. Your line is open.
Hey, thanks. Good afternoon.
I wanted to ask you
about the revenue line. So if you take out the 300,000,000 dollars from coal, that headwind, it sort of seems like you're guiding revenues kind of up a little bit to maybe up 2.5% or so. We know we have some headwinds from other revenue with some of the ancillary stuff from earlier in the year last year. How should we be thinking about maybe that cadence? Is it merchandise volume that improves as we go through the year in addition to inter mobile volume?
Maybe if you could help sort of bridge some of that gap because I would have thought mix might have been a bit negative too. So any color would be helpful there.
Yes, sure, Chris. So we talked about coal being a significant headwind, down sort of mid double digits, as Jim alluded to. In intermodal revenue, we expect in 2020, we're going to return to a GDP plus environment as we lap our lane rationalizations. And as I said many times, our service product is strong with 95% plus tripline compliance. So I think very good momentum there.
On merchandise, we exited 2019 really well positioned to grow with a strong service product. And I think even despite the tough environment and the tough comps year over year, we can see a slight improvement in revenue growth in the first half and with a stronger second half.
Okay. So maybe inherently ex coal volume up for the full year, does that sound right?
I would say that, yes, absolutely. Okay. Again,
in the merchandise business segment, if it hadn't been for the 2 specific items, which I pointed out, the refinery explosion and the GM strike, we would have been close to flat this year in terms of volumes in merchandise, which is significantly different than the rest of the industry. And so we're reasonably positive as the business environment begins to, at what point in time, I don't know when that's going to happen. This is not the new norm. This is kind of a natural evolution. Things go down and then they go back up.
When these things start to go back up, we would expect to see merchandise volumes begin to increase. And intermodal, we have always said we believe we have a fantastic intermodal franchise. We have fantastic intermodal service. And we had to bite the bullet over a 2 year period to reengineer the franchise to make it as better as we go into 2020. We knew that's what we were doing.
And now we're going to see, as Mark said, hopefully, a growth, 2x GDP. So those together and 60% 80% of our business should be doing extremely well.
Unfortunately,
all 4 discrete segments of the coal business are getting hit simultaneously, which is difficult for us to overcome.
Okay. That's very helpful color.
I appreciate the time. Thank you.
Thank you. Next, Bascome Majors from Susquehanna International. Your line is open.
Yes, and good evening, guys. I wanted to go back to the service levels. You improved your trip plan performance in the carload business by 7 full points in this quarter. It had been pretty steady in the mid-70s before this gap higher. Can you dig a little more into how you're able to drive such a big improvement in 4Q, if there's any if that's sustainable or something lumpy there?
And as you look forward, is the conversation with your customers changing? Are you feeling that this yields excess carload business growth over some period of time? Can you just tell us how that's going on the ground? Thank you.
I'll start off with the product that we were able to create here and then let Mark touch on some of the feedback he's getting from the customers. But look at it, we've got a fantastic team
of railroaders out there with CSX
and we've gone through transition over the past two and a half years, almost 3 years. And trip plans was a difficult piece for us to work on as a group. We tackled the first piece of intermodal, which Mark had just mentioned, the team has been knocking out of the park over 95%. We still haven't achieved internally what we want to achieve for a trip plan on the merchandise side, but it is day in and day out grinding discussions, talking with the field, working inside and out with each and every one of our operators in order to move up each percentage point. So we have, I'd like to say, the most stringent trip plan with respect to a 2 hour buffer, and that's it.
We measure empties, which I don't believe any other railroad does. And we work really hard, hand in hand, 7 days a week, driving that product. So, I would say that we're going to continue to see that percentage improve as we continue to prepare and get Mark's team ready to jump out there and
make those sales. And intermodal, we measure to the minute.
Yes, intermodal is absolutely right.
To the minute, not within 2 hours. So we missed by a minute. So it's a trip plan failure. October 1, we rolled out trip plans, as Jim said in his opening remarks, to our customers on Ship CSX in December, I think on 2nd, we rolled trip plan performance out to all our merchandise customers. So they have total unprecedented visibility to every car, whether it's a load, whether it's an empty on the CSX network.
They have unprecedented visibility to their trip plans to what we're doing, how we're doing in every lane, every car, and customers love the tool, something they've never no railroad has ever provided this type of visibility. Listen, is it having an impact? I think going back to Jim's comments a few minutes ago, if you look at our carload performance in Q4, we were down 3%. The industry was down 5. If you take out the PES, the impact of the PES refinery and the GM strike, we were flat Rest of the industry down 5%.
Clearly, customers are responding to that type of level of performance and rewarding us with more of their business. And we're winning share every day from trucks, we're going to continue to push and as these as this performance, listen, 83% for the quarter was great. We're hitting high 80s today and low 90s with some customers and we're going to continue to I know Jamie is not satisfied, the team is not satisfied with that. So as we get better, continue to push and become more truck like and provide great service, then we're going to be rewarded with more business. The one piece
to remember on trip plans for us, what Mark and his team has taken beyond what I think anyone ever thought trip plans were going to be, trip plans are more of an internal metric, so we could see how we were doing and look at costs as well as getting hour by hour across the network by putting this out to the customers, put pressure definitely on the operating team. But guess what? We're hitting it. And look, we've got a little bit more work to go, but we've taken this beyond what
I think anyone ever thought trip plans could be. And going from whatever the number was over the last couple of quarters, say 75 to 85 in terms of the carload trip plan compliance, 2 years ago, that number was 35. The reason we have to give our visibility and tracking mechanisms to our customers is so that they will trust us to try our new service product to prove to them that it is as reliable today as a truck. When a couple of years ago, your trip plan compliance was 35% and you were trying to get a customer to switch from moving his freight in a truck to rail, he didn't have a lot of confidence that his freight was going to get to his customer on time when your on time performance was 35%. So that's why it's so important that we focus on this metric and that we're so confident that this number be reliable and consistent, but even more importantly that the customer believes that that product is reliable and consistent.
So he's willing to shift. He's always been willing to pay the 15% premium to buy the reliability in a truck. We need to show him through this transparent tool that he can trust us to get his product there when we said we were going to get it there.
Justin Long from Stephens, your line is open.
Thanks and good afternoon. So I was wondering if you could give a little bit more color around what the guidance assumes for that quarterly cadence of consolidated volumes. Is it the right way to think about it that we should see something like a low to mid single digit decline in the first half and then something like a low single digit growth number in the back half as the comp sees?
Yes. Clearly, we're lapping some we're going up against some tough comps here in the Q1. In the Q2, the first half, as I said, we had a pretty good environment in the first half of twenty nineteen, but we got a great service product and we're going to do as much as we can. As I said, I think we're going to be able to do well in intermodal in the first half and in merchandise, hopefully eke out some positive volume growth in merchandise. But we will as we sort of get into the back half of the year, we think that it will be a little bit stronger than the first half for sure.
Yes. I think, Justin, you'll see throughout the year, going Q1 will mark the low point from a growth perspective. That's probably across all of the not only revenue, but operating income, EPS across the board. And then from there, and this is a lot of just based on the comps as we get in the back half of the year lapping some of the coal and some of the other headwinds that we saw in 2019 that growth should improve.
Okay. But when you put together all the pieces, do you think in the second half of this year, volumes can be up on a year over year basis? Is that the assumption?
Yes. Yes.
Okay. Great. And then secondly on free cash flow, framework in your mind to be thinking about for the free cash flow conversion percentage? And then also on buybacks, Kevin, maybe you could provide a little color on the magnitude you're expecting in 2020 relative to what we saw last year?
Yes. Free cash flow conversion, our goal is to remain keep that high. We have some headwinds in terms of cash tax rate that will over time, that's going to trend higher. We're going to do everything we can on to offset that with working capital initiatives and really taking a look at our capital program and how efficient we can be on that side to save dollars there. So a lot of opportunities.
I don't think we have any plans to go back to the old ways of very low free cash flow conversion that we saw historically for not only CSX but the industry. So we that's something we pride ourselves in. We continue to strive to maintain and have every plan to. On the buyback, we are taking in $2,000,000,000 of cash, as I mentioned, into the year. It gives us a tremendous amount of flexibility.
There's no reason for us to retain $2,000,000,000 of cash on our balance sheet. So that allows us some flexibility going next year to be opportunistic when the markets present opportunities and we'll do that. We'll also look at the dividend as well. So we have a history of returning cash to shareholders and we'll continue to do that.
Okay, great. Thanks for the time.
David Vernon from Sanford Bernstein. Your line is open.
Hey, Mark, I just wanted to dig in a little bit more on the expectation that Intermodal is going to get better. It sounds like you were thinking that in the front half, we might start to see a return to growth. How are your intermodal partners kind of talking to you about the outlook for the business in terms of their ability to actually attract share? We're coming off a year where domestic intermodal is down, call it whatever 5%, 6%. What's going to flip that switch that's going to get that volume to start coming back onto the network?
Yes. Let me split it up a little bit and talk both intermodal on the international side and the domestic side. But the international business was down less than domestic. We're still continuing to see going into the early part of 2020 and hopefully for the rest of the year, we're continuing to see good growth there on the international side with Ireland port strategy and some new service offerings with our customers. But the overall market remains soft, but we are doing well with picking up some business there.
I think our listen, again, customers are responding to our repositioned network. It's moving faster and more reliably and more efficiently. And they like the service, and we're doing well to grow the intermodal franchise. And we're lapping those lane rationalizations. Those are all behind us now and we're growing from that.
So again, we think given the environment and given the service product that we've got and we can grow this thing.
Okay. Maybe just as a follow-up, as you think about the improved service, obviously, you have some business that's under contract. Is that going to give you a better leverage to kind of get some even better than sort of run rate pricing going forward? Or should we be thinking about that as being kind of the standard and you're going to be using service more to drive growth than to really try to extract more value from the existing book?
Well, we track it from all fronts, right? We've got long term contracts with our customers and there's rate escalators in there and we're going to but we're going to continue to grow with them and bring on more business and get price where we can get price. And again, we're not giving away our service. And so we're going to attack it from all fronts.
All right. Thanks, guys.
Cherilyn Radbourne from TD Securities. Your line is open.
Thanks very much. Good afternoon. Just wanted to ask a question in terms versus improvements that would be associated with sustainable process optimization that would remain once volume growth returns?
I think when we look at productivity, the way we measure it here internally, it is a lot easier to drive productivity in a growing volume environment because first you got to in a declining market, you got to offset the decline in revenue before you even generate any productivity. So the fact that we're able to offset the headwinds that we have talked about a lot on this call implies a lot of productivity this year. And it's a lot of smaller things that are adding up to big numbers across the board. When I look at the over time percentages and I look at a lot of different things, those aren't being driven by lower volumes. That's a lot of blocking and tackling.
Even at the G and A side, we're getting a lot more productivity out of our employees than we ever have. So we measure productivity internally. It's certainly harder to it would I could tell you right now, we would have realized a lot more productivity this year in an increasing volume market, if that was the outlook for us.
We can look at the metrics and to Kevin's point, give me a growing environment and it's easier to run the railroad right now. We're in tough conditions to put up the numbers that we're putting. But ultimately, if you take a look at the metrics and where the metrics are sitting, how do you know that things are that we're improving even in the environment we're in? The cash is falling out. If we were hitting metrics and the cash wasn't falling out, then there would be a point made, hey, it's easier and it's all because of volume base.
But I think we've proven that along with our metrics going in
the right direction, the cash is falling out in the savings. And many of these changes are transformational in nature and therefore sustainable. We are not just kicking the can down the road. We are fundamentally, in every respect, changing the way we run this company and these changes that are resulting in these efficiency gains are to a large degree, going to stay with us as we go forward.
Okay. All of that makes sense. Maybe just by way of a quick follow-up. As operating ratios across the industry start to converge and maybe it's in the high 50s, what metrics do you think that investors should pivot to start focusing on to differentiate between the various franchises, whether it's ROIC, free cash flow conversion or some other metric?
Cash flow, we talk about it a lot around here. I think we're pretty proud of our cash flow conversion. It's not easy to both improve OR and generate a lot of cash flow, and I think we've proven that. So that's really the differentiator that we see out there. And as we shift longer term, we're here to drive operating income growth as well.
So those are the 2 things that I think we'll be focused on.
That's all for me. Thank you.
Jordan Alliger from Goldman Sachs. Your line is open.
Yes. Hi. Just a quick question. We talked a lot on the coal side about the export front. Can you touch base a little bit on the domestic side?
And how much of that $300,000,000 top line headwind might be tied to that? Or is it really all on the export side? Thanks.
Yes. No, sure. On the domestic side, there's some impact. I don't think it's going to be as much of a negative impact in 2020 as we've seen going forward. Net gas prices unfortunately have remained stubbornly low, dropping to about $2 recently, and we did not see the surge in prices that we saw in the Q4 of 2018 when they hit like Fort Mox for a couple of weeks.
But for coal for utility coal to be As we all know, in many locations, coal is used for peaking generations. And so our upside is always seen or in many cases seen when we have these extreme weather conditions and cold. Unfortunately or fortunately for the people on the call in the northern half of the country, you're not seeing much cold weather, but that's bad for utility coal. So the natural gas capacity has not been stretched so far this year. But for 2020, we do see and we do expect that our utility tonnage will be relatively flat as we have had some wins offsetting some market declines.
And just a quick follow-up on the coal pricing, does domestic coal revenue per carload, I mean, does that stay positive? Or is it positive? I shouldn't say stay. I'm not sure if that's the question.
There's going to be on the domestic utility?
Yes.
Well, again, it will be down, just given where things are. Those contracts are multiyear contracts with our customers, but there are price adjustments that we have minimums in the contracts with LDs tied to them. But we do expect a little bit of pressure on coal, on utility RPU.
Great. Thank you very much.
No problem.
Ben Hartford from Baird. Your line is open.
Hey, thanks for getting me in here. Kevin, just kind of perspective as we move beyond 2020 and the model evolves toward 1 of a growth focus. As this operating plan takes hold, this 59 OR target here for the full year for 2020, and as market said, we're near trough level, cycle trough levels for PMI readings and industrial related activity. To what extent do you view 59 or thereabout as a representative trough or a floor for this model's as we look ahead to the next decade or so? Why would not that be the case?
Why wouldn't 59 be the floor?
Why couldn't 59 be the cycle floor for dealing with trough levels of BMI readings and we're looking out toward growth? Why shouldn't this 59 OR or thereabout be viewed as a representative trough or a floor for this model's OR going forward?
You say floor, you're meaning that why wouldn't it get better from here?
Correct, yes. Can we treat this as a cycle trough, this 59% below
point? Well, I think as we look longer term, and maybe Jeff has some comments on this as well, we're really going to focus on growing operating income and generating EPS growth in the most effective way. We talked about the leverage we have, we built in this model. So we think given everything that Jamie and his team have done that we can drop through revenue at a very high incremental margin. So that implies pretty good outcome on the margin side.
But we'll have to think about what the most effective way is to grow operating income at a very high return. So those are the things that I think as we get further out, we'll have to contemplate. But it's we have a better service. So clearly getting price for service is what we'll go after. But it's really operating income and cash flow that we'll be striving for in the next few years beyond 2020.
Right.
At 42 or so margins, and as Kevin said, easier for that number as our for our margins to improve or our operating ratio to go down with increasing volumes, our long term strategy is to continue to leverage our service, regain business that has been lost from the industry while maintaining what I consider to be extremely good margins and grow our operating income, cash flow and earnings per share
of the company.
Understood. Thank you.
Ravi Shanker from Morgan Stanley. Your line is open.
Thanks. Good evening, guys. So just a quick one again on coal. You said that you probably hit the worst of 1Q and then things kind of normalize from there if the benchmark stays where it is. Given your the kind of take or pay as you have on the volume side and kind of the way the contracts reset, if the benchmark stays where it is for, let's say, the next 3 to 5 years, like forever, is all of the coal impact going to be isolated in 2020?
Or is there like another leg to come in 2021?
Oh my gosh, Bobby. Cool benchmarks stay here. That's I'm not going to be happy.
Sorry, I'm making you do math at the end of the call.
Yes. Listen, I'm in no position to speculate what's going to happen to coal internationally, whether it's thermal, met. I mean, again, thermal is going to be driven internationally by the demand for coal utility coal in India and other places, Turkey, Pakistan, it's going down. The next 10 years is probably not going to be we're not going to be shipping anymore to Europe. And on the met side, again, it's
industrial production worldwide. It's cyclical. These things
Right, right. I any visibility of where coal is going to go.
But my point was, if it didn't change, any visibility of where coal is going to go. But my point was, if it didn't change starting tomorrow, it would just stayed where it was, are your contracts all going to just lap and kind of completely reset in 2020? Or is there more to come in 2021?
No, no. It would keep going, it would lap.
There's not a contract that's going to expire in 2020 that where there's another shoe to drop, so to speak, on if the commodity underlying commodity prices just stay the same. I think what the volumes today represent is what the underlying commodity prices are at. So all else equal, there's no long term contracts within our export coal business that are set to
you're going to see you're going to see significant incremental margins and the volumes come back. That kind of implies that you haven't necessarily downsized your operations completely for the cyclical volume environment you're seeing right now, maybe some of the other rails have. If volumes don't come back until the back half of next year, at what point do you guys say that, hey, maybe we can cut some more on the cost side here?
We watch this daily.
It was kind of
like let's just kind of transition back 6 months ago when everybody was saying, man, the second half of twenty nineteen is just going to be gangbusters. And we were saying, I don't see it. And we were responding accordingly and making the appropriate steps on the cost side to make sure that we delivered almost double digit earnings growth this year in an extremely difficult environment. And we'll do the same this year as we go each and every month and assess where we are and are the volumes better than or worse than what we expect them to be right now and we'll respond accordingly.
Walter Spracklin from RBC Capital Markets. Your line is open.
Yes. Thanks very much. Thanks for sneaking me in here. I want to go back, Tim. You were talking a lot about the improvement in operating metrics that you had and how that's improving service and Mark certainly echoing that.
You mentioned about how you're using that to convince the truck customer to switch over. What evidence are you seeing that they are capitulating here and moving over? Are they waiting for some other factor to consider? Is it or are you going to do you look at 2020 and see an opportunity for a notable share gain against truck coming up into 2020? Any thoughts on sure gain opportunity against Triad?
Yes. Well, let me talk real briefly. It took us decades. It took the railroad industry decades of poor service to drive the business off the railroads under the trucks. We are not going to get the business off the highway back onto the railroad in 2 weeks.
So we're going to have to earn it. And as we were talking about earlier, we're going to have to not only put up good metrics, but prove to the customers that these metrics are as equal to a truck and that this business model is sustainable. In the past, I'm sure they've had a lot of railroad guys that have walked in and said, Hey, trust me, take your business off the truck, put it on the railroad, I'll get it there on time. And the next thing you know, 6 months later, it wasn't performing as well, and that customer lost business as a result of his conversion from truck to rail. He is skeptical and rightly so.
We need to prove to that customer that this is a long term, as I said, structural where we grow our merchandise and intermodal volumes at a rate that is faster than the industry. Is that going to be 1% greater than the industry? Is that going to be 1.5% greater than the industry? It isn't going to be 12 percent greater than the industry. It's going to be incremental quarter after quarter after quarter, year after year after year, where we have out sized growth relative to the industry that's going to prove this business model.
Let me turn around and ask that same question now against your rail competitor. We've talked to a number of your customers. They've confirmed the service metric improvement. Jim, you've had experience of running working with a company that has had a significantly better operating ratio than its competitor. Is that an opportunity for share gain against rail if your operating metrics, as they've shown here, continue to improve?
And certainly relative to the competitor, are we could we see a more notable upward shift in your share gain opportunity against your rail competitor?
Well, I think it's different. Our business environment here in the Eastern half of the United States is, I would say, is significantly different than the business environment in Canada. We have 1,000,000,000 of dollars of opportunity available to us from truck. Customers today that are shipping products with us in a boxcar that are also shipping 50% to 60% of their product in a truck because the truck is more reliable. I want that opportunity, which is 1,000,000,000.
It is crazy for me to go over there and price my service as a commodity to try and pick up a couple of $1,000,000 off the other railroad. That's the business model that has run the railroad industry down for decades, and that is not the business model that we are pursuing.
Got it. That makes
a lot of sense. Appreciate the time.
Allison Poliniak from Wells Fargo. Your line is open.
Hi, guys. Thanks for taking my call and my question. Just want to talk to you made a lot progress on the operations over the past few years and you talked about the levers that you can pull in 2020. If you're as you look at those, which ones do you feel could be the most challenging, particularly in this environment, if there is anything?
Well, the levers are always challenging. As we said, if we wanted to just take and I've been saying this for the last 6, 8 that we have been saying this for the last 6, 8, 10 months or more. If the business had dropped off 10%, 12% in a couple of weeks in a traditional kind of recession scenario, it would have been easier for us to go in there and find the equivalent amount of costs and taking it out of the company. When it was a slow drip week after week, month after month, a percent here, a percent.5 year and it continued down, down, down, down, down, it was more difficult for us to respond to that because we were fearful that we would and as we expressed again here today, we would cut service in areas where we were in an attempt to reduce costs, and we would perpetuate the downward trend by driving more business off the railroad and onto the highway. So that is the challenge.
Where can we cut and where can we and maintain our levels of service. If the volumes continue to decline, it creates opportunities for us. And at some point in time, you just get a little more aggressive. We have not done that and but we have the capability if it was necessary. Great.
And then just trying to be optimistic, if we do get maybe a more significant inflection in the back half, does any of those levers sort of get moderated or pulled in a little bit?
Well, we're really we are optimistic. We like to think we're realistic. We are optimistic. We expect 80% of our business, our merchandising business and our intermodal business to do quite well this year, especially as we said in the second half of the year, if for no other reason that we just get easier comps. And yes, if the business comes back, which clearly we hope it does, well, it's going to.
And a question is, as I said, this is not the new norm. Business is going come back. It is all of our businesses are cyclical. It's just a question of when does it come back. All we're saying is as of right now, we're being a little more pessimistic about I don't expect all of a sudden volumes to jump up 5% on May 12.
We're going to wait and see. We're going to be cautious. We're going to be vigilant in making and we have to do that in order to manage the company. And if things come back, we'll
be in a position
to handle the volume and grow the business. Jamie?
Okay. As Jim said, this isn't a slash and burn exercise that we've been going through. It's controlling the costs. And on the operating side, we work very, very close with Mark and his team. As the business starts to come back, we're going to be prepared for it.
We're going to be ready for it. We've got the assets. We make sure we have the people, and we don't leave a load behind. So this has purely been a controlling and look at, we need to continue to control the cost because the business isn't coming back as quick as we may have thought it does, then we'll do that. But we will be prepared to grab every carload that starts to come towards us.
And we have no further questions.
All right, great.
If there's no further questions, thank you so much for joining us today, and I look forward to seeing you on the road at the next conference or on the next call. Thank you. Thank you.
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