Started this morning. Good morning, everybody. I am Ken Hoekster, B of A's Air Freight and Surface Transportation and Marine Shipping Analyst. Welcome to our 32nd Annual B of A's Industrial Transportation and Airlines Key Leaders Conference, the 24th one that I have hosted. We are back. We're bigger than ever in our second year return to New York after a 13-year shift to Boston. We host the event along with our fellow industrials analyst, Andrew Obin, who covers multi-industrials, Ron Epstein, who covers aerospace and defense, Michael Feniger for machinery, engineering, and construction, and Andrew Didora covering the airlines and cruises, with some of those presenting on the second floor concurrently with this track. We have a great lineup for you over the next two days or three days. We've got 98 companies with more than 500 investors registered for our largest event in more than a decade. We have 24 companies from the transport side. We have Canadian National participating for the 24th consecutive year, becoming the record holder after carrying a tie for the last few years. We appreciate the support of so many of these companies. Last night, we kicked off the conference with FedEx's CFO, John Dietrich, and Chief Commercial Officer, Bree Carere. We heard about tariffs, the end of de minimis, but not really as shippers move under a 50% tariff, plus lots of form filings. It is win of Amazon's big and heavy business, which it noted will lift its average weight and yields at its ground segment. It is drive's $6 billion cost savings program, Network 2.0. It is $2 billion integration of ground and express, Tricolor, its planned freight, LTL segment spinout, and more. It noted domestic e-commerce packages were resilient right now, that the consumer was trending in line with seasonality. May domestically was stronger than normal seasonality. However, the end of April to the beginning of May and Trans-Pacific volumes were worse than anticipated. While domestic was holding on the e-commerce side and B2B parcel was about what it thought, which means that it was somewhat weak, less than truckload was a bit softer in May, softer than it thought it would be at this point of the year. May is softer than seasonality, given that freight is more IP and 90% of freight is B2B- related, just a reflection of the weakness in IP. Back to the conference, we're hosting a dinner tonight with the Port of Los Angeles and Kirby, tomorrow night with Norfolk Southern. Today, within the transport lineup, we'll hear from the railroads, trucking carriers, intermodal service providers, truck brokers, freight forwarders, and more. We'll hear more on the state of the air freight market from UPS, and DHL is hosting one-on-ones throughout the day. Clearly, our entire investing world has been turned upside down this year. One thing our group needs is freight that moves. We don't make stuff. We just move it. We started with excitement into early January. It looked like we were coming out of a three-year freight recession, well ahead of the April tariffs. The excitement at the start of the year turned into a slide on consumer growth concerns. Spot rates dropped from $1.65 a mile down to $1.50 cost per mile. Our truck shipper survey, which has an 82% correlation in leading ISM by a month with a 0.7 r squared, fell to 48, its lowest level in a few years, and into the 40s for only the second period of time outside of COVID, alongside freight recession periods of 2012 and 2019. Container flows from China to the US West Coast have stalled with that long-awaited air pocket hitting right now. In our call with the Port of Los Angeles two weeks ago, it noted volumes had trended at about 900,000 TEUs from July of 2024 through January of 2025, dropped down to 800,000 TEUs in February and March, and would be in the 700,000 range in April. That was expected to fall to about 700,000 in May, or less than 700,000 in May, creating an air pocket of freight due to the April 9th launch of the tariffs. That would result in 16 blank sailings of the 80 ships, so about a 20% reduction in ships and a 30%-60% decline in containers. With this past Sunday's pause of reciprocal tariffs with China for 90 days out to mid-August and dropping to 30% from 145%, we would expect peak holiday shipments to be accelerated ahead of the August expiry. Nevertheless, the air pocket for the next few weeks will impact the transports, but the return of business thereafter can see quite the rebound as inventories are replenished and a race is on to move holiday goods. Over the next three days, we're going to have some great discussions, fireside chats, and topical panel discussions. We've got all five public railroads. The railroads have posted volume growth for the six consecutive quarters, showing some nice gains into early second quarter. We believe this early cyclical group will set the stage for an improving outlook. Following FedEx's discussion last night, we have UPS's CFO as a keynote luncheon speaker today, and peer DHL is hosting one-on-ones. Following FedEx's less than truckload freight discussion last night, we have virtually all major carriers on the less than truckload side, including XPO, SAIA, Old Dominion, and TFI. We also have a panel with private carrier PITT OHIO and a shipper to delve into the state of the LTL market. Look for the less than truckload carriers to discuss the April to May data, given the impacts of the freight pocket, the weight and mix shift, and capacity utilization. Our intermodal and truck discussions will include multimodal carrier J.B. Hunt and Covenant Group. J.B. Hunt will definitely not hit on guidance and pull forward, but they will likely address the delay in intermodal pricing benefits due to contract signing, improved service levels, particularly with the rails posting great service and their ability to use its available capacity. Broker C.H. Robinson and the Broker Wars panel will feature RXO and load board operator DAT Freight and Analytics on the state of the brokerage market and what signs we can look for on a spot market inflection. Also, C.H. Robinson's operational turnaround and their AI investments will be a key focus. In a switch to shipping, we've already talked about the Port of Los Angeles, but a joint panel with Chris Chase and BofA's Federal Government Relations Officer on tariffs and global trade. We'll hear about resurgent tank barge operator Kirby on their decade-long correction that has arrived in the supply-demand market, along with opportunities it has in the power gen market. As such, this is a good, with two minutes left, to run over our latest thoughts before we open up to CSX at 8:00 A.M. While the 90-day tariff reprieve with China has finally spurred optimism, the switch to growth policy has begun and can be aided with proposed tax cuts that are now on the table. FedEx noted last night that it expects a surge in pre-shipping during the 90-day reprieve and concerns regarding the air pocket of freight flows that are dissipating. Could these be early signs of reaching the end of the downturn? Rail carloads have been up for 11 of the past 12 weeks. Class 8 net orders, as measured by ACT, cratered to 7,600, its third consecutive month below 20,000 replacement levels. It remains early, but given the cyclicality of trucking, this mosaic of high-frequency data is worth focusing on. That is the market news. What are the stocks telling us? Our coverage is still down about 10% year-to-date on average, lagging the 1% decline in the S&P. Trucking stocks, which are the leading indicator, typically the leading indicator, are down about 15% year-to-date. Less than truckloads are down 20% overall, although Old Dominion is flat and XPO is down only 3.5% after yesterday's moves. While the rails have been the best performer at up 1%, they have outperformed the market as they take share with their service improvements. We focus on opportunities. We look for areas that are idiosyncratic on cost-cutting opportunities. We focus on the continued tariff negotiations, focus on growth policy, such as the potential for tax cuts, mid-investments, deregulation, and we'll press to see where the market is shifting and how companies can take advantage of opportunities. We thank you for taking time out of your busy schedules to join us for these three days in New York. Enjoy the next few days. With that, let me launch right into CSX. All right. To open our conference, good morning, everybody. We welcome CSX and Sean Pelkey, EVP and Chief Financial Officer, a position he has held since 2021. Also here from CSX is Matt Korn in the front row. We welcome Sean to the conference for the second time in four years and for CSX for its 17th consecutive time and 22nd time in the 24 years we've hosted the conference. Just let me start off with thank you to CSX for your steadfast commitment to our conference. We truly appreciate it. Thank you. The company has sizable headwinds in 2025, given its Blue Ridge subdivision rebuild, Howard Street Tunnel project. Nevertheless, volumes are hitting some of the highest levels of the year. Operations are improving, and you talked about the capacity for growth. We have a lot to cover in the next 35 minutes. Sean, let me turn it over to you. Thank you. Good morning. Welcome to you. Understand you have a few thoughts and updates you want to just kick off, and then please include in that, if you could, the three key takeaways you would want us to walk away with from today. Great. Thanks, Ken. It's great to be here with everybody. I think you hit on some of the key themes already. Coming out of the first quarter, we got hit. Obviously, some of that was projects that we knew were happening. The Blue Ridge rebuild coming out of Hurricane Helene last year was significant. It was a major outage of one of our routes. It's going to take the better part of this year to get that completed. We knew the Howard Street Tunnel project was critical for the long-term health of our network and growth opportunities. We went into those full force, and then we got hit with a difficult winter. Frankly, we didn't perform as well as we expect. Coming out of that, I think there was a reset in April. Mike and his team have been spending every hour of every day in the operations center. I've had the opportunity to go over there several times. It is a focused team that's looking at every detail to unlock the fluidity of the network. It is working. You can see it in the numbers. Over the last several weeks, we're seeing one of the first and most important things that we talked about was we need fewer cars online, not because we want fewer traffic. We just have too many cars sitting in yards at customer locations. We've got to get them offline. That helps with the fluidity of the network overall. You are seeing that happen. You are seeing trip plan compliance go up. That is one of the key measures in terms of our commitment to the customer. We've been running at 80% or more trip plan compliance now going on our fourth week in a row. We were down in the 60s earlier this year. Intense focus on getting back to running a scheduled railroading. I don't want to imply that we went away from that necessarily, but we faced some challenges in Q1, and we needed to adapt and figure out how to run without two of our four major north-south routes. I think we're getting much better at doing that. These projects are for the long-term health of the network. I think the establishment of the customer relationships that we've built over the last couple of years and the differentiated service product that we've been able to provide the customers is carrying us through this period of difficult operating conditions. We've won a lot of new business. Industrial development opportunities are as strong as they ever have been. We're really excited about what the second half looks like, what 2026 looks like. We outlined all of that at our investor day, and nothing fundamentally has changed despite a little bit of a hiccup over a couple of months. If you're looking at CSX, you're looking at one of the best-run railroads in North America. The team that produced that performance in 2022, 2023, 2024, it's the same team that's there today. We're undervalued because we didn't perform as well as we'd like in Q1. It is a great opportunity. All right. Here we are halfway through second quarter. Just looking at public carloads, some of the best levels of the year, right? You posted 125,000 carloads in week 18, just 1,000 off your peak in week 13, and the fourth best level of the year. Talk about what's driving the gains. I do not mean by commodity, but is this catching up from the weather? Is it the service? You mentioned kind of the service catch-up. Is it pre-shipping? How should we think about just the volume levels running through the network? Yeah. I mean, part of it is just normal seasonality. Typically, as we get into the spring, volumes do pick up. Beyond that, I think in the first quarter, it's evident we missed demand that was out there. Kevin put a number around that, somewhere around $1 million a day, call it roughly $100 million of revenue opportunity that we missed in the first quarter. We're doing a much better job of filling customer orders today than we were in the first quarter. We're still not back up to where we would like to be. We're not missing $1 million a day, but we are still missing a little bit of demand, particularly in the unit train business. If you think about grain and coal, there's actually more for us to go get versus what we're actually serving today. As the network continues to get fluid and we're able to free up some of the assets, we think we'll be able to actually grow into some of that demand as well. We're meeting greater order fill rates in products like metals, fertilizer, some of the merchandise products that are out there. That's translating into some of the volume numbers that you're seeing. Is there a capacity you would think the network can handle, right? If 125, is it 140? Is it 150? What would be your rough kind of number? Yeah. It's tough to put an exact number on it. I would say where we sit right now with the network constraints that we're operating under, we probably have less capacity than we will once we get past these projects later on in the year. That being said, I think when we laid out the vision for low to mid-single-digit volume growth over the next three years, we weren't talking about needing to invest in a significant number of new infrastructure projects, locomotives, increasing crew counts. We think we're in pretty good shape when it comes to assets and resources to be able to handle that kind of growth over the next couple of years without really having to spend a lot more. Yeah. I know we've had a lot of change in terms of tariff policy and things over the last few days, let alone on Sunday. What's your thought given the 90-day end of reciprocal tariffs coming up? Do you think we get a surge in pre-shipping to beat those deadlines? Do you think this is new policy? I just want to understand how are your shippers thinking about talking to you in terms of volumes movement as we get into kind of summer season and then into peak? Right. I mean, I think it's fair to say that we saw, I don't know if I would call it a surge, but we certainly saw impacts of pre-shipping ahead of Liberation Day. That showed up in not just our numbers, but all the numbers that you track out there. We do expect to see a little bit of, I think you called it an air pocket or whatever you called it in your opening remarks there. We do expect that's probably going to come, maybe less of an impact for us on the East Coast than it would be for some of the on the West Coast. We also think there's a lot of inventory that's sitting in warehouses on the West Coast that will make its way east while the volume of ships coming into the West Coast is a little bit diminished the next couple of weeks. Will we see a similar phenomenon if we get to the end of another 90-day pause? It's entirely possible. I will say one of the things that may be a lesser-known benefit is if we do see a little bit of an air pocket or a little bit of a lull in intermodal volumes making their way across Chicago, that actually gives us an opportunity to combine some trains together and divert some of those locomotives over to the unit train business we talked about earlier. There is an opportunity to actually pick up some incremental business while still running the trains and meeting the demand on the other parts of the business. Does the China agreement over the weekend, does that change your economic outlook? I think it certainly helps. Kevin had an opportunity to speak to the senior leaders of the company yesterday. Coming out of the weekend, he was very encouraged. He said he's pretty excited about where we're headed in terms of second half and, more importantly, where we're headed in terms of 2026. We'll talk about it in a minute, but the industrial development activity continues. We're winning a lot of new projects there. I think it's a great setup for us going into next year. Mike, note on the quarterly call, Mike talked about some additional flooding that started off with 2Q. I think you mentioned some in your opening comments that that impact has subsided. Is that what we're seeing in terms of some of the catch-up business or sustained demand? Just want to understand the impact, the lasting impact of that flooding he was talking about to start off the quarter. Yeah. They had been hunkered down probably about a week in the operations center in Jacksonville. They were just starting to kind of gain some momentum. I went in there one morning, and this happened to be the morning right after the floods hit. We had some tornadoes and all that stuff that came across. You could tell it was like, "Crap, we got to deal with this now." These things happen in railroading. We're flexible. We can deal with it. It definitely was not just us. There were interchange partners who had, one of them in particular had a bridge out in a key area in our network. That takes a little time to kind of work its way through. It is normal. Once we got past that, that probably took a week or two. That's when we really started to see the network fluidity take off. If you look at our weekly service metrics, you can really pinpoint it to coming out of that flooding. That's where we really started to turn things around. That's where you saw the volume inflect as well. You had your own Friday surprise, right? We certainly had the weekend surprise with tariffs. We had the FedEx surprise about an hour before our presentation. You get the good Friday surprise. You signed the contract with the BLET, the engineers, noted that only the conductors left with 75% of employees under the new contract. I want to get into a couple of things on this. One, Joe talked a little bit about the system-wide contract. Maybe talk to us about what does that mean? How is that different than what you have been working on for a decade? It sounded like something maybe coming with the conductors and the same thing. Just a little background on what does that mean? Sure. Yeah. So essentially, all the crafts except for conductors and engineers were finished for the most part. We got to an agreement with the engineers. It's the same agreement that everybody else has got in terms of wages and health and welfare benefits. There's a couple of other nuances there in terms of trade-offs, but same economic value that all the other unions got. BLET went to a single system agreement many years ago. I think it was 15 years ago or something like that. We still have multiple agreements on the conductor side, SMART-TD. What does that mean? You think about we have 100 or so crew hiring locations across the network. We've got some geographic territories where you literally have a single terminal and you've got four crew bases, one that can run north, south, east, and west. If they show up, they can only run in those specific directions. If we were able to consolidate that into a single system agreement, you can think about the kinds of efficiencies we would get there. Not just labor efficiencies, but also just being able to have crews available when we need them to run the trains that are most important to run. That's really what we're angling towards. It's not going to be easy. It wasn't easy when we got it with the BLET, but it's an important priority for CSX. Stunning that that is still being debated years after mergers. If the 3.5% maybe go back to August when you signed your first one, inflation was coming down. What was your thought in, I mean, you obviously decided to do it early, right? Set the tone, get it done early versus last rounds, which was more contentious and had to go to the government. What is your thought now as CFO in terms of the impact of that wage increase, what you have to do to get benefits, work rule changes? What do you do to offset that? Yeah. So look, I mean, we're going to have 4.25% wage inflation this year, which is above what we're going to see on the cost side. Thankfully, we've moved to more of a cost-sharing model on the health and welfare side, so the health benefits. And that's actually driving a change in employee behavior, which is what we had hoped for as an industry and what we're actually experiencing. So we're actually seeing deflation in healthcare costs. We're optimistic that that could continue over the next several years, which would help to offset what we're seeing on the wage side. When you blend the two together this year, we're actually running south of 3% in terms of overall labor inflation. We can offset that with price for sure. Those numbers come down over time. Certainty is always better than uncertainty, right? I think we're seeing that play out in the macro environment, but even within our own business, having certainty on what those contracts look like is hard to put a price tag on. Getting this done before those wage increases are set to come into effect on July 1 is incredibly valuable, not just for us, but for the employees as well. It keeps them coming to work. It keeps them motivated and engaged. The amount of bad will that we built up over the course of the last round of negotiations is hard to put a price tag on. Wonderful. All right. Let's go back to business. Joe talked about still expecting volume growth in 2025, though noted, as you did, market uncertainty, trade policy increases the range of outcomes. First quarter, you had down 1% in volume growth, up 3% in second quarter. Do you see positive second-half growth at this point from your crystal ball? Yeah. I mean, still expecting full-year growth in volumes. It's hard to say where exactly we'll come in terms of overall volume growth because there's a lot of different variables that play into that, obviously. But we're encouraged by what we're seeing in terms of the demand picture. I would say there's a couple of markets where that uncertainty around trade and tariffs has shown up in terms of a little bit of change in demand. So we're watching that carefully. But there's other markets where I think there's strength, and that strength is going to continue. Markets like aggregates, there's a lot of grain that wants to move, and we're ready to move it. And intermodal has been very, very strong so far this year. We may hit that air pocket, but I think once we get past that, we've got some opportunities ahead of us. All right. Let's dig into some of those commodities for a second, right? So coal actually is up 6% quarter to date, right? It's a pretty strong move, 11% of carloads. That seems to be the biggest uptick for the quarter-to-date outperformance. Anything driving that? That's not just CSX. It seems like that's across the board at the railroads. Yeah. I mean, I think for us, two things, well, probably three. The first is just a reminder, key bridge outage was right around this time last year. We are cycling that on the export side. We are cycling more coal this quarter than we did last quarter just because of our ability to meet the demand that is out there. That plays into the coal market as well. On the domestic side, we had a cold winter that caused a drawdown in utility stockpiles. We are seeing more demand for domestic coal. We are moving more of it. We have several customers that have requested more sets. Those sets are coming in the coming weeks. We actually think there is some demand that is out there that we will be able to meet in the coming weeks that will actually be incremental to what we are doing today. On the export side, we feel pretty good. I mean, we had a pretty strong year last year. I think overall we were up 6% in domestic tonnage or, excuse me, in export coal tonnage. We think the setup for this year continues to be very strong, albeit with lower prices year over year. Let's dig into that, right? Let's start off with the coal export. Now exports are more than half of your mix, right? So 53%. Last year, you did 44 million tons of export. It seemed like that 40 million was kind of the run rate target for a long time. Now you've kind of exceeded that by a healthy 10% growth. Is that a sustainable level just on, I don't know whether it's geopolitics or global demand? What is your thought on sustainability of that global export? Yeah. I mean, it does seem like it is sustainable from a demand perspective. We have customers that want to ship more product out of our export terminals. We've actually put some investments into the Curtis Bay terminal to increase the reliability of that terminal. The less downtime you have, the more you can ship, the more ratable cars can make their way through the facility. It is fascinating what's happened to the coal markets over the last decade. If you look back to where we were in terms of domestic coal a decade ago, we're moving 60% less than we were. We're actually moving 10% more export coal. It is very profitable for us, some of the most profitable business that we move. We welcome it, and we're going to continue to serve the demand to the extent that we can. Yeah. It's amazing. We're still talking about coal. Everybody thought it was just secularly dead, and yet it's definitely showing some growth. I'm going to hit some smaller commodities just for a second just because I noticed some outsized gains. You mentioned fertilizers up 12% quarter to date. Is there a catch-up to start the quarter? I guess the same thing as was there something a year ago? Yeah. Within fertilizers, we had a fire at one of our customers last year that we cycled earlier in the quarter. Demand in terms of fertilizers has been pretty steady this year. Same thing, metals and comp, it went from down 3.5% to up 0.5%. I mean, I know I'm picking on things, but that's odd to me given autos are still negative mid-single digits. Is there anything there? Was that pre-shipping to get steel in or anything? Yeah. I mean, our metals business serves not just the auto market, but construction markets as well. There is certainly still some demand there. I would say within metals, what you're seeing in our dynamic is a higher order fill percentage. I think we were kind of in the 60%-70% order fill. Now we're right around 90%. Because of some of the smaller commodities. Sorry. Intermodal, let's go big. 47% of carloads, steady at mid-single digits. Is that still truck gains? I mean, it's surprising given how cheap trucking is at $1.49. You're talking about below cost per mile to operate, and yet you're still winning service. Is that new lanes that your service bouncing back? What is driving it? Yeah. It's a combination of factors. I mean, international clearly has been the biggest driver of intermodal growth so far this year, up double digits year to date. To what extent is that pre-shipping and freight going to inventory? We'll see here in the coming weeks. Domestic has held up okay. I would say it's flat to up just a little bit. I think that speaks to the service product. Even during the worst and most challenging weeks for CSX, the intermodal service held up. In fact, in the first quarter, one of our premium intermodal customers actually recognized CSX as having the best service amongst all the Class 1 rail carriers. The priority that we were able to place on that intermodal traffic and continue to place on it is paying dividends in terms of that volume growth. All right. Timeframes for the Blue Ridge rebuild and the Howard Street Tunnel, I think you had mentioned eight months from the start of the project at Howard Street. How are those timeframes working, and what is the end date for them? Yeah. Eight months is still a good timeframe. We are on track with the Howard Street rebuild. It is a massive, massive project. The amount of digging and water that is under there and drainage issues and all the things, nothing that the team that is on the ground cannot handle, but we are moving along right on schedule, if not maybe just a touch ahead of schedule on the Howard Street project, which is great. We do still have some clearances that we will need to get done once the tunnel is double-stacked. There are a couple of bridges that need to get done that will extend into the first half of next year. We are working to get those done as quickly as possible. We rely on the state as well to help with that. That is on track. We should have that route open as we get into Q4. The Blue Ridge is a similar timeline. October- November is probably a good timeline for that one. We're making a ton of progress. There's still a lot of work to do. Massive amounts of rocks are being placed alongside the right-of-way to make sure that we do not have the same kind of issue that we had with the flooding. Let's go back to pricing, and I'll ask you a Kevin question. The export coal benchmark, right, is actually up $287. It was $175 at the start of the quarter, maybe when we were starting to talk about outlooks. Can that actually be felt already, and can that be a tailwind to 2Q or? Yeah. I think it's probably just a minor Q2 impact, really. Really not that big. Now, what I will tell you is that our coal team believes the benchmarks at $175-$180 are unsustainable. They see that as a floor. So a lot of optimism about where we might see those benchmarks go as we get into 2026. I would think I know our projection into 2026 and 2027 is to be in the $200s. Okay. Thoughts on the pricing environment overall? Can you talk about how core pricing is ex-fuel mix? Are we still, you mentioned kind of easily getting above the cost of the labor contract, still 3%-4% better? What's your thoughts on the pricing? Yeah. You know, we do not normally give a number in terms of same-store sales pricing. What is important is that the pricing dollars we are getting exceed our inflation dollars. We talked about that at the investor day. That dynamic is continuing to play out this year. Now, inflation has come down. Pricing from the peak in 2022 has come down across the industry, but that is reflective of the inflationary environment. The spread we are seeing between price and cost is pretty steady over the last couple of years. I am encouraged overall by the portfolio of renewals that we are seeing. Chemicals has been an area that our competitor has spent a lot of time talking about. We have renewed about $1 billion of that business this year and done it on the price plan. Very encouraged by that. Overall, if you look at our merchandise business, which is where a significant amount of the revenue is, we're actually a little bit ahead of the price plan in total. All right. Sticking with short-term, first quarter, operating ratio deteriorated 610 basis points given the operational impacts you opened up talking about. Thoughts on second quarter? A normal sequential change would be about a 260 basis point improvement from first quarter. We started talking about flooding at the start of the second quarter. It seemed like that got resolved pretty quickly. You are talking about really good service levels. Given those larger first-quarter impacts and maybe decent volumes kicking off here and certainly better coal volumes, better coal pricing, can we look to see outperformance versus normal trends in 2Q versus 1Q? We're not going to give 2Q guidance, so I can't give you any specifics on that. What I would say is that every year, pretty much with very few exceptions, we see an improvement from Q1 to Q2. Volumes are picking up. Service levels are getting better. The pricing momentum is there. All signs are positive there. I think we also said Q1 was going to be a trough, and clearly we underperformed relative to our expectations coming into the year. It is a setup for sequential growth. The magnitude of that growth is dependent upon a lot of different variables, many of which we control, but not all. Watch the volumes, watch the service, and I think that'll give you a good indication of where we're headed in Q2. All right. Let's jump right into service, right? That's a great segue, right? In an environment where velocity was down to 7.5 million, dwell was up to 11.5 hours. You mentioned on-time originations in the 60%-68% range, kind of hitting lows, and now you've bounced back pretty quickly. Talk about the resiliency that you, the team, Mike Cory, have built into the network, and how do we fix the on-time arrivals, originations, and where do you think it goes? Yeah. Yeah. It is a process. I think one of the first things we had to do was clear out the yards. There was a lot of congestion in the yards. When you look at the cars online spiking up to about 140,000, a lot of those cars were sitting at our facilities. When you have too many cars in a yard, you do not have as much ability to do the switching that you need to do in order to get the network fluid. How do we get those cars out of the yards? We added 45 locomotives that we took out of service. We have rebuilt 20 locomotives. Those have come back into active service. We took a hard look at how we divert some of our other locomotives to the yards to start to clean those out. Once you do that, you start to push all of that offline. We reduced the amount of time that we were giving engineering to do curfew work. We moved some of that work onto the weekend. Not a popular move amongst the engineering group, but very thankful that they've had the flexibility to do that. That has freed up some of the line of road capacity that we've needed in order to get the network spinning. Now you're looking more tactical at where do I have opportunities to combine trains to save on resources and then allocate those locomotives and crews over to the unit train business to pick up more revenue. It is very methodical. One thing I will tell you is that as we've gone through this and we've spent a lot of time talking about technology, advanced analytics, AI, how that can impact the railroads, the railroads have not unlocked that capability yet. I think that has come to the forefront in the midst of service challenges that we experienced in the first quarter. A lot of the decisions that are being made are using visibility tools that allow us to see what's happening now, but not necessarily run scenarios about what's going to happen in the future and flow that through the network and see where we might have capacity constraints that we've got to deal with. There has been an acceleration of focus on investments in that kind of technology. Thankfully, we've laid the groundwork for that with a cloud migration that we did over the last couple of years. We can really leverage that data and build some really powerful tools that will allow us to run scenario analysis, do digital twins in the way that many other industries are doing. We think we can do that this year. Yeah. I think that's an exciting part of the railroad, especially with the FRA now granting some waivers. I know you've done some testing on a lot of different things that can be. Let's dig into that in a minute. Coming back to kind of the cost side of the equation, I mean, actually, let me stick on the capacity, which you just talked about. Used to run about 7.5 million carloads a year. I know that was a while ago, more than almost two decades ago, right? We're looking at 6.3 million carloads this year. Given PSR, the elimination of equipment, and I know we've got a huge mix shift, right? You mentioned coal being down 60%. Are you prepared to be a double-digit growth engine in 2026 now that you're going to have the end of the Howard Street Tunnel project, the end of the Blue Ridge subdivision? That should vault you into kind of a good growth trajectory into 2026. Does that? I hope you don't mean double-digit volume growth. That would be a lot. Double-digit volume growth. Yeah. We'll see. It'd be a good problem to have. No, I think there's capacity, right? There's clearly capacity. Can we do 7.5 million loads with the current assets and crews that we have? Probably not. If we got there, we need to address some of those needs. We've got the ability to grow easily low to mid-single digits over the next several years without having to add assets. There's infrastructure investment that we've done to add sidings along the Southeast Corridor. We've done that now for 15 years at a pretty steady pace. We don't talk about it a lot, but that has functionally improved our capacity along that part of the corridor. We did the Cumberland Yard investment last year. That was a significant, not a significant investment, but a significant impact on our ability to process cars and get them off of the heavily trafficked water level route to allow us flexibility going into New England. That will serve us very, very well once we get the Howard Street Tunnel open. There are investments that we've made. We've made investments in TRANSFLO to capture more customer demand where there isn't necessarily rail infrastructure at their facility. We've done a lot in order to capture growth, and I think we've got an opportunity to absorb that growth over the next couple of years at a fairly steady CapEx level. Let's talk about the assets for a second. Where does your fleet stand today? You talked about locomotives, and are you doing remanufactures? Are you build buying new? Do you need any more? Yeah. No new purchases at this time, but we've been doing rebuilds now for the last five, six years. I think we're doing, I think, 60 of the AC4400s this year. We've got some SD-70s we're rebuilding as well. We've got locomotives that were taken out of service temporarily that will be coming back. We talked about the 45 units that were in long-term storage that we've pulled out. They needed some work, but we got that done, and they're back and running. We do have more units in storage, not a lot. I think there will be a day when we do need to take a look at locomotive purchases, but it's not in the next couple of years. Years. Okay. Thoughts on the employee target? You've got 23,000 employees today. Where do you think that are we looking at flat employees in this environment? Do you still see the need to keep building? Yeah. I mean, what we've said is that flat employees allows us to grow, and we have the capacity within that headcount level. Now, I will say employee efficiency is a key metric for not just us, but for the industry more broadly. We do a lot of benchmarking, so it is not lost on us the trends that the other rails are seeing in terms of headcount versus volume and where we are relative to that. Taking a deep look at that and finding out ways where we can continue to drive efficiencies is a key part of the story of the next several years. When we get Blue Ridge and Howard Street coming online next year, how should we think about the operating leverage we should see kick into 2026? You mentioned so many of the cost impacts, weather impacts, $20 million-$25 million. You noted that there was the impact of rerouting. Anything as CFO you want to re-quantify for us? Yeah. I mean, remember, we talked about $10 million a month of overall impact from the rerouting, and we're going to see that for the vast majority of this year. Call it roughly $100 million of costs that will go away as we get into next year. We saw $20-$25 million of weather-related expenses in the first quarter. On top of that, we missed demand by $1 million a day. And do not forget, when we are able to meet that demand, we do it at very healthy incremental margins. It does not matter whether it is coal or merchandise or intermodal. Those incremental margins are all within the 50%-70% range. The ability to drop that through and have that drive not only operating income growth and EPS growth, but also margin expansion, I think provides a very nice setup for 2026. We're not going to give any specific guidance, of course, but we do, if you can go back to the investor day and look at the guidance we put out there, we still feel good about that. Okay. The partnership to develop more business in the Southeast, I think with CPKC, how is that beginning? We're running a train a day right now. It's mixed freight. Schneider announced new service across the interchange. We look to build into that. We're looking for some new partnerships as well with other players. Nothing to announce at this time, but it's steady, and we got a close eye on it. We feel good about where the setup is for that over the next couple of years as well. All right. Going to your CFO hat. You bought back $750 million in the first quarter. That was well above our $400 million target, so a nice price point. Opportunistic accelerated buying. How do you think about the buyback? Is a $2 billion number the right? Have you put out a number for 2025? Based on first quarter, could we see that be more aggressive? We do not typically set a number for the year because our approach is opportunistic. When we have got an opportunity to lean in and we see a dislocation between what our perception of the stock value is versus what it is trading at, we are going to lean into that. You saw that in Q1. That has continued into Q2. We have now done about $1.1 billion of share repurchases year to date, and we have done that at very attractive prices. When we have got an opportunity like this and we were not operating as well and were not running the volume that was out there to get, it showed up in terms of the stock price. The macro uncertainty added to that, and we saw an opportunity and leaned in. All right. To then, leverage has crept up to 2.9 times. What's your target level capital objectives? Do you need to rebuild cash on the balance sheet if we see this extended downturn? We don't have a specific leverage target, but we do manage to high investment grade. So we feel good about what our ratings are today. We continue to have conversations with the agencies and feel comfortable that we'll be able to continue with the same ratings. We'll take a look at the balance. You You obviously always take a look at the balance sheet. We've got the Blue Ridge rebuild. We had some tax payments that just went out May 1 from the hurricane last year that we were able to defer. So certainly looking at that and more to come. CapEx, roughly flat, I'm sorry, yeah, roughly flat year over year from $2.5 billion last year plus the $400 million for the rebuild gets us about $2.9 billion. From 17% of revenues up to 20%, do you return back to $2.5 billion? Is that your target, high teens? Yeah. $7.5 billion-$8 billion over the three years from 2025 to 2027, excluding the Blue Ridge. The base run rate is $2.5 billion. That'll be our target. It is our target for this year. It'll be our target going into next year, barring any idiosyncratic investment needs for growth opportunities. All right. Let me just wrap up with the industrial pipeline, right? So when you talk about growth, that was something you talked a lot about with 24 facilities in place, 40-50 more scheduled to start this year. You had some great customers come out and present your thoughts on where does that roll out given your ability? Are customers slowing down in terms of the environment? Are they keeping that pace? These are long-term projects. Not slowing down. In fact, we had 24 projects announced through Q1. We're now up to 37 projects, not announced, sorry, that have come online since the start of the year. Very encouraged by that. We've got more in the pipeline. We think this year the annualized run rate of those projects that will come into service will absolutely support that 1%-2% overall volume growth that we talked about in the investor day. Even with those 37 projects that have come online, we've added over 30 new projects to the pipeline. We've replaced almost one for one. We're still right around 600 projects in the pipeline. If you're looking for a differentiator, I think that's a key one for CSX. This is a great run-through. Sean, if I were just to summarize, right? Volumes, your services come back in a few weeks. Volumes are running, as I mentioned, under 25,000. Right back toward peak levels. You You mentioned the seasonality that it usually does, but it's good that you're handling that and getting ahead of that. Pricing above inflation dollars. Operating ratio, first quarter, it's usually your trough. Watch the service levels improvement. You're not going to give us a target, but we can watch what's going on with weather and other impacts and the improvements you made. Locomotives and employees, there's room to grow without adding a lot of capacity right now. Obviously, part of that volume, the coal ramp-up, the intermodal pace, all working in your favor, it sounds like. Anything else I missed or you want to add on as we wrap up? Yeah. The team is focused. It's a great team. Mike's a great operator. Joe's a great leader, and Kevin's a good, great marketer. I think between the four of us, the pieces are in place to execute on the vision that we outlined in November, and we're excited about it. Sean, thank you very much. We're happy to have you back. Hopefully, you enjoy the view while you're here. Everybody, thank you very much. Thank you. For having us.