CSX Corporation

Good afternoon, ladies and gentlemen, and welcome to CXX Corporation's fourth quarter 2018 earnings 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. To ask a question, please press star 1. For opening remarks and introductions, I would now like to turn the call to Mr. Kevin Boone, Chief Investor Relations Officer for CXX Corporation.

Thank you, Shirley, and good afternoon, everyone. Joining me on today's call is Jim Foote, President and Chief Executive Officer, Frank Minegro, Chief Financial Officer, and Mark Wallace, Executive Vice President of Sales and Marketing. On slide two is our forward-looking disclosure, and followed by our non-GAAP disclosure on slide three. With that, it is my pleasure to introduce President and Chief Executive Officer, Jim Foote.

Good afternoon, and thank you, Kevin, and thank everyone for being on the call today. What an incredible year. I'd like to first recognize the amazing team of CSX Railroaders. They have stepped up to the challenge again and again and put this company on a new trajectory. Success breeds success and I am proud of the foundation we have built. While we wrote an amazing first chapter, the CSX transformation story is still early. Across the organization, Operations, sales and marketing, and all other functions, there are plenty of opportunities for improvement to keep us busy for years to come. Millions of unnecessary events in our business processes can be eliminated, which will improve service to our customers and allow them to be more efficient. We continue to make progress towards the efficiency goals set a little less than a year ago. Whether it's locomotives, cars or yards, we are finding ways to deliver better service with fewer assets. This not only saves CSX money but saves customers money by reducing their rolling stock and other infrastructure needs. Our progress is translated to significantly more free cash flow which allows us to maintain a safe and reliable railroad provide the flexibility to invest in high-return projects and return significant cash to shareholders through dividends and buybacks. Turning to slide five, the results are straightforward. EPS grew 58 percent on an adjusted basis. Our Q4 operating ratio improved 480 basis points to 60.3. A record fourth quarter performance. And the full year operating ratio, also 60.3, is a U.S. Class I railroad record. Turning to slide six. As you can see, there was broad-based strength across the portfolio. Revenue increased 10%. with fuel recovery, volume, price, and other revenue all contributing to positive growth. I'm encouraged to see the strong performance from our merchandise business with 10% overall revenue growth. Solid 4% volume growth helped drive positive performance across all markets with the exception of fertilizers. In fertilizers, we continued to face a headwind from the previously discussed fourth quarter 2017 customer plant closure. We also saw some weakness in the fertilizer export markets, which appears transitory and should normalize in the next couple months. Intermodal revenue growth was 4%, with volumes up 2%. Intermodal grew despite our previously announced rationalizations, which shows very healthy core strength. Significant progress has been made in reengineering this very important part of our business, which better positions the company for long-term profitable growth. Coal revenues increased 8% with strength in our export met business, offsetting domestic utility weakness. Domestic steel and industrial customers also saw good growth. Finally, similar to previous quarters, other revenue gains were primarily driven by increases in supplemental fees. On slide seven, I remain focused on safety. On a year-over-year basis, we saw good progress in both FRA personal injuries and train accidents. While it is encouraging to see some progress, the numbers are far from where I expect them to be. As of January 1, our annual bonus targets include specific safety improvement targets. Safety must be a priority for every employee in this company. On slide 8, on the efficiency and service side, train velocity saw positive year-over-year and sequential movement looked well improved year-over-year. Only a couple weeks into 2019, I see positive momentum in both of these metrics with the company currently seeing record performance in both measures. Cars online continue to trend down, down over 10% year-over-year, while volume increased 3%. As you will see later, this directly translated to significantly lower car hire expense. And we periodically share with you different metrics which we track on a daily basis. On the bottom right is locomotive miles per day. This reflects the average daily mileage we are able to get out of each locomotive. Locomotives are a significant cost for the company and by reducing your active fleet, you save on maintenance, Thank you, Jim, and good afternoon, everyone. Turning to slide 10, I'll walk you through the summary income statement. As the slide shows, the impacts of tax reform, pension accounting changes,