CSX Corporation

Good afternoon, ladies and gentlemen, and welcome to the CSX Corporation Q3 2020 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, press star and then 1. For opening remarks and introduction, I would like to turn the call over to Mr. Bill Slater, Head of Investor Relations for CSX Corporation.

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 Boychuk, Executive Vice President of Operations. On slide two is our forward-looking disclosure, followed by our non-GAAP disclosure on slide three. With that, it is my pleasure to introduce President and Chief Executive Officer, Jim Foote.

Thanks, Bill. And thank you to everyone for joining today's call. The last six months have truly been surreal. On last quarter's call, we discussed the largest and most rapid sequential volume declines in CSX's history. Now, just three months later, record sequential increases. Think about that. Volume declines and increases twice as steep as the largest swings we experienced in the Great Recession, in a span of just a few months. Managing this historic volatility is incredibly difficult, and I am extremely proud of the dedicated men and women of CSX as they continue to deliver against these challenges. Their hard work allowed us to efficiently absorb the record rebound in volumes while maintaining high level of service. This level of execution requires a commitment and coordination of the entire organization. Throughout this period, it has been inspiring to see CSX employees band together to reassess every aspect of the business and figure out where we can be even better. We are already seeing the benefits of these efforts in this quarter's results and will continue to do so in the years to come. Now let's go to slide five for an overview of our financial results. Second quarter EPS declined 11% to 96 cents, and our operating ratio of 56.9 remained in line with last year's record results. Maintaining these record efficiency levels despite the combined headwinds from the pandemic significantly weaker coal markets, and approximately 250 basis points of unfavorable margin impact from lower real estate gains is truly impressive. Moving to slide six, third quarter revenue declined 11% on 3% lower volumes due primarily to reduced industrial activity as a result of the pandemic. Merchandise revenue declined 7% on 5% lower volumes with all end markets experiencing volume declines. Intermodal revenue was flat on 7% higher volumes as growth in both domestic and international volumes from inventory restocking and a tightening truck market were mostly offset by declines in fuel surcharge revenues. Coal revenue decreased 36% on 27% lower volumes as the coal business continues to be negatively impacted by reduced electrical demand, lower industrial production, and lower global benchmark prices. Other revenue was down 12% due to lower affiliate revenue and declines in demurrage charges. Turning to slide seven, We cannot achieve any of our long-term goals without first operating safely. In the third quarter, we realized new quarterly record lows for both train accidents and personal injuries, as well as a new quarterly record for low personal injury frequency rate. While CSX continues to lead the industry in safety metrics, we can never be satisfied if even one of our employees get injured while at work. The team is working to be even better by identifying and eliminating unsafe practices and conditions across the railroad. We continue to increase employee training and engagement with the goal of improving critical rules compliance. Turning to slide eight, our safety focus is part of CSX's broader commitment to ESG and driving positive social impact. Rail is the most sustainable mode of land transportation, and we are working hard every day to further these inherent benefits and ensure CSX is the most sustainable railroad. We've made great strides in reducing our emissions and fuel consumption, including setting another fuel efficiency record this quarter by consuming only 0.93 gallons of fuel per thousand gross tonne miles. And we have also set ambitious new long-term emissions targets to continue this positive momentum. Earlier this year, we were the first U.S. Class I railroad to have an emissions reduction target approved by the Science-Based Targets Initiative, setting the goal of reducing emissions intensity 37% by 2030. In addition to improving our emissions profile, we are focused on helping our customers meet their own emissions reduction targets. Not only does every shipment on CSX consume 20% less fuel than it did a few years ago, but our best-in-class service product uniquely positions CSX to help customers further reduce emissions by converting freight off the highway and onto CSX. without sacrificing the reliability of their supply chain. We are honored by the recognition received today, including recently being named one of the top 20 most sustainably managed companies in the world by the Wall Street Journal, but continuously push ourselves to be even better for our employees, our customers, and the communities we serve. On slide nine, let's review our operating performance. Despite the challenges presented by record volume increases, the railroad continues to run at a high level. Plan changes enacted in the second quarter drove strong productivity gains across the system. We further balanced the network and set a new quarterly record of 93 distributed power trains per day, averaging over 100 distributed power trains per day for the last two months of the quarter. Yard productivity also improved by blocking cars further upstream, reducing touches in the yards, and finding new ways to more dynamically share work between yard and local trains. Slide 10, these productivity gains are further highlighted, which compares current volume and asset levels against the pre-COVID levels from March 1. In total, volumes ended the third quarter above the pre-COVID levels, while asset counts were lower across the board. Looking at train starts, we are currently handing 3% more volumes with 11% fewer starts than we required on March. On a year-over-year basis, train starts were down 15% in the third quarter compared to a 3% lower volume. Additionally, since the May trough, we have grown volume twice as fast as we have increased the train starts required to serve this growth. No matter how you frame these results, the strong operating leverage highlights the durable nature of the changes made last quarter and is a testament to the team's success in taking advantage of the challenging volume environment to pull forward lasting efficiencies I'm sure you might have some questions for Jamie on this later in the call. Let's turn to slide 11 and hourly trip plan performance. Car load trip plan performance of 73% and intermodal of 74% slightly trailed previous quarters due primarily to the timing lag at the beginning of the quarter when we began to staff up to handle the surge in volumes. trip plan performance improved throughout the quarter, and we exited the third quarter near 80% trip plan performance level for carload and 90% level for intermodal. I'll now hand it over to Kevin to review the financial results.