CSX Corporation

Ladies and gentlemen, thank you for standing by. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the CSX Corporation fourth quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Before beginning, the company would like to remind you that the forward-looking disclosures have been provided on slide two, and non-GAAP disclosures are on slide three. I would now like to turn the call over to CXX President and CEO John Henrichs. You may begin your call.

Hello, everyone, and thank you for joining our conference call. I'm here with Kevin Boone, Jenny Boychuk, and Sean Pelkey, and we are excited to update you on our quarter's results and share our initial views on the upcoming year. I first want to thank all our CSX employees for their dedication as they worked diligently on behalf of our customers through all the challenges and uncertainties that we faced in 2022. Because of their efforts, our network has continued to run safely, and our financial performance has been very strong. We have accomplished a lot over the last four months since I joined the company. This, in between my visits to our railroaders out in the field, visits to our customers, our investors, and our many partners in the government, we finalized agreements with our labor unions. We reached a positive solution for the Gulf Coast with our colleagues at Amtrak. And we started to make updates to the nuts and bolts policies on attendance that make a big difference for our employees' quality of life. I am particularly proud to report that our service metrics continue to show real improvement into the fourth quarter after starting a clear upward trend in the early fall. And we are very pleased that progress has continued throughout this month. As we anticipated, our hiring successes have allowed us to deliver better customer service that will allow us to capture more business with more volume over time. Looking forward, we are focused on building our momentum, leveraging our industry-leading operating model, and growing this railroad. As we go through the details and answer your questions, I believe that you will get a great sense of the energy and optimism that we all share across the organization about the opportunities ahead for CSX. Now let's turn to our presentation to review the highlights for the fourth quarter and the full year. CSX generated over $3.7 billion in revenue of 9% from the previous year on 1.5 million carloads in the quarter. Revenues benefited from higher fuel surcharges, strong core pricing, and higher storage and other revenue. Operating income increased 7% year-over-year to $1.46 billion, and our operating ratio was 60.9%. As we've reminded you before, our quality carriers trucking business adds roughly 250 basis points to our OR. Earnings per share increased 17% to 49%. Quickly looking at the full year 2022, our revenues of nearly $15 billion were up almost 20% compared to 2021. Our full year operating income of $6 billion increased 8%. Excluding the gains from the 2021 real estate transaction with the Commonwealth of Virginia, our operating income grew in line with our guidance for double digit growth. Operating ratio was 59.5% for 2022. Finally, earnings per share increased 16% in 2022 to $1.95. Now let me turn it over to Kevin, Jamie, and Sean for details.

Thank you, Joe. Turning to slide seven, merchandise revenue increased 7% in the quarter as a 9% increase in revenue per unit more than offset a 2% decline in volume. For the full year, merchandise revenue increased 9% on 1% lower volume. 2022 merchandise growth was driven by higher fuel surcharge combined with an increasing pricing environment as inflation accelerated through the year. Looking forward to 2023, we have significant network momentum as we begin the year, and we expect to leverage industry-leading service into growth opportunities with our customers. This is reflected in our recent customer surveys where we have seen a significant improvement in overall customer satisfaction scores. We see opportunity for solid volume growth in merchandise for the year, led by continued strength in automotive, our growing export plastics business, and share gains as customers respond to our improving service. This growth is likely to be partially offset by weaker housing-related and domestic chemical shipments as we start the year. On slide eight, you can see fourth quarter coal revenue increased 20% on 9% higher volume and a 9% increase in revenue per unit. Full-year revenue increased 36% on 1% lower volume and a 38% increase in revenue per unit. In 2023, we expect export coal volumes to grow in both MET and the thermal markets. So we do expect benchmark indexes to decline from the elevated averages of 2022. We're optimistic about the potential positive demand impact of China's reopening. While on the supply side, we have a new, 4 million ton met coal mine coming online this year. We also anticipate volume opportunity as we lap 2022 issues, including reduced production at some TSX served mines and capacity limitations at the Curtis Bay and Mobile export terminals. We expect domestic volumes to be low, to be driven by low thermal stockpiles that remain below historical averages. Healthy inventory levels will allow utilities to better respond to natural gas volatility and more readily dispatch capacity to reduce stress on the U.S. power grid. U.S. fuel production, which drives domestic coal consumption, could benefit from a recovery in the automotive industry as well as higher infrastructure demand. Now turning to slide nine, fourth quarter intermodal revenue increased 4% as a 9% increase in revenue per unit more than offset a 5% decline in volumes. For the full year, revenue increased 13% on flat volumes due to a 14% increase in revenue per unit. International intermodal markets continue to be negatively impacted by slowing activity, which looks likely to continue into the first half of 2023. Imports have declined, and warehouses have seen elevated inventory levels. To help counter this, We are pursuing several initiatives to bring new solutions to our customers to help them reach new and existing markets. With our domestic intermodal business, we see opportunities even as the trucking market has softened. The team is focused on accelerating truck-to-rail conversions, and now with equipment constraints largely behind us, the team has more opportunity to pursue these initiatives. We are seeing existing customers and those that are new to intermodal adopt strategies to drive more of their transportation spend to rail. The team is doing a great job of identifying these opportunities and building the relationships to drive this growth. Finally, moving to slide 10, let's discuss CSX's role in reducing our customers' emissions. As we pursue truck-to-rail conversions across the markets we serve, we are actively promoting rail's environmental advantages to our customers. We're increasingly looking for ways to reduce their own emissions. These are board level initiatives for our customers, and the opportunity to choose rail over trucks provides real, measurable savings across the entire supply chain. In 2022, CSX customers avoided emitting 10 million tons of carbon dioxide by choosing to ship with CSX versus truck. To continue providing an emissions advantages for our customers, We need to keep innovating. We are not only piloting new technologies that should provide fuel savings like zero to zero, but we are exploring emerging technologies that can be implemented in the future and keep CSX at the forefront of delivering best in class efficiencies. Providing visibility to our customers is also a priority. I'm excited about the additional insights we will provide to customers to help them identify and convert incremental freight to rail by utilizing our updated carbon calculator platform that will launch in the first quarter. Lastly, we are proud of the recognition CSX has received for our sustainability efforts with several of our awards listed on this slide. It is a priority for us to remain an industry leader in environmental stewardship. We look forward to sharing more details on the several projects we have underway throughout the year. Now, let me turn it over to Jamie to discuss operations.