CSX Corporation (CSX) Earnings Call Transcript & Summary

With our next presentation here, we've got CSX. Pleasure to have them join us again at our conference. We've got Mike Cory, EVP of Operations. We've got Kevin Boone, CFO. And -- I think just to get things started, Kevin has some -- a slide or a couple of slides on the trends in the business. So why don't we start with that, and then we'll jump into the fireside chat.

Yes. So if we could pull up the second slide here or the next one, everybody knows that slide. Tom, you didn't set me up very well here, but the market here, I wanted to give a quick update on the fourth quarter. Everybody knows where the industrial economy right now is. It's a pretty mixed bag, right? We're seeing a lot of challenges in some markets, some opportunities in others, but it's a very, very mixed bag. The industrial economy has been struggling this year, and we have a diverse portfolio, which makes it obviously challenging in some areas, and then we're going after opportunities. And I know Maryclare and her team, my former team, are out there finding every opportunity that is available. So if we just go through the markets real quick. We are seeing some opportunities on the metal side. That market has been fairly strong for us. Scrap and other areas are benefiting our business today. Minerals and the fertilizers markets, both strong. I would say on the mineral side, we have a unique network in terms of our exposure to the Southeast markets and data centers, other things are impacting that market as well. So strength in those markets. Everybody is well aware of where the intermodal markets are today. We've had strength in the international market today. That's probably weakening here, a lot of impacts from tariffs, other things that we're seeing. So a little bit weaker market than what we saw in the first half of the year with ebbs and flows, trying to get ahead of tariffs and then -- but we still see some strong opportunities on the domestic side with some wins that we have been out there in the market and other opportunities that the team has continued to go after. Some of the weaker markets that we see are the chemicals, forest products, those areas really touch a lot of the industrial economy, and that's where we've seen some slowness there. Really housing and then the auto side of the business is really the 1 -- 2 areas that we've seen some weakness that continues to persist. The good news is it feels we're at the lower end of the cycle in those 2 areas. So at some point, we should see that those markets rebound. I'm not calling for a rebound necessarily next year. We'll see, but there is cyclical opportunity in those businesses, and we're well set up, I think, to benefit from that. And then you have coal. We've seen some very strong natural gas prices that will continue to carry our business in the Southeast, in particular, strong demand there with natural gas prices almost at $5, which is very supportive of coal burn. Then the international market has stabilized. We're finally lapping some of the strong pricing conditions that we faced last year and the negative headwinds there. So as we move into next year, that headwind hopefully is going to abate. It should abate just based on easier comps. The other thing, Mike is very aware of what happened on our coal side. We did have a derailment that impacted our business for a short period of time on the coal side. we have kind of scaled that at around $30 million EBIT impact for the quarter. The team did a great job, and Mike might touch on it a little bit on getting that railroad back up and running and being able to serve our customers. And then the automotive market, you've heard in the news a lot about a couple of impacts. One, the aluminum plant fire that impacted one of our customers probably disproportionately. And then the chip issue that is now being resolved, but we probably saw some disproportionate impacts to a couple of our customers that we have strong positions with. So if you -- in total, that adds up to about $40 million in headwinds that we'll see for the quarter there. But I know the team is out there doing the best they can to offset that. But I want to give a quick update on the markets, and that's what we're seeing.

Yes, that's great. That's really helpful. So the $40 million EBIT impact you identify, are there kind of offsets to that? Or that's kind of a net impact to like we look at our -- where our earnings number is for 4Q and then we just take that out?

Yes, I think that's -- I would look at it as more of a kind of a onetime event in terms of that. We're always looking for offsets, obviously, from a cost side and then additional revenue, but those are things that -- and a lot of it is deferred revenue. You'll see that coal, just not enough time to catch it back up in the quarter. And then hopefully, automotive, we'll see. It's not that we lost volume, it's deferred volume in the next year.

Okay. But kind of take those 2 pieces out of where we're at on 4Q, and that will give a little better picture of where the business is.

Yes. and then look at the trends in the other markets as well.

Okay. Great. How do you think about, I guess, the markets where you would potentially have some optimism that they improve. So I see you've got a couple of markets in the red and some neutrals. Do you think some of those markets, where would you be a little more optimistic that either kind of project-driven, kind of easy comps? I know you had some forest product shutdowns, this plant shutdowns this year that probably give you some easy comps. But if you were going to anticipate some improvement in some of the areas that are neutral or weaker, where do you think that might come from as we go into '26?

Yes, you touched on it. One of the markets I really look at is the box plants, right? They touch a lot of it. They're a little bit leading indicator of the industrial economy. So that's one that I'm really waiting for a rebound. We're at pretty low volumes right now today in those markets. And you touched on, we've seen a number of plant closures that occurred this year. And that's probably been the biggest surprise coming into this year is with tariff uncertainty, we saw a number of different markets and plants or a number of customers make the decision to shut down plants that were probably going to be shut down over the next 5, 7 years and pulled forward all under 1 year. So we'll be lapping that. Some of that will carry forward into the next year and -- but we do have the industrial development side of our business that's ramping up, and we're quite positive on as we get into next year, and we look at more of an opportunity as we get into '26 and then '27 should be even a better year than '26. But there's -- the chemical market has been one, obviously very, very challenged as well. And those -- I would say those 2 forest products, our Forest Products business and our Chemical business probably offer the most cyclical upside when the markets come back, we will see a strong rebound. I think Mike can touch on this, but those are 2 markets where we feel very, very good about where we are in terms of adding volume to existing trains. So incremental margins will be very strong in that business, and we're well prepared to handle it.

So if we kind of think about a flat underlying industrial market in '26, hopefully, it's better than that, would you expect some of your industrial development to kind of fall to the bottom line? And I think you've kind of historically said, okay, maybe 1 to 2 points of volume from industrial development. Is that like a reasonable anticipation that, that shows up in your industrial?

Yes. I think that's the plan. It will be partially offset by some of the closures and lapping those. So if we had a closure in July, we'll have to lap that for 6 months, but that has slowed down materially from that side. You always see some rationalization of the business every year, but we probably had a higher level. I know we had a higher level last year than we normally would. I think that's going to slow down dramatically because you did pull forward a lot of that absent the economy obviously faltering further and having our customers making different decisions. But no, I do think it will be obviously a positive to our business, partially offset by some of the closures that I mentioned.

Okay. So maybe it's a little less than the kind of 1 to 2 points, but there'll be something that's...

On a gross basis -- on a gross level, I think 1 to 2 points and then offset on a net basis by some of the closures.

Okay. All right. What about the -- you've had some nice wins in Intermodal. You've had good momentum there. I think there is some impact from customer positioning related to UP-NS. And so I guess we think of J.B. Hunt in particular, I know it's a little broader than that and then some new services you opened in the Southeast and now Mid-Atlantic and the Northeast. So how do you think about momentum in Intermodal and kind of how much more there is to go that kind of you see further sequential growth in '26?

Yes. Maybe I'll kick it over to Mike just to talk about how well the networks, I think, handled the -- and you're going to give me a couple of minutes, Tom.

Yes, [indiscernible] market.

And then I'll come and touch on...

The network is operating very well. And last year was my first year experiencing hurricanes and had enough of them that this year, we haven't had any. Back to the point on Intermodal, our Intermodal speed, our performance in the terminals, our performance with the truck turns has been impeccable, to say the least. And we expect to be able to grow on top of what we have. There is capacity. Some intermodal lanes are very heavy or heavier. But overall, our ability to absorb the incoming volume is there without any additional assets. And so with the speed, we've been setting records for both dwell and speed across the network. We're just waiting for the volume to come and we're ready to kick it in. So the network is running very well.

When you think about train length and intermodal, is it like what it is today? And I know it's like averages, so it's like train by train, but maybe what's the average train length in intermodal? And what does your system handle on average?

We can generally handle like a 14,000-foot network for Intermodal. So we have lots of capacity. We try to keep them within. It depends on some of the locations, but 12,000 to 14,000 feet is the norm. We're not anywhere near there at this point. We still have lots of capacity in that front.

And maybe just touching on the Intermodal, some of the strength we've seen and some of the opportunities we've seen. They actually have been across different partnerships. We announced the Southeast business with the BN Northeast opportunity as they speed up their network on their side, we're the beneficiaries of that. We think that's going to convert a lot of truck volume for us. We're already seeing the early signs of that. We've done something with the CN that we announced. We've obviously have the Meridian Speedway with CPKC. So all these things are adding up to a lot of opportunities to grow that business. And so we're excited about the momentum we're carrying into next year. I know there's additional opportunities we're looking at, but we're taking calls from everyone on how we can advantage our network versus the competition out there.

Do you think we've already seen a lot of the kind of incremental gains or more than incremental in the numbers we're seeing in 4Q? Or do you think there's like a further building off that 4Q base?

I think the service improvements that we've announced over time, those will build more truck conversion. So we'll see some incremental opportunities from that. But the transitioning of business, yes, that's largely been done, the shift, and we'll start to grow off of that. And I can tell you from speaking to all the customers that experienced the shift, they've been very, very happy with the service and very, very happy with the move over to our network.

How do you think about the work that needs to be done to leverage the additional capacity from the Howard Street Tunnel and your just new capability on that, with a pretty significant trucking lane, I would think. How do you think about how long does it take to do that? Do you expect that to -- is that a pretty big opportunity?

Yes. It's a market that we haven't been in for historically because you can't compete if you don't have double stack capability. So if you look at our network today, the big hole in our network was making that connection into the Northeast. So I think Atlanta into the Northeast, that really wasn't a market we could compete in. And then coming across from Chicago, again, it's going to create some opportunities for us. So our existing customers are going to benefit from that. Mike can maybe give an update of where we are on finishing that project. So we'll start to see hopefully some volume here next year, but I think we're on track.

Yes, we're still on track for the end of Q1 with the city finishing off their bridges and then we're ready to go.

So where are you at in 4Q on the expense side from -- you had talked about, I think, like $10 million a month for -- when you had the 2 projects going on and I think those are completed. Is there still some impact from that expense in 4Q? Or has that all fallen out of the numbers?

Yes. I think we said previously about $10 million of kind of costs are going to lag into the fourth quarter, just kind of residual costs. So $10 million if we were on a run rate of $10 million a month, so it would have been $30 million. Now it's only $10 million for the quarter.

Is there any that carries over into '26 or not?

No.

It should not be.

Okay. All right. Mike, what does the Blue Ridge sub do for you? And how do you think about what the network can do given both the capacity from Howard Street Tunnel and Blue Ridge sub? You were in a tough spot in '25, particularly when you got hit with some weather, right, that you had a network with less than normal capacity and less resilience. But how do you think about when you flip that the other way and you get not only the capacity back, but even more?

I think you're seeing it now, Tom. You're seeing it in our train velocity. You're seeing our ability to move the coal that's available for us to move much faster on the right route. And the capacity that we have up there, again, is -- we're still not even close to what we can move through that corridor. What we were doing before by rerouting via the Chicago to Nashville zone, it just put undue pressure that made us very fragile, and we are no longer fragile. And again, like I just refer back to, you see how the railway is running today. This is what we expect and with the ability to grow volumes on top of it.

So how do you think about the -- I guess, my -- going to a bit of a different topic that I want to drill into. But -- so you have a new CEO, CEO's reputation is very strong, very favorable. I think some of the feedback I get from investors is price and productivity have been kind of hallmarks of his approach at Praxair and Linde. And so how do you think about productivity opportunity in 2026? And is that kind of manifested in T&E headcount and you can just run better and that fits with your capacity position that's better as well? Or how do we think about that productivity that might kind of partially linked to the new -- the focus of the new CEO as well as your own opportunity?

It's just a tremendous opportunity. We're so much aligned in terms of the detail, making sure that we align our resources properly to get the efficiencies out of them. It's just been fantastic for the first month and change. And so our focus, as we speak right now, we've got people together looking for synergies that we maybe didn't look at the same way prior. And with Steve, our focus is on service and productivity and price. There's no question about it, and it's uplifting.

Yes. I can vouch that those have been the focus in his first few weeks on the job. He came from an industry, obviously, that in a lot of ways, it's very similar to ours, focused on price when they deliver value, and we're always looking to deliver better service and get paid for that service, and that's a big focus. I think he's going to lean into the tools so we can really make sure we understand where there are pricing opportunities and better look at that. And so investments on the technology side, I think, to help us there. And then on the productivity, I mean, Mike and I, over the last number of weeks since I've been in this role, we're finding opportunities almost everywhere. And having that support from Steve to really go after it, I think, has energized the team. And so we're seeing -- I know the teams are back in Jacksonville right now working on a number of items that we've kind of laid out that we want kind of definite answers by Friday. And that list continues to grow in terms of opportunities that we're finding.

But the alignment is really just the same. It's safety, service and efficiency, and that's the beauty of it.

How do you think about the impact to the organization from Steve coming in? I know he hasn't been there long, but he seems pretty energized. Is it -- how do you think that's affected the organization and the leadership team?

Yes. I look back at -- I equate it to sports, people like to be on a winning team, and he's got clearly a track record of winning. And I think that excites a lot of people, especially the leadership and all the managers and all those that are around that they want to win in the market. We want to be the best railroad in the industry, and we want our customers to think we're the best railroad and give us to the business because we're the best railroad and most reliable. So I think there's a lot of energy around the building, at least I know and I think out in the field as well.

100%. Really, it's about building that culture that we know that we can build, and that's a winning culture. And that's what Steve is all about, and we're very welcome to it.

Okay. Great. Kevin, I'm trying to remember back to when you were CFO the first time around. But if I recall right, I think you had some pretty effective initiatives on overtime that there was, I don't know, excess overtime or opportunity to reduce overtime expense. And so this time around, maybe there's some more opportunity in that bucket. But how do you think about as CFO, like some of the cost buckets where you see particular opportunity?

I'll let Mike because we've been in it together every day going through this. It's a lot of, I would say, small and medium-sized opportunities that add up to a lot of dollars overtime. Overtime is one of them. I think we always focus on operating expenses, but capital is a huge one for me and a huge one for Steve, too, capital discipline on how we spend our dollars that manifests in depreciation over time. But I think there's big opportunities, and Mike and I are very much aligned on that where we can be much more efficient in our capital spend. That gives us opportunities to spend money on investments that have a high return or even returning more cash to shareholders. So I think you'll see a lot more opportunity coming out of that. But when we think about vehicles, overtime, rentals -- yes, rentals, just general spend, I think there's just that discipline that we're going to bring back to the organization around some of those things that this is kind of like it's your own money.

And as Kevin mentioned, our focus on the technology side is to get that visibility for people. So there is accountability and the controls are in place. And that's one of the big -- that's probably the most important thing we're working on right now. But you mentioned overtime, I'll just give you a little flavor. So our overtime for road train was down 30% last month versus last year. It's a huge focus, Tom. Doing it right the first time.

Okay. So you said down 30% over the last month year-over-year?

Yes. Now we had a tough year last year, remember, with the storms. But all that to say, though, it's just reflective in the speed of the trains.

Is that like a $5 million impact, $10 million impact? I'm sorry, Matt, I have to ask that. I mean just like ballpark it for me. I just don't have a sizing of that. Is that small or big?

I think it's kind of low single digit, I would look at it that way.

Okay. All right. Let's see. When we look at -- look through the earnings model and think of the levers and come out with our earnings for '26, one of the challenges, I think, for the railroads the last couple of years has been the price/cost spread that historically, rails are great at price and very good at cost, too. And so that tended to be favorable a lot of time. But I think kind of coming out of COVID and the last rail contract, that went upside down. And you've had a tough truck market as a backdrop, right? It's hard to raise rates when a big competitor is lowering rates or keeping rates low. So how do you think about that? How optimistic are you about price/cost spread being positive in 2026? And what do you think are kind of key levers to achieve that?

I feel very good about some of the cost initiatives that we have. And that's -- those are the things that we can control. On the price side, one of the biggest impacts that we've seen this year just from an RPU impact is obviously the export coal market. And I don't want to call it -- you never can call that market, but we are at lower levels today. So the risk from a pricing perspective and significant downward pressure that you could see from that market is obviously much less than what we started with coming in out of '25. So that's an opportunity for us. The domestic market is very strong. We expect to get value there. So I would expect that to both be positives for us that were probably more of a headwind coming into '25 and even more so than what we expected. And then you mentioned the truck market and intermodal is obviously the one that competes most directly with truck today. And just the fact that rates are stable is helpful, right? That's where you have to start and the fact that customers aren't getting further rate reductions on the trucking side is going to bring us opportunities to convert that volume. I've always said if you're competing or you're trying to shift business where the customer is getting value by doing nothing, it's a very tough value proposition. You're going in there, you're getting maybe a 20% reduction to their truck spend, but their truck rates are going down 10%. So they're looking like heroes for doing nothing and not impacting their supply chain at all. I think now we're in the next phase, hopefully, where customers are looking for that next value lever, and you'll see some of that impacting the intermodal side. Then on the merchandise side, it's in -- there's opportunities, obviously, I've talked about the tools on the technology side. Steve is highly, highly focused on that area. He made it clear to the team that there's going to be a lot of more rigor. He's also made statements around this is an industry that should cover our, obviously, cost inflation and industries that are solely focused on market share aren't the best performing businesses out there, right? You think about autos and other industries where the market share is a key focus, not the best margins. So it's good to bring that rigor. It's good for everyone to understand that's the focus for -- from the top down on what he's trying to achieve, and I think we're all aligned to that.

So is that a -- you think you will have price above inflation in '26? Or is that TBD or what?

I think we'll manage the cost and what we can control. And I think we'll see some pricing opportunities as well.

Okay. They're maybe optimistic and you certainly see opportunity, I guess, on that.

Clearly. I mean, just in the absence of some of the things I said, I think it should be a better environment from that dynamic versus '25.

Okay. All right. What about the kind of timing, you mentioned like technology tools. I don't know if you want to talk a little bit more about that related to price, I think. And also just like, okay, so Steve has taken a different approach than Joe did in terms of prioritizing price, maybe focus -- granular focus on price. How long does that take to come through and affect the marketing group and how they do things and what we actually see in the numbers on pricing?

Yes. I think, look, not every contract comes up for renewal every year. So you look at opportunity by opportunity, and it's a competitive market, and we have the best service out there. So we're going to compete, right, where we have to compete and deliver value, but we expect to get value for that better service over time, and that's going to be a huge focus for the team. And there's a lot of ways to deliver value for our customer outside of price. There's turning their assets quicker. There's getting more on-time delivery, right, where they take cost out, all those things, and we want to participate in that in terms of price going forward. So those are things that we'll continue to look at. From a technology standpoint, we're going through a very much a deep dive on every technology project. And if this doesn't help us grow the business or deliver efficiencies and productivity, it's going to not be a priority for us going forward. And that's -- we want to put all our dollars against those 2 initiatives. And that's where we're all aligning as a team is how -- we want to spend our money on those things that can drive our business forward from a growth perspective, but also deliver cost benefits. And I think that's going to recalibrate a lot of the way we're thinking about our capital spend going forward.

Right. Okay. Do you think there's opportunity for a significant change in the approach on price? Or is that -- I mean, presumably, you're a Head of Marketing and price is something that we ask you about every quarter. So it's kind of hard to imagine we're already focused on that. But is there room for the kind of change from the CEO spot to really have a big impact on price?

Look, I mean, I was always -- obviously, I understand the math, right? Pricing is pretty impactful. And Steve has pointed that out to the team, like you can reduce costs. And obviously, pricing is another lever that he's seen a lot of success in his career being successful on that side. I think it's always been a focus, but to hear it from the top down, I think obviously, expectations and those things are helpful. And then having the alignment around how we're going to spend our capital to maybe hopefully deliver better tools to monitor that and be more effective in that area is, I think, helpful as well.

Okay. So we will take questions. If there are any questions from the room, you're welcome to raise your hand or you can use the QR code on your table, and then I should see something pop up here in the iPad. So yes, if anybody has a question, just raise a hand or popping into the system here. Let's see. I think the -- I guess the -- we've got UPs here later today, and we were thinking, well, maybe they'll have their filing ahead of that. I guess not, I didn't see it this morning, but maybe it's coming out on Friday. We'll have some weekend work to do with several thousand pages to process. But how are you thinking about the position that CSX wants to take in this process? I mean, obviously, you'd say, all right, well, if there's one transcon railroad, there should be 2. So that might be a consideration. We've seen BN take a pretty aggressive approach with even the recent filing about saying UP isn't kind of, I think, living up to their obligations for even UPSP access that was granted way back, whatever, late '90s. So how are you thinking about the CSX approach in this process?

Do you want to...

I'll just start, the first thing as we've been speaking about this morning is to be the best we can be. That's the most important thing to make sure our franchise is the best-in-class. We're doing everything we can to improve service, reduce cost, get the pricing we need and then take it from there.

Yes. I think the most important point is to be in a position of strength no matter what happens. And I think what we're focused on is being able to compete, right, and allow our customers to use our network and the best-in-class service. And that's how we'll look at all the, obviously, detail that comes out. I actually thought they're going to file right before Thanksgiving and try to ruin our weekend, but that didn't happen. So we'll see. There's a lot -- it's going to be a long story. It's a long road ahead. We have a very, very -- we have a network that's obviously very valuable to all the railroads out there. We have -- we serve 2/3 of the U.S. population where all the freight wants to go is within our network, and that's very valuable to a lot of different partners that we have out there. And so we're going to capitalize on it in every way we can, whatever that needs going forward. So we'll evaluate. UP is also an important partner of ours. We'll continue to work with them and move freight because there's a lot of customers that we serve on each side that still want that service to remain. So those things are our focus. We'll obviously want to protect our competitive position going forward and evaluate the filing when it comes out.

If there's kind of 1 or 2 things that you'd say, hey, this is a really important element that we need to protect or something maybe to pay attention to an issue within the filing and within the review process. Is it keeping gateways open? Is it -- what do you think is an important element that we should look at in terms of preserving CSX's position?

Yes. I think if the customer has the option to use CSX today, they should have the option to use CSX in the future, right? And that has a lot of different forms. There are some network things that I think the UP has even highlighted from a network perspective that I think they're probably addressed in their filing. We'll wait for that, but gateways are important. The opportunity to interchange business with the UP that we do today, that continues into the future. So all those things we'll be interested in making sure that those are addressed in the filing and obviously, in our arguments going forward.

Okay. Let's see. You talked a bit about -- I think you have some optimism on CapEx and that, that number can potentially come down or you can have some efficiency opportunities. Can you add a little more flavor on is this the kind of maintenance spend on the system? Is this locomotives and car spend, you can just spend the assets faster? How do you think about where, in particular, the opportunity is for capital efficiency?

I'll start with -- there certainly is in the -- on the track side, Tom. It is a big chunk of our overall capital hardening of the infrastructure every year. And our focus is this year to bring that cost down, the efficiency up again for next year. So we're expecting and we will see improvements there, no question about it. The deployment, to Kevin's point, of specific capital to get the right return is the #1 focus after that. And that's something that as we get together more as a team and we get our focus in the right location, we're going to drive more efficiency with what we put into the ground versus maybe what we've done in the past. But from a track perspective, absolutely, our focus is to reduce that envelope and get the same work out of what we did before.

How much are you spending in that category if you just say basic system or basic, I don't know, system maintenance?

Over $1 billion.

Over $1 billion?

Yes, nearly half of our CapEx.

Okay. And is that single digits efficiency opportunity or bigger than that?

Yes.

I think so, yes. certainly over time. I mean, it goes beyond even just the basic track, it's the bridges, it's across the board. All of it. What our team on the finance side is trying to give Mike more insights towards how the spending is going, creating more budget, more rigor around how we analyze it, how we can learn from projects that we do well and how we learn from projects that we didn't do so well and replicate, obviously, the things that we do well and then eliminate things where we don't. Projects are really hard to evaluate. How do you know you spend the right amount of money when you repair the bridge or you do the right. How do you create that rigor around it. And I think organizations can think about OE expenses a lot different than capital, and we want to have the same rigor around both.

Cash is cash.

Cash is cash, at the end of the day. You can kind of see that slide sometimes that, hey, if it's capital, I pay a little less attention to it. But if it's operating expenses, I pay a lot more attention to it. So having that same rigor around both I think, is going to be helpful. That's where I can help Mike get more visibility. He's asking for that data every day and where I think we're doing a better job of providing...

And it allows that visibility just allows us to put better controls to get deeper into the organization, and that's back to the culture. We want the person delivering the work to understand that they own the company as well, and it's their money. And that's where we'll get the benefit.

Okay. I get one more scan here in the room. I don't know if anybody has got a question, please raise a hand or send a question in. Is Steve a big share buyback guy?

Yes. I think he certainly is a big cash flow. He's very vague on cash flow. And if we generate excess cash flow, he likes to return that to shareholders. I think that's been its history, if you look at his track record over time and creating value. So a lot of rigor around cash flow, returns based, right? He wants to look at these projects and whether it's capital or other things to make sure they have the right return to support it. And he wants, obviously, the post audits, all those things that can occur so the organization learns from it. But he is in the weeds on the business. He has gotten up to speed very, very quickly. meeting with a lot of folks beyond Mike and I to understand the leadership team, understand the talent, spending a lot of time just across the business, really getting known and asking a lot of questions, quite frankly. So it's been an exciting time to get them up to speed and getting his perspective on a lot of things. The businesses -- I mentioned this before, the industries are very similar in a lot of ways. He's kind of sharing his perspective of what made, obviously, Linde successful in his time there.

When we think about -- if I go back, I don't know, 4 or 5 years, approximately, you were the industry leader for OR, and you ran at a high 50s OR for, I want to say, 2 years. You have some things you can't control, export coal pricing can be a powerful conversion and contributor to EBIT. So you don't know where that's going to be. I think some of the cycle stuff would come back on truck pricing and everything. But are you optimistic that you can get back to a high 50s OR and you can kind of be at the kind of pinnacle level achieved by CSX before? Or is that something where you say, hey, we got to be careful because there were some kind of unusual factors that lifted us then?

Yes. There were some unusual factors that lifted us there, but I think we're all competitive. I know Steve is the most competitive there is. So we've got to look at our cost structure, right? And how do we continue to improve our margins. And I think that's what we're doing. There's technology. There's other things that we need to really embrace in a much more rapid pace, in my opinion, going forward. And capital spend is a part of that, too. How do we get more discipline there because eventually, that capital spend materializes in the depreciation that runs through the income statement and our margins as well. But no, I think there's a lot of opportunity for improvement. We all believe it from a cost perspective. And then when the markets come back, I think you're going to see a cost structure that's really going to be -- benefit the incremental margins, and that's what we're kind of positioning ourselves for.

That's what we control is the cost.

So when you have executive team discussions on this, is it like, hey, let's figure out how we're going to get there? Or is it more like, hey, let's just go year-by-year and see what we can do next year? How do you think about that kind of executive discussion about OR and even considering where you were at the peak?

We don't have them on OR, Tom. We have them again, to Kevin's point, on the cost structure and the controls we're going to put in place and the changes we're going to make. That's really our discussion. It's not -- it doesn't -- we can't control the OR per se on so many factors. It's costs we can control, though.

Yes. OR is the outcome of a lot of initiatives. And I think that's where we're -- you see Steve focusing on is the individual initiatives that end up adding up to obviously better OR performance.

Yes. That would be the outcome.

What's your favorite productivity metric, Mike? And what -- let's say, it's GTMs per employee, that's kind of a simple one that we would -- I don't know how simple, [indiscernible] use one, is that...

It is. I like them all, though. I like train size, I like tonnage, I like length. Locomotive productivity is big. Dwell is important, but when you're -- they're not necessarily all our equipment. And so sometimes you can overpay to move cars fast. But when you look at the productivity of the locomotives, the productivity of the cars, the productivity of the people, those are the things that those are my favorite.

So do you think you can approach kind of prior peak levels on GTMs per employee or how...

Some of that might be hard. I mean '20 and '21, you had a shortage of people. So really, your service suffered pretty dramatically, but you did get that benefit. We want to balance that out. But yes, definitely, I see road for improvement. No question about it.

Any other metrics you can kind of get back to where you were or exceed?

Well, right now, we are, like for locomotive utilization, we're better than we've ever been. And dwell, really same thing. But the overall productivity is our focus on all those assets. And yes, we can get back on the other ones.

Yes. Okay. Great. We're almost out of time, but why don't I kind of end here with anything maybe I didn't ask you about or anything that you'd like to emphasize right at the end now.

Yes. I mean the only thing I would point out with Mike, Maryclare and myself, you have a team that's able to work very, very well together, and we're all aligned around what can drive the business forward. And it's a lot of fun to be able to be transparent with each other, challenge each other. We're not always going to agree on everything, and that's a healthy environment. And then with Steve's leadership and his perspective on -- he knows -- I say this, I went home to my wife when we announced Steve was coming to the company. He knows what good looks like in every way. And that's not just what good operations look like or what a good CFO group looks like or HR, it's across the board. And I think that's exciting to get his perspective on all those areas and really implement change because there's a lot of opportunity, I think, for positive change to occur over the next few years.

It's all about that winning culture, and that's what makes it so great to come to work every day. Team we're building, the way people feel, especially after we went through what we went through, and we built grit these people learn that you can get through things and come out on the other side much better than you thought you could. That's the benefit of it all.

Right. right. Okay. Multiple ways to win. All right. Mike, Kevin, thank you so much for coming. I appreciate it.

Thank you. Great to see you.