CSX Corporation ($CSX)

Good morning. Next up, we welcome CSX and Kevin Boone, EVP and CFO, as he reclaims his CFO seat in October that he held from 2019 to 2021 with a quick step into the CMO seat in between. We welcome Kevin for his fifth time at our event, along with Matt Korn up here in the front row from Investor Relations, also for his fifth time and CSX for the 18th consecutive year attending the conference and 23rd time in the 25 years we've hosted the event. So truly thank you for your steadfast commitment to the conference. And what an outlook for CSX, right? New CEO, Steve Angel, continues to press the culture of the organization to be better. It has easy comps against some of the Blue Ridge subdivision work and Howard Street Tunnel project for about $150 million in easier cost comps. So let's dig in and see what's going on. So Kevin, I'll turn it over to you. Just to understand you have a few thoughts and updates to start. But maybe please include 3 key thoughts or takeaways you want us to walk away with as well?

Yes. So when we came in -- well, first of all, thank you for having us. I also have Angie Williams here in the audience. That's with the company. She's our Chief Accounting Officer. I've been coming to this conference for a long time, even when you had it in Boston, even as an investor before I moved over to the corporate side. So thank you for having me. When we came into the year, we put a plan together pretty quickly with Steve coming on board, and we obviously guided to low single-digit revenue growth. And we also had a very ambitious plan, aggressive plan around improving our margins. So 200, 300 basis points of margin improvement. And as you saw, we delivered on at least in the first quarter and continue to have a plan to deliver on that, and we took up our guidance. On the revenue side, we adjusted mainly due to the fuel surcharge and what we've seen with the war outbreak and what that's done to the price of oil. But we've also seen some favorability in some specific markets, mainly tied to the energy markets and what's happening there. So some favorability, chemicals and other areas. And on the cost side, despite some of the margin headwinds that fuel surcharge does create from a margin perspective, we did take that guidance up to the higher end of the range. So very happy with what we did in the first quarter. One quarter doesn't make a year, so a lot more to do. And then 3 things that I think about as a CFO, coming back into this role, Obviously, on the revenue side, Steve has been very clear that we need to go out there and get value for the great service product that we're delivering. And so a lot of focus by Maryclare and the team around that. Revenue growth is about volume and price, and that's important to cover our cost, cover our cost inflation. And as we deliver a better service, we expect to get value for that. So that's been a big emphasis, I know, since Steve has been on board and really pushing the team in that area. On the cost side, I got into it. We had a great performance in the first quarter. Really across the board when you look across mechanical, engineering, our transportation costs, Mike and the team fully engaged. What we're trying to do as a finance organization is give them the visibility and the tools to really go after those costs and really measure them and create processes around it. So once we find the efficiency that we don't let it creep back into the system. So a lot of great work there, a lot more to do. We're building the pipeline already for 2027 in terms of the cost initiatives that we want to deliver. And so I think some of the success we've had has given us the leeway to start thinking about the next year and years ahead and really putting a plan together and being really thoughtful about it. And really, we always want to make sure the service, safety and all those things are prioritized when we do all these cost efforts. And I think we've done a great job so far of doing that. And then finally, capital is part of that as well. And capital efficiency. I think you'll see a multiyear strategy around how we get better about maintenance capital, using a lot more data analytics to really inform our decisions out there. I think today and historically, we've replaced a lot of the railroad or a lot of track and rail based on going out there and looking at it and less based on data. And I think Mike is a data junkie. And so some of those tools, and obviously, with the AI and all of those things that are coming our way. It's giving us more visibility. And as you can imagine, if you can extend the life of your railroad with obviously, preserving safety and making sure safety continues to improve. There's huge returns impacts. When we think about ROIC is a metric that is very much aligned to our compensation going forward and something that Steve has used previously in his career. And it's something that we talk a lot about internally. And so there's a numerator and the denominator. And if you can affect both, you're going to make a lot of progress. So that's what we're really focused on.

All right. So not much is what you're saying. So great stuff. I appreciate that.

So I'm going to change subjects from kind of results to what's going on in the backdrop. But as the industry looks to potential consolidation, obviously, CP was here just arguing their view pretty hard on it doesn't need to be done. But how does CSX position itself competitively in the Eastern U.S. in light of what's going on?

Yes. I think a lot of the things that you've seen us and some of the success we've had recently has been I think, wrongly tied to the mergers. I think the team -- I was obviously part of the sales and marketing organization. Some of the things where we talk about the Southeast business on the intermodal side, that had been in the works for 18 months. So I would argue that had really nothing to do with the announcement on the merger. And we're always looking for ways to grow. And similarly, the SMX, very -- that was in play. That was a discussion that happened long before the announcement of the merger. And you're going to continue to see us, as an organization, lean into those opportunities where there -- where we can grow our volume. That hasn't changed. And nothing with the merger is going to change that -- our goals there. And so we'll continue to find. We'll work with all the partners that are available to us, short lines, other Class 1s, if there's more volume, if there's truck conversion opportunities out there to add new service that has a return that meets our thresholds, we'll go after it. And I think you can continue to see us do that. And that strategy hasn't changed.

Let's talk about your network performance right now. You mentioned Mike Cory a couple of times, but just the result of what's going on, I guess, your carloads are up 4.5% quarter-to-date, about 200 basis points above our target. But more importantly, for CSX at last week, 132,000 carloads. That was, I think, the second or third best week since week 25 of 2018. So you're talking about 8 years of catching up on carloads. Talk about what's driving that performance? Is it weather? Is it better ops? Is it winning share from peers? Is it now easy comps against the construction you did last year? Maybe just talk about what's going on.

Yes. I think it's a lot. I would first tell you that Mike is not satisfied where the railroad is today. I mean, obviously, year-over-year, we've had improvement, but he would say there's a lot more to do, a lot of optimism around there to continue to improve the service product. And that will lead to more wins. So you've seen a number of things that have happened post war. You've seen the trucking market tighten. Certainly, that is helping on the domestic side. We're seeing a tough comparison year-over-year on the international side. Imports are slightly down in our business right now. But domestically, supply, you're finally seeing that coming out of the market after what the worst trucking cycle that you probably witnessed in your career. And then the one -- worst one certainly that I've seen. And we're seeing some of the benefits even beyond intermodal areas like forest products where they can make a decision daily, whether they use rail or truck, we're seeing that start to convert over to rail. And with our service product and what we're delivering, we're pretty optimistic that, that can continue here. There are some benefits that we're seeing from low-cost energy in the U.S., that advantages some of the chemical producers here in the U.S. globally. We've seen an initial pull in demand from the domestic customers for their domestic customers, and we anticipate that there'll be some international pull on some of those products. When we have natural gas-based production versus the world where the world is mainly oil based when you look at Asia and other areas, that really advantages the U.S. from a production standpoint, and we're the beneficiaries of that. I'd also say we're very optimistic. We talked about it on our earnings call on the industrial development side. And look, in this environment where you have secure energy, low-cost energy. I don't think there's a better place in the world to invest in today. Labor, I call energy, the new labor, right? People used to chase labor costs around the world from a manufacturing standpoint. I think they're going to chase energy cost and having secure energy, cheap energy, definitely advantages our network. And we have a great the Southeast, other parts of our network in the Midwest has a great work base to handle some of those projects. So we're optimistic. We see some of those coming online and ramping up over the next year or so into 2027.

So when you think about some of the volume wins right now, right, your peer in region, maybe a little discord, employees don't know what's going on. And so that might affect service. So you're winning some -- I presume some relative share just given that status, right? So how do you ensure when the -- whether the merger goes through or not, in 1.5 years when they settle down that you don't give back that share?

Yes, I think what we've seen a lot of it is we want to grow the pie. And I don't think -- we're not out there. We certainly will win with service, but we think we have a unique value proposition that we're delivering. We're not out there to undercut our service and discount the things that we're doing and all the hard work that Mike is doing. So we're out there. We're very much what you think you've seen is some depressed markets. We have some leading market share in some areas that have been hurt over the last few years. If you look at the chemical producers, some of those, you just look at their stock price, right, year-to-date, what they've done. So they benefited from what has happened in the world and their advantaged kind of supply, the cost advantage versus the global producers, and we're benefiting from that. So we don't see major share shifts occurring within the rails. It's more about growing the pie and going after that truck volume.

Let me take a step back. In your opening comments, you talked about kind of the underlying market. How would you define the freight environment today? Is it still uneven demand? Or are you seeing more consistent recovery across some of the end markets?

Yes. I would call it cautiously optimistic. Coming into the year, we -- it was hard to tell in the first quarter. We had a lot of weather impacts that created a lot of volatility in January, February. And then coming out in March, and then we saw some better trends, probably almost across every market that we had. And when you look at our merchandise today, almost every market is in growth with the exception of forest products, where we saw some rationalization in production last year. And obviously, there's a lot of exposure to housing there as well. So that market, while better, you've seen some sequential improvement and less negative growth, I would say. That one is still a headwind. And then I talked about the tough comps on the export side. But on the coal side, with utility demand, AI, all those things, we're seeing strong demand out there. We'll see if we get a hot summer, that always helps as well. But we had an unusually cold winter that helped from a demand perspective. The unfortunate part was coal gets frozen. You can't move it as much, but we'll catch that up as well. And then the international markets, I would say, are stable. We haven't seen a real uplift there. I do think where you see Australian coal prices and where you see the U.S., it's the largest gap we've seen in a long time. Hopefully, that converges and it converges upwards, but we'll see. We certainly don't have that in our outlook, but that's an opportunity for us too and as well, and we have 2 mines, as you remember, that were down last year that are now back up. So we're seeing incremental volume from both those mines. And so I would say, internationally, on the coal side, stable and pretty -- we'll see if we get some better pricing as we move into next year.

And we're going to blame the groundhog for that extended cold weather because it's not been fun up here. Talk about the culture change brought to CSX by Steve, and what's different in the organization, right? Obviously, we know you've moved back to CFO and Maryclare to CMO seat. What else do we not see that's going on?

Yes, we have a -- Riz Chand, who just joined us. I think he's been on the job for a few weeks here on the CHRO side, so leading our human resources, that area. Talent is still a huge focus for Steve and developing talent across the organization. So very excited to work with him. He's bringing a lot of great ideas. He has some railroad experience, but he also has a lot of experience outside the industry that he's bringing to the organization. And really making a best-in-class organization around how we develop people, how we think about that, how we compensate folks, all of those things to align to our goals. In terms of Steve and the culture he's bringing, he continues to say almost every week, make the important things the important things, and it starts with delivering financial results because that allows us to do a lot of things. It allows us to invest in our people. It allows us to invest in our network, allows us to invest in customer service and serve our customers better. And so those are the things we're focused on is as you drive financial results and you get more competitive in the market, you have the ability to go out and get more volume and grow the business. And so those are the things that starts with delivering results and being part of a winning culture. I think we're all excited about that. It's nice to win. It's nice to put up a good quarter, and you can feel the energy around the building. Certainly, that's been fun. Now we got to sustain it. And that's the challenge for all of us, and I think we're up for it.

So let's talk about some of those financial goals then, right? So you target revenue growth in mid-single digits. That's what you talked about. But is that solely a bump from fuel? Or does that relate to what you were talking about in some of the underlying industrial?

Yes. I think largely, right now, it's from fuel, but there are a few markets where we've seen some better where we're more optimistic than we were coming into the year. I'd point to chemicals. We were optimistic on the aggregate side, but we still see a very strong market there. Pipe on the metal side. It's been very strong. You can imagine LNG export projects, all those things with what's happening in the energy world. We're seeing a lot more activity in that area. The metals market is pretty solid. Tariffs, all those impact those markets. And then domestic coal, fairly strong winter. We'll go into the summer, expect that to be doing well. So across the board, there's a volatile market out there, a volatile world, so you don't want to get ahead of yourself. So we're going to control the things that we can control and continue to focus on those things. And there's substantial things that are out of our control like energy prices and those things, but it is something that at least in the near term, we see some positive trends for us.

Okay. And then let's talk about core revenues, right? So revenue per car were slightly negative in first quarter, turned positive to low single digits in 2Q, I think, was your comment. But now with fuel kind of up, maybe talk about the contribution of fuel versus core pricing?

Yes. We didn't actually give -- Matthew reminded me, we didn't actually guide yield into the second quarter. But obviously, from a fuel surcharge perspective, we will see some favorability versus where we were in the first quarter. And there will be a slight fuel lag. Remember on the merchandise side, 2-month lag that we'll experience. So this should be the last quarter where we see a significant fuel lag unless we get $150 oil, and nobody wants that. But what Maryclare said is that we expect better core pricing this year versus last year, and I mentioned that in my opening comments. It's a big focus of the team for us. We've had a highly inflationary environment over the last few years, and we want to make sure we're recovering that inflation through price.

So you target -- I guess, let's take that, right? So if core pricing is doing well, volumes are trending a little bit ahead, you target operating margin gains at the top of your 200 to 300 basis point annual target despite pressure from higher surcharges. Maybe talk about what's leading that update to focus on costs.

Yes, we had a really great performance on PS&O and really across the board, a lot of focus across the organization and a lot of people involved in some of those efforts. A lot of focus on the energy cost. Mike put up a record fuel efficiency number and a record for first quarter. And from a fuel efficiency standpoint, we continue to see favorability there from a fuel efficiency. And there's fuel efficiency outside of locomotives, where we have a lot of emphasis on our vehicle fleet out there, over 300 vehicles, trucks. And within the first quarter, we saw 20% less miles as we focus on that fleet and the usage and utilization there. So -- and now we're looking at the utility spend, right? We have a pretty significant utility spend, how do we get that down. So it only magnifies the benefits when energy costs are this high right now. And then I look around to what Mike has been able to do and his team and Doug and Carrie and everybody around just looking at the workforce and finding opportunities to drive efficiencies on that end. I would say engineering, we're in the very early stages. We did have some leadership changes there that I think we're all excited about and what can happen on the engineering side and the value that can come. I think that's a multiyear journey, particularly around the capital, as I talked about earlier, but a lot of efficiency opportunities around how we spend in that organization. And then technology is with everything that's happening in the world and a lot of discussions, and we're trying to prioritize the things that can happen the most value near term, from an AI perspective and all those tools. But when you think about a network where there's a lot of unsupervised people out there working, the more tools you can to manage the network, the better off we're going to be. And if we can centralize some of that decision-making and make the best decision for the network, those are huge. The benefits are very, very good. And then we're using AI on the pricing side as well and using those tools. And I know Maryclare has been working on a project here and early signs are very encouraging on giving us more visibility on pricing and how we go to market and being more thoughtful around that. So a lot of different categories. I think from my perspective is how do we prioritize the ones that can deliver the most value? Where is technology going? What should we be doing now with what AI can do today? And what should we do next year because every month you wake up, and there's a new model that can do more. All those things we're trying to figure out. But it's an exciting time. Technology will unlock a lot of the future, I think, benefits that we can experience across almost every part of our business. And I don't think there's an industry that's more ripe for using some of these tools to really manage a network that's very complex.

Let me bring that in near term for a second, right? So for -- that was kind of a good view on kind of the potential for the year and maybe even beyond. But you typically generate 410 basis points of margin improvement from first quarter to second quarter, given the robust performance in the first quarter, which was beyond targets, are we looking at half that level? Can you come close to normal? Is there a guide that you've talked to in terms of relative to historical performance where you pan out?

Yes, I wouldn't -- I think we covered this a little bit on the earnings call, but we did have a very good first quarter. We continue to believe we'll build some of that momentum. Obviously, higher fuel prices from a margins perspective, that will start to flow through and that -- obviously, we're going to do everything we can to offset with efficiencies on fuel, but that can have a negative pressure on your margins optically there. And then we've talked about some of the other costs, incentive comp will go up a little bit sequentially after delivering a pretty positive first quarter. And then we talked about these other costs related to the transaction. And unfortunately, we're having to pay advisers, consultants and other things to obviously give us the best perspective and a lot of smart people working on the transaction that's pending out there in the market today. So those things are nuances. We always expect second and third quarter to be our best quarters from a margin perspective. That doesn't change. That should continue. But there is just -- from a sequential basis, there's a few things that we pointed out.

That will hit 2Q results, or level of improvement.

Yes. That's right.

That's right. Okay. Service levels, you opened up kind of talking about how well things are running. I mean, it seem to be generating pretty robust levels. Velocity is up 10% year-over-year dwell, down 6%. How directly as CFO, do you see that translating into cost savings?

I think I obviously got the experience in '17, '18, '19, as we ran better, the costs that just naturally drop out. When you have less recrews, when you have -- you're using -- utilizing your workforce much more efficiently, cost just naturally come out of that. There's -- across mechanical, even engineering, you just see costs fall out as you're running a better network. And so that will continue. We have very discrete items that we're going after, and I talked on the first quarter call, there's over 100 kind of initiatives that we have across the organization to drive cost improvement. And we're really checking a lot of those boxes today. And the other one that -- it's hard to measure. It's hard to put a dollar value up against it, but I know it's there as you run a better network overall, cost us naturally have an ability to fall out. So the better Mike and his team performed, you'll see that cost performance come out.

Yes. You mentioned in your last answer on the cost, AI and the potential. And also you mentioned a couple of times on coal demand and things. So maybe talk about -- we saw the importance of technology in the CPKC merger a year ago in the summer? How are you using AI to lower costs? You kind of threw out a couple of things. Maybe are there specific projects you would highlight so we can understand the scale and speed that you're deploying?

Yes. I think one of the ones that Mike's particularly excited about right now is crew management, right? Managing that workforce. They're our most valuable asset and making sure that we have the people in place to run the trains on time, all those things are important aspects. And there's a lot of data involved in that and understanding how the workforce is trending, retirements, all those things. that AI is just really ripe for. And so you can put a lot of data in there and you can get a lot of insights. Using Excel for that is not always the ideal tool. And so that's -- I know Mike is probably working on it right now as we speak, but he's been pretty amazed at what the early signs and the visibility that he's gaining from using some of these tools out there in the market. And the other area, it sounds like a small, but it's actually a larger cost area for us is how we monitor our vehicles. Our vehicle fleet that I talked about earlier. We have GPS devices on there. We're really using data tools on how we maintain them. We're spending -- last year, we spent over $13,000 per truck in maintaining and maintenance. It's a crazy number to me. How are we looking at that? Are we selecting the right vendors? Are we holding the vendors that are we not getting ripped off? I can tell you we're getting ripped off on oil change every once in a while, a lot of oil changes. How are we putting more tools around that, that we can hold our vendors accountable, how we can hold our employees accountable for how they drive. When we first started monitoring vehicles, we had a lot of people that are driving 90 miles an hour and over. And last week, we had 0. That wear and tear on the cars, but more importantly, safety, right? From a safety perspective, these things are good. And you can go after it. You can talk about it. I've seen us do this before, where you go after a cost area and you talk a lot about it, and then you move on the next one. And then the costs creep back into the system, and that's the important thing that we're building these tools in this process that you don't have that -- those costs come back into the system. So those are 2 areas where we're using a lot of data and, I would say, AI capability to monitor those processes and give us more insights as a leadership team and how we manage those costs.

Headcount is at just shy of 23,000. Thoughts on the headcount through the year. Is it flattish despite the mid-single-digit volumes?

Yes, I think we see opportunities. We do have some people in training, and we'll continue to replenish where we have upside and demand. But where you're seeing a lot of demand occur right now is in our manifest. So we have capacity on our trains. When you look at our train length today, Mike would tell you, across -- almost across the board, we have the ability to grow. And so if you see some of our chemical customers go from 10 shipments a day to 12, 14, 15, that's pretty easy for us to handle as a network. Well, it's easy for me to say. The ops folks probably would tell you it's not that easy. But it's easier, still the same switch, still going out there, getting that volume. So that's where we see the upside versus where we were today. And so that fits nicely into the network when we think about it. I'll say on the intermodal side, it's been -- Carrie and her team have been phenomenal handling the additional volume that's come through our network. And obviously, with the Howard Street Tunnel opening up, we just ran a double stock train last week. In that market, we're incredibly excited about what we can do there. We had previously outlined 75,000 to 125,000 of additional loads. That will take -- Maryclare will tell you that will take 2 to 3 cycles in term bid cycles to deliver that kind of growth, but we're optimistic, and we've already seen initial wins in that area. And then -- you had Nadeem here a little bit earlier in SMX, right? That's another area on the intermodal side, where we see a lot of opportunity to grow as they market Mexico into the Southeast. That service is second to none, in terms of speed and the investments we made from a train speed and efficiency there. So we're excited about that. So a lot of growth opportunities kind of across our network right now.

What was the number of intermodal loads from the tunnel was 75,000 or...

75,000 to 125,000 kind of given a range.

Range.

And it also gives us the capability, and we have a unique position in Baltimore at the port, and there's a lot of investments happening there. So you'll see from Baltimore to Chicago is the fastest route today. So we have a lot of customers that are excited about utilizing that ability and capacity.

So let me step back and I guess, go back to -- in CSX just conception. I know coal has changed dramatically and some other things. But CSX used to run 7.5 million carloads about 20 years ago on an annual basis. We're targeting about 6.5 million this year. So I get coal declines, PSR, elimination of equipment, employees are down 25% from the peak, yet up 20% from the lows. How do you think about capacity availability on CSX's network in today's market, given the stuff that Mike has done? And where do you expect the flows to come from?

Yes. I think Mike would tell you -- I know Mike could tell you that we have room to grow almost across every corridor that we have. And we continue to make investments in some yards that are low-cost investments that continue to bring out capacity there. When you talk about a lot of the carloads that are down are the coal side, but we are seeing opportunities across almost every market. When you think about what's happened during that time period, we had to continue to have the industrial -- you had offshoring on the industrial economy. I think that we're really optimistic. Steve has got a lot of perspective from his previous life on the industrial gas side. And I mentioned it before, I think we're hearing from customers, there's no better place to invest. Now policy-wise and other things, we got to get out of our own way and create a little more certainty, right? The worst thing for investments as having uncertainty. But tax policy is very positive right now from being able to fully depreciate structures on your CapEx. You also have the energy supply and everybody is looking for energy. When we talk to -- we have a great industrial development program, when we talk to customers. Energy is first, second and third on the list in terms of making sure that, that's available. And we have opportunities across our network for that. So when I think about the trends that have occurred over the last several decades, you've had offshoring of our industrial base. You've had coal declines. I'm optimistic that a lot of these secular headwinds that have faced the railroads, particularly our network, we're uniquely positioned. Southeast is where people want to develop a lot of the projects, Midwest. We have 2 -- I would say 2 of the 3 largest growth areas in the U.S. in terms of industrial production, Texas being the other, where we obviously don't have a position there, but we're uniquely positioned to take advantage of it. And we happen to have 2/3 of the most valuable consumers in the world on our network. So all of the products want to go to where we have our railroad going. So those are opportunities for us to take advantage of. I think we have a lot of opportunities there. We've got a great sales team to go after that. But I do think some of the secular headwinds that we've faced are changing.

Okay. So let's talk about some of the financials, right? So a 3x leverage, I think, give or take, right, at the end of the quarter. What's your target? And CapEx was down -- I guess, your CapEx target is $2.3 billion, down 20% year-over-year, and now it's 16% of revenues. Is that the right run rate? So 2 questions, one on leverage, one on CapEx.

Yes, let me take CapEx first. There is a lot of opportunity on CapEx to get a lot more efficient. I will continue to say this. Mike is a believer, we're all a believer within the organization. We've got to do it in a thoughtful way. How do we deploy capital, safety is going to be always the primary focus. But the way we distribute capital, and we made a lot of -- I got to tell you, Doug's come in there, shared a lot of perspective. We've had a lot of efficiencies that we've gained already, but we're going to be really thoughtful in the next 3 years and now we spend capital. And we want to -- the more efficient we get on maintenance capital, the more we can reinvest in growth in other areas and technology and other things that make us even more competitive and allow us to go out and deliver more growth through those investments. So this is a multiyear journey. I do think there's a lot of opportunity just as much as there is on the OE side, I would say there's -- on a percentage basis, it's probably even more on the capital side. And then on the leverage side, we had been on, I would say, 3x is on the higher end of where we would like to be. Given our success this year and our guidance, you'll see that come down pretty substantially. So we've always said the credit rating agencies like you in that 2.5 to 2.75x. That's probably an area where we'll operate in over the long term. So we have some debt due later this year. We'll make a decision whether we just go ahead and pay that down or we'll be opportunistic given where the interest rates are and all those things and make that decision. But lot of opportunities. The great part is, as we drive CapEx lower, have those opportunities, our free cash flow conversion. We also took that guidance up as you will see. We have a lot of opportunity to get in the near 100% is always my goal. Probably won't get quite to that level. But traditionally, you'll remember in the years prior, you had 50%, 60% cash conversion on net income. We expect that to be much higher going forward. And it's a big opportunity and the quality of earnings goes up with that. And hopefully, that argues for a higher multiple over time.

So you bought back just over $220 million in the first quarter, which was double fourth quarter's level but below $750 million in the first quarter last year. Is that -- what's the right run rate? Is it a $2 billion buyback run rate? What's the...

I think we'll be opportunistic in the market. We're going to continue to be in the market every quarter, but you always want to have firepower when you have market dislocations that are out of your control and be able to step in on those moments. And we've done a really good job over the year. We updated our Board on our buyback history. You saw that we re-upped our authorization there. And so we'll continue down the same path that we delivered over the last few years. And when you look at our average share price that we've repurchased our stock at, we've been highly successful.

So you mentioned and when I asked about the operating ratio, you mentioned kind of incentive comp ramping up in the second quarter. Have you put a dollar number on that? Or cost -- dollar number on costs coming back into 2Q?

We haven't. That's a little bit of a catch-up item and then that will normalize through the remainder of the year.

Okay. So if I were to try to sum up here, I guess, volumes trending in mid-single digits. I don't know if that's a target for you for the full year or not, but that's kind of where you're trending now a little bit well ahead of our target. So Southeast, a growth area in the U.S., you talked about core pricing staying strong. I think you said 3% to 4%. Did you give a number on the core pricing?

On the core pricing, better...

Okay. So core pricing better but above inflation, you said right?

Yes, improved over year-over-year.

Improved year-over-year. Costs, you're working on the 100 projects still. Would you put $100 million number on that, too? Or was that just 100 projects?

We didn't put $100 million.

Just 100 to make sure...

You would expect our efficiencies this year to be in excess of that or driving?

Okay. So 100 projects that you're still working on and looking now at '27 to see what the potential future projects are. CapEx, really a big focus on controlling the costs, getting that free cash flow up, leverage target down to 2.5x. Anything else you want to kind of highlight in that?

No. Again, a highly focused team. We're focused on delivering results. One quarter doesn't make a year, so still a lot of work to do, but I'm excited about all the things that we have going on. And I'll just say that I've never seen such alignment at the top in terms of the team coming together, whether it's Mike, Michael Burns from our legal department, just across the board. Riz, who just came on board, and obviously, Steve and Maryclare, just we have one common goal, and we're all working together, collaborating, challenging each other and -- but I want to drive results. And it's good start.

Awesome. Appreciate you being here. Thank you.

All right. Thank you.