Executive Vice President & Chief Financial Officer at CSX
Thank you, Jamie, and good afternoon. The favorable operating momentum Jamie discussed was accompanied by strong revenue growth of 18% or $600 million, including gains across all markets. Operating income was up 10% to $1.6 billion as top-line gains outpaced expense headwinds from higher fuel costs, inflation, and tentative union agreement impacts that I will discuss in more detail on the next slide. The operating ratio was 59.5%, which as a reminder, includes roughly a 250 basis point ongoing impact from quality carriers.
Interest and other expense was roughly flat as was income tax expense. The effective tax rate in the quarter was 21.9%, lower than our statutory rate as a result of a favorable state legislative change. As such, net earnings of $1.1 billion, was up 15%, with EPS up 21%.
Now let's take a closer look at expense on the next slide. Total third quarter expense increased $460 million versus the prior year. Fuel was up nearly $200 million, primarily due to higher prices. Inflation remains above historical levels with $82 million of inflation across labor, and PS and other rents. Labor inflation alone was around $50 million, which reflects the proposed wage rate increase from the tentative union agreements. In addition, we recorded $42 million of out-of-period expenses related to adjusting union labor accruals for the tentative agreements. The most significant piece of this is the impact of the proposed union bonuses.
When you think about labor expense going forward, the $42 million is a net catch-up and will not recur. The base labor per employee, excluding this impact is expected to be the new run rate for Q4 and into the first half of next year. Of course, comp per employee will also be impacted by seasonality mix and other factors, but the full impact of the tentative union agreement is now in our base labor costs.
Next, quality in Pan Am combined for $46 million of higher expense with the increase split about evenly between the two. Quality expenses correlate with higher revenues, while Pan Am reflects the first full quarter of CSX ownership. The Pan Am integration process is well underway, and we continue to receive positive customer indications around strong growth opportunities as we invest to increase the speed and reliability of the former Pan Am network.
Real estate gains were $33 million less than prior year with volume and all other expenses increasing $66 million. While operating fluidity improved through the quarter, our hiring focus remains, and we incurred approximately $40 million of incremental costs related to T&E training, higher locomotive count, additional intermodal terminal activity and other congestion-related items. Volume-related costs and higher depreciation represented the balance of the expense increase. We do expect some of the congestion-related expenses to continue into the fourth quarter but view these costs as the first efficiency opportunities to be realized as we achieved sustained improvements in network performance.
Now turning to cash flow on Slide 11. Year-to-date, free cash flow before dividends is down nearly $30 million but up approximately $120 million when adjusting for after-tax cash proceeds from the Virginia transaction. This is despite close to $225 million of additional capital spend as we continue investing for the health of our network to support the quality in Pan Am acquisitions and position for future growth. After funding all the capital needs of the business, shareholder distributions have exceeded $4.3 billion this year, including over $3.7 billion of share repurchases and nearly $650 million of dividends.
Additionally, we ended the quarter with a strong balance sheet, including $2.4 billion of cash and short-term investments. Looking forward, we expect to maintain our balanced opportunistic approach to returning excess cash to shareholders.
And with that, let me turn it back to Joe for his closing remarks.