CSX Q2 2023 Earnings Report

CSX EPS Results

• Actual EPS: $0.49
• Consensus EPS: $0.49
• Beat/Miss: Met Expectations
• One Year Ago EPS: $0.50

CSX Revenue Results

• Actual Revenue: $3.70 billion
• Expected Revenue: $3.73 billion
• Beat/Miss: Missed by -$31.76 million
• YoY Revenue Growth: -3.10%

CSX Announcement Details

• Quarter: Q2 2023
• Date: 7/20/2023
• Time: After Market Closes
• Conference Call Date: Thursday, July 20, 2023
• Conference Call Time: 4:30PM ET

CSX (NASDAQ:CSX) (NASDAQ: CSX) is a transportation company that operates one of the largest rail networks in the eastern United States. Through its CSX Transportation subsidiary, the company provides rail freight transportation and logistics services for manufacturers, distributors, utilities, agricultural businesses and other commercial customers.

CSX transports a broad range of products, including chemicals, agricultural and food products, minerals, forest products, metals, automobiles and consumer goods. It also moves coal and other energy-related commodities, and provides intermodal services that combine rail transportation with trucking. The company supports its freight operations with terminals, transfer facilities and other logistics assets.

CSX’s rail network serves major population centers, industrial regions and ports across the eastern United States, with connections to parts of Canada and Mexico through partner railroads and intermodal networks. The company traces its history to the 1980 merger of Chessie System and Seaboard Coast Line Industries, which created CSX Corporation and brought together several major railroad systems.

CSX Q2 2023 Earnings Call Transcript

Key Takeaways

• CSX reported 3% merchandise volume growth and a consolidated operating ratio below 60%, driving margins despite a 3% drop in revenue to $3.7 billion.
• Operating income fell 13% year-over-year to $1.5 billion and EPS declined 9% to $0.49, weighed down by lower intermodal storage revenues and normalization of export coal prices.
• Service metrics continued to improve, with velocity at 17.7 mph, dwell time down over 20% to 9.3 hours, and intermodal trip time performance rising 6 pts to 96%, helping the sales pipeline grow 30% year-to-date.
• CSX highlighted ESG advances—testing biodiesel blends, exploring a hydrogen locomotive JV, and record volunteer/community engagement—underscoring its “One CSX” culture focus.
• Full-year outlook remains low-single-digit RTM growth, $300 million drop in supplemental revenues, $2.3 billion capex, and continued focus on efficiency to offset inflationary pressures.

Presentation

[Operator]

Good afternoon. Welcome everyone to the CSX Corporation Second Quarter 2023 earnings conference call. I will now turn the call over to today's speaker, Matthew Korn, Head of Investor Relations. You may begin your conference.

[Matthew Korn, Head of Investor Relations at CSX Corporation]

Thank you, operator. Hello, everyone, and welcome to our second quarter earnings call. Joining me this afternoon are Joe Hinrichs, President, Chief Executive Officer, Jamie Boychuk, Executive Vice President of Operations, Kevin Boone, Executive Vice President, Sales and Marketing, and Sean Pelkey, Executive Vice President and Chief Financial Officer. In the presentation accompanying this call, you will find our forward-looking disclosure on slide 2, followed by our non-GAAP disclosure on slide 3. With that, it's my pleasure to introduce Mr. Joe Hinrichs.

[Joe Hinrichs, President and CEO at CSX Corporation]

Thank you, Matthew. Good afternoon, everyone. Thank you for joining our conference call. Our performance over the second quarter met our expectations, led by the strong results of our merchandise business. As we had indicated at year-end and again last quarter, we knew that we would have to manage through lower intermodal storage revenue and normalizing export coal prices. We expected intermodal volumes to be soft as imports slowed and destocking activity continued. That said, we also knew that we were gaining momentum with our customers, led by our improved service performance and in our own workplace as our ONE CSX efforts took hold. Our network continues to run well. Our company's initiatives, combined with our employees' hard work and commitment, are making a big difference in helping to set our railroad apart.

[Joe Hinrichs, President and CEO at CSX Corporation]

There is much more to do, but our results this quarter show signs of the progress we are making as we lay the groundwork for long-term growth and value creation. Turning to slide 5, let's review the highlights for the second quarter. We moved over 1.5 million carloads in the second quarter, led by 3% volume growth in merchandise and 4% growth in coal. Our margins remained strong with an operating ratio below 60%, including the impact of the Quality Carriers trucking business. We generated $3.7 billion in revenue, which was 3% lower than the previous year and flat from the first quarter. Operating income decreased 13% year-over-year to $1.5 billion, and our earnings per share decreased by 9% to $0.49.

[Joe Hinrichs, President and CEO at CSX Corporation]

When making comparisons to last year, it's important to remember that our second quarter 2022 results included a $122 million gain, representing $0.04 per share of EPS, related to the Commonwealth of Virginia property sale. All in, this was a solid performance, highlighted by great results in our core business. The fact that our team was able to drive 3% merchandise volume growth in such an uncertain macroeconomic market is a testament to what we are able to do when we work together. Moving on to slide 6. Earlier this month, CSX released its new 2022 ESG report, which highlights the tremendous progress that our team has made in moving our company forward.

[Joe Hinrichs, President and CEO at CSX Corporation]

Since I started here last fall, you've heard me talk about ONE CSX, about building a supportive and positive culture, and about the need to consider all of our stakeholders when measuring our success as a company. Many of you have asked me what this really means in practice. What does a railroad look like whereas people feel valued and included, whereas customers feel appreciated, and where the communities in which it operates feel respected? I think the pictures and highlights that you see here offer a small view into how we're making this happen here at CSX. To us, incorporating environmental, social, and governance considerations into the priorities of our company goes hand in hand with our ONE CSX focus, adding to the greater sense of purpose that we all share. These are real, authentic actions that we are taking today.

[Joe Hinrichs, President and CEO at CSX Corporation]

We talk often about our environmental leadership and our clear advantage here over trucks as a core part of our value proposition to our customers and our shareholders. By expanding our use of technology, conducting practical testing of alternative fuels, and offering support and encouragement to our suppliers, we continue to make progress. As we reported in our press release last week, we are testing biodiesel blends in locomotives in revenue service. Last month, you heard that we were in talks with CPKC to form a joint venture for the development of hydrogen-powered locomotives, which offer encouraging promise as a low-emissions fuel solution. What we probably do not talk enough about are all the incredible efforts made by our railroaders to develop the places in which we live and work.

[Joe Hinrichs, President and CEO at CSX Corporation]

It has been a priority of ours to increase our company's positive cultural impact. I am proud of how quickly the people of CSX have responded. As you see here, our volunteer hours are up substantially. Our CSX-sponsored community events have multiplied. The number of people who we have been able to help and support has been incredible. I look forward to much more to come. There's one last item I'd like to mention. At CSX, safety is our top priority. That's why we focus so much on our reported injury and accident rates. Our fundamental goal is to make sure that every one of our employees gets home safely every day. When that does not happen, we lose one of our colleagues, as we lost Derek Little last month, it affects us deeply.

[Joe Hinrichs, President and CEO at CSX Corporation]

It's a reminder of why we make so much effort on safety and how much more work we need to do. Let me turn it over to the team.

[Jamie Boychuk, EVP of Operations at CSX Corporation]

Thank you, Joe, and good afternoon, everyone. As Joe just said, we continue to make every effort to enhance our company's safety performance. As slide eight shows, we made good progress this quarter with both our FRA injury frequency and FRA train accident rate improving sequentially.

[Jamie Boychuk, EVP of Operations at CSX Corporation]

Our injury rate also improved year-over-year and was the lowest rate for a second quarter that we've seen since 2015. Our focus is to ensure that every employee, including new hires who are less familiar, understands and appreciates their part to reinforce our safety-focused culture. Turning to slide 9, our operating performance held up well over the second quarter and continues to lead the industry, thanks to the hard work of our railroaders who execute the operating plan every day. I've seen firsthand the positive response to the efforts being made by our employees to strengthen our culture. Our men and women in the field are valued, included, respected, appreciated, and listened to, which helps them feel even more pride in the service they're delivering to our customers.

[Jamie Boychuk, EVP of Operations at CSX Corporation]

Because of them, we're able to show how well our scheduled railroading model works, and I'm excited as there are more opportunities ahead. Velocity averaged 17.7 miles per hour in the second quarter, slightly lower than last quarter, but up substantially from the same period in 2022. Dwell averaged 9.3 hours, an improvement of over 20% compared to the same period last year. Intermodal trip time performance of 96% increased by 6 percentage points year-over-year, while carload trip time performance of 84% improved by 25 percentage points. I'm pleased with the compliments and support we have received from our customers, regulators, and shareholders on our service improvements. Our goal is to keep improving our service, ensure that we can continue to sustain this over time, so we can drive long-term growth for CSX.

[Jamie Boychuk, EVP of Operations at CSX Corporation]

With that, I will turn it over to Kevin to discuss our sales and marketing performance.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Thank you, Jamie. As Joe noted, despite headwinds across many of our markets, the team was able to capitalize on strong year-over-year improvement in service. Importantly, as service has improved, it is opening up opportunities to discuss new business with our customers, where we are seeing our year-to-date pipeline up 30%. I'm proud of the team and the progress we have made. There remains a lot of work ahead of us as we focus on building our pipeline of growth opportunities. Initiatives including whiteboarding sessions with customers, increasing direct engagement with small and medium-sized shippers, bringing new technology tools to better serve our customers, and finally, expanding our reach by leveraging our transload network and collaborating with both our short line and Class I partners, are just a few of the focus areas for the team as we move into the back half of the year.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Turning to slide 11, our strong merchandise performance continued into the second quarter, with revenue increasing 5%, even as our fuel surcharge declined substantially on lower diesel prices. This growth was driven by 3% higher volume compared to last year and a 1% all-in increase in revenue per unit. As we saw in the first quarter, our customers are seeing improved service levels, which is opening opportunities and encouraging them to bring more of their business to our network. For the quarter, we saw many of the market trends continue from the start of the year. In automotive, we are seeing more consistent production. We've seen our improved service lead to new opportunities and business wins. Minerals benefited from strong construction demand for aggregates and our improving cycle times.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Our metals and equipment business continues to be a bright spot, with volumes up across steel, scrap, and equipment. We've been successful in expanding our commercial relationships and translating our service product and to convert new business wins. I'm also pleased that our fertilizer business delivered higher volumes year-over-year, supported by strong domestic shipments of potash and nitrogen. On the other side, chemicals continues to be soft as demand remains challenged across our broad book of business. Forest products faces headwinds in paper and pulp board. We've also seen some slowdown in export grains for ag and food. For the second half of the year, we expect to build on the successes we have had to win more wallet share of our existing customers while continuing our efforts to attract new customers away from truck.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

We expect auto, minerals, and metals markets to remain supportive, and will be important contributors to volume growth over the remainder of 2023. We look for destocking activity to wind down in many of the markets we serve, including chemicals, though timing there remains uncertain. What's most important is that our team is not sitting back and waiting for markets to turn. We are pushing forward with our own initiatives. Our business development group has been making great progress with our Select Site program and expanding our pipeline of partner projects. We're strategically investing in developing new locations, providing additional transloading capabilities, and investing in rail cars to drive more business to CSX.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Turning to slide 12, second quarter coal revenue decreased 2%, as a 4% volume gain was more than offset by a 6% decline in revenue per unit, driven by lower export coal benchmarks. We saw continued growth in export volumes due to beneficial cycle times, good performance at our Curtis Bay Terminal, and a push among our coal customers to move more tonnage into the overseas markets. Domestic utility shipments declined, as we expected, as low natural gas prices weighed on coal burn, though demand in southern utilities remains favorable. We expect momentum in the export markets to continue over the second half of the year. With CSX volume supported by new mine capacity and coal producers making opportunistic shipments into the international markets.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

On the domestic side, we see tougher comparisons versus a strong 2nd half last year, but the hot summer is providing a helpful tailwind early in this quarter, and just recently, we are seeing a few customers looking for additional sets. Of course, as international pricing benchmarks have eased from last year's record highs, we will see an impact on our RPU into the 3rd quarter. Most of our exports are met coal, with a benchmark around $225 per metric ton. We anticipate our 3rd quarter all-in coal RPU will sequentially decline by a mid-teens %. Current international benchmark prices remain very healthy and supportive of strong production into the back half of the year. Turning to slide 13.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Second quarter revenue decreased by 18% due to a 10% decline in volume and a 9% reduction in revenue per unit, reflecting the effect of lower fuel surcharge. As in the first quarter, international intermodal drove most of the volume decrease, with the business seeing headwinds from declining imports and inventory destocking. By the good progress we continue to make with rail conversions and the team's efforts to identify new markets and lanes. Our best-in-class Eastern service product continues to position us for truck conversion in the quarters and years ahead. Looking forward, while we and our customers are still looking for a rebound in the international business, we're pressing ahead with our own initiatives.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

We brought on a new shipper late in the quarter that recognized the value of our strong service product, and we're seeing other opportunities in new lanes and growing activity at inland ports. Domestically, we're encouraged by many opportunities to work more closely with all of our Class I partners to target truck conversion. Just one example of this is the agreement we reached with CPKC just a few weeks ago to create a new interchange in Alabama that will link our customers across the Southeast with key markets in Texas and Mexico. We think there's much more opportunity for new creative partnerships that can help bring even more business to all of the railroads, and we remain very excited about the opportunities ahead of us. Now I'll turn it over to Sean to discuss the financials.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Thank you, Kevin. Good afternoon. Looking at the second quarter results, revenue was lower by 3% or $116 million. Declines in fuel recovery, other revenue, and benchmark-based export coal pricing were the set benefits from strong merchandise pricing, as well as volume growth across merchandise and export coal. Operating income was down 13% to $1.5 billion, reflecting a $122 million headwind from cycling a gain on the Virginia property transaction. I'll discuss the expense line items in more detail on the next slide. Interest and other expense was $25 million higher compared to the prior year, and income tax expense decreased by $64 million on lower pre-tax earnings. As a result, EPS fell by $0.05, reflecting a $0.04 impact of lower property gains.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Let's now turn to the next slide and take a closer look at expenses. Total second quarter expense increased $105 million. Lower fuel price was largely offset by the prior year Virginia gain. While network efficiency improvements resulted in over $20 million of cost savings across labor, PS&O, and rents, it was not enough to overcome more than $100 million of headwinds from inflation and higher depreciation. Turning to the individual line items, labor and fringe expense increased $57 million, impacted by inflation and increased headcount. Importantly, service improvements are helping us get more employees home sooner, with overtime ratios down nearly 10% and a significant reduction in the number of employees stuck away from home over 24 hours.

[Sean Pelkey, EVP and CFO at CSX Corporation]

As a reminder, midyear union wage rates stepped up by 4% on July first and will be reflected in our second half cost per employee. PS&O expense increased $37 million, with inflation and higher repair and maintenance expense, partly offset by savings in intermodal operations and cycling of costs related to the Pan Am acquisition. While we are overhauling and rebuilding more engines than last year, locomotive efficiency was 4% improved in the quarter. Depreciation was up $33 million as a result of last year's equipment study, as well as a larger asset base. Fuel cost was down $134 million, driven by a lower gallon price. Equipment and rents was $5 million favorable, reflecting strong improvement in car cycle times, with merchandise cycles 13% better than last year.

[Sean Pelkey, EVP and CFO at CSX Corporation]

These efficiency gains more than offset costs from inflation and higher volume, particularly in the automotive market. As discussed, property gains were $117 million unfavorable in the quarter. Turning to cash flow and distributions on slide 17. After fully funding infrastructure investments and strategic projects, CSX has generated $1.5 billion of free cash flow year to date. This has supported $2.4 billion in shareholder returns, including over $1.9 billion in share repurchases and $450 million of dividends. We were encouraged to receive recent news of a credit ratings upgrade. This move reflects the strong core cash-generating power of CSX through economic cycles, which supports our ongoing commitment to investing in the business and our balanced opportunistic approach to capital return.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Economic profit, as measured by CSX Cash Earnings, is up over $80 million year-to-date. While intermodal storage revenue declines and export coal headwinds will have a more significant year-over-year impact in the second half, we remain committed to cultivating and investing in return-seeking projects that seed a pipeline of mid- and long-term growth and efficiency gains. With that, let me turn it back to Joe for his closing remarks.

[Joe Hinrichs, President and CEO at CSX Corporation]

All right, thank you, Sean. Now, let us conclude with some comments on our outlook for 2023, as shown on slide 19. First, we reiterate our expectations that revenue ton miles will grow in the low single digits for the full year. We remain very happy with the performance of our merchandise business for the first half of the year, and we look for volumes to be supported by continued strength in automotive, minerals, and metals, and the successes we have had in the marketplace. We expect full-year coal volumes to be higher, driven by strong demand for export coal. As we noted last quarter, domestic coal shipments will likely soften as demand is impacted by low natural gas prices.

[Joe Hinrichs, President and CEO at CSX Corporation]

For intermodal, as Kevin said earlier, we have seen modest signs of improvement for domestic intermodal activity starting late in the second quarter, but there are no signs yet of a near-term recovery for the international business. We're still benefiting from a favorable pricing environment, though our expectation for a $300 million decline in supplemental revenues is unchanged, with most of that year-over-year reduction occurring in the second half of the year. Lower international met coal benchmark prices will also impact our coal revenue per unit over the remainder of the year. As before, we are making our best efforts to drive efficiency and control costs to offset real inflationary pressures, and we are committed to staying focused on improving service to our customers. Finally, we still estimate capital expenditures at $2.3 billion, with a strong focus on innovation and growth.

[Joe Hinrichs, President and CEO at CSX Corporation]

To sum up, I am proud of the progress that the ONE CSX team continues to make. There is no doubt that we face some mixed economic conditions in the near term. However, there are so many opportunities opening up for us to win share, expand our markets, and achieve profitable growth if we remain focused on safety, service, execution, and working together. I am very excited about what is ahead for CSX. Thank you, and we'll now take your questions.

[Matthew Korn, Head of Investor Relations at CSX Corporation]

Thank you, Joe. We will now move to our question and answer session. In the interest of time, and to make sure that everyone has an opportunity, we ask you to all please limit yourselves to one and only one question. Emma, we're ready to start the process.

[Operator]

Thank you. As a reminder, if you would like to ask a question, press star followed by the number 1 on your telephone keypad. Your first question today comes from the line of Christian Wetherbee with Citigroup. Your line is now open.

[Christian Wetherbee, Managing Director, Transportation Research Analyst at Citigroup]

Hey, thanks. Good afternoon, guys. I guess maybe wanted to start with some thoughts on how you the second half of the year, and in particular, how you think about matching resources to the volume and revenue environment that we're in right now. As you noted, you have coal and you have other revenue headwinds that are greater on a year-over-year basis as we move into the back half of the year. Certainly, volume is still like it's a little bit uncertain, Joe, as you mentioned, around the economic outlook. How do we think about sort of managing the resources? I know service is coming back. Is it time that headcount starts to decelerate on a sequential basis? Do you think that there's more work to be done there?

[Christian Wetherbee, Managing Director, Transportation Research Analyst at Citigroup]

Like, conceptually, how do you think about that fits in and what it maybe means to profitability in the back half of the year?

[Joe Hinrichs, President and CEO at CSX Corporation]

Thanks, Chris. It's Joe. I think at a high level, we've noted some of the things that won't repeat from last year's second half, as you referenced, but we're really focused on getting our manpower levels up to continue to sustain the improved customer service levels that we've been delivering. You know, Jamie highlighted the triple play and compliance in the second quarter on 84%. We've been in the 80s now pretty regularly since November of last year, and that's really resonating with our customers. We're watching very carefully what's happening with the volume, and we have a mixed kind of market out there. Kevin highlighted, we've seen growth in metals, and automotive, and other parts of our business. Intermodal's been softer, as we highlighted, and chemicals, you know, a little down. You know, we'll see when that turns.

[Joe Hinrichs, President and CEO at CSX Corporation]

Generally speaking, our volume's been holding up on the merchandise side. We've been growing merchandise business. We're watching the volumes very carefully and making sure that we have the staffing levels to support sustained high levels of customer service. The reason why it's so important is that Kevin and his team have really started to have some really good conversations with our customers. We gained share in the first half of the year, and that picked up momentum in the second quarter. We're having very good conversations with our customers now that we're sustaining these higher levels of service, and as Jamie noted, we want to continue to improve. Our focus is really on making sure we have the manpower to be able to sustain that.

[Joe Hinrichs, President and CEO at CSX Corporation]

Also, at the same time, of course, if we see volume reductions further than what we're seeing right now, then we'll respond accordingly. Right now, the volumes that we're seeing are supporting with merchandise volume growth and our high levels of service.

[Operator]

Your next question comes from the line of Jonathan Chappell with Evercore. Your line is now open.

[Jonathan Chappell, Senior Managing Director, Equity Research Analyst at Evercore ISI]

Thank you. Good afternoon. Sean, I wanted to ask you about the productivity improvements in the first quarter. You said $15 million-$20 million, you said more than $20 million in the second quarter. I think the plan was to eventually get to $30 million. I guess the question is essentially, do you get to $30 million, you know, by the back half of this year as a quarterly run rate? Kind of, you know, along the lines of Chris's question, if the volume environment is a bit softer than you had anticipated six months ago, could that $30 million even become greater as you think about 2H 2023?

[Sean Pelkey, EVP and CFO at CSX Corporation]

Thanks, John, for your question. Yep, your recollection is right in terms of what we said first quarter. Yes, we are building some momentum with $20 million, a little over $20 million of what I would call sort of fluidity-related savings year-over-year. Just to be clear, we aren't really counting sort of changes in volume in that number up or down, if there's costs related to that. This is sort of independent of that. This is things like cycling the cars faster and reducing costs related to that, reducing overtime, things along those lines. We do have line of sight to that number continuing to increase over the balance of the year, we should be in that $30 million-$40 million range in the second half of the year, is our plan.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Especially as we get out of summer here and labor availability starts to pick up, we get some more employees out of training. We feel pretty good about what that's gonna set us up for in the second half of the year.

[Operator]

Your next question comes from the line of Brandon Oglenski with Barclays. Your line is now open.

[Brandon Oglenski, Managing Director at Barclays]

Hey, good afternoon, and thanks for taking my question. Kevin, I was wondering if you could follow up on, you know, the commentary around merchandise pricing, reflecting, you know, service and the higher inflationary environment, but maybe, you know, contrasting that with the loss, you know, coal revenue and intermodal surcharges, if you could.

[Sean Pelkey, EVP and CFO at CSX Corporation]

I mean, when you look at our coal market, particularly the export market, it moves with the benchmark prices. That's something that, as a swing producer, keeps the, you know, the producers here in the U.S. in the market, and it's worked very, very well, and it's a great mechanism. We participate, obviously, when the pricing is very good, when it remains very, very supportive. We just had extraordinary prices last year that nobody expected would continue, but again, we participated in that. When we look across the rest of our portfolio, particularly on the merchandise side, it remains supportive of the inflationary environment out there.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Our customers are getting priced in the market, and they're not surprised that our ability to go and have those discussions are similar to what they're having with their customers. You know, the alignment is there. Certainly, I think the market would be, people are looking for inflation to come down a little bit, and we'll see how the market continues. Market, from a pricing perspective, both in merchandise and maybe a little bit less so in the spot market on the intermodal side, a little, you know, obviously, that's been a little bit softer, but still very healthy and will carry forward in the next year.

[Operator]

Your next question comes from the line of Scott Group with Wolfe Research. Your line is open.

[Scott Group, Managing Director at Wolfe Research]

Hey, thanks. Afternoon, guys. Sorry about my voice. Hopefully, you can hear me. The coal RPU guidance was helpful. How should we think about the fuel impact in the third quarter? What are the other puts and takes as I think about operating ratio, profit, Q2 to Q3? Just, like, bigger picture, it feels like there's still a pretty big gap between underlying pricing and some really elevated inflation. Like, when does that normalize in your mind?

[Sean Pelkey, EVP and CFO at CSX Corporation]

Scott, it's Sean. yeah, in terms of Q3 versus Q2, I mean, I think step back just a minute and think about what are we ultimately trying to achieve here. you know, we've got a service product that's, you know, that's well in excess of where it's been, certainly one of the best, if not the best in the industry. that's ultimately gonna translate into the ability to win business off the highway. We're seeing those. We're seeing a number of those opportunities present themselves. Over time, that's gonna have a really positive impact, not just on margins, but also on obviously being able to grow the top and bottom line of the company.

[Sean Pelkey, EVP and CFO at CSX Corporation]

When we look at the third quarter, specifically relative to the second, we've got the headwinds that Kevin talked about on coal pricing. We've had positive fuel lag all year long. We're seeing fuel prices settle a little bit here, so that could be a little bit of a headwind into the third quarter. Then, as I mentioned, we've got the union wage rate increases of 4%, so that'll add some costs. In terms of the second half of your question, the gap between pricing and inflation, you know, we're seeing mid-single digit inflation across both labor and fringe, and purchase services and other. That's gonna persist here for the balance of the year.

[Sean Pelkey, EVP and CFO at CSX Corporation]

We've got clean line of sight into the labor line, and most of the PS&O is essentially set for the year, from a rate perspective. I would also say, and Kevin can chime in if there's additional info, but I think most of the pricing for the year has been done. We'll start to get into pricing for next year as we get towards the end of the year. So far, conversations have been continue to be very supportive. Yeah, I think that's right. We've seen pricing reflect the inflationary environment, and there's multi-year contracts that, you know, we'll still have to touch at the back half of this year that, you know, probably need a little bit of catch-up.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Beyond that, I think it's well in line with what the inflationary market is out there, particularly on the merchandise business today.

[Operator]

Your next question comes from the line of Ken Hoexter with Bank of America. Your line is open.

[Ken Hoexter, Managing Director and Senior Research Analyst at Bank of America Securities]

Hey, great, good afternoon. Just to understand this environment, Joe, or maybe Kevin, as you move into the third quarter, you're still targeting low single-digit revenue ton mile growth. I guess you're running about 2% or so year-to-date. Do you think that moves negative based on the current weak volumes that we're seeing, you know, so far right now? If we do get that weak environment that we're talking about, you know, can you still improve operating ratio as we move into the third quarter, if you're looking at revenue, stay above a cost of inflation? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

I think, Ken, you'll remember, you know, I think as you move into the back half of the year, as you enter into the fourth quarter, we're also going to lap a lot easier comps, whether it's the international intermodal market or some of the markets that we saw some order softness begin in September and really carry through to the fourth quarter. I would say, you know, things will probably trend positively through the quarter, which will be helpful from a revenue RTM growth perspective. Coal is a dynamic market right now. Look, you know, two weeks, three weeks ago, before this hot summer started, probably a little bit lower outlook for our domestic coal business.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Just recently, we're getting a lot more interest and a lot more inbounds on, you know, what we can do, given some of the heat waves we're having. In fact, I think we got a heat warning here in Jacksonville this afternoon. Things have been hot. Obviously, that's supportive of that market, and so things can change, are very dynamic and can change quickly. The destocking, you know, I think I mentioned it in my prepared remarks. We've seen destocking for a while in some of these markets. I can't call the month or the quarter of when that stops, but there's many markets right now where we're underrunning, I think the demand that's out there in the business.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Once that normalizes to the underlying demand in the economy, I think that's an opportunity for us too. You know, I'm hopeful that as we move into the fourth quarter, we'll see some of those dynamics play out. As Joe pointed out, there's, you know, the team has been doing a fantastic job, and some of the efforts and some of the collaboration that we've had with Jamie and his team on the operations side is resulting in wins. Those start to layer in as we move through the year and then into next year, and you'll start to see that in our business as well.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Yeah, Ken, just on the second part of your question, you know, I think the commentary you heard from Kevin suggests, you know, we're not calling a pullback in volumes. To the extent that the macro presents something like that, there's things that we can do, there's levers that we can pull. You know, certainly, we would look to do that, but not to jeopardize, you know, the ability to continue to gain momentum and gain share off of the truck, which is the ultimate goal here, to kind of grow the pie and grow our profitability.

[Operator]

Your next question comes from the line of Brian Ossenbeck with J.P. Morgan. Your line is now open.

[Brian Ossenbeck, Managing Director and Senior Equity Research Analyst at J.P. Morgan]

Hey, thanks. Good afternoon. Maybe just on the topic of truckload conversion, it's been mentioned several times on the call. Obviously, it's a big opportunity, but can you give us any context in terms of the wins you're getting or you have line of sight to, would be able to quantify that, you know, at some point in time? Because clearly you're making the long-term decision to go after that, and sounds like you're getting some, but it's hard to say what relative size that could be. Then, Sean, if you could just clarify cost per employee that we should expect for the next quarter. I know payments go up or the wages go up another 4%, but you got mix over time, a few other things in there as well. It'd be helpful if you can clarify that too.

[Brian Ossenbeck, Managing Director and Senior Equity Research Analyst at J.P. Morgan]

Thank you.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

I think, in terms of numbers, we'll probably put a finer point on the truck conversion opportunity over the next three years at a sometime in the future. There's a huge focus by the team to really look at our pipeline and measure it and focus on those customers where there's an opportunity. Some customers have a lot more opportunities than others, and making sure we have the resources up against those customers to really drive that conversion. A lot of activity. We have a lot of new tools internally that we're focused on in terms of measuring that. Our data is getting better and better every day, and there's a lot of momentum. As I mentioned, our pipeline, as we measure it on a year-over-year basis, is up significantly, up 30%.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

In a dollar volume perspective, it's up even more than that. A lot of momentum building. Obviously, the trucking market is not the most receptive market to compete against right now. You know, hopefully, there's some optimism that's firming up here, and that will even drive more opportunities as we work with customers over the next few months to drive more opportunities. You know, we're upwards of 25 whiteboarding sessions year to date, and those are driving a lot of opportunities. They don't necessarily come to fruition, you know, tomorrow, but over the next couple of quarters, we think those are going to translate into a lot of opportunities to shift share from truck as well. Teams are very, very excited.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

I don't think we've had this much momentum in terms of the things that we can control going forward. It's just, you know, some of these markets obviously are against us right now. Over to you, Sean.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Yeah, thanks. In terms of cost per employee, it should be fairly stable other than the 4% wage increase on the union piece. I think there are some opportunities to drive, you know, some efficiencies there, so we'd hope to do better than a 4% increase from the first half to the second half, but we'll certainly feel the impact of higher wages.

[Operator]

Your next question comes from the line of Justin Long with Stephens. Your line is open.

[Justin Long, Managing Director at Stephens]

Thanks. I wanted to ask about intermodal, because there's a big divergence between the domestic intermodal and international intermodal volume trends. I was wondering if you could share how those numbers compared in the second quarter? Looking into the back half-

[Justin Long, Managing Director at Stephens]

... Around your comment about the domestic intermodal market gaining momentum, is that a function of demand getting better, or your expectation for business wins starting to kick in? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

I think when you look at the second quarter, think about the international market being down in that high teens range. You know, we probably, from a bottom perspective, peaked at down, you know, in that mid-20s, and it's improved slightly from there. Our exit rate's a little bit better than what we saw middle of the quarter. What we saw through the quarter on the domestic side is sequential improvement month-over-month or on a year-over-year basis each month as we get moved through the quarter, so that gives us the optimism there. The team has done, quite frankly, a fantastic job of introducing some new lanes, working with some of our Class I partners to do that and identify new business, and some of those things are really playing out.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Some of our partners have done really, really well in the market, despite some of the, obviously, headwinds there, so working with them, identifying markets, where we, have some opportunities. You know, in these kind of markets, it gives you more flexibility to go out there and look at things, look at your network, identify opportunities, try things out that, work, you know, may work, and really go after it. That's what the team has been using, the softness in the market to go and do, and set us up for, growth, as the market rebounds. You know, I think you're starting to see that in the numbers here.

[Operator]

Your next question comes from the line of Tom Wadewitz with UBS. Your line is now open.

[Tom Wadewitz, Managing Director, US Transportation Research at UBS]

Yeah, great. Good afternoon. Appreciate it. I know you've got a lot of questions, Kevin, on volume, and maybe there's not. You know, tough to have a clear crystal ball in this type of environment. I guess, how do you think about the kind of, you know, you've got good momentum with the service, good discussions with customers, you know, you're talking about the pipeline is good. If we see some improvement, get beyond inventory reduction, you know, just see a bit of improvement in demand, do you think you're gonna see maybe a bigger cyclical swing up and maybe more evidence of, you know, some of that truck conversion coming through?

[Tom Wadewitz, Managing Director, US Transportation Research at UBS]

I guess I'm just trying to think about, we know it's a tough rate backdrop, you know, How do these things translate when you see some improvement in markets? Is it, you know, mid-single digit volumes higher? How do you think about that potential framework, you know, maybe looking out a little ways?

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Yeah. I probably won't put numbers around it, but there's a reason we're hiring. You know, we see all the things that we can control internally, setting us up nicely for when the markets rebound. Yeah, I think, you know, the combination of markets returning at least to what some of, you know, in some cases, just the current demand levels, is gonna create a lot of leverage in our business to do that. I think you'll see some of these businesses where we're having discussions around truck conversion as that market firms up more willing to move that freight back over to rail or move it to rail for the first time. It's, you know, the pipeline takes a while to build up.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

It's been, you know, as Joe was pointing out earlier, it's been about nine months since we've seen that real improvement. The customers are reacting to it, some sooner than others. Yeah, that's the idea of all these investments, obviously, will help us participate when that cyclical upside starts to occur.

[Operator]

Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Your line is open.

[Fadi Chamoun, Managing Director and Senior Equity Research Analyst at BMO Capital Markets]

Yes. Thank you. My question is on the service level, like, you know, obviously, you have done a great job in rebuilding the service, and, you know, doing a pretty comprehensive work on building the culture to sustain that longer term. But, you know, as we know, like, you know, some of the service issues we saw in the last 2, 3 years weren't all rail related. You had obviously, a lot of friction coming to you from outside of your own network. I'm just wondering, how are you kind of thinking about some of these problems that are affecting your service from outside your network?

[Fadi Chamoun, Managing Director and Senior Equity Research Analyst at BMO Capital Markets]

Do some of these partnerships that Kevin talked about try to kind of iron out some of these friction areas that you see in the supply chain, or are there opportunities to kind of, you know, build a service level that can be sustained even as demand comes back, which is historically have been a challenge to service levels?

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Yeah, thanks for the question. This is Joe. You know, you're right. You know, over the last several years, supply chain across the globe was challenged, and we certainly felt the effects of some of that. We got some benefits from that on the supplemental revenue side of things, because things were gummed up in storage. Generally speaking, from a customer standpoint, it definitely impacted everyone. As we've noted in the past, around 40% of what we moved on the carload side touches another rail provider, so interchanges are important, and the overall service levels of the partners we have across the Class I rails is really important.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

If you think about going forward, the ports aren't congested as much as they were, we don't have a lot of the network all gummed up in the intermodal facilities and et cetera, we should be able to run more fluidly when the market comes back on the intermodal side, especially. I think from a customer perspective. The things that have calmed down, help. As our Class I rail partners continue to improve their service, the collective service that we give to the customer holistically will improve as well, which that's an opportunity for the whole industry going forward. That's the way we're thinking about it.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

We can control our piece of it, and we wanna keep getting better and more repeatable and more predictable, and also working with our other Class I rail partners to do the same. At the same time, the other parts of the business have also freed up. As Kevin was alluding to, when that market comes back, we'll have the manpower levels, and we'll have the fluidity in our network, and the system overall should be able to handle it in a better way, which should be better for the overall economy.

[Operator]

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Your line is now open.

[Amit Mehrotra, Managing Director, Airfreight and Surface Transportation and Shipping at Deutsche Bank]

Hey, guys. Thanks for taking the question. Kevin, can you just talk about the direction of travel for non-coal yield? I just would've expected a little bit of a better performance in the 2nd quarter sequentially. I know there was a fuel headwind that's, you know, pretty severe incrementally. That fuel headwind kind of moderates in 3Q, so just wondering what the direction of travel on that is. Sean, you made some good progress on PS&O costs in the quarter relative to, I guess, that insurance gain-adjusted 1st quarter. I know you've got some, like, leases that are expiring around intermodal container storage yards and things like that in the back half. What's the right way to think about PS&O coming down in the back half relative to what you did in the 2nd quarter? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Obviously, you know, putting coal aside, obviously, that we've talked about on the international side, when you look at yields broadly, you know, there's always mix, right? When you look at our merchandise business in general, one of the markets we've highlighted as obviously under cyclical pressure right now is the chemical market, which typically has a higher RPU. That's weighed on the overall, you know, benefit you've seen from the merchandise side, and, you know, there's a lot of moving parts within it. If you look at what we were able to achieve within the individual markets, it was, you know, quite healthy, I think, despite some of the fuel surcharge headwinds that you saw.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

The intermodal market obviously is unique, given some of the challenges on the truck and what we have to do there, particularly on the spot market. Again, fuel surcharge is a much larger impact there, and, you know, absent that, you saw a flattish type RPU, and that was mainly impacted by some of our longer term contracts obviously had positive rate. On the flip side, some of the spot markets saw some significant down rate along with the, with the truck. The market held in obviously a lot better than some of the trucking rates out there and what the markets do there.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Overall, I was very pleased, and some of the MPA results, as we measure it, are some of the highest results that we've seen in a long time, if you look broadly across the markets.

[Sean Pelkey, EVP and CFO at CSX Corporation]

Amit, your question.

[Amit Mehrotra, Managing Director, Airfreight and Surface Transportation and Shipping at Deutsche Bank]

Sure

[Sean Pelkey, EVP and CFO at CSX Corporation]

... on PS&O, you know, I'm always hesitant to predict that line 'cause there's a number of different puts and takes within it that can impact the quarter. I will say that we are you know, we're focused on cost control, and we're making sure that we've got only the costs that are necessary in order to move the volume. You know, to the extent that intermodal volumes pick up a little bit, that'll have an impact on PS&O costs. Outside of volume-related expenses, I would fully expect that we'd be able to kind of hold the line on the improvement that you saw in the second quarter in PS&O going forward.

[Sean Pelkey, EVP and CFO at CSX Corporation]

If you look at it on a year-over-year basis for the second half, that means, you know, we'll probably be able to absorb most of the inflationary impact in the second half, notwithstanding any sort of volume-related impacts that we might see.

[Operator]

Your next question comes from the line of David Vernon with Sanford Bernstein. Your line is now open.

[David Vernon, Senior Analyst at Sanford C. Bernstein & Co.]

Good afternoon, guys. Thanks for the call, and thanks for taking the question. Kevin, just to kind of dig into that, the mid-teens guidance for RPU sequentially, does that kind of bring us to mark-to-market for 225? Then, you know, how do we think about it, the sensitivity? Can we extrapolate that sensitivity going forward if we're gonna expect sort of benchmark pricing to either go up or down, is that a good way to think about the sensitivity on further price changes? 'Cause 225, we're still call it $75 above the long-run average in the prior decade.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Yeah, I think that's fair. Obviously, there's bottoms, right? There's, you know, we protect ourselves both on the bottom, and then on the top end, we don't participate in some of the extreme cases. I think that's fair. $225 is kind of embedded in what we're coming into the quarter. We've seen a little bit of positive uplift in that, even as recently as the last couple of days. We'll see where that trends. We've seen a lot of stability, if not a little slight uptick in that market here recently, and we'll see what the fourth quarter brings.

[Operator]

Your next question comes from the line of Jordan Alliger with Goldman Sachs. Your line is now open.

[Paul Stoddard, Senior Analyst at Goldman Sachs]

Hi, this is Paul Stoddard on for Jordan. I guess with the recent agreement on the West Coast for the longshoremen, there's some anticipation that there could be some more freight being diverted back to the West Coast. I guess, how are you thinking about that in terms of international intermodal long term, and do you think that's going to be offset by domestic intermodal? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

You know, I think the long-term trend, if you just go to Charleston, you go to Savannah, and you look at all the investments being made, there's a long-term growth opportunity on the East Coast. You'll continue to see outgrowth in the East Coast, which we'll continue to serve and benefit from. Some stability on the West Coast is going to be helpful. As you know, a lot of our international business still comes across the West through Chicago and other interchange points. Unfortunately, a lot of that volume, given some of the congestion on the West, was either trucked and we didn't see that volume.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

As that, we should benefit from a recovery there, so I don't see it as necessarily taking share away from what we're doing in the East, more as something that, if, you know, obviously, if the rails in the West begin to perform better on a year-over-year basis, will benefit the Eastern network and some of that traffic coming to us.

[Operator]

Your next question comes from the line of Allison Poliniak with Wells Fargo.

[Allison Poliniak-Cusic, Director and Senior Equity Analyst at Wells Fargo Securities]

Hi, good evening.

[Operator]

Your line is now open.

[Allison Poliniak-Cusic, Director and Senior Equity Analyst at Wells Fargo Securities]

Hi, good evening. Just want to go back to Brian's question on modal conversion. When you talk to customers that aren't quite ready to convert yet, is it simply price that's holding them back, or is there something from a service perspective that they're looking for you to provide that's just not quite there yet? Just any thoughts on that? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Well, okay, you know, I think the most important thing for a customer is reliability, right? You know, in some customers' eyes, they want to see more of that reliability. They like what they see today. We've got to continue to perform and have those conversations, sometimes it's lane by lane, it's carload by carload, where we get that confidence from a customer. We're in the very early innings of this, we feel the acceleration from first quarter to second quarter, I expect those conversations to pick up even more in the third and fourth quarters as we continue to perform. Sharing what we're doing on the hiring side is incredibly helpful.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Sharing with them what we plan to do to make our network more resilient, it's winning their confidence, but that's the number one issue. It's not price. 99% of the time, we have a pricing advantage versus our truck competitor. That's the opportunity for us. We have the environmental advantages, so we have all these things, we just got to get the reliability and prove that reliability is sustainable.

[Operator]

As a reminder, if you would like to ask a question, press star, followed by 1 on your telephone keypad. Your next question comes from the line of Walter Spracklin with RBC Capital Markets. Your line is open.

[Walter Spracklin, Managing Director, Equity Research Analyst at RBC Capital Markets]

Yeah. Thanks very much, operator. I just wanted to shift focus from the pipeline looks really good, Kevin, and presumably, that's merchandise-based mainly. Looking into 2024 on some of your bulk areas, and in particular, ag and coal, I know the EIA has just revised downward its forecast for next year by quite a bit. And then on the ag side, grain, looks like there's some severe drought conditions forming that's going to impact the current growing season. Looking into 2024, I mean, that suggests that we could be bracing for some down double-digit volume growth in those two categories. Is there any offsets there that you would flag for next year that would offset some of those fairly negative forecasts for those two particular commodities?

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Well, a really hot summer certainly doesn't hurt. That's what we're in the middle of. Obviously, from a coal perspective, and you know, you're referencing mainly the domestic side, that's obviously dependent on the weather conditions, and the weather, I think is a surprise, from a heat perspective to the upside here over the last few weeks. We're seeing that with a lot of our customers running full out here and depleting, seeing some of the inventory levels. We'll see how the winter plays out. I think it's really, really early in July to call 2024. That seems a bit premature to me. We see a very healthy export market as well.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

Obviously, that's driven by global macro conditions, but, you know, we have new supply coming online that will ramp up next year. That supply is going to land in the market. It's very competitive in the market, and we expect to participate in it. Many of the mines that we serve, are going to be in the market, almost no matter what conditions. We see the volume there, sustainable. On the ag side, I, you know, again, I've, you know, I've followed the markets for a long time. I think July is a little bit premature as well. It has been hot out there. We'll see how the market firms up here, but there's a lot of moving parts.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

We're seeing a little bit of weakness here in the third quarter, but we see some good indications into the fourth. We'll see how that trends, and we'll watch the crop conditions as you are, see how that moves into the back half of the year. Obviously, we don't have as large of a franchise on that side as some of the other railroads, particularly in the West, from an export perspective, a little less exposure.

[Operator]

Your next question comes from the line of Jason Seidl with TD Cowen. Your line is open.

[Elliot Alper, VP at TD Cowen]

Great. Thank you. This is Elliot Alper for Jason. On the international and intermodal side, last quarter, you talked about how some of your larger customers were expecting a pickup in the back half of the year. I guess, what have your customers said that has changed over the past three months that has resulted in no inflection yet? Maybe, there's been any change in view into peak season? Thanks.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

I wouldn't read any of our comments that there's been any type of inflection down. We're just, you know, I don't think there's. We're seeing in real time an inflection up in the market. I mentioned earlier, in the fourth quarter, we obviously start to lap a lot easier comps on a year-over-year basis. I think, you know, from an overall growth perspective, fourth quarter will be a much easier comp than what we've seen throughout the year, and hopefully, that momentum will carry into the next year. There's no indications that the market is necessarily picking up. I think we bottomed from that perspective.

[Kevin Boone, EVP of Sales and Marketing at CSX Corporation]

The question is, how quickly the market recovers, and that will be heavily relying on the consumer and how that pans out into the holiday season going forward.

[Operator]

Ladies and gentlemen, this concludes our Q&A session for today and today's conference call. Thank you for attending. You may now disconnect.

Participants

Executives

• Jamie Boychuk, EVP of Operations
• Joe Hinrichs, President and CEO
• Kevin Boone, EVP of Sales and Marketing
• Matthew Korn, Head of Investor Relations
• Sean Pelkey, EVP and CFO

Analysts

• Allison Poliniak-Cusic, Director and Senior Equity Analyst at Wells Fargo Securities
• Amit Mehrotra, Managing Director, Airfreight and Surface Transportation and Shipping at Deutsche Bank
• Brandon Oglenski, Managing Director at Barclays
• Brian Ossenbeck, Managing Director and Senior Equity Research Analyst at J.P. Morgan
• Christian Wetherbee, Managing Director, Transportation Research Analyst at Citigroup
• David Vernon, Senior Analyst at Sanford C. Bernstein & Co.
• Elliot Alper, VP at TD Cowen
• Fadi Chamoun, Managing Director and Senior Equity Research Analyst at BMO Capital Markets
• Jonathan Chappell, Senior Managing Director, Equity Research Analyst at Evercore ISI
• Justin Long, Managing Director at Stephens
• Ken Hoexter, Managing Director and Senior Research Analyst at Bank of America Securities
• Paul Stoddard, Senior Analyst at Goldman Sachs
• Scott Group, Managing Director at Wolfe Research
• Tom Wadewitz, Managing Director, US Transportation Research at UBS
• Walter Spracklin, Managing Director, Equity Research Analyst at RBC Capital Markets