CSX Corp (CSX) Q4 2025 earnings review
Operational Efficiency Returns, But Revenue Lags
CSX closed FY25 with a mixed narrative: operational metrics have surged back to peak levels (Velocity +7%, Dwell -13%), but top-line revenue remains constrained (-1% YoY) by weak industrial demand and falling coal prices. While Volume flipped to positive (+1%), pricing power was blunted by lower fuel surcharges and export coal benchmarks. Management's narrative pivots entirely to FY26, framing it as a year of 'double-digit' earnings recovery driven by the non-recurrence of ~$100M in network disruption costs and the completion of the Howard Street Tunnel project.
🐂 Bull Case
FY25 results were weighed down by ~$120M+ in disruption costs (weather, bridge collapses, project reroutes). Management confirmed ~$100M of this will not repeat in FY26, creating an automatic tailwind for margins and EPS.
Operational turnaround is confirmed. Train velocity hit 19.6 mph (+7% YoY) and dwell dropped to 9.8 hours (-13% YoY). This improved asset utilization lowers operating costs and typically precedes volume recapture.
🐻 Bear Case
Core industrial segments are shrinking. Merchandise volume fell 2% in Q4, with high-margin Chemicals (-6%) and Automotive (-5%) leading the decline due to production cuts and parts shortages.
Despite a 1% volume increase in Coal, revenue fell 5%. The collapse in export benchmarks continues to pressure RPU (Revenue Per Unit), preventing volume gains from translating into top-line growth.
⚖️ Verdict: ⚪
Neutral. The operational fix is real and the cost-save story for FY26 is credible. However, organic revenue growth is absent. Until Merchandise volumes turn positive, the upside is limited to cost-cutting mechanics rather than demand-driven growth.
Key Themes
Intermodal Acceleration via Howard Street Tunnel
Intermodal is accelerating, with volumes up 5% in Q4 (vs +2% in Q3). The completion of the Howard Street Tunnel (Q4 25) is a major structural catalyst. Starting 2026, this enables double-stack rail clearance into the Northeast, unlocking significant capacity and competitiveness against trucks along the I-95 corridor.
Operational Velocity Surge
Management's 'back to basics' focus has paid off. Metrics have moved from deterioration to significant improvement over the fiscal year. Higher velocity and lower dwell allow CSX to move the same freight with fewer assets (locomotives/cars), directly supporting margin expansion in FY26.
Industrial Demand Softness
The macro environment remains a headwind. Chemicals volume dropped 6% (vs -7% in Q3) due to plant closures and lower plastics shipments. Forest Products fell 11% (accelerating from -7% in Q3). This suggests destocking or demand destruction in the industrial economy is not yet over.
Coal Revenue disconnect
A negative mix shift is occurring in Coal. While domestic utility coal volume is holding up (driving total coal volume +1%), the revenue is down 5%. This is driven by lower export coal benchmark rates and lower fuel surcharges, creating a drag on yield that volume growth cannot offset.
Cost Rationalization & One-Time Charges
Q4 included $50M in severance and technology rationalization expenses ($0.02 EPS impact). This continues a theme of 'cleaning up' the cost structure (following a $164M goodwill impairment in Q3). While these hurt reported GAAP numbers, they signal an aggressive push to lower the fixed cost base for FY26.
Minerals Segment Strength
Accelerating. Minerals volume grew 6% and revenue jumped 10% in Q4, driven by aggregates and cement. This segment has been a consistent outlier of strength, benefiting from infrastructure spending, contrasting sharply with the broader industrial decline.
Other KPIs
Stable. Up slightly from 31.3% reported a year ago, though down vs the adjusted 34.3% in 24Q4. The sequential improvement from Q1 (30.4%) demonstrates the impact of operational fixes, though inflation in Labor (+6%) and Purchased Services (+6%) remains a pressure point.
Decelerating. Down significantly from $2.78B in FY24. The decline is driven by lower net earnings and a spike in Property Additions (CapEx) to $2.9B (vs $2.5B in FY24), largely due to the heavy investment year for the Howard Street Tunnel and hurricane rebuilds.
Decelerating. Revenue fell 3% for the full year. The trend did improve slightly throughout the year (-7% in Q1 to -1% in Q4), but the lack of a pivot to positive growth remains the primary overhang on the stock.
Guidance
Accelerating. Management qualitative guidance points to 'improved financial performance.' In the call, CFO Sean Pelkey indicated that the removal of disruption costs ($120M+) and easy comps should support 'double digit' earnings growth. This implies a sharp acceleration from the -14% EPS decline seen in FY25.
Decelerating. With major projects (Howard St Tunnel, Blue Ridge) completing in late 2025, capital intensity is expected to moderate. CFO confirmed no new major construction projects for 2026, which should aid Free Cash Flow conversion.
Key Questions
Merchandise Volume Recovery
Chemicals and Automotive volumes accelerated their decline in Q4 (-6% and -5%). What specific leading indicators in customer orders give you confidence these high-margin segments will stabilize in H1 2026?
Operating Leverage in FY26
With $100M+ of disruption costs falling off, what is the target incremental margin for FY26? Should we expect to return to the mid-30s Operating Margin range immediately in Q1?
Coal Pricing Outlook
Coal volume grew in Q4 but revenue fell 5%. Do you expect the export benchmark headwinds to persist through FY26, or have we reached a pricing floor?