CSX Q2 Deep Dive: Service Recovery and Network Upgrades Drive Sequential Improvement

Freight rail services provider CSX (NASDAQ:CSX) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 3.4% year on year to $3.57 billion. Its non-GAAP profit of $0.44 per share was 6% above analysts’ consensus estimates.

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StockStory’s Take

CSX’s second quarter results were met with a positive market response, reflecting operational improvements and cost control after a challenging start to the year. Management attributed the quarter’s recovery to decisive actions that improved network velocity and reduced disruptions, with CEO Joe Hinrichs highlighting that “the momentum behind [the results] is a result of deliberate and effective actions taken to return our network back to the efficient, well-run operation needed.” Upgrades in train handling, cost reductions, and progress on major infrastructure projects contributed to the sequential rebound, even as overall sales volumes remained flat and certain segments, such as coal, continued to face pricing headwinds.

Looking ahead, CSX’s forward strategy centers on completing key network projects and capitalizing on improved service levels to drive volume growth and margin expansion. Management pointed to the upcoming completion of the Howard Street Tunnel and Blue Ridge subdivision projects as critical to unlocking route capacity and enabling double-stack intermodal service, which CEO Joe Hinrichs described as “a valuable investment that will open the CSX network to new markets and drive incremental growth opportunities.” The company also aims to benefit from cost efficiencies, proactive customer engagement, and a robust pipeline of industrial development projects, while remaining cautious about persistent market uncertainties and tariff impacts.

Key Insights from Management’s Remarks

Management credited the quarter’s operational turnaround to actions addressing network disruptions, enhanced employee productivity, and ongoing infrastructure investments.

• Service recovery and network fluidity: CSX’s operations team prioritized reducing cars online and improving mainline fluidity, using targeted locomotive deployment and round-the-clock oversight, which led to improved train velocity and dwell times. EVP and COO Mike Cory emphasized that these measures restored “network performance…approaching or surpassing some of the best levels we’ve seen in recent history.”
• Cost efficiency initiatives: The company implemented management reorganizations and workforce adjustments, aiming for a 5% efficiency gain across business segments. CFO Sean Pelkey noted that, despite a higher workload, overtime expenses fell by over 15% during the quarter, and CSX expects annualized savings of approximately $30 million from these changes.
• Progress on infrastructure projects: Major projects such as the Howard Street Tunnel and Blue Ridge subdivision are on track for completion in the fourth quarter. These upgrades are expected to remove key capacity constraints, with double-stack clearance on the I-95 corridor forecasted for mid-2026, allowing CSX to compete for new intermodal business.
• Mixed market demand: EVP and Chief Commercial Officer Kevin Boone highlighted varying trends across segments; while minerals and grain saw growth due to infrastructure demand and strong grain flows, other areas—like automotive, forest products, and chemicals—were impacted by production issues, plant outages, and sluggish housing markets.
• Coal and intermodal segment dynamics: The coal business faced lower global benchmark prices and export headwinds, with domestic utility coal supported by higher power demand. Intermodal volumes improved, aided by international shipments ahead of tariff changes, but domestic growth remained challenged by a soft trucking market.

Drivers of Future Performance

CSX’s near-term outlook is shaped by infrastructure upgrades, anticipated volume improvements, and cost discipline amid ongoing market uncertainty.

• Network expansion and project completion: The completion of the Howard Street Tunnel and Blue Ridge subdivision projects in the fourth quarter is expected to unlock capacity, enhance service reliability, and enable double-stack intermodal service on key routes, which management believes will drive incremental volume growth in 2026.
• Efficiency gains and cost management: Management plans to sustain labor productivity improvements and target additional savings through technology investments and structural changes. However, wage increases and restructuring charges in the next quarter may temporarily offset these gains.
• Market and segment risks: The company remains cautious about continued pricing pressure in coal, soft demand in automotive and housing-linked segments, and uncertainties tied to tariffs and global trade. Management identified easier year-over-year comparisons and a robust industrial development pipeline as potential contributors to future growth, but noted that market headwinds could persist.

Catalysts in Upcoming Quarters

In coming quarters, StockStory analysts will watch (1) the timely completion and integration of the Howard Street Tunnel and Blue Ridge subdivision projects, (2) progress in converting industrial development pipeline projects into new volume, and (3) signs of margin stabilization or improvement despite labor and inflationary pressures. Additionally, we will monitor whether gains in service reliability translate into sustainable growth across challenged segments such as automotive, chemicals, and coal.

CSX currently trades at $35.34, up from $34.95 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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