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CSX (CSX +3%) is chugging along nicely today, rebounding off 2024 lows, following a mild Q2 earnings beat and in-line revenue growth. Volumes inched 2% higher yr/yr, somewhat decelerating from the +3% bump last quarter. However, given the slowdown within the intermodal industry alongside general sluggishness across the broader economy, CSX's numbers were sufficient to alleviate fears.

• Total revenue was flat yr/yr at $3.7 bln in Q2, a modest improvement over the (0.8)% decline last quarter. The 2% jump in volumes was supported by a 5% volume improvement in CSX's intermodal business, similar to Q1, when intermodal volumes jumped by 7% despite lackluster numbers posted by several intermodal trucking companies, like J.B. Hunt (JBHT) and Knight-Swift (KNX). Still, intermodal volumes remain muted due to the weakness across the trucking industry.
• Breaking down volumes by category, merchandise volumes ticked 1% higher yr/yr, helped by ramping business wins as well as positive market trends across certain industries, including chemicals, forest products, and agriculture. CSX anticipates these positive trends to persist throughout the year, with ag and food volumes accelerating over the next two quarters.
  • In coal, volumes slipped by 3% yr/yr, a deterioration from last quarter. Export coal volumes stood out, while domestic coal was tempered by low natural gas prices, shifting demand. However, CSX is optimistic coal is gaining support from increasing power consumption.
• Encouragingly, rail velocity increased yr/yr, reversing last quarter's minor drop. Not as uplifting, dwell time, a standard metric across the railroad industry as it measures the time a train is stopped to pick up cargo, increased compared to last quarter. Management noted that deploying tactics to reduce dwell was not positively impacting the customer and wasting engine resources. As such, CSX eliminated these handlings even though it caused dwell to pick up. Currently, CSX is exploring reducing dwell time without lowering the customer experience.
• Looking ahead, CSX expects total volumes to edge higher by a low to mid-single-digit percentage, aiding positive revenue growth during the back half of the year. Management anticipates profitability to continue as it maintains attractive pricing while benefiting from lower cost inflation.

CSX touched on several improving dynamics in Q2, setting up for a brighter second half of the year. Still, that does not mean that headwinds will not be pushing back. Intermodal volumes remain relatively subdued, and like its trucking counterparts, CSX is unsure when conditions will turn. However, the company was confident that international intermodal volumes were stabilizing while domestic intermodal volumes showed potential for improvement. While uncertainty may keep shares from experiencing a more robust recovery, CSX has, and continues to do plenty to ensure it is positioned to withstand a sluggish economy and pounce on reaccelerating economic growth through improved network service levels, a more precise railroad schedule, and ongoing efficiency enhancements.