CSX Corp (NASDAQ:CSX) Q4 2019 Earnings Conference Call - Final Transcript
Jan 16, 2020 • 04:30 pm ET
James M. Foote
the first half of 2019, but we expect merchandise volume growth to turn positive in the second half of the year. We expect intermodal volumes to increase in 2020 as we have now fully lapped the lane rationalization impact and look to grow the re-engineered network. As to the operating ratio, our goal is to operate as efficiently as possible while ensuring we maintain our reliable service product. Our focus is on growing the business and in that context, we are targeting cost efficiencies that will not inhibit service. There are additional cost levers out there for us to pull, but we must make sure we are well positioned to capture new business and respond to demand when industrial production moves up.
Looking at the 2019 operating ratio results, we again outperformed our real estate target of approximately $100 million a year. Adjusting for this outperformance implies a baseline operating ratio of 59%. Despite roughly $300 million of operating income headwinds in 2020 related to export coal and non-core items such as lower real estate gains, higher depreciation and lower other revenue, we still expect to realize enough incremental savings across the business to maintain or hopefully, even improve our margins.
For capital allocation, our first call on cash is maintaining the integrity and reliability of our railroad. As Kevin noted in 2019, we again significantly increased investments in rail infrastructure, spending more on rail, ties, ballasts and signals, and we expect to maintain this level of investment going forward. In total, we project capital expenditures for the year of $1.6 billion to $1.7 billion, in line with our 2019 targets. In the absence of any high return growth projects, we expect the next principal use of cash flow will be continued return of capital to shareholders through both dividends and additional share buybacks. Importantly, we are committing to doing so in a way that maintains our strong investment-grade credit rating.
Over the last two years, we have accomplished many exciting things at CSX and fundamentally transformed the way the Company does business. However, none of us are resting on that success. In fact, we have only scratched the surface of this Company's potential. I believe the best is yet to come for CSX as we continue our journey to be coming the best railroad in North America.
Thank you, Jim. In the interest of time, I would like to ask everyone to please limit themselves to one question and one follow-up only if necessary.
With that, we will now take questions.