CSX — Q3 2026 Financial Report Analysis

Overview

CSX, the freight railroad covering most of the eastern United States, earned $0.57 per diluted share in the third quarter of 2026, up 54% from $0.37 a year earlier, on record quarterly revenue of $4,017 million (+12%). About half of that EPS jump is a base effect: last year's quarter carried a one-off $164 million write-down of the Quality Carriers trucking business. Against last year's figures excluding that charge, EPS still rose about 30% ($0.57 vs. $0.44). The 10-Q says revenue grew "primarily due to increased fuel surcharge revenue as well as higher volume and pricing across merchandise, intermodal and coal," while total costs fell $53 million. The weak spot is service: by the company's own measures, trains ran slower, cars sat longer in yards and far fewer shipments arrived on schedule than a year earlier.

Key metrics

Operating ratio, in plain terms: railroads are usually judged on this number. It is operating expenses as a share of revenue, i.e. how many cents it costs to earn each dollar. Lower is better. It is the mirror image of operating margin (the share of revenue left after running the business, before interest and tax): 60.9% + 39.1% = 100%. The site's figures strip shows the 39.1% operating margin.

Nine months to September 30: revenue $11,434M (+8%), operating income $4,329M (+27%), operating margin 37.9% vs. 32.2% (operating ratio 62.1% vs. 67.8%), net income $2,861M (+32%), diluted EPS $1.54 vs. $1.16 (+33%; +26% against the adjusted $1.22).

Revenue by market

CSX's three main markets are merchandise (mixed carload freight such as chemicals, grain, cars and steel), intermodal (shipping containers and truck trailers carried on trains) and coal. Revenue per unit is the average revenue earned on each carload or container, and it includes fuel surcharges.

Intermodal again grew fastest. Revenue rose 20% on 7% more containers. The filing says domestic shipments grew "due to wins with key customers, new service offerings and a tightening truck environment," while international shipments "decreased slightly."

Merchandise revenue rose 11% on 3% more volume. Metals and equipment (+19% revenue; more steel, equipment and aluminum), chemicals (+13%; petcoke, waste, plastics and crude oil) and agricultural and food products (+13%; domestic and export grain and feed) led. Forest products volume rose 6%, helped by "a tighter trucking environment." Three groups shrank: fertilizers (volume −13%, because "higher input costs led to reduced fertilizer demand"), automotive (−2%, a customer plant outage for re-tooling, the same issue as in Q2) and minerals (−1%, less limestone).

Coal revenue rose 10% on 2% more volume. Export metallurgical coal (used in steelmaking) and export thermal coal (burned for power) grew, helped by re-opened mines. Domestic shipments to power plants fell.

Every market's revenue per unit rose 7% to 13%, much faster than costs other than fuel. The 10-Q doesn't break out how much of that is fuel surcharge versus underlying price, so the true price increase can't be separated from the diesel pass-through.

Where the costs went

Total expenses fell $53 million. Two large items cancelled out: fuel rose $170 million, and last year's $164 million goodwill write-down didn't recur. Line by line:

• Fuel +$170M (+60%), "mostly due to a 67% increase in locomotive fuel prices." Fuel efficiency improved 2%, to 0.92 gallons per 1,000 gross ton-miles.
• Purchased services and other −$73M (−10%). This line covers outside contractors and other operating costs. It includes $42 million of "efficiency savings, net of inflation," $27 million less spent on last year's network disruptions, rerouting and a technology contract restructuring, and $11 million of property-sale gains (vs. $7 million).
• Labor and fringe +$19M (+2%). Incentive pay rose $53 million "driven by higher expected payouts," and wage and healthcare inflation added $38 million. Lower headcount saved about $50 million, and last year's $22 million of severance didn't recur. CSX had about 21,900 employees, down from about 22,200 at the end of June.
• Depreciation −$11M, mainly from an equipment depreciation study that lengthened assumed asset lives. This is an accounting change, not a cash saving.
• Equipment and other rents +$6M, which the filing attributes to "longer merchandise cycle times and higher volume." In other words, slower service is starting to show up as a cost.

What the headline numbers hide

• The 54% EPS growth is flattered by last year's write-down. The 10-Q's own reconciliation puts last year's adjusted EPS at $0.44 (the $164 million non-cash Quality Carriers goodwill impairment was worth $124 million after tax, or $0.07 a share). Measured that way, EPS grew about 30% and operating income 25%. Both figures are strong; 54% is not the right comparison.
• Tax and buybacks did not inflate EPS. The effective tax rate rose to 24.0% from 22.7% (23.0% on the adjusted basis), a slight drag. Diluted shares fell 0.75%, to 1,853 million, so buybacks contributed less than one point of the EPS growth. Nearly all of it came from operating profit.
• Cash backs up the earnings. Nine-month operating cash flow was $4,216M against net income of $2,861M. Free cash flow before dividends (operating cash flow minus capital spending, plus property-sale proceeds) was $2,648M, versus $1,066M a year earlier. That implies about $1,031M in Q3 alone, using the $1,617M first-half figure. The year-ago comparison is distorted by a one-off: in 2025 CSX paid previously postponed taxes, and Blue Ridge rebuild spending was $440 million of last year's capital spending.
• Receivables are growing faster than they used to. Accounts receivable consumed $196 million of cash over nine months, versus $30 million a year ago. The filing says this is "commensurate with higher revenues," and it is consistent with 8% revenue growth, but it is worth watching.
• One-offs this quarter are small. Property-sale gains of $11 million and the depreciation study (−$11 million year over year) together are tiny relative to a $483 million rise in operating income.
• No guidance change. As in Q2, neither the 10-Q nor the earnings release gives a numerical revenue or earnings forecast. The only quantified forward figure is unchanged: 2026 capital spending "expected to be less than $2.4 billion."

Takeaway: The profit story is real even after removing last year's write-down: excluding fuel and the impairment, costs fell about 3% while CSX carried 4.7% more freight, and the operating ratio reached 60.9%. But that efficiency is coming with worse service: carload on-plan delivery fell from 83% to 73% and intermodal from 93% to 83%. On a railroad, unreliable service eventually costs volume (customers switch back to trucks) and money (more railcars, crews and rerouting). Watch whether service recovers in Q4 after the chief operating officer's exit.

Network, service and safety

Velocity is average train speed between yards. Dwell is how long a car sits inside a yard. "Trip plan performance" is the share of carloads or containers that reach the customer on or ahead of the scheduled time. More "cars online" with only 5% more volume means each car is taking longer to complete a trip. The company calls these figures estimates that may be updated.

Compared with Q2 2026, some measures improved: dwell 11.0 → 10.6 hours, velocity 18.0 → 18.6 mph and carload trip plan 71% → 73%. Intermodal trip plan performance got worse (88% → 83%). The year-over-year gap widened because Q3 2025 was a strong service quarter. Safety improved on both federal measures.

The earnings release quotes CEO Steve Angel saying CSX moved more freight "while maintaining our high standards for safety and service." The safety part is backed by the federal statistics. The service part doesn't match the company's own service figures in the same day's 10-Q.

Leadership: on October 12, CSX announced that Executive Vice President and Chief Operating Officer Mike Cory is retiring. He left the role that day and stays on to help with the transition until May 8, 2027 (8-K filed October 13). The two senior vice presidents running operations and network/service design, Doug Ryhorchuk and Casey Albright, now report directly to Angel. No new COO was named.

Cash, buybacks and balance sheet

• Buybacks picked up sharply: 11 million shares for $543M in Q3 (average price $48.75), versus 3 million for $112M a year earlier. Nine-month repurchases were $1,049M, versus $1,264M. Remaining authority was $5.2 billion at September 30.
• Dividends paid over nine months were $779M, versus $730M.
• Cash and short-term investments were $1.6 billion, up $930 million since year-end. CSX issued no long-term debt in 2026. About $1.7 billion of debt is due within a year, and the company had a working capital deficit of $676M (current liabilities exceed current assets). The 10-Q points to cash, operating cash flow and an undrawn $1.2 billion credit line to cover it.
• Capital spending: property additions were $1,712M over nine months, versus $2,225M. The "less than $2.4 billion" full-year plan implies up to about $690M in Q4.
• Industry consolidation: unlike Q2, this 10-Q's discussion of results does not mention advisory costs for "potential industry consolidation." The topic appears only in the risk-factor language, and the filing names no transaction.

Did last time's read hold up?

Partly. Our Q2 analysis said the cost progress was real and that service was the risk: "if yards stay congested as volume grows, costs such as overtime, rerouting and extra railcars tend to rise again." The cost side held up better than expected: the operating ratio improved again, from 61.7% to 60.9%. Service did not recover the way management promised in July ("we will strengthen our service execution"). Carload trip plan performance edged up only from 71% to 73% and intermodal slipped from 88% to 83%. The first small cost of that, $6 million of higher equipment rents tied to "longer merchandise cycle times," showed up this quarter. Fuel still inflated reported revenue, as we flagged.

Outlook

CSX gave no numerical guidance beyond the sub-$2.4 billion 2026 capital budget. Angel's only forward comment was that CSX is "positioned well as we enter the fourth quarter" and is working "toward best-in-class performance in 2027."

Our read: the earnings momentum looks durable into Q4. Volume is up 5% year to date, non-fuel costs are falling and the headcount is still shrinking. Three things could change that:

1. Service. Intermodal is the growth engine (+7% volume, +20% revenue) and depends on the "wins with key customers" coming from trucks. Containers arriving on plan 83% of the time instead of 93% puts those wins at risk. The filing doesn't link the COO's retirement to service, but changing operations leadership mid-recovery adds short-term execution risk.
2. Fuel. With fuel prices up 67%, surcharges are inflating revenue. If diesel falls, reported revenue growth will slow even if volume and pricing hold. Volume, revenue per unit and the operating ratio are better signals than headline revenue.
3. Incentive pay. Bonus accruals rose $53 million this quarter on "higher expected payouts." That cost doesn't scale back easily next year if results soften.

CSX has typically reported fourth-quarter and full-year results in late January; no 2027 date is given in these filings.