CSX Q3 2026 Earnings: Record Revenue and Cost Discipline Drive Sharp Margin Expansion

CSX reported record third-quarter revenue of $4.02B, up 12% year over year, while diluted EPS rose 54% to $0.57. The comparison was affected by a $164M goodwill impairment recorded in the prior-year quarter; against adjusted 2025 results, EPS increased 30% and operating income rose 25%.

The quarter’s central development was not just stronger freight demand. CSX converted 5% volume growth and higher fuel-surcharge revenue into a 39.1% operating margin, aided by a 3% reduction in nonfuel costs. Management also raised its 2026 revenue-growth outlook, although fourth-quarter margins are expected to decline sequentially with normal winter cost seasonality.

Earnings Snapshot

The Bigger Story

CSX’s third quarter showed meaningful operating leverage: revenue grew 12%, while nonfuel costs declined 3% despite handling 5% more volume. Fuel surcharges accounted for roughly half of revenue growth, but volume gains and pricing across merchandise, intermodal, and coal also contributed.

The operating-margin result should be viewed on an adjusted basis. The reported 880-basis-point year-over-year improvement reflects the absence of a $164M goodwill impairment in the prior-year period. Even after excluding that charge, margin expanded 420 basis points, showing that the improvement was not solely an accounting comparison.

Management’s focus is now shifting from a 2026 productivity push toward sustaining gains while supporting further volume growth in 2027. The company has identified more than 100 initiatives contributing to its 2027 productivity planning, though management said next year’s gains are unlikely to match the scale of 2026.

Revenue and Operating Performance

Total volume increased 5%, led by a 7% increase in intermodal traffic. Intermodal reached a quarterly record, with domestic traffic driving the increase while international volume was roughly flat year over year.

Revenue rose faster than volume because of fuel surcharges, which reflected average diesel prices that were nearly 50% higher than a year earlier. Revenue per unit increased 7%, though management said about half of total revenue growth came from fuel. Excluding fuel, revenue per unit rose 1%, indicating that underlying price improvement was modest after accounting for mix.

Merchandise revenue increased 11% on 3% volume growth. Metals volume rose 12%, supported by demand from infrastructure and energy markets and ramping output from newer steel mills on CSX’s network. Chemicals volume increased 7%, aided by freight conversions and growth in waste and petroleum products.

Fertilizer remained the main weak point in merchandise, with volume down 13%. Management cited supply constraints affecting phosphate shipments, lower crop prices, and weaker fertilizer affordability and demand. This remains an offset to otherwise favorable carload momentum.

Coal revenue rose 10%, with volume up 2% and revenue per unit up 7%. Export coal volume increased 7% as mine output rose, while domestic volumes declined modestly amid mild weather and natural-gas prices around $3. Management expects a further small sequential increase in coal revenue per unit in the fourth quarter as higher global export benchmarks work through contract pricing.

Other revenue also benefited from an in-transit reserve and higher intermodal storage charges as the market tightened. Management indicated these items contributed to the quarter’s strength, suggesting not all growth in that category should be viewed as a recurring run rate.

Operationally, CSX reported a 17% decline in its FRA injury rate and a 4% decrease in its accident rate. Service metrics improved sequentially, including velocity, dwell, customer switching, and carload trip-plan compliance, although intermodal trip-plan compliance declined. October service trends started stronger, with average velocity above 19 mph and dwell approaching 10 hours.

Profitability and Margins

Operating income reached $1.57B, up 44% on a reported basis. The more comparable figure is the 25% increase versus prior-year operating income adjusted for the $164M goodwill impairment.

The 39.1% operating margin was the quarter’s standout financial result. Excluding the prior-year impairment effect, margin expanded 420 basis points despite a 70-basis-point headwind from fuel prices.

Labor expense increased $19M. Workforce productivity and the absence of prior-year severance costs offset much of more than $90M in higher incentive compensation and inflation-related expenses. The company also reduced PS&O expense by 10%, citing lower external labor use, better locomotive and vehicle utilization, maintenance efficiencies, and absorption of intermodal growth.

Management expects some normal cost pressure in the fourth quarter. PS&O expense typically rises in winter, fuel efficiency tends to decline, and labor costs increase around holiday vacations. Historically, management said the fourth-quarter margin has fallen 200 to 300 basis points sequentially from the third quarter.

Demand, Customers and Pricing

Management described customer demand as solid and trucking capacity as tight, conditions that are supporting freight conversions from highway to rail. The intermodal opportunity remains especially important because the business is providing the largest share of CSX’s volume growth.

Domestic intermodal demand has benefited from new services and expanded double-stack capacity, including the I-95 corridor through Baltimore. Management expects the full availability of that route to be more meaningful in the upcoming 2027 bid season, since the clearance project was completed after much of the prior bidding cycle.

Truck-to-rail conversion is also supporting carload markets. Management highlighted forest products as an example: demand in housing-linked end markets has not materially improved, but tighter trucking capacity has created opportunities to move more building products and paper freight by rail.

Pricing remains a focal point heading into 2027. Management expects same-store-sales pricing in 2026 to exceed last year’s level and said discretionary merchandise pricing has accelerated through the year. However, not every contract renews annually, limiting how quickly changes in the trucking market can affect realized pricing.

For domestic intermodal contracts that are renewed annually, management said it intends to price according to market conditions, available trucking capacity, and the value of its service. The durability of converted traffic will depend on service consistency, particularly as highway capacity and rates eventually normalize.

What is CSX’s guidance for 2026?

CSX raised its full-year revenue-growth outlook to high single digits, from its previous forecast of mid- to high-single-digit growth.

The rest of management’s 2026 outlook was unchanged:

• ·Operating-margin expansion: More than 350 basis points
• ·Capital expenditures: Below $2.4B
• ·Free-cash-flow growth: More than 80%

For the fourth quarter, management expects year-over-year operating-margin expansion of more than 350 basis points. That outlook incorporates normal seasonal cost increases, including higher PS&O expense and weaker fuel efficiency during winter weather.

Looking to 2027, management expects to add to its train-and-engine employee pipeline to support a growing business. Reported headcount will decline temporarily in the fourth quarter due to seasonal reductions, then return to approximately current levels in the first quarter of 2027 as employees return and conductor training resumes.

Balance Sheet, Cash Flow and Capital

CSX reiterated that 2026 capital expenditures should remain below $2.4B and that free cash flow should grow by more than 80%. Management is also directing capital toward targeted network capacity projects, including Atlanta, where volume has increased 50% over the past three years.

The Atlanta investment is intended to raise switching and processing capacity by 50%. It illustrates the balancing act entering 2027: CSX is seeking to preserve productivity gains while adding enough infrastructure, crews, and equipment to accommodate higher volumes without degrading service.

What Investors Should Watch

1. Underlying pricing beyond fuel

Fuel surcharge revenue was a major contributor to third-quarter growth, while revenue per unit excluding fuel increased only 1%. Investors should watch whether merchandise and domestic intermodal contract renewals produce more durable underlying pricing in 2027.

2. Intermodal conversion and service reliability

Domestic intermodal volume rose 7%, supported by tight truck capacity and new service offerings. The key question is whether CSX can maintain reliable transit times and capacity as it converts more highway freight, particularly in constrained markets such as Atlanta.

3. Fourth-quarter seasonal cost pressure

Management expects normal sequential margin degradation during the winter. The extent of that decline will show whether recent cost reductions, especially in PS&O, are becoming structural rather than being primarily driven by favorable operating conditions.

4. Merchandise-market breadth

Metals and chemicals were strong, but fertilizer volume declined 13%. A broader recovery across merchandise categories would reduce CSX’s dependence on intermodal conversion and fuel-driven revenue growth.

5. Capacity and workforce planning for 2027

CSX intends to add train-and-engine employees and invest selectively in network capacity. Investors should assess whether these investments support growth without diluting the operating leverage and productivity gains that drove the third-quarter margin improvement.

AlgovestIQ Takeaway

CSX delivered a strong quarter, with record revenue, volume growth across its major franchises, and substantial adjusted margin expansion. The company’s ability to reduce nonfuel costs while moving 5% more volume was the clearest evidence of improved execution.

The quality of revenue growth was mixed. Fuel surcharges generated about half of the increase, and revenue per unit excluding fuel rose just 1%. Still, the volume performance was broad enough to matter: intermodal reached a record, metals and chemicals grew, and export coal remained supportive.

The central investment question is whether CSX can translate favorable trucking-market conditions and expanded intermodal capacity into sustained pricing and traffic gains through 2027. Management’s comments point to a constructive setup, particularly for domestic intermodal and truck conversions, but these gains will need to hold as service requirements rise and contract renewals progress.

Evidence that would strengthen the case includes continued volume growth without service deterioration, pricing acceleration excluding fuel, and fourth-quarter margins that hold up better than normal seasonal patterns. Conversely, a sharp reversal in trucking tightness, persistent weakness in fertilizer and other merchandise markets, or rising costs from workforce and network investments would test the durability of the current earnings momentum.