Core Natural Resources, Inc. Q3 FY2023 earnings call

• Organizational structure: Appointed Derek Taylor as Executive Vice President and Chief Field Operating Officer and Pat Whitehead as Executive Vice President and Chief Network Operating Officer to strengthen competencies for profitable growth. • Operational performance: Q3 had challenges like port strike, forest fires, and flooding, but showed improvements in car velocity, train speed, and origin/destination train performance. Yards were in better shape with origin train departure at 89%. • Key initiatives: Announced new long-term agreement with AltaGas to drive LPG export carloads, built up the Falcon product service, progressed Eastern fuel strategy with new distribution terminal in Toronto, and advanced Northern BC strategy with capacity projects.

The company's segments showed varied performances. The bulk business has been strong all year, with grain having early harvest tailwinds, record potash volumes, and met coal impacted by port strike but with commodity prices supportive. Merchandise is firming up, with chemicals and plastics sequentially strengthening, metals and minerals having the best quarter so far this year, automotive benefiting from strong pent-up demand, and forest products remaining below pre-COVID levels. Intermodal saw domestic intermodal monthly year-over-year numbers turn positive in Q3 due to initiatives like the Falcon service, while international intermodal was weak due to West Coast port strike and cargo diversions to U.S. gateways. Revenue for the third quarter was nearly $4 billion, down 12% vs last year on lower fuel surcharge rates and volumes, but partially offset by solid pricing. RTMs were down 5%, but excluding overseas, were up 1%.

• Reaffirmed full-year 2023 guidance of flat to slightly negative EPS growth vs 2022. • Assumes foreign exchange in range of $0.70 to $0.75 and WTI in range of USD 80 to USD 90 per barrel for the balance of the year. • Increased the share repurchase program budget to approximately $4.5 billion from $4 billion, with nearly 20 million shares repurchased for over $3 billion through end of September. • Expect volumes to improve sequentially in Q4 and operating leverage to increase as volumes come back.

• External disruptions like port strikes, forest fires, and flooding can impact operations. • International intermodal volume recovery is dependent on resolution of port issues and may be affected by structural changes in port usage. • Economic uncertainty affecting the strength of the economy, which impacts volume growth tied to economic strength.

Q: James McGarragle asked about the extent of structural vs temporary nature of international intermodal volume weakness due to port strike and confidence in volume returning.

A: Tracy Robinson said it's temporary, citing structural advantages of Rupert in service and cost, working with customers, and expecting gradual recovery.

Q: Brandon Oglenski asked about moving pieces of 4Q guide and OR improvement.

A: Ghislain Houle said volumes are improving sequentially and operating leverage is expected as volumes come in.

Q: Cherilyn Radbourne asked about new interchange relationships and cooperation.

A: Tracy Robinson and Doug MacDonald said relationships should underscore service and competition with truck times, focusing on quick transit times.

Q: Ravi Shanker asked Ed about transition timing and Tracy about selling Falcon service.

A: Ed Harris talked about quick implementation and Tracy discussed consistent service and growth of Falcon service.

Q: Scott Group asked about initial success of Falcon service.

A: Tracy and Doug MacDonald discussed consistent service and growth of Falcon service with STG Logistics starting loads.

Q: Konark Gupta asked about international intermodal volume return timing and Falcon Premium RFPs.

A: Doug MacDonald said gradual ramp-up over next year and RFPs on regular basis with trials.

Q: Fadi Chamoun asked about 4Q volume growth and cost per headcount.

A: Tracy Robinson said sequential growth seen and Ghislain Houle talked about wage increases and attrition replacement.

Q: Ken Hoexter asked about casualty costs and volume growth risk.

A: Ghislain Houle said casualty costs not sticky and Tracy Robinson said volume growth tied to economic strength is the biggest risk.

Q: Benoit Poirier asked about Eastern ports labor agreements and Contrecoeur milestone.

A: Doug MacDonald talked about cargo diversion mitigation and next milestone being port operator RFP.

Q: Chris Wetherbee asked about resources and 4Q headcount.

A: Tracy Robinson said resourced for current volume, 4Q headcount baked in.

Q: Steven Hansen asked about grain harvest impact on outlook.

A: Tracy Robinson said grain crop smaller but offset by customer initiatives.

Q: Kevin Chiang asked about EV supply chain volume capture.

A: Doug MacDonald talked about building EV supply chain with multiple plants on network and ongoing production.