Core Natural Resources, Inc. Q4 FY2023 earnings call

• Safety: Ended the year with meaningful improvements in accident and injury frequencies, aiming for 0 accidents. Full year injury frequency ratio improved 13% and accident rate improved 17%.
• Operations: Q4 origin train performance remained solid at around 90%. Destination train performance was 70% with room for improvement by reducing train meet delays and crew swaps. Capital projects for short-term efficiency and long-term growth. Hiring to offset attrition and meet work rule changes.
• Volumes: Sequential improvement in RTMs since July, growth initiatives like Falcon and EMP bearing fruit, expecting continued improvement as economy progresses.

Fourth quarter revenues were down 2% versus last year on lower intermodal storage fees and a lower applicable fuel surcharge, partially offset by volumes and solid same-store pricing. RTMs (best measure of volume) were up 2% in the quarter, driven by record potash movements, strong propane, Canadian met coal exports and refined petroleum products. P&C volumes were up 12% in the quarter. Metals & Minerals RTMs were up 3%. Merchandise forest products volumes were down 5%. Bulk fertilizers RTMs were up 85%, coal was up 1%, Canadian grain shippers were down, Automotive RTMs were up 22%. Intermodal International was down 11%, Domestic was down 3%.

• Expect EPS growth of approximately 10% over 2023.
• Mid-single-digit RTM growth expected.
• Board approved 7% dividend increase for 2024 and a new share buyback program of up to 32 million shares.
• CapEx for 2024 will be around $3.5 billion net of customer contributions, and ROIC expected to be 15% to 17%.

• Economic and geopolitical volatility.
• Port strikes and weather disruptions impacting operations.
• Challenges related to work rule changes and crew scheduling.

Q: Maybe starting on the '24 guide, if we could maybe unpack some of the moving parts a little bit. So RTM guide, mid-single digits. And then, I think, Ghislain, you talked about maybe $200 million of some cost headwinds there. You have about 5% coming below the line. So I just want to make sure I understand sort of the operating leverage of the business. Is it mostly offset by the $200 million? Or maybe we can kind of think about how you should be able to generate incremental margins on that mid-single-digit RTM growth?

A: Chris, this is Tracy. Let me take a shot at this. So we've got a forecast of 10% EPS. And then the volume -- as you've noted, the forecast assumes a gentle kind of recovery economically as we go through the year, but it also assumes those customer specific growth initiatives that you heard Doug talk about. On margins, as volumes come back, we should see the positive impact of our operating leverage. So as volumes went down -- we saw it go down. As volumes come back up, we're going to lift, especially in the merchandise business where we currently have capacity on our trains. And of course, in the pricing environment, as you've watched this over the last 18 months, we continue to both deliver and we continue to expect pricing above rail inflation. So that's all positive news. We do have the headwinds that Ghislain talked about, but that's going to be offset to the extent that will drive the 10% to the bottom line. Does that make sense?

Q: Just wanted to dig in a little bit in terms of International Intermodal. And you did mention that the Canadian West Coast market share was back to pre-strike levels in December. Just curious -- given what we're seeing in the Red Sea and on the Panama Canal, just be curious whether you're seeing [ inquiries ] at this point that could be incremental to that market share? And how likely those volumes might be -- to be sticky [indiscernible] A: Thanks, Cherilyn, it's Doug. No, it's a great question. It's obviously an ever-changing environment out there. So we spend a lot of time talking with customers about it. We are seeing, obviously, some capacity come out of the vessel market with them having to go around Africa now. So we see some tightening overall. And with that, we're starting to hear with the different problems at both the Panama and the Suez Canal, that the West Coast is looking like a more viable option moving forward. We haven't seen those volumes come in yet, but we're expecting them to gradually ramp up, if they do come forward. But so far, so good. We've actually just -- we've been able to maintain our pre-COVID levels now for the last, I'll say, almost 8 weeks, and we see that continuing on moving forward on both Prince Rupert and Vancouver.