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CSX Corporation, Inc. (NASDAQ:CSX)
Q1 2018 Earnings Conference Call
April 17, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen and welcome to the CSX Corporation First Quarter 2018 Earnings Conference Call. As a reminder, today's call is being recorded. During this call, all participants will be in a listen-only mode. Following the presentation, we will be conducting a question-and-answer session. To ask a question, press *1.

For opening remarks and introduction, I would now like to turn the call over to Mr. Kevin Boone, Chief Investor Relations Officer for CSX Corporation.

Kevin Boone -- Chief Investor Relations Officer

Thank you, Michelle, and good afternoon everyone. Joining me on today's call, Jim Foot, Chief Executive Officer and Frank Lonego, Chief Financial Officer. On Slide 2 is our forward-looking disclosure followed by non-GAAP disclosure on Slide 3.

With that, it is my pleasure to introduce our President and Chief Executive Officer, Jim Foote.

James Foote -- Chief Executive Officer

Thank you very much, Kevin. It's great to be here this afternoon with everybody on the cal. Before we start with the slides, I would like to make a few comments. CSX had a very good quarter. We are drastically changing the way we operate the railroad by taking millions of unnecessary steps out of the business process that we use to run the railroad. This is producing record operating performance, improved customer service and win combined impressive returns to shareholders. The women and men of CSX have accomplished a lot. Clearly, first quarter results are a reflection of all the hard work that has taken place over the past year. We are proud of these results and I would like to thank all CSX employees for their contributions toward achieving them.

With that said, the plan recently laid out at our Investor Conference is a three-year plan. We're only one quarter -- one out of twelve -- and we still have a lot of work to do to achieve our goals. The good news is that, every day, I feel a little more confidence and our ability to deliver on these targets. And I want to take the time to highlight safety. On my watch, safety will always come first. We have some work to do to improve in a team is committed to do so. To be the best run railroad, you have to be the safest

Now let's get into the deck and we'll start with Slide 5 on our highlights and this should be a pretty simple quarter to walk through. We only had one extra day in last year's first quarter and, other than the restructuring charge last year, just a few relatively minor one-time events that Frank and I will point out. EPS increased 53% to $0.78 versus last year's adjusted EPS of $0.51. The increase was driven by lower costs on flat revenues which drove a 19% improvement in operating income versus the prior year's adjusted results.

The new lower tax rate and share count, down about 4% also contributed to the significant year-over-year increase. Our operating ratio improved 570 basis points to 63.7% when compared to last year's adjusted OR of 69.4%, a record first quarter. I might be a little biased, but I think it's CSX's best quarter ever. Lower costs and labor and MS&L partially offset by price driven higher fuel costs drove a significant year-over-year improvement. Going to the next slide, Slide 6, total revenue was flat as price fuel surcharge and supplemental revenues offset a 4% decline in volume and negative mix. We did see a slight sequential improvement in pricing excluding coal.

Looking at the business segments, each was, to some degree, impacted by either outside influences or a prior period of marketing decision. Chemicals was impacted by a few items including no fly ash movements that occurred last year, lower plastic and coal shipments, and basically, no crude by rail. Four North American vehicle production and challenges with railcar availability, which was an industry issue, reduced auto. Ag and food was mainly impacted by lower ethanol business, which we exited because of its low or no margin and fertilizer revenues, as I mentioned previously, were down due to the Plant City facility closure.

Domestic utility coals inclines were somewhat offset by a continuing strong export coal market and intermodal saw strong international volumes. Other revenues increased year-over-year as liquidated damages contributed $19 million and the remaining increase was driven by higher demurrage and other supplemental revenue. Obviously, we have changed the business practices in this area and are working with our customers to create a more fluid network.

On Slide 7, let's take a quick look at our operating performance. We've highlighted some key metrics that are familiar with you. As we outlined at the Investor Day, we continue to make significant progress year-over-year in both train velocity and car dwell. We also saw improvement in train link and GTMs per available horse car, which represent approved asset utilization of inefficiency.

It seems like almost every day would set a new CSX record in one area of our operations or another. We are making progress, but there is clearly more opportunity ahead. Since the beginning of the year, we reduced another 142 locomotives and a total of 816 year-over-year. Service design improvements have seen a reduction in over 40.8 million expected annual car miles and 351 weekly cruise starts year-to-date. Brian Barr and her mechanical department has done an exceptional job with line-over-road failures at improving 35% and doing it with a smaller workforce.

Now let me hand it over to Frank, who will take you through the financials and provide more details on the benefits from the operational improvements.

James Foote -- Chief Executive Officer

Thank you, Jim, and good afternoon, everyone. Turning to Slide 9, let me walk you through the summary income statement. Reported revenue was roughly flat the first quarter as a 4% decline in volume was offset by the benefits of increased supplemental revenue, higher fuel surcharge recoveries, and solid core president gains.

Moving to expenses, the P&L reflects our adoption of the new pension accounting standards where only the service cost component of our pension expense is now included in operating expense, while the remaining aspects of pension accounting now fall below the line in other income. Prior-year results, including the geography of last year's restructuring charge, have been restated to reflect this new stance.

Total operating expenses were 13% lower in the first quarter, 8% lower after normalizing for last year's structuring charge. Overall, labor and fringe savings of $100 or 12% year-over-year were driven by an 11% reduction in average head count. Scheduled railroading enabled train crews savings on multiple fronts. A 22% increase in velocity and a 5% increase in train length enabled an 8% reduction in road crews starts while the elimination of eight hump yards last year and a 20% improvement in cars processed per man hour drove savings in yard staffing levels, improved network fluidity -- seen through the velocity and dwell metrics combined with a 20% improvement in GTMs for available horsepower -- has helped eliminate rolling stock assets.

Our active locomotive fleet was down 23% and the number of cars online came down by 11%, the combination of which enabled resource reductions within our mechanical workforce. In addition, the efforts we started in early 2017 with our management restructuring to streamline the management workforce, eliminate bureaucracy, and improve the speed of decision making across the system and here in Jacksonville that resulted in significantly lower labor expense.

Fewer management resources also resulted in lower incentive compensation expense versus the prior quarter. MS&O expense was down 16% against the prior year. The asset efficiency of scheduled railroading, combined with improved your or your locomotive availability, resulted in lower fleet counts, fueling lower materials expense, lower maintenance and repair costs, and lower levels of consumables. Given the sustainable nature of these asset reductions, we have sold or scrapped hundreds of engines and thousands of freight cars in the past 12 months.

The locomotive fleet reductions have also allowed us to right size our contracted maintenance services agreements fewer crews starts and a more balanced network operating plan also drove reductions and ancillary costs such as hotels, meals, and taxes. Efforts to streamline the workforce and reduced organizational complexity also apply to our contractor and consultant workforce. Working toward our broader total workforce targets for 2018 and beyond, we have made significant progress in tradition in our labor footprint, with savings from contractor and consultant reductions flowing to the MS&O line.

Finally, continued efforts to monetize our surplus real estate portfolio resulted in $32 million of real estate gains in the quarter versus $2 million in the year-ago period. The gains in this year's first quarter are consistent with the guidance we provided at the Investor Conference that we would achieve $300 million of cumulative real estate sales through 2020

Looking at the other expense items, depreciation increased slightly due to the changes in the asset base driven by capital investments, offset by asset sales. 24% higher fuel prices year-over-year presented a significant headwind, although our continued focus on fuel efficiency through better matching in horse power to trailing tonnage and increased use of energy management and distributed power technologies drove year-over-year improvement in fuel efficiency despite harsher winter conditions this year.

Equipment rents are up slightly due the higher incidental rents, though we are continuing to just to drive days furloughed improvements to reduce our car hire expense. Equity earnings were favorable, primarily due to improve performance at our affiliates and tax reform true-ups.

Lastly, we are cycling 2017's restructuring charges, part of which are now housed below the line due to the new pension accounting standard. Below the line, interest expense increased, primarily due to the additional debt we issued earlier this year. Tax expense was roughly flat on a 57% increase in pre-tax earnings, illustrating the favorable impacts of tax reform. Our effective tax rate in the quarter was 23.8%, although we continue to expect around 25% for the full year. All told, these pieces sum to the headline items Jim highlighted in his opening remarks. Importantly, the 63.7% operating ratio we achieved in the first quarter represents a meaningful step for the 60% operating ratio target we set at last month's Investor Conference

Turning to the cash side of the equation on Slide 10, capital investments in the first quarter reflect our recently announced three-year capital target $4.8 billion, driven by the reduced capital intensity of the scheduled railroading model. As we've said many times before, and reiterate here, our commitment to investing in safety and reliability remains unwavering, and we have undoubtedly become a less capital-intensive company there improved at the utilization that reduces yard infrastructure and rolling stock needs and better processes that service an effective alternative to capital investments.

Our cash flow growth of 3% was more muted than our earnings growth would have implied. First and most importantly, estimated federal tax payments for the first quarter are not paid until April. As a result, you see the year-over-year benefits of tax reform in our earnings, but not yet in our free cash flow.

Second, as with any quarter, their timing items that can impact free cash flow on a short-term basis. Here, we made back wage payments in the quarter to employees affiliated with unions that have concluded national bargaining. There were also timing differences and state tax payments and prepaid expenses. Bigger picture: the combination of core earnings growth, lower Capex and lower cash taxes will drive significant free cash flow conversion at $8.5 billion of cumulative free cash flow through 2020.

Finally, we were pleased to provide significant returns to our shareholders during the first quarter. On February 12th, we announced a 10% increase to our quarterly dividend and meaningfully increased our shared buy-back program to $5 billion with expected completion in the first quarter of 2019. As you evaluate our buy-back cadence in the quarter, remember that our buybacks in the first half of the quarter were premised on a much smaller $1.5 billion program. Since implementing a larger program mid-quarter we have capitalized on recent market fluctuations and repurchased shares at a faster than prorated pace.

With that, let me turn it back to Jim for his closing remarks.

James Foote -- Chief Executive Officer

Great. Thanks a lot, Frank. As I said at the very beginning, it's a very simple and clean quarter for everyone to understand. And so, in conclusion, on the last slide, here, a little bit about the financial outlook. As I said before -- previously said -- we expect the revenue to be up slightly for the year and I have increased confidence in this outlook given the start of the year.

Also, as many of you are aware, is I am happy to say -- not only to say it, but I am happy -- that we are no longer under the requirement to have weekly calls with the STB. We have improved our service and I expect that to continue. As we demonstrated in the first quarter, we expect a solid step down each year in the operating ratio. There remains significant work ahead in order to deliver on our 2020 target of a 60% OR. However, our goal of making CSX the best run railroad is in sight and we're working hard to achieve that.

So, I would like to turn it back to Kevin now. We can start... Frank and I'll be glad to answer any of your questions.

Kevin Boone -- Chief Investor Relations Officer

Okay. Before we get started, in the interest of trying to get everyone in the queue, I'll ask that analysts limit themselves to one question and a follow-up if needed. Michelle, I think we're ready to take questions.

Questions and Answers:

Operator

Thank you, sir. As a reminder if you'd like to ask a question, you may press *1. To withdraw your question, you may press *2. Our first question comes from Chris Wetherbee from Citigroup. You may go ahead.

Chris Wetherbee -- Citigroup -- Senior Research Analyst

Hey. Thanks, and good afternoon. I guess, maybe wanted to start on the revenue side. So, Jim, you kind of outlined the outlook for some modest revenue growth over the course of the year. I guess, when you think sort of volume in price, can you give us a little bit of sort of help there? And when you looked at yields in 1Q, they certainly were good. Can you give us a sense of maybe where core pricing is and maybe what that assumption is a mix of volume and prices as the year progresses?

James Foote -- Chief Executive Officer

Yeah, I think what I said was prices sequentially improved slightly if you exclude coal. And, if you look at the revenue clearly, we're going to continue to see a slight hiccup as we go through the year in our supplemental revenues as we've implemented more specific diverged policies, as an example. And you'll see that in other fuel surcharge, it was going to move up and down as the year moves around. So, I think there's a reasonably solid environment after for pricing and based upon kind of expectation that we've they put out there in terms of a year-over-year kind of slight increase, the runrate you're seeing there today in terms of volume and these other elements that increase are bringing together total revenue should be reasonably consistent with what you saw here as our... And then, as you remember, we've had a lot of one-time items in the in the prior year that we demarketed as an example of 7% volume of intermodal that was taken off the railroad in in the late summer of last year, as well as some other riders. And, those items, we begin to cycle and so that's what we're a little more confident that the volume in the later part of the year begins to see more of an improvement to what we're having right now.

Chris Wetherbee -- Citigroup -- Senior Research Analyst

Okay, so cadence could get a bit better as the year progresses? That's hopeful. Then just...

James Foote -- Chief Executive Officer

That's a much shorter way of saying it, yes.

Chris Wetherbee -- Citigroup -- Senior Research Analyst

Yeah, I appreciate it. The color was greatly appreciated. And then, I guess, just trying to get a sense of what may be normal seasonality from an operating ratio perspective might look like? So, you guys are doing some dramatic things on the cost side, so it's a little hard to kind of see through that and relate it back to your historical patterns from 1Q and then how the rest of the year typically plays out. Is there anything you can help us with and maybe, Frank sort of headcount expectations? We saw where you ended the quarter, but anything you do on sort of the cost or cadence of OR improvement in 2018 would be helpful. Thank you.

James Foote -- Chief Executive Officer

Clearly the first quarter, so I think, in everybody's opinion here the first quarter is the toughest operating environment for CSX. And I'll let Frank jump in if he has anything additional to that.

Frank Lonegro -- Chief Financial Officer

Yeah, Chris, the only thing I'd add, is you imply seasonality for the rest of the year. Remember that we had a couple of fairly significant one-time items in the second quarter, so you probably need to adjust a little bit for that one. On the head count side, I mean, you see the 3,000 year-over-year in the first quarter and it really doesn't matter whether you look at average head counter ending account, we're down about three thousand employees year-over-year. When you add in contractors, it's a little bit more than that on the year-to-date basis -- about 1,100 down year-to-date and that's against the goal that Jim set on the fourth quarter call of around 2,000 so we feel like we're in pretty good shape on that one. So, hopefully, that gives you enough color to go.

Chris Wetherbee -- Citigroup -- Senior Research Analyst

Okay. Very well, thanks very much for the time. I appreciate it.

Operator

Thank you. Our next question comes from Ken Hoexter from Bank of America Merrill Lynch. Sir, you may go ahead.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Hey, great good afternoon. Hey, Jim, your thoughts on the service failures of some of your peer railroads, does that impact your ability to continue this pace of improvement just given the amount of traffic that is interchanged between rails, whether it's your fellow eastern peer or even going west or north? Can you just talk about the constraints that you see from that?

James Foote -- Chief Executive Officer

Well, Ken clearly, it's a network out there and so we're impacted to a degree by our inter change partners, whether they be in the west at Chicago, or Memphis, or wherever, or the Canadians, again, in Chicago or wherever we interchange traffic. So, obviously we would like to have a more fluid network -- it's better for us -- but I think, if you look at our operating performance in the first quarter and if you look at the way we ran our network during the first quarter, if you wanted any proof that the schedule railroad model works, then you want to stress it. So, I think we've passed the stress test in terms of Hunter didn't build a dome over this railroad -- we are operating in the same winter conditions as everyone else and in the same in the same soup, so to speak, with everyone else. And we improved dramatically and so I think that kind of shows the resiliency and the strength of our organization to perform even better in the future, just based upon historical operating performance metrics.

James Foote -- Chief Executive Officer

Yeah, truly a great job. Just didn't know if there was a limitation based on what you saw but great job. The follow up would just be on the sustainability of your other revenue surcharges. Does business adapt now that they see that you're increasing your rates on demurrage and other items or does that come back down as your customers adapt or do you expect that to continue to grow as you've changed the business based on what you've seen in the past?

Frank Lonegro -- Chief Financial Officer

Hey Ken, Frank. So, we broke out for you the liquidated damages piece in the prepared remarks so you've got that as an item obviously look at on a one-time basis in the quarter. We're not trying to make tons of money on something on a revenue -- we're really trying to change the behavior of the customers so that we get into seven-day week service, we get into balance, we get into the things that schedule railroading is all about. And, in some respects, we need the customer's help in turning cars faster so this is really intended to be a behavior changer.

I wouldn't imply the runrate that you saw here in the first quarter for the rest of the year, think something more like the 115 type of a number for Q2, 3, and 4 and, obviously, we're expecting the customers to change their behavior and not want to pay these charges going forward. But Jim's commentary on the top line should give you a sense of where we think we're going to be on the volume basis, so we feel pretty good about it.

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Great job. Appreciate the insight. Thank you.

Operator

Thank you. Your next question comes from tom bottle from Tom Wadewitze from UBS. You may go ahead.

Tom Wadewitz -- UBS -- Wall Street Analyst

Yeah, good afternoon and congratulations on the great results -- really strong OR and cost side performance. I wanted to, I guess, get your thoughts kind of a granular one and then maybe a broader question. The comp and benefits per worker we were thinking maybe would be up, year-over-year, was down and, I guess, incentive comp was down. Can you help us think about is that, against a backdrop where performance is good, is incentive comp going to be down in coming quarters or was that kind of a one off? And how do we think about comp per worker as we look this second quarter, third quarter -- does that continue to be down or how would we think about that relative to first quarter?

Frank Lonegro -- Chief Financial Officer

Got you. Hey, Tom, Frank. You're right on comp per person basis in the quarter. We were better by about 1%, and you're right, the driver is largely the year-over-year favorability on incentive, tom, probably a tad of employees mix in there as well. As you think about modeling in the future, if you were to assume static employee mix, you're really just talking about inflation and then you're spreading your fixed costs. I think what you're going to see on the incident comp piece depends on how we do against our plan is the year goes on.

We did have a fairly significant headcount reduction year-over-year that drove it lower in the first quarter. And then, as you think about the fourth quarter, remember we had a fairly significant reversal of incentive comp in the fourth quarter of last year that will cycle. That was the reversal of Hunter's options if you remember, about $30 million numbers. Just, as you think through how to model that, those were probably the big moving parts.

Tom Wadewitz -- UBS -- Wall Street Analyst

Okay. So, instead of comp might be down but then it hits fourth quarter and stuff for comp could be up? Is that...?

Frank Lonegro -- Chief Financial Officer

I think that's fair. Yeah.

Tom Wadewitz -- UBS -- Wall Street Analyst

Okay. So, then the broader question, I think you were asked this a little bit earlier, but with the 63.7% OR in first quarter if you just apply kind of normal seasonality, you could see 300, 400 basis points of improvement in second and third quarters versus that. So, that that puts you at a 60, 61 potentially second quarter, third quarter. Is that a reasonable framework that that's possible -- you deliver that -- or should we kind of step back from that? And there are one-offs in first quarter whatever reason that that type of pattern wouldn't apply?

James Foote -- Chief Executive Officer

Tom, as I said, we delivered a very, very solid and impressive performance in our historically most difficult period. But, as I said many times in my opening remarks, this ain't easy so we're going to continue to grind and we're going to continue to do everything we can to continue to improve, but one quarter out of twelve, it isn't the game set match. And so, you figure it out, but this is hard work and hopefully we're going to get better. But I wouldn't draw any kind of drastic conclusions from the enormous stepdown we just had in one quarter.

Frank Lonegro -- Chief Financial Officer

Yeah, one other thing, Tom, just as you think about your year-over-year comparisons, Q1 of last year was pre-precision railroading so you're not necessarily comparing apples to apples, whereas I think, as you go forward in this year, obviously we made significant stepdowns in Q2, 3, and 4 year-over-year against '16 so just sort of put that into the hopper as well.

Tom Wadewitz -- UBS -- Wall Street Analyst

Okay. Yeah, great. Thank you for the time.

Operator

Thank you. Allison Landry from Credit Suisse, you may go ahead.

Allison Landry -- Credit Suisse -- Equity Research Analyst

Thanks. Good afternoon. Given the tightness in truckload and the service issues at Norfolk, do you think that your intermodal volumes could recover a lot sooner than you originally expected? And I think it's consistent with your comments at the Analyst Day, but how should we think about, perhaps, a cadence for the balance of the year and maybe what the potential upside is?

James Foote -- Chief Executive Officer

Yes, intermodal this year, like I said, though, it's a big hole to climb out of to a degree. But, as we move forward, I think that clearly, there is a lot of opportunity for us on the intermodal side, both internationally and domestically but we have two specific goals in mind as we look forward for intermodal, which I think we outlined at the Investor Conference, is, one, to make sure we improve the overall efficiency of the network and concentrate in the key corridors that are best for us and then, secondly, focus on the profitability of the business. And so, just because there might be a lot of intermodal and truck business that's available in the marketplace right now, I'm not going out and just chasing it to volume on my railroad.

So, we're going to logically and methodically move forward with the rollout of our growth plan and so, therefore, I'm not looking for major major upside in what we've already told you.

Allison Landry -- Credit Suisse -- Equity Research Analyst

Okay. That's all for me. Thank you.

Operator

Thank you. Scott Group from Wolfe Research, you may go ahead.

Scott Group -- Wolfe Research -- Managing Director

Hey, thanks. Afternoon, guys. So, I wanted to start on coal, maybe if you can share some views there? Met prices kind of dipped a little bit below 200 and how you think about export volumes and maybe coal yields on a sequential basis given some of the step down in met prices? And then maybe just some views on utility call volumes that were down a bunch of first and how you're thinking about that rest of the year?

James Foote -- Chief Executive Officer

Yeah, let's take the second part of your question first: utility coal volumes. You know what the challenges are there in terms of the southern utilities sharing out the ones that are most becoming more vulnerable. Northern utilities were stretched a few years ago -- domestic utility coal volumes -- and now it's kind of moving into the south. And so, as gas prices stay low, we're going to try to do everything we can to keep those utilities up and operating, but it's a challenge for us and so we're expecting that the domestic utilities side of the business is going to remain under pressure absent some other forces that would change that.

On the export side, both the thermal and met coals have remained relatively strong, stronger than we had originally expected to and the outlook for this year is that that strength should continue and we're not seeing, even though some of the metrics that are used to price the business like the API2 are starting to trend down slightly, the demand is still there so we'll continue to do everything we can to maintain the domestic utility franchise and we'll continue to run the wheels off the rail cars to move as much of this export coal, whether it be thermal or met, as we possibly can as long as the demand is there.

Scott Group -- Wolfe Research -- Managing Director

That's helpful. And, Jim, can you say you have a big length of haul difference to southern verse northern utilities?

James Foote -- Chief Executive Officer

I think we do, yes.

Scott Group -- Wolfe Research -- Managing Director

Longer to the south?

James Foote -- Chief Executive Officer

Yes. Yup. That's why I guess one's the south and one's the north. We move... And the mines are more located in the north so we run it further.

Scott Group -- Wolfe Research -- Managing Director

Okay. And then, Frank, just quickly, can you just clarify what your point was about the buyback? And I know you didn't have the new bigger buyback until sort of the middle of the quarter. What sort of quarterly runrate should we be thinking about for dollars on the buyback?

Frank Lonegro -- Chief Financial Officer

Well, it depends on the stock prices, to be honest with you. But, no, we're obviously in the market pretty heavily about 835 million or so in the first quarter. The point I was trying to make was, if you were looking for a straight program prorated version of the $5 billion over five quarters, given the fact that we entered the program mid-quarter we didn't, obviously, hit that. but from a runrate perspective, if you had forgiven the first six weeks which were under the earlier program, we were ahead of a prorated from that level. And, obviously, our prognosis for our performance for the year is going to depend on what we think the economy is going to do and it's going to depend on what the market's reaction to our performance is. We're clearly going to return a significant amount of capital to shareholders over the coming four quarters. We've dimensionalized that for you -- the exact cadence, I think, is just going to depend on the factors that I mentioned.

Scott Group -- Wolfe Research -- Managing Director

Okay. Thank you, guys.

Operator

Thank you. Our next question comes from Fadi Chamoun from the BMO Capital Markets. You may go ahead.

Fadi Chamoun -- BMO Capital Markets -- Research Analyst

Okay. Thank you. Just a couple back to the volume kind of questions. So, you've kind of all tried at the Investor Day to us that, ultimately, the improved cost, improved service -- your ability to kind of start leveraging that to grow the business faster -- is more of the 2019/2020 story. But I'm wondering, given some of service issues we're seeing elsewhere in the trucking capacity problem, is there kind of opportunity here to see an acceleration? How this kind of the conversation with customers is going? How do you feel about your ability to begin to leverage this service and cost story a little bit earlier?

James Foote -- Chief Executive Officer

It was only six weeks ago or whatever it was we were in New York and kind of laid out this plan and, certainly, the weather conditions across North America were brutal at that time and the railroads that, to a large degree, were having issues at that point in time and everybody in the world knew about ELDs and all kinds of challenges that were there. So, there's not been a lot of major... there haven't been really any kind of external influences that would make us change our minds right now in terms of what we see for the rest of the year, which is kind of what I said it in summary. What I said six weeks ago is kind of where we still are. Obviously, and we were running our railroads six weeks ago really good so, like I said, not only externally but internally there's not a lot changed.

And so, our service is second to none and our strategy to leverage that service and make sure that we are appropriately compensated for the service that we provide is still our strategy. And so, that is not something that you want to turn on a dime and discount in order put volume on the railroad, so it's going to be a methodical, strategic, rational road, a story as we go forward, and as we improve the efficiency, and as we clearly distinguish ourselves in the marketplace, and show to the customers that we can create value for them, we will begin to have the growth. But I believe we will continue to have the growth -- or we will achieve the growth -- that we outlined to you in 2019 and 2020 and I see no reason to try and do something to accelerate that strategy.

Fadi Chamoun -- BMO Capital Markets -- Research Analyst

Okay. And maybe just one quick follow up? When we look at the intermodal pricing -- what you're reporting in in RPUs and intermodal -- how well-aligned is this with the current market rate that we're seeing on the truck load side or is there an opportunity to move that materially? Have you begun to touch a little bit more of your contracts?

James Foote -- Chief Executive Officer

I do not have the ability to price my portfolio of business to the markets on a dig-it daily, weekly, or monthly basis. We have kind of long term contracts with our existing customers, so a large part of that business is locked up. The pieces of the business that aren't, I will take advantage of the market environment to price the business appropriately, but that's kind of a methodical -- these things roll over a little bit here, a little bit there, a little bit of summer -- but more so than just tightness in the truck market is the differentiation now in the quality of my service and the reliability of my service is what's going to be the main factor it in driving growth in the future.

Fadi Chamoun -- BMO Capital Markets -- Research Analyst

I appreciate the feedback. Thanks.

Operator

Thank you. Our next question comes from Amit Mehrotra from Deutsche Bank. You may go ahead.

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

Thanks, Operator. Just, first question, Jim, can you update us on how the apology tour is going and anything tangible you can share following the disruption last summer? And, kind of related to that, Canadian Pacific put out a release last week saying that there's still "significant gaps" in terms of them reaching an agreement with their unions. If you could just help us think about what the exposure, if any -- I'm sure there is some for CSX -- if there's any type of work stoppage at CP, either on the revenue side or the related to the cost actions? Thank you.

James Foote -- Chief Executive Officer

Well, no apology tour anymore -- it's canceled. Nothing to apologize for. The railroad is running great. The railroad is running again. If you look at the metrics, our railroad is running better than anybody else in North America. And so, I got a suitcase that it says, "I apologize" on it, so maybe one of the other railroads wants to borrow it, but I'm not using it.

In terms of the Canadian Pacific, I don't know if they're going to have a strike or not -- I don't think they know if they're going to have a strike or not -- and, so I can't really speculate and I can't comment on that.

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

Well, I'm not asking if they're going to have a strike -- what I'm asking about is if they do, what's the exposure to CSX?

James Foote -- Chief Executive Officer

I think that's a hypothetical question so I just said I'm not going to speculate.

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

Okay, I'll move on. Thanks. And then just one quick one for Frank on the buybacks and debt levels. Just from the perspective of the rating agencies, I guess the rating agencies look at balance sheet capacity and buyback. I guess they have a couple different metrics and can maybe even conflicting with each other in terms of retained cash flow and the way they compute that versus maybe adjusted debt to adjust EBITDA. And you could be well in the parameters of retained cash flows or percentage of total debt, but kind of out of the parameters of adjusted debt to adjust EBITDA.

So, maybe it's a little bit too technical for sure, but if you could just help us think about how CSX thinks about its balance sheet pro forma for all the sharepersons. You certainly have the capacity but, just philosophically, if you could just help us with that would appreciate it. Thank you.

Frank Lonegro -- Chief Financial Officer

Yeah, sure. We spent a fair amount of time with the rating agencies earlier in the year as we looked at our credit profile, we looked at the debt we wanted to raises this year, we looked at the sizing of the buyback program, et cetera, and I think we have a good understanding of where the break points are. They obviously look at two key things at a very high level. One is leverage and the other's coverage and I think what tax reform has done is probably allowed a little bit more room on the leverage side because you've got more coverage because you've got more free cash flow.

So, I think we've struck a very good balance. I think we have a very good understanding and I think everything that we are proposing to do on the buybacks, as well as on debt issuances later in the year, are all right in line with the conversations that we have with them, so we feel like we're in really good shape.

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

So, -- just to press you a little bit more, if I could -- if we look out beyond sort of the $5 billion framework that you've provided and we kind of flex beyond 2019, is it now kind of two and a half times net EBITDA, which is maybe obviously a little bit higher on a gross debt basis? I mean, is that is that the right sort of benchmark that we should think about from a modeling standpoint?

Frank Lonegro -- Chief Financial Officer

We said at the Investor Conference, and I'll reiterate here, that we're going to look at that on an annual basis.

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

Okay, fair enough, guys. Thank you. Congrats on a good quarter. Appreciate it.

Operator

Thank you. Our next question comes from Brandon Oglenski from Barclays. You may go ahead, sir.

Brandon Oglenski -- Barclays Capital -- Director, Senior Equity Analyst

Hey, good afternoon, everyone, and thanks for get me on the call. Jim, can you just remind us of the level of business that you've looked at and said, "We don't really want to have that on the network anymore"? Because, as we look at your volumes trending early in the second quarter, I think you guys are close to flat on the publicly available reports so how do we put that in context -- the business that you walked away from?

James Foote -- Chief Executive Officer

Well, again, on the intermodal side of the business, as I think we've said, in the middle of last year we started to transition away from what we've referred to as the hub and spoke model in intermodal and, in closing a number of lanes that we've served, we took about 7% of the intermodal traffic off the railroad.

And we're getting close to getting an intermodal bought volumes back to flat with prior years, so we're replacing a large percentage of that business and, if our runrate is getting close to, on a volume basis flat, that would kind of give me, as I said earlier, a little more confidence that we're going to be able to have a revenue line for the year, which is slightly up. So, it all kind of fits in with our prior view of the of the year that the volumes would strengthen across the board with coal always being somewhat of a question mark for us, but they would strengthen as the year progressed and we'd see enough in the second half of the year to offset what is a 4% decline in volume in the first quarter.

Brandon Oglenski -- Barclays Capital -- Director, Senior Equity Analyst

Okay. Appreciate that. And, when you look across the network, you do have a head count down quite a bit -- I mean, everyone talked about your OR has improved pretty aggressively here -- but what is left on the structural side? I mean, if you did have a big influx of demand, you think the headcount levels can still come down or are you at a point now where you would have to be thinking about hiring more people on bringing on more assets?

James Foote -- Chief Executive Officer

Clearly, you'd have to have some sort of monumental increase in volumes for us to be considering hiring employees back and, assets, no -- we've got eight hundred locomotives in storage -- so we're in great shape to handle any kind of increase in volume.

Forget about taking assets out -- we still intend to improve the fluidity of the network, we still intend to improve velocity, we still intend to drive down 12, we still intend to increase train length. All of those initiatives do two things: one, improve our operating leverage, which, by driving down our costs and improving our efficiency, both they allow us, because of that, to add additional volumes with our existing asset base that we have today.

We're handling just about the same a lot of volume that CSX handled a year ago with eight fewer hump yards, 1,000 fewer local motors 4,000 fewer employees, 20,000 fewer railcars. So, putting more volume into this railroad that is going to continue to improve to be operated more efficiently is not going to be a challenge for us.

Brandon Oglenski -- Barclays Capital -- Director, Senior Equity Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Brian Ossenbeck from JP Morgan. You may go ahead, sir.

Brian Ossenbeck -- JP Morgan -- Senior Analyst

Yeah, thanks for taking my question. Jim, just to follow up on the train length, being able to track those improving in the west an up north, it's more a recent phenomenon in the east so I was wondering, in a detention network, are there actual physical limitations to building train lengths -- the grate crossings or something like that -- or was it just more temporary and you just need longer siding, the right balance to keep that trend going?

James Foote -- Chief Executive Officer

No capital necessary in order for us to improve train length. We're not restricted by siding length. We have a long, long way to go before we would need to spend capital to be able to get, say, 12,000 foot trains out there but, if we were, that would be a good news problem, in which I'm sure we'd consider, if necessary, but that's not in our three year vision to have to spend capital to be able to do any of this stuff.

Frank Lonegro -- Chief Financial Officer

Brian, two other things I'd add to Jim's good comments. One is we invested a fair amount on what we call the southeast corridor, Chicago into the southeast, in the last a decade or so, so we're leveraging that clearly. And then as Hunter, Jim, Ed, and others have really looked at the network operating plan, we we've done a fair amount to reduce congestion -- i.e., to reduce the number of active trains that our meets and passes that they have in any given days is a lot less than it used to be.

Brian Ossenbeck -- JP Morgan -- Senior Analyst

Okay. Thanks. Is there anything specific to the east physical limitations -- tighter short distances between grate crossings -- that would limit train length growth in the year?

James Foote -- Chief Executive Officer

No different.

Brian Ossenbeck -- JP Morgan -- Senior Analyst

Okay. Just wanted to clarify that. Thanks. The other question was, just to go back to intermodal for a second, you're talking about disciplined growth in that the business...we get a sense as to how you're handling the demand but dwell times are up at terminals across the whole industry, so specifically wanted to get your comments on some of the terminal performance near the larger hubs like Memphis and Chicago in addition to the Drake capacity serving those markets?

James Foote -- Chief Executive Officer

Well, we've improved it. We have improved the efficiency of our Chicago terminals, both Bedford Park and 59th Street, that is, significantly. Everybody had challenges at Christmas time in Chicago and Memphis when the winter weather came in at Christmas Day and just hung around for a long time so it slowed everybody down. All of our dwells, both originating containers entering intermodal terminals and in containers that arrived in our intermodal terminals, our dwells are down because our train service is becoming more reliable and predictable and, therefore, the Drake community can rely upon us to be there and have a load for them to haul away.

And then, at the same time as we mentioned earlier, with us being more and more clear in what we expect of our customers in terms of when those containers come into our terminals that we want them out, and if they don't want to get them out, they have to pay to store them, that is increasing the throughput and the fluidity of those two main terminals there. Again, Memphis has been a challenge for Memphis but Memphis is now running smoothly. And I have a big focus on our intermodal terminals for this year and I'm positive -- in fact, I was just in Chicago going to our Bedford Park and 59th Street terminals -- and I'm sure that we can make improvements there that'll improve throughput, which, basically, adds a significant amount of capacity without spending any money.

Brian Ossenbeck -- JP Morgan -- Senior Analyst

Right. Okay. Thanks for the time. Appreciate it.

Operator

Thank you. Matt Russell from Goldman Sachs You may go ahead.

Matt Russell -- Goldman Sachs -- Vice President

Yeah, thanks for taking my questions. Maybe I'll get to touch on asset sales for a moment here. Made some progress in the quarter. What do you expect to be the driver of what determines whether you hit that $300 million base case or that $800 million and upside that you highlighted at the Analyst Day? Is it simply demand in the market or are there certain assets that are tied to federal grants that make up a big portion of it? And I guess, if you could categorize the market for asset sales now, that would be helpful as well.

James Foote -- Chief Executive Officer

So, on the real estate side, we're seeing, obviously, pretty stiff demand for what we put out there for sale. Mark Wallace and his team are working awfully hard to free up assets that maybe haven't been for sale for a while. Obviously, you saw good a down payment on that $300 million in the quarter from a line sale perspective. You've probably seen a little bit of traffic out of the STB on a couple of items that we have out for bid right now and you'll continue to see us focus on that. It is not a demand-side problem -- there's a lot of demand out there for infrastructure type assets so we think we're getting a market in a pretty good time.

Matt Russell -- Goldman Sachs -- Vice President

Okay. Got it. And just one more on the hired merge charges. Is this a case where you're hiring the rates on customers or are they becoming more strict on the chargeable base? Maybe you could walk through that? It seems like a quite a jump for some of these customers in just one quarter.

James Foote -- Chief Executive Officer

Well, basically, what you're talking about this is demurring your detention, which is standard operating practice that, throughout the transportation industry -- whether it's the railroads, whether it's the steamship companies, whether it's terminals -- if you're asset sits around somebody else's property and you don't get it out, they charge of what for while it sits there because they can't use it while your equipment sitting there. All of these charges, to a large degree, have been on the books of CSX for a long time, but were not necessarily enforced aggressively or, for one reason or another, a customer here or a customer there was given an exception to the policy because it was viewed as an incentive to the customer to come and do business with CSX.

Under our under our current model -- under scheduled railroading -- we're focused equally on providing our customer with a fair value for what they pay us but, at the same time, having an intense focus on the value of our infrastructure, in the value of our asset, and we're not going to just give that away anymore.

So, it's, again as Frank made in his comments, this is not something, necessarily, that we want to view as a profit center, that we want to, in any way shape or form, gouge our customers. It is a simple fact of life that, again, when the customer when the car sits on our network that is for our car that has been delivered for unloading and it's not unloaded, we expect to be compensated for either the use of our track space where the cars are sitting or the use of our asset while we can't use it for another a piece of business. And, again, these are standard industry practices that we just are applying in a more uniform and consistent manner.

Matt Russell -- Goldman Sachs -- Vice President

Got it. Thank you.

Operator

Thank you. Our next question comes from Justin Long with Stephens. You may go ahead.

Justin Long -- Stephens -- Research Analyst

Thanks and congrats on the on the quarter. So, maybe to address service first, then take a bigger picture approach, clearly, you've shown improvement but some of the other rails are struggling. Jim and Ed, you've seen a lot of service disruptions in the industry in the past. You know what it takes to fix some of these issues. With that in mind, when you look at the North American rail network as a whole today, do you have any thoughts around the timing of when we can return to an environment of normal solidity?

James Foote -- Chief Executive Officer

No, I could comment on how CSX is running -- I can't comment on when other railroads are going to do that. That'd just be inappropriate for me to comment.

Justin Long -- Stephens -- Research Analyst

Okay. Fair enough. And maybe to go back to pricing for my second question, it seems like things are moving higher, coal being the exception. Could you talk about your view on coal pricing going forward? I'm just curious if you expect this downward pressure to continue and if you're pursuing any changes as it relates to the percentage of your contracts that have a fixed component?

James Foote -- Chief Executive Officer

Well, two pieces of business, here. The export business both, the thermal and met, pricing is kind of driven by other indices, other indexes, that we really don't have a lot of control over and so that piece of business kind of goes up and down with those indexes. On the utility side of the business, clearly the coal-fired utilities, in competing with other utilities, generating facilities, that are using natural gas to generate to run their turbines., the coal guys have a disadvantage, just going to cost per million, per million btu basis.

So, to the extent that we can work with those customers, those coal fired utilities, to give them a lower cost basis on a delivered per million btu basis, the cost the coal plus our transportation, we're going to try and do that and see what happens. There is a lot of coal to the utilities, the majority of the coal that comes from either the Powder River Basin or the Illinois Basin going to our utilities so there is a longer haul. The transportation component of that is larger then what has historically been the case just because it's moving farther distance and so, if we can do something in that marketplace that will help our customer, that will allow us to use the effect that we've got coal assets -- the cars and locomotives to move it -- and it produces to us a very good return, we're going to try to do that.

Justin Long -- Stephens -- Research Analyst

Okay, great. Thanks for the time.

Operator

Thank you. Our next question comes from Ben Hartford from Baird. You may go ahead, sir.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Thanks for the time. Jim, any perspective on international intermodal -- particular, your service being a standout railroad dealer for the other rails -- but any concerns from the steamship lines with regard to network validity, broadly in diverting some of the flows away from the east and the gulf coast over to the west to improve transit time? Have you seen any, have you heard any talk about that as we enter the spring peak?

James Foote -- Chief Executive Officer

I'm putting up a big for sale sign in, let's see, Jacksonville, Savannah, Virginia, Baltimore, New York, New Jersey -- "Open for business: bring it; in we can handle it all." So, I'm good to go. I'm ready to handle their freight and not a problem.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Okay. And then, more broadly on protectionism, several weeks now into a lot of the rhetoric around tariffs, obviously, the steel and aluminum side and probably grain side now more recently, any thoughts that you have as it relates to consequences, near term that may have arisen given the rhetoric that we've now been absorbing over the past couple months?

James Foote -- Chief Executive Officer

No, it's... I keep being asked to become an expert on tariffs and I'm not. And so, right now, yes, everybody... it depends on what day as to whether or not this is viewed as a good thing or a bad thing. Anecdotally, we're looking at moving some more pepco and we're looking at steel mills on our railroad opening up so that's just anecdotally. So, I'm sure, as things play out if anything does come to be there'll negatives and positives in it and it's too early to try and guess what those might be.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Okay. That's helpful. Thank you.

Operator

Thank you. Cherilyn Radbourne from TD Securities. You may go ahead.

Cherilyn Radbourne -- TD Securities -- Research Equity Analyst

Thanks very much. Good afternoon. Just wanted to ask a question around routings. One of things I was struck by the Investor Day was just how, in closing hump yards and in going away from the hub and spoke system in intermodal, you'd eliminated what would seem like very dysfunctional routings. Could you just speak about what impact all of that has on length of haul in merchandise and intermodal and what, if any, implications that has for RPU in those franchises?

James Foote -- Chief Executive Officer

Well, again, if you take if you route a car in an inefficient manner, basically, you have artificially increased the length of haul, assuming that you can haul in in a more direct fashion, assuming you do. And so, by improving the efficiency of your network and by taking out all of these millions I-route miles that we moved cars on annual basis, you're going to, theoretically -- and I would think, actually -- reduce your length of haul.

At the same time, your revenue, if you just look at it on a revenue per unit basis, it's not going to change much. If you can get to a sense for revenue ton mile, you would see an increase because you're going to be getting the same amount of revenue and having less of the ton mile. So, there are different metrics, but I think what you're trying to get to is taking something and moving it in a straight line is going versus a crooked line is going to be less miles and you're still going to get paid the same amount of money for doing it.

Cherilyn Radbourne -- TD Securities -- Research Equity Analyst

Great. And then maybe just, by way of a quick follow up, in terms of the equity earnings of affiliates, that's a new income statement line item. Frank, can you just give us some help on how to think about a normal annual runrate for that?

Frank Lonegro -- Chief Financial Officer

That's a great, great question, Cherilyn. So, the equity earnings of affiliates, the reason that we had to create that was because of the non-consolidated subsidiaries -- so you might know those Conrail TTX and the Belt Railway of Chicago among some others -- they had to actually revalue their deferred tax liabilities and because of the size of those revaluations we had a carry it as a separate line item. You saw a $25 million benefit in the quarter against a $13 million benefit last year.

Obviously, those affiliates, when industry volumes are they do better and, when industry volumes are down, they may not do as well if they're not pulling costs out at the same time. We did have some tax true-ups in there. We said, on the call for the fourth quarter, we said think about a $10 million to $15 million per quarter credit there. We're probably at the top side of that one if you're thinking about it from a runrate basis.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Great. That's all for me. Thank you.

Operator

Thank you. Our next question comes from David Vernon in from Bernstein. You may go ahead, sir.

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

Hey, I just wanted to clarify, Jim, it sounded like you were you were talking a little bit before about the coal business trying to maybe get a little bit more aggressive to grow some utility coal business using prices that...? Did I hear that correctly or what are you trying to get at with the utility coal pricing and commentary?

James Foote -- Chief Executive Officer

Basically, what I said, yes, is on the southern electric utilities, to the extent that we can work with our customers -- i.e. if the makes economic sense for us, CSX -- to be more aggressive on price to keep those utilities up and running and using coal we will try to do that.

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

And can you bound that for us as far as kind of any sort of directional indicator of how much room there is a move in that stuff on the rate?

James Foote -- Chief Executive Officer

We have room to move.

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

Alright. And then maybe I'll follow-up with Kevin offline, but, Frank, question from the MS&O -- how do you reconcile taking a lower accrual on the personal injury when the accident rates are up as significantly as there are in the quarter?

Frank Lonegro -- Chief Financial Officer

So, what the actuaries do -- this is not something that we do, it's something that we work with actuaries on -- they look at probability and severity so it has been do not just with a number of incidents but also of the severity of events and incidents over a longer-term period of time. We give them all the data, they run the numbers, and we adjust the accrual as necessary. In some quarters and years that might go up and, in other quarters, it might go down.

James Foote -- Chief Executive Officer

Our accident rate is excellent. Accident rates in the first quarter of this year were not.

Frank Lonegro -- Chief Financial Officer

Yeah, the raw incidents that we had were roughly flat both on a personal injury and a train accident basis but, obviously, would lose the ratio is denominator, which is per million train miles on train accidents in 200,000-man hours on PI.

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

Yeah, they're index to the volume of activity, right?

James Foote -- Chief Executive Officer

Right, which is not suggesting that that's inappropriate -- I'm just saying that someone could look at that number and say, "Oh my god, they're having a lot more accidents," when, actually, we're either equal to or slightly back where CSX historically has been. I hate to be the graphic about it but that actuarian looks at is what is the frequency -- so we talked about that -- and then what is the severity based on our recent experience? So, that's why you see the change.

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

Alright. Thanks for the color.

Operator

Thank you. Our next question from Walter Spracklin from RBC. You may go ahead.

Walter Spracklin -- RBC Capital Markets -- Equity Research Analyst

Yeah, thanks very much. Good evening, everyone. What I'd like to focus in on is some of your opportunities after the full implementation of your precision railroading is rolled out and your service levels are really saleable. Jim, can you focus in on what you've seen as come areas or sectors that you really see CSX as being able to grow into a little bit more than either competitors or more than it has in the path than it has in the past? Are there any sectors that really excite you with regards to that of selling your service model once we get through this kind of phase of demarketing and slower growth, slower volume growth in 2018?

James Foote -- Chief Executive Officer

Well, clearly, much as you're familiar with this, much as the way we looked at this in the Canadian National in the early days, the benefits of this are on the merchandise side of the business and having it on a having a revenue base -- two-thirds of your business tied to the merchandise segment -- that's where you want to focus and that's really where the value comes. And those are the customers today that are the easiest to convert because, in most -- well in all cases -- they're shipping already today by rail, they're comfortable with shipping by rail, they're sophisticated and big customers who are shipping by rail, and they're paying a premium price to move a large product -- same product that they're moved by rail in a truck where they want to get reliability.

And the big area of opportunity is to convert those customers and other customers like to your network on the merchandise side of the business. Half of the intermodal business is looking at just for price and the other half of the business is looking for just price but, at the same time, everyone high premium service. So, the area where you can focus and do the best good for CSX and the customer base is on the merchandise side of business and we'll be transitioning a much greater focus on the top line in the out years, then just throwing up and improving the basic operation of the railroad.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Okay, that makes a lot of sense, Jim. And so reliability, how long you think -- clearly, you're going to be increasingly have a reputation for higher reliability -- how long do you think before those truck customers buy in and trust that by going over they're going to get that reliability? Is this something that you've got to build out over quarters or over years? How long do you think that'll run days?

James Foote -- Chief Executive Officer

Days, weeks, quarters, months, years -- it depends upon who the customer is, it depends upon where you're doing it. And most of it is, in any in any business, you got to go in and sell a customer on the idea of converting and, as I said earlier, these guys were sophisticated the purchasers of transportation that know rail and they know truck and they'll scream at you every day that they have to pay premium prices when your service is not good -- i.e. they've got to pay more to put it in a truck -- and so you just got to go into them and prove lane by lane by lane by lane by lane that you can handle their product to their valued customer and do it in the same way, the same level of efficiency and reliability that they get out of out of on a truck.

They don't necessarily need it there in twenty-four, forty-eight hours -- they need it there with a degree of reliability that, if you say you're going to do it in four days it's there in four days 85%, 90% of the time. And, if you do that and not have the outlier, where, "Oh that load didn't get there for 12 days and this one didn't get there for 10 days," that's how you win it back.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Makes a lot of sense. Okay. Last question here: senior management now, when you look across the group you got a good set of railroaders here, any areas where you think you're going to be looking to add or ameliorate over the next in 2018 in your in your senior management ranks at all?

James Foote -- Chief Executive Officer

Oh, I think, well, clearly, based upon the result and the performance and everything I've said since I've been here, we've got a great team of people that know what the heck they're doing. And, as I said, I'll match these guys up with anybody in the industry and I think we've proven that with our first quarter results that we can perform with anybody.

But yeah, there are there are some holes to fill in the organization that everybody is aware of and Ed and I are working really, really hard to make sure that we find the right people and the right talent who could fill those roles. And we'll probably moving things around during this year, more to give people the, again, opportunities to show what they can do in certain roles and we're not sitting still and sitting back on that area either -- everything here is all systems go, improve the place and run it better and better every day, and make sure we have the future leaders for CSX ready to go and called on.

Ben Hartford -- Baird -- Senior Equity Research Analyst

Okay. Exciting times. Okay. Thanks very much, Jim. Appreciate your comments.

Operator

Thank you. Our next question comes from Jason Seidl of Cowen. You may go ahead.

Jason Seidl -- Cowen and Company -- Managing Director and Senior Research Analyst

Thank you, operator. Wanted to touch back on price a little bit, excluding the cold franchise. Jim, I think you mentioned there were some sequential improvement there. Can you give us a sense of how much of your book of business for 2018 has already been repriced?

James Foote -- Chief Executive Officer

In what segment of the company?

Jason Seidl -- Cowen and Company -- Managing Director and Senior Research Analyst

Ex-coal.

James Foote -- Chief Executive Officer

Alright. I guess it's safe to say that we have... The best way, say a third of the business rolls over every year. That's kind of a good metric to use and we get it and I can't give you a much more guidance on that

Jason Seidl -- Cowen and Company -- Managing Director and Senior Research Analyst

Okay. And piggybacking on some of your comments on the call, you mentioned that you might change some of the pricing dynamic. Should we think about it as maybe you guys setting this up is something that links to a natural gas index like a Henry Hub to be more flexible, given some of the utilities' needs?

James Foote -- Chief Executive Officer

That would be the obvious methodology to use.

Jason Seidl -- Cowen and Company -- Managing Director and Senior Research Analyst

Okay. Gentlemen, thank you for the time. Nice job on the quarter.

Operator

Thank you. Our last question comes from Ravi Shankar from Morgan Stanley. You may go ahead.

Ravi Shankar -- Morgan Stanley -- Equity Analyst

Thanks. Evening, everyone. Just want to make sure I understand your strategy on intermodal here with what's going on in the truck market. Are you saying that you are focusing more on getting pricing from existing customers versus focusing on truck to rail conversion? Or are you pursuing the other opportunity as well?

James Foote -- Chief Executive Officer

Well, clearly, we're clearly, we're focused on two things. One, growing the business to profitably, so loyal with price equals topline growth and whether that's an existing customer give me more volume or whether it's a new customer that could give me a volume I don't have today, that is always the equation. I do not have a scorecard in my office that says RtoR, or whatever we call it, Road to Rail, and how many did I get today? That's not a game that is going to make me any money. Just taking the truck off the highway and put that on the railroad, if it's not priced right and it's not moving in specific order, it adds no value to me and, at the end of the day, it adds no value to the customer because we probably don't do a very good job for them.

So, whether it's an interval customer or its merchandise customer, the whole objective here is to go to the customer and say, "I can provide you with value," whether it's the merchandise customer that we talked about before or whether it's the intermodal customer who wants to take advantage of the railroad in connection with his over the road trucking operations, I need to provide value to him and make sure that, that value to him, I get paid for. And, if the two don't align -- if the guy wants me to add value and expects me to give him a discount at the same time -- then the stars don't align and he probably go someplace else.

Ravi Shankar -- Morgan Stanley -- Equity Analyst

Got it. Understood. And just one housekeeping for Frank: on the real estate gains, I think you had indicated at the Analyst Day that you expect that runrate the step down in 2018 verses 2017 but you had $30 million higher this quarter versus last year. I know that's a lumpy line, but what can we expect in terms of the cadence of that in the coming quarters? Because, right now, it looks like it's going to be a significant headwind unless you guys kind of step into the extra [inaudible] market.

Frank Lonegro -- Chief Financial Officer

So, Ravi, we're not trying to time this at all. When the assets are up for sale and they are ready to close, we close them. Like you said, it's going to be lumpy in terms of quarters and years. We set that goal of $300 million in real estate sales It's aggressive but achievable, and you might remember that, in Mark's remarks of the investor Conference, he actually said he felt there was some upside to that which isn't in the targets that we that we set. So, we're not we're not trying to time it at all -- we're going to go as fast as we can put the money in the bank as fast as we can.

Ravi Shankar -- Morgan Stanley -- Equity Analyst

Okay. Thank you.

Kevin Boone -- Chief Investor Relations Officer

Well, I think we're done with all the questions, so we'll wrap it up here.

Operator

And thank you. This concludes today's teleconference, thank you.

Duration: 78 minutes

Call participants:

Kevin Boone -- Chief Investor Relations Officer

James Foote -- Chief Executive Officer

Frank Lonegro -- Chief Financial Officer

Chris Wetherbee -- Citigroup -- Senior Research Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Managing Director

Tom Wadewitz -- UBS -- Wall Street Analyst

Allison Landry -- Credit Suisse -- Equity Research Analyst

Scott Group -- Wolfe Research -- Managing Director

Fadi Chamoun -- BMO Capital Markets -- Research Analyst

Amit Mehrotra -- Deutsche Bank -- Lead Analyst

Brandon Oglenski -- Barclays Capital -- Director, Senior Equity Analyst

Brian Ossenbeck -- JP Morgan -- Senior Analyst

Matt Russell -- Goldman Sachs -- Vice President

Justin Long -- Stephens -- Research Analyst

Ben Hartford -- Baird -- Senior Equity Research Analyst

Cherilyn Radbourne -- TD Securities -- Research Equity Analyst

David Vernon -- Stanford Bernstein -- Vice President and Senior Analyst

Walter Spracklin -- RBC Capital Markets -- Equity Research Analyst

Jason Seidl -- Cowen and Company -- Managing Director and Senior Research Analyst

Ravi Shankar -- Morgan Stanley -- Equity Analyst

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10 stocks we like better than CSX
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David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and CSX wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of April 2, 2018