Prepared remarks
Good afternoon, and welcome, everyone, to the CSX Corporation Second Quarter 2026 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Matthew Korn, Head of Investor Relations and Corporate Communications. Please go ahead.
Thank you, Audra. Good afternoon, everyone. We are very pleased to have you join our second quarter 2026 earnings call. Joining me from the CSX leadership team are Steve Angel, President and Chief Executive Officer; Mike Cory, EVP and Chief Operating Officer; Kevin Boone, EVP and Chief Financial Officer; and Maryclare Kenney, Senior Vice President and Chief Commercial Officer. In the presentation that accompanies this call, which is available on our website, you will find slides with our forward-looking and our non-GAAP disclosures. We encourage you to review them. And with that, I'm very happy to turn the call over to Mr. Steve Angel.
Good afternoon. Thank you for joining our earnings call. This quarter, CSX continued to make progress toward our goal of best-in-class performance. Stronger demand led to volume growth across our business, and we managed this growth while delivering strong safety and productivity outcomes. These results reflect the hard work and dedication of our railroaders as they serve our customers safely and reliably. For the quarter, volume increased 6%, and our revenue increased 10%, reaching a new quarterly record. At the same time, we improved operating efficiency and maintained strong cost discipline, driving substantial margin expansion and double-digit growth in operating income and earnings per share. We are proud of our accomplishments so far this year, but our objective is to build an organization that can consistently deliver strong performance over the long term. There are many areas across the business where we can improve performance and network fluidity and service are among them. Plans are in place to address opportunities for improvement, and we expect to see steady progress throughout the quarter while maintaining our focus on profitable growth. Our solid volume growth this quarter reflects the benefits of our commercial initiatives, network investments and the execution of our team across the railroad. Our priority is achieving profitable growth, not gaining market share for its own sake. I believe that industries that become too focused on market share eventually drive out profitability. At CSX, what's most important is that the business we add increases operating income, expands margins, and delivers good returns on invested capital. Mike?
Thank you very much, Steve, and good afternoon, everyone. The railroad made solid progress in safety and productivity this quarter, as shown on Slide 5. Our team continued its consistent and disciplined approach to managing risk and controlling costs even as the amount of volume we handled grew substantially. The strength of our safety culture is the foundation for everything we do at CSX, and our year-over-year safety performance was impressive in the second quarter. Our FRA Injury Rate improved by 19% compared to last year even as our base of total people hours declined by 7%, and our Train Accident Rate improved by 30%. We see opportunities to build on these results through continued focus on risk awareness, field-level engagement and applied technology as we pursue best-in-class performance. We managed stronger-than-expected growth in the second quarter, with volumes increasing 6% year-over-year. Handling this growth while experiencing seasonal reductions in employee availability created tightness in certain areas of the network. And while our average velocity improved 3% compared to the prior year, we also saw an increase in dwell. We're taking clear steps to improve the consistent availability of our crews, and with the effective management of resources, we expect sequential improvement in our service metrics. Network productivity continued to increase this quarter. The metrics on the right side of this slide highlight the specific gains our team delivered. Our fuel efficiency improved year-over-year for the fourth straight quarter as we improved locomotive utilization and continue to maximize the use of Trip Optimizer. We increased the number of GTMs we generated per unit of horsepower for the sixth quarter in a row. Our employees are more productive and moved more tonnage per train compared to a year ago. Overall, our team stepped up as customers brought more business to CSX. We ran safely and efficiently, and I expect fluidity to improve as the year progresses. Kevin is now going to review our financial results, and over to you, Kevin.
All right. Thank you, Mike, and good afternoon. As both Mike and Steve noted, the CSX team delivered another strong quarter, including higher volume, record revenue and lower non-fuel expense. These results reflect continued partnership across the business to improve safety and drive cost efficiencies while meeting increased demand from our customers. Total revenue increased 10%, benefiting from higher fuel surcharge combined with both volume growth and higher pricing across our merchandise, intermodal and coal markets. Total expenses increased by 6%, with a 2% reduction in non-fuel expenses. Putting all together, operating income increased by 17% with operating margins improving 240 basis points despite 160 basis points of fuel price headwinds. This strong performance drove earnings per share growth of 23% in the quarter. Let's now turn to the next slide for a closer look at expenses. Total second quarter expenses increased by $138 million compared to the prior year. This includes an increase of $177 million for fuel driven by higher diesel price, net of savings from our record-setting quarter fuel efficiency. Labor costs increased by $40 million with a nearly $90 million combined impact from higher incentive compensation and inflation. These headwinds were mostly offset by savings from a 6% lower head count with declines across both management and craft employees. G&E head count will increase modestly in the coming months to support our Service product with improved demand, while we expect to leverage process improvements and technology to absorb attrition in other areas of the business. PS&O expenses were lower again in the second quarter with efficiency savings across each of our operating departments as well as our G&A and technology functions. Discretionary costs remain under intense review and managers across the company are being empowered with tools and visibility to take action on wasteful spending and other cost opportunities. For example, spend on third-party services across our operations team was lower by $23 million in the quarter, benefiting from better utilization of our internal maintenance functions and detailed reviews of contractor activity. That discipline also applies to our corporate functions with savings in external technology labor, corporate communication support and legal fees. The business also demonstrated an ability to efficiently absorb higher volumes, with a 12% reduction in our intermodal terminal cost per lift. Moving to the third quarter. Incentive compensation expense will step lower sequentially, largely offset by the 3.75% union wage increase. And within PS&O, we expect fewer property gains and insurance recoveries as well as higher costs for locomotive overhauls in the second half relative to the first. As Steve noted, we are focused on our Service product while embedding a culture of continuous improvement. Our accomplishments year-to-date put us in position to invest in initiatives to drive further productivity in 2027 and beyond. With that, I'll turn it over to Maryclare to review our revenue results.
Thank you, Kevin, and good afternoon, everyone. Before I get into the results, I want to recognize the hard work of our commercial and operations teams, who worked closely together to handle volumes that exceeded our expectations. Heading into the second quarter, we saw favorable trends emerging in select markets. What started as a narrow supply-driven improvement in market conditions broadened through the spring, resulting in strong volume growth across the business. Customers are increasingly turning to rail for their supply chain needs and we are focused on earning their business through competitive service offerings and reliable execution. Turning to Slide 10. I'll walk you through second quarter volume and revenue performance. Overall, total volume was up 6% in the quarter. Revenue was up 10% and revenue per unit was up 4%. Total revenue per unit, excluding fuel, declined 1% compared to the prior year due to mix, as intermodal grew at more than double the rate of other business units. In Merchandise, volume was up 4% year-over-year, while revenue grew 8%. Merchandise RPU, excluding fuel, was 1% higher as solid pricing helped offset negative mix. Including fuel, RPU was up 4% year-over-year. Strength was broad-based across Merchandise with 6 of our 7 business units growing or holding flat year-over-year. Chemicals volume increased 8% compared to last year, supported by plastics exports and demand for waste-by-rail. Metals and Equipment delivered a standout quarter, with 14% revenue growth on 3% higher volume, driven by increased customer production and new plate mills and favorable mix from higher military and equipment mix. Forest products volume was flat year-over-year, a significant improvement from the first quarter as conversions increased on tighter truck capacity and higher fuel costs. Intermodal continues to build momentum and was the largest contributor to unit growth this quarter, with revenue up 26% on 9% higher volume and RPU up 16% year-over-year, driven by fuel surcharge. Our diverse domestic business drove our volume growth as new service offerings continue to ramp and truck-to-rail conversions have accelerated. Faster service and expanded network capacity enabled by the Howard Street Tunnel have positioned us well to capture this business. Finally, coal revenue grew 9% on 4% higher volume. Coal RPU increased 4%, primarily due to strong domestic contract renewals, and as Hampton Roads benchmark prices were relatively stable during the quarter. Export tonnage increased 12% year-over-year, driven by mine restarts and a best-ever four-month stretch of tonnage through Curtis Bay. Domestic tonnage declined 2% as lower natural gas prices and normalized customer inventories modestly tempered otherwise healthy demand. As we look at the second half of the year, our commercial initiatives continue to create opportunities for us to grow the business, including new service offerings, the ramp-up of industrial development projects and investments in our TRANSFLO and terminal network. Our opportunities to convert business to the railroad continue to grow as tighter truck supply and higher rates are highlighting the value proposition of rail. On the merchandise side, this is most prominent in forest products, waste and metal. We also expect strength and conversion to support domestic intermodal volume. Steady construction activity continues to support minerals and metals, and investment tied to power infrastructure and data center build-out is driving demand in domestic coal, frac sand and heavy equipment. Agricultural exports are another area of strength with record U.S. corn shipments through Chesapeake continuing through year-end. That said, we do see the potential for momentum to slow in some markets. Following a quarter of strong production in automotive, normalized inventories and summer shutdowns are leading to a softer start to the second half, ahead of new model launches in the fourth quarter. In chemicals, we expect plastics volumes to moderate following pull-forward activity in the first half. Meanwhile, coal fundamentals remain strong. Power demand and recent plant life extensions will support domestic utility burn. New business wins are driving growth in domestic steel and industrial markets, and export volumes are expected to remain steady, benefiting from improved mine supply. Finally, on the outlook for revenue per unit, underlying core pricing remains at or above our plan. With most of our contract renewals for the year already complete, we expect fuel and mix to be the primary drivers of RPU in the second half as any flow-through from truck rate pricing to yield typically takes time to materialize. Overall, trends for the back half of the year remain encouraging, and we're focused on converting those opportunities into long-term growth for the railroad. With that, I'll turn it back over to Steve.
Thank you, Maryclare. Now we'll review our updated guidance for 2026 on Slide 13. Based on our results year-to-date and our expectations for the balance of the year, we are adjusting our 2026 outlook higher. We now expect full year revenue growth in the mid- to high single digits, operating margin expansion of greater than 350 basis points and free cash flow growth of greater than 80%. Our outlook for capital spending remains unchanged at less than $2.4 billion. The updated outlook reflects strong volume growth, improved financial performance and the continued focus on productivity and cost control that you've heard about in today's call. We continue to see opportunities to strengthen service execution, improve productivity and drive long-term efficiency across the railroad. Those efforts remain central to our goal of delivering sustainable improvement over time. Finally, I want to thank our railroaders for their hard work and dedication this quarter. These results were made possible by their commitment to safety, integrity and serving our customers efficiently. Matthew will now open it up for questions.
Thank you, Steve. We will now proceed with the question-and-answer session. Audra, we are ready to begin.
Questions and answers
Appreciate the question. I guess maybe starting on one of the last points here in the prepared remarks about just the pricing opportunity in the back half. Understand the benefits you're seeing mix and fuel-wise and maybe not necessarily seeing some of the truckload benefits yet. So maybe just help us understand when we would expect to maybe see some of those benefits come through as the underlying environment certainly has seemed to heat out a bit here in the last month, a couple of months or so?
Thanks for the question. So yes, as we think about pricing, we said earlier this year, and we reaffirm it today, that we expect our same-store sales pricing to be stronger this year than it was last year. As I think about our merchandise portfolio, the team recognizes the value of the service that we provide, and they're leaning in, having conversations with customers and continuing to accelerate price. There's a lot of conversation out there in terms of the truck market. We did see truck capacity tighten, particularly over the course of the last couple months with regulatory enforcement. On the intermodal side, we're near the tail end of the domestic intermodal bid season for 2026, and I'm not going to get into 2027 at this point. But I would say we have seen acceleration in our domestic spot segment, which is a smaller portion of our business, but we've also seen it on some of our recent rail asset contract renewals. The team is constantly evaluating what market conditions look like. And as I said, they recognize the importance of ensuring we're getting the value for the service we provide. I do think it's important on the intermodal side to remember that not all areas of that business have the same market dynamics. For example, international is heavily concentrated. It's competitive, and it's primarily contracted under long-term deals. So that is not highly correlated to the truck market as you might see on domestic.
Maybe I wanted to get your perspective on sort of productivity and cost control progress from here. So obviously, some really good momentum so far in these first two quarters of '26, particularly seeing it on the PS&O line. I guess, as you think about the bigger picture opportunity, is this sort of just low-hanging fruit that you're capturing now? I guess you've been there a couple of quarters now to have a better sense of what maybe the bigger picture opportunity is. Wondering if maybe you can comment on what you think you can continue to generate as a business as we maybe look into the second half and potentially beyond to '27?
Kevin, why don't you take that one?
Yes. I would say expenses and efficiencies are never low hanging. There's a lot of work that goes into the efforts. Obviously, coming into the year, we had a plan and we're delivering on that plan, which I'm encouraged about. We look outward first. We're looking at all of our contractors, everything that we pay outside of the company first. And quite frankly, Mike and his team have come to the table with ideas on insourcing, and we found opportunities to insource activity and use our employees to do that work, and that's materializing the savings as well, and we see other opportunities there. The pipeline is robust. We're currently in the process of building out our 2027 plan and efficiencies, bringing the whole team together. We obviously have targets that we're setting for ourselves internally and goals there. I would say we're about halfway through that process and moving on probably a lot earlier than we normally would in other years that I've seen. And it's really about creating the muscle. It's about creating the accountability throughout the organization, ownership, common goals. And from a finance perspective, it's about us providing the tools and the visibility for Mike and his team and others to really go out and get those costs and understand where those cost opportunities are. So a lot of collaboration. We're excited. We're reviewing those tomorrow. Again, our status update and more to come on that.
I just want to follow up on the pricing question. So first question, I think you answered a lot about intermodal pricing. I want to ask about merchandise. We're seeing better volumes there. I'm sure they have some competition with truck market. Do you think merchandise price should be accelerating as well with intermodal? And so maybe in an aggregate basis, you said, hey, we think same-store pricing better in '26 than '25. I don't know, maybe it's too early to ask this, but would you think we see another acceleration in overall same-store price in '27?
Thanks, Scott. So I would say, yes, I'll reiterate this year is better than last year. I would say we're constantly looking at the markets and having discussions with customers. They want us to reinvest in the business. They understand inflation. We have seen improvement in several markets as we've gone throughout the course of this year, but it's too early to get into '27 at this point.
A question for Mike. We see some of KPIs, some of them moving in what we historically see, not in a good direction as well. But clearly, you're setting records on fuel, locomotive utilization and safety with solid results. So just wanted to see if you can kind of square the KPIs we normally see maybe a little mixed and you still think there's some improvement with sort of the impact on the business? Is this really affecting pricing renewals? The service looks at least a little challenged in some areas. Was this any impact from a surprise in volume growth?
Yes. Thanks for the question. The short answer is you're correct, our service metrics aren't where we want them to be, particularly terminal, dwell and trip plan performance. The short version of that is that demand came in much stronger than we expected and we were tighter on crews in some of our locations. Volume was up 6% across the network and while head count was lower than last year, we managed through that by being safer and more efficient. We increased our average tonnage per merchandise train by 5%, and we've improved our workforce productivity. While we're doing that, it added pressure to our service metrics. That's our area of opportunity, and we're extremely focused on it. It's not a structural service issue, and certainly not to minimize the importance of it, but we're very productive and just not as smooth as we need to be. The forward work is pretty straightforward for us. A fluid network provides reliable service at the cost that we need. This isn't about choosing one or the other. It's about meeting our customers' needs effectively and productively. We're going to keep improving on the safety and productivity gains we earned, but our goal is to create the capacity where the demand profile requires it. That's going to include a modest increase in our T&E head count to support that Service product. However, we expect productivity to increase. We're being deliberate about it. We aren't going to overcorrect and lose the productivity the team has worked hard to earn. We're focused on creating the consistency that our customers need and deserve. So bottom line, the quarter showed that we can handle stronger volumes and do it safely and efficiently. While we improved safety and productivity, the next step is really to convert that into more consistent fluidity and service. That's what we're focused on, and I see us sequentially improving our operating and service metrics, no doubt about it. Over to you, Maryclare.
I'd just add that the team is obviously staying very close with customers and with our operating team. Mike and I spent a lot of time together. Our team spent a lot of time together and we're constantly reviewing service. We're talking through if we see an area that is an opportunity, how do we work here together and then making sure we're staying close to the customer.
So great job on the higher volumes. But I guess maybe just to clarify, the 350 basis point target, that includes the gain on sale, right? So what about $93 million this quarter? And then Mike, on that point of hiring faster, do you need to hire faster given the 6% jump in carloads? I mean isn't this the time where you need to start planning ahead for not just what may come, but if the truck market keeps tightening and we keep getting a spillover, can you meet that with productivity? Or do you need to start hiring faster given the lead time you have to start working on that?
Yes. Just to clarify on the margin side, it does include, obviously, the results that we reported in the first half, including some of the gains we reported in the first half of the year. The amount you referenced was more cumulative over the first half rather than all in Q2.
Let me take that. Any head count increase is expected to be very modest. One thing that happened—and Mike covered it—is the summer months where we have a lot of vacations and those people have really come back. So it was concentrated in just a few months, at the same time we saw that acceleration in demand. But those people are back at work and any increases we're contemplating are going to be very modest. We will be in good shape going forward. In fact, as you look at our service metrics today, they're definitely improving.
Good afternoon. Kevin, you called out two cost line items somewhat specifically. So on labor, it feels like it's going to be roughly flattish as the incentive comp declines, then you have the annual wage inflation. And then PS&O, I guess you kind of insinuated that's going to be higher without the gains on sales, some of the Automotive work, et cetera. We would typically maybe expect to see the third quarter margin improving, especially when you have this type of volume acceleration and the strong start that you've had in July. Given some of those cost things that you've just noted—maybe some of the hiring, fuel volatility again—would you expect to see a kind of normal seasonal trend as we go through the second half of this year? Or has some of the lower-hanging fruit or heavy lifting already been done in the first half?
No, I wouldn't say that. I think we have a lot of good initiatives that we're going to continue to carry through on the PS&O side. I think you're spot-on on the labor side—the incentive compensation largely will offset some of the labor increases that we have starting July 1 with our union labor workforce. But otherwise, I think you'll see typical seasonality. Typically, you'll see third quarter maybe a little lower than second quarter. Really, the big factor on the margin side will be fuel. We've seen a lot of volatility in the fuel price, certainly, and we face the fuel lag in the second quarter of the year, and that should go away. But all bets are off on where the fuel could go. We saw a pretty dramatic increase this past week. All else equal, I think we'll see some benefit quarter-over-quarter, and that's probably going to help our story a little bit as we move from second quarter into the third quarter. So probably a little better than the typical seasonality when we see a little bit of deterioration from an operating income perspective from second to third quarter.
So I wanted to swing back a little bit to the pricing side. I think maybe Maryclare, if I ask it in the way that you frame where we're at on Merchandise pricing, maybe that will help us to think about what the upside could be. If we think about a range of Merchandise pricing you've achieved over time, I don't know if the low end is 1% and the high end 5% or 6%, something like that. Obviously, if I'm off on that, please correct me. But where do you think you're at in the range of pricing gains in '26? Just so we can have a sense of as you see some of this market and maybe some strength in your markets how much upside is there in pricing when you look to 2027 in particular on the Merchandise segment?
We are not going to put out a specific number associated with pricing. But I would tell you the team is closely looking at it. In several markets, the fundamentals have changed over the course of the last several months. It's something that we watch closely. We have a highly skilled team on the marketing side. They understand their markets and they're constantly having conversations with customers. We're going to make sure that we continue to price the value of the service and make sure that people looking to bring more to rail are being considered.
Maryclare, maybe I can ask one of you too. It looks like your units are running up maybe 6.5% right now early in the third quarter. How can you compare that to your annual revenue guidance here? I know you called out some headwinds in the back half, but are we just running maybe even ahead of expectations right now?
Thanks. I would say right now we called out a couple of areas that we're watching. Merchandise and intermodal improved in the second quarter. If we think about the balance of the year, the tighter truck capacity should create some additional opportunities on domestic intermodal. We've taken that into account as we think about the balance of the year and in certain areas of our Merchandise portfolio. We saw probably the strongest acceleration due to truck conversion in the Forest Products segment in Q2 versus where we were in Q1. As we think about the future, there are two areas of Merchandise that were a little stronger in the second quarter than we anticipated that we're keeping our eye on—chemicals and automotive. On the chemical side with the war in Iran, we saw an uptick in plastics as people were looking to pull ahead inventories; now we're keeping a close eye on those. They could moderate as we get into the back half. On the automotive side, overall, automotive demand really hasn't improved. The current outlook for North American light vehicle production is still to be down just under 2% for the year. It was slower in the first quarter, it accelerated some in the second quarter, but we're watching those trends coming out of shutdowns. Some inventories are high, and so we're keeping an eye on that. So that could decelerate a bit. But as we think about the rest of the markets, there are better fundamentals out there now than where we saw starting out this year.
I was going to come back to Mike on the capacity side. You talked a little bit about labor and hiring. But I was wondering if you're seeing pinch points from a structural standpoint, anything that might make you look a little bit harder at the CapEx? I know you held it this year, but when growth comes on sometimes you find pinch points that you weren't aware of before. Is there any evidence of that at all?
Thanks for the question. No— in terms of structural issues, no. We're always looking at our capacity and we're working very hard to improve our capacity modeling. In terms of the network itself, we showed with the volume we brought, with the exception of some locations where we were very tight on crews, we can handle it and we can handle more. We'll continuously look at our demand profile and work hard to find the capacity that we have and exert everything we can out of it. But in terms of structural issues, no, we're in good shape going forward, and that's how we see it.
Maryclare, I was hoping you could talk about the intermodal opportunity. Now that Howard Street is open, obviously the trucking market has tightened a lot, especially in the East. Just talk about how you're balancing the desire to grow volume against the pricing opportunity and how much available capacity is on the network. How should we be modeling that over the next couple of quarters?
When we think about domestic intermodal this year and longer term, we see opportunity out there. A good amount of traffic that moves over the highway is suitable for intermodal conversion. We're coming out of a soft truck market, and it has tightened significantly over the last several months, and we're having a lot of conversations with customers. The investments we've made in our infrastructure have allowed us to capitalize on opportunities pretty quickly over the last few months. I'm closely watching as the team sells against the Howard Street Tunnel and the new connectivity we've put in place. We've talked over the last couple of calls about some of the new services we've rolled out, including the partnership with CPKC on SMX. When I look at SMX and Howard Street over the past few weeks and months, we've seen growth week-over-week in both of those areas. In the last couple of weeks, it's added about two points, I would say, in terms of domestic intermodal growth. We see additional opportunity there. Howard Street is still pretty early for our customers and was later in the bid cycle when that was unlocked this year. As we go into the back end of this year and into next year, we see additional opportunity. Pricing is a hot topic and we're constantly watching and evaluating the market. Not everything comes up at the same time; the intermodal bid season plays into that. In terms of capacity, it's a constant conversation with Mike and his team. As I think about our intermodal trains, they're running today and there's capacity on many of our trains. That gives us the ability to bring on business quickly while still supporting reliability and consistency for our customers.
So I just wanted to discuss more about customer feedback. The value proposition for intermodal is pretty clear. But more broadly, how are customers feeling? What's driving them to CSX—do they feel this is company-specific? Again, you've optimized your product portfolio and you're exposed to specific projects. Or does it feel like there's true macro uplift here? And then I just wanted to clarify that there's no fear around broad-based pull forward. Maryclare, I think you gave us a lot of plastics and auto, but wanted to confirm you don't feel like that was broader pull forward given the high-level data we see from the ports? And then along those lines, maybe also comment on the competitive environment and how that's affecting your ability to optimize demand in this environment?
I'll try to cover that. On the intermodal side, there's good opportunity for conversion. We have a wholesale channel of sale where we work with channel partners, and a BCO national accounts team that talks directly with shippers. We constantly review what they are moving over the road and advise them on lines suitable for intermodal conversion. With tighter truck markets, the value proposition of intermodal is strong and is an area of opportunity this year and next. On the broader markets, I mentioned chemicals and automotive. For forest products, we saw supply-side issues coming into the year; demand hasn't necessarily weakened but supply has tightened, and we continue to see opportunities there with tighter truck capacity. Several other areas are tied to infrastructure—metals into data centers, plate and rebar for construction—and we see steady support from those markets. Minerals tied to IIJA funding are also supportive. So overall, we see positive drivers in many markets and are optimistic going forward.
Steve and team, good job in the quarter. Maryclare, I wanted to talk a little bit more about two things you brought up. Number one, you mentioned your spot intermodal business—maybe you could remind us the percent of the total that is? And also, you referenced your SMX advantage business with CPKC. What is the longer-term opportunity with that? Especially given that we saw some carriers eliminated earlier this year for regulatory violations. Are you getting a lot of questions from new shippers that might want to ship cross-border intermodal from Mexico?
On the spot piece, it's a very small portion of our business; it's a small element of domestic intermodal, but we've seen acceleration recently. In terms of SMX and our partnership with CPKC, we've continued to see growth. We saw good volumes when the program started a little over a year ago, and we've been pleased with the acceleration this year. Similar to Howard Street, it's building and we're seeing week-over-week growth. We've improved service in recent months and added lanes to SMX as we move into the back half of this year and into next year's bid season, and we expect additional growth in that area.
Earlier you provided merchandise RPU ex-fuel. I was curious if you can offer what intermodal RPU ex-fuel was—or said another way, what your renewals, particularly in the domestic business, were like? And then taking a step back, if truckload sees strong bid seasons of over double-digit renewals, what's the ultimate opportunity for pricing within your domestic intermodal business without sacrificing some of that opportunity for truckload conversions?
Fuel was a big driver on intermodal RPU in this past quarter. As we think about the future, the truck market tightened recently, and the bid season dynamics are similar to what other large carriers experience—the bid season kicks off toward the end of the year and pricing emerges then. The market dynamics have shifted during this year's bid season for domestic intermodal. Some business can be repriced each year; some is in multiyear agreements with specific terms. We're going to lean in, but that's as far as we can go on domestic intermodal pricing at this point.
So Kevin, I wanted to get your sense for how you're feeling about the operating leverage on the incremental business that's coming in. There's a lot that you guys have done this year, which is commendable around head count reductions and expense reductions. But when I think about the freight revenue growth in relation to the profit growth, ex some of those onetime items, maybe the incrementals aren't so great. I'm just wondering how you're feeling about the leverage you're getting on the new business? And how much of the $54 million of efficiency gains is really volume-driven versus more cost takeout driven?
When I do the math and exclude fuel, our incremental margins were very strong overall. Expenses were down 2% and we achieved meaningful growth in the quarter. That's reflected in the incremental margins and I'm quite pleased with that. Moving forward, this is a model that has costs and as we bring volume on, it has to be profitable and support reinvestments in the railroad. We expect to generate powerful incremental margins. It's about cost discipline. As we take on volume, not all volume is created equal, so we're looking for volume that supports reinvestments and returns on invested capital is a real focus for this team.
Steve, I'd be curious on your perspective as an outsider now 10 months into being an insider at the railroad. Relative to what you were thinking when you came in and accepted this role, where do you still think there is a lot of opportunity to do things differently in an old-economy established industry? And where maybe have you sort of given up where there's too much friction or processes that are too ingrained to really change?
I've been here about 10 months and I'm encouraged about the progress we've made and what we have ahead of us. There's opportunity to improve everything—I've always found that to be true. In operations, it's a never-ending endeavor to continue to improve, and Mike Cory, as a long-time railroad veteran, knows that well. There's always room to get better. On pricing, Maryclare has answered a lot of questions today and I think we're building a pricing muscle. We'll get better at price management and analytics. AI can be helpful with good pricing analytical tools so we can better understand the value we provide, the customer's next best alternative, and ensure we're earning good returns with capacity considerations. Those decisions should be surgical, not blanket percentage increases. We want profitable business, good returns on capital, and to reinvest in the business. On productivity, Kevin and Mike talked about it—there's a lot of opportunity. The team has responded well this year. Tomorrow we will work on 2027 and discuss benefits that will carry forward to 2028. It's about building that productivity muscle.
This concludes today's question-and-answer session and conference call. Thank you for your participation. You may now disconnect.