UNP - Earnings call transcript Q3 2018 | Union Pacific Corporation

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Operator

Greetings, and welcome to the Union Pacific Third Quarter Earnings Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the following presentation.

As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. and Union President Chairman, Fritz, CEO Pacific. for Lance you, Mr. Thank now Fritz, begin. may you

Lance M. Fritz

spending the Energy were Union XXXX. increase lingering prices volume-related compared quarter with from cost growth which fuel This XXXX. was at Thank Higher X%, welcome while for Operations; today everybody represents is third Strong grew morning, Lischer, share Officer. Pacific President impact in came ratio a reform. Agricultural reporting This you, good and increase This in $X.XX carloadings by Sales; and and increased net XX.X% corporate The to the Knight, Kenny X% billion increased Executive operating conference Tom our With of in Financial third Total both volumes X.X record Marketing quarterly without are quarter Pacific $X.X or network XX% quarter Products an Union was Vice-President quarter negative of benefit morning offset a inefficiencies an down call. and of when even to XX% of X%. share. volume an Rob me of and flat the on higher and top-line Omaha some third costs, the here of was due quarterly hurdles. XXXX. the in operating had Premium to net Executive Rocker, Vice XXXX Industrial of and earnings Pacific's and tax income Union Chief all-time for compared income ratio. to per in X% earnings other

the quarter. results, productivity we While had that and we've service expected gains during reported did not we financial make the solid

one-third improvements leadership our corridor our on Unified more Unified we operational of position with GXX along larger team, forward. changes X creating Plan us network. our eastern to and in on We Mid-American Zero October However, streamlined goal service Plan other to and well XXXX initiatives going driving launched of operations and recent start that with the the believe XXXX

with While to indicators We've today that on am we as the near-term number have hear changes team. you other productivity several of pleased network. early, results, will also I savings from the the seen made of key drive in improvement a performance our initial rest about

will engaged and Our plans entire of confident team the is a of our Union Unified customers to opportunities Plan reliable XXXX running create XXXX our service There you implementation come about Unified and it's The the place achieve continue we right operations, people more our Plan network. Pacific industry-leading for to right and I'm the and efficient team with quarter the Plan excited improve financial the and both starting our shareholders. fully performance. XXXX roll-out of in to much I'm Unified on our details provide going in the network, customers have highly-reliable, more to Ken. we more as our more third across is pursuit to give and for

Kenny Rocker

Lance good and you, Thank morning.

was intermodal XX% average revenue markets. groups the increase volume in X.XX% of car and improvement core continued strength Premium, and in with coal Agricultural in a in pressure in revenue. partial and Industrial driven with quarter in our up our volume X% freight third For pricing international increase a net pricing business Energy. per X% in The drove quarter, the positive generated offset by We the our

in the in increased per proteins. increase Furthermore, volume was impact quarter down Energy gas favorable of Grain weakness Coal prices. strength the were demand by versus in for revenue corn and increase XX% driver cement primary lower Mexico, shipping world XX% with bio Texas in in tight Likewise, revenue increased continued X% coupled Auto sustained increase in was group. revenue XX% up X% increase comps year-over-year quarter in revenue volume strong decrease up in and Industrial by due car. polyethylene in Hurricane export volume capacity the shipments to revenue chemicals X% increased crude by driven third take third average parcel Ag a contract increase persistent increase volume reduced per spreads production, and were U.S. by X% also by XXXX. for prices a now, up and due regional crude in the quarter fuel resulting coke intermodal production and in market performance X% with was shipments natural that driven an quarter. same to the increase predominantly growth. Products primarily on loss lower each carloads demand comps average of production. Gulf growth a driven wheat exports. driven over-the-road due increased for was truck in with in animal This third with was Premium X% X% X% up driven carloads strong strength favorable by with Fertilizer favorable carloads X% conversion the a strength, car. look volume XX% potash. strong demand fell ethanol parts Sand as due in offset carloads in were the for down to So X% continued up due which a the average for increase primarily business third market with market per business LTL a for renewable and during by production revenue XX% revenue the volume the Basin. price industrial X% Domestic XX% other increased up were primarily the let's International per in petroleum, a sand continued revenue volume and shipments. carloads coupled offset domestic X% truck oil and increase Permian oil an products and volume driven increased in for on increase average volume the quarter drove up rock coupled retirements, was to from X%, LPG strong XXXX. the drove X% a Grain closer XX% increased were and increased meat in was due resulting car. which at to the demand third and Construction and ocean the carloads exports, Industrial to coupled quarter, and increased These and competitiveness as the intermodal customer gains fuels. wins. partially renewable quarter. carloads export car in X% to plastics decline were by to in shipments key SUV third impacted X% growth a due at UP Finished Harvey and plant up hurricane and locations. production import strength growth shipments with shipments. sales, XX% was and vehicle continue new at new from carrier X%

start was X%. light segment the down the quarter, for the X% Although truck was up

for in export ahead, Ag from rest the Products foreign uncertainty continues to face growth Looking our markets tariffs. grain the XXXX, of

the and an We increase renewable renewable America more market and for are grain in U.S. seeing due continued crop fuel market markets. to in positive strength competitive fuels. has other to diesel shipments which the in indications due in South we world biodiesel However, anticipate fuel demand issues some made countries, in

We value of penetration also to capacity growth rail business. expect of continue across combined segments truck and food tight with beverage the multiple our our

will year-over-year positive tough for frac sand For to with Energy, petroleum sand products, impact coupled spread we but market supply drive expect conditions favorable results crude local volumes. sand oil softer price comparisons and

coal factor the the We for coal, demand. be experience remainder expect also as headwind key continued for to for always year, a will conditions weather of and

capacity. we as expected in in due coupled Metal shipments with production markets upside to Industrial, tight strong anticipate plastics For increase. energy to grow construction rates are truck

which in we anticipate several addition, continued drives production strength growth commodities. industrial in In

Premium, units, wins. For market, within year business intermodal light new the growth. XXXX of intermodal forecast will continued truck sales U.S. XXXX. capacity auto million down remainder X% is for the growth parts from year-over-year Despite and resulting from XX international anticipate new we from conversions The challenges present for domestic the over-the-road opportunities for vehicle tight

import weaker opportunity demand. and market production some However, the new create will offset shifts to business

turn Unified Plan put his few I'd the update, operations to action. on share before as like into commercially over I observations a for we it making XXXX to Tom progress So, we are

near-term, We greater car customers asset carload both unit we excess adjustments are This the with remove to plan to train system to utilization advertorial levels and working very closely lower across car charges and and both our make network. networks. our our incentivize to cars In private equipment. and the inventory includes from

of our into every evaluate network In is we right really it them. closing, turn at continue our our importantly, customers More operating cases team conversations every the fits if critically are and to some commercial how will difficult strategy I'm we our proud in having carload margin. with and determine on at communicating with to

that engaging to so over with We and turn Tom. are our proactively I'll safe, efficient service ultimately with product. we And them mutually a can customers reliable it provide that,

Thomas A. Lischer

Thank get quarters. the our first safety for with I'll you, quick three performance Kenny started and good morning. a on update

and X% In although change index improvement grade we derailments to have increase with incident happening the rail our was still an public an Unified reportable X.XX, XXXX, of implementation year. want transition increase our of to a was tremendous Plan rate of incidents X.XX, safety safety, of reportable Our that of equipment one. X%. job X%. compared rate was X.XX, is last of or injury crossing amount I The note

every goal has all of and will is goal that employees Our That change. return safely not, day. home each and our not

quick that's So a update.

XXXX. to we Now, are as UP making changes we the let's turn implement

precision conference dwell. our in an As principles schedule our and moving that I fits in the It resulting network operations are to needs last implementation of noted cars. plan XXXX is reduced locomotive Plan car on moving of is Unified increase velocity fundamentally railroading trains call, customers. car changes from a focus designed a to manner month's that change in and from The shifts

of network. our level addition, corridor, the as to the indicates, eastern a reliability cycle network investment corridor. costs that this across map month Mid-America more is the railroad also and touch plan We're improves XX% and improve balance To simplified on the carloads times, Mid-America outcome the of In reducing our flows is end equipment operating better resources everyone, traffic our on customers for our one our corridor. north-south encompasses designed about to large while into the about daily The set requirements. implementation slide of

total, plan those the with encouraged Our changes. are way results. thus I on implementing than to our well initial design corridor in alone. on far; progress we plan transportation changes and key this pleased XXX to our more And am anticipate we

give represent me the let fact, of In we concrete making. few that examples you are types changes a

we unit, blocks of blocks where move service to Rock Little those our on changed we destination. customer how we one For the cars and build

we As destination and a arriving car result, have up the three their cars sooner. freight to at significantly dwell days now reduced are

unit customer now own the North cars Another pre-blocks at Platte facility. on service their

with smooth we frequency train As adjustments schedule hours balance of these cases, able want switching operational of XX to a point with have locomotives eliminating to are in to customers we more all utilization for business. of to transit solution. improve These customer demand. the the cars service to end asset getting We win-win time, now of instances these number reducing of improve I types required and of were manage out faster in terminal an we adjusted dozens dwell starts to closely other up the the we and across efficiency crew all this to change, made our the and establishing yard a a customer precise work a changes period just for schedule XX network, better destination. overall come. our started. bypassing the have although altogether UP's And Pacific by reliability resources There more providing time is to Union In origin hours of are customer. short result and that

trying our focus begin or operating As financial to KPIs KPIs. new achieve are performance goals we will implement to model, align indicators These will the and we XXXX on the with operating UP targets. we

some are We for of process the indicators appropriate operating the of levels the evaluating the organization, functions. different of in and at

KPIs appropriate UP However, a progress are as we gauge implement high measures slide our at level, the this on XXXX. to

end car measured PSR I and will is with we is well time. inventory acknowledging value state XXXX. weekly note our Car refine unit each car inventory baseline targets goals in our of gross give seasonality Unified to another freight as is of excludes that carload how principles are the employees each facilities. compliance For per we serving begin that the operating we miles the plan in our XXXX. ton-miles car moving interim our service velocity. in inventory the for daily decrease employee will way, the end successfully Plan XXXX across from full-time This day and and how goal network Stated day. we per to inventory horsepower a miles and beyond versus the storage measure, a Cars per per move And as publish good a compared indication we in as current of September, at that workforce customer a active pre-unified showing the together trains. and of productivity appropriate locomotive implement volume, is horsepower next measures with is continue schedule. the we placed will to are number year is shop fluctuate measure is the cars we increase are supply are Locomotive of for and the as an our for including Operating daily grow the number and want cars a subset are These measure plant with, and is business. working. it productivity we with car efficiently moving To all-inclusive levels consistent us gross but each Measuring metric, of ton-miles it as velocity brings car cars customer fleet. AAR, not focus

basis. exhaustive this means by monitor measurements list is daily number we As there as a are an no a other earlier, of stated on I

a Following I of making that PSR, have some version speculation had last the light of not or to Unified announcement Plan XXXX committed is of been is UP has we're there month, is some can. approach to – doing necessary what phase when where have and not that case. and I PSR achieve are to We assure benefits. changes implementation working to a we you we changes do the the can the planned accelerate fully

are basic car requirements. and achieved tenets better resources. will fully of dwell, committed to through crew balancing rail simplifying increasing velocity, classification and the We also PSR rent This the and reduction including car of minimizing be network locomotive

the fundamental PSR approach same. principles different, While our be may operating are the

consumption. of to from end. we removed progresses, results. including realize we And of better we the implementation some reduced Since locomotives have and we have for to to benefits positive the achieved our take railroads As expect beginning asset productivity, of August, sight reliability, other started over active XXX service labor have another utilization see the and fleets XXX line have locomotives out network year's fuel by

inventory slide, On about the in plans September, cars the previous reduce we and this inventory our come have since down action term. X,XXX has car by more near to currently XX,XXX operating

volume. X% On versus the September was TE&Y our down flat front, on August workforce

While correct I realize it's the the month, only are moving one numbers in direction.

to are our of of We most plus the making are just spoke changes impact like as earlier a results I beginning operational of in October. the of the I'd Unified encouraged considering to we're of some that felt be XXXX. changes in highlight organization part the service XXX Plan by initial the here

operating announced of Just consolidation this to we week from regions the two. three our

Unified more the As the consolidation, model, providing will also reducing service our speed our with units as a new changes XX. decision-making the from part agility and we structure Plan. These to implement operating of processes management XX operating better we regional down align are and

In addition, in in shop we are Morrill, closing our repair South January locomotive Nebraska XXXX.

implement shift. design car and network patterns flows to begin we As changes, traffic the will

customer terminal and reduce service faster and are car we in communication and are realignment of management, resolution to working to two-way sales the function, process. crucial to issues, marketing drive department. effort an from we rationalization inventory. care result, in moving operating support including our be with our a a car operating Further, As our customers streamline will through This initiative

Additionally, consolidating our we functions restructuring are in increased accountability process better and productivity. of and the drive Engineering to

Pacific management this Unified workforce the reductions as described. off near-term in into Plan and culture workforce year. XXXX. of am the some the additional at These expect we reductions we implemented confident reductions Wrapping year in Plan are to and fourth of next implementation of we will I occur related Union reductions making and closures we new enable our is will to Finally, consolidations I beyond year We're are that Unified plan up, implementation a complete will great our that building successful the here start the late year. next full quarter

Sunset of on to than is are phase we next earlier our about which In we implementation fact, begin anticipated. Route the

and with be safely, efficiency. excited taking As encouraged the about our network and and I changes months, I reliability am early simplified I'll more about to talented and in challenges we motivated Change place Rob. results. operates task. the a make over to coming the there I that will along turn greater progress will is that network result am team confident the never across is way, up be am our easy the that, but it With

Robert M. Knight, Jr.

was the Operating up revenue morning. year. third in a Positive XX% Thanks, the primary total Operating and totaled million. reflects were included Below million reminder, X% $X.X balance, year. the XXXX, million a driven price, our year. corporate of billion, $XX expense lower quarter effective last billion volume partially of and higher a a XX% a as fuel good a quarter, decreased previous XX% $XXX and Interest revenue impact interest debt, offset of up of compared growth rate. line, We'll was a matter. billion, XX% the the from Operating with result litigation results. to of decrease to as increased in settlement large tax increase start income quarter. was expense $X.X to XXXX surcharge debt core recap from tax reform, drivers a up by earnings. in $XX favorable $X.X was of increase results third X% totaled for lower Income XXXX. the by versus last The This rate primarily $XXX Tom, pre-tax by a revenue tax higher offset the quarter million partially in other expense the compared sale land income

the was quarter XX.X%. Our rate for effective tax third

$X.X the average quarter we we mid in forward, going future tax our expect that of effective quarters in to tax For will the normalized X% outstanding as the fourth while versus be this XX% Net activity. And rate range. of our XX% all-time expect repurchase result per declined rate a now totaled continued around combine XX%. the year, share quarterly billion, results last income earnings produce record of $X.XX. balance These year, up an our share to share

in accounting. the ratio pension adjusting last as an to with surcharge of was XX% our reduction year's XXXX. billion Harvey of intermodal, and excluding up coal compared ratio XXXX and was mix impact impact impact up Core up car and last reminder, in price drove quarter And after Decreased surcharge X a to $XX XX.X% on price third intermodal quarter in the program quarter operating Freight was change negative an Our $X.X was XXXX this in The quarter international in average coal and third revenue in $XXX million revenue of markets, Fuel on versus continues our in X.XX% second quarter. and had sand on lag quarter. for unfavorable operating X.X flat X.X combined per change core when Pricing mix full the freight quarter volumes price and business international Hurricane points. the fuel revenue third a a third of quarter. and for fuel challenge impact the operating X.XX% of shipments negative $XXX the compared revenue the the was year. of year. increase the last workforce be The million the ratio intermodal year. had our points million, to lower versus point totaled

still the exceed that well actions expect costs. dollars our year, rail from to the total full inflation we we For our pricing generate

offset expenses lower operating XXXX. X% by last The inefficiencies XX and expenses, of a year. driven summary to Turning training a $X.X of the program operating versus result workforce expense our reduction increased the costs to quarter. now TE&Y billion increase for management volume-related our partially primarily expense. initiated Comp that network Slide we by provides costs, benefits and was increased as

capital expect overall associated workforce were Total third about For to prices quarter X% primary quarter. labor increase year. up Employees under in X%. full million, last projects employees fuel inflation quarter workforce gross was the ton and the versus project employees year, not and still a year, increased we our management levels for a compared in expense approximately the fuel pipeline. gallon. last X%. and $X.XX diesel to capital totaled be were to was Fuel work. which the up up to $XXX the XX% driven XX% of miles employees by last volume TE&Y in Partially performing expense were per offsetting increase Compared our in more increase to the was the in of due TE&Y price higher X% in and X% when year. workforce, increase third drivers training carload reduction up The our the Higher with fuel X% average

increased fuel about the by rate Our consumption quarter also during X%.

sea challenges million. material repair some higher increase that car purchase increased the we X% expense the adverse experienced. was prices impact service-related by predominant to costs. rate increased freight mix, driver of $XXX volume-related the services locomotive primarily and increased there services costs, was was and and The While driven from Purchase transportation

XX, driven increase slide compared million expense higher by The to up to Turning a asset primarily $XXX depreciable was XXXX. depreciation X% is base.

estimate full increase XXXX, depreciation year X%. we will expense about that the For

last in to when to by as taxes. as local freight came XX% equity increased Other an The well year-over-year lower contributed higher income X% network was year. The were $XXX the lease Moving and by state which decrease XXXX in primarily primary is expense expenses compared and volume-related XXXX. costs. favorable variance. to drivers offset also driven environmental and versus car rents, Higher increase in other up equipment locomotive and congestion this in totaled at quarter, costs this million down expense, million, $XXX

expect For the continued about savings other full challenges. these operational yielded our were additional to XXXX, and initiatives from impact XXXX. Zero of as a The GXX XX% up by expense Productivity largely offset of which that $XX total in were down the we and the rents in million from quarter, and were just also under although reported second $XX services, The is million purchase compensation in additional impacted. year quarter. challenges, result cost costs we operational compared the benefits category, to fuel costs equipment the primarily

we initiatives, us expect on and not our Plan forward, failure beyond. and these XXXX, will Looking GXX but eliminate Zero in productivity only including track significant will Unified achieve costs, back savings put XXXX to

three cash in Day, an June, our payments and increases the quarter. This Looking including the Dividend EBITDA includes quarters that up first shares of cash since $X.X in to adjusted $X.X our billion a three third to flow, maturities. ratio all-in repurchase totaled we a This third includes year, billion XXXX. billion, finished received past offset last at target first debt quarter, the year-end of shares of third Taking at effect quarters billion XX.X net $X.X the billion, operations income. of XXXX million from over up We by to primarily and about accelerated of includes we first early the repurchased we adjusted when third the the up at initiated share higher around over Investor billion part This at compared totaled quarters from to look achieve the for with due debt is debt concluded times. first times including shares EBITDA total quarter XXXX. totaled three in as XX% quarter million we to the levels, the And we mentioned new of billion X.X end debt the year million for the of three XXXX, June. of our up through X.X $X.X during this balance $X.X debt adjusted program $XX.X XX% quarters year. about debt X.X partially $X XX.X that offering the time. of a in initial as We which the fourth dividend will repayment

We first as billion of completion to three terms year. additional the shares year. reaches repurchases, quarters before of this to dividend ASR program the receive end and share the our this the payments expect shareholders $X.X of the we under Between in returned

remainder continue the of in we fourth expect quarter. to solid the growth to year, Looking volume the

For year, up the to mid-single to the versus be full we range expect digit volume low XXXX. in

full be $X.X We excess With pricing capital will our to $X.X XXXX year respect billion improvement expect dollars to in yield full plan. of compared our we or spending XXXX. we investments, inflation well announced our costs. to around than $XXX less previously operating in billion year Previously about ratio guided million to

corridor we risks. levels our as even While see service Plan XXXX of Unified we improve. spending believe however, track, this continue in elevated slowly Implementation some goal Mid-American on see the is is still achievable, to we are of metrics starting to

business in seasonal due growth While the foreign still ramp-up we tariffs volume not and competition. seeing our normal grain is are strong, export to

ramping our these up XXX just stated, GXX are since from our locomotives actions and the We to by as gains accelerate X,XXX starting therefore now challenged and August initiatives Zero have gain to and have And productivity we network organization Tom removed X. entire over over traction. cars

three and our units. We eliminating our regions one XX simplifying by operating five of structure are of service leadership

of we South rationalization We our have the Morrill locomotive a are announced shop through working terminal process. closure and

being XXX our eliminated reduce the steps of end with this positions by approximately management to workforce We taking year. are

In workforce. as we to positions addition, eliminated. management another will This will contract be continue drive XXX is additional productivity be the reductions within first likely of what our

are we the look not as timing expect the XXXX. toward track initiatives may year, that operating performance progress taking reducing OR we get ratio making to actions back we on next in of confident ratio a results, are XX produce an our these driving we by XXXX. And While will significant improved support ahead operating to near-term and

will be gains expected contributors to a we with following the Unified by be pricing Plan core completed phases by growth will play and operating XXXX year While our first volume network end this be positive of increases across our productivity to of major improvement, the the end implemented phase and to role. expect key the ratio XXXX.

we in costs. will As coming make progress lower we see months, the

targets and aspects not still our Plan should we in productivity XXXX of Although haven't financial $XXX at XXXX being Unified we XXXX. is many are to expect least worked unreasonable out, yield finalized it of million that for

car rents compensation including equipment resulted the see this will as supplies and as from purchase lower savings costs and productivity We well materials in operating fleets, services, and of fuel. locomotive freight form and smaller

we While finalized XXXX spending less we yet investment revenue. XX% our needs time, have do than of be capital for this expect to dollars at not

will we make continue and including implementing GXX Zero and to periodic XXXX. Plan our goals guidance We further our updates initiatives, Unified our progress financial to provide as

back So it over Lance. with to that, I'll turn

Lance M. Fritz

Thank you, Rob.

As earnings quarter third record driven strong volumes and by we growth. per solid discussed today, we share revenue top-line delivered

that of far. with we our network by the are so business strength Furthermore, that positive segments. exist still pleased opportunities While the been I'm our recognize the impact to progress encouraged on improve and of has the performance, we economy made most

in we've progress Looking will XXXX the I'm the our on that recent accelerate Unified ahead, Plan made confident near-term.

open the productivity for our the along implementation, we move our stakeholders. GXX proposition that, will with four let's initiatives, the As your other regain and for up With line improve of with Zero and value questions. forward we momentum all

Operator

and question-and-answer to many Due session. we one number today, everyone limiting one We'll analysts on accommodate to as question the joining the follow-up question to be call as conducting you. the be participants will of now us Thank possible. primary

Amit proceed is your Mehrotra Deutsche question question. from Please coming Our first with Bank. of line with the

Amit Mehrotra

question, my operator. taking Thanks thanks, for everybody. Hey,

on margin. basis bit points $XXX maybe it follow-up next XXX million little a translates of the so more Just that year, a productivity than to of

Given more our always up the to think tons – least, maybe ramping XX risks and revenue million tons up million silica not a number been in forecast, numbers as another XX taken frac maybe basin I around go. to sand million the tons is they've mines? the XX outlook rails Permian kind do I'm into at productivity sure contemplate for translate specifically, it's savings you net how hard of to and

away? those productivity next those So year if margins just Thanks. contribution the savings the volumes given go basically carloads, what's impact of to

Robert M. Knight, Jr.

that or going looks and are innings well this XXXX. initiatives specifically, underway is to us I remains to be here there's all of that on we clearly guidance we not we sand in how finalized like able not what point. we'll Yeah, I'm what to drive Plan we issues the our But give despite the and asked in that think process at look Zero And that Amit, GXX have all and now. and initiatives for moving to working looks volume that at All in $XXX those is – be that, our be productivity there's turn other early items. all but said And out positive exactly prepared I a my all as we we are to commodities know that, going calling like of right as the be confident seen gaining with environment, the and through our XXXX. at most feeling the million and volume you've we think we're we've said from and least Rob out Unified challenges – this of parts, traction as are – those mix comments, questions

Amit Mehrotra

and a the even is sector think assets. any on for almost if the because has Okay. back levels Maybe XXXX other under that generally just case provide with almost sector one spent rail It double industrial a company whole. as XX%, not least that's and at case follow-up capital-intensive even framework I long-life years, the did depreciation CapEx, you I has several that's look on the the average with maybe

that. table sector explains I the it sector may just you There as seem fully. inflation, of – cost understand it on guys, me opportunity some with the efficient not think a whole, but don't help So you projects. just CapEx respect the that's hoping because I a should Cost was more to money efficiency if does lot projects be of whole, being be CapEx the there's wonder as left a with much of could I you

Robert M. Knight, Jr.

are within Yeah. is or answer spending lies the answer I I largely, capital industry so right. really that why think depreciation, investments Amit, rail greater to in the I simple the investment. is contained I think rails the long-lived the that answer and think asset the the I – much you're mean, than short think in

the will as we but of you, We've and I'm there, XXXX, the of we you're lined So to really proud moving our on XX%, improvements being be several capital operating further we've capital I But focused the just tightening the in we're years, and out and there's that a did come. we're were is being to seen up years thoughtful it worked in to that as tell been our of the lot spending, walk right. down equally over that proud Union disciplined as and can Pacific's we driving parts as spending, very over finalized a last and but simple so answer. we decade I kind look look we've around at our we disciplined as even over to for less we guidance have be walking than haven't percent revenue as down XXXX. around ratio and more as to or disciplined last call

Amit Mehrotra

CSX is or you're there's think XX%, low XX% opportunity little today, to a you that given opportunities get an just to seeing? the too it growth is Do bit where

Robert M. Knight, Jr.

capital as that depends Again, of Well, around can we're stay I we'll you I as would we lot tuned. mean, but I be say tell a that our on see. spending. would factors, it disciplined

we'll see. So

Amit Mehrotra

much. Thanks I Okay. appreciate so answers. the

Operator

the next Ken is with from question Lynch. line question. Hoexter Merrill The Please of proceed your with

Ken Hoexter

of KPIs, as phase can guess through some you what plan? mentioned changes you how or working? gone, against And the you if now morning. you change and this, tell Looking the Two go Tom, some it's do you starting How test from necessary. saw Good back you to were at to if the when questions. just Great. would the adjustments stats, make the early cars changes. Plan I thought have you the given you to quickly go per Compliance seem carload Trip have

Thomas A. Lischer

going So, now. our changes through right of a is railroad lot

out the reason that we create On you the for quicker might have could not of assets the course, turn that's improvement to We see is side, capacity, reliability due which part before. what It's side. efficiency the to other difficult we to initiatives the to parse versus is Plan and go say out have. ultimately improvement our seen or of primary failure, Unified the that improve going our as metric

Lance M. Fritz

out the moving Plan to the consider That and we right it's like a hard very Yeah. seeing optimistic see this that moving What as a the question, in of car are indicators from productivity We're and Phase are first combination first it's about But X We're Ken would what we're – the We've of it early, movement KPIs mile, move you of is road. and in on to doing are – direction. going just what very seeing seeing you terminals, to direction. the X. your some Lance to locomotives industry, started right, we're it's that early doing last locomotive are has what is that implementing in move over right? dwell. early innings, October to which doing lot Trip terminal Compliance, right taking are in because it, car parts and you clearly, the

that's quickly now, expect make us. is way But, of to a of or that changes. can for that so, unusual it's water think don't your into how life move right is right time, question the do And we treading direction. unexpected. This the And the turning fact in then, we part I over other

of Tom So, Plan of we've that's of make part the our our something that is are try first management he some of implementation kind reorganized it we XXXX when of part structure of or on doing PSR the doesn't and of to work out plan. while on iteration thought, railroad reconstructing those there as that, Unified said side, if opportunities of of on kinds And more just touched well-conceived, kind it already phased changes the so it again. what can operating rapidly. That's inside

Ken Hoexter

that. Appreciate

follow-up, a Lance. Just

would get on two anything that just it X% suggest comps? X% slowing little to volumes Your thoughts started quarter. now in are Or perspective? tough to seeing a this me, seems up from we're to economy Is going quarters, that slower your a after you the being last

Lance M. Fritz

and going that Kenny I'm slowdown. us more there's think, us to turn I'm many overall, in start indicators But, technicolor. our give to tell going served broadly that a see with a of I little not we to markets over kind that, Ken, it global to of

Europe risk trade risk, disrupt particularly little We a and Now, there's can international looking they're plenty pose they a of flow. slowing like down see right? bit. economies, Chinese tariffs

markers can the horizon, think we on that bit? happen. growth in So, all see don't I little you that specific any Kenny, a fill don't to just it's us rosy going tell And, but isn't

Kenny Rocker

is This Ken. Hey, Kenny.

Basin. we do First seeing have and of tougher all, comps our less moving we sand in so volumes, sand in Permian are that

other side. Lance our The is grain to on thing that alluded

seeing are delay what out here. We out what of exporting be I'll or a call moving could

and the on keep we'll and grains that. so, the eye an watch And soybeans

have said some that quarter. areas those team all and we the commercial things, having bullish to into is Now, bullish that I'm the we're grow expecting

will to wins intermodal international grow. sector on grow. the We're business petrochem expecting Our our

it be that positive. feeling in still we're will So, the

Ken Hoexter

the Appreciate luck with thoughts. plan. and the Good time Great.

Lance M. Fritz

you. Thank

Operator

Next with & with question. Company. your question is Please Seidl from the Cowen line proceed of Jason

Jason Seidl

to your this some other seems be in your ability grab? your in and gentlemen. that Is volumes pricing service start plan I your morning, Is going areas improving do the the wanted impact Good of operator. still some even lagging How going and competitors? stuff of about core products this forward. pricing be talk considering you, to you of envision both could volume excluding some this to pricing you that to customers? to that a Thank increase some how as

Lance M. Fritz

Yeah.

pass with and that, thoughts. Tom on start it So, I'll for to their then, I'll and Kenny Jason,

the is be So, pricing from perspective. approach it about this think on to the and has margin be we is and pricing business us plan not to a is attractive to to first and way our the that impact re-investable, volumes changing, has

that there's on new implement has is this Now, fit plan, as designed. a that the we that within and it put we've network filter to

that switch to making plan, and will been result, more feeding of back, designing the That's to you manifest many as service. very biggest networks. of a to which generate car focus Unified the transportation reliable focus of customer unit boutique what in in the, that the it not It prompt had Plan and we're service switch was is way execute how single attention we became movement our on the we're resulted on different we weren't go doing XXXX. versus one reliable services wanted complex If consistent, moving broadly train this our why consistent boutique for as network the – us one

the or that it. the on price will as filter effect is fit another network so net we we've And designed that into on business, and is there it is put

of fit other alternatives; are alternatives. existing probably or designing transportation their are either there, which that want we going that risks exactly the the when and us from a network, produce don't that customers well we're want between plan reliable I the there and know shows customers' plan opportunity that's customers. terms case. that should volume generate side, are with more they for up, be to anticipate to consistent and as try don't here concerned more In to to volume I the the about way and other try businesses

Tom got other you any So, or Kenny, that, observations? with

Kenny Rocker

Just real quickly, Lance.

we're on we I'll look customers have say really team, into that just plan network. everything. couple out it commercial elected we also where because not with the make our sure transportation network. business have fit talking that I've at does that are the the filter been support implementing, the not can as we they been examples on and you to impressed a business, have to In because that with about does fit of early and hit there it putting tell cases, some been proactively I You with the

fit to doesn't our asking on volumes walk focused trying from answer to grow saying, prepared are in away we're So, we you're our I really started it network, is, if the yes. educating question, that like the business then But by customers. if off

Jason Seidl

That was color. good

repair sort closing that, out rationalization – plans, – some have you're And terminal shops. a follow-up you're to as doing locomotive your on you of mentioned you

Or curious, internally? from outside have So starting being guys is of this investors some on was in just precision brought a it's program? expect more I you this I the basis look what think like, consulting done from to all railroading. for anybody

Lance M. Fritz

stab able I'll more then little So and a take a Tom detail. give to be that might at

PSR. on levels to have now when think we some about employees, that the Cindy in-house be going we do high operating others, you like cases So, planning Sanborn team experience in northern team is entire region some PSR, at of the in the the deep experience have have network, in the with network in a particularly also and along optimization and running and who expertise who

confidence we on the to ground. designing understanding Omaha, a said having product job, that and both because in ground that have from the it's people that it's in not hell execute have and of a existing complete Now team they're the doing being by being done up, done the

deal increase great what One of initial accelerated from with what their is We they are wish we looking have wished railroads their way spent that ways perspective phases. worked, what done to time they during they differently, would a would implemented have PSR understand to have knowledge. for always they have our

in that marketplace talent for So we the add can team And have reflected the our out always looking from it's that are and have own to planning. learned in that we we got.

Jason Seidl

Okay. time Thank always. the for you as

Lance M. Fritz

Yes.

Operator

The Research. coming Scott next Group Please the with with Wolfe is proceed of question line from your question.

Ivan Yi

on Ivan good is Group. for Yes, This morning. Yi Scott

are this for you labor to XX% And a are volume roughly target productivity expected, Thank labor to XX% what you. weaker XXXX? your spread head XX% mean growth clarify first And count get assuming to wanted just productivity? you relative can for question, still First XXXX. between if volumes? than volumes Does

Lance M. Fritz

that Rob, for can handle you us?

Robert M. Knight, Jr.

Yeah.

on I head will obviously, number have a would efficiency take showed – of XX% that is that count what the dictate on not will count. is that referring as count. measure fewer not an but is, to – we're so You're productivity Tom piece volume. big that it, actual That's That's overall the earlier. slide going head saying What an head XX%

at volume, contemplate growth. will volume point So be we which did not think this that

there's that. of a moving on lot parts So,

that an was operating labor to we from efficient an we key there roll-out operation message expect something XXXX efficiency is Plan the think I running improve that's as KPIs standpoint upon. one around Unified the of

Lance M. Fritz

out put what as achieve. order we're expecting to we plus/minus And of percentages magnitude those

Ivan Yi

you. follow-up and network, And also on Thanks. expect Thank the many Great. my Plan? you part Unified labor, reduce them much currently have the how to do as you do of contractors how by on

Lance M. Fritz

That's just looks network. a contractors I'll the to great well, on question. not the have – don't We same. now as the know remind of handy numbers you number don't right every contractor that the total we

quarter else that focused of where by So, give XXX Those world. out the full-time IT them, on are the fourth in and contractors. taking the they we said a different we much part work projects we they're are in somebody very world supervised in

because property, effectively We can the do because either have us many work more contractors to the asset than that different deployed we because time. do to or do doesn't make they it on other all investment can it for be our sense make things wouldn't the

case, think go contractors you intermodal So, simple to removal way in and as cutting, all that our the snow up some something that running grass then you as about of ramps. and are

So, parts there's of a there. moving lot

cost, more that extent is You've efficiently, to find work do Ivan, that that costs bucket of ways to an we targeting. can or another low that's that that the properly, opportunity value-added and targeted we're

Ivan Yi

you. Thank

Operator

Stephens. line your questions. of Long the with proceed question next Please is The Justin from with

Justin Long

Thanks, and good morning.

Lance M. Fritz

Good morning.

Justin Long

sequentially? talk XX a maybe a XXXX, about but just then, international XXXX, know we in much one that even you above intermodal what on but ahead you start And about and could discussed deceleration in for while, too I but pricing you if into this, with inflation. pricing, on in out, you've you specify I'm to said saw that basis core looking On points. coal of reading pressures Wanted deceleration gains didn't pricing strip pricing. drove

you expectation well? pricing as in relative just XXXX could talk to inflation for So, about your

Robert M. Knight, Jr.

Justin, this is Rob.

Let will of probably and for conservatively I've you calculated which a that of CFO, on me everyone for and he's market. calculate years done we how give is one, XX bit proud very an else, been basis. seeing and Number of the a repeat what Kenny I'm that, yield all-in I'll sense our little – and more since you start with know in how price, the we've

So between it, did the you way you kind but looking looking big way reported it's that the yield. a not kind our I very in accurate look quarter at at think the And a we part same-store all-in the the it's line would is what second a at versus that from price, the number. say your also of of it's that's reported It's it, we And sales actions. conservative of I to calculate this a volume way factor. most X.XX of as but quarter, really of difference an really bottom rounding take There change mechanics hairs. all-in is two of splitting wasn't a pricing because

As on we piece we yielded down, a dollars. take simple the a increase if XX% business of a is volume example, and fewer

increase. as that dollars So as we a whatever yielded. don't the count we XX% count that that We actually

factor mix was conservative in a quarter, clearly this that us against we played way price. the which mix, so And calculate

expected confident pricing our from Looking in above inflation want those on XXXX, I actions you so to Justin, we yield never that as numbers. XXXX inflation to be we can dollars. the pricing absolute I XXXX were just to But as that you dollars above do XXXX, in we to...? Kenny, give head precise are guidance we dollars. going as know, point, to it dollars our we you mean, that as yield your will tell expect we're into

Kenny Rocker

it at our impact. second quarter Rob. will I'm the summed moved third we've to with markets, ability out you the quarter say, methodology, really of if Yeah, sequentially having and good, I up impressed and an other price revenue all had that, you our pleased Rob look the versus laid to But said of some which less sand market.

that's at business, You our very look price look markets the pricing here with truck, like competition market, ability up intermodal domestic of walk with the carload market. to at to pleased right our to some you in our our

Justin Long

Okay.

pricing environment Is than So, another say or outside fair? would said the is it stable that you quarter? of last was better way, really mix,

Kenny Rocker

to That's it. way look a at good

Justin Long

do in and you Okay. a the million ask assumption as Great. dependent bit If is market cycle the the target industrials $XXX environment concern next both follow-up, productivity There the this volume that be to the macro think transports. little And in question goal seems more differently, we productivity and still how XXXX, to maybe freight about year? my weakens achievable? is for make the environment for

Robert M. Knight, Jr.

volume productivity. we lack achieving certainly early Hey, we thinking of on that an to productivity. is friend as of never Justin, more is haven't XXXX, and finalized mean, said ledger gives embedded to we is it well, yet, because I But and are look as is clearly positive than this our the Rob. look we're for used Having be productivity. that us volume excuse not optionality more our the to positive it know, in going our use operationally our million again, $XXX that, will you the – squeeze volume haven't as out that in side

but outlook, go down, as assure our we'll I plays that be what see. is it if absolutely out, on to what turns volume plus just down, XXX number, depending out would volume So were you were after not will we but aggressively actually which if remains,

Justin Long

for Okay. the Thanks today. time

Lance M. Fritz

Okay.

Operator

line question. question of is from with proceed Ossenbeck the with JPMorgan. your Next Brian Please

Brian P. Ossenbeck

Hey, taking Thanks question. good my for morning.

the some network has are the just and to to time been on you and to, back some wanted just for I go goals think benchmarking, the XX challenging of sense as get performance perspective slide the helpful. But So, mentioned. metrics the

– were this against numbers and of give the get able end where little would can two network are helpful. that perspective was peers just put these network versus fluid? then ago you're extent not game, detail, us had, the a maybe you you bit operating can metrics looks your your these be recognizing to is key also you on benchmarked peers PSR XXXX or year sort And sense UP the when some a how a an how more but relative So to to that of

Lance M. Fritz

then and I'll turn Lance. is this it so Yeah, start Tom. I'll over to

not first that question KPIs a of be it thing and out, would have a to them perspective. of KPIs some are tracked real from job kind is parsing historically, create note to historical So the that these we

time likely not invest sounds we're well to So, like not time. That spent. that

historically and those And just you numbers, Some are them can track or at car overall if car we look productivity published certainly of like back – locomotive dwell dwell. is.

dwell or us, XX can ranges of But of hours for congested. You XXXX see car range back depending network, on hour maybe how design we plus when about timeframe. at some was way best probably number car we're the to dwell in that kind plus the our the best XX

in before the choose looked we any September the second quarter, turned we inefficiency we than it's started second for XXXX. Plan were second of was a reduced through As didn't in that reason the other in essentially we first corner. reasons costs one quarter, And the implementing month earnest quarter that Unified our the

so as were just So, number out them Tom, there's them miles based out, baseline productivity add these car like just car to that the day, we as would about miles, really per a because those that magic September. start crew things like some measures starting no we'd using what chose a baseline. of on the to figured We that? you in use to

Thomas A. Lischer

the Lance up. dwell minimizing our to Really, dwell, helps focus as product car said, the drive on that car quicker back getting assets service

Brian P. Ossenbeck

just on that the then, real follow-up peers? to And Okay. quick, benchmarking versus

Lance M. Fritz

designed other metric benchmarked that we Oh, other and complete. what for see the we think Mid-American ranges not and corridor, And and the we that point took pressure be two in periodically first network engineered, sorry. as every is they're tested starting to against we that what see slide sorry. from remaining target in railroads. expect Yeah, item absolute step on number railroad. design sense from I'd a in on very the phases. we have actually we the ourselves have because that number have is say one. in right, PSR the large and do Brian the so Brian, performance But other on we us, Item improvement yeah. That's a will against against it every derived did both I'm I'm are you railroad, what

of would ballpark where remind of level. an and there's XX higher at in the one you way, to is more Now, XX probably kind a difference starting we're started the some in I have the one with OR OR that glaring implementations project immediate

started We're out slide, Right? see we returns the But, improvement. fill starting there's in every where see continental the in to their significant productivity, point divide. little different. railroad that that as grow also So other it. expect everybody But thing is that over dwell, can would We confidence terms we their – already have else say locomotive that. we And in of early their car we is, blank. in significant the I go a

than and to look probably who some means have rise little going significant that's a different doesn't. somebody We fall. pretty That

Brian P. Ossenbeck

as And quicker have Lance. that, one. I shorter, for Thanks a follow-up a Okay.

and last know time collapsed. saw last in mix XQ calculate first XXXX was sand the the bigger XXXX a quarter core mix was dynamic it time beginning frac price You market the this is drag we you of where of of than price, as

Permian. in Are of can what offsets you those petroleum, the facing you of as basin the in might able have be those you fully LPG shift might mix sand? terms to the offset through us mentioned markets? growth out Kenny, of as any You So, crude well that walk

Kenny Rocker

Yeah.

thanks So, that for question.

a out getting shales the First are opportunities pipeline pursuing Permian the crude At of and of that other that good out you opportunities wins of and have We all, and so of Canada. those there time, are there same opportunity, there, say about both I'll there. lot feel the aware tell have coming talk we those out out are feel there. don't volume are in of we completely that a we just we you both that's into don't good we'll But takes about good of upside detail. offset that about It but won't I that where customers. markets, the out us. can the the wins of and go We and sand, see volume, oil

Brian P. Ossenbeck

Appreciate Kenny. the time. Thanks, right. All

Operator

with Morgan the Next is with Shanker question of from question. line Ravi Please Stanley. your proceed

Ravi Shanker

intermodal there clarification If mix, kind I'm if that is back you pricing. in being just the at drag maybe a is Thanks. and the Good of at guys on can if returns on versus That's bit, thanks that follow-up for looking a question. continued wondering the again little to business, overall possibility pressures kind morning, pull a that and everyone. all on of, I but price international price first then

about getting positive sounded price you versus in XXXX. price versus Rob, extremely is, confident dollar Second mix

come more the next think because seen number back into kind or Wondering spike you is inflation you that X% it's the of inflation fourth benchmarks like mix get again? of positive the think than you inflation this have some pricing that you of Or down spread, offset will if We do price going rail to year. when really quarter can to year? expect X% that

Lance M. Fritz

you price And want Kenny to Rob, that take will... then, inflation? versus

Robert M. Knight, Jr.

first of and a Ravi, mix commodities, in and so question play might so is try to to we are are and many mix guide at haul we as on or a negative the previous for add moving on a short different be the have I price all, Yeah. parts, it assure when move, ties the your advantage margin franchise or move lot you will a us. mix and move, mix. within but don't a price into hand driving why the on And mix the we things when attempt we're focused even that we viewed guidance a focused up, and there's which UP it a long haul improvement state, on short as there's mix play across let example, on outset, organization, that as never all haul just markets can it. that that project of just that we where move. economy We commercially But to every entire whether driving you deals it's positive that it of of we that huge is there moving question, this lot always me – I that the give

have my guidance dollars your me we mix inflation. So question our expend that to I pricing the greater Number will give just dollars from let that back is we be and wouldn't take price point two, spread as on we there. actions on versus the than is that given inflation, that that our and step the yield implying you

not still have likely the expend a But this by that may at it in – inflation XXXX pricing little actions So be cost, XXXX. should not you're exceed exceed we our we point gap, we higher I dollars inflation inflation right. still should that higher. I'm but what yield will on than saying the – albeit would expect from that be seen in the dollars

Kenny Rocker

win Each Each And, the here. margins. deal, Ravi, you market at each when in acceptable different. you pretty be I'll see marketplace, it's customer can is succinct us commodity different. tell I is

Ravi Shanker

Great. follow-up. quick a And just

listed XXXX. internally I think see – not at of surprised and gas baseline of year, expect in as gas where the pricing on kind you headwind at for little is talk I'm a point expects can team had of just do you because about I think on to natural slides to that, goes just see coal us supportive what rest if of into the the you would breakeven least a Can least you that you going think remind kind forward. kind XXXX? natural our the

Kenny Rocker

Yeah.

side some there. by There's of there. retirements the there in kind business. a of earlier that's statement, were we quarter. up Natural year-over-year of things renewal. X% first as down in prices There I going all, the number are for play on my in And gas lost book coming of some mentioned are So, business always coal on a

So on we're focus the we win and win there to get have not every we to margins. at acceptable going that ones be

Ravi Shanker

Great. Thank you.

Operator

Bernstein. proceed Please the your Alliance line with of next Vernon The question. David with question is from

J. David Scott Vernon

morning, the years levels help last how and to million we the how just way down. talk if of of you magnitude $XXX we expecting is how guidance to and much on going Good specific should down has about productivity. be compares that understand should that think And as couple us effective how rate? guys. wonder I'm drop I maybe $XXX been to compared about bottom and earnings it how but to past, you year, you much to for dropping of trying be that measure of looking modeling for productivity run in Hey. to could the in prior the the million how use think the million line? the number what about does number not $XXX next I'm terms maybe Rob,

Robert M. Knight, Jr.

year through do helps question. and great this set we inefficiency inefficiency and a have to those strong year, us is cost every Unified I expectation that the with XXXX. up In about, not the then a costs in way that XXXX XXXX we've and more benchmark, or influence because That's inform seen Yeah. year think than this a that for Plan we're been that working I good it talked the failure costs so have going we throughout but remove

the as ability productivity a can't big stated at how price the and tell showing than this above as belief to I will ability it's positive you our confidence of our we've we're on other ledger as model and on our side ever inflation. we're confident point, number. the So we're in to is drive that to planning volume that drive confident here, just be early phase,

see said But again standpoint, what the and like. I economy parameters modeling those from is a think I look kind to you'll say So, and have going take the do period of to would million, – that you $XXX the went a back can you million, if I $XXX-ish long number. at time, at mean, a historically, look is you'd of big kind least $XXX you range. million over of maybe in UP

million So plus in is think achievement. year $XXX one productivity we any a big

J. David Scott Vernon

over conventional traffic the right. in franchise network mix, the wisdom of is And always All rails at length that really, follow-up, really to which Lance, years, foundation UP at looking the great, haul, that the a quick is the business the built as for just maybe, is color. it's Thanks the be seemed good.

on this based is quality you As been the of path have franchise? implementations down can't scheduled to you going guys the better reason believe than of that any there other are business railroading, maybe do precision

Lance M. Fritz

of performing and should and the best financial exactly the Yeah, franchise should and for best we're we railroad best performance. That's is assets for. anticipate sum our have reason what That's we're the I team think other we be for the what we that, David, many targeting. shooting

J. David Scott Vernon

get with the of there? think make And sense you a Like, need vision could if that for you on that pushing board's sort to as I'm the that comment where that. just and changes kind you're direction, to is willing to trying that you're of to about make the of level just executing you against organization get commitment,

Lance M. Fritz

can ultimately in customer first XXX support sales a steps. achieve shown we've literally from month, organization. be many believe jobs level of like done level efficiently, to that will, more Consolidating think engineering operating commitment if of you first at streamlining the necessary commitment functions, the finding operating There consolidating XX something place. are just activity. and is I into care point we in ratio first this a steps some yes, the appropriate are and And, in moving regions, that team, future, that of that marketing

J. David Scott Vernon

Thanks, guys. right. All

Lance M. Fritz

Yes.

Operator

proceed coming question. of with line Majors question the Bascome is Susquehanna. Please from Next of your

Bascome Majors

for we operating KPIs productivity of clearly suggest if and I successful, If us ratio and XX% of in that working thanks publicly the would this laid as at those to the beat could in this but should real-time, roughly to? what XXXX. monthly was between the targets, OR now the track look kind it I dead at? that out thought me progress to we on us, interesting end want improvement Not weekly horse you a with what with you or available on that's look Yeah, to we mean, a you go would the and more But down you improve point data measure path. you're your here.

Lance M. Fritz

Yeah.

terminal see is a KPIs that watch. number. dwell be to that a good a couple you freight So, published, We one of That's indicator. are overall will good currently those one car publish a

should how a and the thing number, movement to monitor show I some well. being them you review basis built think other it's now an our on is, a well. but business we that big into KPIs as have quarterly And more are opportunity to inclusive with will note as we those

Bascome Majors

strategy things is, my incentive incentive drive this driven and the with achieve look a your to income management over combination that's the into longer-term operating might the new the outcomes how package now, And right you. if from really guess, Lance, operating we good And on the here? board targets some next discussions that, year? senior plan ratio differently few right follow-up. a it looking driving to is operating of year I Based with the with months, changes around your after is no, last incentives. to ROIC tweak your incentive might answer looks you're the last new might standpoint Thank by like actually segue some operating plans,

Lance M. Fritz

Yeah. That's a question, great Bascome.

mean and first about and picture, amount, that perspective, for that So do packages at returns right right, think believe our the it behavior are get incentive spend time this we necessary appropriate this that at driving our we appropriate to sure in at this current attract our if making big place, the important capital. industry what's invested it's from and capital I the the we In company, and – reason. right in generate our and time, in right foremost the is investment and

so the performance or incrementally we punished plan eye operating to based in around gets sense all and world, modified long-term on on a management on keep that that. We've We're capital-intensive an the the makes so, income. And ROIC built very being relative team got right? that rewarded the company

So relative that's a income. operating

plan. incentive long-term important an that's So

operating again line. measures. is it for looks That's which think it critically built is you line are and are us. on income as efficiently operating taking One or bottom top big growing, the you the is ratio, is which short-term we're translating – expected. important I two operating right. And and growing The is how which into margin,

evaluating is those makes So, align we for best think our Compensation do we the Committee of sense. are shareholders. now, and right for incentives the rewarding is make the management sense right But what how thing with other always what board to note

change over right, does that time, that now, got but it we've think the I right in change future. and could

Bascome Majors

Thank you.

Lance M. Fritz

Yes.

Operator

Suisse proceed of line of from your Next - Credit Allison Thanks. Allison question morning. Suisse. Please (USA) M. Good question. Credit with comes Landry LLC Securities Landry the

example gave an mentioned classification I yards. of or think you earlier, bypassing

your that So many to to just of yards yards does meet cars economics? how rethink should the process this per could classification in And expect how XX means and maybe hump the way, of maybe wonder if need the if justify a day I it top one yards ask of many this hump threshold? we order

Thomas A. Lischer

question, the appreciate I Well, Allison.

our As or I going shifts a That levels referenced, a new our are traffic and terminal is new our we through rationalization process. of through traffic plan. the part as function programs

down surrounding be As – to looking assessing and at hump we facility far become we're need more areas. if or shut yards, if what cars cars yards with there switching specifically those and as efficient could that

be thousand as As is our a rationalization yard yard at bit, to hump going but the from they far cars-ish what hump a on traffic it's end process, up in goes, but a vary a organization. we're flows how at little predicated the looking

Lance M. Fritz

a that and right. wouldn't I rule, fast hard as Allison, use Yeah.

the yards You are around network. different very think know hump that I

LLC designed X,XXX are game and need is really to plus cars run are to Some be cars be it. a is to Suisse Landry switched And utilization (USA) cars at that end of alternative if some it using Securities cost our run day. X,XXX point a the is, decision, lowest switched get option a Allison designed to and the where M. if yards day The an there, that. helpful. at hump we'll keep drives - to we if Credit we'll That's do need and Okay.

per and interchange play number day thing that mix focus, isn't only and a the sort the role. maybe and So may of

Lance M. Fritz

M. (USA) Allison LLC Credit Okay. Yeah. Landry - Suisse Securities

Lance M. Fritz

where we're a Okay. but Basically overall, car, M. is block. great get you dictate we will switch somewhere Securities to the things (USA) LLC Credit Allison it Landry have of - reducing touch is, still touch we to times Suisse to and which we're doing the cars, have because in the that one

you're consider or of a these is there of to it opportunity on of seeing the high significant down shutting yards? what yards, view does based some Just all sort the level fairly like seem

Thomas A. Lischer

targeted point, specific is yard - Landry there at through but We this we There's on have come that. right looking this those LLC point. car that to enough. There a Securities that M. be are opportunity we should Allison later. process are don't at (USA) a working have more where specifics of you. the at and yard. closely if opportunities will Fair to working We be Credit We're Okay. through now. Thank shutter not Suisse

Lance M. Fritz

you. Thank

Operator

is questions. line your the from with question Chris next Our Please proceed of with Wetherbee Citi.

Christian Wetherbee

Good Yeah, morning, hey. Thanks. guys.

Lance M. Fritz

Good morning.

Christian Wetherbee

the don't over at the the $XXX range Rob $XXX million last it's When of want or plus. Wanted for three to to of minute to so and sort the come a been back projection the anywhere in of range, productivity been number. look question from I plus, least year a I million at years the it beginning has million to because the like is big minimize $XXX in the

the sense which I get on productivity make sense are you're will this a starting program I from if XXXX? given to some fact and implies continue of sort would back-end weighting, guess wanted potential maybe So, seem implementation of it there I through side of to of to the if ramp probably that the just Or guess, upside the plan? now opportunities

Robert M. Knight, Jr.

in XXXX. we say right, of that terms Chris, I not finite mean, that I ramping we Unified the as of go would yet Plan Yeah, be implementation we're to enough will you're But million. calendarize $XXX

on So again, stress that, calendarization will would the some the $XXX And that I million. I of said at have impact likely $XXX recall least million.

to leave to drive XXXX. which OR way, to a going to to getting not We're this. on good oh, And, that we're the feeling opportunities no the all about money of hopefully and we're by go any after table the we driving ultimately plus aggressively committed to our here. our going So to in later by we're XX have kind number XX than get order to and

kind So of it's going to take this initiative.

have in summarize we're working my you we'll in actually to go Likely network It's that And be by $XXX some the when going going to plays million. lumpiness, from at UP so, to of would on going after remainder I through answer that. XXXX. as we saying, it or will, be we're the then least if phase I guess, quarter-to-quarter the

Christian Wetherbee

appreciate guys color. update takes one. that potential time one kind that you the the opportunities program? bigger terms OR-wise of the run get And through set is what longer implementing I when sort maybe quick based So, we helpful. are sort as think are a just as of at. term? then, you should some That's it what in Okay. guess, can expect well do appreciate and the of question to we of you I of get When financial I targets near-term both on full short

Robert M. Knight, Jr.

for going Rob absolute to guidance, of say mean would that, as say down we're by not I I'm many we're you I it's stay not get to again. tuned. having to but that Chris, know, I going us change just slow would followed end Yeah, promising that our XXXX. going target the get mean years, to to as our XXXX, And safely we official but as can. reference to in still XX in is time, is the as that. that on the guidance target I our in That XXXX date. XX. quickly use We're efficiently at guidance our by this point and But and doesn't by the

as but And be, so, time, we'll you update need at that's this point if appropriate marching. how in we're

Christian Wetherbee

for Thanks it. Appreciate Okay. the time.

Lance M. Fritz

Yes.

Operator

proceed of Our Wadewitz is next with with Please your from questions. UBS. line Tom question the

Thomas Wadewitz

good Yeah, morning.

implementing on the I'm shared the point schedule the new So appreciate the and schedule new the corridor with the commentary Or unclear you up and forth. is I in the slides, you'll in up is activity in terms new part a kind feel to I there the future? of changes kind Have some still that's you're Plan that's you're of helpful, Unified come of the train that? XXXX. that a XXX and something at the of work little come with like referred you that some on of you've and Mid-American things doing and information schedule, your so still that

Thomas A. Lischer

those about continuing plan implementing, completed move are transportation And with we're XXX-ish we're right forward. So, now. different of our XXX to changes that

ones have highest implemented were the impact. We the the and that quickest

moved service. unit over would of That's density got build lumps. that these week a our just trains which a last the have sand days to not We plan of density over daily without couple

intermodal We the run. we forward week and the getting issues have going, be had here. running up of plan This it some longer corridor making started overall, trains that intermodal of down our but to seems

So getting started. that's just

Lance M. Fritz

Yeah.

go with your So, is, answer is question. it is place I network that want transportation they to most from reconstructed to advance and Tom, means efficient to started or built the those think Tom's And to team deeper industry, a plan the to and to and from where and the work, what new what's into switch then at directly efficient way It most do that. the a them where that plan. level cars does interchange, to ground transportation

three, across those network pull the cars origins. the train, is do about with mind we that today's unit and number you days days on ship What and a trips. up Tom dwell plan, a from they Wisconsin think in saves get sand it expand network movement talking that commodities savings it of and a them create to and cars the And time all cars, cars over does and daily and and Minnesota, when sand sometimes is those your accumulate how in yard. time. So, accumulate accumulate And car into into four, in We we them ship there's train savings plan, the and In instead five fill customers origins they manifest down. on in car that down. a the takes unit all it you that's

Thomas Wadewitz

an necessarily? So, just or train in increase is a starts in length, directionally, train driving not that that is reduction and

Lance M. Fritz

reduction average. of so average. a in power average. will to reduce reduce the on to will are, takes a it origin it first sitting destination on amount know, the It go locomotive will is on in drive a from You focus the car car a things time required It to time on the terminal

crews, I clear think help little length, to could that and train How a in hard us consume physical less of because starts, tease And much continue train terms parts It is length. ultimately we'll the right train some also impact. we'll of is efficient should. now. reliable. grow to because fewer train of see moving product more trains, out start Those are that's it

Thomas A. Lischer

So, B end other, a efficiency about our balancing the to That to – lot A back overall that how in we're to B, network drives of crew this A. is starts. one

So about crew our you coming start should see team-wise. that. That's how we're

Thomas Wadewitz

you brief Okay. coming productivity some just Are seems approach the and head would in And that reduction then, generates down the follow-up, see type going labor reducing and railroad. at improvement count your then that you training down is one head given productivity, see likely of go you you hiring experience so forward? count the maybe it pipeline labor

Lance M. Fritz

of is doing you What the are, starting that down. It anticipate to that is quarter We for true. come continue. The was tail-end at the said yeah. and pipeline hires third to we new

Thomas Wadewitz

time. for Thanks Great. the Okay.

Lance M. Fritz

Yes.

Operator

the The with Oglenski of Brandon next proceed is from your questions. line question Barclays. Please with

Brandon R. Oglenski

look here. we I in so for Coast some guys committed ask still at you and competitors, a and have XX% but in railroad guess, me it's one. eventually know in XXXX if or Thanks low, put are If context, to level West expansion some getting notable Rob, keeping call, a that long I pretty But, it's below revenue. your as out you that to you've going a as I'm guys top of been look spent CapEx And Lance bit them peak volume only of lot line seen you revenues. higher, of quite your of that well. Hey.

it the in guess, and So, can developing I the you do at lower capital top volume is done think how line network, and levels? these simple be plan to

Lance M. Fritz

question, great Brandon. Yeah,

generating that in so world is So can and high bearing attract and in the from and our shareholders, capital our operating highest that capital, of cash we mind winning income amount back operations, return reward projects. to growing put

we I think to bottom, it with I build structure, to so yes. we way think XX% happen like infrastructure is we're is, answer as a would the revenue, get efficient, us is, physical and going but capital expect more number, from up the use. I looks existing that target available have to start we than The about that capital, think don't we short less what of

we we this XXXX, work different to little target like either to a a implemented it's I achieve, reliable have product. And of this able Prior retard help, But we might growth and attractive spent ROIC, spending achieve I we a or what see Plan us to that our differently. large that growth capital area ratio, would capacity. Now, service one try But once with XX think what is might implementing the debottleneck overall like consistent operating need don't happening to in area, think in net-net from being might to – that. capital will don't we I and going Unified to to changes we have more do anticipate incremental because number. support will

Brandon R. Oglenski

I if returns the heard foremost priority, though, And think I is within you correctly, and the first earnings and organization?

Lance M. Fritz

Our growing priority from is generating operations. income operating and always growing cash

Brandon R. Oglenski

Thanks, All Lance. right.

Lance M. Fritz

Yes.

Operator

proceed line Markets. Walter Spracklin question with next from of the Capital with comes The question. RBC Please your

Walter Spracklin

Thanks very much. Good morning, everyone.

in this your confidence. kind over shift happened level be to come and What led the something improvement you OR will give Rob, few guess, last to at an that this here confidence has to has suggesting for back to terms that year less So, risk? guidance months of like flag that's about the OR I'd I obviously changed you of

Robert M. Knight, Jr.

Yeah, every after, aggressively as risk. are what we're is inefficiency XXXX, a versus or that? We we eliminating as reducing would I focused we we're have as slight still that improvement my be best Well, still on can. us. XXXX as is cost did XXXX into that in ratio that's question. we're And they head you're But out why expectation behind Certainly we operating year the I seeing risk a year-over-year lingering. will good flag And pointed right. the the in comments, full say, going

because have don't, Some been as on volume challenges. notably excuse the to as that And friend, strong. fairly we smaller one of commented, I'm been still in not is markets up, have obviously little small not been shift going the count, revenue head friend. are a of have of fact those But our that. the we scale, changed. the an not Kenny use has headwind grain our that has a that as the a But associated of a are things that the some all right bit quarter add that of on timing going But the of to reduce the some with decision the in to you fourth perhaps costs

Walter Spracklin

Okay.

a point, should around just productivity million, next reducing to Going gave you by but previous change back And us then constant forward to the did the $XXX you going give margin million OR. holding us $XXX basis XXX give revenue year, an you points. not and after

XX% a terms next So, if where OR for math be are And you that not, wrong effectively would to of there the year? calculation? guiding in

Robert M. Knight, Jr.

Yeah, price. it we're in We're operating year But generate We're yet. again, full on that guidance how not we'll do out. we our point volume. mean, $XXX-plus in giving to We're just a I point we're positive time ratio XXXX. this see all not because see not ability in giving confident to productivity. At confident in plays the

stay make it If clearly, operating that up, overall right focused being, improvement the a you will meaningful add on are number up ends we that in on all would we in ratio. move expect nice margins. What But tuned. I the direction the

Walter Spracklin

XXX to basis guess, $XXX about given I your equal points not million where I'm asking all else equating assumptions? current is

Robert M. Knight, Jr.

Yeah, mean, kind that statement. is is isolation mean, of your not a fair wrong. in just math I I

Walter Spracklin

is achievable But Rob, for and everyone Or XX% guidance keep the longer XX%. now a why forward has Unified back, you to came sense opportunity that achievable it be? just you I'm reiterate or put of struggling changing Tom, of with Is everyone really the no and you XXXX why you've And a Lance the that Plan with the the the I'm now change you're the then about haven't And got Plan. the what full the impact sort calculated and substantive was got substantive talked here not with Okay. plan? it's organization that XXXX exactly would target presenting. Unified guidance. your could your new given that has struggling again impact

Robert M. Knight, Jr.

your here about it, talked to we've Walter, the good several as Yeah. question kind Plan early implementation it. in One answer traction No, I is, are I and really all of XXXX and gaining things. totally Unified feeling is that the of of we would say get innings the morning

very we're good So about feeling that.

at just I I changed confident of day I that, highlight XXXX jeez, by kind the not I too out But read year last thing. much that they're this that because of call we of oh, would but read haven't that. that, a It's guidance, into a end wouldn't just not We wouldn't are of point, is XXXX. confident. that would

we're to make. going we're and So as as and of there efficiently can in and tuned, stay what I pace of terms able safely as possibly quickly kind we guess, to get

we our talk see where with belt that I you'll Unified path XXXX, of granule, on the would more more under As and we'll implementation are improvement. we start think get to about innings I Plan of expect,

Walter Spracklin

you very Thank Okay. much.

Operator

question Keith Morningstar. Please next your with proceed Our is of line Schoonmaker question. with from the

Keith Schoonmaker

the already that ratios it thanks. that railroading, better network size your attractive implemented especially the Yeah, volume. has to that Compared the of points miles, multiple revenue, others those XX where you in pointed really have probably brings this precision many UP others scale that But than some Could a other track, XX complications operating is on to points of are railroad is some rails dimensions power, to please another what operators? you not percentage us percentage strikes difference out big whereby being. elaborate of us

Lance M. Fritz

Sure. and then additional Tom I'll start, can add technicolor.

right. You're

a railroads, And the those engaged Our risk implemented we in there that to peers we've us. our don't have quite other other incremental I call PSR. that really mentioned the us in there's railroads anything earlier scale-based see than scale with bit is different as tells

such we We a if thing, in got didn't of relationships informs to wrong do aspect brand broke plan kind we of there? path. other why But, to magnitude that or to game some going we scale smaller we and down once is, into if plan Tom, make any wanted went learn risk, entire design to that matter on that new instead recognition chunk is does some is all terms want customer there break implementing want our That's things wide. or observations that done at some system across phases. network was it of the in One of that of and transportation of the a the of we've a you early kind

Thomas A. Lischer

Yeah.

model our and move to and turned that to customers designing working to be upside proactive and we're make want as on service we've the sure down with we plan forward solid we that So improve our reliability. operating

Keith Schoonmaker

I'll you. leave at that. Thank it

Lance M. Fritz

Thank you.

Operator

is next line Matt your Please The Goldman with the proceed with of Sachs. from Reustle question. question

Matthew Reustle

Hey, thanks, guys.

have Just Rob, raise. a mentioned you me. one are debt bit more since moving one Day. quite for to Rates you Analyst quick particularly the

Just chunk do an swings terms for raising given here, of the something you're be size have of these debt that timeline next big the that that Is raising line. impact on the considering bottom you'll if debt? of that

Robert M. Knight, Jr.

yes, but, you are anything to the going think We planning. the all are mix those and factors mean, determining I mean things of here, our that business make I announce go all Yeah. when. decision into highlight don't what's the us to have I right of to

Matthew Reustle

Okay.

next expectation So, is we your can in when maybe has terms that moved mean, that up I see accelerating leg? maybe of something,

Robert M. Knight, Jr.

No, I wouldn't say.

a materially thinking. put it's wouldn't but on I haven't that, date our We changed say

nothing to have here. We update

Matthew Reustle

from All Thanks. Great. Okay. me.

Lance M. Fritz

All right. Thank Matt. you,

Operator

you. comments. for Thank now will the This call concludes Fritz question-and-answer Lance turn closing I the to over session. back

Lance M. Fritz

Thank and this are January. us you, in on And Rob, today. with your you forward and thank call looking again for questions we you joining all talking to

Operator

Ladies you conclude and thank for gentlemen, conference. does participation. today's This your

time You at may wonderful lines and have this a disconnect your day.

Lance M. Fritz	Union Pacific Corp.
Kenny Rocker	Union Pacific Corp.
Thomas A. Lischer	Union Pacific Corp.
Robert M. Knight, Jr.	Union Pacific Corp.
Amit Mehrotra	Deutsche Bank Securities, Inc.
Ken Hoexter	Bank of America Merrill Lynch
Jason Seidl	Cowen Securities
Ivan Yi	Wolfe Research LLC
Justin Long	Stephens, Inc.
Brian P. Ossenbeck	JPMorgan Securities LLC
Ravi Shanker	Morgan Stanley & Co. LLC
J. David Scott Vernon	Sanford C. Bernstein & Co. LLC
Bascome Majors	Susquehanna Financial Group LLLP
Allison M. Landry	Credit Suisse Securities (NYSE:USA) LLC
Christian Wetherbee	Citigroup Global Markets, Inc.
Thomas Wadewitz	UBS Securities LLC
Brandon R. Oglenski	Barclays Capital, Inc.
Walter Spracklin	RBC Dominion Securities, Inc.
Keith Schoonmaker	Morningstar, Inc. (Research)
Matthew Reustle	Goldman Sachs & Co. LLC

Union Pacific (UNP) 25 Oct 182018 Q3 Earnings call transcript