Norfolk Southern (NSC) 25 Apr 182018 Q1 Earnings call transcript

Company Profile

Participants

Clay Moore	Norfolk Southern Corp.
James A. Squires	Norfolk Southern Corp.
Alan H. Shaw	Norfolk Southern Corp.
Michael J. Wheeler	Norfolk Southern Corp.
Cindy Cynthia Earhart	Norfolk Southern Corp.
Allison M. Landry	Credit Suisse Securities (NYSE:USA) LLC
Thomas Wadewitz	UBS Securities LLC
Ken Hoexter	Bank of America Merrill Lynch
Amit Mehrotra	Deutsche Bank Securities, Inc.
Matthew Reustle	Goldman Sachs & Co. LLC
Justin Long	Stephens, Inc.
Jason Seidl	Cowen & Co. LLC
Scott H. Group	Wolfe Research LLC
Bascome Majors	Susquehanna Financial Group LLLP
Brandon R. Oglenski	Barclays Capital, Inc.
Brian P. Ossenbeck	JPMorgan Securities LLC
Chris Wetherbee	Citigroup Global Markets, Inc.
Ravi Shanker	Morgan Stanley & Co. LLC
J. David Scott Vernon	Sanford C. Bernstein & Co. LLC
Suneel Manhas	RBC Dominion Securities, Inc.
Ben J. Hartford	Robert W. Baird & Co., Inc.
Cherilyn Radbourne	TD Securities, Inc.

Call transcript

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Operator

Greetings and welcome to the Norfolk Southern Corporation First Quarter 2018 Earnings Call. At this time, all participants will be in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded. It is now my pleasure to introduce Clay Moore, Director of Investor Relations for Norfolk Southern. Mr. you, Thank Moore.

begin. now You may

Clay Moore

Thank you, morning. and good Rob,

from along Before on we which full may please and note quarterly differ are our the of refer important. today's call, that the of The during materially risks may make and to reports and we results. annual SEC our our at uncertainties risk in and Please to begin, subject uncertainties with available actual certain filed norfolksouthern.com forward-looking website the section, with discussion we reconciliation. for Investors slides presenters a those view most non-GAAP are as statements,

Additionally, will downloads be the call. a transcript posted and after

my and to Squires. it Norfolk Southern's pleasure CEO, is Jim Chairman, President, Now, introduce

James A. Squires

With with results Chief $XXX slide coupled overall Alan the Mike delivered look me Marketing results Officer; everyone. Taking Officer; Financial as Operating Chief shown are on X, first yielded morning, first income Good to call. was Norfolk with Shaw, Wheeler, the Welcome rate, increased XX% corporate Cindy up earnings and tax challenges. to a the record XX%. That, for highlights, Income prior a XX% even Southern's net per in share. Officer. quarter, we Earhart, and at year. the $X.XX. lower Chief first financial earnings income quarter quarter record earnings Net share from over And per million, in operations operations increased XXXX

ratio was operating Our XX.X%. quarter first

are figures records. these of All first quarter

network. expenses $XX measures will as up. quarter, Mike financial Cindy describe discuss velocity and we we produce results can the to While velocity as bottom-line we service the incurred various that In confident the we were reduced are million, are provide even unable our also in taken up the pleased the progress totaling will picks speed performance, later. with meant additional we've continued better our customers network to expect

We're as growth. we the As push we And maintaining the deliver bottom-line service for opportunities to in front even of well-positioned resilience, solid of us. stability network productivity. year continue economy, optimistic be recovers, are about will to with and outlook another and top our the current focus

nine ratio Alan Alan? value. Chief improvement focus the operating now shareholder program unrelenting Shaw, on I'll of to turn Marketing consecutive Our underscore over quarters year-over-year our Officer.

Alan H. Shaw

and everyone. Thank morning, you, Jim, good

Our services conditions, over first and increased pricing, quarter XXXX X% efficiently reflecting our XXXX, to in revenue of long-term benefits for demand markets. improvements approach our the serving economic increasing strong

record X, we three revenue As in increased with units, in business slide outlined on quarterly all revenue intermodal.

and offset X% impact surcharge growth fuel volume of offset Our overall declines by X% pricing improved partially in strong the by unit partially revenue was in X% our Revenue up volumes per increased as intermodal and growth. were increased merchandise coal with intermodal mix markets.

network to slower velocity increased per merchandise quarter Our the in improvement supply, first positive reached our XX% and a over pricing mix and quarter premium fuel business, revenue associated record first Increased million, franchise year-over-year. revenue, revenue, improvement growth the on unit the declined due Tightness by XX% intermodal unit the equipment X%. and XXXX. X% and which surcharge of intermodal and the surcharge increased intermodal per domestic strength truck with while in a revenue revenue improved in market by pricing $XXX impact in volumes fuel stronger

network benchmark by Revenue and conditions. coal. rated was was increased combination negatively high of prices impacted velocity high weather export positively for and per coal unit up of was with by increased U.S. a coal utility mix export demand related prices impact Lastly, the influenced while volume, pricing high seaborne overseas X% and which volume

our market and fit about with strong the environment the enthusiastic Moving to slide X, approach. we're macro

network velocity to of lower capacity be revenue growth service segment, in several remainder Further, industrial With to the to growth merchandise. economic partially as increase of initiatives e-commerce organic by will particularly Strong Merchandise vehicle our and intermodal our volumes We are the improves. for area. expected in our customer-focused activity, offset the construction, XXXX, expect overall of regard production driving constraints by year, in steady driven our will and customers. industry in production emergence are continue growth. intermodal and opportunities create the our with existing especially trucking

X the rising of approach diesel disciplined our to is XX million fuel with tons market, truckload million each year. unit our per volume to remainder for volume Export, closer range remainder end expected the along year, of which Higher to Utility revenue forecasted the prices year. opportunity X flat XX% of projected the and near-term, these ton to upper and range. upon million of our while year-over-year coal rest to pricing provides be in pricing of and prices, second of quarter, the to the year. with for subject million is both for our revenue truckload the up With will quarter impact and end the be Coal prices is factors the with expected the each continue XXXX renegotiation to to for at is volumes be the growth targeted dependent XX positively weather. additional pricing, is quarter Overall, for expected seaborne the we increased revenue improve, to throughout the that expect year. gas the pricing natural before to

We most on will while and grow this customers. the business the continuing our components influence larger our that year economy capitalize of to

customers is growth that remain the also a value. customer's to is our and shareholder our for approach to our our most the meeting will This strategically We future. investing balanced flexibility changing to increasing importantly, supporting competitiveness the respond one long-term and strategy It drives committed customers. our franchise, needs of markets, maintaining capitalizing truck, of and advantages that with on includes return

we that to the are for turn Mike I'll update improvement on are of and positioned We now the it remainder for an success operational year. confident operations. over for

Michael J. Wheeler

good morning. and Alan, you, Thank

and ratio of locomotive part efficiency. plan. the productivity and record train our first quarter operating had in ongoing by record quarterly first growth quarter another productivity as driven was strategic quarter, achieved we fuel we In and strong noted, Jim for continued which As the length initiatives our

Our primary focus for our our into continue levels resiliency to as we restoring service operation. build now right business our and grow is customers

to year handle four employees improvement growth. and approximately service customers, a on fluidity X, last which next to to In XXX that hired the further this year slide the performance Turning hiring in be additional increase our in trainees are qualified conductor an network, of help for continue to and interim, on will serve drive months, XXX X,XXX total we order our better were our metrics. service will

on portion of to address division temporary is single-track Southern network, a which had capacity the we XX our addition, transfers railroad. Alabama our In lower

for areas. a We teams South and have key helped rapid of to Go in need. which To-date, employees these specifically deployment T&E consists also been fluidity implemented designed areas in have improve deployed to of Team two the concept locations

our AC to XX On the fleet. our locomotives to AC are side, more In press interim, with XXXX. locomotive online us us To-date, of year conversion with we support we have for this in powerful to giving our of XX, and program locomotives, biggest this with the leased revitalization the and expansive our received surge fully the our operational is allowing fleet temporarily upgraded forward fleet supplementing DC initiative, coming footprint. network reliability XXX improvement locomotive a

capacity be to and locomotive normalize As velocity will network additional ratio order improves, continues created. bad our locomotive

This traffic But one, drove operating we in is our XXXX, first over are of line fluidity operations our underway idled of us has well resumption our many various opportunities Lastly, Atlanta. a and our One of at on Georgia our help been we between this driver a capacity to pinch hump Macon which through freight of and improvements continue half address Birmingham, our two to business, in two is capacity change has in key South. largest the these as operations flexible more which near-record freight a through in the through including In yards of the provided line improved react to terminals. are improvement plan network. as and changes which growth volumes. points infrastructure additional Central the

XX, moving our dispatch to to our our in operational turning plan headquarters forward are Additionally, operations at Atlanta. we slide with consolidate

center [October], new We November of centralization expect November. construction (sic) to be our completed with by finished by

divisions Atlanta dispatch to product, and approach ensure improvements. process help a service smooth sequence communication, a The consolidated transition. drive into the better will will notably coordination, We through improved

were resiliency a number are we in of there positives our to our the network While adding strengthen first quarter, continue achieved action and to and performance. operations taking

back do, it are continued who we of So get and to we be over grow the is striving market financials. by now will our share. Cindy, while are I left cover need and encouraged business will our ability to where there to work turn to to plenty

Cindy Cynthia Earhart

been purposes, post-retirement that of records XX, you'll slide that and you, the operations operating ratio. to first adjusted good Please reclassification Despite reflect income delivered railway and comparison we costs required our Thank for operating On XXXX. has note and pension from for quarter results. morning. in service Mike, headwinds, see beginning summarized railway XXXX were certain

$XX average operating or million prices, illustrates $XX network productivity increased locomotive costs. point growth income million and operating XX only was to intermodal were XXX The million, to increase price in per first Slide network rents $XX largely $XX quarter relative or million reduced the the million, category congestion-related on to higher and the materials costs. network continued basis X% a results increased shipments. $X and versus Fuel Our year-over-year. estimate million the X% $XX velocity of growth decreased and due costs. change of fuel focus in services velocity, revenue fuel million. to this $X temper expenses. to the million gallon expenses velocity to $XX fuel XXXX. X%. related expense, helped operating added In and the line The in which XX% due changes by in Despite Increases item The which we by consumption of total, quarter for X%. was were improvement and rose effect higher added costs OR volume-related higher other Purchased prices with $X.XX attributable expense up in $X.XX this primarily in

during This included largely XXXX, was rather derailments million expenses. quarter. offset rental property, three non-operating income $XX which, This of by related beginning in derailment in operating with quarter expenses than to the related included million higher expense particular $X the associated of category is

We million. by is of network approximately XXXX approximately decrease saved XXX $X X,XXX $XX million decreased reduced and of The primary in of $XX velocity cost. and fewer first which employee Compensation than sequentially. X%. million, was quarter levels about also the or down Headcount incurred the driver benefits employees

flat full-year to is head Going expected compared forward, remain XXXX to relatively count XXXX. full-year

due to in versus and as from during being quarter quarter advance offset result the was XXXX. first hiring to in We during T&E These welfare XXXX resulted in decreases compensation three approximately the evenly mentioned quarters million to than more overtime first were we expenses XXXX compensation previously will $X Incentive of see quarter slower million $XX first lower of related increased these savings network $X velocity. will fluctuations year. re-crews first earlier changes stock-based quarter quarter health million the to of changes. also plan the partially XXXX. Lower These and rates due by of recognized

to that amplified diluted over first operating $XXX can per record tax a XXXX, earnings compared of as well our year. XX% were Moving XX, share improvement lower slide the in of XX% you with by see last $X.XX, million, record net up rate, as quarter income results resulting strong

of rate tax effective were compensation maintenance the for retroactive of and XXXX quarter that this first credits reflects year. enacted stock-based XX% tax benefit Our

continue quarter, down cash shareholders, on $XXX up to overview are financial slightly year XX, around effective been Wrapping for last months to while slide the expenditures full full-year the compared up has tax we to XX%. Free the year. than flow be to first our and still expect $XXX CapEx expect our We for rate last to over XX% be for year. million million higher three was returned capital

through our We are repurchases. to shareholders value to and return share dividends continue to committed

for our level share Thanks the free we results first financial increase year. we the the drive attention. end, are share turn that your plan repurchases back for the I'll successful are generate $X.X will targeting billion call today, significant flow. of to heard quarter over plan to To that cash further of you've of Jim. and improvement As execution and over in repurchases confident the our

James A. Squires

Cindy. Thank you,

unwavering commitment close me the results quarter. value. record again noting financial Let in These the our shareholder results by reflect once to

With are growth year, we a productivity the winning we for ahead and our Looking network velocity, will restore growth outperformance. or continue we operating many for attention. ratio initiatives you our have make XXXX confident won't expect. our at financial to of sooner of In line That And summary, rest are sub-XX% of as customers open thank Operator? the we to formula service a the stop levels by we there. further capacity for now we'll progress toward and, strong the your course, goal for that, Q&A.

Operator

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

Our is coming LLC M. Credit Allison of you. line with Suisse. first - question Good Thank the Landry morning. Allison from (USA) Suisse Landry Securities Credit

thinking increase weather, should you extrapolate at network performance is given fairly and the we a challenges So this a as OR able XXXX And about quarter improvement to improvement velocity? if we even think margin that are despite by OR the how bit, point? conservative XX% this service the this out you're

James A. Squires

We expect overall And, operating I track won't year. do are for achieve And to or sooner. a there. stop by full morning, lower toward the operating year Good we ratio certainly XXXX said, Allison. on we this as ratio sub-XX%

further and in second value you for second creep improvements on. shareholder the $XX And We financial Securities (USA) to LLC out - and Allison Credit QX, the hard Suisse that Okay. of how the million point Landry drive that my cost the to expect M. quarter much will balance continue then year? relative should we question, called for from

James A. Squires

during Suisse costs (USA) M. year. expect to of XQ LLC a And meaningful the service-related Securities the Allison Credit Okay. off We XQ? - we expect Landry step-down from should to taper balance

James A. Squires

We don't guidance. give quarterly

the certainly Allison - Thank will (USA) Securities for quarter Great. Suisse first Our the well. yes, we that, Landry balance in you. expectation second year in quarter M. now the incurred costs is Okay. see service-related as step LLC and of the to Credit down

Operator

Tom line UBS. the Wadewitz Next from question with is of

Thomas Wadewitz

Yeah. Good morning.

kind Revenue one-time coal look revenue I anything had of car revenue Let's unusual a there and looked couple was you kind pretty something side side you coal good in strong or damages quarter boost? on similar for second very be see, questions was some of and revenue was car a the coal terms this let's per The really side. at, in compared gave could representative liquidated in Or of categories. to per that first? say, in revenue – if

James A. Squires

Good morning, Tom.

over that turn Let one me to Alan.

Alan H. Shaw

with I respect coking will forward. one-time Tom, coal. our moving on and to the there that now, you our weigh that within right issues was nothing impacting unusual coal RPU point fact to will RPU coal seaborne prices are declining

Thomas Wadewitz

Okay.

So consider in of coal saying I terms quarter, that RPU? second you're in guess,

Alan H. Shaw

Correct. Yes.

Thomas Wadewitz

about was also Okay. strong. revenue in intermodal what car And per very intermodal,

intermodal? kind you car that Can quarter that that accelerating. I and pricing ex-fuel third of quarter, thoughts think kind further per talked and ex-fuel was you about us in give into revenue per second you've unit on what revenue of in the some as does accelerate look

Alan H. Shaw

about are our or year an confident truck year. this XX of we've in to type at year spot competitive this weeks truckload rates progresses, particularly consecutive high as markets. feel of the ability markets in for Yes, Truckload time very seen rates. of – we all-time increases price into And

So confident of continue service. price we'll the as we're value reflecting our into year very lean that to be progresses, able to the

Thomas Wadewitz

good you Thank right. All Great. the and results. for time Okay.

Operator

Hoexter Merrill Ken Bank with the Lynch. of Our question comes from next line of America

Ken Hoexter

an out, it to I the relative quarter morning. Good just impact on speed like those and And turned you Jim, to back, of obviously anticipation or the there improvements Great. weather look to you of earnings in miss. post. kind results costs magnitude after Just want hindsight. able thoughts that call double on cutting did down timing on understand be call understand the out seems or, yet going it million your was I in Did announcement your $XX on to the comments? of the the of was Alan's as want focus you the were to that guess,

James A. Squires

good our the was making our that service costs did certainly first incur want and we in the we and objective to in Well, Ken, disclosures. flag expected Sure, those for investors quarter, morning. to related

As with been progress the through. made certainly operation notwithstanding, a top-line, as of continued progress variety in areas some we Also saw we has quarter of as challenges, the the in the Mike unfolded, productivity, Alan highlighted.

Ken Hoexter

kind you highlighted think sub ratio you've So XX%. guess about operating I multiple it, of as your times XX% target, to or a

won't You stop there.

You making the still focused on on think to well. keep get still can highlighting as you getting you're strides. is while parameters you and on what put Eastern that Obviously, just service, in towards focused XX% aggressively Can your peer comparison? network

Do understand. operating, relative to – on are and an of you they that you expedited manner? think point can a being difference to little how keeps there the that the you're getting it's bit? they there's yards like want do little how talk about in to differently? Or hump elimination handle think focused there to not just you a is it at Just a anything from whether Maybe you're if able just on growth focused that where in you

James A. Squires

operating we sooner. a for our continue sub-XX% push or operating ratio will achieved XXXX critical operating ratio we remain will our improvements by strategy, part to Well, Sure. of and once have ratios lower financial

boost the also which in similarly will pursuing forward. investors are top-line, going earnings growth We for

improvements top-line. driven driven in So by pricing, and growth it's a margin combination of productivity, by the

Ken Hoexter

appreciate quarter I Great it. Jim. the job on again. Thanks,

Operator

you. Thank

the is Our Amit Mehrotra next question Bank. Deutsche of line from with

Amit Mehrotra

Good morning, results. on everybody. Thanks. Congrats operator. strong Thanks, the

astounding. first I'm obviously just be trying quarter. margins quarter you which out be us came of costs incremental lot through incremental I pricing-driven, understand focus in a to to the help put going I I it's out be level, you to is guess the incremental the that the the just company, question high-water margin. the on – maybe mark incremental XX% Can is what and that is the were just sustainable. margins an said parse results to could really look you the guys in Just highlighted, wanted guess adjust yesterday for Caterpillar XX% up and if the if maybe

of that repeat Some not clearly in mix-driven strong, is the that maybe quarter. was and second because coal may

move about us as that's first help mix second – quarter performance help just of you parse if quarter? how think incremental out just between can third you. margin quarter us you of the the much and and how Thank price, into and So and understand beyond the much sustainable

James A. Squires

let's the I the opportunity a outlook, Okay. drive with forward. going start because Well, that's lot top-line of think to going

And to so in a Alan and will his do a incremental how want as second. function go through I'll outlook flows also continue macro productivity be But through our ask of that I to well. emphasize that top-line to initiatives margin

Even as further we productivity service we a and committed margin will focus enhancements forward remain well. as which margin in to on play part incremental going restoration,

outlook So, about Alan, let's bit talk a the top-line more. little

Alan H. Shaw

ability as business We're we securing season intermodal, growth network, rate to this to so moving year to XX% that's we're see increases Amit, intermodal. through progresses. growth merchandise within the now, we start had on right grow continue revenue confident very impacted our that and we're bid bid so in to business quarter. in season our Within by started

see to bottom-line. picks up, volume move As to into we're continue the going that

respect although end continue year-over-year volume very the before, year is approaching for unit quarter the remainder strong. I some in the top that of margins. As I export the quarter. was we headwinds merchandise to And for again export within to and the about range am market, of coal, we've performing declining of each first to second tons quarter. to million pricing And pointing will X million our X with talked coal top in the X% within respect think our us said be volume down with business incremental towards

we're confident we opportunities top-line particularly our So, year progresses, very in network improve as the as velocity.

Amit Mehrotra

points typically, excluding in OR look second of That's bit see order of from as almost I about – my the maybe magnitude down quarter, a XXXX of you XXX basis little more just basis related first follow-up, maybe, if quarter Okay. kind XXX that function kind move points. guess helpful. And to to as historically than a step step you you

taper about give extraordinary and see of Now quarter. I moved could you the just you fully quarterly did in naturally maybe quarter costs quarter terms normal and understand don't quarter? help us you but takes guidance, first if will non-recurrence second of hold that second as in in costs off in that accelerate first even have to the fair – given some Is the think puts you of the in maybe the one-time the it seasonality the

James A. Squires

We to the the year on our to from full going we're by stick year-over-year in are operating sooner. or for operating quarterly sub-XX% expect OR and we the year operating track on think and improvement guidance I do ratio stay ratio. guidance to the our on XXXX away ratio full

So...

Amit Mehrotra

from I'm you there years anything – though OR second past press is Is anything, mean, little step there in the a that bit more, sorry, I atypical to than just where I in you've want down a year quarter? first this seen to but is

James A. Squires

can't you be of strongest pattern which seeing our traditionally. And to of for Certainly, now. suggests the I seems volume seasonal year volume that shows We're traditional that point and XX trend the following seasonality network seasonal right years kind that pattern. be a on will Well, we've over right volume this a seen of volumes some more that typical really in more merchandise, in now. particularly to

So, you know...

Amit Mehrotra

it. Got

good really the Okay. quarter. a answers. That's very I helpful. Congrats on appreciate

Operator

question from Goldman Our of comes Sachs. line Matt Reustle with next the

Matthew Reustle

Yeah. Thanks question. my for taking

can dynamics looks pricing is wanted It year, the dynamics the core on Could back of intermodal that? about half a you and mix be pricing we tailwind but are talk some the that of mix to think I tailwind Just can would year, you really driving talk throughout the here. ongoing increase see expect of the about through an like there? to also the a bit. rest the talk

James A. Squires

Alan?

Alan H. Shaw

progresses, as than product lot that positive I agree your faster into do seeing our is international improve pricing believe with our lift are we franchise as growing contracts, mix enter as the we to we noted, theory it's will our our XXXX. to you as year domestic Matt, within and provide product. Yeah, structure due the of a intermodal going

Matthew Reustle

Okay. year do back growth as into the to of would expect well? growth mean, I you half And – domestic outpace that international the

Alan H. Shaw

grows typically That certainly than extremely case that's truck That's franchise quarter. see international. we market. our domestic was faster the the really Yeah. what the in as tight of our first And reflective

Matthew Reustle

Yes.

Okay. run income And up on guided quickly then a in looks into lot. here. moving in I op income? the fluctuates just up mean, it a It $XXX of that's three-quarters item and to that income, can moves know stays the about in rental I other income we other like have to new about income past, million rate. now you assume operating remainder guys op down

James A. Squires

why take one? Cindy, that don't you

Cindy Cynthia Earhart

Matt. Yes,

net, There's think going the actually rental about other pension if there's we down reclasses we moved down. there. moved So up, income two you that then on but also

each those kind other. offset of So, two

there's and a net. of things look – other in forward you lot going If

to the million. as annually guided I think $XXX about in past, we said, you have

You're a range annual probably $XXX million in going forward. $XX million to

Matthew Reustle

Great. you. Thank Okay.

Operator

The next Long of from line Stephens. Justin is question with the coming

Justin Long

morning. good and Thanks

sequential just that So you your help I you the I wanted segments? much business commentary if business rest to year. up. across understand a over will in wondering mentioned understand how pricing but is which proportionately business disclose segments we've frame that was of you specifics, know don't could spread the acceleration your could or help to environment? impacted us think seen also reprices much most. XX% understand different how that Could about I the you of help And of be give that you the of I us us how some just

James A. Squires

Alan?

Alan H. Shaw

business – indices. within of franchise higher sense, will Lambert's right, business makes Justin. Point, Hey. percentage a it year. our coal Good our tied this repriced And morning, through are volumes, of particular will export be our to our More because

And it intermodal. and then question, Remind fluctuate, be about merchandise will will then that me will Justin? be so and your second it

Justin Long

improvement in pricing frame sequential that up? to way and The any

Alan H. Shaw

Yeah.

better quarter the than in August second year. half of started the increases of last truck Our or market sequentially tighten. the second in year-over-year first intermodal competitive to started first markets our of as week rate increases see in price rate We to truck was

markets, the I – so be within transactional should And clear.

So closed move the in that is we're XXXX tailwinds continue intermodal and we into reflective as in seeing that we to the year expect that as pricing moving of and forward.

Justin Long

don't productivity I think guess, update the secondly. you target on gave Great, have year. missed I for And this may an I but thanks. it,

So share I what net you of both basis could number network be you guess costs if that was and I expect you're a to wondering velocity on forecasting. gross that the

James A. Squires

Justin, tell you can't I this.

on savings productivity sooner part to our million annual by deliver or $XXX are We as our track strategic XXXX of overall plan.

So that's going well.

the to forward. know plan, in numbers of in the the first years continuing couple You and we're march

in those lot place have a we to We productivity initiatives expect good and of hit goals.

Justin Long

Okay. that. Thanks. I'll leave it at

Operator

Our next question comes from line of Jason Seidl with Cowen.

Jason Seidl

bringing me talk And this lower have a the highways? the push guys here. lengths ELD haul of year? little business off Thank Two intermodal's you Could about bit of for reach ones quick you, seen you into operator. because

James A. Squires

Good morning, Jason. don't take one? you Alan, that why

Alan H. Shaw

the intermodal we growth, impact a expanded moving tightening if highway. revenue footing more Frankly, of time appears and is this every better With Yes, competitive. clearly, growth that and year and significant making more for reach Jason. – Hey, better off at ELDs us take and a the volume the is it ELDs had more in gives forward capacity greater we're expanded pricing. with seeing intermodal it, and that greater. as and we It product more look volume and

Jason Seidl

can that of give that no seeing you're is that you out competitive with? there haul But number Okay. you're more length

Alan H. Shaw

South our in haul Jason, franchise you're say with in some of our of and familiar inland the lot port shorter you moves seen know and we've a growth that to Carolina.

our function and of So it market revenue it the can serves. be productivity density train, the a on

there is no hard, fast So number.

Jason Seidl

enough. fair that's No,

we for Yet incentive question improve? a Should going Next we here. the as to continue your record earnings guys uptrend you an to here. million. Cynthia, expect are the $X down year is move we first saw had quarter of Cynthia throughout if compensation rest

Cindy Cynthia Earhart

of impact they saw, a our favorability and of terms Jason, you plans best. that that way that the in change made million the we that the was compensation in $X really

a XXXX So, the lot in previously was in and more recognized quarter. before, expense and first

to over as result the will it going of three you a that see So quarters first more we're recognize evenly change the investing.

accruals of the targeted as targets, terms year, And year. quarter, we on targets, in generally into And on we'll incentive our if things the of based exceeding established further and back we the for – accruals comp based accrue comp second then the the will adjust make are first of if we results typically the into get quarter. In the we're payout incentive new the half general, in business. the

And think that's it going forward. can you how about so

in XXXX, incentive a significant high accrual comp. some in payout the had the of half pretty pretty You'll that had the We increases our for back XXXX. year recall we in

Jason Seidl

forward, going the upward. have to accruals adjust you hope I Well,

Cindy Cynthia Earhart

Me too.

Jason Seidl

guys. Thanks,

Operator

with Research. The next the from line question Group of comes Scott Wolfe

Scott H. Group

Hey, thanks. Morning, guys.

James A. Squires

Morning, Scott.

Scott H. Group

can So see you would this without the shift year you margin in you think say improvement income? rental if

James A. Squires

to do even effect the a we Yes, income yes, achieve reclass. rental ratio, expect of lower operating excluding the

Scott H. Group

longer-term terms points replicate the it anything maybe are do Jim, quarter, or differential structure? address, X doing margin you've lower that see plan about that to doing someone a guidance points And a share you want to cost here. there about they're ratio in have yes, points the long-term see you I are to with lot does still sustainable, or of higher but a think to you operating Okay. worry like CSX, you Is Good. sort you replicate? planning for call charges, it points the then then, you some how do the X anything at a adaptable X – – talked of think that's And or point And they is demurrage X this losing higher big than picture, guidance. worse example, want you that record of

James A. Squires

I us Well, Scott, think flexibility. flexibility that the plan. of first of have its couple flagged you've moved the hallmarks of of is through strategic as we've you And plan, pivot the which demonstrate appropriately and our years one seen

and continuing are won't outlined, have of financial all stop We we there. focus to targets the that we on

about all to That's to We and value. will drive new here. shareholder ways continue for we're look what better

just possibly to urgency from service terrific and as now, benefit in we are right working stand sense restoring for feel a can great further business to here target a hard and environment to customers. the of by So we our great a as We're to drive levels gain financial of improvements we that. deal do

that's velocity with big shareholders. have up, we and a the to the focus, the further take to capacity on that of get through underway we're network all went So that end. initiatives we will have corresponding growth Once we to we benefits confident

Scott H. Group

in comfort one? Can just without velocity increase That's or spending I the count? one get we Okay. do helpful. head meaningful network ask in improving last How

James A. Squires

the infrastructure the about able through bring we year, and had created transfers, conversion this increase and the done, Well, to we this and we in resilience We about it locomotive program. have fleet way to of able with to be for growth. we velocity various are measures to network the part that the line talked banked the went major people and the have our to on accelerated the locomotive back we crews, use have temporary commitment the locomotive talked dispatch that Southern hiring have teams to in our that network. about we network a to now line taken beginning leases that that year renewal hotspots for new We

are So these are the focused measures on. that we

will velocity service. increase an is they desired produce an and network that output, confident are which in the customer in improvement We

Michael J. Wheeler

And I'll just - also

Scott H. Group

it. Okay. Thank you, guys. I appreciate

Michael J. Wheeler

we're benefits the particularly other around our areas, between in those those, have intermodal the of lot lot of Chicago done infrastructure seeing terminals We Toledo a our and Harrisburg of and and over investments years, a capacity we've of capital already Chicago, around several infrastructure But cause Kansas underway Jacksonville. around around Memphis, investments current also to City, us that and that's our increase doesn't line road. in budget that's that got

this are those in improve also been that's service things planned already So capacity, and continue create the grow we're of railroad the to growth. doing hopper to for

Operator

Thank you.

line next comes of Majors Susquehanna. from with Our question the Bascome

Bascome Majors

question taking from Hey. earlier. wanted incentive on comp to Thanks I follow for my question just here. the up

saying sounds year the end you wouldn't quarter report the at it point? halfway were that get like to true-up of the could next plan once happen clarify, to XQ? to you the Or until you full you Just

James A. Squires

Cindy?

Cindy Cynthia Earhart

year. we certainly able the results accordingly. about above I what adjust if saying really quarter, would full But are is while that be to second get into takes target, results that as Yes. the be the a was and that see it for tell to are What say to we'll I business these projected better we normally

Bascome Majors

appreciate it Understood. that And pricing intermodal in and that clarification. I today. both mix seems the pretty clear are quite tailwind

multiyear have and structural pricing in the feels cyclical. top You of it domestic changes truck the agreements business, on that tied certainly backdrop like of on the have happened are somewhat particularly that lot a to side,

have your So revisit some mean I was do could kind Under that to multiyear tailwind what business franchise for longer-term? that revisit quickly that of can't as and maybe to you want opportunity you of would when those as curious. an you contracts,

James A. Squires

Alan?

Alan H. Shaw

we're that reflected to is our confident market, we to move the XXXX and allows improving and XXXX. the ability pricing in for truck our that growth deliver as intermodal and pricing going frankly be franchise tightening Bascome, our and rates an throughout into

Bascome Majors

you But do year of that contracts from maybe the two the a benefit pricing months, some multiyear down to last the in or opportunity give road? few those happened an changes

Alan H. Shaw

I intermodal to as some want year as expect specific we within give our with franchise color what XXXX. pricing try to contracts. and the you Bascome, our don't progresses I'll to into into get

Bascome Majors

All today. right. you for Thank Fair time the enough.

Operator

with comes question the next The Brandon line of from Oglenski Barclays.

Brandon R. Oglenski

Hey. Good question. morning, for my everyone. Thanks taking

James A. Squires

morning, Good Brandon.

Brandon R. Oglenski

where path like count? OR really this growth you also review merchandise, terminals productivity forward the changes to regions in opportunities think and intermodal anything Jim, I we to on where of incremental You've and year now few? expect coming, back long-term going there past a at come on structural we in Should the the here. into infrastructure. network, Is in and looked is lever you've the structural I from too? collapsed more the operating like head to many look outlook get want this Or

James A. Squires

run looking we're we that more anything support do and everything at to can efficiently and growth. Look,

year consolidation. among headquarters get operating one lot flagged this in initiative central That's a of of within a operations. efficiencies produce lot think a and synergies everybody So that'll functions certainly, to the Mike dispatch big in Atlanta. we And

an this of So we're year. that's something just doing example

when productivity, stone to efficiency, We will to and comes growth. unturned it leave continue no

Brandon R. Oglenski

the in that, that future? about are change spoke on looking know Okay. intermodal comments, that Mike level the broadly, more opportunities your you you a I mentioned out the footprint I next in does of couple require growth the just would Appreciate e-commerce the but this in anything out think that. change And guess in CapEx maintain intermodal. planning then, Alan, if going guys years, And in way capacity? you I

Alan H. Shaw

working can wouldn't incremental going It not focused no. require We're for that be that returns franchise. focused that been we're intermodal and our network It – our on also to require within would It's our for effort a network something continuing years, fits that's and our on change. and part. a to capital strong drive we've our utilization been business adding shareholders, on within on

Brandon R. Oglenski

Thank Okay. you.

Operator

The Ossenbeck the next with from is line of question Brian JPMorgan.

Brian P. Ossenbeck

level And locomotives but resources that any Thanks. down know to the morning. at the the as wanted in Transportation on I the moves make the of to on field, the more key well? you just you're remainder of part look you the Mike, year. side. planned improving this a also go at at that in Specifically had opportunity? you've coming you managerial new the Hey. of for over Good on month? leasing, gotten other the last Can beginning operating just the come the as field networking the back volume of VP in pipeline efficiency, have to big things come specific over you looking a there Is couple

Michael J. Wheeler

did Transportation, at been not our great Transportation no, for have VP doing in this of time. group years he's We a but a job. No, new

XX too. those we've And got it to come back leased conversions of that that more bit little network on be to flowing we back remainder have so of the to XX the we locomotives the a AC the or do On DC locomotives, talked got the come property, the of into year – us. about, will to the we've

James A. Squires

Mike of in also pick expect to did mention do T&E and up placement. onboarding that terms the we pace

Michael J. Wheeler

year a number. higher later Yeah. not than We've and the in that only in in really earlier moved planned up earlier to but the the year, year,

Brian P. Ossenbeck

of right having it pace of you are the of really the any a available? pure they the employees? them? still amount in accelerating in Or leasing the are Is And difficulty the you've month, added get Okay. just rate? last difficulty can a And but side T&E, on just good any you also not availability matter

Michael J. Wheeler

needed And any that. than need in the You there know, not that pipeline. but already we we're you if the to, get got we've ones on don't interested the some we could you out feel more market like in

Brian P. Ossenbeck

just And tier the rest terminal to plan about Okay. the could you simplify of operations. quick talk follow-up if just the one on the specific level,

it has over You've but – gone was over moved specifically already, some been on looks terminal dwell changed to over like details substantially. the the switched Chattanooga ops, pretty but flat to switching, out

yard? congestion should at that I there broader need you didn't recover, going a forward the that adjust So if or was Thank factor network if of that and specifically to you. know something it was

Michael J. Wheeler

Yeah.

We will there, going higher so dwell. more local handles traffic, that you've a local do some the predominantly smaller traffic through just of a adjusting at does yard that and now, yard. that number got you, remind I'll have

in swapping to we block addition, now. yard that do use In the capacity

swapping of So block lot help our does the does a network train velocity. which Chattanooga at

to doing help are area handle swings there. We'll here still things the resilient things Chattanooga next throughput a the and some some get going little through. forward We some traffic at work month to bit that on the help do two the traffic in out local them or of more in that we to

in so happen. results see we've got come Chattanooga we'll that to more those helping So

Brian P. Ossenbeck

Okay. Thanks for details. it. the Appreciate

Operator

Wetherbee line the Chris next of The Citigroup. from with question comes

Chris Wetherbee

I'm come your And of I a booked I RPU. of it, XX% pricing to numbers of sort core sense three wanted the around but getting sort business I wanted don't specific is a and was to from give about to at over point sort order could if of months. of might morning. trying I judge of for Good minute a versus Thanks. overall just you renewals And the maybe get us perspective. how we're of be quote-unquote pricing between rate of magnitude this you the of the price? a know I there a the back maybe could that the and to get think cycle last the give I sense renewals if guess Hey. strong was sort relationship

any months trailing So what of than is have previously magnitude the color between you and the spread up-cycles bigger that is the around XX helpful. renewals looks truck that you can sort give be would of it otherwise? sort in market like, pricing in Just you're or seeing seen

Alan H. Shaw

the competitive bigger year, opportunities market for continue year certainly encouraged that through of into business. we're into to we about the the and more this more price. remainder next truck it's in Chris, and And as price

deliver market, and Our revenue both winning X% the growth. confident opportunities and our moving for to price in ability that's volume in approach we're we by demonstrated forward. is have And the that

Chris Wetherbee

Okay. of And think you sort when of is percent roughly you do what as truck a business? competitive, that your think about overall

Alan H. Shaw

competitive. truck Well, obviously component of large business our a it's there's that is intermodal and merchandise

all network, compete a and truck to us touch intermodal both with with fleet, interface customers our our and efforts merchandise. help efforts designed car our improve customer experience digital to And provide velocity speed the in up our to in our so homogeneous the the of customer and efforts the are to

Chris Wetherbee

That's just helpful. And it. Got question side. one follow-up the capacity then on Okay.

about quarter I think want in the book of you how a particularly of XX% was maybe total on Just beyond? it to side capacity First be get or think XXXX intermodal rough maybe sense about whether business. the intermodal

a maybe the in of that can term. sense us think give Just intermediate of where sort you go to

Just some rough be that would on color great.

James A. Squires

growth-oriented, Chris, some to of investments are investments. make those did in Mike continued infrastructure, we mention, that and capacity-oriented

our be is will that forward. and year this of So piece budget capital a going

Now can past driving in possibly to the on we and years as those investments. as going much sums significant we we're greenfield through volume terminals on work XX intermodal spent

some will So, add yes, capacity. we

invest for will We growth.

We the that are focused on have today. also very utilizing very, we capacity

Chris Wetherbee

it. for the much appreciate very time. Thanks I it. Got

Operator

Morgan the question from of The line Ravi Shanker comes next with Stanley.

Ravi Shanker

Thanks. Good morning, everyone.

to of of but couple you a and of the intermodal some talk kind one is conversations time is and something on foreseeable what's that sustainability Because customer had the they couple of hand up. service take Can believe how quarters on on of Can their issues current been your future? Just have peers here. intermodal last view of follow-ups how pricing been? they at they've talk same some just price? you reacted these you that going that the also last Is have And tightness? about over have going kind your amenable truck to the to that for of how the about the

James A. Squires

up be. first was Ravi, on let getting not focused to very are need on speed very, the it what me customers our that saying quarter. deliver initiatives must that Regrettably, the us of And the network where we back in we start outlined service by and our to service we that getting to customers know expect today. we've

we little we Alan, will see We more network resource a talk the up improvement the intermodal that to about work taken to that in velocity. the demand have bit that customers. are and steps confident specifically will

Alan H. Shaw

customers all our intermodal customers. than Ravi, different no Yeah. of are our

improves. and of conversation All intermodal strong around our this looking as network to handle great opportunities our velocity as customers to are looking there. forward year out into this pricing They're next, pricing forward ability to and business seeing market are we And intermodal year we're both revenue of our growth X% and network market more economics the ability growth is service. revolves and to and that indicates our in our the first this handle in the quarter very of XX%

Ravi Shanker

two cost but of you that at dispatch also Okay. and talk missed those Got yards apologies consolidating impact it. this, resuming if you're the operations about you actions? hump operations. I said And Can

James A. Squires

the point first. me take first Let

that service our hump Mike part what Southern have i.e. yards think line yards operation in and in the key South, we feeds have that said network in hump of Birmingham two Macon the brought as I remained into a back was throughout. that

for line divest a mothball did sake a it didn't ago. we was point We the it. held resilience. So We of years onto the few

growth are bring network. of to we handle back it the on able to part that Now

Michael J. Wheeler

no increases dispatch that. office there the cost net/net, in is long-term And on consolidation,

Ravi Shanker

a you hump Got of are mothballing it. yard. just undoing a And

incremental variable costs? kind very like saying little You're there's cost of apart just from

James A. Squires

that there's associated line cost hump parallel little a no, but Georgia the the bringing we back. of a not line, with that And Central Actually yard mentioned.

Michael J. Wheeler

good Yes. over We route. in kept moving started We that the was shape. It back trains line just open. still

So it yard. is a not line of area, a road hump

Ravi Shanker

it. Got you. Thank

Operator

from next with of Vernon comes David The question line Bernstein.

J. David Scott Vernon

the Mike, time. count morning. I Good wanted for Hey. clarify to adds. Thanks head the making

said year? hiring for What's to You total T&E plan. adding XXX the you're the increase in the

Michael J. Wheeler

The in net. is XXX-ish range the total increase probably XXX,

J. David Scott Vernon

XXX increase in net that the be range? to in T&E So will XXX

Michael J. Wheeler

Correct.

J. David Scott Vernon

little quick this head basis, flat a more think the in add. would count if year-over-year additional guess adding bit as look we implies organization at be the I then, I Where that to of total follow-up being you a a resource that, resource point? on And at

Michael J. Wheeler

having much pretty That's Well, of the railroad some rest slow it's that The the we're attrition place in it T&E. in probably it. only is the adding.

J. David Scott Vernon

Slow attrition.

a Thanks lot Great. clarifications. the Okay. for

Operator

The next comes of RBC. the from Walter question with line Spracklin

Suneel Manhas

This Manhas in is morning. for Suneel Walter Good Spracklin.

you're Just wanted to growth here. the intermodal touch base seeing on

With are ELDs, the shippers trying behind to lines trucking of the deadline? implementation or deadline your is shift major as as strong secure the the is behind service that forward, of us, migration moving ahead us to of

James A. Squires

Alan?

Alan H. Shaw

we'll to year Consumer over the that to increase projected truck the near first was in up, to manufacturing continue X% over Sure. high, year-over-year first is and year-over-year economy the was believe Frankly, was continues X% confidence see quarter, up the rates retail quarter, up in in the industrial are progresses. get as continue franchise. Suneel, we production stronger. growth an intermodal XX-year to

we've so got And East. intermodal the franchise a great in

the to there. the we're East, and of that intermodal advantage We are going opportunities take have in out best the franchise

Suneel Manhas

about more target you're normal Great. or the could is service side story, course a the to Thanks over about to this we restored the measured your and resources QX operating expected of here see the improve the levels? on point service bringing fluidity, mostly a thinking And that. for online this improvement what at year? Is that

James A. Squires

We're been the all hard back those customer possible. and as talking as we've about serving online bring resources working to very soon

for we right further resources will have spun network growth. the we job capacity now we is once have that's up back And get the making and so one the sure we that need believe that we

Suneel Manhas

Perfect.

I that. it. for appreciate Thanks Okay.

Operator

question Baird. Robert from comes Ben the of next Hartford W. Our line with

Ben J. Hartford

confidence? said confident taking several times question. that Jim, What it improve Is has of the in Is taken that in the to you're What year. finding compromising you compromise being the improve the steps you is would in service? to your the infrastructure for about do risk it Is needs? you've confidence it What Thanks able and confidence? volume? think balance the mind probability through of CapEx that and personnel? service that to biggest XQ highest

James A. Squires

to Well, there lead obviously the the and we're need growth focused. been as we do network. areas will volume is bringing on. have that to time a we the various working Mike's associated with foreseeable And on which we we through fast in resources that. we hard believe can We're can as And resources that as handle

network the up, and the year. our current back the get confident to We've we very so that And outlook expectations able meets our expect been strong. the and is the spooled expect do through growth we're why, I think reasons produce customers to various further we're this and we'll service able provide Provided growth the growth. be

Ben J. Hartford

point about outlook, the movements some the the macroeconomic When cycle of relates about on the high. it macro as talked for XXXX? customers, strength to would of There's reached concern view. assume Obviously a I So recently conversation the your bias to few look been downside year outlook based internally the We've you the you from at of tariff peaking outlook you say upside color with there's the about months. a several over the for times past growth or macroeconomic balance growth. outlook the had

James A. Squires

think, you Alan? do What

Alan H. Shaw

to the upside. There's risk

Ben J. Hartford

Okay. That's helpful.

Alan H. Shaw

yeah. – and We

Operator

final comes Radbourne from line Our Cherilyn TD question of today with the Securities.

Cherilyn Radbourne

that able morning. Can many place on I one can wanted have you just deploy that? spots Go kind in help keep about them And like be have Do my us pay quick mentioned, to Good to fashion? unique. that how Team of in them differently? how think much. the employees you ask very a to you'd long been trouble Thanks Most you to asked, concept of but sounded you questions which

James A. Squires

Go ahead, Mike.

Michael J. Wheeler

Yeah.

is new is XX get help address and it's the ability of The some for But to that have months an about a an how the to a from a areas employees. episodic current events. There So it incentive is sign resources this and is long to couple for up they them come the location all to online. the stay There Not weeks, the have that. of pull you because incentive really intended to backup other group they're of at. them. congested get this through deployed are intent as is just an for all and area them couple concept,

So the ones two results out we've of of so seen about it half got far. good sign to deployed We've we locations South, almost them that had down up.

so So, so good. far

Cherilyn Radbourne

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

Operator

Mr. you. this I turn floor Thank time, remarks. At closing back Squires for will to the

James A. Squires

talking you Thank We next morning. this look with questions your forward you for to quarter.

Operator

concludes today's Thank you, This everyone. conference.

time your at and You disconnect participation. your thank may for you lines this

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