Norfolk Southern (NSC) 25 Jul 182018 Q2 Earnings call transcript

Company Profile

Participants

Clay Moore	Norfolk Southern Corp.
James A. Squires	Norfolk Southern Corp.
Alan H. Shaw	Norfolk Southern Corp.
Michael Joseph Wheeler	Norfolk Southern Corp.
Cindy Cynthia Earhart	Norfolk Southern Corp.
Jason Seidl	Cowen and Company, LLC
Matthew Reustle	Goldman Sachs & Co. LLC
Justin Long	Stephens, Inc.
Allison M. Landry	Credit Suisse Securities
Chris Wetherbee	Citi Investment Research
Thomas Wadewitz	UBS Securities LLC
Amit Mehrotra	Deutsche Bank Securities, Inc.
Walter Spracklin	RBC Capital Markets
Scott H. Group	Wolfe Research LLC
Brian P. Ossenbeck	JPMorgan Securities LLC
Ken Hoexter	Bank of America Merrill Lynch
Bascome Majors	Susquehanna Financial Group LLLP
Brandon R. Oglenski	Barclays Capital, Inc.
J. David Scott Vernon	Sanford C. Bernstein & Co. LLC

Call transcript

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Operator

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

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Investor Norfolk of Director Moore, Relations Southern. for Clay you. Thank

You may begin.

Clay Moore

and Thank good Melisa, morning. you,

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

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

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

James A. Squires

Norfolk With earnings quarter Chief Officer. to Southern's Officer; Alan Chief Shaw, Financial Good second me Officer; are Cindy morning, call. Mike Wheeler, and Marketing Operating and XXXX today Chief everyone, Earhart, welcome

our from in share record million, and We over over and history. highlights Income XX% demonstrate. of quarter record increase as continue an was income per Net year, on company's deliver the up clearly was XX% all-time second earnings for $X.XX, to operations XX% a billion, increase. prior quarter an any four financial our results $X $XXX was slide

a Our improvement. year XX.X%, quarter consecutive second operating from year-over-year ratio operating ratio XXX-basis last quarter improvement point was and of the XXth

year, our to were measures these continues second quarter into records strategy of the Southern. improved All Norfolk financial for deliver performance. Halfway

our the XX% points. was ratio records operations a $X.X basis increase $X.XX. per Net the and per from share earnings and We earnings billion, was for for year, was the XXX income income, prior improved income, net months six share. have operating for billion and over produced first period operating operating half ratio, first Income $X.X

our results. laid service Two-and-a-half handled remain performance ago, a we to less we our record we focus highlighted goals. more and to will than customers. yet financial for deploying operating continue confident years XXXX. volumes, plan than Since improving today, five-year committed our we And As of out improve number on record and targeted we we by delivered near network resources XX% aggressive are then, OR our that of achievable hit have consistently ever

the Importantly, the are that on team, on significant momentum based of target our and to dedication of underway track schedule. we ahead achieve

and we've operations seasonality, expect we in not improvements straight As to OR before, given line. said do a occur our

OR of improvement and However, another reduced track year OR remain to we year-over-year have XXXX. already achieve significantly on for

get updated there. XX%, As to strengthen We progress keeping and action stop to value. network continue as forward to before, to we've we we take won't our when shareholder look you said on enhance our we

will Alan results; detail Cindy Mike Thank Alan. we'll your will financial cover color questions. operations; call to additional take Now, our revenue; provide over of will I'll trends and And state you. now, the on the in then turn

Alan H. Shaw

you, Thank everyone. morning, Jim, and good

strong X% revenue three quarter consecutive second mix. quarter in row the frac marking the quarter revenue, increases with intermodal a positive all volume business revenue pricing Second quarter, raised grew Merchandise and groups. fuel revenue truck gains These RPU with and automotive led increased with NS growth conditions year-over-year growth. revenue crude unit in year-over-year in record second NGLs, of to partially oil expansion marks across our volume quarter second and revenue, volume. with increase XX% by volume Robust the in tight of and intermodal. In pricing up was Improved revenue revenue, RPU a historically and X%. market higher were along XXXX drilling with offset growth and oil. delivered revenue ethanol, economic the in a XX% sand sixth surcharge increased per fuel lower driving surcharge fertilizers activity in in gas second record-breaking strong and and quarter

expected for strength the in demand intermodal projected is pricing environment the the the product, continue. to Given NS

top franchise growth U.S. Norfolk the all commodity Our generated increased XX% for coal ability volume by growth economy. high pricing the growth Southern's driven revenue our line in deliver X%, overseas seven largely of by revenue of groups and both The coals. sustained reflects strength to and demand

with Turning increased second to truck and XXXX market to a XXXX. in elevated commodity consumer continued production is revenue prices. the spending throughout of economy anticipated slide and X, with strong growth we expect remain half industrial The coupled tight

inventory and capitalize by of million all fuel crude energy-related future. across increased growth demand Utility strong on XX million quarter. Pricing our executing per XX expected X we by in the and transportation for demand customers' gas range frac aided first continue consumer builds. services. tons. balanced expect half by X our the opportunity strong tons strength benefited an second We economy. long-term an as our in such in remains half that supported we economy, weather is truck rates, modes. continued prices and to this upon enhanced million rebuilds robust invest We the to driving e-commerce project anticipated in truck growth the This anticipated natural addition, prices, million conditions remain are the sand in will market In dependent volume, strategically against of sustained as the growth and by oil, a increased commodities expect increase will quarterly emphasis of steady Execution drove us and plan in support for intermodal higher between many remains growing with in to that export volume our extraordinarily tight remain In second. to year confident ethanol. Coal the allow volume plan to the demand merchandise, be strength the be inventory will seaborne in and

our customers flexible Mike to shareholders. now update truck, for to of it changing needs increasing and, deliver markets, our to will Our turn on most competitiveness value the includes remaining an meeting to focus efficiently over in evolving operations. our importantly, response I with

Michael Joseph Wheeler

our you, Alan. recovery near-record service second you record Good a and Today, on quarter will ratio. during which progressed volumes, handled achieved Thank the quarter of grew We plan update business, morning. state we operating with our the our I in operation.

Turning our nine, to efficiency all-time train of drive operations. slide An productivity. increasing pleased length the with crude quarterly are we record helped record

X% handled X% we increase more with crew just Specifically, volume starts. in

near In our were addition, we fuel record. quarterly efficiency

help record All these factors ratio. quarter combined second a of to operating drive

Moving operation XX. on to our slide

a up was our but to and top ratio of of attention. serious injury be XX%. ratio serve The focus injury where and employees our reportable continues Our communities priority we our safety improved sequentially, the lot we

improve also to significant taking our service steps levels. are We

as train composite sequentially, is encouraging. performance service speed Our which on but dwell, well as declined we improved

pace Chattanooga, We XX are improve which resumption idled To on more of continue to the and operations hybrid balance calls the was still for which hump pump since This fluid a efficiency. swaps traffic of block gives utilizing keep in at near-record carloads. traffic between in service, us reactivated portion model, local May to of humping XXXX. the while service south best with was for the through

increasing strong are growth. our we addition, to handle hiring our In

from and the in X,XXX continuing our temporary initiatives a the we qualified Team until our an initial result hiring engine to need. utilize train deployment and increase net is which in Our now end conductors of plan, In are will of transfers year. rapid now over for our areas year, our approximately the XXX Go the of target of XXX interim,

side, On lower the giving program by more reliable conversion cost. paying locomotives DC locomotive a our powerful AC is dividends to and us at

fleet will due additional of coming received the are supplementing XX our units freight be XX have of we an on year. are this XXX these pulling and quarter. We these leased property meantime, with and this XX locomotives. another In the are temporarily and units online

capacity to beyond improves, simply velocity locomotive created. our will our allow improving be service continued closing, will levels, additional handle us our also As current plan In growth.

our online, come improvements to operational continue resources our will accelerate. As

and enhancing half confident who turn our to are to are XXXX. the will steps to I will of second over the we cover We taking committed right improvement of Cindy, drive are financials. it the metrics in performance meaningful now service service

Cindy Cynthia Earhart

morning, and good Mike, you, Thank everyone.

quarter the XX. starting at look on results a take operating Let's second slide

This quarter, results. record delivered we financial

which billion, of railway As discussed, growth last year. helped had all-time revenue income Alan $X than of operations XX%, higher from drive we XX% over strong record

achieved operating by points. also on XX.X%, last basis year's of record a XXX results improving ratio second We quarter

of Just reclassification and as illustrates the required In a reminder, total, costs. by XXXX XX Slide the certain results have reporting pension recast operating increased to X%. $XXX been operating to reflect expenses. million or expenses post-retirement changes

a million, with higher of volumes. result Purchased shipments. Fuel was the rents look and fuel. XX%. increased details $XX network which by prices, Purchased rents due over million rose of million. result relative services Let's increased expense increase to costs million, decreased and Consumption added $XX X%. million, take or intermodal materials the to $XX $XX rose and category or year volume-related related primarily engineering largely the slower activities X% prior $XX other up higher $X and starting million X% at in velocity. and Equipment services transportation The a the higher

income by $XX to property, expense increased an operating primarily and now million recall increase with million material partially quarter approximately was category. locomotive included remediation of and locomotives higher service, This rental of $X million associated $X is you'll expenses. included offset environmental of due this which This in in usage,

to Supreme employment Court X%. ruling decreased withheld taxes on by benefits stock-based compensation related was A issued and Finally, or June $XX compensation. in favorable million

in we XXX as decrease a of XXX for and in compensation other $XX As second and Incentive million last $X year. health about taxes T&E second have of we of as increased rates first million strong on fewer Reduced areas. hiring continued benefit during for resulted approximately our refund the results same approximately saved year. equity up achieve million. positions savings and $XX lower over while benefits and in count the paid compensation the than million the first increased $XX XXXX the prior awards $XX half welfare Headcount Overtime million continuing of also in of was quarter higher versus quarter, years. to was count the recognized result, recrews head sequentially financial we've year. quarter to quarter levels this than by last Consistent with XXXX employment head

an see contributed moving we trend up $XXX resulted in a that increase improvement. operating in also can to share respect count up XX% earnings before income to net in record quarter the Diluted slide second head with to to our per XX, XX% average set results continue count, expect sequentially year-over-year. and strong And quarter head Finally, record $X.XX, you last taxes second at half. of million, to income slightly XX%

to million Free on returned Now X.X dividend for cash your stock for of and repurchase $XXX payments. record turn XX% $XXX you and a was financial months over the Thank million to shares of flow million up through of six Jim. has overview back I'll wrapping shareholders, our the slide up first our year compared call been last common $XXX for million to billion XX. the $X.X attention.

James A. Squires

Thank you, Cindy.

As at network remain adding resources our the our you the to have as we success we improve seen are and can see, well-positioned are customers. for that over year. balance a look of for in we forward on to Volumes not clearly robust levels we decade service

Our to this generate us our continue enables toward strong goals shareholder value. progress our performance quarter to

for continue With are and open to for attention, our thank the that, of in line strategy. Q&A. prospects your long-term as now our success confident We for we strength and franchise you we'll Operator? our the execute

Operator

Thank you.

Company. of line Please Jason Our Seidl with the first proceed and with Cowen your question from question. comes

Jason Seidl

competitive and too and be truck I is opportunity into both we and on some team. both can to Thank merchandise mentioned of Is are that that that dive think an good opportunity pricing we be part. Jim intermodal focused business other opportunity wondering areas an or you should that and emphasis you. the there you, continuing I on? was in if for Alan, operator, morning,

Alan H. Shaw

seeing point. have that low well. in improvements intermodal truck Yeah, improvement in with still consumer in pricing to and reflected Jason, very you and us and in we're that's doing for exceptionally It And as revenue. cadence The about pricing. an tight Inventory revenue lead XX% the market what tight. is economy improvement can XXXX an the economy market good talked levels felt are merchandise into truck our precisely the well and see going like a would now. industrial of the numbers I X% are previously is opportunity forward We

creates So, a for there's opportunity a demand it high for and pricing services our good very us.

Jason Seidl

Okay.

record mean, going for? question on lengths. an I in you to year? for Michael train in you Is be areas half that going XXXX? NS productivity the should look Next follow-up in we going are the for we other of back productivity. look What talk show should we is to posted improvement start Can just all-time about the to the that some And or are to for, continue of half plateau? to two what

Michael Joseph Wheeler

Yeah.

continue out of length. have you train we on that and there. trains focus to in So, in terminals with the Obviously, to balance getting

So, new train good a story. lengths will continue on. That's

as The seen the locomotives continues many continue other will things the railroad out relates productivity those better down. have better. and not go All railroad because thing continues we'll into locomotives and as go we'll of to get be get we've to in to locomotive will is, slowly those get railroad for that shedding Recrews down, cost that overtime the and needing as lower come maintenance. the better,

railroad will initiatives there's that to restoration on mind. on. work faster. the our but as So, that's focus continue continue make come the now, we pipeline in is that the out our service – things to But are other still initiatives on But we always also those are right

Jason Seidl

Thank the Appreciate you, time everyone. as always.

Operator

you. Thank

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

Matthew Reustle

Yeah. taking question. my Thanks for

in intermodal, the half quarter. domestic? mix, pricing? are about seeing first out remained for in dynamics there, there. it year, if was I wondering to versus specifically the strong, Just back if you with did particularly It pricing the that talk the still But into looking of flatten but can relative of you're tailwinds reacceleration domestically what potential international some at

Alan H. Shaw

some effectively great of encouraged Yeah, and got the we're results shorter term certainly by season, finished bid pleased just of We we we transactional, and are. and business the up more the very Matt, the there. increases

– the higher move look was quarter than our second than first was quarter. and quarter you with we at as through If improved it within month pricing each it year-over-year intermodal, it second in in

general continue to well lot our business pricing stated truck us secure XXXX. into I gives on price structure in as environment before, the contract confidence So, and of a ability to our competitive

Matthew Reustle

And the know trucking follow do you the between I'm Thanks. higher we going to see related I market your on to to just fuel prices. differentiate about Great. talking wondering, And in fuel with you customers But up terms. are somewhat hard it's and what have tight prices? way the think an opportunity of of of Is some what's growth where you've on as the there share seen market? from actually trucking to that from here some shift comes through you hold market tight can terms this the capacity any volume market? to trucking to in sustainable

Alan H. Shaw

Yeah.

of some there's irrespective the that in changes I think structural trucking market are fuel.

of is growth about e-commerce. year, Last they were XXXX, One billion. were In in e-commerce U.S. sales billion. $XX $XXX them the about

market. of been aren't into originally and on was last You expected. is waiting hours drivers was get truck then initially, the back And since greater to those years And XX got service. lot the It's that impact labor. of basically, than what almost of there so sideline lastly ELDs recession, the a

Matthew Reustle

Okay. Thanks.

Operator

you. Thank

Stephens, of the from comes your with line question Inc. Justin proceed next Our question. Please Long with

Justin Long

Thanks, and morning. good

if that Is start on a couple this curious OR. OR OR then, the the where the think the prevent on more schedule. being the we you've And you're we questions a anything you Do would that seen Just or that So, the into in pulling there's few should I'm sub-XX% year? made third near that's same comment last achieve Jim, the improvement term, expectation your quarter. XXXX? from that that in go sequential with track in case. if years, a directionally you translate seasonality if that curious achievable forward to ahead that's target think maybe you year. to of

James A. Squires

year-over-year lower year operating full on We've ratio our year. XXXX. certainly by expect ratio the sooner. for beginning since that's to do we for sub-XX% that outlook said of remains year and have XXXX excellent the this progress making goal We're the our the that of or (XX:XX:XX). term, a operating Well, Longer with

and day. the planning given to thing goals, our of made long-range we'll and later more middle the necessary back current a our long-range plan certainly in we've are But thus that plan progress we so that's at on talk be about of appropriate And – some of our long-range that and redefinition long-range a far.

seasonality to As I year, some usual the year be expect far in is that within the seasonal in each you year. wouldn't of we as the do concerned, be ratio as full-year terms pattern. But of say, this have did different lower. to expect the I certainly operating

Justin Long

wondering international to some the tariffs? that I number, given you see uncertainty could could about the or talk just feel secondly, the And headlines, share where helpful. on exposed most within was with is news macro you recent recent percentage that that some you trade. the your That's Okay. the groups geographies of business And we've if you seen commodity of of

Alan H. Shaw

Yeah.

than pretty economy. revenue to of Justin, that, geography, and XX%. volume a little that associated you amount. basically, but It's merchandise with percentage Canada bit it's much XX% more, international about revenues. international and still items of our very X% coal, less our trade which ticket export is intermodal, U.S. a international big approximates business. the Mexico The are asked of Digging is into modest effectively

much a take for we skirmishes at supply at be It don't that war, to will and impact chains trade trade we all longer As than of see XXXX. in an potential readjust. look

Justin Long

the Appreciate Make sense. this I'll leave morning. time at that.

Operator

Thank you.

with Our your next comes with line of Please proceed Credit from question Suisse. question. the Allison Landry

Allison M. Landry

Thanks. Good morning.

see. Let's

right OR whether capacity specifically wanted different of the a on you network, you incremental environment to understand make curious business, lot its the that's evaluate how space ROIC. so the have it's we're how on based And for I take and competing or traffic the on that obviously intermodal to in to now, know is seeing constrained. you intermodal So, specifically decision which

James A. Squires

of with we along and business at looking We're others both. ROIC it's certainly to the the the OR network. that add traffic the Well, as

where We to of various optimal that's and to that on also are you partners want in Alan, multichannel take of environment. the levels have work you that? our to a our but as capacity – determine to channel a and with anything and emphasis looking grow And to we advantage we traffic network, partners. pricing with an know, do strategy so this add we we're channel partnership closely growth, volume with have certainly we the on can,

Alan H. Shaw

our sure good and returns generating it's make it, Yeah. with Allison, Norfolk have our to bring to it we've operating Southern work growth. ability well, incremental with handle capacity got shareholders do closely the If to and team we also we customers for and the our that on. the

You've also returns the seen this lanes us we to. a close that where generating year we of weren't needed couple

balanced it's a So, a market approach. great It's for us.

incrementals intermodal the over this XX% improved have our franchise We years. we've deliver revenue the couple within growth. able been year, And to last

Allison M. Landry

And on Okay. the just following comments. capacity up

overall You if for capacity. some mentioned corridors, you have of basis you that the where of an network? do you the think out utilization of had lanes? on about capacity it is in could parse the sort to major Is some big on And maybe the

James A. Squires

Sure.

general the double of proposition, not on have region northern southern north, on more capacity tracked we because the a largely we're south. As region than in in the the we network but our do

as as plenty with down said, Now, there's south of the volumes, commodity's traffic that well up right now. uptick in north

be speed generate will So, that we take and as in and will our on capacity to more utilization up dynamic We better even positioned picks believe that are business. network capacity capacity the we do thereby growth. a equation that

Allison M. Landry

Thank you. Excellent. Okay.

Operator

Thank you.

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

Chris Wetherbee

of be targets sort comment couple I further. the or of in little you planning about updates how guess, or bit what Or like? guess, you might be I implied the think the some sounded terms of about point. OR ago morning. that considering think or wanted do making about Hey, sort what you thanks, a like scope look When that, in reviewing sort good context it, some might the you everything explore a you long-term I would sort and a beyond? timeframe including at of might be of of and just that had of to and questions Jim,

James A. Squires

The plan just along Our important progress return improvement. We're We'll XX%. financial you have on process And next current developing to under the working capital, emphasize continue a We're will well. underway. plan That's operating to to to balanced next to progress our about our We've grow planning of long-range it's investors. plan given push intently long-range we'll on very year said plan. our our But well. be made will a plan. that that all to combination be And XX%. part It of a ratio stop looking past in we that next the certainly targets, current as never our continue at hard, is. increased to as plan exercise. focused long-range that plan later we as be back talk is in will

Chris Wetherbee

Appreciate Okay. followup quick morning. this the how what it. incurred relative But That's quarter, And on helpful. was half? back if to maybe the did I just XQ cost actual looks in in you very service in calls conflicting apologize service it, what the that missed I you first cost. quantify

James A. Squires

Sure.

some come additional network. of So, the where wanted is we absorbed some to quarter. be incur costs the given and the a service we the to and our growth. not be. volume cost allocated – the did customers extra That costs and But in a did They incur to volume first costs quarter down service on from the bit did second deserve where we expect we service

growth with experienced a to line. that a we're the Mike some we in margin bottom So, lower of did said, ratio and were to things able on operating went of we With of lot excellent the part make that, the work deliver the through we doing. improvement

Chris Wetherbee

very you Thank much. Great.

Operator

you. Thank

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

Thomas Wadewitz

about, guess, and specific you comp in benefits and of wanted the OR. a kind the to of I I items couple Yeah, maybe affects how ask that

in benefit tax the payroll million $XX a had quarter. You

a had incentive You higher million comp. $XX

tax in quarter would faced on guess not each items offset roughly similar be two in forward? those comp think third seem one-time, So, might quarter. I'm about if the you like sounds incentive or How a sure to but It other I payroll you going two those so. would headwind

think really, quarter, third to and benefits that affects think worker about fourth I and quarter? in So, per how how that comp

James A. Squires

Cindy?

Cindy Cynthia Earhart

Sure, Tom.

item. tax of refers much refund, you're right. terms so It's to In that forward. wouldn't back sort benefit years, It I really one-time expect prior the to going basically employment a be of with too any there

that On strong business. comp, a the an based we and of results will we the had second timing in was half, increase the quarter. I incentive our a little that's quarter, on the We in in really remind the the bit results you first similar in comp company different. last in so had the comp increase the year recognized that incentive so in incentive that resulted third

will into the year, it business all we results results go but highly could stay further tied So, it be could of to will the upon And what it could the it the are it as doing. same, down, depend go business. the go up,

Thomas Wadewitz

I in easier, is because quarter more what that saying? comparison the But year. guess, third Is last Okay. you're you accrued

Cindy Cynthia Earhart

in third of You're year. large right. last was accrual quarter There a the

Thomas Wadewitz

seems for for And was investments on great. missed think It like improvement? you But, in you've room the another ramp metrics? some or in question, do think network in seen about path of and do this. forward kind might things dwell terms confidence stabilization the call where of your just velocity. earlier. Are got Okay, and it Jim, of further you the you've to and just then, and on we're at follow-up you improvement past I I how network the guess have I time kind valley

James A. Squires

quarter. thus train XX, making in high a we accordingly. uptick Yeah. dwell and seen hour We've to train per Well, we still zone think too is dwell speeds push I mile up progress. and need third in far XX down bring to the modest speeds are Terminal back that

Now, we some behind scenes believe improvements. the though, seeing we're

or We of couple counts capacity that the things last for very, and so. that's the trains very network for month yard major of have closely. within have that the we watch network, And But active a down. our generally the watch, month, a inbound probably peaked ago. yards manageable. month classification out the major yards been And half Just classification indication overall within those the been car pipelines on an a That's come fluidity.

So, that's trying right get more so down, many a really to we're a that online that to normal good cars down too level. online cars has sign. Still managing not come now

So, I on running better. is we want Customer traffic all not we're service, improvements. it to throughout stayed where though, is in hard work the network still to customers has all, where think expect It at the moving. so be be, fluid our not and it making

Thomas Wadewitz

Okay, great. Thank you.

Operator

Thank you.

Our comes with next proceed question your of Please Deutsche with from Bank. the Mehrotra Amit line question.

Amit Mehrotra

which the effective answer Jim, communicate long-term Thanks, Class their call an questions Canadian an was that I way operator. the pack, Thanks, last it. about of the in everybody. on are night I to leader think National around targets talked to having targets OR

of some out control; out to is is control. to volume, Given of a your your degree, large degree

there you have if can Norfolk mid given So, be you. is term than But help reason CSX. just understand I the should about be different a any differences time, or I term, that CSX? year, would vis-à-vis helpful. any structural return same reasons they're thing for that various do was term. hoping you And us could think over profile that long short standpoint that there in whether from I could think Thank a

James A. Squires

have our And improvement improvement plan. we quarters ratio Look, in our important. consecutive year-over-year that part – as improvement fact, you've margin lowered seen. consistent OR is operating XX of OR We is get

focused very we're on So, operating ratio improvement.

Ours is a plan with in it though. balance

top healthy capital. and call growth, dose improve return but ours to a the growth I a looking improvement line. on to wouldn't of a are margin efficiency capital strategy. as does also well. strategy We grow include It's That also

current to to of the So, stop there. operating continue ratio we get won't to We certainly we're going goal on when push sub-XX%.

Amit Mehrotra

than to maybe wrong? So, don't guys I words meaning Or you want Is a but some competitors want that I your little real of it, out the of can characterizing put bit into mouth, other way no fair reason, a about there. there's more growth focus obviously it? structural that think maybe is to on but if just

James A. Squires

I been sending growth operating grow. executing environment we to to will kind that up income get put how say growth that this in is a the by to on And terrific you we bottom which quarter. of line improvements have this and that's the

So, it business, cyclical. our is I think in

you bottom You the now. consistent have Productivity better on getting when right It executing line too we're the operating an important up. on what remains that's that tool focus. ratio and jump is growth in opportunity and a lower it

Amit Mehrotra

Sure.

ask one unrelated more followup sheet. Let the just to balance on me that,

the So, how today? CSX the you quarters are this cash sheet the Union is is? and in are more in guys and balance shareholders evaluating expanded kind assessment then kind within plan, any of balance evaluating scope what cap Pacific obviously the confidence you Or the i.e. company, obviously and sheet Just business your of of is environment. the both long-term Norfolk are the Is comfortable the to where there. given returned with Southern of you optimal structure thoughts recent

James A. Squires

delevered extent. the examining reform capital and impact tax of recognize with to are some structure we We that we have

as We're process. a structure as that So, operating. our taking planning part look well certainly is capital at of

Amit Mehrotra

measuring as where adjusted think gross Cindy, point on the number guys credit adjusted can apples-to-apples about have you rating thinking you about the on well? to is are debt last just agencies we the as how EBITDA of update it, how so us the

Cindy Cynthia Earhart

evaluating debt stay the And continue – to our of we are quarter, maintaining as sort committed credit rating. (XX:XX:XX) actually we going with credit to have we're to And agency And just to met this of said, in are the both we do we whether credit – we we that. middle and BBB+, that. additional BaaX and Jim Well, have currently agencies some capacity. want are leverage

that's So, we sort right where are of now.

Amit Mehrotra

very That's guys. on Okay. quarter. it. Congrats Thanks, helpful. good Appreciate a

Operator

Thank you.

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

Walter Spracklin

morning, very thanks much, Good Yeah, everyone. operator.

take of disruption to that thought network coming we've disruption I however Canadian lower question. want achieve more did to the on ratio Just have with the growth, example, I to evidence CSX. kind same difference balanced that starting it they're short-term generating And hit, growth. pain with ratio restructure then the a make you'd but the much case generating want. effectively growth goes sense but seen be can growth realign U.S. CNCP, it probably seen peers OR? service or as is of initial little see to and of, approach operation And to some is you, a X% as XXX – back case your rate They're as there while about both to which Jim, X% a for the Isn't is understood to than What basis on of operating a take with but OR still you we've a have that go-forward the much structurally quicker, there basis certainly away. here to and that always a you it in guiding improvement OR, your at point with operating you lower that that

James A. Squires

developments watch terms industry or ways And railroad in well. to operations what's our play and of practices otherwise. on we are we in operating industry we're best and all a to open going as in close variety attention watching and our all, of and looking peers any of at the First differently

you couple give just me Let of examples. a

transportation We are divisional our to restructure and positions. leadership about regional

streamline Those in for in influence the push ability not well, that's field have an frontline business. So, plan transportation, and mechanical for operations to supervisors responsibility and will the strategic their level. the as car effort span control increasing to but our only future operations of at

We have under our And team, practice way. locomotive industry in design control embracing. are this of that's Atlanta team, operations centralized by Atlanta. everyone for that's agreement the we'll the side service an end network By that side our team. by us. renegotiated change They're best are bringing with our our dispatchers into And a implementing year, we

at we that and doing plan can that They part them plan be locally these improving process for a the to each dispatching said and operating that's as for local dispatch Something a we're our and but us. do is network centralized days execute local of plan consistently. on executing our the service that on with venue a for are operations and and planning works terminal location-by-location very through works focusing well in operating working what that much We're to node-by-node, also simplifying field, customers. in going going norm the our distributed We're collaboration well.

the in Right we're of not So, pushing now... satisfied our of operations different change we're certainly quo lot with status areas. and a

Walter Spracklin

– any see you Do go ahead.

James A. Squires

I thing we do down head add objective. Mike was it to trainings a where you environment have some labor the conductor just are as is this year-over-year. going And right numbers. very going remains focused very, to to now, count we important we're to we adding like be I a T&E said. very gave say year. back right But right on the customer to now. And getting Overall growth when productivity needs was have service significantly

Walter Spracklin

Do them as that bigger XX%, seeing? on big good your risky? kind being as anything changes, too by demand of a too just the of more XX% of see you're number or do given If your and the this at hump you cutting that you see take characterization Is type yards or... – that do dramatic you to point system risky

James A. Squires

network that local the keys provide classification merchandise network. one service is growth A good of in the can to

Walter Spracklin

Right.

James A. Squires

hump rationalized network capacity. adequate at So, to yard brought is important couple we'll classification it a recently. maintain we but one that, and and have closed look our And of to back yards we continue we

plan. efficiency. So, It's a customer it's service dynamic ambient and (XX:XX:XX)

Walter Spracklin

freight is – you And it, be pricing. but Okay. to know transportation. guide time don't on here there to last a question in just it's good I

leading be or standard might it and get or You're whatever peers? capacity some that mix any price contract as you why to to that's same same-store across seeing tight the your due wouldn't increases. types Is all pricing modes reason there

James A. Squires

Alan?

Alan H. Shaw

great environment a for This is pricing.

Walter Spracklin

Yeah.

Alan H. Shaw

spot going up, that. see You rates contract truck rates up going double XX%,

it's said, quarter to relative an into as continue So, our pricing that an and And we in improve to saw for and quarter as is progressed. opportunity move quarter our improved I first us our as pricing said pricing we emphasis. will year-over-year the improved we've pricing saw second We XXXX.

Walter Spracklin

Okay. Thank you very much.

Operator

Thank you.

line Our your of Please Research. with Scott Group question. next question comes proceed Wolfe with from the

Scott H. Group

Hey, thanks. Good guys. morning,

the to So, I differently. little a try wanted margin one bit just

better is So, Do theirs, on forget points CSX. structurally you're what theirs? ratio a your about target think average look margin if you operating you basis than period, over XXX better do – is is you and think network your your than XX-year

James A. Squires

network our I lot, a like Scott.

think of I lot potential outstanding network We of an a with a we lot for have places. both growth. efficiency go and

partnerships a productivity growth. customers, to our We have with greater channel great And we terrific achieve opportunity partners. and with our have

push take continue going on fronts. we're I'll think I our network all And to day. So, to any

are as it. efficiencies, strategic very, to on focus very plan significant focused developing as We on plan will safety and, and well. our a the And that significant successor growth, include always,

Scott H. Group

can the quickly the just Okay. way of just any And us you for Can little a about And third surcharges quarter? to the in kicking help then benefit bit, think Alan. then WTI any if sequentially give revenue of higher half. coal model be go us that or lower Just on color you into forward? per as car kind you we think back going will the

Alan H. Shaw

last years highway more a I'll take transitioning the surcharge which you of follows first the to path frankly so we've our expenses. over of Scott, and diesel-based that one successful WTI-based off a remind several program, fuel closely of the program been

had as now, program. diesel And in money. so with the right revenue WTI. saw base that majority About over There's of based is that of now associated two-thirds an and lag we on-highway of the is bit XX% little the with a a our with that associated moved improved quarter is So, associated important XX%. to and respect is ability are there's moving growth in quarter. in is export strong to in there. we coal, volumes this secure parts More in up was for in very our With competitive economic environment. several We confident It and One us export. price pretty price the our on.

higher tends you be up as which, coal, X%. export net know, was to rated, our However,

XX% are utility came which tends tonnage the – through we of in utility negative were Last we be XX/XX length came North This year, be to was Utility north, And Utility franchise. South. steam to which quarter, about of within predominance tends through the had mix a little of – shorter in we rated. versus a that in our coal, haul. the second lower the growth So, terms of our year also,

Scott H. Group

or things, north two those the steam half? met more you export real quick, back south think in continue you think and Do versus and just those north the

Alan H. Shaw

is range there's a The any the to demand. for a steam see APIX of the to going overseas big dependent more don't curve and curve think going an for forward overseas heat are down we met down, franchise up. bound bit and The but South met is lot Utility been largely southeast. shock coal really catalyst highly opportunity forward forward. Stockpiles little than come it's starting the moving in Utility upon moving be North grow I to the The there's in for is there.

Scott H. Group

Okay. Thank you, guys.

Alan H. Shaw

Does that make Scott? sense,

Scott H. Group

you. it Yes, does. Thank

Operator

you. Thank

with question next line Brian of JPMorgan. your the Ossenbeck question. Our proceed from comes with Please

Brian P. Ossenbeck

my Hey, question. good for morning. Thanks taking

a cleaner second the one, back maybe lot get So, a rate the of But Two, on of that clarity is half of just to going focus. OR, into it since the looking it noise bit for gets a a on year. quarter we decent singular little always and metric. the

maybe in employment like the quarter. XXX tax about looks it basis help was the So, points

what they industry OR. call railroad the can just year, it's OpEx stay down quarter? the to on rest the the of you year-over-year They're curious were prevalent the see in is gain in on to more spot out and become Just fuel then we the the but but what first And properties, did in to them of should that for the for the where half of year? expect general,

Cindy Cynthia Earhart

Yes, Brian.

fuel was about on worth fuel we the revenue, OR, of incremental of terms fuel's The incremental $XX revenue. million expense million. In impact about $XX on the had

operating ratio. as to both income terms So, operating detriment as well in of a

said we're really In the those in have the sales, will are – didn't that We've significant you quarter. property in focus operating of before. I property terms sales the at we monetize second And quarter, continue for looking not to the we quarter-to-quarter. our of very don't even business, from need property. to they're all that it's to on property if significant that. were predict that looking difficult tell they we And though very strongly

happen things may when just some property they see to to of a expect going It's tell hard would forward. exactly while. because take we you So, sales operating these

Brian P. Ossenbeck

just negative drag I can an it through? well it's And OR essentially from quantify, from you as optic Okay. the actual was like perspective heard impact because passed that in if sound the fuel actually quarter a But correctly? Cindy, you on

Cindy Cynthia Earhart

it Yes, was Negative. negative.

Brian P. Ossenbeck

point you Anything quarter? OR – the in basis the on quantify impact Okay. can on the

Cindy Cynthia Earhart

if the Well, part the was million fuel, revenue, look $XX price price. about you price, the was just in to so at related price of fuel,

was side, about $XX it million. expense On the

So, for basis point that's impact. about – OR, on XXX

Brian P. Ossenbeck

next could just one and volumes Great. taking you If can through a kind needing some to balancing about of year? maybe growth service. Or these better there's do cast at the half Service and the question the the improving Mike, network? resiliency, operating is of year much. and net monitoring for think about in might think levels if without release to you bit to count, Can infrastructure ask to how head guess volume vantage quick unexpectedly. a wider I where Okay. of the continue some conversation up grow curious capacity capture back Alan tick improve you very here. CapEx? with I some you STB pricing do Thank clearly just you it clip internally is efficiency capacity. up higher And at on into still this

Alan H. Shaw

question CapEx take capacity first. the me stab a Certainly, let Brian at that.

We budgets region. capacity on all the have spent in across consistently our capital

one very And for investments for at thing a we where any years, concerns over network. to infrastructure continue to the to the moment. going in long-term these So, And be that's capacity the where with have important put to capacity needed We're back try about tightness to invest that. address fix And are at not locations that that if and quick because strategic certainly we service investments. we are thoughtful you on look do invested money. very we'll

pinch are need to we the make ahead network term. capacity have thinking when addressed long for So, the that to investments, on be be we points years those where the

trying by focused find velocity that's So, what a where take the injecting long-term capacity. network. can short network locomotives about investments, We And term to and into view on and customer crews right increasing network in capacity we and places a the we're efficiency really longer now. of make are the difference term, real the service on

Brian P. Ossenbeck

your for this Thanks time Okay. morning.

Operator

you. Thank

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

Ken Hoexter

there. volumes your Great. morning. on on Alan, outlook followup year? question you update coal Good for Hey. Did export just Scott's the to

Alan H. Shaw

Yeah. per Ken, quarter X to million I said million forward. moving tons tons X

Ken Hoexter

now basis impact lot XXX Okay. wondering mentioning on XXX adapt. Thanks from peers point clarification. I just for out if and peer a basis know with differential. a you that got at And you keep you the I'm then, gain, OR and the you've Jim, watch And you points your I it's the and comp adjust XX% benefit guess and

to employment And so to cost team additional create just opportunities? of point, do on of that real then, Mike, do expertise see I feel that questioning do precision that the the overhaul where you about? the was adjust? some management maybe Is into you Walter about? guess, you kind you it need talked it in And like Is How you efficiency? that bring the

James A. Squires

do I've continued Not margin said and to is for ratio, operating but as results for the at to of several times, are we continuing element improvement so. pushing drive operating and the we continue we us. critical financial will on XX%, understand Ken, stopping That a hard certainly of importance lower ratios.

balanced Ours is a plan.

the and operations, our a through we be our industry we process went margin and – goes And to run number improvements We all the are long-range we'll We what watching that. the are to the that in franchise closely are which run I this to of looking continue best industry ways some definitely line. with second can the year we will as can said, for earlier. in certainly own planning currently all we bottom on better. we I long-term figure operating changes practices Part growth we did of to and in this quarter open across examine drive of making to of as this pair just out plan do

Ken Hoexter

No, I that. understand

you're those where to I you opportunity kind see you points. You your bunch think the of looking a of improve, over do went plan. said I right? was just wondering, at

from in XX% change next adapt might and lower You long-term your and the plan.

particular it it the network adjust other where areas where exaggerated the the those is opportunities is – Is you changes? see improvement? wondering see Just, just it to there you biggest Is I'm employment? operations?

James A. Squires

to labor Cost key. our comes people in structure and assets. business is productivity Certainly, down

cost right the will areas now, service. within continue be on Now, T&E focus head But we're down. cost back count. T&E up get focused to big needs to to we managing you online, ramping workforce for customer well, continue productivity velocity, a there where big of to on as planning pulling managing out will as all other center certainly push That's are the of us. assets asset structure locomotives on it is number us Network And you coming cars other provide assets spending well. a this as of freight, part managing And see the part to to have the we have. of the

Ken Hoexter

terms if just biggest mean, I is can I Because differential employees, employees. followup right? differential So, about just talked the the of of right? it's that, significant number – in you I guess when on a

differentials at additional in So, cost get in do or network the precision of to large in do expertise to bring that's kind out are you to rail need employment structure, assist to that you look network? I monumental you order – when why was have to of the that asking change – those make there change

James A. Squires

a productivity, for laying confident team ability operations foundation our to and very growth. and very, I'm while in their maintaining drive

we're think outside in bring do those practices I great perspectives outside from always we and in and as open a We're So, team. shape to time-to-time.

a going plan got we've good and continue to we're think it. I So, to pursue

Ken Hoexter

Thanks. forward the details hearing plan. next Appreciate right. the Look to time. that All of

Operator

you. Thank

comes of your proceed question line Majors with the Group. with from question. Susquehanna next Please Our Bascome Financial

Bascome Majors

that, If landscape like learning question term while east. you in taking I And management been over. natural curious growth? think to the is, my push peer extension versus and a already is I can't strategy I NS's the changing year into here. mean and is long-term speak why that competitive at more today, that's shareholders question Jim, do in for and asked made? view season for the could CSX's. the CSX's guess mean, accomplished your And on version over operational I'm consistent by board some management your And driving what your longer more you your last the profits been expense times will the of there's of is response put analyst one some results management three short-term half team it's several of strategic team, that rail over a better if guys next years Thanks for almost you current be has up of the the that served you the change into aggressive to two has

James A. Squires

pushing very for results aggressively fronts drive on all to shareholders. are We

get So, our of urgency every approaching sense we enthusiasm to every day. and and about are a day better single with desire performance a

So, to shareholder value. differently as practices. doing are for the I said, We're best always driving open we things We're watching ourselves, industry.

a are results to going pursue we and a includes So, that growth plan as result. shareholders efficiency I'm balanced that on very confident that right we're and track we'll both for great and produce the

Bascome Majors

suggest of long damaging short strategy that have is? that moves term does purely board's that direction the So, perspective I'm that that CSX could effective in the think while very just pushed that in be term? you what kind curious been the

James A. Squires

I've believe a we plan this really is morning. in our in as several times said is growth, of our and That right the formula our plan. Well, efficiency And balance view.

for do to growth. the You make need investments

like particularly are certain have available, times need You of conducive level a resources to do these in growth times. that to

is we right so grow place can make have you definitely time now forward, you possible. sure business, the the handle are while in So, to that focused workforce when on to going that's productivity that the

in be our for the I will plan future. the So, our right think plan shareholders

Bascome Majors

for your perspective, Thank you Jim.

Operator

you. Thank

of Our Brandon comes question Barclays. with from question. next your line with Oglenski the Please proceed

Brandon R. Oglenski

taking morning. good question. Thanks for Hey, my

know here. here there's in with your especially you're the we going labor So, metrics competitive it lower just definitely in I at do the I some that with to versus velocity has appear And the structure with Jim, does overlap mean, year. you important formula cost pepper past about competitor, east, least you not it's contracts, higher think CSX not the at that against bat business much cost of one right looking to when think another someone the here in jump-off much and but optically, but

structure uncompetitive while any XXXX have – out do concerns So, and you what into going might as be we look that service quite and a a perspective XXXX? forward I from cost mean, actually we

James A. Squires

business. focused cost very as critical are is well, We on and our in structure structure cost

an asset-intensive you are every resource, mind We resources intensive have day. those And to business.

right level and our to on sweating of assets the that job we'll that, the on focus continue to is and So, making other the resources very people in cost get sure we structure. business. critical have done And focused

also have grow make to to order in You investments them. the

great generate So, we're the for we all continue going employ. stuff to to other make and to customer keep that We're we service, growth people the going support that resources those. of need the on likewise to and

Brandon R. Oglenski

you. Thank

Operator

you. Thank

with from Our Please next your question the question. Bernstein. with of proceed line Alliance comes Vernon David

J. David Scott Vernon

I the question, little And for about like the would not Hey. thanks that to taking is I something ask Good right. ratio. will about morning, Alan, know and going operating bit, a guys.

doing could by next, a we XX domestic how And should right XX a factor over you're it, price. the how better X.X, intermodal getting sustainable think outgrowing the be guys intermodal You in X, and now? guys you to right are call What in the of months? are about business market that domestic bit little

Alan H. Shaw

in in And our our XX% Yeah, franchise growth to Jim for to to over is going and this why deliver And and intermodal on what for that's remains got high we've able us ability the confidence a shareholders. great said, east. intermodal best question. execute franchise bearing in investments in that pivot off that's the each very our fruit this time quarter we've And forward. year. made We've intermodal been

Our excited with moving growth are do forward. prospects about this the economic environment customers to and us want business very in continue to

in we've our So, on we're shape to recent We've years from improved this investments margins service provide And improved made with price. benefiting product. in growth We've we're franchise. and the a that great intermodal the it. support

J. David Scott Vernon

marketplace, in an times a schedule? transit advantage the us spent to like Is of level? times is structural there see in or you transit risk? keep to of you about that that the – compare that there there? have schedules, from any there's how – if transit your time advantage We but with at allow a understand other some And the do you to big some you top-down kind is help anything were time guys kind you can think intermodal versus of Or how things

Alan H. Shaw

Atlanta. We Yeah. a between great got and and network to down PA Chicago then Eastern

in Our network. primary growth. recognize able that doing is to we're truck that form XX% tight mean, and We're competition market the quarter. I also revenue truck first growth and up into our rate you combine this if in was outpace over And merchandise XXX merchandise of our merchandise leverage intermodal, second miles truck we volume in X% in rate half in the the year. growth the of our

against delivering And a aggressively very competing or whether intermodal, hard, franchise it's it's we're truck coal have and results. we merchandise. very So, great

J. David Scott Vernon

Thanks. added the color. All right. Appreciate

Operator

Thank the you you floor to turn .Mr. I'll any Squires, questions. there comments. further are for no final back

James A. Squires

Well, everyone. much, and this time appreciate you very thank morning. attention We your

Operator

concludes today's you. teleconference. Thank This

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

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