Q1 2020 Earnings Call
Good morning, and welcome to the Kansas City Southern first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your telephone keypad to withdraw your question, please press star them to please note. This event is being recorded. It is now my pleasure to introduce you to actually go on vice president investor relations for Kansas City Southern.
Thank you drew good morning. And thank you for joining Kansas City Southern first quarter 20 21st call before we begin. I want to remind you that this presentation contains forward-looking statements within the meaning of the Securities Exchange act as amended readers can usually identify these forward-looking statements by the use of such words as May will should likely plan projects off anticipates believed or similar words actual results can materially differ from those anticipated by such forward-looking statements as a result of a number of factors or combination of factors, including but not limited to the risk identified in our annual report on form 10-K for the year ended December 31st, 2019. And in other reports filed by us with the Securities and Exchange Commission, including our orderly report for the quarter ended March 31st, 2020 forward-looking statements reflect the information only as of the date on which they are made KCs does not undertake any obligation to update any forward-looking statements birth.
I can get your events developments or other information in addition to disclosing Financial results in accordance with gaap the accompanying earnings release and presentation contains non-gaap Financial results with non-gaap measures should be viewed as a supplement to and not a substitute for our us gaap measures of performance and liquidity and the financial results calculated in accordance with gaap and Reconciliation from the results should be carefully evaluated all reconciliations to the most directly comparable Financial measures calculated and presented in accordance with gaap can be found on our website and are full Safe Harbor statement can be found on page two of the presentation. And with that is now my pleasure to introduce Kansas City Southern president and CEO Pat Meyer.
Okay. Thank you. Ashley. Good morning, everyone. We are.
And make the best out of this. We're we're all together here. If you go to the side for you'll see the list of presenters and others who are available. We're all going to talk to the the format that you're familiar with and and used to here even though we are all distanced. I will make a comment Brian Hancock who all of you know has re VP and chief Innovation officer much of our business continuity infrastructure faith and Brian's organizations. So there may be a few more opportunities for him to provide guidance in terms of our covid-19 strategy response. Talk about in in a couple of minutes and then obviously Jose Josiah on the phone again, if there are particular topics of Interest related to Mexico and what's going down.
New Mexico, but again, I'll cover some of those so moving on to slide five we had a great quarter the first three bullet points were going to go through all of this and much greater detail over the next several minutes but Revenue increased 8% volumes up 4% I'll talk about the adjusted odds ratio and EPS since the adjustments relate to uh, restructuring items, but adjusted operating ratio for the quarter of 59.76 hundred and fifty basis point improvement from last year best operating ratio, we have ever posted and then adjusted diluted earnings per share of a dollar and $96 an increase of 30% over last year. And again, we'll have much more detail on both of those over the next few minutes log.
You don't want to talk about our covid-19 situation the health profile of our company what we're doing briefly to to prevent the spread of the black Iris across our Network and from the from the very beginning when it became clear that we had a problem and needed to to come up with an appropriate response. We've been a very clear on two top priorities as we approach responding to this pandemic. The first is to protect the health and well-being of our employees and the second is to assure the continuity of our business operations. So our strategy our response our communication with our employees with our customers with others have all been focusing those two objectives again, what happened to get into more detail, but I will talk a little bit about the the health profile the company both us and Mexico one important birth.
Comment that I'll make hear you.
Is as we started to respond with distancing facial protection gloves working from home sanitary procedures off basically everything we did to respond to the covid-19 demek. We did equally in the US and Mexico at the same time. I think that's important because there's a lot of news a lot of question about the the the Mexican Health profile the accuracy of data other things that may again be happy to to give our opinions of over the course of the call, but I will say that are I think our effort our response in treating us and Mexico the same and and and doing everything across our Network regardless of which side of the Border has served us extremely well and resulted in some pretty outstanding health statistics birth.
And I will say the the best indicator that we have of what's going on in Mexico would be the health profile of our own employee base again 3500 maybe closer to four thousand employees in Mexico across the entire country including dance population centers, and I'll say just give you a quick overview as of this month. We have a total of 272 employees in Mexico that are staying home for the health mandate and Thursday. Guidelines that have been issued by the government.
247 of those are quarantined due to chronic disease conditions twenty-four of those are quarantined because of age in one because of pregnancy. None of them have reported covid-19 confirmation. No confirmed cases of covid-19 off and really very few are quarantined because of symptoms. So again, most of the our own experience in Mexico is due to the the health conditions and the age of the related to the the quarantine the sanitary guidelines that have been issued by the government and none because of symptoms or confirmed.
Three additional people quarantine because of possible exposure and in the US, we have 18 currently quarantined because of possible exposure none because of symptoms or covid-19.
In Mexico, there's been a lot of talk about the unsung heroes of This Global pandemic. And of course at the top of the list of of of those that are of responding to the extraordinary encouraging commitment would be health care workers. But real Woodworkers certainly need to be included on that list not only is our service deemed Essential by government guidelines in both us and Mexico, but it will be absolutely critical to lead our economy's out of the downturn that we are expecting in in currently experiencing our employees on both sides of the border and all rotors in North America have shown extraordinary commitment dedication and determination in the face of this Global Health pandemic and deserve the same recognition as other front-line Heroes.
So for all of the KC asking KCs de Mexico railroaders who may be listening live or via replay. Thank you. We are proud of you and greatly appreciate what you do every day to keep our company or customers in our nation's economy is functioning at the highest possible level.
Again, moving on to the slide. We'll talk quite a bit about the scaling of operations and cost in this rapidly changing environment. And then we will reiterate our outlook for PSR initiatives and savings and again Sami and others will talk about our PS are effort, but I want to just again take a a minute here to talk to express a little bit more than just the numbers are PSR infrastructure. And we've talked about this over the last four or five quarters led by faith in me is you all know. Sammy came on board a little over a year ago and has assembled a cross-functional very wide and deep group of professional across the company that had been driving our PS are initiatives and transformation for the last 4 quarters that has put us in just outstanding physician wage.
To respond to this latest extraneous curveball that we've been dealing with and the rapidly changing business environment is put us very much on our toes. Sammy has led this effort and created a great deal of enthusiasm and excitement across the entire organization again, a very dysfunctional effort. The executive management team is deeply involved in this as well. But it has put us in in really great position to take the progress that we had been making which on Thursday someone was outstanding and and really turbocharged it as we're dealing with rapidly changing business conditions and environment that we've seen over the last four or five weeks off. So, we'll talk more about that and be happy to take questions about that. But I just want to say that infrastructure and in Sammy's leadership of this cross-functional endeavor hath
Put us in really great shape.
As we have now shifted our focus and responded to a different challenge moving on to slide slide six, not surprisingly. I'm sure this will be a surprise to no-one on the call. We are pulling back on most of our guidance that we had previously given. I think the the best advice I've heard recently is we've all been probably worth watching more CNBC is from Jim Cramer who saved you you would have to be an idiot to give guidance in this market. So we're not idiots and we're going to page. Um, um, uh with the the guidance on the shelf for the most part we will stick with our capital expenditure guidance, and then we have some additional information that might help church will go through later on free cash flow. So with that I will turn the presentation over to Jeff somber
Okay. Thank you Pat and good morning starting on slide eight all over my comments today with a brief overview of our covid-19 related efforts and expand a little bit on what Pat discussed we had extensive business continuity program in place at the onset of the virus. We enacted several measures to ensure the safety of our employees and continuation of our operations early on we took steps to adhere tip social distancing recommendations such as separation of our Network operating Centre and dispatching functions. We're currently operating operating out of five separate facilities across the network with ensuring the safety of our workers remains our top priority and we have implemented self-isolation protocols for anyone potentially exposed to the virus or showing symptoms of the virus am cleaning up facilities sanitation of locomotive cabs Supply and face masks and temperature readings and major facilities are some of the specific actions we have taken to date.
We believe our actions to follow relevant CDC recommendations has led to low incident rates and relatively low impacts to the operation in general at this time. Our Workforce is stable and we continue to monitor the situation daily other industry-related efforts include daily updates with the f r a n s t b as we are working to ensure strong Communications across the entire rail network.
Regarding key operating metrics for the quarter velocity of 15.9 miles an hour improved 26% year-over-year and 4% sequentially dwell of 19.8 hours improved 95% year-over-year and 1% Sequentially cross-border performance continues to outperform with volumes up 12% year-over-year some of the new train consolidation opportunities. We will discuss labor will continue to support growth in this segment turning to slide 9 PSR metrics have shown significant year-over-year Improvement across the board and we're attracting well to our 20 20 goals am noting the column on the far right current months at 8 metrics are showing substantial Improvement in most categories versus the q1 average are enhanced PSR infrastructure has allowed us to quickly adjust to recent changes to volumes and business patterns and have created opportunity continued to drive efficiencies in the operation.
car miles per day
Velocity and train length are showing significant gains over the past few weeks as our heightened focus and discipline have allowed further consolidation of trains reduction and train starts and scaling of expensive in line with changes in volume. Sammy will provide more details on these specific actions as we see an opportunity in the current environment to accelerate these productivity improvements as My Life Church will detail these operational improvements are having direct impact to the bottom line picking a couple examples improve velocity contributed to a three million dollar reduction in Car Hire while game and fuel efficiency led to a five million reduction in that category.
As we look forward to recovery. I went to acknowledge the resilience and extraordinary efforts of the operating team during these challenging times. I will now turn the presentation over to Sammy.
Thank you, Jeff and good morning. So on flight eleven, I would like to describe, you know, two stories, you know that happened in the squirter month January February and then March which is at the bottom of the slide. So January February, we we kept going pretty much, you know along the same strategy and the same thing that we have taken, you know, since the onset of PSR early past year. So our Focus was very much on eliminating delays eliminating mechanical failures off during the last day of the network a great emphasis on service and allowing Revenue to grow and as a result of that is as Jeff mentioned. I know we have been increasing our velocity in a in a significant manner, you know used to run in Mexico this time last year at about eleven miles per hour in January February and sixty miles per hour wage.
In a minute, I'm going to describe what's happening in March and April the the you know, the equipment obviously comes out of this. I mean the more fluidity Jack in the network the more equipment you can take out so we have taken out a lot of locomotives out of the fleet. We are down now by about 20% since the beginning of us are who are at 1046 locomotives. We started the Year this year at 880 around the end of February you are down to about 8:25 a.m. So we have taken out about 20% of all locomotives. We have taken out about 10% of the cars a lot of focus on the Car Hire because they cost us money every day that you know, for sure cars on t t x cars that have come down by 13% and a lot of focus also on returning leased cars because that is obviously cost us money. So grey and Hopper cars we are returning about
Sweet hundred of them for what returning about 400 Automotive cars. We also have about seven hundred green cars parked stored, even though our green volumes actually have increased and continue to increase in spite of Corona. So a lot of a lot of equipment coming out a lot of improvement fuel efficiency is another thing that comes out. Fluidity and a better service design where you have longer and heavier trains and better horsepower to to to punish. So we took that by 6% another saying that happens when you get fluidity is obviously Cruise you can you can reduce re Cruise reduce that heading same thing on on taxis and and you get to a point where you can actually eliminate some of the crew basis the crew change points because the training can make it from one point to another without having birth.
to change Crews because you can
You can run the whole trip unless hours. So that is is having a big impact on our cruise. And we also did a field trip, you know in January off the north side of Mexico. We looked at Sanchez yard, and we looked at the border and we looked at the Santiago area, which is a very industrial area. And we got a lot of nice new ideas will definitely pursue even while we are going through this Corona.
And then, you know the the plans started shutting down in March and we got advice of that and we tried to move as fast as quickly as possible to get ahead of it off and big assets out and take cost out and we are doing that on a daily basis. So we kind of fill it it from a customized GSR model that we had built up, you know for for Avenue and we started pivoting to the traditional old-fashioned part of our if you if you like of eliminating costs and eliminating trains wage and reducing trade in stocks on the likes that does not mean that we are neglecting the the service actually the velocity went up to 18 miles per hour in Mexico off again, it was eight miles per hour in 2018. It went to about 11 to 14 throughout last year. Now. It's running at 18 miles per hour. So actually fluidity. Yep.
Even improved why we have been making a very significant effort to take out to take out assets and and and to take out cost. So we took out a hundred thousand nine trains either amount or Consolidated. We saved 416 Cruise store fifty additional locomotives and two thousand and five hundred cars and yet we did this is that we empowered the feed we side. We have no time here to do studies. We have no time to do models. We always had a hesitation as an example about the size of our yards in Mexico because they are small with they be able to handle consolidation of trains because when you consolidate trains you take cars from untrained, you know, give them to another train so they have to wait a long time. It's like, you know time between two flights when you make a connection, you don't want to hold them too long and you don't want to congest the yard. So we always had a bit of hesitation and the train length throughout Club.
It went up by 4% while since we we started doing this intensive effort in April the train lengths and I'll show it in the slide in the second one.
By 6% the plan is on the train went up by 16% So would have would have a train, you know going from Lazaro on the Pacific going north to Laredo in Texas wage, and it used to go all the way and now we take that traffic to a place called queretaro, which is in the middle of Mexico and then it piggybacks on another training queretaro that actually is going nors and and off the team is is energized the actually the head of our operation in Mexico is calling it now a religious experience which is which is kind of interesting David Ethan and and he has a team Fantastic Team, you know, Irwin Bernal Jesus both of our Fidelity, you know, if you these guys are doing an awesome job and they are taking the cost out extremely fast and and obviously a lot of emphasis on the car hire, you know, we want to take that out. We also are seeing obviously a lot less locomotives like we decided we're going wage.
6:50 locomotives out in addition to everything we had planned and and we did not study it we did not analyze it we said well, that's the way by the way the legend of this industry. You know, Harrisonburg do it you take the you take the assets out and then make it work and it did work. So 50 additional amount is went up. So now we're down to seven seventy locomotives one. We started our journey was a 2046 and and it is humming. Now that means a lot less work for the locomotive shops and we have a choice either lay people off which is going to handicap authors that one the recovery starts, which is very important for us or we channels on to other work and that other work is to catch up on the backlog of overhauls. We have a lot of locomotives that should have been over a month over the years that are behind so now is the time to do this work the same way as for the engineering track work, you know, the maintenance people who are doing repairs. They have some unproductive.
Time some extra time now we put them to do some of the capital programs and we are pushing out the contractors and saving money. So a lot of that happening it's happening very very fast and are seeing the numbers we looked at the numbers last night actually the pacing for the months of April and we are seeing we're seeing the money immediately beginning beginning to be taken out fuel efficiency as an example has gone up by by 7% in Mexico that's over and above the 6% I was talking about the top of the slide. It's just from this consolidation work place by the way, a fuel cost is going down because the price is down and the volumes are down to last point on this slide, which is very important is that we want to learn from what we are doing. Well not just doing this to cut costs to compensate for reduced Revenue. We we keep telling our field guys every morning on the morning.
You have to write down every single learning here. You have to see where you are consolidating trains. We want the stuff to stick after this thing is over without cash back to all the train stars that we used to have before even when the volumes come back and now we are focusing on what yards are you doing? A lot of consolidations in where you are a bit cramped office. Can we do about these yards? Because now it's going to be changes which was focused Capital based on on live experience not based on design and modeling and Foundations. Okay. So so we are already working on that and obviously on sightings that can be extended, you know to accommodate long trains for me. It's the last two slides. I'll go very fast on those. I've already taken a lot of time. This is just an illustration of how on the left side on page 12/12. You see that the train Stars used to run a table.
100 train stops per day then the first week of April. They went down to 79.
Then the second week of April they run down to 66 and we are beginning actually to go down even more than that like in in the fifties and you have to you have to keep in mind that every train stop, is two million dollars a year. So everyone that you can take out is going to to be to stick and and and can can carry us now some of these trains are so obvious you would have to come back once I come back you see it also in the train length. The train length is is growing up in in in in an obvious Manner and if I go now to my last slide, which is on on page thirteen now, this one shows the whole, you know, the whole span of PSR since pretty much it's beginning, you know around April or you know, 2019 and you see that we have been improving train lengths, you know gradually, but that was not really our emphasis or emphasis was on velocity and service and fluidity wage.
Which we have achieved and and took a lot of equipment out as a result of that. Now we are focusing on train length and the graph of the bottom is focused on train tonnage and you see the office significant demarcation on the right side of each slide where you see the yellow lines, which is the train starts dropping Like a Rock while the train length on the top drawer and the train tarnish on the bottom graph beginning to really Spike North and this is goodness because you get fuel efficiency with that the longer and heavier the training efficiency you got reduction in Kruse, obviously and even though we may not be able to lay people off, you know, because of some labor labor agreements am calling you don't pay them and and you know, the example not the example the numbers that I gave 416 Crews have been saved so far in Mexico, that's about the thousand people because the crew can be 2 p.m.
Three people in some cases actually four people was a Brakeman rule in in Mexico. You save that money. And again last night. We looked at the numbers and there is a good reduction actually crew starts went down by 38% in Mexico while gtm's and and carloads went down by about twenty 45% And that's the difference. That's the productivity and the brakes through that is mentioned at the top of the slide is that now we are finding things that would have taken us a year or two to find, you know through design and and and other things where I live and we're learning from what we are doing and then once the dust settles here a lot of this was sick. Okay. So at this point I will turn it to my cloud.
Thank you. Thank you Sammy. Thank you Sammy and good morning, everybody. I'll begin my comments on page fifteen despite seeing some covid-19 impacts which occurred in the latter portion of March. We had a very nice quarter year-over-year Revenue grew at 8% on a 4% increase in volume. Revenue growth was led by The Usual Suspects are across bought a franchise business experience strong Revenue growth of about 13% on a 12% increase in volume. This was driven by strength in our Mexico energy reform business, which experienced 50% Revenue increase on a similar increase in volume our total cross-border business now represents approximately 53% of our total revenue.
We also benefited.
It from the year-over-year cops due to the 2019 teacher strike as well as an increase in fuel surcharge Revenue.
Accor pricing and renewals were in line with our expectations and we're similar to levels reported in the prior quarter.
It is somewhat challenging to discuss Revenue drivers for the quarter without getting into the impacts of the current economic environment. Nonetheless. I will address current quarter performance first and will conclude with some thoughts on the same situation again, we did see some limited impact from the covid-19 situation in the first quarter.
Chemical and petroleum Revenue was up 18% on a 14% increase in volume energy reform and plastic segments were the primary contributors to growth in this business unit.
The metal segment was the primary driver of growth in our industrial and consumer business unit recording a 6% increase in revenue and a four percent increase in carloads.
Dragonmen business unit also had a great quarter seeing Revenue growth of 9% our food products business benefited from a shift and sourcing patterns and the cross-border franchise green business office continues to take advantage of our improved service levels.
Our energy revenues and volumes deteriorate driven largely by weakness and utility Cole resulting from warm weather and low natural gas prices interestingly enough our crew down a strong early in the quarter and was partially offsetting the cold declines. Unfortunately crude oil prices tumbled in March and resulted in a sharp decline in our crude traffic.
Turning to our Intermodal business our cross-border franchise Revenue grew 22% benefiting from improved service and positive pricing despite some impacts from covid-19, Georgia Avenue saw strong uptick growing 16% I'd relatively easy comps again due to the 2019 teacher strike and changes to the application of fuel surcharges.
Automotive revenues were 6% lower year-over-year on a 12% reduction in volumes.
The quarter started a bit soft with volumes as a result of lower production and model changeovers. And of course we did see covid-19 related shutdowns across of our major oems in the second half of March.
Like to turn to page sixteen, please you're looking at a slide that Endeavors to communicate how each of our business units has been and currently continues to be impacted by the economic down.
How before I get into those specifics, I'd like to comment on our April month-to-date volume performance. Well, we are experiencing a 21% or so month-to-date decline in April volumes. I would like to remind the group that we have a timing difference with where the Easter holiday falls in the month between 2019 and 2020 this year. The lower Easter biomes are already behind us. Whereas last year Easter occurred later in the month.
And when Easter falls earlier, Mexico volumes are disproportionately impacted as industry in Mexico tends to take a longer break for the holiday course, the Easter cops will reconcile themselves by month birth.
All right going back.
To the slide. I believe that this information will be intuitive too many of you on one end of the spectrum. We have business units such as admin that have not been materially impacted by the covid-19 situation. Of course, this isn't to say that we have not seen changes in the business unit. But the chickens are still eating and cookies are still being made. However, low fuel low if she has impacted the ethanol market and that corn will have to find another home in the marketplace.
On the other end of the spectrum you had the auto business of course plants across North America are closed in automobiles are not being produced looking at the data for week 15 motor vehicles and parts traffic was down almost 90% year-over-year. Of course these temporary plant closures affect other Industries, including steel and Plastics and the Intermodal Auto Parts business has certainly been impacted.
In the middle of the Continuum you have a variety of impacts some positive like chemicals that go into cleaning products and some negative like building products. But as a reminder those big units on the top half of this continuum
comprise approximately 70% of our Revenue portfolio
in addition to this information following fuel prices in a deteriorating peso are likely to create Top Line revenues that will be impacted and I would be offset with lower expenses.
Not surprisingly given the circumstances we have received some request for accommodation from our customers our pricing strategy to achieve inflation Plus pricing Remains the Same we will work we will focus and yield optimization through operational improvements and service design and we will continue to work with our customers develop win-win Solutions where we can share of benefits. We are pursuing these strategies with the renewed focus in the current environment continue working with our customers to achieve mutually desirable outcomes. As I stated earlier. It is very difficult to forecast what may happen in the near future and we're certainly not in a position to provide guidance. However, the economy was healthy going into the crisis. The government has something meaningful stimulus packages inventories as fallen in some sectors and we are optimistic about the recovery.
To that end. We will continue to stay in close communication with our customers so that we are prepared to efficiently handle volumes as they returned and Sammy noted earlier are focusing on quickly reducing costs while staying prepared for volumes to return this will certainly allow us to take advantage of our unique growth opportunities in the future. Thank you for your time. And with that I'll turn things off to our CFO makeup Church. Thanks Mike and good morning everyone. I'm going to start my comments on slide eighteen. The first quarter results highlighted on this slide is already been covered. So just once again reiterate the combination of record first quarter revenues and strong cost controls LED outstanding financial performance 8% of wage growth and a 2% decline in adjusted expenses combined for 29% growth in adjusted operating income and over a hundred percent incremental marja.
our adjusted operating
Ratio 59.77 improved six hundred fifty basis points over first quarter 2019 and is the first sub-60 are posted by Kacey else in any quarter reported EPS was a dollar fifty eight adjusted EPS was a dollar and $96 up 30% over prior year off a reported earnings per share includes a negative $0.33 impact from the net of FX hedge losses and the offsetting benefit that we see in income taxes, Please refer to slides 28 and 29 in the appendix for reconciliation of reported to adjusted EPs and for details on our net hedge loss.
A reported earnings per share includes a six million dollar charge five cents per share for trips associated with our PS are restructuring actions and primarily damage to the completion of the purchase of least locomotives. We executed earlier in January of twenty twenty turning to slide 19. I'd like to remind everyone that can't City Southern PSR implementation is driving significant and sustainable Improvement to our cost structure. We are reiterating our Outlook off for a hundred and twenty five million dollars of savings for 2021 with 61 million of savings being incremental in 2020. This Outlook is unchanged from the update that we provided in January despite the anticipated negative volume impact of covid-19 relative to our original plans.
And it seemed he indicated we're aggressively reducing expenses are real time basis that we believe will offset any kind of reduction because of volume reductions off turning to slide twenty adjusted operating expenses decreased 2% or expense reductions were driven by strong cost management across the business office lower headcount and work hours and fuel price each drove a six million dollar reduction. We also achieved a five million dollar benefit to fuel efficiency, which more than offset a four million dollar increase from fuel consumption.
We carried 4% more gtm's in the first quarter of 2020 while reducing our gallons by 2%
lease rents drove a five million dollar expense savings year-over-year including the benefit from the locomotive lease buyout that are previously mentioned.
We also realized the three million dollar benefit from Car Hire expense primarily from continued reductions to cycle times to that point our Foreign Car Cycle time declined by 12% in the first quarter. Finally the peso depreciation during the quarter drove 4 million year of your benefit partially offsetting reductions to expense
Estimated payouts for short-term and long-term incentive comp we experienced four million dollar increase to wage inflation four million dollar increase to fuel consumption do the volume growth and derailments and casualties increased four million primarily from higher development activity turning to slide 21. I'll briefly discuss our Capital allocation highlights or free cash flow in first quarter was up 14% despite a $78 million-dollar locomotive lease buyout we executed in January our capex was down 50% driven primarily by 74 million dollars of locomotive purchases in first quarter 2019.
First quarter twenty returned to shareholders was that 170% driven mainly by increases and share repurchases.
Most importantly, we have seven hundred million dollars of the liquidity between cash balances and an undrawn revolving credit facility of $600 million home. Finally. We have no debt maturities due until 2023. So we think our balance sheet is in terrific shape.
Turning to slide twenty-two. Well, you've already heard we can't accurately forecast the impacts of covid-19 on car load volumes and revenues do these wage unprecedented events. And if accordingly withdrawn our guidance for volumes revenues o r n e p s
However, we do want to share with you a few scenarios that we are preparing for our first scenario assumes an approximate 15% decline in second-quarter revenues coupled with approximate 10% and 5% year-over-year declines in the third and fourth quarters of this year respectively our second scenario assume that the more dramatic decline of nearly 30% into Q, which would approximate the worst quarter. We saw in the Great Recession in 2009 and Then followed by declines of 10% and 5% for third and fourth quarters.
These are merely planning assumptions and neither scenario represents our forecast for the remainder of the year. We just simply can't accurately predict or control what happens with volumes and revenues is at this point during the covid-19 crisis. However, I would like to highlight our ability to right-size our cost structure in a declining volume environment, and how may we plan to adjust downward our Capital expenditures for the rest of the year approximately 60% of our cost structure is variable or semi variable and approximately 40% more fixed in nature for additional details on our cost structure. Please refer to the appendix.
It's Sammy already
Discussed we have moved aggressively to reduce variable costs by dramatically reducing and consolidating trains on our Network. These actions should allow us to immediately Rod size crew and yard labor costs fuel usage fuel efficiency and car higher rents. Finally. We are strategically targeting reductions wage growth Capital to further improve our cash flow as Pat previously mentioned. We have already reduced our Capital Outlook to 450 million dollars for 20 28, and we have identified additional actions that could enable us to reduce this year's Capital by an incremental fifty million dollars down to four hundred million for the four years.
We'll make final decisions on this incremental fifty million dollar Capital cut by June Thirty prior to spending on any of those projects.
So again while we can't accurately anticipated volumes and revenues for the remainder of the Year. I hope you agree. We've already taken a very aggressive actions to manage our expenses and wage reduced our Capital spend aggressively managing. What we can control is our goal right now and based on the various planning scenarios. We have prepared for Thursday. We were targeting at least five hundred million dollars of free cash flow in 2020, which would be more than 10% growth over 2019.
And finally turning to slide $23. We understand that there is some uncertainty by analysts and investors as to whether we can scale our compensation and benefits in Mexico do the more owners furlough rules compared to our us operation. And while it is true that headcount in Mexico may not decline at the pace of volumes approximately six seventy-five per-cent of kcsm Transportation union wages are variable and we fully expect to be able to scale down comp and benefits as cruising yard Personnel or called to work less frequently and illustrate that point. We've produced a graph that shows while headcount in Mexico during the Great Recession in 08509 did not scale down we did in fact scale down labor costs by approximately 50% from Peak to trough while experiencing A nineteen month.
Percent volume decline. So there may be a very good lesson to be learned there and with that I'll turn the call back over to pass.
Okay, I think we've covered a lot. We've taken a little bit more time and the prepared comments. I'll just make a couple of points to reinforce some of the key messages off. Again. Our prioritization will continue to be focusing on the health and well-being of our employees and assuring the continuity of our business operations. And and as we begin to see hopefully sooner rather than later or return to business and the reopening so-called reopening of the economy's we will continue these practices to make sure that both of those objectives are accomplished feel very good about the focus on right-sizing the resources as I mentioned at the beginning the long the PSR infrastructure that we put in place with Sammy at the lead and the cross-functional nature of that exercise has put us in terrific shape. We are on our
We are.
Bonding daily to changing circumstances and and and uh what has been declining volumes here the last few weeks, but we are very focused on remaining to be prepared for return of volume growth whenever that happens and I think with some of the recent news of the federal government in the beginning to talk more specifically about reopening the economy things like new vaccine technology that seems to be very promising a large companies such as bowing that are returning to work as soon as next week. It may hopefully be the case that that that reopening of the economy is is is sooner rather than later and we want to be prepared to help our customers recover and see volume growth as Club.
We as possible when that economy reopens. So with that we're going to open the line for questions. I'm going to be since we're all distanced and separate. I'm going to quarterback here. So I will refer questions to my my colleagues here as they come in. So I'll go ahead and open the line for Q&A.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using the speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two due to the number of participants on Thursday morning is call management will limit your question to one at this time. We will pause momentarily to assemble our roster. The first question comes with Chris Weatherby of City, please go ahead.
Yeah, he thinks he can good morning everybody.
Morning, Chris. Maybe they start off with Mike's comments around free cash flow and maybe some of the scenario analysis that you've done is it's fair to assume that $5,500 or free cash flow. You're targeting and 20/20 is a number that you feel good with under sort of multiple scenarios that you're both of those scenarios that you outlined and the prepared comments and it would be a follow-up just if I could squeeze in and this one question would be kind of related to Sammy and sort of thinking about, you know, PSR and the ability for the network to flex up coming out of this month or not. There will be sort of good opportunity for incremental leverage as volumes return to the network. So I know that's two questions, but that's sort of what I was asking.
And make you want to start with that one sure on the five hundred million. The answer to your question is yes, we've looked at a variety of different scenarios very difficult to model exactly. What what ends up happening here out quickly. We come out of this crisis, but we feel very comfortable that we can achieve that level of free cash flow under those scenarios. If something else happens to occur here that that changes those scenarios we would certainly keep people posted but we we feel pretty good about the five hundred million dead.
As for the second question Chris second part of your question. Yeah, I'll I'll have Sammy provide some comments here. But yeah as he mentioned in his comments off, you know, we're we're not only responding on a daily basis to changing volumes and changing circumstances that trying to make sure we learn from what we're seeing and respond as we come out of the recovery when we come out in in in in, you know business recovers that we learn from this and and and Thursday as we grow and ramp things up. We do it perhaps a little more intelligently with the benefit of this experience. So I I you know, we're we're we're keeping things close were uh, as we scale back looking at equipment and people making sure that we keep them close so that when the wage
Every occurs we don't short-sheet ourselves, but at the same time really paying attention in in doing Diagnostics on the things we were doing to recover the way we're using our yard the way we are handling trains and in service to to individual customers so that we can be very well prepared wage recovery occurs Sammy. I don't I don't know if you have anything to add to that question from Chris.
All right, maybe I can give an example or two Pat, you know to reinforce what you are talking about. And and you know before I say that by the way Chris, I read your report last night and and really nice. I think you mentioned in it that week 15. The velocity is 56% higher than it was week 15 of last year over year. So thank you for seeing that and we always read your reports now as to as to you know, I'll just give some some small examples like, you know that train I'm not talking about I I didn't elaborate because I don't want to take too much time. But you know that trained, you know from Lazaro going to going to to Texas. It has been bothering us off even before Corona. Okay, you know, like it it it dropped off a lot of track traffic in a place called Escobedo which is in the middle of Mexico and then from Escobedo all the way to San Luis Potosi, which is 200 off.
Demines, it would carry very few cars. Okay, like honestly, it's even embarrassing like on some days five cars eight cars. So here you have two locomotives of screws. Sometimes maybe even a month. That's the waist. Now it had more work to do, you know in San Luis Potosi and then a place called Victoria Salinas in Monterey on his way North, you know to hand off traffic to an interchange to a month old now, you know with all the pressure that we have now and and the focus, you know, we said well we are going to to take take the train only to replace club which is called queretaro and an annual Acura TL carry whatever cars we have, you know left and go on and do the work on behalf of this rain in San Luis, Potosi and victories Lena's. Okay. So this these are situations that were there before Corona and now, you know was all the focus and intensity that we have and also the risk-taking Dead.
and the empowerment of people in the field and I keep repeating that, you know, suddenly, you know, these guys are doing things that that
We kept saying well, you know, I don't know if the odds can handle it or not. But can I tell you can't handle it and and it did and and and and it's it's working, you know on a mechanical side. We are doing things also that that are kind of unique that will carry on, you know in the future and Engineering Trackside. I mentioned a couple of things, you know, where you are spotting and productive time of Maintenance people while at the same time. We have contractors hired and paid working with a production gangs at work on the subdivision of these maintenance people. Who are there that production program. Well, I'm not going to have the contractors we're going to let our people compliment the production gang and do the work and that these are efficiencies. So, you know, a lot of these things are are going to stick and and and the focus now on on train starts and train length and train tonnage is going to be as important as the law.
Which has been the emphasis, you know from day one. Now, you know, there's something between which is called. Well when you do consolidations, sometimes it can pay a bit of a price and well, you know, is that in your report last night and and yes that's a bit from the consolidation. So and that's why you have to put emphasis now on yards and understanding The Yards. So we have a yard call Venegas, which is one of the network nodes of San Luis Potosi. And you say and we spent some time yesterday looking at that. What can we do fast small things, you know that cost in million a million and half, you know some you know, how long of a track to accommodate long trains, you know, maybe better lead to do better switching and classification stuff like that it main line that runs in the middle of the of the yard that's terrible wage the switch and blocks trains and they have to sit outside the yard. Well now maybe we can build a main line around the classification tracks simple things that that don't cost much money down.
We know from experience because it's not it's not it's not simulation. It's not modeling. It's real life. We see what the guys are doing every day. And you say okay. I'm going to focus on that now he's future and I'm going to carry that and therefore PSR, you know has just taken a bit of a leap here and and its scope has been has been expanded was real life Information Age and in a very accelerated mood. I hope that answers your question Chris.
Yeah, that's that's fantastic information. I appreciate the time guys. Thank you.
The next question comes from Tom wadewitz of dvf, please.
Yes, good morning. And you know great execution in the corridor very very impressive results in the quarter and sounds like you're off to you know, really good start in terms of them responding to the decline in volume. I wanted to see if you could give a little more perspective on refined products into Mexico. I know that's been a powerful growth driver for you and I are a couple of moving parts that are are kind of tough to get a clean read on so I think one would just be how do you think about the market response? Would you expect a demand to fall pretty meaningful for refined products in Mexico? And then how do you think about the share performance within that you know, do you have good visibility to your customers taking share from Penn wage and potential to offset what might be declined, you know in market demand for refined products in Mexico.
Thank you. Okay. Thanks, Tom.
The perfect question for Mike Ness. Thank you Pat. I guess in general demand is really going to be The Driver of refined product. I mean consumption it's in the US or Mexico certainly with this stay at home or shelter in place orders are seeing in both countries demand for the product is falling and of course demand is falling a different levels, depending on whether you're looking at regular gasoline versus diesel.
With respect to share our customers are still telling us that they are proceeding with their plans. They're viewing this current situation as a temporary in in nature. And so they are expecting a rebound and they're moving forward with their retail station openings.
Does that answer your question? Okay. Well, so so you put those together. Do you expect your volumes and refined product to fall meaningfully or does the kind of share gain off set for life and in the market know I expect given demand reductions of you know, being, you know upwards of fifty percent or or more in some circumstances. I think the man will have a a bigger bite in the near-term than will the share gains.
So we will see probably some falling volumes in the near-term. Once the economy is reopen we expect that that's going to rebound quickly.
Yeah, okay. That's very helpful. Thank you.
The next question comes from Jason's side of Colin, please. Go ahead. Thank you operator and patent team. Thanks for taking the time and I just want to express my admiration for the men and women across the case. He has Network or helping keep the economy's rolling here. One of ask Hosea question. You know, you you put that graph up their wage if about Mexico and how you were able to basically off-set the last downturn. How's the Mexican Government response been to covid-19 compare and contrast that to North America off and do you expect sort of additional rules that might either hurt or help you in this effort to sort of keep the network running specifically when you look at crew sizes their money, obviously in Mexico the New York here in the US could that be an opportunity for the Mexican Government to cut back in terms of social distancing?
Hey Jason, before I turned that to Jose. Thank you for your recognition of the the the the the role and the the contribution of the employees and Jose wage, maybe talk about the government response and then specifically on the crew cost might refer that in the way. We use our crews might refer that to the Jeff that go ahead Jose off.
Jose are you there?
Thank you. Yes. Yes. Okay, go ahead and thank you for your question. Am presented his senatorial an economic recovery plan, which towed towed on two basic parts sanitary regarding the measurement of the government is taking to fight the pandemic that it's now all over the world and economic health groups support the economic of the page the finance of the country to go ahead and and and crawl space this pending there was not according to the business sector there was not enough air ports from the government doesn't occur after they seen this plan, but there were some some agreements there regarding like d-18 Devolution immediately or start to do the Devolution immediate dead.
To support from a big companies to in some support to the small and medium companies to fight the base this crisis. It's still off on ongoing negotiation between the chambers and associations and the president and the Mexican Government on how to fight for these crises and there is a special effort to being off by day or the the national industrial associations, which we are part of it and we play an important role also the the c c e which is a private-sector organization and and the other International members like the Americans we do play an important role in all of Chambers and Chambers. We are participating in these airports with the Mexican Government. There is still like a dead phone going rotations of seeing what else the government is going to do as you may know the pink part of the crisis in Mexico is dead.
Except for maybe eight or ten. So there are planning on how to do to react in to to support the Mexican economy. I don't know if with that answer your that's why I asked the question.
No, that that was largely answer but I I guess when I'm looking at the crew size, is that something that your company would want to be reduced or is that something that you're fine with existing regulations?
That that's something that you may want to to redirect.
I'm sorry, Jason. Could you restate that question about your desire to potentially reduce the crew sizes in Mexico? Yeah. Yeah. Yeah that hasn't changed. We're you know, we're still engaged with the the union for longer-term Solutions and I refer to it as modernizing and updating some of our work rules in Mexico. Obviously, you know that's been been put on hold to some extent here as we get through this and make sure that we just can focus on the the the health and well-being of our employees wage but still something that's very much on our radar screen and and a longer-term strategy. I'll just make a couple of comments in addition to what they said about the government's response. And you know, we're we're close to you know, what's going on in Mexico Jose has continued the dialogue with government officials over these last month.
weeks and we have been
Very very clear in our Communications internally with our employees with our customers. We are going to support all of the government initiatives regarding the sanitary procedures wage. And in many cases we had as I mentioned at the very beginning because we started to do these things as a result of what we were seeing on the Northern side of the border and we were doing them consistently across the entire network. We were starting to do some of these things even before they were part of the government guidelines. But and as far as economic stimulus package know you guys all kind of know what's going on in Mexico. I think a lot of the the dialogue between the business chamber the business Community private sector and the government continues to be active and and hopefully healthy some of the specific incentives and stimulus has that the Mexican Government have have really focused birth.
Or more to small and medium-sized Enterprises and one comment here and I certainly don't want to give you the impression that we think that our business in Mexico is going to be immune to what's going on in Mexico. However, that plays out but a large portion of our customer base in Mexico are us companies or multinational companies doing business in Mexico producing products that are sold in other parts of the world. So they're going to be uh, you know, they're going to have some some Tailwinds for lack of a better word that's coming to mind for example, because of stimulus that's happening in the US that's going to help these companies and as the as the US market reopens the economy sucks and Mexico is going to be a part of that. So we're going to be getting the benefit of some of those stimulus activities, even though they may not be coming from the Mexican Government and and I thought
The the the positive momentum and I don't know if there are questions about the timing of the the usmca implementation still believe that that could be July 1st. That provides certainly some very positive are cover as the markets reopen as the economy reopens that tension that might have existed previously between the dead Mexico. And Canada is is is has been removed.
The next question comes from Allison Landry of Credit Suisse, please go ahead. Thanks gud morning guys. So clearly been making some rapid progress on and off even accelerating where you thought you'd be with train consolidation given the drop in volumes. So I guess first is the is the roughly 10% Delta between train starts and volume and that you're seeing in April something that you think you can hold going forward and and then the level of productivity along with the increases in trade links and wage just that maybe there's some upside to the to the 61 million top tables Target. Thank you.
yeah, Alex and I'll take
Yeah, I do think we can can hang on to that and you know in terms of any any incremental benefit to the $61 million, you know, it's tough sitting here understand exactly what's going to happen with our volumes between now and the end of the year. But you know, we have a lot of confidence in the sixty 1 million. I I think all the example Sammy gave you guys were great examples of how we're stepping on the accelerator and getting more cost savings. So we feel very very confident about the sixty 1 million and we'll continue to update everyone on the calls or at conference presentations.
The next question comes from John of Abercorn, please. Go ahead.
Thank you. Good morning. Good morning. Mike Mike on the on the capital return. So pretty generous with the with the buyback. Maybe once you just kind of makes sense given volatility in the in the share price. But as we look into kind of the depths of the uncertainty here in 2 q and and maybe in two three Q. Can you help us think about the the levers of capital return dividend kind of Untouchable the buyback maybe you put a pause on that at least while we're to the maximum period of uncertainty
Yeah, no good. Good question. John. Remember the first quarter was positively impacted by the ASR that we announced back in November of 2019. So that program was racked up in the first quarter and that's why you saw you know sizeable amount of BuyBacks taking place, you know, you never say never in in this business, but I would say the dividend is not something we we have even thought about cutting so we feel very very committed to that and we're just going to see what what happens in the equity markets here. You know, we have a lot of dry powder. We have the ability to continue to buy back shares based on our plan and we'll kind of evaluate market conditions, but I'm a little bit of caution right now given the volatility probably make some sensor I think to add to that is just you know, no one knows how deep and how long
Long this is going to be we did have a touchpoint with our board yesterday to update them on some of the forecast scenarios that we went a couple of them. We went through with you all here today and it's just something that we're going to be on our toes and and just see how how things play out how quickly economies come back to normal and and what that means in terms of our outlook for cash flows, but just have a lot of financial cushion right now and feel very good about our ability to manage through this.
Thanks.
great mark
The next question comes from Ken posture of Bank of America Merrill Lynch, please go ahead. Hey, good morning. Great job in the first quarter. Hope you're well in safe. And I thought this was great detail on Mexico and the PSR updates. But if I can just follow up on that two things one might you said in your prepared remarks cross-border was now 53% of revenues. I just wanted to clarify that and then secondly Pat, how do you balance your thoughts on on these scenarios and then cutting back employees and the fearful of of kind of what you went through in the Great Recession where you you're kind of turned around and and and experience that great growth and you want to be prepared for that. So how do you prepare not to lose those employees? So you're going through 6 to whatever months of training for engineers conductors and then you've got the wrong set up for that that bounce back while managing the cost in the downturn.
Okay, let me maybe I'll take that one first second-half part of your question first and and then Mike can can address the other at this moment. We've been managing through the way we've we've utilized the cruise particularly in Mexico. Of course, we have different furlough rules on the US and Mexico, but you know, we've had no money big reductions in force. We've had no management layoffs or any of those other things at this point, of course, we're four months then or maybe four weeks six weeks into this crisis and and and again just don't uh don't have a lot of clarity on how long this is going to last Windber economies are going to return to normal or reopen and what that's going to mean in terms of our resources. We're not going to make a bet on an echinoderm.
Make outcome or forecast what we've done and might kind of gave you a couple of points on the Spectrum here is look at a range of outcomes and just be prepared for any possible outcome when I listen to Economist and other people who do this do this as as a living, you know, there are just so many different views out there as to how long this is going to last and and how deep it's going to go. It doesn't sound crazy to to me and I think to us in even in discussions with our board that I could have a noticeable recovery possibly even a strong recovery before the end of the year. So we want to be prepared for that and make sure that we're ready and we have the ads resources to to respond when and if the the economies recover, so that's a vague answer to your question. But at this point we're trying to be very responsive.
Is being Arcos, we've talked a lot about the PSR focus and what we're doing on the field with train consolidation the way we're using our crews to produce the cost Savings and Loan and continue the customer service but to keep things close so that if we do have a strong recovery relatively quickly that we don't miss that opportunity and not only the opportunity to play our role in getting our customers in the economy's back on track.
And after that comprehensive answer, I forgotten the first part of your question. I think he just I just want to clarify he said cross-border was now 53% of Reds in his prepared me. It just seems you know way higher than the normal mid thirties. So it was that did I catch the right number or was he speaking about something else can that includes the what we need to as non-franchise, so it's interconnected predominately with you P at the border. We're still roughly 35% on on franchise kcsd kcsm kcsm CSR.
The next question comes from Scott group of wolf research, please. Go ahead. Hey, thanks morning guys so morning. So I understand that the Easter shift of you guys were were making earlier. But you know, we've seen a a much sharper drop so far and volumes in Mexico versus the US historically that used to have margin implications. Um, maybe Mike can you comment on how we should be thinking about that shift? And and in a potential margin implications right now and then I believe you can maybe just some quick thoughts about sort of the net impact of fuel environment. Thank you. Okay. Yeah. I think Mike's comment was spot-on, you know our volumes as would everybody's volumes at this point in the month would be negatively impacted by the fact that Easter has already occurred this year and it was I believe the 22nd 23rd last year so dead.
What's this in somewhat of a shutdown mode Friday Saturday Sunday in Mexico? I would tell you it goes much Beyond just that 3 day. There's really what's referred to as holy we wage and many plants actually shut down for the entire week. So you typically see a much bigger drop in in Mexico as a result of of Holy Week. You're right with respect to margins. I I mean if that were to play out, obviously the margins are are a bit better in Mexico, but you know, I think you've got to let us get through the the month of April. We think we're going to see Improvement in in Mexico and and certainly in in our overall volumes from where we're at right now.
The next question comes from Justin Long of Stevens, please. Go ahead.
Thanks and good morning. So my commentary on the different Revenue scenarios is helpful, but I was wondering if you could also address how you're thinking about detrimental margins as a model that Outlook your commentary on the variable versus fixed cost structure seems to suggest decremental around forty to fifty percent. Is that a good ballpark as we think about your ability to flex the business in this environment? And I know that could be impacted by mix fairly significantly. So maybe as you answer that question, you could address the mix in package your life and to those scenarios as well. Thank you. Yeah, I'll give you an answer here that may not be entirely satisfying and try to wrap in the last part of Scott's previous question around fuel. I I think the challenge with us giving you any guidance on decremental margins is just some of the impact around fuel price and FX rate and I think yep.
We would encourage you to think about is the amount of variable or semi variable expenses.
That we have and how we're scaling those down right now again, I mean Fuel and FX can have you know, fairly significant impact on on those margins in particularly in a quarter in the first quarter as an example, you know, we did have a six-million-dollar fuel lag benefit as a result of prices declining birth and you know that that adjustment won't get onto customer bills until April May. So we're going to stay away from that stick with our guidance around five hundred million or more of a free cash flow and hopefully you've gotten the message here today that we have been very aggressive on the cost side trying to take out expense.
Next question comes from a meat. Mehrotra of Georgia Bank, please go ahead. Thanks. I'll have everybody I think have you talked about, you know, a hundred and twenty five million and kind of total profit Improvement or savings put out that number of you talked about how you guys feel very confident wage based on going to be actually that you're taking or you know, or the one way that you're at currently and then you've also talked about kind of, you know, some opportunity beyond that. I was just hoping I can kind of help us, you know, what that opportunity could be based on a lot of the good work that you guys are doing and you know, the automotive business is obviously just a lot of attention. It's a nine percent of the revenue. Just give me what happening in the US assembly plant production sites and you can just give us a little bit more color around, you know, to that business that you how much of the Dead.
Finish inventory or for parts of your producing in Mexico actually going to just-in-time delivery for assembly. How quickly can that business ramp up and what is that ramp up look like when productivity and I come back. Let me take the PSR put portion of that. I mean, I mean, we we're going to stick with the $61 million four $2,525 million four years. We roll into twenty Twenty-One and here here's the complexity that that that you have in in trying to give you a little bit additional insight to this as an example Fuel and Equipment, you know, depending on how volumes drop there's clearly going to be a negative impact related to the $61 million home. However, based on what see me explained very very, well. He explained this as we consolidate trains lengthened trains make heavier trains, we would phone number
We expect our fuel efficiency to improve and offset those kind of volume declines. And so I think that that's a really good example, like wise on the equipment package volumes drop faster than what we think the velocity improvements we've seen on our Network are going to improve our foreign cycle time and move that equipment off of our Network and therefore continue to reduce equipment costs. So I think we're we feel very confident around the $61 million and as I mentioned earlier will continue to update everybody on our quarterly earnings calls. And as far as the second question about the auto supply chain, I'll make a high-level comment and and maybe Mike nasty. If you have anything further to add obviously might come down this we're very very close to our customers to make sure that we're prepared. This Auto is probably one of the best examples of where we really want to be prepared when our wage
when our customers and the factory
That we serve come back into production that we have the resources the equipment the cars the rail cars locomotives etcetera. So we're staying very close to our customers. I think the month supply chain is probably one that's getting more attention in the National media. So everyone can sort of follow how that's going to play out maybe a little bit better than we we can bring the you know, that's that that's a an industry that's very much in the in the focal point. Now I will also say that the US and Mexico including, you know, often appears to be dialogue between the two presidents very much in sync and I think Mexico has said that they will they will expect to I'm not sure is a correct phrase but loosing the guidelines so that the auto plants in Mexico will reopen on basically the same time frame as Auto plants in the rest of month.
In the US like I don't know if you have anything to add to that but that's kind of how we are viewing the auto recovery. Yeah, I will add briefly off the automotive supply chains are very large and complex and there's a lot of coordination that needs to occur and so an example of new Communications that are in place to make sure that we're prepared to start off properly and you know, the the railroads and the carpooling entity GTX have now established new weekly conference calls so that we can properly prepare for the role of business and of course will communicate what we know with providers including steel manufacturers plastic manufacturers glass manufacturers in the lake so that we're ready to go off those plants start up.
The next question comes from Ravi Shanker of Morgan Stanley, please. Go ahead. I think it's Monday everyone. So one's going to be on Intermodal. If you can give us an update on Thursday the current competitive environment in the Intermodal business in Mexico given what fuel prices have done and also maybe kind of given some of the changes to train schedules and such faith in relating from PS are kind of how is the maybe any particular shift from from a real truck is that
Like dance if you want to address that question.
Yeah, sure. So not unexpectedly the Intermodal business is competing more heavily with the truck business. As you know, our Lives real business for example is u.s. Dollar based. So with the weakening pay so that provides Trucking with an additional Advantage there. So we are seeing that pressure and we continue to get that pressure into the near future with respect to train consolidations. You know, we're we're doing our best to make sure that we satisfy the needs of our customers in terms of the frequency of service that we provide but at the same time we are controlling costs. We believe that we're striking a good balance there and we are in constant communication with our customers so that they can plan accordingly with any changes that we do decide to put in place.
This concludes our question-and-answer session. I would like to turn the conference back over to mr. Meyer for any closing remarks. Okay. Thank you all know. We've had a very long call here, and hopefully we've answered most of the questions is has been consistent in some of our responses. There are still a lot of questions. We don't have good answers to we are very pleased with the way we're responding and and we'll do our best to keep everyone informed as we get new information and material information whether it's through age difference conferences that Mike and Ashley and others will be attending if there are any conferences scheduled and um, uh in other means but thank you again for your attention and we appreciate your your your time here this morning and we'll be in touch as we get more information and hopefully see economies reopen Thursday.
Business began to recover. Thanks again.
The conference has now concluded thank you for attending today's presentation. You may now disconnect.
Okay.
Thursday Thursday
Dead dead dead dead dead.