Q4 2020 CSX Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the C Corp, Q3, 'twenty and 'twenty earnings call. As a reminder, today's call is being recorded.
During this call all participants will be in a listen only mode.
During the presentation, we'll be conducting a question and answer session to ask a question press star one.
For opening remarks, and introduction I would like to turn the call over to Mr. Bill Slater, Chief Investor Relations Officer for C. S X Corp.
Thank you and good afternoon, everyone. Joining me on today's call are Jim Foote, President and Chief Executive Officer, Kevin Boone, Chief Financial Officer, and Jamey Boy Chalk Executive Vice President of operations on Slide two is our forward looking disclosure followed by our non-GAAP disclosure on slide three with that and it's my pleasure to introduce president and Chief Executive.
Officer, Jim Foote.
Okay.
Thanks, Bill and thank you to everyone listening in today and why.
Let me begin by recognizing all C. S. Xs employees for continually responding to the challenges of 'twenty and 'twenty. Our results are a testament to our amazing people and the strength of our company.
The core principles instilled over the last few years allowed us to act decisively with coordinated effort and alignment across the company.
Over the course of the year, we reexamined every process from the ground up to identify and eliminate unnecessary steps across the railroad and as a result uncovered significant opportunities to build upon the progress made during our transformation. These.
These changes will provide benefits for years to come.
Now, let's turn to slide five of the presentation and our fourth quarter financial results.
Operating income grew 5% to $1 2 billion and the.
Operating ratio improved 300 basis points to a new fourth quarter record.
57%.
Our reported earnings per share were 99 cents.
But I want to point out that this figure includes <unk> <unk> per share charge related to the early retirement of debt.
For the full year, despite lower lower overall economic activity and historic demand volatility sales.
Sex produced a full year operating ratio of 58, 8%.
Exceeding our initial guidance of a 59 operating ratio.
Moving to slide six fourth quarter revenue declined, 2% and 4% higher volumes as intermodal revenue growth was more than offset by lower fuel surcharge revenue and declines in coal.
Merchandise revenue and volume were flat as revenue growth and chemicals.
AG and food metals and equipment and fertilizers was offset by declines in other markets and lower fuel surcharges.
Intermodal revenue grew 6% on 11% higher volumes.
Two new quarterly record levels.
This performance was driven by a combination of strong demand for transportation services due to inventory replenishment and.
And volume growth from East Coast ports.
Coal revenue was down 18% and 9% lower volumes as the coal business continues to be negatively impacted by lower domestic utility demand and.
Industrial production and global mid spark prices.
Other revenue was down 6% as increased intermodal storage revenue was more than offset by a higher reserve for freight and transit and lower demurrage charges.
Turning to slide seven we remain committed to being the safest railroad.
In the fourth quarter, we achieved a new quarterly record low number of personal injuries.
And full year record lows for both personal injuries and train accidents.
While our efforts to build a culture of safety can can be seen in the annual performance trends.
We can always be better.
We have launched new near Miss and workplace hazard reporting programs that encourage employees to report potential safety concerns.
We are also working to increase awareness of incidents and trends by conducting joint terminal tours with C. S ex management.
And local labor Representatives.
This proactive approach to reporting and communications, it's helping drive increased employee engagement as we identify and eliminate unsafe practices across the railroad.
Yeah.
Turning to slide eight we have previously discussed how the use of autonomous car and track inspection technologies is helping us meet our safety goals.
And we will continue to invest and new programs to improve safety.
However, we have a much water vision and the increased use of technology and our business.
Technology is foundational to our growth.
We are actively investing in new technologies across the railroad, but are barely scratching the surface of what is possible.
We are making our intermodal yard smarter and more autonomous.
We are piloting programs that will further fuel efficiency, such as allowing us to optimize speed across the full trip of E train.
And in the field, we're getting rid of paper based processes and converting to digital ones that allow faster communications better data capture and improve safety compliance.
As we look to the future we are upgrading our dispatch system to lay the groundwork for enhanced network performance through dynamic real time routing decisions.
We see opportunities to implement predictive analytics and our maintenance programs to both reduce mechanical failures.
And more systematically identify areas of track most in need of investment. Additionally.
Additionally, beyond these significant operating benefits, we are investing to improve our customer experience and create easier and more streamlined processes for our customers to do business with C. S X.
Every action, we take is designed to make C. S X smarter faster and more reliable.
Turning to slide nine we remain committed to substantially substantial sustainably managing our own business as well as helping our customers reduce their emissions.
In 'twenty and 'twenty customer shipping with C. S X avoided more than 10 million metric tons of carbon dioxide emissions.
To put this into constant context. This figure is roughly equivalent to the emissions produced powering all the buildings and New York City for almost a full year.
We remain focused on furthering these environmental benefits.
Not only by continuing to improve the efficiency of our own operations, but also bought by providing a reliable alternative to trucking that allows our customers to meet their emissions goals without having to sacrifice the reliability of their supply chain.
We have set ambitious long term goals in order to remain leaders in sustainability and we are committed to expanding the benefits rail offers as the most sustainable mode of land based transportation.
Let's turn to slide 10, and look at our operating performance for the quarter.
Clearly the silo simultaneous rapid increase in both volumes and Covid related employee absences and impacted the network.
But overall the railroad is running well and.
And we were still able to drive incremental efficiencies.
Locomotive productivity achieved a new quarterly record for G T. Ms for a per available horsepower and.
And we set a new fourth quarter record for fuel efficiency, a 0.9 and four gallons per thousand gross ton miles.
On slide 11, our improved deficiency is further illustrated which compares volumes and asset levels against the pre COVID-19 and prior year periods.
As volumes return I'll revised operating plan is allowing us to operate at a sustainably higher level of asset utilization.
This is reflected both and that sequential trends where volumes have increased at twice the rate of asset redeployment as well as double digit productivity gains we have maintained between year over year volume and asset levels in the second half.
While the team did an excellent job of working during this period to make the network more efficient our number one priority remains providing our customers a high quality service product.
There is still significant leverage built into the operating plan, but as volumes grow we have been and will continue to add crews and locomotives as needed to serve our customers well.
Turning to slide 12, our carload trip plan performance with 75% for the quarter and intermodal trip plan was 84%.
Like all transportation and logistics companies, we have faced challenges from both the rising number of Covid cases, along with broader supply chain disruptions from volatile demand.
Inventory shortages and imbalanced freight flows this.
And this team has done an admirable job navigating this environment.
But we expect these tripped and plant figures will return to and then exceed our results from the beginning of 'twenty and 'twenty.
While our performance is still at industry, leading levels, we hold ourselves to a higher standard.
And I'll turn it over to Kevin.
For a review of the financials.
Thank you Jim and good afternoon, everyone.
After a challenging year, we're all excited to turn the page on 'twenty to 'twenty and 'twenty one.
That said, we accomplished a lot this past year.
Which sets us up well as the economy recovers from the impact of the pandemic.
While many markets remain challenged and we did see and improving business environment and the fourth quarter.
And as a result delivered both volume and operating income growth for the first time in 'twenty and 'twenty.
We manage cost through the year and made sustainable improvements to the train plan, which will drive operating leverage as volumes return.
We once again delivered a quarterly record operating ratio.
Excluding real estate gains.
This marked the third quarterly record in 'twenty and 'twenty.
And extraordinary accomplishment by the entire team.
This past year, we focused on what we could control.
Navigating the uncertain and volatile business environment, while successfully driving efficiencies across the business.
Our goal and 'twenty 'twenty, one and beyond is.
As to leverage the growth ahead of us.
And I sustaining these efficiency gains and driving further improvement across the business.
Looking at the fourth quarter income statement.
Revenue was down 2%.
And as continued volume growth and pricing gains and our intermodal business.
For all set by the ongoing effects.
A weak coal demand and lower U recovery.
Merchandise revenue was in line with the fourth quarter of 2019 well.
Well, we have seen positive momentum as revenue improved 5% sequentially from the third quarter.
Above normal seasonality.
Total expenses were down 7% and the quarter on a 4% increase and volume.
Walking down the expense line items labor and fringe was 11% lower.
Reflecting the benefit of the train plan optimization, and an 8% reduction and total head count.
Throughout 'twenty and 'twenty, our operating team continue to refine the train plan and response to the dynamic volume environment.
These improvements enabled significant efficiency and the fourth quarter as.
And as crew starts were down 11%, while overall volumes were up 4%.
Lower crew starts and the quarter also translated to fewer active trains.
And.
As a result reduced the need for locomotives.
The smaller fleet drove a 14% reduction and our local motive labor expense.
We were also able to hold the line on the significant reductions made earlier and the year.
Two our engineering contract labor expense.
And as well as our intermodal terminal work force.
Even as volumes continue to increase sequentially.
Lives per man hour, a key measure of efficiency for our intermodal workforce and.
Proved 23% when compared to the fourth quarter of 2019.
Moving forward, we are preparing for growth.
The current environment remains challenging and unpredictable with COVID-19 related mark off significantly impacting pockets of our network.
We wish the best for these employees and hope the speedy and hope for their speedy recovery.
Moving forward, we will hopefully begin to see improvement from current levels.
We continue to focus on crew availability and are currently accelerating our first half hiring efforts to.
To be prepared and the event a stronger demand.
We expect head count will likely exceed attrition and the first half of the year to provide flexibility should demand surprise positively, particularly and the second half.
We will manage it closely.
And adjust accordingly.
As we monitor the trajectory of the potential volume recovery.
M S and <unk> expense increased for person or $19 million and the fourth quarter.
Adjusting for the 20 million headwind from real estate gains.
And as sono expense would've been roughly flat.
And as efficiency and volume related savings were offset by inflation and other items.
The improvements to our train plan I mentioned before also drove savings.
<unk> lower crew travel and repositioning costs and.
As well as lower locomotive materials.
And contracted service expense.
Real estate gains were minimal and the fourth quarter.
Looking beyond 'twenty and 'twenty, we continue to manage a pipeline of future properties and we will monetize when conditions are favorable.
Our base cases for real estate sales activity to be roughly flat.
As I've said before.
We will also continue to pursue opportunities to leverage our real estate and generate recurring revenue streams.
Fuel expense was 77 million favorable a 36% improvement year over year, driven by a 33% decrease and the per gallon price and record fourth quarter fuel efficiency.
We continue to invest and technologies that will drive further improvement and fuel efficiency.
Widening the advantage over truck.
And demonstrating our continued commitment to sustainability.
Looking at other expenses.
Depreciation increased $3 million or one person in the quarter.
This reflects a larger asset base as well as the impact of a road and track depreciation study.
Depreciation expense is expected to be a 10 to 20 million dollar headwind in 'twenty and 'twenty one.
Equipment rents expense increased 4 million or 5%.
As higher days per load across all markets resulted in increased freight car rents.
Turning below the line.
Interest expense was flat.
And as higher net debt balances were offset by a lower weighted average coupon.
Other income decreased $48 million, reflecting and make hold charge related to the early redemption of five.
500 million of long term notes that were set to mature in 'twenty and 'twenty three.
Income tax expense increased 24 million or 11% due to higher pretax income as well as the cycling of certain state and federal tax benefits recognized in the fourth quarter of 2019.
Closing out the income statement C. S X delivered operating income of 1.2 billion.
Reflecting a fourth quarter record, 57% operating ratio.
Turning to the cash side of equation on slide 15.
On a full year basis capital investment was relatively flat.
Even during the pandemic, we remain committed to investments that prioritize the safety and reliability of our core track bridge.
Bridge and signal infrastructure.
This commitment will not change.
And my level loading the maintenance spend we are improving the safety and fluidity of our network with without requiring a step up and core infrastructure spend going forward.
Capital allocation remains a focus and.
And we have a healthy pipeline of high return investments, we expect to invest and this year.
And 'twenty and 'twenty free cash flow before dividends was 2.6 billion.
Down versus 2019.
Primarily reflecting lower operating income, but also impacted by lower proceeds from property sales.
Free cash flow generation remains a key focus of this team.
Even during 2000 twenty's challenging environment free.
Free cash flow conversion on net income was about 95%.
We expect to stay above 90%, even with slightly higher capex and.
And an increase and the expected cash tax rate.
Our cash and short term investment balance remains strong.
And in the quarter at $3 1 billion.
Our expectation remains that this balance will normalize over time.
As we continue to invest and the business and return capital to shareholders through.
And through dividends and share repurchases.
With that let me turn it back to Jim for his closing remarks.
Great. Thanks, a lot Kevin.
Concluding with slide 17.
We expect to return to growth and 'twenty 'twenty, one for both C. S X and the U S economy.
While much debate remains around the pace of this growth as we transition from Covid headwinds.
Two potential stimulus fueled tailwind, we believe C. S X is well positioned to grow volumes faster than the prevailing GDP growth rate in 'twenty and 'twenty one.
Merchandise volume should outpace industrial production growth as we convert additional truck volumes off the highway and onto C. S X.
We expect intermodal volume to grow even faster than merchandise.
As the business continues to benefit from the ongoing inventory restocking and a tight truck market.
And following an extremely challenging year, we expect the coal business to begin recovering from 'twenty and 'twenty trough levels.
As volumes increase we will drive incremental operating leverage by efficiently absorbing the additional cars and containers into our revised train plan, we still have significant opportunity to add volumes onto the existing trains.
And we'll add train starts as needed to maintain high levels of customer service.
We project full year Capex of 1.7 to 1.8 billion.
This spend reflects ongoing investments and our core infrastructure combined with several high return growth investments for technology and sales and marketing initiatives.
We will continue to have allo and evaluate attractive growth investment opportunities as they arise.
But from a network perspective, we still have ample line of road and terminal capacity.
Lastly, we remain committed to returning excess cash flow to shareholders.
We will repurchase shares through our ongoing buyback program and we will look to be opportunistic with.
With share repurchases as we utilize our roughly 6 billion our buyback authority.
The actions taken in 'twenty and 'twenty have positioned C. S X for success and.
And we are taking the necessary steps to ensure that we are prepared to handle the expected growth in 'twenty and 'twenty one.
This past year is proof that although we have accomplished great things during our transformation.
Our team is still finding opportunities to push this company to new Heights.
I entered this year as excited as I have ever been for what the future holds for C. S X.
Thank you and I'll now turn it back to bill for questions.
As you May have noted at the beginning of the call Mark Wallace is unfortunately, not joining us today as he is dealing with a non COVID-19 personal health issue.
The rest of the team will do its best to answer any marketing questions you may have.
Thank you Jim and the interest of time I would ask everyone to please limit themselves to one question.
With that we will now take questions.
Thank you we will now conduct our question and answer session. Your first question comes from the line of Brendan <unk> from Barclays. Your line is open.
Hey, good afternoon, everyone and thanks for taking my question.
Well, Jim I guess, maybe we can start there and you know for sure.
And for Mark is not here, but you guys do it sounds like you have some confidence that merchandise I think you've said will grow in excess of industrial production.
Intermodal, even better than your merchandise outcome. So I guess are there any specific examples you can give us you know where you're winning and the network and delivering this new service product that we've heard about for a couple of years now how does that translate into confidence this year.
Well you know in many respects the conversion of all trucks off the highway back onto the rail system has been you know we've talked about it for for many years, where it's our existing customers today, where were doing a lot of work with them already and they're boxcar fleet.
And.
So we know them very well, but we've never really had an opportunity to take a look at their book of business from you know what they're doing on the other and the doors on the other side of the plant so to speak where they're where they're sending it out and truck and now that our service product has become more reliable and you know we've been able to capture more and more of that that wallet share and and.
And that applies whether it's in force products, whether it's in pulp board, whether roots and metals, whether it's and you know chemicals you name it.
And we've been able to do that and I and I think that's clearly the strategy that we will continue to pursue.
Along with looking at ways through our tranche flow opportunities, where we can reach customers business that before we didn't have the capability to handle because we didn't we didn't focus on kind of the last mile business. If we didnt directly connect to a customer's location.
So it's a combination of different factors that spread out really across the entire spectrum of merchandise.
And again, principally because of our service now is as reliable as a truck and we obviously, maybe it's the easy way, but let's go to our customers that we already know and do business with.
And shake the tree, there and there is a ton of opportunity for us and them.
And and again, similarly, and our intermodal franchise, where we're getting more business as you know we're looking at.
We're looking at lanes that before we couldnt compete and because we had a somewhat of a disjointed our network and we've worked hard to rationalize and improve the service on the network and that's bringing us additional business. So we've been building on this for a number of years and we expect it to continue to pay benefits and 'twenty one.
Thank you Jim.
Your next question comes from the line of Ken extra for Bank of America and your line is open.
Great good afternoon.
And maybe you could just talk a bit about the Ms business opportunity, given COVID-19 and E. Kevin kind of throughout some some thoughts that there were some missed opportunity can you quantify your thoughts looking back and and and maybe what that means as how fast you bring employees back into 'twenty one.
Oh, you know in terms of missed opportunities you know we have.
We.
We.
C S X.
Are no different than anybody else and the country and.
And.
Our employees have been impacted by the virus and to the same degree.
Is everyone else if.
If not more in the transportation sector, because they are essential workers and they're out there on the frontline day in and out every single day.
And making sure the goods get across the country and we can take care of people that are have the luxury to sit home and.
And ride this thing out so if we the you know if we've missed any opportunities.
It's been as the surge of traffic came back in the third quarter.
And just about the time.
And the virus began to tick up and then clearly dish which took off.
And with the Thanksgiving holiday.
So.
We were aware that we're prepared for that and maybe you know we've we've missed something along the way I think what Kevin was more and more are concerned with and Kevin is not bashful to expresses opinions on this.
We think that you know based upon all the work we've done for the company to make sure that we can grow this business.
And with the potential for a rebound in the economy and with the potential for maybe stimulus and with the potential for maybe additional transportation spend by the government. We don't want to Miss we don't want to Miss out on something if it comes along we want to be ready to.
Handle it so we're we're planning we're preparing we're making sure. We're clearly we have track appears to be clearly we have assets in terms of locomotives, etc, but we want to make sure is we have the employees.
And this is not like we can go and hire some guy off the street and put them to work. The next day and it takes five six months and.
Train these people to get them ready. So we're we're aware of the curve and we're one.
And to make sure that we're managing to the curve and so I think that's what Kevin was referring to and missed it and any missed opportunity was to make sure that we're prepared to handle growth and when it comes.
Thanks, Jim.
Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is open.
Thank you, operator, hi, everybody, Kevin and I guess.
And the dynamic of intermodal growth outpacing merchandise growth. This year do you think yields.
And can be up and 2021 versus 2020 and then if you could you just also talk about the magnitude of improvement.
And we think about or improvement.
Given the benefits of higher volume, but then obviously some of that price mix that comes from intermodal outpacing merchandise.
Yeah, I think you know as I mentioned last quarter, we had the greatest contribution from our intermodal business, which has traditionally been viewed as the least profitable segment of our business, but yeah. We are we put up a record or I think we are again proved out and the fourth quarter you saw.
The intermodal business, obviously, having the strongest growth and again.
We were able to deliver a record of our performance.
As we go into 'twenty 'twenty, one as within and as with any year. There is normal inflation cost that you have to offset.
And overcome as you want to improve and your margins going into next year.
We have labor inflation, a little bit higher than what we saw.
And in 'twenty and 'twenty.
We have health and welfare costs ticking up a little bit more than what we saw last year, but really inflation when I look over the long term average is probably a little bit under that long term average so not not a.
Huge significant headwind.
But really the variable here is going to be the growth I am I'm very confident if growth exceeds our expectations I will dropped out through at a very track.
Attractive incremental margin our goal here is to be prepared for the growth.
And to grow operating income that was really the goal of on what we're talking about around here. It's it's exciting to talk about and prepare for growth and so that's what we're looking at and I mentioned and the first half of the year will accelerate our hiring and to make sure we're prepared for.
Whatever environment comes and the second half and Jamie will quickly adjust accordingly, if things change on us, which you know as we know this has been a dynamic environment and.
And we just want to be ahead of the curve.
And be prepared for it and be able to deliver.
And I think we all say shame on us if we can't deliver the growth when it when it comes and so that's what we're talking about here internally.
Could you just answered your question in terms of whether you think yields will be up year over year and driving them.
Yeah, I think when you look at the first half of the year. We will have some fuel surcharge are you know fuel will still be a headwind really and the first quarter. We will start that will start to moderate as you get and second quarter. So second half of a year and you'll see a little bit less fuel surcharge headwind.
Coal and the first half of the year, probably on a yield basis will be a little bit of a headwind obviously you know that.
Market's pretty dynamic, particularly on the export side, but see some support going into second half of the year. So I would say.
Definitely expect second half to bill improved over first half, but that always goes back to the mix as well if we see some of our higher RPC business.
Whether it's chemicals or other areas.
See continued strength and that certainly helps the dynamic there, but the coal dynamics should moderate first half of the year and I'm really not be as much of a headwind going forward.
Okay. Thank you very much.
Your next question comes from the line of Allison Landry from Credit Suisse. Your line is open.
Thanks, and good afternoon, and great job on the quarter.
Without specifically focusing on where the art and valid in 'twenty and 'twenty, one I started life as a longer term question.
It sort of seems feasible to do about 55 or this here but.
And then it just seems like you guys are pushing the boundaries of what we thought might have been even remotely possible for and eastern rail.
So I would just loved and your thoughts on and how you view the potential for the longer term profitability of the business and obviously you guys are gaining share and Jim you highlighted a number of questions.
And fees that will come in the future from from technology and background.
So and he thought there and then.
Just sort of lastly, Jim if you could sort of tell us.
And what you think about the difference between a long island and a short haul railroad.
And it's a long term profitability and they're truly already and it's structural differences. Thank you.
Oh, great Alison.
Good one question.
Yeah.
So.
<unk>.
You know.
Three years ago. It was just all these couple three years ago. When we were in New York talking about how we were going to take this.
And this war out beat up rundown railroad and have a 60% operating ratio.
And a couple of three years and everybody said.
You guys are crazy can't be done.
And now I think you said.
You want double and triple double nickels here when next year.
You know, where we're and we're trying to grow operating income.
And our earnings per share so that we can reward our shareholders.
And and not just get a singularly focused on knees.
The operating ratio so the operating ratio pretty much will be what it is you know obviously.
You saw what we can do when we are when we get our hands dirty and we get focused on what needs to be done in order to run the company better I truly believe.
Is that Jamie and his team.
And gift and in.
And collaboration with Mark and the sales and marketing team collaborate on how we need to get this company running more even much much much more reliably and and faster.
In the future in order to provide a better quality product to our customers.
The necessary result, the ultimate result of all of that is that are you know we take a lot of crazy unnecessary activities out of the system that we do today and that drives down the cost.
So without focusing on you know a a specific reduction and the operating ratio I firmly believe that we will.
Continue to drive efficiency, but as we and we will do that as we focus on.
And.
And we will focus as we focus on driving our building a better product for our customers.
In terms of.
In terms of the.
The short haul railroads would versus long haul railroad.
And with the.
And the operating ratio.
You know again, the Alka and every railroad slightly different every railroad has its nuances.
Used to hit we used to have some really really really nice long haul.
And routes across our Western Canada.
The BEC and the day when I used to work there.
And you know it was very nice to ride along and take a look at the Moose and you know that.
And some some greenfields and a little bit of this a little bit of that.
Go for a couple of thousand miles, but they weren't and customers.
And here, we're like you know wind and around and you know maybe go a little shorter haul little more challenges and.
And but were stop and all the time, because we've got customers all over the place so they come and it comes with what it is you know this is a there's a lot of business activity and the east that we have the opportunity here to take advantage of.
And and that's a good thing.
And.
Another point and another part of my history goes back to my.
My days at the Chicago, Northwestern when we built the ally and into the Powder River Basin Coalfields, a subsidiary called Western Railroad properties, which is about 200 miles long.
<unk> had an operating ratio that started with a four handle so every piece of every railroad property is different every railroad property is unique.
Our goal is to have the best quality product.
And do it and the most efficient way and if we do those two things.
The thing that happens as we make a lot of money doing it.
Thank you.
Your next question comes from the line of Tom and one of its from UBS. Your line is open.
Yeah, good afternoon I E.
Wanted to see.
If you could give a sense about I think you know Kevin you said youre going to add head count above the pace of attrition.
I know, there's a lead time to have tea and why.
You know get them recruited and and get them trained up and on the system. So I would assume you have pretty good visibility to what that number is if you look at the next quarter or two.
And wanted to see if you could give us a sense is that you know sequentially a 1% increase for three year. Just just kind of magnitude is it is it a big step up or is that something that debt pretty gradual and is that something we should think about in terms of our margin.
Our modeling and first half of the year or is it just kind of you know small so that doesn't really affect how you deal with incrementals or margins.
No. This is and maybe I'll hand, it over to Jamie to talk a little bit about his strategy and what he's really planning for here, but now these aren't these aren't and order of magnitude huge step up and and our hiring process and a lot of it.
To get ahead of the attrition rates that we see coming on.
I had and in 'twenty and 'twenty, one really you know I think we're pretty confident that again, we're going to have the operating leverage that we continue to deliver so I would expect you know.
I wouldn't expect head count to go up more than you know the volumes that we're going to see and and the revenue increases and we.
Bill will adjust the model accordingly.
I think we have more visibility hopefully going forward on where our volumes are trending.
You've seen a lot of volatility and and every market out there and hopefully or volatility starts to.
Diminish here a bit as we move.
For the second half of the year Jamie.
Yes, I think so.
If I was to look at percentages.
And when you think about it our attrition rate is somewhere around 8% per year. So we want to do is kind of frontload that attrition rate keep.
Keep a good eye on our discussions with Mark and his team to make sure. We're ahead of that the business that might be coming our way as we progress through the year, which then allows us to backfill the rest of that attrition and towards the back end of the year for business doesn't come we'll be in a situation, where we can at least to trade out and to the end of the year.
And go from there so look and as Jim said it takes four to six months to make it a conductor. So we don't get ahead of this now.
And the business comes along we're gonna be leaving on the ground and that's lost and we wanted to.
So the headcount increases sequentially early and the ear and then.
If the businesses and are the attrition kicked in and it could fall back off is that essentially what you're saying absolutely. That's how we're setting it up you got.
Right. Okay. Thank you.
Our next question comes from the line of Justin Long from Stephens. Your line is open.
Thanks, and good afternoon, and wanted to ask about comp for employee Kevin and any color you can provide on what you're expecting there over the course of 2021, and then maybe for Jamie I.
Was wondering if we could get an update on the number of locomotives in storage today, and what you're anticipating for that utilization rate going forward.
Yeah, I'll take the the comp per employee look as I talked about in my opening remarks, we're going to see a little bit of more labor inflation. This year, we'll see the management increase take effect here January one.
Which is a little bit different than what we've seen in previous years, so that'll be effective and the first quarter, but.
But overall I think I'm you know historically, we've talked about this it was 3%.
The increase and you know without.
And knowing what are really incentive comp can move around quarter to quarter. All those things I think a 3% kind of range is a good starting point.
And look at on the on the assets side in particular and locomotives we are we.
We started this back in 2017 with almost 4000 locomotives or fleets down.
21, 50, I think today right around that area.
So we've got hundreds of locomotives still and storage.
Ready to pull out when needed, but we're also continuing to invest and our locomotive fleet I mean, our capex coming up this year.
We're going to continue to two to rebuild locomotives, we've got 67 and the plan this year and continuing to do that as we go forward. That's really important that we continue to invest in and the assets that we have and.
And you know that.
And that allows us to put trip optimizer, a distributed power fuel savings.
As well as reliability. So we are we're comfortable with the assets that we have now we just want to continue to invest and rebuilding what we have going for.
Okay, great. Thanks for the time.
Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.
Hey, Thanks afternoon, guys. So.
Kevin any color you can give us on M. S. N O cost that you expect for the year I know, it's volatile, but any color there and then on me or I know, we're not giving guidance, but almost always the full year or is better than fourth quarter is there any.
Anything wrong with that line of thinking right now.
The first quarter better than the fourth quarter no, meaning if you look at it at a full year at all.
Almost always better than the fourth quarter, you just had.
And the fourth quarter.
Yeah again, you know I think.
And we gave a relative revenue guidance because there is a little bit of uncertainty I think as you get into the second half hopefully.
Some of these initiatives that Jim talked about we will take hold and we'll see the economy.
Strengthened through the back half for the year.
I think we're real real comfortable just you know say.
Saying that.
And we're pretty confident and the incremental margins that we've been able to deliver and we will continue to do that particularly as if we get stronger revenue growth and we expect.
And there so that's the opportunity on the N and M. S N O N.
And you look at the fourth quarter I'm really we're able to deliver what we thought we were.
And we're gonna do when we guided and third quarter real estate sales going into 'twenty, one will be a flat so not a real big factor or driver.
On those costs on a year over year basis, we do expect inflation.
The hit Us and 'twenty, one there, but again, it's the area, where we have a lot of focus and we will continue to try to find opportunities.
To take out cost.
So you know.
I think.
You know expect some normal inflation impacted online item, but nothing real and tactful there moving into 'twenty. One it will move also with volume so volume is.
There's a little bit higher than what we expect you would see some variable cost move up with that as well.
Okay. Thank you guys.
Your next question comes from the line of Chris Wetherbee from Citi. Your line is open.
Yeah, Hey, thanks, good afternoon.
And I guess wanted to ask a question about service and we think about the second half of the year.
And obviously service was a little bit more challenge still quite good but down from where you are and the first half of the year and you. When you think about sort of head count and and maybe resources.
And your level I guess number one on the service is there a level where you.
Do you feel like you're comfortable or maybe you need to address it and move the needle moving back up and then second when you think about maybe a little bit of the frontload from a from a head count perspective does that have an impact on the service or would you expect that to have an impact on the services and as you move into the first half of the year.
Yeah, Let me just make a general comment and then Jamie can answer details about where we are in terms of head count.
I think the railroads.
And are not unique in the second half for the year. This phenomena with everyone trying to keep up with this unprecedented volume.
Uh huh.
Is that creating issues, whether it be and for imports, whether it would be and ocean vessels, whether it be and the west coast ports East coast ports the railroads the trucks.
<unk> service providers you name it.
Everybody is dealing with the situation where volumes are unprecedented and volatile at the same time.
When we have hundreds of <unk>.
Literally hundreds of employees off.
And the Sip or and quarantine.
And one day, it's on the West side of the railroad and the next day and East side of the railroad and next day, it's north side of the road next day, it's and Florida.
And so for.
For us to be doing the job.
From a service standpoint right now.
I don't think anybody.
As saying you know there isn't a problem because the railroads are screwed up.
And we're doing a really really really good job of.
And manager and we are through this and I'll, let Jamie talk in some more detail about what it is we're doing.
And what I think Jim really nailed it with respect to some of the pockets, we're seeing and and why.
Some of the levels arent they were historically, but.
You really look at some of the stuff that we have gained though as well when you look at two.
2019% all time record train length increase.
The increase year over year.
Fuel efficiency everything else that we've been able to keep and maintain and and continuing to move forward as we talked about 2021.
I can tell you today is we see Jim said hundreds and hundreds of employees are off that's correct and as we start to see.
100 employees less let's say today than we were a few weeks ago. Yeah, we're starting to feel that we're getting even more fluid so as those numbers come down.
We feel like we have the right number of people out there.
<unk>.
And if we are if everyone returned to work now I wish I could predict for the next pocket was going to be and tried to send people that way, but it's difficult to do that so.
So yeah, we're going to hit some bumps and bruises I think over the next quarter or so on some of our service levels, but we are we're pushing and is there is there a limit where we're happy no absolutely not we've got.
If anyone wants to ask the question is there anything left what else are you going to continue to do.
And it's normally a question, we get asked well, our dwell and velocity isn't where it needs to be that's an opportunity. So as we continue to maintain all the hard work that we've done with the new plan and the team that I've got out there working hard day in and day out on dwell and velocity and what's going on and the terminals and.
We're going to get that much better.
And and and as business comes back and and as we do some hiring.
And it helps us move E. The new commodities that we have come online, but really are what we have today. It's just a matter of dealing with the pockets that are out there I can tell you. It is a it is a daily extra.
Exercise and trying to understand how and how some terminals we work around a 40% of our employees being off and Covid. It doesn't just normally hit a small percentage you know we do have it across the property, but we have some pockets where 40% of our employees.
Our gone for for a period of time.
We've got a great team that moves into their helps out and we work ourselves through it we work around it which was great and both the network. We have is we can do that and and continue to move the product.
We will see our numbers continue to improve as we move forward.
But again, it's a sometimes it's a daily exercise, depending on where we're having a COVID-19 issues.
Got it thanks for the color guys I appreciate it.
Your next question comes from the line of Bascom majors from Susquehanna. Your line is open.
Yes. Good afternoon, Kevin you talked about your excess cash balance and looking to normalize that over time is that something you're targeting for for this year or could that be more gradual and just any thoughts on how you want and managing liquidity and balance sheet and what the cash flow you expect to generate this year would be.
Helpful. Thanks.
Yeah, I think look I.
I would expect something.
You know lower by the time, we exit this year so yeah.
I think that's probably a this year event.
We will watch it closely here are certainly as we get more comfortable with the trajectory of the economy and <unk> and those things.
We'll have those discussions.
Internally here and what makes sense, we always want to be opportunistic so we'll be there.
Opportunistically and and the stock as well so it gives us a lot of flexibility, we're going to generate a lot of cash this year as well.
So that's a good position to be honest the position of strength.
And we'll we'll do the best we can.
Thank you.
Your next question comes from the line of Brian and I'll come back from Jpmorgan. Your line is open.
Hey, good evening, thanks for taking the question.
Jamie maybe I'll take a minute.
Two on velocity one.
Deteriorated for a while here obviously volumes have been quite volatile.
And as longer trains to help offset that.
Challenge doesn't seem to be admitted for entry now, but we've also seen it cars online and come up quite a bit so.
And digging a little bit deeper and give us a sense as to where it is.
It's been a challenge outside of labor and what do you see sort of the opportunities.
And maybe a timeframe as to and to seeing some improvement and then.
Jimmy if he can come and time to growth opportunities, you're seeing for the truck conversion side and it didn't sound like any of the surface challenges now.
In recent quarters, it really fixing anything but can you.
And just clarify that for us as well.
And those are just.
Meeting capacity and you have it and it's really just tough out there for everybody.
Okay.
I'll try to take a stab at your hard to hear but let me, let me try to work down with with respect to.
And what we're sitting with some of our metrics so yeah.
Yeah, you know, what our dwell and velocity definitely has has been impacted here over the past couple of probably a couple of months, but we've seen probably more of a deterioration really over the past month. If you take a look at some of our numbers.
And again, a lot of that's COVID-19 related but are up for.
For us it's really important to.
To show that as an opportunity as well.
And as we continue to move things faster and we get or our dwell to where we know it can be and will be those are costs that are going to continue to come out as we look at our plant.
Cars on line.
Our.
And our target for a little bit above where our target.
And we really want it to be but I think when we started this back in 2017, we were over 150000 cars online and now we're somewhere around the 100000 and.
And maybe 120000, depending on where were you looking at it.
We have done some things differently on that and.
There was a time I would say a year ago, where we were shooting for and 90% fill rates because we didn't necessarily understand.
And whether the fill rate was correct and what the customers were ordering and not ordering.
Mark and his team have done an unbelievable job working with us to understand that their fill rate now pushing it to a 100% gives us that extra business that Jim has been talking about about knocking on our customers' doors to say Hey, why are you trucking when you've got rail service give it to us and allow us that reliability that means at some point youre going to have to bring on some.
Cars online.
As you take a look at fulfilling 100% fill rate. So that's what we're pushing towards and our model.
We're comfortable with that we're keeping a good eye on on what those cars look like as they move around.
And if anything the opportunity as we look at the car fleet. We have now as we start picking up that velocity, we're gonna get more loads out of those cars that are out there, which is more opportunity for us to be able to spin the customer cars. Some of the highest numbers that we have year over year, a private cars. So that's an opportunity.
Attunity there for customers to spin there are cars faster and give us for five more loads a year as we get quicker. So look it is opportunity opportunity opportunity as we move forward with the plan that we put put in.
And by doing all those things are correctly and in a coordinated fashion between operations and sales and marketing that's what's driving this this business from the highway on to the rail.
Got it thank you.
Your next question comes from the line of David Vernon from Bernstein. Your line is open.
Hey, guys. Thanks for taking the question so.
Jamie I was wondering if you could kind of help us understand that that rate of resource addition in relation to volume growth and thank you guys are laying out a picture and it says somewhere in the mid single digits on volume and I'm not asking you to confirm that as a boy and guide I'm just trying to get a sense for you know if we're going to be at that level of <unk>.
Volume growth what level of resource do you need to add.
And of the network from today's levels.
Pace with added for service level, you want to provide.
Hum like when we talk about hard assets with respect to to locomotives.
And we're in a good spot and we're going to need to use some more locomotives as some volume starts to come back.
And when you look at bulk business are definitely those are peer train starts.
When you look at our car fleet I'm comfortable that as our dwell continues to come down as we move forward, we'll need less boxcars, but.
We're going to make sure that we hit that fulfillment rate of 100%.
Right.
That's it for 10% difference when you really think about 90% was a target a year or so ago now it's 100% as we move forward with their customers.
Showing the reliability of being there with the car supply and we say, we're going to be yeah, youre going to see you're going to see a bit of and increase but where we're at right now is a good spot.
As we move faster as I mentioned, and we'll get that many more loads out of the cars that are out there, which is going to help that growth as we continue to move forward and I think we've really touched on the people side of things are front loading is the right thing to do.
It gives us that four to six months to do that hiring practice.
And and deal with the attrition that we see out there and prepare us for what's going to happen towards the second half.
Yeah David.
The hiring is really offsetting the attrition that we expect through the full year, but really front end loading that so we can get ahead of it and react to any volume upside that could occur and the second half.
I'm just trying to make sense for like do we need to be at this 19 too low. It can we can move could be accommodated a 5% volume growth with the current head count and I've or does it need to be a little bit higher than that and what's the proportion of and wish the head count would need to be added back.
Well I think a lot of this I think is going to give us the ability to hit the hot pockets, where we're where we were low on crews right now and it's really redistributing.
Jamie Correct me, if I'm wrong redistributing a lot of the employees to where we were going to need them and where we see the growth coming.
It's based off of.
Lastly, we look at our attrition rate and where it's at and where we expect that those employees to attrit out but this is working very close with the marketing team. This is very as Jim mentioned earlier is a closer that mark and myself and our teams work together, we know and have an idea where this business growth is going to come from credit throw us a curveball sure it could but.
You want to as it stands right now we're preparing.
And those areas that we need to and we're going to make sure that we hire and those are.
And to make sure we can capture that growth and and look at cars online.
Really when you look at year over year.
The percentage is as you know and 12%, but really were down 4% full year versus prior full year. So we're not talking about a big percentage point here and and it's really important that would give the reliability of getting that boxcar to a 100% fulfillment if we want those customers converted.
Thank you.
Your next question comes from the line, though Jon Chappell from Evercore ISI. Your line is open.
Good evening everyone.
Thanks for confirming the AR and the view on coal and proving from the 'twenty 'twenty trough levels and I wanted to get your views on how much of that is anticipation of the domestic market versus the export market and as it relates to the ladder and overseeing shortages in and certain regions of the world because of a bitter winter weather and.
And some trade issues have you seen any uptick in your export coal opportunities given some of those issues.
Yes, I think when you look at our coal business, our fourth quarter was showed a little bit of strength versus the previous three so.
And we're exiting the year and a little bit better position than what we saw you know call. It the middle of the year here going into next year, probably the strength that we anticipate will really be on the domestic side with a little bit of the utility.
Stockpiles are below normal levels, so we see some opportunity there.
You see the same benchmark prices on the export side that are that we see they.
And they stabilized which is a good sign they're still well below the levels that we saw pre pandemic, whether that's an opportunity from here and we hope so.
Think of the risk reward is probably a little bit more balanced and it hasnt been and previous years are particularly coming into 'twenty and 'twenty. So.
You're probably referencing the China Australia.
Spat they have on the coal side right now not not helping the global prices right now and so not really helping us so hopefully that gets resolved and we'll.
And we'll see some maybe are met and that price upside.
Upside youre going forward, but that's a very difficult market for us to predict.
On the thermal side you know if you look at our business today and the fourth quarter really that export business is 75% med and twenty-five thermal and.
And if you get some of these are you.
And the polar vortex impacting some of the.
Global markets and and get a cold wave here and maybe that's an opportunity because we're delivering very little to Europe and other areas today. So.
You know and we're going into the year.
Cautiously optimistic and don't see a huge upside case, but see a little bit of a stability and strength after the fourth quarter.
Sounds great. Thanks, Kevin.
Your next question comes from the line of Jordan <unk> from Goldman Sachs. Your line is open.
Yeah, Hi, just one quick question.
To the extent and you haven't do you have your economic thoughts that sort of underpinned.
The commentary you made on volume and other words volume is greater than GDP merchandise, great and industrial production.
And what what's your economic guys are saying around those two measures.
Well as I said you know there's a there are a lot of different views on what the yeah underlying number is going to be.
And.
And so right now we're not you know we're trying to we're trying to find.
What is.
The most reliable number for us to look at.
And also at the same time as you know everybody's adjusting their numbers are.
And to a large degree from them or they are adjusting them down. So you know our guys that don't necessarily are our guys have a I'm sure they'll have a different they have an independent view.
But it's not something that we're going to.
Put out there is what we think.
Right now is something that we're willing to.
Bet, the farm and so to speak and how we're going to run the company, we're trying to get and we're trying to look at all the different viewpoints and.
And as we move further into.
And the 'twenty 'twenty, one hopefully things get clearer and clearer for us.
As we progress.
Okay. Thanks, so much.
Yeah.
Your next question comes from the line of Jason Seidl from Cowen Your line is open.
Thank you, operator, Hey, gentlemen, my best to Mark E.
Feels better I wanted to talk a little bit about your trip plan compliance and it looks like things are going in the right direction on the carload side talk a little bit about what you guys are doing there to improve that and then is there really anything that the railroad can do right now to materially move the intermodal trip plan compliance or is this all just sort of congestion needs to work.
And through some of the ports and some of the inland facilities.
Well, let me start with E.
And you look at the trip plans on the intermodal side look and we have what we consider probably and both and some more stringent trip plans out there with respect to always making sure that we are we measure both loads and empties and whether that's intermodal or are on the merchandise side and I'd like to share our times are probably some of them.
Stringent times out there where on the intermodal side youre, arriving to the minute.
Over the past couple of months for months or so.
P S peak was amazing.
It was a big big quarter, I don't think that's a surprise and a and as we.
And you know felt some pressure at different ports and different areas, we got the opportunity to move even more UBS traffic than we expected to so.
And some of our international traffic may have.
That isn't as time sensitive maybe taken a little longer to get off support than we normally would to make sure. We moved the time sensitive traffic, but going forward and are fully a fully.
Look at our numbers with respect to.
For the intermodal side and <unk> 90, and above is where we should be I mean, we're shooting for above 95% on that and and I'm confident that our team is there and.
And we're starting to see some of those numbers are hit already as we've moved past some of the EPS P.
On the carload side and.
Again are you missed by two hours and the carload side. That's it it's failed whether its a loader and empty and and our connections are tight from terminal terminal and if you have some of those COVID-19 pockets, where 40% of your terminals off and it takes you an extra six or eight or 10 hours to get a cars for a terminal that's a failure.
We're not willing to change our standards and our metrics with respect to where they sit to getting to that last mile and.
So we're going to work through this which we have we've seen some improvement on the numbers.
Not as a not as quick as I would like to see some of those.
Continue to move forward, but we do have the best metrics with respect to those who look at trip hands out there today. So we're confident that moving forward, we're going to see that number get up into the eighty's.
And and you know our target will continue to be to push and push forward with that which will allow that reliability for mark and his team to go out there and continue to sell this product that we built.
Oh, that's great color and I'm glad to hear things are moving and the right direction on the numbers and everyone be safe out there I appreciate the time as always.
Thank you.
Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open.
Thanks for the email you one.
And just to kind of wind up here.
And might start thinking, but if it Tony shifts and the O. R. E. R. I think over time, you guys have kind of clearly mentioned that you are going to be pursuing growth and.
Radio and going forward.
But kind of as we think of that three to five year or outgrow them going forward.
And again E.
And you're starting to sound a little bit more like the Canadian rails, who are saying Hey, we got to.
Or is not the only thing as a standalone and are we going to be looking at and grow with and growing EBIT dollars. Here. So are you targeting sticking to a high fifties or but pushing the topline much higher from here.
Well you know again, we've never said that day you know we are senior literally focused on one and one thing only and that is trying to get the operating ratio down.
And just and in simplistic terms.
If you wanted a 50 operating ratio we'd have a 50 operating ratio and do it like quickly and.
Not sure what would be left for the company and the process.
But so it's a it's always a balance between a.
Trying to do things as efficiently as you, possibly can while you were delivering a good product to the customer. So you can grow the business and that's always from day, one since I walked in the door has been the plan and.
And it just takes a while to get the railroad to run right.
And start to.
And be able to generate some some new business. So the algorithm going forward is the algorithm that we've had in place for the last three or a three year going on for years.
Our focus on delivering a really high quality good reliable product to the customer.
Which allows you to get more business and if you do that you drive a whole bunch of unnecessary costs out of the company and you increase efficiency. When you do that you can make a lot of money and you make a lot of money shareholders are happy and that's our simple business plan.
Great and maybe just a quick follow up.
Have a new administration and sworn in.
Are there any kind of two or three things you're looking for from D. C agonist, so something or watching out for either red zone, and a tailwind or headwind.
Governments stability that too much to ask for.
And that would be.
There were there would be there would be a good start.
So, let's give them a couple of weeks to figure out whether or not we're going to have that and then we can start figuring out.
And if there's any significant real change in anybody's agenda.
Well you know we're used to working with.
Not only on the fed rollover level, but we you know we operate and a 22 23 states.
Some of them are led by a democratic.
Our governor and summer led by a Republican Governor So we're used to dealing with all kinds of the.
It's a piece and viewpoints as it relates to the government relations with them.
And with business and so it's not new to US, we'll just figure out what to do and how to interact and we'll get along fine with everybody.
Great. Thanks, guys.
Your next question comes from the line of Walter sparkling and from RBC capital markets. Your line is open and thanks very much and good evening.
So up on that on that question with regards to Washington, and looking back a swing in favor of issuing and power a favorite of the Democrats has not been a good thing from a railroad regulatory standpoint, and now that your euro ours are trending where they are.
Jim do you see any risk that regulators start to put our put close attention on the returns youre getting now and introduced new risk of Av.
Changes or more leniency or or favoritism towards the towards customer here.
And no not necessarily I mean again, the there's a there's a.
Theres a mix.
Theres a remix Theres a mix and the STB would you know that goes back and forth in terms of whether it's the now I guess, it's a three two.
Ah versus what it was before maybe two three.
Versus maybe what it was at one point in time you know so.
Again this is something were.
Always.
Dealing with we're not unique in the sense that we're a regulated a we have a regulator.
And.
So.
It's not like a every airline railroad telephone company television company you name. It anybody that's got a regulator all of a sudden is worried about the end of day.
Just adapt and we figure out what it is their concerns are and we and and and we work appropriately with them and.
We've been doing this for a couple of hundred years and doing it successfully.
Okay understood and if I could just for clarification question for Kevin here.
On the question of yield I know you answered that kind of on and segmented basis, if I lump it altogether.
Am I right and in interpreting what you said that yield is going to be negative and the early part of the year and possibly turn positive and the back half is that how is that the right way to look at yield because it's been so negative. This year. It will obviously have a pretty pretty big impact depending on which direction. We go on the magna.
Two of the yield here.
Yeah, you know like I said the revenues for the fuel surcharge will be a headwind and in the first quarter that'll.
And that'll weigh on the yield similarly to what we saw and the fourth quarter here that will moderate and the second quarter and then I think you'll see some improvement and getting you know I always have to caveat it with mixed matters right and dip.
And depending on what markets are hopefully you know the.
The strong markets like our chemical business and others.
Continue to have some upside and that'll obviously be a hugely.
Huge impact to our yield performance, if the coal export market strengthens.
As you know our contracts are structured.
Structured do you participate.
And the commodity prices, if they if they shrink and so that would be.
Also and opportunity for us and in the back half of the year offsetting that I think we're still very bullish on as you as you've heard us talk about on the intermodal side.
Good business for us at the top of lower ARPA you, but.
But we make good money there and so we would.
Jamie is ready to handle more more growth there and and we have a great team going after more opportunities. So all else equal and you know the way, where we see it today, which will change probably tomorrow.
Yeah, a little bit of headwind and the first quarter, probably strengthening oh into the back half of the year.
Okay I appreciate the time thank you.
Your next question comes from the line of David Ross from Stifel. Your line is open.
Thank you love the enthusiasm operator.
Kevin I wanted to follow up on your last comment there about intermodal.
Specifically related to intermodal pricing.
Is the expectation for better than normal intermodal pricing, given what's going on and the truckload market or is it going to be more of a cost recovery low single digit type yield improvement story.
Well you know we.
We don't see real time, some of our partners see in terms of price that you will generally see a lag there.
There is also inflation adjusters that occur on a lag basis as well, so again and kind of foots with my commentary around probably second half hopefully are showing some improvement over the first half and unfortunately and in strong markets. We don't get the re price our entire book of business.
Today, you know these things happen over time.
And the markets to remain strong.
And supportive and so that you know.
I think we're somewhat optimistic but there's a lot of time will tell with what and what happens going forward. If the economy can strength in the back half of the year that certainly will help the discussions are our sales and marketing team are having so they're out there selling a business hard right now.
Okay. Thanks.
Ladies and gentlemen, this concludes our question and answer session and concludes today's teleconference. Thank you for your participation in today's call you may now disconnect.
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