Q2 2019 Earnings Call
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Greetings and welcome to Union Pacific's second quarter 2019 conference call.
At this time, all participants are in listen only mode.
A brief question answer session will follow the formal presentation.
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As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.
It's now my pleasure to introduce your host Mr. Lance Fritz Chairman, President and CEO for Union Pacific Mr. Fritsch you may begin.
Good morning, everybody and welcome to Union Pacific Second quarter earnings Conference call.
With me today on the Omar Kenny Rocker Executive Vice President of marketing and sales, Jim Fowler, Our Chief operating officer, and Rob Knight, Our Chief Financial Officer.
This morning Union Pacific is reporting record 2019 second quarter net income of $1.6 billion or $2.22 a share.
This represents an increase of 4% of net income and 12% in earnings per share compared to 2018.
Our quarterly operating ratio came in at an all time best Mark of 59.6%, a 3.4 percentage point improvement compared to the second quarter of 2018. This is the first time Union Pacific has ever recorded a sub 60 operating ratio for a full quarter and while that's a remarkable achievement. It's magnified when you consider the challenges we face from significant flooding that adversely impacted volumes and added incremental operating costs during the quarter. That's a testament to the tireless dedication of the men and women of Union Pacific working with our customers and the communities that we serve the team safely restored our rail operations, while continuing to drive productivity through our G. 55, and zero and unified plant 2020 efforts as a result, our operations have returned to normal enabling us to focus on providing a safe reliable and efficient service product for our customers.
Unified planned 2020 transformation at Union Pacific is full steam ahead, and I continue to be encouraged by the great opportunities, we see for our customers and for our shareholders with that I'll turn it over to Kenny to provide some details on our results.
Thank you Lance and good morning for the second quarter, our volume was down 4% as gains in our industrial business grew were more than offset by decline.
In premium and energy.
However, we generate a positive net core pricing of 2.75 in the quarter as we continue to price our service product to the value. It represents in the marketplace, while ensuring at generate an appropriate return.
Freight revenue was down 2% driven by the decrease in volume, partially offset by a 3% improvement in average revenue per car, let's take a closer look at the performance of each business group.
Starting off with AG products revenue for the quarter was up 4% on flat volume and a 4% improvement in average revenue per car.
Grain carloads were down 7% driven by continued reduction in export grain shipment. This was partially offset by strength in export and domestic corn.
Volume for Green products was down 1% as sustained demand for Biofuels and related products was more than offset by challenging environment for export.
Fertilizer and fall for carloads were up 12% due to strength in export potash diesel exhaust fluid and sulfur.
Moving on the energy revenue was down 13% as volume declined 9%, coupled with a 4% decrease in average revenue per car.
Van Carloads were down 50% largely due to the impact of local fan within the Permian Basin.
Coal and Coke volume was down 7% driven by ongoing headwinds of contract changes and retirement.
Flooding in May and June also negatively impacted shipments. In addition, coal exports were lower due to a softer market conditions. However on a positive note favorable crude oil price, whereas drove an increase in crude oil shipments, which was the primary driver for the 30% increase in petroleum LPG and renewable carloads for the quarter.
Industrial revenue was up 4% on a 2% increase in volume and a 2% improvement in average revenue per car during the quarter.
Construction and carloads increased 4%, primarily driven by strong market demand and the south for rock shipments.
Plastic volumes increased 6% due to higher production.
Forest products volume decreased 10% driven by reduced paper shipments as a result of high containerboard inventories and decreased lumber shipment associated with lower housing starts.
Turning to premium revenue for the quarter was down 2% with a 5% decrease in volume while average revenue per car improved by 4%.
Domestic intermodal volume declined 11% during the quarter as a softer market couple of wet weather related service issues led to lower volume.
Industrial intermodal volume was up 1% in the quarter as volume returned back to seasonal levels. Following a tear pull ahead in the previous two quarters.
And finally finished vehicle shipments were up 1% at second quarter US auto sales were down approximately 1% from 2018.
Light truck and ask you Ve sales were stronger and able to offset declining car demand.
Looking ahead for the remainder of 2019.
Brad product, we anticipate continued strength and biofuels shipment due to the increased market demand for renewable fuels to help offset the headwinds in the ethanol market pay associated with exports.
We also expect stronger beer shipments along with long term penetration growth across multiple segments of our food and refrigerated business.
Furthermore, we expect uncertainty to persist in the gray market due to reduced U.S. crop production and foreign terrorists.
For energy, we expect favorable crude.
Oil price brands to drive positive results for petroleum products, while year over year comps where thing ease in the second half of the year local sand supply will continue to impact volume.
We also expect coal to experience continued headwind throughout 2019 and weather conditions will always be a key factor for coal demand.
For industrial.
We anticipate an increase in plastic shipments driven largely by plant expansions coming online later this year, coupled with continued strength in the construction market and in Texas.
However, we are watching the forest products market as housing starts are forecasted to be down year over year in the second half.
And lastly for premium the U.S. light vehicle sales forecast for 2019 is 16.8 million units.
Down about 2% from 2018.
However, consumer preference for Sq feet over sedan will continue to help offset the declining car demand.
Domestic intermodal volume is expected to be impacted by truck competition in the second half of 2019, which may limit opportunities for over the road truck conversion.
But longer term fundamentals still provide a bullish outlook for over the road conversions.
In addition, uncertainty and tray and the economy could create a tough fourth quarter comp due to the pull ahead. We saw in late 2018 for international intermodal shipments.
And so before I turn it over to Jim for his operational update I want to share. The I continue to be encouraged how we work collaboratively with the operating team.
Jim and I have been making difficult decisions to improve the overall supply chain and aligning ourselves with our customers to find the best way to serve and grow with them.
In the end this build up a solid platform for more reliable service product for our customers and now I will turn it over to Jim.
Good morning, everyone and thanks Kenny.
As you've already heard this morning, our network was once again challenged by significant prolonged flooding in our mid America corridor was funded by rerouting traffic in deploying additional people and equipment to quickly restore operations and I am pleased to report that with the weather behind us, including Hurricane very our network has returned to normal operations.
I'd be remiss not the sale proud I am of our employees, who responded to the challenge working efficiently and without injury to restore operations in the face of some pretty adverse conditions, while delivering an all time best quarterly operating ratio of 59.6%.
This truly was a remarkable achievement and it all starts for us with safety.
Safety remains job one at Union Pacific and our commitment is relentless we have opportunities to improve our rail equipment incidents and were working as a team to learn and improve each and every day.
Turning to slide 11.
I'd now like to update you on our six key performance indicators. Despite the weather most of our metrics improved year over year. This is a direct result of our relentless focus on improving network efficiency and service reliability as part of unified plan 2020 continued improvement in asset utilization and fewer car classifications led to a 14% improvement in freight car terminal dwell and a 4% improvement in freight car velocity compared to the second quarter of 2018 train speed for the second quarter decreased 6% to 23.1 miles per hour as flooding impacted fluidity train speeds also are affected by the 30 plus percent increase in daily worked events being performed as part of unit pipeline 2020, while these work events are helping us increase train size and drive that asset utilization. The team is still working to execute these work events, even more efficiently and drive faster train speeds.
Turning to slide 12, continuing our trend from the first quarter locomotive productivity improved 19% versus last year as efforts to use the fleet more efficiently enabled us to park units as of June 30, we had somewhere around 20 150 locomotives stored.
Driven by an 8% decrease in our workforce levels of productivity increased 4% year over year. In addition to improving productivity delivering a great service product is of equal importance to the team.
Our topline compliance was basically flat year over year as the benefit from increased freight car velocity and lower dwell were offset by the impact of weather on our network. We expect our service product to improve going forward in fact were already seeing improvements in July .
Slide 13, we continue to push forward with unify planned 2020.
In the slide highlights some of the recent network changes from a terminal rationalization standpoint, we stopped pumping cars that are provides a yard in Chicago and curtailed yard operations in Salem.
Illinois at our 36th Street yard and Denver East yard in San Antonio provides will in particular was a very old and inefficient hump yards are still using retarder operators to manually flow cars into the bowl tracks by moving this worked out lion yards, including one of our most efficient at North Platte, we are not only saving labor dollars, but avoiding capital as well.
In addition, we have made a number of changes in the Kansas City complex to improve service and increase efficiency.
Weve largely consolidated traffic out of our Modell facility, while cars previously handled in des Moines, Iowa are now switched in Kansas City, and our plan to simplify simplify intermodal operations in Chicago is well underway, we idled our global three facility and the Canal Street container depot will follow shortly.
Going forward, we will continue to look for ways to reduce card touches on our.
On our network, which will undoubtedly lead to additional terminal rationalization opportunities and we are making excellent progress with our train length initiatives as illustrated by the graph on the right.
By putting more product on fewer trays, we increase train like 10% since January of this year and I expect to see continued improvement as the year progresses.
To wrap up with a number of bold steps have been taken and the results are evident there are a lot of opportunities ahead of us to further improve safety asset utilization and network efficiency. Once again, our network show tremendous resiliency in the face a significant weather during the quarter as we have returned to normal operations as we move forward running a safe reliable and efficient railroad for both our customers and our shareholders as our number one priority and with that Rob over to you.
Thanks, Jim and good morning.
Today, we're reporting second quarter earnings per share of $2 or 22 cents and 3.4 points of year over year improvement in our operating ratio to 59.6%.
This represents an all time best quarterly operating ratio for Union Pacific and is a testament to the great work, we are doing with GE 55, and zero and unified planned 2020.
Our quarterly results were however affected by some one timers, so before I jump into the details let me give you some technicolor.
Like the first quarter significant weather events impacted volumes and added operating expenses. These weather challenges resulted in a 0.6 point negative impact to our operating ratio and seven cents earnings per share compared to the second quarter of 2018, and I'll detail that more in a minute.
We also recognized a $32 million payroll tax refund along with $3 million of associated interest income. This was part of the $78 million refund that we outlined in the 8-K that we filed in March.
The refund had a 0.6 point favorable impact on the operating ratio and four cents EPS tailwind in the quarter compared to last year.
The combined impact of lower fuel price and our fuel surcharge lag had a favorable impact for the quarter up 0.6 points on the operating ratio and four cents of EPS compared to 18. The good news is that despite the weather challenges and lower volumes, we drove core operating margin improvement of almost three points or 23 cents of EPS compared to the second quarter last year.
To give you a little more detail on the weather impact we attribute about two points of the 4.2nd quarter volume decline to flooding or roughly $75 million.
We also incurred around $19 million of weather related costs in the quarter, primarily in the compensation and benefits and purchased services and materials cost categories.
With all of our routes returned to service, we do not expect any weather related cost to carry over into the third quarter.
And now, let's recap our second quarter results.
Operating revenue was $5.6 billion in the quarter down 1% versus last year. The primary driver was the 4% decrease in volume.
Operating expense totaled $3.3 billion down 7% from 2018.
Operating income totaled $2.3 billion, an 8% increase from last year.
Below the line other income was $57 million, an increase of $15 million compared to last year.
Interest expense of $259 million was up 28% compared to the previous year and this reflects the impact of higher total debt balance partially offset by a lower effective interest rate.
Income tax expense increased 14% to $488 million or effective tax rate for the second quarter was 23.7% for the full year, we expect our annual effective tax rate to be in the mid 23% range.
Net income totaled $1.6 billion up 4% versus last year, while the outstanding share balance decreased 7% as a result of our continued share repurchase activity.
As we noted earlier these results combined to produce second quarter earnings per share of $2.22 and an all time best quarterly operating ratio of 59.6%.
Freight revenue of $5.2 billion was down 2% versus last year fuel surcharge revenue totaled $399 million down $13 million when compared to 2018.
Business mix was essentially flat for the second quarter, driven by decreased sand volumes and significantly less intermodal shipments core price was 2.75% in the second quarter.
Slide 19 provides a summary of our operating expenses for the quarter compensation and benefits expense decreased 8% to $1.1 billion versus 2018.
The decrease was primarily driven by a reduction in total force levels, which were down 8% or about 3500 ft ease in the second quarter versus last year.
Productivity initiatives, along with lower volumes resulted in a 5% decrease in our GE and why workforce, while our management engineering and mechanical work Workforces together declined 11%.
Fuel expense totaled $560 million down, 13% compared to 2018 due to lower diesel fuel prices and fewer gallons consumed average diesel fuel prices decreased 4% versus last year to $2.21 per gallon and our consumption rate improved 5% through the combination of lower volumes and more efficient operations purchased services and material expense was down 9% compared to the second quarter of 18 at $573 million. The primary drivers of the decrease in the quarter were reduced mechanical repair costs and less contract services and materials, partially offset by weather and derailment related expenses.
Turning to slide 20.
Depreciation expense was $551 million up 1% compared to 2018 for the full year 2019, we estimate that depreciation expense will be up 1% to 2%.
Moving to equipment and other rents this expense totaled $260 million in the quarter, which is down 2% when compared to 2018. Other expense came in flat versus last year at $247 million for the full year 2019, we expect other expense to be up around 5% compared to 2018.
Productivity savings yielded from our G. 55, and zero initiatives and unified planned 2020 totaled approximately $195 million in the quarter, which was partially offset by additional costs associated with weather and derailments as a result net productivity for the second quarter was $170 million. It has been a tough first half of the year, but as we exit the quarter the positive momentum from our productivity initiatives gives us confidence that we will still deliver at least $500 million of net productivity in 2019.
Looking at our cash flow cash from operations through the first half totaled $3.9 billion down slightly compared to last year.
Free cash flow before dividends totaled $2.3 billion, resulting in a free cash flow conversion rate equal to 77% of net income for the first half of 2019.
Taking a look at adjusted debt levels. The all in adjusted debt balance totaled $27.7 billion at the end of the second quarter up $2.5 billion. Since year end 18, we finished the second quarter with an adjusted debt to EBITDA ratio of 2.5 times as we have previously mentioned our target for debt to EBITDA is up to 2.7 times.
Dividend payments for the first half totaled more than $1.2 billion up $123 million from 2018. This includes the effect of 10% dividend increases in both the third quarter of 2018, and the first quarter of this year.
We repurchased a total of 21.9 million shares during the first half of 2019, including 3.7 million shares in the second quarter at a cost of $639 million.
Between dividend payments and share repurchases, we returned $5.4 billion to our shareholders in the first half of this year.
Looking out to the remainder of 2019.
Although we expect second half volumes to improve sequentially from the first half that improvement will not be enough to produce year over year volume growth in fact, our best thinking at this point is that volume for the second half will be down around 2% or so versus 2018.
And as Kenny mentioned earlier, our pricing strategy is unchanged as we continue to price our service product to the value that it represents in the marketplace, while ensuring that it generates an appropriate return we remain confident that the dollars we yield from our pricing initiatives will again, well exceed our rail inflation costs in 2019.
As it relates to our workforce strong productivity initiatives and to a lesser degree lower volumes have resulted in a 6% year to date reduction looking out to the balance of 2019, we expect the combination of operating efficiency and lower business levels should result in full year force levels to be down around 10% versus 2018.
Importantly, we are still confident in our ability to achieve a sub 61% operating ratio in 2019 on a full year basis, which implies that our second half operating ratio will be better than the first half.
Furthermore, we still expect to be below 60% by 2020.
We have to play the hand that we're dealt when it comes to volumes, but rest assured our commitment to achieving our financial targets is unwavering and has never been stronger so with that ill turn it back over to Lance. Thank you Rob as discussed today, we delivered record second quarter financial results driven by exceptional operating performance for the remainder of 2019, we look forward to building on the momentum from unified plan 2020, and providing a consistent reliable service product for our customers.
As always we are committed to operating a safe railroad for both our employees and the communities. We serve and we remain focused on driving increased shareholder returns by appropriately investing capital on the railroad and returning excess cash to our shareholders through both dividends and share repurchases.
With that let's open up the line for your questions.
Thank you well now be conducting question and answer session.
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Due to a number of analysts joining us on the call today, well be limiting everyone to one primary question and one follow up question to accommodate as many participants as possible.
Our first question is from the line of Ken Hoexter with Bank of America Merrill Lynch. Please proceed with your questions.
Hey, good morning, and great job on the on the execution on your 2020 just.
Maybe it's jim or or or Kenny your thoughts on the lane closures as you shift yards and the impact on volumes as you move into the second half is this more in economic call Rob on on the volumes or is this more lane closures and and shifting target on volumes.
Hey, good morning, Ken Kenny.
First of all.
If a very minimal impact in a lot of those volumes that were impacted again were the low our profitable business.
The commercial team did a really good job of being proactive in working with customers and make sure that we have solutions in place.
So we feel again very minimal.
And we feel good about the decision to make those call.
The thing I would add Kenny is.
What we're trying to do Ken is we're not trying to do it we are doing it.
We think we build a better product for our customers, we build a better service in Chicago and other places where we're looking at the flow of traffic.
It doesn't make sense for us to have six locations that we touch railcars or try to move them around we consolidated into the minimal spots, we put them in the best place to win and we grow with the customers that are with us to be able to go from la we want to build the best service going across our network. We're close when we fix these touch points that we have we end up with the best service that we can provide and we grow with our customers.
And Rob just as a follow up given your move to keep the sub 61 of our and a better as far in the second half which.
Seems reasonable just given that the pace you are at just want understand the the the kind of cadence of your employee cut.
Is this something you see accelerating just given the steps Jim has taken on reducing locomotives is it is it spread out on different parts that I guess in a teeny focused or is it is it kind of more widespread.
I would say its widespread Ken and yes.
Year to date as like.
I called out in my remarks were down about six and we expect the year averaged end up around 10, so that does imply.
Improvement in it is it is widespread and it's really driven largely by the success of the unified when 2020 and and we hope at least that we'll have a free flood free zone to to be operating in starting today.
Great I appreciate the time guys.
Our next question is from the line of Justin Long with Stephens. Please proceed with your questions.
Thanks, Good morning, and congrats on the quarter.
Hi, Joe.
Maybe to focus on productivity you reiterated the guidance for over 500 million in productivity for this year.
But given you're maintaining the O our outlook despite weakness in volumes and whether it seems like the expected productivity. In 2019 is moving higher can you just give us a sense for the incremental productivity gains you expect to achieve this year versus your original expectation and maybe give us some sense for how you're thinking about the second half relative to the 170 million of net productivity in the second quarter. Just curious if you expect that number to continue trending higher sequentially. Rob you want to take that yeah, Justin I would I would say that.
It really what its proves out in my mind and you've heard me say this many many times is that you know we're going to use the lack of volume as as an excuse not to make aggressive.
Achievements on our productivity and I think with Jim and his team and the implementation of unified Blunted 2020, I feel stronger about that than I ever have frankly, and so yeah. We are still we're sticking with our $500 million at least a productivity net number and that does imply that the second half is stronger than the first half because the first half was burdened with the inefficiency costs related to the flooding and other weather events, so that that pace will.
Pick up in the back half and that is our expectation and it's across the board, but it really is largely driven.
By the success of the unified planned 2020.
And just thinking about that.
Sequential change do you think third and fourth quarter can look better and then once you posted in the second quarter from a net productivity perspective, I mean on in total yes, we're going to stay away from giving quarterly guidance on that but I would say in total if you look at second half versus first half again, largely because of the the overhang of the flood.
The impact costs in the first half, yes, we expect that number to be stronger in the second half.
Okay, and then I guess finally thinking about productivity ended 2020, you maintained the guidance for a sub 60, Oh, our next year.
Can you talk about what that assumes for productivity, even if it's just from a high level does not assume that the productivity dollars next year are higher than what we're going to see in 2019.
Hey, Todd.
Justin we have we havent yet put together our game plan for 2020, but you are right. We are holding firm on our guidance for overall or and I'll, let Rob speak to the details of that just I would say.
That is right. We don't have the final numbers on that but I would tell you that the levers that we pull will be the same levers. They always are and that is volume, which we haven't finalized our outlook in terms of volume.
Quality sub reliable service that we're confident we are improving that product, which enables us to continue to get appropriate price in the marketplace and we're in there. So still early innings by my definition of the unified planned 2020. So clearly there is more productivity that the dollars that we will be going after to achieve that that's up 60 next year.
Okay, Great I'll leave it at that thanks for the time.
Thank you.
The next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, good morning, guys. Thanks, So Rob I just wanted to just quickly clarify the 10% head count that's an average or year end I am not sure.
That's an average of 10, 10% reduction year over year.
Okay.
Kenny on the pricing side, so what the moving pieces here the volume environment, maybe I don't know if anything's changed with BNSF just directionally is the pricing environment getting any any tougher as you see it and then.
I know mix isn't sort of an impossible one to forecast, but such a dramatic change from minus four and the first to flat in the second any directional at all sort of color color or ideas on how we should think about second half.
Yeah, you asked a number of questions there I'll I'll take a few here.
First of all we're focused on our pricing strategy, we've got a number of competitive forces out there beyond just a competitor in the west.
Barge and there's truck I'm really proud of our commercial team and their ability to just stay very focused on pricing to the service product that we have in the value. We present I will tell you that I'm also looking forward to getting this weather behind us because I expect that our service product as it improve its going to give us an ability to compete.
In the marketplace, so I like our chances as our service product improved to stick with our pricing strategy and price to the market.
Scott I'll address your mix question you know, we we don't guide to mix because it's very hard to figure out as we just demonstrated Q1 to Q2 and there's mix within mix as Rob says all the time. So bottom line is when you look backwards what happened between Q1 and Q2 was about a large drop in intermodal that aided mix and as you look forward, we'll just have to see what the markets present to us.
Okay, Thanks, and Rob if I can just ask you one more quick one so that the other railway revenue is sort of flattish year over year.
Down a little sequentially any thoughts on how to think about that in the back half.
Yeah I.
Nothing nothing nothing I would call out that's going to change the pace of that that at this point.
Okay. Thank you guys appreciate the time yep. Thank you.
Next question is from the line of Chris Wetherbee with Citi. Please proceed with your questions.
Hey, Thanks, good morning.
I wanted to ask you about the head count into some significant improvement on on headcount in certain labor productivity. I was wondering if maybe you could help us sort of understand if there's a piece of that that sort of reaction to weaker than expected volume and and sort of what the piece of it that sort of more of the sustainable run rate and presumably at some point as we move into 2020 I'm guessing you guys are assuming sort of a better more stable potentially growth volume environment. So I would imagine you wouldn't cut head beyond what you think you can kind of manage that but if you could give us some sense of what you're doing thats kind of catch up because the volume environment and softer and really what kind of core to the the bigger picture you can plan.
Yeah, Chris you've got it just right when when volumes get softer a we know how to adjust our resources to match what volume represents the I would have to say the lion share of what you saw was about unified planned 2020, and productivity and and you can see that kind of across the board to we had to adjust the amount of resources, we put at locomotives as we park.
About a quarter of the locomotive fleet, if not more and you can see that directly related to a to the head count to the manpower that we have attached to maintaining locomotives as same as true or maintaining cars. The same is true on the t. and why workforce. We've taken a lot of work out of the network and its being reflected now in our manpower and Weve got there are more of those adjustments to be made as the network continues to stabilize and as we continue to find opportunity.
Okay. That's very helpful. I appreciate that and then maybe just a broad question on its Kenny about sort of the demand environment clearly.
Softness in volume some of it might be some blame dynamics will it sounds like it's relatively minimal on your network. When you think about sort of what you're hearing from the customer environments or why has it been so sluggish over the course of maybe the last four or five six weeks.
Yeah. So I tell you we are seeing some softness in the truck environment clearly trade.
Is impacting some of our AG business.
And we'll continue to look at other pieces of the business in the second half.
I tell you at the same time I am feeling bullish about our franchise, we've got a lot of upside with our Petrochem business, our industrial Cam and plastics, our construction products.
And I'm I'm, feeling really good about our crude oil business. So we'll see what happens in the second half and like I said as our service improve I like our chances to compete in the marketplace.
All right. That's helpful. Thanks for the time I appreciate it.
The next question comes from the line of Brian Ossenbeck with Jpmorgan. Please proceed with your question.
Hey, good morning, Thanks for taking my questions.
Just wanted to go back to price for a second.
I don't think during the show too much leverage to the tighter truck market in 2018 and calculated differently. So this a two to three quarters price still on the core side is that really sort of a lag basis from what we saw.
In the truck market and things are getting repriced and in showing up now.
Yes, I guess, the corollary would be.
If you think the truck market softened a little bit more can you maintain that level of core price or something pretty close to it.
For the rest of this year and into 2020, Brian . This is lance I'll, let kenny or or Rob speak to more of the detail, but you know and you mentioned, we calculate our price on a holistic basis that is the absolute dollars yielded during the period divided by all revenue.
So in the second quarter, 2.75%, that's pretty solid performance in a in a relatively soft truck market.
Yeah, and there is an impact in terms of what moves as to what gets counted as yield right. I mean, you can take a price action last year on a book of business and if it doesn't move this year you get no credit for it that's how we calculate our price. So so there's a there's a price volume impact in there that that is very hard to tease out.
Yeah. The only thing I'll add is that we'll see what happens in the second half it doesnt change our pricing philosophy, our approach to be disciplined here, maybe it means a couple few more opportunity, but regardless of the opportunities that were presented it we're going to be very disciplined about what business. We are accepting compete for.
Okay. Thank you for that.
And then can you one more for you to follow up on coal and we've seen a lot of headlines. They recently couple of bankruptcies, a big push for large scale consolidation. So just wanted to get your thoughts been challenging for a while but this seems like it's another step change just want to get your thoughts on how you adjust for that from the commercial side.
Both in the short short term and long term do you need to change how you price maybe more to natural gas trying to push more exports.
And then Jim if I could get you to comment on the operating side I think the network did a really good job adjusting for the fall on Frac sand, but yes, it's clearly a bigger chunk of the business, that's probably got a longer potential appeal downward from some of these secular challenges.
Yes, so we've been living in the cold environment for some time. So this is not a surprise.
Or anything new to us it doesn't change our approach to ensuring that we compete and win the business that the appropriate return fourth where we're going to stay committed to that I will say that as you hear about some of these bankruptcies or closure.
It doesn't take away from the fact that another.
Produce or ship or up in that area might be able to move that volume. So you got to keep that in mind as you're thinking about that.
So Brian the only thing I'd add is this is a.
You know railroad and as long as I have in the gray hair I have if markets go up markets go down pieces of the business go up and down if you're a good good operator. Good company you know how to react to it we've reacted by making sure that we don't get ahead, we plan properly with our assets, we make them as efficiently as possible, we're making the coal train specifically more efficient. So that we can have a better return on the product that we're moving and that's what it's all about we have to react fast and and in other places where we see increase in business, we have to put assets in there to do that in a smart way. So it's as simple as that Brian Hey, Brian One one last this is Lance one last thing to note in that is thinking about this market Holistically long term, we've talked about this that.
Coal has been challenged in a kind of a secular decline.
You see that in colt unit closures or you see it in investment in alternative.
Sources of energy and we.
You know we've got a a game plan for that in the long term at and over time, we also care deeply about making sure that there are good healthy capitalized coal producers to serve the market. They exist today and I know, they're working hard to make sure that their future is solid and we just support them as they do that.
All right. Thanks for your thoughts.
Our next question is from the line of meat.
The entre with Deutsche Bank. Please proceed with your question.
Thanks, operator, good morning, everybody, Jim I was just hoping you could talk about the.
The additional and maybe structural cost opportunity for example, whereas the active locomotive fleet today, where do you think you could go.
What's the target for car velocity against a 200 miles per day, you're doing you're achieving today.
Opportunity for system wide.
System wide train length anything you know anything else. It just gives us a sense of.
What are you doing to further opportunity is on the structural cost side relative to.
The improvements to the significant improvements you guys have made today. Thanks.
Appreciate it and that listen you just felt listen it I think there's opportunity in car velocity theres opportunity on the locomotives or opportunity on terminals or opportunity on how we handle our trains how we how many touch points. We have on cars. So I think like Rob said in the prepared notes were early on this we've got lots of long runway to go and many innings left to be able to deliver in it.
Okay I wasn't going to ask you what inning you are in but thanks for adding that anyways.
I just said that somebody was going to ask me what is that.
[laughter], but but but you kind of teed up my follow up question with respect to how all that translates to the O R.
And you know given your early innings into all this I would just expect your your Oh our targets at this point when you've got six months, a very strong operating performance in the tough environment to be frankly more ambitious.
Because there is another rail out there that has much lower revenue per carload, but significantly better or.
It obviously takes time. So this is not a critique by anyways.
But I just wanted to get your updated thoughts on.
What the structural profitability potential is for the business.
Based on both your longer tenure at the company and then also what other industry.
Peers are being able to achieve thanks.
Hey, Rob would you take that for us.
I'll make a comment on that and Jim if he wants to.
Contribute obviously, Ken I mean, I would say.
You've heard me say that I've never felt better about our ability to achieve the targets, we've set because of what you're outlining and because of what Jim and the team are doing with unified when in 2020 and that is we're going to get to as sub as sub is weekend 61. This year and then as sub as sub as we can next year of 60, and ultimately to that 55, so everything you're you're asking about Oh, we agree that there are opportunities in there and that's that's when you add it all up that's what's going to drive us that 55, and I get the criticism I'll I'll wear it that we haven't put a date out there yet on 55, but our philosophy and our goal and our drive here at Union Pacific is to get to that sub as weekend, 61st and then you know not stop there by any means but continued to drive towards that 55.
The only thing I'll add is as I like to just deliver the number and then and then we'll talk about it but we delivered a 59 six I like that number and there's opportunity there and that will continue to deliver I'll, let Rob me about how we've raised the number and just to be clear I know it wasn't a criticism I think we all respect and appreciate how hard it is to deliver the results you're achieves but I just wanted to I guess ask the question because I have to I appreciate it. Thank you.
I got the whole question I understood that [laughter].
Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question.
Thanks, Good morning.
Maybe if I could ask that question in a slightly different way yeah. Jim as you as you just said you you're at a sub 60 already I realize that's just a one quarter number but it was yes difficult. What are you have a lot of momentum going forward.
So I wanted to get your thoughts on on the feasibility of of getting to that sub 60 by by 2019, and specifically what would need to go right for that to happen, but volumes have to come in better than than the down 2%, yeah any any help framing that scenario would be great.
You know I think the best way to frame. The operating ratio number is it's a result of a lot of hard work okay. So.
I'm very comfortable with the with what we've been able to do I've been here six months in four days and the whole team we've worked hard at train length.
Car productivity.
Great how fast we moved the cars the locomotive engineers, how well they're handling for fuel conservation.
No, we're making sure that the mechanical people, how many people we need how well their inspection the cars. It's a full story and it's this whole company is engaged in making it the best most efficient railroad in North America, that's what we want I'm not sure the timeline exactly because I'm not sure what's going to happen, we had a hurricane last week hit the small one not.
Not a category three or four or five but we had a hurricane affect us. So I can't tell you Allison I wish I could but what I'm comfortable with is we have the right team.
People are out there from the everybody in the company knows what we're trying to do give a better product to our customers grow our business and has the most efficient railroad in North America, that's what it's all about simple as that.
Okay I appreciate that Lance I think maybe a month ago or so and the media. You had said that you guys are taking share from B and as a result of the success, so far with United that the unified plan could you put some maybe numbers around that in terms of volumes our share gain and maybe give us a sense of which end markets that that you're seeing these share gains. Thank you.
Allison. Thanks for the question. If you look at the first half I would say our growth is moderately better than our primary competitors are that can come from a lot of different angles. It could have to do with how their networks operating versus ours I would say one touch point for sure as our franchise is different and we think better we think it's the best franchise in the industry. What we would anticipate and expect as we look forward is unified plant 2020 creates a more consistent reliable service product for our customers. We're more efficient service provider that should set us up to win in the marketplace and to have our customers win in their marketplace and I anticipate.
Regardless of the of the economy that we face that gives us the best opportunity in that economy to win and grow I don't I'm not sure exactly what that looks like I'm not sure what that looks like in comparison to the BN or anyone else, but that's what we're trying to achieve.
Okay. Thank you.
Next question comes from the line of Tom Wadewitz with Cvs. Please proceed with your question.
Yes, good morning, Hi.
Jim a I've got a couple for you I wanted to see it.
I appreciate the detail on the framework on what you're doing with yards and terminals.
I wanted to see if you could take a step back and just give us a sense of kind of what you started with and where you're at today.
And then maybe give us a comment on broad brush, what you might get to so just kinda hump yards in January and maybe what you're at today.
And intermodal terminal how many you had how many you're at today just to kind of frame it.
And then I guess you know it just.
A sense of.
How far do you have to go can you go from you know your 12 went to 10 can you go to five or six or how we might think of how you might frame that and how we might think about it on yard rationalization.
Okay.
So when I look at the hump yards I don't look at them because Theyre I've mentioned this before and people have heard me say this countless times, a very efficient when they handle a lot of cars and we need to have them. There you can figure out a way into not put a car through a hump yard and save 24 hours on the car. That's what it's all about any yard. So that's what that's what we're looking at it right now we have one hump yard complex left in our northern region. Our Northern region is a pretty big piece, a railroad and its at North Platte, that's it and Oh, we have a non mechanized switching yard that we classify it as a major yard but it doesn't have all the mechanization in California, Northern California in Roseville, but that's it that's all we have so it's pretty hard to cut I think north Platte is going to be there for a long time, we're asking them to work harder, though we're putting more railcars in there and the cars. They have they have to do them efficiently and we moved them out.
They are setting records today on how fast they're able to switch cars and get them through that complex and I expect that the improved substantially we've got some smart people out there that are able to do that so that's the way I look at it.
You know I'm not sure what the Heck we had.
I'd be guessing on the number I don't keep it that way.
We have complexes that we need Houston's a growth area, we expect that home to be efficient and stay there. So it's all about being able to move the cars quicker on the intermodal if I could be real quick.
Kenny and I are aligned and that we have a plan of where we're moving and we'll do that we'll announce it as we come ahead, when we need to it's all about again, given a better product to the customer able to handle their their containers in and out and trailers faster. So that they have a better market and we can grow and we can compete against trucks take some of that traffic off of the highway and compete against our other railroad that we compete against head to head and see if we can win and I think we will so that's where we are that's the best I can describe it on.
Okay. So.
It sounds like you've done a lot already with hump rationalization or a at least in the north so we shouldn't necessarily expect a lot more of that going forward, but the intermodal terminals you still have room to go maybe I'd.
On a different element of the operation the train length expansion of I think you show about 10% June versus January is a pretty impressive number 7700 feet on average.
How how much runway is there on that are you constrained at this point from a sizing perspective or could that number continue to rise at.
You know a bit further.
All I can tell you is we're not constrained we will invest in places where we're constrained we did that on the the road coming out of L.A. going towards El Paso close and some gaps. So we announced that the you know three months ago. We just spoke completed with that it'll help us there is a little bit of investment you know I guess little against the 3.2 billion that we have but we'll continue to invest to do that yes train size will grow no avenger buds it'll grow across the whole network.
Okay, great. Thanks for the time.
Thank you.
The next question's from the line of Walter Spracklin with RBC capital markets. Please proceed with your question. Thanks, very much I guess the first one here is.
It is for Rob I mean, I know you mentioned thats coming back to the awareness here I know you mentioned that you Havent put in your plans for 2020, but you effectively got a guidance for 100 basis point improvement given the guidance you have for.
2019 and 2020.
I guess, we're all looking at you, possibly getting to your 2020 target by 2019, and obviously keeping 60 in place for 2020, because that's your guidance wouldn't be the right thing. So I guess, what I'm asking is if we're starting with a 100 basis point improvement as our base assumption in 2020 versus 2019 as you get your numbers together what factors will you be using to determine whether that's too.
It is too low or too high.
And perhaps I know, Jim tries to anybody, but but the the track where the success you've been having so far to date.
Correct me, if I'm wrong, but it's it could amplify that 100 basis point improvement.
In 2020.
Yeah Walter.
First of all I would say, we're not guiding to just one point of improvement again kinda back to my commentary of we're going to get a sub 61. This year as we can and then as sub as we can on the 60, so yes, I get that the 61 to 61 point, but we're going to try and do as best we can to.
Achieve as much success beyond that one point as we can that's the sub continent, but the factors. It all kind of starts with or read that as we look to 2020, when we get to that point, our read of what the economy is and what do we think volume is going to be <unk> and as we continue to drive as you've heard me say many times as we continue to drive and improve our service reliability that gives us confidence to continue to be aggressive and achieve core pricing gains, which is going to be a lever and then the balance of the ability to squeeze out and make margin improvement is going to be wrapped up in our unified planned 2020 of which I mean I don't think you can hear more confidence from the team here in terms of our ability to continue to drive efficient operations and drive productivity dollars, which will fall to the to the margin.
Okay that makes sense.
My second question is more kind of high level Jim.
You've seen precision federal railroading implemented a couple times either directly or from a distance and each time, it's led to a fairly significant service disruption.
Which ones gotten through it it becomes a weapon in a tool to to improve service, but there is always that that initial.
That initial phase of service disruption I'm hearing from Lance and perhaps.
You know you're looking to do at this time without having that service disruption what is going to happen I mean, 10% workforce reduction.
These kind of things lead me to believe that the customer is going to be affected can you help me get comfort that the comfort that the customer is not going to be affected with this time in terms of this move into P.S. Sir.
So it's Walter the history, you're correct. So let's not rewrite history. It's that's the way there was a lot of noise that was involved with some of it and there was some noise.
What we're doing here is we're trying to keep the noise down as much as possible being real smart about how we do it because then I had a plan. The first day I showed up but what it it's probably 500 locomotives I didn't part 500 locomotives first day I said, let's work through this in a systematic way we make it more efficient we looked at the touch points, we see where we are.
I had a plan with <unk> provides old from when I used to work at that at another company C.N.. Okay. In Chicago I went to visit it provides a <unk> I didn't like that yard when I was on the other side. So it was going to happen, but we did it at the right time right place and that's what it's all about what we're trying to do this in a systematic manner instead of holding it up and see and what you can put together after all the pieces. So hopefully we keep the noise as much but can he knows there's going to be some noise and we've talked about it but I'll tell you what I'd give candy and the whole team a lot of credit were being proactive we are getting out in front of it we tell the customer what we're doing we tell them. What you know when we made the changes and NASA soils. We told them, we gave them a chance to change their processes. Instead of just putting in place were doing that specifically to try to keep the event, we understand how important customers to us that's what drives our old business model.
So that's exactly what we're doing Walter.
Awesome. Thanks, a lot of sense, thanks, very much guys.
The next question comes from the line of Jordan Alger with Goldman Sachs. Please proceed with your question.
Yes, hi, good morning.
I just had a quick follow up to the extent you can answer on the.
What you're doing in the intermodal complex in Chicago.
To improve the throughput and speed.
Any sense that you can put on the timing of it.
Little more specifically just curious because obviously the.
Intermodal volumes of likely domestically.
Have been on the softer side I am just wondering once that gets into place. This is the second part of the question.
Is that when you could really start to more aggressively.
Market the product would that be the plan. So that's why I'm curious about the timing of the whole complex improvement.
Yeah, So a Jordan I'll start and then I'll turn it over to Kenny and Jim to to fill in more detail.
So I think what you're referring to is really two different things that are occurring in Chicago, one Jim mentioned earlier and that is consolidating and specializing our intermodal ramps you know so GE three focused on international intermodal G. too focused on domestic intermodal and and yard center focused on some specialty niches that work is underway g. for his excuse me, Jason I'm, sorry G. Four focused on international G. Three is already been consolidated or is in the process and the G. Four g. twos in the process of being invested and also growing.
So so that's kind of an operational focus and that's a clear benefit to our customers. It simplifies the drayage equation and it provides a more consistent reliable service product second thing that's happened in Chicago is we've rationalized service lanes in interchange with our interchange partners, both CSX and DNS at a high level and that's providing a more effective service product. That's an interline service product. So the interchange happens more reliably quicker and you don't dwell boxes around ramps as long as you used to so I'll, let Kenny and Jim talked to you know how that impacts our customer base, what it looks like going forward you know not the only other thing I'll add is that we have proactively work with our customers to get the dwell down on our intermodal ramps at the destination I mentioned that earlier by 15 hours. So all those three things to reduce complexity, then align changes and the dwell has improved.
But I'll tell you we have worked with our customers. They are starting to see the benefit of we're looking at the service metrics and they are turning around we had one of our.
A group of our larger customers in and we've been talking to them and they've expect express a very positive.
Tone with us so we feel very encouraged moving forward.
Well I think I would add is this if we want to look at our product, especially intermodal you were talking intermodal and and so it's all about when the ship arrives at the port how well, we're able to move the containers out of the Port terminal Thats International and how fast we can get it consistently to the customers. So that they can use it.
I think we build that model in the end, we're able to compete against everybody on the west coast and on the so called let's see what that what we can do they increase the business because of the model. We have the facilities. We have we turn them quick so I'm really excited I think we've done a build a model that is as good or better than anybody out there in the marketplace.
Thank you.
[noise].
The next question comes from the line of David Cameron wasn't lines Bernstein. Please if their question.
Hey, good morning, guys, Kenny could you give us a little bit more color on the down 2% volume should we sort of expecting the same variation across the product groups or is there any sort of additional is that you can give us into which traffic categories are are gonna what the trends bike Ah traffic category.
Yeah, you know you know I I mentioned that things earlier, you know we're going to just look that look at the trucking market here, let's see what happens is still seems to be a lot of capacity out there.
We can't control the forum trade policy.
And we'll look at that we talked about the <unk> getting better.
In our fan network, but we expect that the deteriorate a little bit more but again you know having said all that the fact that our service will be improving.
I like our chances to compete with truck more the fact that we've reduced a lot of complexity out of our supply chain.
Gives us an opportunity to compete more and we'll see what happens, but I like our chances.
Okay. So so so so it was a little bit weaker in premium and and and and and energy continuing to kind of be the the the we get segment.
<unk>.
Yeah, that's right Hey, Rob just as a a follow up I know you guys. We've talked a lot about margins and stuff like that but if we look at the sort of the back half of the year I think consensus <unk> is expecting <unk>, 11% EBIT growth.
Given the 2% down volume I, obviously part can be a little bit better than the back half of the year. Yeah. <unk> are you comfortable with with with an expectation of sort of like a 10% growth and eat line just based on what you know right now into down volume, it's really tough from the outside in to get the incremental sacramento's right and obviously with the P.S.R. thing happening at the same time.
It's really confusing I'm, just trying to help our our our clients understand what that trajectory and earnings growth should be as opposed to just looking at the <unk> No I get a David and also <unk> Oh disappoint you in that we aren't going to give a <unk> guidance as we as we don't so I mean, we're going to do is as good as we can and I think you've heard us talk about the confidence that we have been driving margin improvement.
And how that turns out in terms of the earnings you know where you'd be as aggressive and hopefully a successful is weekend, but I'm a stay away from getting any any earnings guides.
Alright, thank you.
My next question is from Atlanta, Ravi Shankar was Morgan Stanley pleased to see what's your question.
Oh, thanks money anyone he's looking in the kind of had gone cuts in the back half of the our <unk> genius, helping understand if this was kind of always part of the B.S.R. plan or are you being more opportunistic, giving given a software <unk> to kind of make more <unk>.
Yeah, I'll I'll start with the the the short answer Ravi is we've always anticipated that labour would be a fairly large portion of our productivity savings for the year, which we've highlighted is plus 500 million net.
So that's always been been part of the expectation if we do less work we size of the workforce for that less work.
Yeah.
But yet, but yes, Robbie I would add to that.
That's the driver that's the key driver is our confidence of the unified plan 2020, but given the fact that we have eyes on as best as we can at this point of the volume numbers that we gave her the back half that you know that we take that into consideration as well.
Underside and just to follow up on the Canadian rails have been really bullish on the international intermodal opportunity for the last couple of years and then going forward.
Some of that kind of been sent the way it's gonna some share shift from the U.S. sports. The Canadian ports can you just talk about what you guys are seeing on the international Intermodals side and kind of do you see that as a as a secular shift in the industry.
Take that yeah.
We have seen over the last few years.
A little better share share versus the west coast.
I'll tell you that if you look at the weather issues that we face.
And coming out of a couple of quarters of a pent up demand.
We still feel pretty good about the fact that our international in a modal volume was up or 1%.
As we get back to a more stable economy again, we still feel good about our opportunity to compete and grow that international in a modal business.
Very good thank you.
Mm.
Next question is from the line of Ben Hartford with Robert W. Baird. Please proceed with your question.
Hey, Thanks for the time, you're Kenny just wanted to follow up on the on the back half volume outlook just to clarify in terms of how you guys are thinking about the cadence through the back half of the year do you expect it to return to a more normal seasonal volume cadence through.
Through year end and maybe in that same vein.
What are you hearing as it relates to IMO 2020 plans from shippers, particularly on the international intermodal side any plans to pull forward a ahead of that and how do you think about the the impacts there from a petrochem.
A product perspective thanks.
Yeah. So a couple of questions. There first I'll just say that.
The things and some of the challenges will be what they are we'll see what happens.
With the domestic trucking market, we'll see what happens which rate we still feel very good again about construction business that we have the crude oil that we have and the plastics business. We expect that that can continue to grow.
Everything that Jim is doing on the operating side again allows us to compete.
<unk> allows us to get out the rail centric business that we lost when a block that allows us to increase a lot of the trucks centric business moving forward.
So we feel positive about that in terms of Ah IMO 2020, we spent a lot of time with our international intermodal customers and we don't see anything significantly changing we don't see anything from a pull ahead perspective chain and we don't see anything changing from a supply chain perspective, meaning that they might preference the west or poor over an eastern port. So we haven't seen that we've been talking to our customers all along the whole time and right now you Shouldnt expect anything structural from what we're hearing.
Okay. Thanks, a quick follow up Jim could you just provide a little bit of perspective on.
On the changes in Chicago, the reduction and Ram someone it sounds like there's more to come as it relates to intermodal from a service standpoint, but when you think about that change how pleased to be Ben do you expect any further changes around the Chicago board to be able to accomplish what you're alluding to on the intermodal side.
ER listened pretty straightforward.
We've announced the changes that we're going to make there I think the changes sets us up to have a great product within Chicago service that a that old area and be able to stretch ourselves from Chicago to other markets. So.
We're not changing anything the timelines good people are on board can't he's done a good job of explaining it to the customers. So.
You'll see us make that change as we move forward. Some some of the changes will take us a little bit longer five six months to get them in place to be able to do that or.
Up to a year, but we've got the plan there as we do in other places.
Thank you.
You're welcome.
The next question comes from the line of Bascome majors with Susquehanna. Please proceed with your question.
Hey, Jim we're seeing a lot of your efficiency metrics really start to move higher, particularly on the locomotive productivity and train link.
Departments, but the customer facing metric of on time performance versus your trip plan actually fell year over year remains in the low 60% range and what's probably pretty cost critical in workforce productivity feels like is lagging a bit as well.
In your prepared remarks, you said car trip compliance it improved in July could you expand on that and speakers sequential play some progress here with the weather behind you.
And you know on both fat customer facing in the workforce productivity front when might we start to see more stair step like improvement in what's going to drive that thank you.
Some of the guys are tough bascome, Okay, you hold me to it but I love the question I appreciate it so.
If we take a look at workforce its.
We adjust for the work that we have to do and we as we've made some quick adjustments and I think we've we've done a good job of being smart about how we do it and you'll continue to see that robs given the numbers of where we expect to be I'm not going to add anything I don't need to add anything there and as far as.
The productivity metrics in general all of them, we think there's opportunity on them and we will continue to be productive in everyone. We are touching.
So if you start with the car how fast it loose for the customer and the weather had a big impact on us. So what we did was we didn't adjust the number the number came in the way. The number came in that you know, we we got hit for the weather and we part cars, we didnt make to the customer, but because now that we're out of that we've seen a substantial it's at least 10% higher AR.
Our improvement and we'll continue to do that we know we have to deliver a great product for our customers to be able to grow this and have in the long term and efficient railroad and great product that product for our customers. That's what it's all about Baskin. That's all we're trying to do.
Hey, Bascome so the moving parts on that service product. It's a it's a mixed bag in the second quarter.
Freight car velocity has a direct impact on customer experience right, they're getting their cars or more frequently from origin.
Embedded in that is terminal dwell that's a direct impact first of west launching on times direct impact that car trip planned compliance. That's a very specific holistic number that says from the time. The car was tendered to US did we do exactly that planned that day.
And you know things like flooding made us use alternative routes and switch in different places so.
You know once we get a network, that's smooth and steady and normal we see the kind of thing that Jim's talking about which is a pretty quick snap back. It's a it's a lagging indicator, but it but it is an indicator and we expect that to go like the other service indicators are going it's just just might take a little longer.
I can tell you just real quickly were sitting now with customers. Each weekend, we're seeing improvements, though I want to give a.
Jim Unleashing the team a Pat on the back how are we didn't talk about first mile last mile, which we're also seeing a pretty.
Significant jump in off though and after a very tangible metric to customer. So I, we're expecting that to get better as we move along.
Hey, it's great to hear about the substantial progress with the flooding behind you here.
Rob any or we can get an update from you guys on the long term outlook next spring or summer like you normally do in the last year of a of a long term plan and any guidance on when that might happen. Thanks.
No stay tuned you know, we'll always update as we said earlier in the call here, we'll be putting together our 2020 plans more importantly is that between now and then and you know stay too.
Thank you.
Our next question is from the line of Sheryl and Red one with TD Securities. Please proceed with your question.
Thanks, very much and good morning.
It's been a long call. So I'll just stick to one question and.
You sound fairly confident that we're starting to move.
Overhang associated with inventory pull forward in advance of carats. So I just wonder if you could elaborate on what you're hearing from customers that were seeing in your carloads that informs that confidence.
Yeah, I'll take that out first of all what we're hearing and one thing. That's good is that a we are hearing that we're going to get a normal pixi even volume here.
So that lets us know that a lot of the the noise that we saw with the pull ahead over a again, we know what the domestic market is like a the only outlier that's out there from a trade perspective that probably impacts us is really just on the AG side, we talked about the soybean market. So it really becomes a timing issue.
And we'll see what happens.
That's helpful. Thank you.
Thank you.
Thank you.
At this time I will turn the floor back to Mr. Lance Fritz for closing comments.
All right. Thanks, Rob and thank you all for your questions to wrap it up I want to again acknowledge the tenacity and the determination of Union Pacific's workforce hats off to them for producing great financial results in a pretty challenging quarter and with that we look forward to talking to you again in October .
This concludes today's teleconference.
You may disconnect your lines at this time and thank you for your participation.