Q3 2021 Union Pacific Corp Earnings Call
Greetings and welcome to Union Pacific's third quarter 2021 conference call.
At this time, all participants will be in a listen only mode a.
A brief question answer session will follow.
Paul 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 is now my pleasure to introduce your host Mr. Lance Fritz Chairman, President and CEO for Union Pacific.
Mr. Fritz you may begin.
Thank you Rob and good morning, everybody welcome to Union Pacific's third quarter earnings Conference call with me today in Omaha, Kenny Rocker Executive Vice President of marketing and sales, Eric Gehringer Executive Vice President of operations, and Jennifer him and our Chief Financial Officer.
During the quarter the Union Pacific team.
Follow the multiple network disruptions that required us to rebuild bridges reroute trains and connect more closely with other links in the supply chain to support and to serve our customers. While we still have work ahead. Our employees dedication is a critical success factor and navigating all of those challenges turning to our third.
Dealt results. This morning Union Pacific is reporting 2021 third quarter net income of $1 $7 billion or $2.57 per share. This compares to $1 $4 billion or $2.01 per share in the third quarter of 2020, Despite the network.
At work and global supply chain challenges, our quarterly operating ratio of 56.3% improved 240 basis points versus last year and represents a third quarter record. We also set third quarter records in operating income net income and earnings per share.
Quarterly team did an excellent job of managing the business to produce strong results. The comparison to 2019, a period with higher volumes further highlights our performance and demonstrates our focus on driving productivity and network efficiency to overcome external factors.
We also continued to make progress on our goal to.
Reduce our carbon footprint.
Team achieved strong productivity to produce an all time quarterly record low fuel consumption rate. This represented a 1% improvement versus 2020 and helped our customers eliminate 5.7 million metric tons of greenhouse gas emissions in the quarter by using union.
Pacific versus truck.
<unk> is building and before the end of the year, we plan to detail our emissions reduction plan with the release of our initial climate action plan.
So let's start the morning with Kenny for an update on the business environment.
Thank you Lance and good morning.
Or I talk about our market.
Performance I want to thank our operating team for their tireless efforts. This past summer to recover the network from the devastating forest fires in California.
Focusing back on our review of the business, our third quarter volume was flat compared to a year ago gang.
Gains in our Balkan industrial segments were driven by market strength.
And our business development efforts.
Those gains were offset by declines in our premium business group as our served markets continued to be impacted by semiconductor chip shortages and global supply chain disruptions Harbor freight revenue was up 12% driven by higher fuel surcharges strong pricing gains and.
And a positive mix.
Let's take a closer look at each of these business group.
Starting out with our bulk commodities revenue for the quarter was up 14% compared to last year, driven by a 4% increase in volume and a 9% increase in average revenue per car, reflecting strong core pricing gains.
And higher fuel surcharge revenue.
Coal and renewable carloads grew 9% year over year and 17% from the second quarter.
Our efforts to switch customers to index based contracts are supporting domestic coal demand as a result of higher natural gas prices, coupled with increased coal exports.
Grain and grain products were down 1% compare to last year and down 9% from the second quarter due primarily to lower U S grain stocks.
However, this was partially offset by our business development efforts and strong demand for Biofuels.
Fertilizer carloads were up 10% year over.
Due to strong agricultural demand and increased export potash shipment.
And finally, food and refrigerated volume was flat year over year and sequentially from the second quarter.
Moving on to industrial.
Industrial revenue improved 22% for the quarter driven by a 14%.
Increase in volume.
Average revenue per car also improved 6% driven by higher fuel surcharge.
Pricing gains and positive mix.
Energy and specialized shipments were up 16% compare to last year and up 5% versus the second quarter.
The gains were due to an increase in petroleum products.
Ever year as demand recovers from this time last year, and new business wins for Mexico Energy reform.
Volume from Forest products grew 15% year over year, primarily driven by demand for Brown paper used in corrugated boxes, along with strong housing starts driving lumber shipments.
Ever.
Product compare to the second quarter volume was down 2% due to the impact of the lava fire in northern California.
Industrial chemicals, and plastics shipments were up 6% year over year due to strengthening demand and business wins as production rates for plastics improve from 2020.
Metals and minerals volume was up 21% compared to 2020 and up 3% versus the second quarter, primarily driven by our business development efforts, along with strong steel demand as industrial markets recover coupled with favorable comps for Frac sand.
Turning now to premium.
Revenue for the quarter was up 1% as.
As the 9% decrease in volume was more than offset by higher average revenue per car.
Arc increased by 11% from higher fuel surcharges and core pricing gains.
Automotive volume was down 18% compared to last.
Sure and down 4% versus the second quarter semiconductor shortages had an adverse impact to both of our finished vehicles and auto parts business segments.
Intermodal volume decreased 6% year over year, and 8% compared to the second quarter.
International volume continued to face challenges.
<unk> from global supply chain disruptions with regards to domestic strong demand and new business wins were also hampered by supply chain disruptions plus e-commerce business salt top comps versus last year.
Now looking ahead to the fourth quarter of 2021.
Starting out with our bulk commodities, we're optimistic about grain business due to another strong harvest and grain export demand.
Grain products will continue to benefit from growth of the biofuel market.
Food and refrigerated volumes should be positive with increased consumer demand.
Post pandemic restaurant reopening and truck penetration growth.
Lastly, we expect coal to remain strong for the remainder of the year based on our current natural gas futures inventory replenishment as well as export demand.
Look it at looking at our industrial markets, we continue to.
Encouraged by the strength of the forecast for industrial production for the rest of 2020, one which will positively impact many of our markets like metals and for it.
The year over year comps, where our energy markets are favorable. However, we expect narrow spreads will negatively impact crude by rail shipments.
On a positive note.
We expect to mitigate the la Cruz shipments with shrimp and other petroleum and LPG product.
And lastly for premium we anticipate continued challenges in automotive related to semiconductor shortages for the fourth quarter.
In regards to intermodal.
Bible eliminate truck capacity inventory restocking and shrimp and retail sales will continue to drive intermodal demand in the fourth quarter. However, we expect international volumes to be constrained as ocean carriers have recently taken additional actions to speed up their container returns.
Intermodal LNG, then labor port capacity warehouses and drayage persist.
And on the domestic side opportunities will face continued supply chain challenges with limited hollaway capacity and floor chassis turn time.
Overall I'm encouraged by the opportunities in front of.
As Chuck Wrath of 'twenty, 'twenty, one, but more importantly, I want to recognize the commercial team as they continue to focus on providing solutions for our customers to win in the marketplace.
We had in the 2022, our commercial team is driving growth through new business wins, most notably we're taking more trucks off the road and all three.
Four business groups and with that I'll turn it over to Eric to review our operational performance.
Thanks, Kenny and good morning, I'd like to begin by thanking the entire operating department for their dedication and hard work to manage through the challenges we faced during the quarter.
From wildfires to mudslides and Hurricanes the team demonstrated.
Three of Arbor civilians to restore our network and deliver strong financial results.
In addition, as Kenny just described the demand picture has turned out differently than we expected at the beginning of the year working closely with marketing. The operating team has adjusted transportation plans and added resources into the network for surge.
<unk> demand and coal metals lumber and green.
These actions demonstrate the agility and strength of our franchise.
Taking a look at our key performance metrics for the quarter on slide nine.
Driven by wildfires and weather events during the quarter, our freight car velocity and trip.
Crated per appliance metrics deteriorated compared to 2020.
Freight car velocity decreased due to increased terminal dwell and higher operating inventory levels, which led to lower trip plan compliance results are.
Our entire team has been fully engaged on restoring network fluidity and the recovery.
Plant is progressing.
We are seeing improvement in our metrics with reduced operating car inventory and improved freight car velocity.
Our reported weekly metrics showed the time required to recover the network from these events.
While we made improvement from our freight car velocity weekly low of 100.
84 in August to 210 miles per day in the last two weeks of September our goal remains to return freight car velocity towards 220 miles per day.
Our intermodal trip plan compliance results improved and on August the low of 61% gain 12.
And since September to 73%.
Our manifest and auto trip plan compliance results improved from 57% in August to 61% in September.
We recognize improving trip plan compliance is critical to support our customers and our long term growth strategy.
We have maintained higher crew and locomotive resources in the short term to assist in reducing excess car inventories to drive increased fluidity.
As operating car inventory declines, we will quickly adjust resources to current volume levels.
Our cooperation and work with partners.
<unk> at the West Coast ports have reduced rail container dwell back to more normal levels and with the by the administration's efforts to expand operations at the ports to ease congestion, we stand ready to move more rail containers provided that points further along the supply chain can handle increased volume.
While theres still work to be done the team is confident in our ability to restore service to the levels, our customers expect and deserve.
Turning to slide six we continue to make good progress on our efficiency initiatives. However, disruptions during the quarter impacted these results as well.
Local.
<unk> productivity declined 8% compared to a year ago as we deployed additional resources to handle traffic rerouting, our record third quarter workforce productivity was driven by efficiencies in our engineering mechanical and management, Workforces and offset slightly by increases in train and engine.
And workforce to address our network recovery.
We continued our focus on increasing train length, achieving a 4% improvement since third quarter 2020 to approximately 9360 feet.
Now that the bridge has been restored the team is again driving productivity through increasing trailing.
As evidenced in our September train linked growth to over 9500 feet.
Turning to slide 11.
Our ability to grow train length is also enabled by the completion of nine sidings to date in 2021 with an additional 26 under construction or in the final planning.
Train links these.
These investments will enable a more reliable and efficient service product for future growth.
We also produced a record quarterly fuel consumption rate, improving 1% compared to last year.
Through productivity initiatives and technology improvements, we were able to offset most of the.
Steve just stemming from the wildfires.
The operating department understands the importance, we play in achieving our long term greenhouse gas emission goals and have more work underway our.
Our approach is multi pronged with the primary emphasis around our locomotive fleet, both looking at alternative energies as well as biofuels.
As we drive productivity and manage the various network challenges in 2020, one the health and safety of our workforce is paramount.
Although our year to date employee safety results have not shown improvement in 2020 recent monthly trends provide positive momentum for the team to build upon.
Again, our approach is across.
Since the number of fronts, including employee engagement broader deployment of technology as well as looking externally for best practices.
Additionally, we reduced cost of rail equipment incidents during the quarter.
We are encouraged by the improvement, but know that we must maintain focus on promoting a safe working environment to reduce.
<unk> employee injuries, so everyone goes home safe each day safe.
Safe operations also have a direct impact on our service product. So this work will benefit all stakeholders.
Wrapping up on slide 12.
As we look to close out 2021 I have the utmost confidence that we will continue to improve safety.
Increased network fluidity improve our service product and drive productivity as we support business growth with our customers.
With that I will turn it over to Jennifer to review our financial performance.
Thanks, Eric and good morning.
You heard from Lance Union Pacific achieved strong third quarter financial results with earnings.
Per share of $2 57, and an operating ratio of 56, 3%.
As noted in an 8-K last month, we incurred additional expense this quarter related to wildfires and whether.
The full impact of those events, including lost revenue negatively impacted our operating ratio of 50 basis points and earnings per share by 5%.
Rising fuel prices throughout the quarter negatively impacted operating ratio by 140 basis points. However, the year over year impact of our fuel surcharge program added five cents to a P. S.
Setting aside these exogenous issues you peace core operational performance drove operating ratio improvement of 430 basis.
It added 56 cents to EPS.
Our performance demonstrates the resiliency and efficiency built into our franchise through P S or even when operating in less than ideal conditions.
Looking now at our third quarter income statement on slide 15, where we're showing the comparison to both third quarter 2020, as well as third quarter 2019.
The comparison of 2020, one to 2019, most clearly illustrates the efficiency we've achieved over the past two years as we generated 9% higher operating income on 4% less volume.
For third quarter 2021 the operating revenue up 13% and operating expense only up 9% we generated third.
This point record operating income of $2 $4 billion net.
Net income of $1 7 billion and earnings per share also were third quarter Records.
Looking more closely at third quarter revenue Slide 16 provides a breakdown of our freight revenue both year over year and sequentially versus the second quarter.
Great revenue totaled.
Quarter, one $2 billion in the third quarter up 12% compared to 2020, and 1% compared to the second quarter looking first at the year over year analysis, Although volume was flat. The overall demand environment remains strong and supports pricing actions that yield dollars exceeding inflation on a year over year basis those gains.
Five further supplemented by a positive business mix driving 650 basis points in total improvement.
Intermodal shipments combined with higher industrial shipments drove that positive mix.
Fuel surcharges increased freight revenues 600 basis points compared to last year as our fuel surcharge programs continue to chase rising fuel prices.
It's worth looking at freight revenue sequentially lower volume versus the second quarter decreased rate revenue 250 basis points highlighted by the factors that Kenny highlighted.
Continued core pricing gains and a more positive business mix increased freight revenue of 175 basis points on a sequential basis driven by that same combination.
For industrial carloads, and lower intermodal shipments.
Finally, rising fuel prices and the resulting uptick in sequential fuel surcharges increased freight revenue of 125 basis points.
Now, let's move on to Slide 17, which provides a summary of our third quarter operating expenses, which increased 9% in total versus 2020.
Primary.
Of hire of the increase was fuel expense up 81% as a result of a 74% increase in fuel prices, a small offset to the higher prices was a 1% improvement in our fuel consumption rate.
Better efficiency was a product of both our business mix and productivity initiatives, which offset inefficiencies associated with wildfires in the quarter.
Driver looking further at the other expense lines compensation and benefits expense was up 3% versus 2020.
Third quarter workforce levels were down 1% compared to last year, Despite our train and engine workforce growing 3%.
This increase reflects the additional crews needed to navigate the network impact from bridge outages and weather.
<unk> management engineering, and mechanical Workforces together decreased 3%.
Wage inflation, along with higher re crew and overtime costs associated with our network issues increased cost per employee 4%.
While still a tad elevated at this level of per employee compensation increase is more in line with future expectations.
Purchased services and materials expense was flat as higher locomotive and freight car maintenance associated with a larger active fleet was offset by reduced contractor expense.
And with automotive shipments forecasted to remain soft for at least the balance of the year. We now expect purchase services and material expense to only be up low.
For full year versus 2021.
Equipment and other rents was flat consistent with volume.
Other expense decreased 10% or $29 million this quarter, driven primarily by lower write offs of in progress capital projects in 2021.
As we look ahead to the fourth quarter recall that last year, we incurred a one.
Singled them $278 million noncash impairment charge in this expense category.
Looking now at our efficiency results on slide 18 operating challenges during the quarter again impacted our productivity, which totaled $45 million in total for 2020. One productivity is at $280 million led by our train length improvements.
One taco motor productivity offset by roughly $55 million of whether an incident related headwinds.
Our incremental margins in the quarter were a very strong 94% driven by solid pricing gains positive business mix as well as continued efficiency.
P. S are clearly gives us the platform to add volumes to our network.
It's an extremely efficient manner.
Turning to slide 19 year to date cash from operations increased to $6 $5 billion from $6 billion in 2020, a 9% increase our cash flow conversion rate was a strong 95% and year to date free cash flow increased $728 million or 38%.
Driven by higher net income and lighter year to date capital spend compared to last year.
Supported by our strong cash generation and cash balances, we've returned $7.9 billion to shareholders year to date through dividends and share repurchases actions taken during the year include increasing our industry, leading dividend by 10% in may and.
Work, which has seen 27 5 million shares totaling $5 $9 billion. We finished the third quarter with a comparable adjusted debt to EBITDA ratio of two eight times, which is on par with second quarter, we remain.
<unk> committed to returning great value to our owners and are demonstrating that again this year.
Wrapping things up on slide.
'twenty as you heard from Kenny the overall economic environment remains positive and provides confidence for the future growth of our company bulk.
Bulk is driven by stronger grain volumes and coal continues to exceed expectations.
Industrial volumes remained consistent and strong across many sectors like forest products metals and plastics.
We are.
Bush on several fronts, but as you are also well aware of headwinds in autos and intermodal persist global supply chain disruptions semiconductor shortages and the additional pressure with international intermodal volumes that Kenny just described continue to constrain our premium volumes.
<unk> seen these variables and with just over two months left in the year, we now.
We expect volume to be up closer to 5% for full year 2020 one.
We are also adjusting our productivity guidance for the year down to $350 million as the weather impact and related network challenges impede the progress we expected to make with our efficiency in 2020 one.
To put that in context, however at the end of this year, we will have generated almost.
Almost $1 $8 billion of productivity since our implementation of <unk> in late 2018, so great work overall by the team.
And more importantly, this lower cost structure and improved service product provides union Pacific The foundation for future growth and strong incremental margins.
Lower expectations for volume and.
Our headwinds toward 2021 operating goal.
In addition, we've seen fuel prices continue to rise and pressure margins in fact over the last 30 days barrel prices have increased around $10 with spot diesel prices up over 25 cents per gallon.
Setting some of this margin pressure is a positive business mix.
Protocols wrong pricing environment. So all in we now expect our full year operating ratio improvement to be in the neighborhood of 175 basis points.
Well not quite to the high end of the guidance range. We established back in January we view that level of improvement as another great milestone on our journey to a 55 operating ratio.
So in 2022, especially in light of the unexpected headwinds we've had to overcome to get here.
Wrapping it up it was a tough quarter operationally, yet we made great strides to strengthen our franchise and achieved solid results. In fact, we stand poised to finish 2021 as union Pacific's most profitable year ever.
<unk> antibody would not be possible without our tremendous employees, who are on the frontline every day, serving our customers safely and efficiently while producing these record results.
My Thanks go out to team U P. So with that I'll turn it back to Lance. Thank you Jennifer.
One area of continued focus by the team as you've heard US talk about this morning is safety, while our safety.
Safety metrics lagged 'twenty 'twenty there are some positive signs, including strong September results that indicate we're taking the right actions to produce desired long term results. The entire team understands that safety is foundational to everything we do at Union Pacific.
Our service product has shown improvement over the past 60 days, but there.
That's work to be done with increasing volumes related to the grain harvest and intermodal peak season approaching we understand the importance of delivering for our customers the opportunity to provide free solutions to our customers is strong and gives us confidence that our long term goals for growth remain intact and as you heard from Kenny.
We're still with macroeconomic headwinds, we're winning with our customers.
While supply chain disruptions will likely persist into next year, we see our third quarter and year to date results as proof of our team's ability to perform in the face of significant challenges as headwinds turned to tail winds, we're well positioned to build off our success in delivery.
Even more value to our stakeholders, so with that let's open up the line for your questions.
Thank you at this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
In the interest of time, so that we can accommodate as many analysts as possible. We would ask everyone to please limit themselves to one question.
Thank you and our first question comes from the line of Scott Group with Wolfe Research. Please proceed.
<unk>.
Hey, Thanks morning, guys. So Jennifer you you've been highlighting strong incremental margins year to date I guess I'm wondering why that doesn't continue in the fourth quarter I think the guidance implies a flattish how are despite some really good pricing.
<unk> had some.
Some onetime bonuses a year ago. So maybe just some thoughts on why the Incrementals arent better in fourth quarter and does this in any way change the outlook on the 55 of them are for 2022.
Well, let me start with that second part Scott because they didn't know where it changes how we're looking at it we absolutely believe we will still achieve those targets.
In 2022, consistent with what we talked about in our May analyst meeting in terms of some of the pressures year over year I mean, it really is a lot driven by fuel you know the cost per gallon if I'm looking at it year over year is gonna be up anywhere from call it 75% to 80% and that's just very tough to overcome especially with flat.
That volumes because that's essentially how we're looking at things when you think about our volume guidance is at 5% for full year. So while we're still expecting them to be efficient. We just as we're continuing to resource some of the network fluidity. That's that's going to have some pressure on that and and that's what's being reflected in the guidance that we've provided there.
Pressure to the operating ratio, but not necessarily earnings pressure.
Operating ratio pressure, yes got it thank you.
Alright, thank you.
Alright, Thanks Scott.
Okay.
Our next question is from the line of Ken <unk>.
With Bank of America. Please proceed with your question.
Great. Thanks, Good morning, maybe just a little bit of following up on <unk> as you think about that deceleration of 5% growth from seven which I guess Jen said, it's flat it seems like it's 1% growth in the maybe a little acceleration in the fourth quarter can you maybe talk about puts and takes on that and then more specifically the port of L. A noted.
They're seeing some significant rail improvement can you talk about if you're being a if you were able to move the freight.
How is the supply chain can you get the boxes and leaned in and is there anything improving and limit the warehouses or chassis shortages, especially as we are at peak or moving past peak or are you seeing any improvement in the fluidity there. Thanks.
Alright.
Few questions, but we'll get them all hard.
And Erika you'll help me out a little bit here. So first of all just well just walking down or a business. If you look at it.
We expect our coal business to have the same run rate they have this quarter.
You see where the future numbers are we'll see where that takes us.
Up until the first part of 2022 on the grain side, you know we'd be really happy if we can get sort of a flattish year over year look we'll see how that plays out maybe we get there if we don't get there maybe we're up a corner so all.
Looking at our industrial business Boy, it's a.
A lot of opportunities in front of us I've been really excited about the fact that the commercial team there and been able to win a.
Business, we're seeing it show up on the Petro Chem side.
The production rates are going up from earlier in the year on the metal side also a lot of strong wins business development when.
That we're seeing and it's also showing up.
It really.
Creating a lot of good things are moving our way on the fourth at same thing wins from truck from paper wins from crop on the lumber side.
We'll see how that plays out that should.
Will it be a positive area for us.
And then the wildcard.
Spirit's on the premium side, you look at autos I tell you I've.
Forecasted this thing wrong here a couple of quarters.
Think that I believe that we're certainly in the trough.
I don't see it really improving in the quarter, we will see what happens.
And the next year, maybe some gradual improvement and then on the international.
<unk> intermodal side.
Eric and his team have done a great job of really reacting and engaging the terminals at the port and the port.
I'm really proud of the fact that we've got a product that we've created and the inland Empire to actually capture some of that business that might spill over you know about the product.
Car who've create it up in the twin cities and we've got our green facility coming on at G. Four to make it just more attractive.
Or are customers really come in and.
Move on the international side and on the domestic side I expect the same run rate that we're seeing today.
Expecting a tougher comp on our e-commerce businesses.
That will have more of a normal Christmas though.
Yeah, Ken regarding the ports themselves and thinking about our system fluidity.
First it's important that we applaud the same effort that you did with the <unk>.
And both of the ports to move to a 24 by seven operations.
As you think about our fluidity in how we support.
The middle part and the entire supply chain, you're really thinking about four specific things. The first one is car dwell.
So we're back in our 23% to 25, our historical average, which is 24% better than our peak in July so we have cars they're available.
From a velocity perspective, you know how fluid are we from.
I'm getting point a to point B, we're at 488 miles per day yesterday, which is the best we've done in nine months. So we have the fluidity to move from a to B.
Where you still see the constraints in our box dwell.
We see currently a 40% increase in that dwell versus earlier this year.
And then also on the chassis Street time, which is just a measure of how long is the chassis and the time. It leaves to the time it comes back to us and that's up 20%.
So it's critically important as we've identified before we can take the volume we can handle the volume efficiently we need the back end of the supply chain with warehouse capacity warehouse labor.
Dray capacity and dray labor to be there to answer that call, we're not doing that and putting that entirely on the back end, though we've take actions even in the last six months you've heard me talk before about you know we've opened G. III. We've gone deeper we've got 5000 cars now strategically placed we've extended hours and.
Selected ramps most notably our recent extension to 24 hours of ICT F. In L. A.
We've also expanded hours for road ability, which is a matter of our expanding hours.
Hours for the inspection and maintenance of chassis.
We're being partners with our customers to ensure that anything they can do to continue to improve supply chain fluidity, where some.
Great. Thanks Kenny.
I appreciate it.
Thank you. Our next question is from the line of Walter <unk> with RBC. Please proceed with your question.
Yeah. Thanks, very much I guess this question is for Atlanta, and it's a little bit conceptual and it's regarding the supply chain and support.
My chain issues and whether they're structural.
Will or or or temporary effect.
Effectively if this is temporary and we work through the next quarter or two we don't need to worry about anything but.
It seems a little bit more structural you add in the while wildfires can be kind of.
One offs they do they do recur in Conagra base.
Supply chain situation.
The question is if they are structural Lance do you look at anything that you can do that.
Outside of what Youre doing for your company and the things that you can control there are a lot of aspects with the supply chain you can't and you are starting to see your competitors dip into other asps.
Aspects of non rail operations is this something that given if indeed it is structural and you want to have more <unk>.
Handle an ability to bring other operations in line with your rail operation could you start looking at acquisitions that are outside of your core rail assets.
The that's a great question, Walter let's start with structural or or temporary I'm still of the belief that most of what we see is temporary but that doesn't mean the fundamental basis for your question.
Is it still appropriate right. So if we just focus in on.
International intermodal supply chain, let's let's use that as a marker.
From a temporary perspective, clearly COVID-19 and the impacts on labor from many different directions related to the Covid pandemic in reaction to the pandemic over the last 18 months.
It has impacted the labor ability.
To fill jobs either on the backend warehouse dray over and in the origin shutting down factories ports.
And I don't think that lasts forever right that that's certainly strikes me as something that we the U.
And the world are going to get our arms around.
Either through mass vaccination.
<unk> combination of both.
So.
I think ultimately the way the supply chain is disrupted right now.
Doesn't last.
That doesn't mean that our.
We shouldn't continue to keep our eyes open on opportunities to to basically be better for customers a step one and that has a lot to do with transparency and visibility in the existing supply chain across partners, we're working very hard in that space.
With each of the supply chain partners that.
We have.
Whether it's a technology platform that we can all use to see everybody's kpis and current status.
Or something more and to your point from an inorganic growth opportunity perspective, there are probably opportunities in there and we have talked about.
That being a juice and augment to our fundamental growth of the railroad and bringing more cars onto the railroad. So I think there are opportunities there Walter.
And we've got our eyes wide open and are looking for them.
As we continue to work on the overall supply chain.
Great really helpful perspective. Thanks.
Yep. Thank you.
Our next question comes from the line of Justin Long with Stephens. Please proceed with your question.
Thanks, and good morning.
I guess building on that last question.
P. K CFS merger moving forward I wanted to get your updated thoughts on how this could impact.
<unk> your business could you talk about the risks.
Could pose to either your business or fair Imax's business, given your ownership stake there and how you could potentially mitigate some of those risks.
Great question, Justin. Thank you. So we've been crystal clear all along that are there are a number of concerns we have.
In terms of maintaining and enhancing competition with this proposed merger. The primary one is making sure that our customers continue to have good commercial access with businesses in Mexico. Today. We appreciate enjoy about two thirds or more of all the cross border rail traffic.
<unk> to and from Mexico. The reason that is.
We have the best franchise to both act as an origination for business in Mexico and act as a marketplace for businesses in Mexico, We just want to make sure that in the combination of the CP and the case, yes, our customers arent.
Aren't locked out from.
That access so we are active in the process right now to make sure that that concern is known and that it gets addressed in some kind of remedy I think there are bonafide risks to our business to and from Mexico to the maybe the FX CS business, but I think we've got a pretty good beat on them we understand them.
And we're actively already working to address it.
Okay. Thanks, I appreciate the time.
Yep. Thank you Justin.
Our next question is from the line of Amit Malhotra with Deutsche Bank. Please proceed with your question.
Thanks, Good morning, I wanted to.
Perspective on on on what inning, you think we're in with respect to the pricing opportunity I think that's an appropriate question given we're in baseball playoffs season, but I really ask that question. Because you know we saw a nice sequential uplift in intermodal and coal yields, but everything else I would say it was.
Yet you're muted I know there's mix within mix that can impact that but you.
Maybe just as a summary, just talk about what inning you think we're in where you think the biggest opportunities are to see yield improvement from where we are today and then just intermodal and coal just took a big step up is that sustainable in <unk> and as you look into 2000.
22, Thank you didn't even want to take that yeah. Thanks for that question.
First I'll start off by saying that I feel much better about where we are today.
Terms of our ability to price the product then even earlier in this year.
Looking at the fourth quarter, we're gonna start a bit season.
A bit more amount.
It's out there call it 10% to 15% on a lot of our intermodal business clearly on a lot of our carload business.
Were stepping into that it's a strong environment for us it's a favorable environment for us we're going to price to the marketplace, we're seeing that right.
Right.
Or what is the capacity not just on the intermodal side. We also see it on the carload side. So we'll have a lot more clarity on it but I'll tell you right now as I sit here today, it's a favorable environment for us to be pricing it.
So Kenny you're you're not going to bite on the inning question in terms of demand.
[laughter].
I'm a college football fan first of all but the bottom line is that hey look at this is it's better than than I've seen it in a while I haven't seen it this strong since the last part of 18, we.
We feel good about the products that we have out there I've talked about all the new product with inland Empire in twin cities.
Well the network that we have and what Eric is doing to improve the service that you're saying so it's supposed to it's a favorable environment for us and we feel good about our ability to price into it.
Okay Fair enough. Thank you very much I appreciate the time.
Thank you Amit.
Our next question is from the line of Chris Wetherbee with Citigroup. Please proceed.
With your question.
Hey, Thanks, good morning, guys.
Maybe I can ask the pricing question may be a little bit differently I come at it from a bit of a different perspective, you just mentioned sort of not.
This is probably as good as you've seen since sort of the tail end of 2018, I guess that was really kind of what I was interested if maybe you could put into perspective, what we're seeing now from a pricing opportunity.
Maybe what we saw in 2018 or maybe going back to 2014, when we had these sort of big uplift and the pricing dynamic, particularly coming off the back of a very strong truckload market. So do you think that what we're seeing now is sort of commensurate to what we saw back in those other periods could this potentially be a little bit better just given what we're seeing from a supply chain perspective any perspective.
Ron on that relative to history, it might be really helpful for us.
Yeah, you know totally different reasons, I mean 2018 was.
Pi change challenges walnuts holds up as they are today there are so many things that are.
That come into play when you look at what's on the water what's at the Port.
Street, well in some of the chassis turn.
This this is a little bit different in terms of the pricing opportunity I say Ah, it's still there I still again, a pretty strong about the opportunities that we have we get to test the waters here like I mentioned.
Fourth.
We've got some large pieces of business that are coming on.
We'll see how it plays out, but we're pretty optimistic about what's in front of us.
Okay. That's helpful. Appreciate the time guys. Thank you.
Yeah. Thank you Chris.
The next question is from the line of Jason Seidl with Cowen. Please.
You see with your question.
Thank you operator, and good morning, everyone I wanted to focus a little bit more on the supply chain disruptions as you seem to be one of the main carriers impacted given your exposure to L. A long beach could you tell us I guess, what do you think are the most recent planned by the administration to sort of get through this backlog and I think.
Only $22 billion worth of freight sitting off the shores.
And then also you know once we do get through that do you think there could be a lull afraid for a short period of time. Thank you.
Yeah, those are great questions, Jason so the.
When you think about recovery of current supply chain from my perspective.
It really fundamentally boils down to putting people in jobs in order to increase the capacity for handling throughput.
And that's that's both dray drivers, whether you're in the L a basin or or out in the destination markets and in certainly in warehousing.
<unk> distribution center labor.
There might be an opportunity with port labor are in terms of being able to maximize throughput through the port and I know, they're talking about that.
And so I believe the bite administration has identified basically increasing the throughput capability and the capacity capability.
City and understands the need to to help put labor that's available into those jobs and make more labor available for the jobs.
Now in terms of once the current supply chain is fixed you know there's some really good looking markers that tell us the economies in a pretty strong place and maybe it will stay.
And while there's a lot of cash on deposit accounts that people are sitting.
And that is that is dry powder yet to be deployed in spending.
As long as consumers continue to spend on things that's really good for the goods economy, which of course is the part of the economy that we participate.
They're afraid it.
And there's also generally you know consumers are generally optimistic that they're fragile because of the the impacts that are there.
The Covid pandemic have had on all of us, but they're generally pretty optimistic and and we just need to see.
I think the Covid pandemic get under control and get continued signs of normalcy and I think consumers will spend that money and the low inventory to sales ratio is going to drive a need for continued stocking so I feel pretty good about it certainly as we head into 2022 it looks.
Like it's wrong environment, well Lance I appreciate the color and the believing and my kids are trying to support the economy, the best they can and spending money.
Keep it up.
I wanted to I wanted to just follow up you talked about sort of labor shortages between dray warehouses importance I mean, if you had to rank them what order would you put them in terms of wells.
What's the biggest problem.
Yeah, Jason by far if I could if we could snap our fingers on the backend, we would love to see more dray and.
And our warehouse distribution capacity, that's the first thing that we would love to see I think that would fundamentally change.
Street time for.
But sees and boxes.
Fantastic I appreciate the time as always.
<unk>.
Our next question is from the line of Cherilyn Radbourne with TD Securities. Please proceed with your question.
Yeah.
Thanks, very much and good morning, Ken.
Kenny I think this is for you.
Chad.
At the beginning you mentioned moving customers to index based contract and I was just hoping you could elaborate a little bit more on how that creates a win win for union Pacific and customers.
Yeah, It really just keep them in the market it keeps them competitive.
Especially when you have natural gas prices as high as they are I put them in the money and we have a really strong service product to support it.
We feel good about where that is in the fourth quarter, probably feel good about where it is in the first quarter and we need to reassess it on a quarterly basis.
Okay.
Maybe just as a quick follow up does that imply that revenue per unit will follow like global benchmark prices in some way is that how we should think about it.
I think that's a safe bet to think that way.
To a degree right. Thank you.
Sure, we lend to a degree right because.
Only a portion of the book of business, that's priced that way, but that portion is definitely going to follow them.
Fair enough. Thank you.
Thank you.
Our next question comes from the line of Brandon <unk> with Barclays. Please proceed with your question.
Hey, good morning, everyone and thank you for taking my question.
There are so many you spoke about some business development efforts in your prepared remarks, I think you know on the AG side industrial maybe even Mexico energy can you speak more to that.
I mean, I know you have a pandemic comp this year, but as you look into 2022 and beyond.
Are these the types of things that are giving you confidence in that three plus percent volume outlook long term.
Yeah, absolutely I mean, we.
We teed up at our Investor day, how we thought about the biofuel market one of the things that.
Proud of that ball team for it that they develop that market. I mean, you look at them. They are worth and somebody central state, we've got a unique opportunity where we originate that business.
And then we have another unique opportunity in some cases, where we might be able to move some of that product to the end markets that work going out from a business development standpoint, and just developing that business.
As you look at our industrial side same thing to look at Mexico Energy Reform team has just done a fabulous job.
Just walking down that portfolio.
Growing our business, we have clear line of sight to the players that can get in the market and we're helping them grow on the premium side Wow. We've got we've got nice lift coming in January 1st.
We're fired up about it there are some other areas.
Areas again that we have just gone out and created the market.
And so we're excited about it we do feel I'm bullish we feel very strong going into next year, Brandon I want to brag on on not just Kenny and the commercial team, but the cooperation between Kenny and the operating team and all the other.
Internal support mechanisms that make that business development efforts happen you know either they're going after business in so many different ways, whether its campaigns to fill out shorter trains on the network or to attack a particular marketplace that looks like it's growing.
And we want to be a bigger part of it or.
Or where there's customers that have a real problem with their cost structure, and we know, bringing some of that business onto the rail.
Will enhance their ability to compete in their marketplace. All of the above is generating a business development is happening mostly in singles and doubles.
But I'll take lots of singles and doubles in it.
Team that's.
That's oriented towards making that happen.
Well I mean, you saw that show up in the industrial space This quarter I'm talking about.
Being able to really capitalize and jump in where we saw some some hot markets came the team did it and then Erik and team moved it yep.
Fair enough guys. Thank.
Thank you.
Our next question is from the line of Brian <unk> with Jpmorgan. Please proceed with your question.
Hey, good morning, Thanks for taking the question.
Just wanted to ask Eric about the operation side, and maybe about steps getting productivity and service consistency back on track and what still it sounds.
It's going to be a pretty vault volatile volume.
Potentially operating environment so.
Train lengths were down for the first time that we can really find on record, but they were improving in September. So maybe you can touch on that in terms of how you can maintain that momentum even if volumes are flat and then just if you can also touch on what else is in your control.
The sea Ray on the fuels that obviously moving in the right direction I was there anything else specifically on the initiative side Youre looking at on labor as well. Thank you.
Sure. That's a great question, Brian So let's start at the beginning there so to your point.
Coming out of the recovery the actual event that started the recovery yep.
The service performance, our velocity and then looking at them now strong moves in the right direction. As you properly said, we're not to where we need to be as I look at that over the fourth quarter.
Opportunities are down on our southern and specifically the South East region of our system.
Teams absolutely focused on ensuring.
We can continue to get those terminals are operating at a historical dwell level or better and that's the focus right now as we increase velocity you see a direct correlation to our improvement in service and I expect that out of the team now.
Now as far as the broader productivity I mean, you hit on the fuel efficiency and I really want to take a minute to really recognize.
The team on that and stress that because you know our third quarter best ever record and a 1% improvement against a quarter that was dramatically challenging in a lot of different ways, specifically and how many trains we had to reroute that's a massive accomplishment, but as you look at fuel efficiency much like the rest of our pipeline they're strong initiatives.
Lives in each one of those so I think about we still have the opportunity to modernize another hundred locomotives next year as part of our plan. That's on top of the 100, we're modernizing this year and those Modernizations will get locomotives that can be operating is D. P. U D. P. You units, which provide a fuel conservation as we can run more of those.
As we think about EMS I told you earlier in the year were going to install 800 units. We're installing 800 units. This year, we'll continue with that investment next year. So I can continue to go on and on the point is the pipelines are full it has been a challenging quarter. There's nothing that stands in front of us to get back on track in Q4, well, Brian didn't ask it specifically.
Likely but.
<unk> got a path towards 10000 foot average train length.
With our September performance of 9500, we are absolutely on that pad and with the construction of our societies that I mentioned, you know nine being already completed 26 in the pipeline.
Absolutely have that path.
That's impacted by the intermodal.
Apply chain issue for.
For sure.
Without great Great just to follow up real quick I was going to ask on that if the train length impact in the quarter.
He was from the bridge or would you see more volatility on that if the animal supply chain doesn't recover as expected or at least stabilize here.
Yeah, So let's start with the bridge. So if you think about when the bridge went out.
Really did was it suffered an artery, where we were able to run trains longer than 8300 feet.
When we had to reroute the trains from northern California over to Salt Lake and backup to Portland, where restricted to that 8300.
<unk> hundred feet for a number of different reasons. So the the falloff in train length. Prior to September was absolutely related to the bridge outage now to your point as well.
We see intermodal volumes grow that's always a huge lever for us to grow train length, especially across our sunset corridor up.
Thiago.
Yeah.
Alright, great. Thank you for all the color I appreciate it.
Next question is from the line of Jon Chapell with Evercore ISI. Please proceed with your question.
Thank you good morning.
Eric sticking with you maybe a bit of a quantitative follow up to the last question and answer.
$150 million and reduced productivity expectations for this year is completely understandable given everything you've just laid out whether it's macro or the or the bridge and the wildfires is that lost productivity, though from the network as you think about a multi year plan or can you make that up at some point next year incrementally to what you were already budgeting for 'twenty.
There's the productivity gains.
Yes, John that's an exceptionally good question and I want to be very clear that is not lost and it is expected that we make that up in next year.
Okay, great and it can be within the six month period or is it kind of spread.
Over the course here now we're getting into those are any questions again.
John.
Rest assured the entire team understands we got to get that back as you would imagine as we think through the 2022 and what is going to present those plans are still under works, but its all with an eye towards capturing back that $150 million okay great.
Sorry.
22, Thank you John.
Our next question is from the line of Tom one of its with UBS. Please proceed with your question.
Hi, Good morning, I know you've had quite a few questions on capacity, but I guess I wanted to kind of.
To get your thoughts on 2022.
Our.
Capacity and volume, how we might think of that I think there's.
Positive thesis out there on rails that says.
We've seen temporary weakness in volume, but you look to 2022 and Theres a pretty good chance volume improves.
And I think that is probably linked to capacity coming online.
Lance.
And I think that's a reasonable view to have that U N P volume growth can accelerate nicely in 2022 and do you think you have good visibility to that capacity supporting that growth.
Yeah, Tom Thanks for the question so absolutely it's a reasonable.
<unk> do you thesis to say, we're going to grow in 2022.
Our commitment that we made at the Investor day is over the three year period, we're going to grow better than industrial production and we believe that we're going to be able to do that.
There's a couple of things that I'll point to.
We've got.
Knight Swift coming on board that'll be a growth engine.
We've got the the headwinds in the automotive industry and the overall supply chain, mostly impacting our the intermodal business.
My viewpoint, it's very unlikely that carries all the way through next year that there.
Usable capacity coming on for semiconductor manufacturing the supply chain is going to have enough capacity to handle the throughput necessary in and so I think those get remedied and that's a growth engine and then kenny's team as we just outlined in bulk.
Industrial and.
They're redeeming them side on business development keep adding opportunity into the bucket. So it's absolutely a decent thesis to say, we're growing and we're growing better than industrial production next year.
The other side of that is capacity.
We've got plenty of capacity or are fixed capacity a railroad can definitely.
<unk> handle the growth.
As we go into next year, and we're poised to add the fungible resources that the employees necessary.
To handle it not on a one for one basis, because we are generating productivity, but I see no issue with the thesis you just laid out.
And the premium can you talk a little bit about the specific resources, you're adding are you, adding more and more people at the intermodal terminals are you, adding more chassis are you are.
Are there areas you need to add more cars to support that in 'twenty two.
You know there are always rifle shots from a capital spending perspective, Tom that we have to take.
Error identified some in terms of siding extensions, we've got some capacity spending that's going on in our new intermodal ramps, whether it's the inland Empire up in the twin cities.
But I consider those rifle shot. So those are those are very specific little pieces of the network that that will.
We'll have.
Care of very positive generating ROI to them in terms of manpower resources employees, we've got needs here and there and again those tend to be pockets.
And they're driven by growth or they're driven by normal attrition.
And we're right now in the process.
So of hiring in a few areas around the network. We've got a training pipeline. That's both a representative of people, we've hired and people we've called back from furlough, but I don't consider those numbers.
Anything kind of worth commenting other than normal course of business.
Okay, great. Thank you for the time.
Thanks, Tom.
Our next question's from the line of David Vernon with Bernstein. Please proceed with your question.
Thanks, operator, and good morning, guys. So lance you're getting out we kind of want to present, the barricades and some of the arguments you're putting out there right I mean, we're in the.
Truck market, we've been in in sort of ever right. This is a nonpartisan game for Alabama as opposed to a college football playoff game. If you will now and we're still seeing intermodal volume down 6%.
So when when I get asked that question like how would you respond to the fact that that that in this really super tight market.
Tightest separate or most of the Apple charts, you're not growing so what's gonna change between now and the next few years that will help you grow.
Oh, absolutely David you just outlined the connection.
Our volume in intermodal is down because of tight dray market, we don't have enough dray capacity.
We're going to support the overall supply chain on the intermodal product.
That is going to be remedied right, it's supply and demand in our market economy gets remedied truck driver wages are going up dray wages are going up it's all looking good so I feel very good about.
Overcoming the bare case that you just outlined because they're intimately connected.
You know first of all on the Georgia fan.
Alabama.
Right I felt that she likes our shot I took a shot.
So I have to say Hey, first of all Yeah, you know we've got a investment.
Here, that's coming on in the first half of the year of chassis.
We feel good about that we've got ample container.
Work on our improve our competitiveness here in the first half of the year. We've got G. P. S that we're investing there you know I can't I can't say enough about how.
But capacity opportunities are there in the inland Empire and we're working very closely with Eric came on that and we still have room to grow in the twin cities. So yeah.
Yeah, there are some macroeconomic and supply chain challenges out there, but what you're hearing me say and what Youre hearing Atlanta boy or a team where we are.
Went after it and B M Barry.
Deliberate and specific about how to grow the business.
Okay, and then just as a quick follow up is it right to think that the onboarding of that night business will be easier because it's coming with the drayage in the chassis and the stuff that Mike is going to bring along with it.
We don't.
The only issue is bringing on that business yeah.
We are we are committed we are well planned there's a detailed executing plan already in place and we're really looking forward to having him on as a partner there they're running an outstanding business there'll be a great partner to have.
Alright, Thanks, a lot for the time guys.
And the next question is from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Alright, Thanks, Miami, one if I can just kind of continue on the same theme Kenny you highlighted in your prepared remarks, some of the challenges forecasting the automotive business in the last few months.
The risk of asking you to judge somebody else's.
This crystal ball.
We have heard from some of the industry.
Data providers that their outlook for auto production recovery through 'twenty 'twenty. Two is really slow. So is there a risk that a auto production I mean, it's definitely going to ramp next year, but.
The ramp is not nearly as much as people think and b. When the production does ramp is there a risk that are some of the finished products get put on truck to try and expedite their parts to dealers or are you confident about maintaining share in the auto space.
Yeah, that's a interesting question.
You know it really depends on what you believe in what you've heard us say it that way.
Believe you know that.
Run rates will continue until the fourth quarter, and then it'll be a slow gradual ramp up.
The first half.
By late spring summer.
If we can get.
With a forecast as far as that'd be an excellent position for it.
We expect to.
Really have a strong product that is competitive with trucks. So we don't see where we would lose.
Losing any of that business.
And we also would anticipate that some of the auto parts business.
Where it will show up a little bit before the finished vehicles product.
Got it that's helpful. Thank you.
Thank you Ravi.
Our next question is from the line of Jeff Kauffman with vertical research. Please proceed with your question.
You very much and congratulations in a tough quarter.
Kenny I'm going to stick with the football analogies here.
[laughter].
When I go out and I talk to shippers. They all tell me, we'd love to use a lot more intermodal then we're able to right now in fact, if we had our druthers, we'd put another five or 6% of our spend in intermodal how many points or we'll leave it on the board due to these turnovers.
So to speak from the environment and if you were able to get that grade capacity and run the network the way you'd like to what do you think intermodal would look like now.
Yeah.
Also an interesting question what I'll tell you what we're doing is going out and <unk> and 13th.
<unk> solutions, where we can so.
Eric and his team has done a really good job of keeping in contact with the terminals from a technology side, we've inserted API that support.
From a investment perspective, we're going out and really owning our own destiny in terms of expansion.
We're creating.
For our customers clearly Eric talked about what we've done it.
Our G. Three facility. We also opened up temporarily another facility down in the Houston area.
Or loop subsidiary areas going out and working with the field.
Excellent I enjoy it.
We're doing everything we can in our control Tonight, just accept what the supply chain challenges out there we're trying to own it.
And so.
And you've heard about the investments that we're making on the chatting and N G. P S side, though.
What you're hearing from me is we're doing everything we can to control our destiny two.
So lou maximize what partner Skinny and another way to answer Jeffs question, Jeff If you recall when we came into the year.
<unk> guidance that said, 4% to 6% growth.
And coming out of the second quarter, the lay of the land look pretty strong and we upped that to 7%.
And.
Now because in part of the intermodal supply chain disruption along with the continued issues on semiconductors for automotive.
We've dropped that back to 5% so right there you see two percentage points.
Growth on the whole business.
That that is connected to some.
Today's been screwed up.
So could I go a little further out on that though I guess, what I'm, what I'm, reaching for it here is I understand the current environment.
But but youre doing about.
Let's call it four and a half million dollars in intermodal revenue.
If.
Supply chain, we got a truck industry, that's capacity constrained, we got prices going through the roof.
We got a lot of people that want to use intermodal, but just can't right now are for a variety of reasons or not as much as they want to right now.
These factors were to mitigate over the next two to three years.
What do you think that intermodal business could look like I mean, do your customers say geez, we'd love to give you another 5% of our our transportation budget on intermodal.
The network can handle it I mean, what kind of conversations you're having with folks kind of beyond the short term fix.
Hey, Jeff This is Lance you your thesis.
You're spot on our customers tell us that they'd love to use more intermodal product.
And that's a great place to be we were not going to try to guess exactly what that looks like we will build next year's budgets they've got a long range plan, we will continue to tweak and build on that.
Your thesis is spot on.
This has tons of opportunity out there.
Okay. Thank you very much and congratulations.
Yep. Thank you.
Yeah.
Our final question is from the line of Jordan Alger with Goldman Sachs. Please proceed with your question.
Yeah, Hi, just a quick question on coal.
No the domestic opportunity.
There should be good for you P with gas prices, but I think Kenny you mentioned export to I didn't think that was as big or important part of your franchise. So I'm just sort of curious how much of an opportunity export can be thanks.
Yeah every carlo matter and we've been able to grow our export business.
Now to your point, it's a smaller part of our overall.
Portfolio.
But there is opportunity set there.
In this environment.
Absolutely we've seen a handful of wins that we're really excited about.
Yeah.
Putting a little bit on.
That Jordan.
No the eastern railroads and their export business is substantial and big and.
And our export business doesn't really look anything like that.
Got it thank you.
Okay. Thank you.
Thank you there are no further questions at this time I would like to turn the floor back over to Mr. Lance.
Fritz for closing comments.
Well, thank you Rob and thank you all for being engaged with US. This morning, and your questions. We really appreciate getting into those discussions we look forward to talking with you again in January when we discuss our fourth quarter and full year results and until then I wish you all very good health, Thank you and take care.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.