Q4 2021 Norfolk Southern Corp Earnings Call

January 26, 2022

Greetings and welcome to the Norfolk Southern Corporation fourth quarter 2021 earnings call.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.

As a reminder, this conference is being recorded.

It's now my pleasure to introduce making Akamatsu senior director of Investor Relations. Thank you Ms. Nakamachi you may begin.

Thank you operator, and good morning, everyone. Please note that during today's call. We will make certain forward looking statements, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties, we view as most import.

Yeah.

Presentation slides are available at an S Corp Dot com in the investors section along with a reconciliation of non-GAAP measures used today to the comparable GAAP measures.

Along those lines recalled two adjustments during 2020, including a noncash charge in the first quarter of 2020 related to the sale of 703 locomotives for $385 million and a $99 million impairment charge in the third quarter of 2020 related to an equity method investment we will speak to full year comp.

Parison, excluding those charges from 2028.

A full transcript and downloads will be posted after the call. It is now my pleasure to introduce Norfolk, Southern's, Chairman and CEO Jim Squires.

Good morning, everyone and welcome to Norfolk, Southern's fourth quarter 2021 earnings call.

I am pleased to be joined by Alan Shaw, President Cindy Sanborn, Chief Operating Officer, Ed Elkins, Chief Marketing Officer, and Mark George Chief Financial Officer.

Let me start by acknowledging and thanking the entire <unk> team for the tremendous effort that's gone into the fulfillment of our financial targets established at our three year strategic plan.

2021 serves as the pinnacle of the plan and is marked by the achievement of our 60% full year operating ratio and record productivity levels across our operation.

Through a multi year effort, we delivered on our commitments overcoming significant headwinds associated with first a freight recession and then a global pandemic over the course of our plan.

In the past three years, we've produced industry, leading total shareholder return.

We've grown EPS by 27% reduced our operating ratio by 530 basis points and returned nearly $10 billion back to our shareholders in the form of share repurchases and dividends.

We met and exceeded our goals, albeit with a very different formula than originally anticipated given the volume headwinds demonstrating our ability to adapt and innovate and our dedication to deliver upon our commitments.

I'm, so proud to be a part of this team and humbled to serve as its leader.

We're poised to build upon our momentum and write a new record book.

The company has been rock solid position and we have the right team to guide our next chapter of success.

With that I welcome Ed to his new role as Chief marketing Officer, and congratulate Alan on his appointment as president.

It's my pleasure now to turn the discussion over to Alan for a detailed look at the fourth quarter and full year results Alan.

Thank you Jim as Jim noted 2021 represents the culmination of our multiyear plan and I am pleased to share with you. The progress we made in the fourth quarter.

As you see from our results on slide five.

Revenue growth of 11% outpaced our expense increase of 8%.

Producing an 18% improvement in earnings per share and a fourth quarter record operating ratio of 64% for.

For the full year revenues improved 14%.

Which more than offset the 6% increase in operating expenses.

We delivered the hallmark, 60% operating ratio for the full year, an improvement of 430 basis points over the adjusted full year 2020 results and.

And our sixth consecutive year of improvement.

We are excited to share more details of our results.

You'll hear from both Cindy and add about were to iterate on the next phase of our thorough bright operating plan.

That will serve as the framework for our continued progress on service productivity and growth.

I'll first turn to Cindy for a review of our operations.

Andy.

Thank you Alan and good morning.

During the fourth quarter headwinds from the tight labor market created acute operational challenges across several parts of our network, while working to overcome the workforce planning hurdles. We remain focused on leveraging productivity initiatives to move freight for our customers. These efforts did bear fruit, but our service quality was significantly below.

Where we needed it to be.

I am going to discuss with you today the strategic approach we are taking to change this.

Turning to slide seven pronounced changes in business mix, where evidenced by the unit volume declined 4%, while GTS were up 1% productivity.

Gains were key to handling volumes in the quarter as the transportation workforce contracted by 8%.

The reduction in crew starts a 4% growth in train weight of 10% and growth in train length of 8% were critical elements of this productivity formula as well.

Though our active locomotive count increased by 5% as the network slowed we kept focus on efficiently deploying those locomotives on the larger trains, which helped drive the 3% improvement in fuel efficiency.

As I mentioned, a few moments ago, you can see the degradation of network fluidity on slide eight.

We regained a modest amount of ground over the holidays and as we're entering the first quarter. Our improvements have been sporadic as COVID-19 related absences have more than doubled from where they were in December .

Let me be clear our top priority is to drive the service improvements our customers expect and need and we will get there.

We are working very hard to leverage an increased hiring pipeline as well as productivity initiatives to drive our performance.

Next I'll provide more details on the hiring process on slide nine.

We have made significant progress in ramping up resources to improve the pace of hiring while pursuing productivity.

And as shown on the slide we are pulling five key levers to do so including number one incorporating additional recruiting and training resources to increase hiring employees from across the company have volunteered to provide support in our principal training facility and it's all hands on deck.

Number two streamlining.

Streamlining the hiring and Onboarding process, we've trimmed weeks from their process of first identifying a candidate to have them on board.

Three increasing trainee pay and offering incentives such as signing retention and referral bonuses for lengthening in combining trains we've made solid progress in this regard.

And finally, five we are using a variety of techniques to optimize our existing crews, including realigning crew districts and making crew grip crew basis more fungible.

Our people are getting creative in rising to the challenge and resource additions are bearing fruit as we've on boarded over three times more conductor trainees in January than any month in 2021.

These trainees will promote throughout the second quarter, which is when we expect to start improving train and engine service staffing levels.

We do expect to see some relief in critical crew basis. During Q1 as trainees that started in 2021 became promoted though we are still experiencing high levels of attrition in those same areas.

On average we expect the number of certified train and engine employees in 2022 to approximate that of 2021 and are expecting <unk> per employee to increase.

So when looking at the year as a whole our plan is to leverage productivity gains to absorb volume growth, while getting the workforce rebalanced to drive improvements in service quality.

Let's unpack the productivity discussion a little more on slide 10.

We've improved average train weight and length of 21% and 20% respectively. Since mid 2019, when top 21 was launched.

This has been a key to our success and will continue to be so going forward.

Larger trains reduce labor intensity improve locomotive productivity improved fuel efficiency and provide our customers with a platform for growth.

We have efforts in the pipeline to continue this trend.

First on the infrastructure front in 2021, we launched work on nine siding extensions, one of which was quickly completed and in service by the fourth quarter.

Most of the others will be completed throughout 2022.

Second our very capital efficient and high performing DC to AC locomotive modernization program is ongoing.

As a reminder, this is a dual purpose program to rebuild engines at the end of their life, while converting them to the latest and greatest technology.

In 2021, we improved our fleet composition to nearly 60% AC power and 65% of our road fleet is capable of distributed power both of these aid with running larger trains.

Lastly, our operating plan and growth initiatives must be well aligned to add capacity to existing trains, which brings me to slide 11.

In 2022, we have already kicked off the next generation of our <unk> based operating plan, which we are calling top SPG well.

While you may be familiar with NSS legacy of Thoroughbred operating plans or top the next generation SPG represents a new era of service productivity and growth three equally important facets of our new operating plan.

We are embarking on this next era, because we have significant improvements that need to be made in each of these areas service productivity and growth to reach our full potential.

We're taking a ground up approach to the development of the plan in order to explore what is possible when we remove historical constraints and take a fresh look at our business.

We are leveraging lessons learned from the first three years of <unk> operations under top 21, and using a rich data set to execute in a customer centric collaborative process.

We look forward to keeping you updated as this initiative unfolds throughout the year.

You and I will now turn it over to Ed.

Thank you Cindy and good morning, everyone.

Now beginning on slide 13, I will highlight our results for the fourth quarter.

Total revenue improved 11% year over year to $2 9 billion.

As strong demand and favorable price conditions more than offset the 4% volume decline in the fourth quarter.

Volume was impacted by the continuation of the extraordinary global supply chain disruptions and slower network velocity.

Pricing and strength across all markets contributed to the 15% increase in revenue per unit and we reached record revenue per unit less fuel across all of our markets.

This demonstrates our ongoing commitment to execute our yield up strategy and drive value for both our customers and our shareholders.

Within merchandise volume growth in the fourth quarter was led by our chemicals franchise as rising economic activity drove demand for chemical products, particularly for crude oil and natural gas liquids.

Gains in our metals business also contributed to growth with volume in these markets up 6% year over year on a sustained high demand from the strengthening manufacturing sector.

Partially offsetting merchandise growth was a decline in automotive shipments, which were down 9% year over year due to slower velocity, coupled with strong comps in the fourth quarter of 2020, when the industry was boosted by pent up demand.

Merchandise revenue per unit increased 6% year over year, driving total revenue growth of 8% to $1 7 billion for the quarter.

Revenue per unit less fuel for this market reached a record level in the fourth quarter.

We have demonstrated year over year growth in this metric for 26 of the last 27 quarters, which further demonstrates our ability to drive sustainable revenue growth.

Our intermodal franchise continued to face pressure from supply chain volatility.

Resulting in a volume decline of 7% year over year.

Strong consumer demand and elevated imports stress the supply chains and exceeded drayage capacity and equipment availability.

This negatively affected both our domestic and our international markets.

But despite these headwinds we achieved record intermodal revenue in the quarter up 14% year over year and that was driven by increased fuel revenue storage revenue and price gains.

Revenue per unit less fuel grew for the 20th consecutive quarter.

Now turning to coal revenue increased 21% year over year in the fourth quarter, which was driven by price gains and higher demand in a tightly supplied market.

Coal revenue per unit reached near record levels and increased 16% year over year.

Our export markets continue to benefit from high seaborne coal prices, which increased the competitiveness of U S holes in the global market.

Shipments of domestic met and Coke were particularly strong this quarter on higher demand to support steel production.

Okay.

If youll turn to slide 14.

Full year 2021 revenue grew 14% to $11 1 billion.

On 5% volume growth.

All of our markets posted gains, reflecting strong demand for our product coming out of the pandemic tempered by supply chain pressures experienced throughout the year.

Revenue growth was strongest in our merchandise franchise, where all lines of business, but particularly metals and construction.

Fitted from higher demand and favorable price conditions associated with the economic recovery.

Intermodal growth was driven by elevated consumer activity and tight truck capacity.

Coal revenue increased on higher seaborne coal prices and growth in steel production activity.

We reached record levels of both revenue per unit and revenue per unit less fuel.

Both metrics were up year over year due to price gains storage charges and higher fuel revenue in the case of total revenue per unit.

And as markets have evolved we've leveraged favorable conditions to drive improvement where our bottom line.

Now, let's look ahead to our outlook for 2022 on slide 15, we are optimistic that our business will continue to grow despite the ongoing uncertainty in the economy.

We're increasingly confident that.

That supply chain conditions, including rail network velocity will improve as the year progresses.

Overall, the demand environment for our services is strong we're committed to working with our customers and channel partners to develop sustainable solutions to maximize our opportunities ahead.

We remain focused on our ability to deliver value for our customers.

And leverage market conditions throughout 2022.

As Cindy explained both our hiring plan and the development and implementation of top SPG will deliver increased fluidity efficiency and network capacity as the year progresses, and our volume pattern will follow that same sequential improvement trend.

This will allow our customers.

And additional value to their customers or their product and build a strong platform for future growth.

Market conditions for our merchandise franchise are expected to be favorable with several customers announcing an expansion in the new year that will create opportunities in.

In addition, industrial production is projected to grow 4% in 2022, which will drive demand for most of our markets, particularly for our steel markets.

Residential construction spending is forecasted to grow more than 6%. This year. Following the sharp increase in 2021 supporting continued gains in several of our industrial markets U S. Light vehicle production is expected to reach 10 3 million units this year, which is approaching <unk>.

Endemic levels of.

2019.

This recovery, we will have a positive impact on both our automotive and our metals volumes in 2022.

Demand for our intermodal markets is expected to remain favorable despite continued headwinds associated with supply chain congestion impacting our ability to capture new opportunities. These headwinds are expected to ease in the second half of the year.

And a more favorable environment for growth.

Furthermore, our robust consumer economy.

Long dated inventory replenishment cycles, and a tight truck market support our growth plan.

Durable goods consumption is expected to improve 3%.

And thats on top of the near record 19% growth in 2021.

This also bodes well for our intermodal franchise.

Our outlook for coal is more guarded.

Some of the drivers of 2021 growth shows signs of easing in 2022, despite some potential opportunities in the near term.

Corn prices remain high however, they have begun to decline.

Leaving subdued optimism going into the new year.

Expected increases in global production will likely contribute to downward pressure on these seaborne coal prices and lowered the demand for export coal.

And the utility markets, while theres been strength associated with higher natural gas prices that upside will be determined by coal supply as production levels remained high.

No.

Before I turn it over to Mark I would like to highlight our new insights portal on slide 16.

The pandemic has pushed manufacturers to redesign their supply chain in favor of certainty of supply and locating inventory closer to customers or.

Our best in class Industrial development team is at the forefront of these efforts and they launched an innovative solution to drive value for our customers and support development in the communities that we serve.

Insight is a comprehensive search tool for rail served industrial sites and trans load facilities on our network.

It allows users to create customized search parameters.

Quickly identify industrial sites that meet their unique needs and.

And more importantly, this portal makes it easier to do business with NFS and helps our customers make informed long term investment decisions that will promote economic activity and create jobs. We're excited to provide this product to our customers and help them expand their business on Norfolk Southern.

Overall, we are grateful for our strong customer partnerships and we look forward to growing our business in 2022 with a continued emphasis on improving our service and driving value for our customers and for our shareholders.

Now I'll turn it over to Mark for an update on our financial results.

Yes.

Thank you starting with slide 18.

As noted revenue was up 11%, despite a 4% volume decline.

This more than offset an 8% increase in operating expense, which led to 140 basis points of operating ratio improvement to a fourth quarter record of 64%.

The improvements in <unk>, coupled with strong productivity led to a record Q4 operating income with growth of 15% or $145 million.

And we set another record for free cash flow up 30% or $642 million for the full year.

Moving to a drill down of operating expenses on slide 19.

While operating expense grew $134 million or 8% it is up less than 3% of $44 million of apart from fuel cost increases the.

The $90 million headwind from fuel is driven almost entirely by price.

You'll see purchase services and rents of $46 million with the majority of the year over year increase driven by the same drivers we've talked about on the Q3 call.

Higher expenses associated with Conrail.

Technology spend associated with our technology strategy.

Higher drayage expense associated with more hourly drivers used to alleviate terminal congestion primarily in Chicago.

And we continue to see inflationary pressure on Lyft expenses going forward as it relates to contractor labor availability.

Moving on the compensation of benefits it is up 2%, but youll note the $33 million in savings from 6% lower head count.

That's more than offset increases in pay rates and overtime.

Meanwhile, incentive compensation comparisons in the quarter or a headwind of $24 million.

Materials claims and other expenses were all down year over year.

Turning now to slide 20.

Taking a look at the rest of the P&L below op income Youll see that other income of $21 million.

Is unfavorable year over year by $22 million.

Due in part to lower net returns from company owned life insurance.

But also fewer gains on the dispositions of non operating properties.

Our effective tax rate in the quarter within our expected range of 23% and similar to last year.

Net income increased 13% while earnings per share grew by 18% supported by $3 3 million shares we repurchased in the quarter.

Turning to full year highlights on slide 21.

As a reminder, these highlights are compared to adjusted results for 2020, which excludes both the noncash charge for locomotive rationalization and <unk>.

And the impairment charge in <unk>.

Increased demand across all markets and strong results through yield up resulted in a 14% year over year revenue improvement.

Expenses increased less than half that rate up 6% compared to 2020, as we continued our operational transformation, while responding to market changes.

We produced record operating income of over $4 4 billion up 28% or $961 million versus the adjusted 2020 results.

And as Jim noted in his opening remarks, we brought our operating ratio down to 61%.

Horton milestone for our company.

That is 430 basis points of year over year improvement in line with the guidance we provided.

Rounding out the results net income increased 27%, while diluted EPS increased 31% augmented by our strong share repurchase program enabled by record free cash flow that we will wrap on slide 22.

Free cash flow is at a record $2 8 billion for 2021.

Up 30% year over year.

And we've reported a strong 93% free cash flow conversion for the year.

Property additions were about $100 million lower than our $1 6 billion guidance due to timing issues related to the continued supply chain disruption.

This shortfall in 2021 will carryover into 2022.

The sharply higher profitability of the company in 'twenty, one allowed for an over $2 billion increase in shareholder distributions for the year.

Had two dividend increases in 2021 and more than doubled our share repurchase plan.

And I'll point out we just increased our dividend again by 15 or 14% to August 2022.

And with that I'll turn it back over to Alan.

Thank you Mark.

Turning to slide 24, I'll wrap up with our 2022 expectations.

As you heard from Ed based on our assessment of economic indicators, we expect markets related to manufacturing and consumer activity to drive growth.

We expect total revenue to deliver upper single digit growth.

With merchandise and intermodal, both increasing solidly and KOL resuming its long term secular decline.

We will develop and leverage our new top SPG operating plan to.

To accelerate our service recovery and drive additional efficiency into the organization in support of Norfolk, Southern's and our customers' growth.

You'll hear a lot more about top SPG and our upcoming second quarter Investor day.

From an operating ratio perspective, we expect the first half of this year to look similar to the back half of 2021 with.

With robust demand and service improvement driving stronger performance in the second half of this year.

With this positive momentum in revenue productivity and efficiency and based on our current expense projections.

We expect to achieve greater than 50 basis points of or improvement in 2022.

And we won't stop there.

In addition, we expect a dividend payout ratio range of 35% to 40% and capital expenditures in the range of one eight to $1 9 billion.

We anticipate using the remaining cash flow and financial leverage to repurchase shares.

As you heard from Sandy and in March we are optimistic about service productivity and growth in the year ahead and.

And well advanced productivity initiatives to attract business to Norfolk Southern.

Our profitably than ever.

We are committed to further efficiency improvements to create long term sustained value for our customers and shareholders.

Thank you for your attention.

We will now open the line for Q&A.

Operator.

Thank you.

We will now be conducting a question and answer session.

If you'd like to ask a question today. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to move your question from the queue.

Once using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Due to the number of analysts joining us on the call today, we will be limiting everyone to one question to accommodate as many as possible.

Thank you and our first question today comes from the line of Brandon <unk> with Barclays. Please proceed with your question.

Hey, good morning, everyone and congrats Jim on quite a career.

Ellen.

Congrats as well moving up here I guess.

Coming out with this SPG approach and I guess I heard there was going to be an analyst meeting, but how can you tell us how does this differ from the <unk> journey that you guys have taken the last few years.

Is this a V.

Few that balances growth and cost efficiency and price.

Good morning, Brandon.

As a as a continuation of our <unk> journey.

The.

Next generation of it now we implemented top 21.

Really largely focused on our merchandise network. This is going to be focused on all of our service product. So it's a comprehensive plan.

We are really expecting and challenging ourselves and demanding of ourselves to have to have an output that delivers longer trains a balanced network that's going to promote <unk>.

Better resource efficiency, which is going to give us the room to grow and it's going to deliver an operating plan that our field can execute on a daily basis, it's going to improve our service product as well.

Thank you.

Our next question comes from the line of Jordan <unk> with Goldman Sachs. Please proceed with your question.

Yes, hi, good morning, just sort of curious as you sort of think about.

Yields revenue per carload as we look forward.

Coming year, and taking into account price and mix and everything else.

Hey, how do you see the opportunity around price, particularly with the Titans continuing and then how do you think about overall yields.

We move throughout the year. Thank you.

Hey, Thanks for the question.

It's an inflationary environment out there in the U S. There is a lot of demand the U S consumer wants to grow and we intend on delivering value to our customers. So we expect the year progresses, we're going to see a balance of volume and price.

That will accelerate as the year moves on.

Thanks.

Our next question is from the line of Chris Wetherbee with Citigroup. Please proceed with your question.

Great Hey, Thanks, good morning, and congrats guys.

I guess I wanted to maybe dig into that volume and service relationship a little bit deeper so it sounded like the first half of the year, both service and volume will be a little bit muted, but do you expect to see improvements as it goes forward can you give us a sense of maybe where youre going to see some of those opportunities or are some of the improvements in the service side hit first and what that means or unlock.

In terms of opportunity on the volume side, just wanted to get a little bit of a better sense of how much volume is sort of included in that upper single digit.

Revenue growth target for the year.

So do you why don't you take the efficiency piece of that and talk about what what you view as the trajectory for operations and service improvements throughout the year and then Ed maybe you can you can tackle the revenue implications.

Okay, Chris So from a service standpoint, we are really focused on improving our availability of resources to help us with service.

We had some accelerated attrition and several core locations of our network that we had to really increase the pipeline for those locations and that's largely in place in fact of the conductor trainees, we have out right now whether in classroom or in the end.

The field, 50% are aimed at those core locations. So as they onboard into the Q2 and the rest of the hiring plan that we have.

As well I think we will start to see our service measures improve in the back half kind of accelerate I would also add that.

Top SPG as a.

Accelerant as well as we take a look at our service product and take a look at our.

Service plan as Alan noted, we will also be helpful. As we think through train length balance for our crews and how we operate the railroad and improve Executability, which which is also a catalyst.

And when we look out in 2022, what we see is really with the.

<unk> of coal very healthy commodity markets Theres, a lot of demand out there right now and as we are able to deliver more payload capacity to our customers, they're going to move it.

And I've already said that we have a strong U S. Consumer we have a record low inventory sales ratios. We believe that there's going to be continued demand, particularly for durable goods. They will bode well for us and for our customers as we are able to deliver more and more value to them as the year progresses.

Okay. Thank you appreciate it.

Our next question is from the line of Jon Chapell with Evercore ISI. Please proceed with your question.

Thank you and sticking with you and kind of tie some of these things together first of all the high single digit just a clarification from the high single digit revenue should be think kind of mid single digit.

<unk> and mid single digit volume and secondly to play into that again, alright capacity is at a premium here youre clearly ramping up the training it sounds like that the second quarter or maybe youre not right sized from an employment standpoint for a few more months are you being more selective in the car you are willing to move right now an attempt to maximize mixed margin.

<unk> maintained or improved fluidity with a hope that there is more of an inflection in the second half of the year volumes.

We stay very close to our markets and to our customers in those markets and I think we have a pretty good handle on where the demand is pretty strong demand really from every market that we serve currently and what we intend to do is as the year progresses again, we're going to be able to deliver more and more value to those markets and to those customers.

Whether it's on the bulk side, where we have strong demand or on the consumer product side, which includes both portions of our industrial products business and of course, our intermodal and automotive franchise.

But are you maybe not taking on as much.

Freight as the demand dictates just in order to get that service to where it needs to be in the network right size from a labor standpoint.

Well I think Alan said and Cindy we're going to get our network running the way we needed to run with SPG, that's going to be able to offer us the opportunity to deliver more value.

<unk> customers through service that they need the productivity that everyone expects.

And frankly, a long term platform for growth across all the markets we serve.

Okay I appreciate it thanks Ed.

Our next question is from the line of Ravi Shankar with Morgan Stanley . Please proceed with your question.

Thanks can you hear us.

Unpacked, the that the pricing environment, a little bit more kind of what do you expect in terms of core price relative basis fine for 'twenty, two and kind of how do we think about kind of asked this already else kind of impacting the trajectory of <unk>, especially in the back half of 'twenty two.

Yes.

When you look at the you look at the indices out there there's clearly a lot of inflation in the U S and global economy. There is a lot of demand.

And currently we are servicing our customers and we're going to continue to deliver value to them in the long term.

Price is a sub.

<unk> portion of our plan. It is it is.

The intense focus of us going forward as we're able to deliver value to our customers.

We want to be able to deliver value for our company and our shareholders and that's that's the combination and the recipe that we're focused on.

Okay.

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 maybe for you. Indeed, we've seen a couple of <unk>.

Facilities have engaged shut down.

We're trying to hire a lot more on labor just as everybody else across the industry is there any equipment.

Shortage issue or maybe a volume balanced that youre also trying to work through and can that be and all that would be solved by by labor what else has to go right to get things kind of back on balance and then maybe a quick follow up for Ed I hear you on the secular decline for coal in 'twenty, two probably a good place to start expectations, but given the coal inventory levels.

And the utility side are pretty low could we see some potential restocking this year or maybe just not going to count on that thank you.

Yes, I think your first question was on intermodal and I'll start there.

We are part of a network that spans not only the United States, but also the global economy.

And.

We are working really hard to make ourselves more efficient on the intermodal side that includes of course, everything we've done to deliver value to our customers by Reconfiguring some of our terminals, adding chassis and working very very closely with our customers.

Warehouses are able to develop more throughput and more productivity on their side. It will help us not only absorb the volume that wants to move that way, but also help us deliver additional value.

<unk> improves the velocity of our own network same is true on the other end on the port side as imports are able to become more fluid.

We're able to deliver more value in conjunction with them.

I think your second question was on on coal would you mind repeating that part.

Oh sure just given where utility stockpiles are.

Right now obviously a lot depends on how much demand there will be but could there be a scenario where you see some of it.

Restocking here on the utility side in the U S throughout the rest of the year.

Utility stockpiles are low and it's really going to be a combination of the expectation for weather and demand and frankly, the utilities appetite for inventory replenishment, that's going to dictate where that goes.

We are I.

I would characterize our position on coal pretty simply as we're trying to be very realistic but also opportunistic.

When it arises.

Alright, Thank you Ed.

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

Hey, Thanks, good morning, guys.

Any thoughts on just some of the extreme volume weakness to start the year and when it gets better and then Mark maybe just some thoughts on some of the individual cost.

Items for 2022, the outlook I think you've got some tough comps on gains on sales maybe just some color on what youre, assuming there and then lastly anything in terms of first half versus second half.

Margin expectations would be helpful. Thank you.

I'll start and talk about volumes start off the year.

I think every U S Railroad was was slow out of the blocks so to speak.

Intermodal was particularly I think that was really a combination of some weather there around the holidays.

Today that fell on a weekend and probably some COVID-19 impact either upstream or downstream.

Warehouses et cetera, and truckers, but we've seen that we've seen that demand ramp.

Our ramp up since a slow start on the commodity side of the business on the bulk side, there's a lot of demand out there and we're working hard to put every.

Every available resource against it.

Yes, Scott just to get to some of the cost items.

Typically you would ask about say comp and Ben.

On a per employee basis.

I think I guided this past year to 33.

In the area to expect in that back half.

It ended up being.

Coming out for 2021, and I would say, it's probably going to be in the same vicinity here in 2022 is we're going to have.

A little bit of inflation in wages, but that will be.

Largely offset by a tailwind from from lower lower incentive comp assumption. So that's probably the best way to think about the comp and Ben line.

<unk> services had ramped.

Throughout the year as we told you we started late in 2021, there with things being pushed out.

Some of the dynamics that were going on so I would look at the kind of back half of 2021 is a good run rate to assume for 2022 there.

Similarly, I would say, where we ended up on.

Materials.

Hi.

We could if we could avoid growth off of that 2021 base that would be great. But you have to expect theres inflation that we're fighting there so.

I would expect a little bit of creep, there and similarly with rents.

<unk>.

You kind of ramp towards the back half of the year now and I think the current the current levels here, we're looking at rents with.

With nowhere velocity down it puts pressure on our rents as a velocity starts to increase.

We will be taking on more volume, which we will replace that so I think Joe pretty.

Pretty pretty flat rents here.

From Q4 levels. So hopefully that helps and I think from a margin perspective is as Alan said, we're probably going to be sideways here to start the year and we're going to see some sequential improvement from there.

As volume as volume starts to come on board the network more volume I should say.

Just when you say sideways Amit can you just clarify maybe I missed it.

No.

Sideways from the Q4 levels here.

Or we've got Ah 64, or are we posted we added something similar there in Q3, I think we're going to go a little bit sideways from those levels until we start taking on more volume and that's when we'll see that improvement.

In the operating ratio.

Okay helpful. Thank you guys.

Thank you.

Our next question comes from Ken <unk> with Bank of America.

Hey, Greg Good morning, Tim Congrats on the next phase always enjoyed the trips and congrats Allen and Ed as well.

Alan or Ed just to clarify on those numbers on the volume side. There if volumes are down 14% can you parse that by the crew shortage whether COVID-19 .

Should we still expect to see negative.

First quarter volumes, and then kind of ramping up I just want understand your kind of cadence as you look at those volumes just conflicting with kind of the strong demand comments.

And then Cindy you mentioned that the locomotives in storage or pulled out of storage.

What did you still have left is that part of the Capex plan or is there still plenty.

For those loans.

Sure I'll start with the volume comments.

We're watching the.

Volumes very closely and staying very close to our customers.

This month has evolved and as this quarter continues.

I think we're going to continue to see the.

The relative acceleration of strength that we've seen so far on the intermodal side continue.

And we're putting resources against demand on the bulk side and that's that's really where we expect to see top SPG help us deliver additional value.

And Ken I'll.

On the locomotive question the engines that we pulled out we're really kind of what we would call kind of a dynamic storage environment, where we would have them as protect units in case, we had some sort of line outage that would prevent a terminal from operating on time with its outbound trains because the inbound trains were impacted from coming in and so we activate units and then as the Bakken.

<unk> came in at the terminal we would then lay down different units. So it was fairly dynamic.

It's a good process for us to have to help us deal with the variability on the network that we have from time to time.

So essentially we activated all of those units and there are still units in storage.

We would need to do a bit more work on to activate them, but we have not done so.

Okay.

Next question comes from the line of Walter <unk> with RBC capital markets. Please proceed with your question.

Yeah, Thanks, very much operator, good morning, everyone. So on the.

On the operating ratio improvement of 50 to 100 basis points.

Generally thats something that given the pricing that you're achieving and some block and tackling that you do through the year that that's a more kind of normalized annual level that we would expect to see of a railroad curious if that's your view on it.

Or are you in the steady state now level of operating ratio with any major major improvements.

Closing the gap.

Done.

And really just kind of on that standard level or do you see upside to that 50 to 100 basis points.

If some of your initiatives.

Okay.

Take hold here in 2022, and it allowed achieved something better than that.

Yeah.

Walter.

The operating ratio guidance for this year is reflective of what what mark talked about in term.

Just the.

The trajectory of or particularly in the first half of the year, we're going to fix our service product.

And we're going to get resources in place and we're going to implement top SPG, which is going to make us less resource intensive it's going to allow us to grow.

And provide value to the market and it's going to allow us to provide a very efficient product.

What that does is that gives you a kind of a sideways or in the first half of the year and then some pretty.

Pretty meaningful change in improvement in the second half of the year.

Okay I appreciate the time.

Next question is from the line of Allison <unk> with Wells Fargo. Please proceed with your question Hi.

Good morning, just wanted to ask about technology I guess.

How impactful is it to support your STB SPG initiatives going forward and I guess, along with that can we assume technology investments starts to accelerate here.

If that's the case or does it just got pivoted to different initiatives under that under that operational plan any color there.

We've got a fairly robust operations planning model that we will utilize.

With top SPG, and frankly tough Spg's has claimed slate.

Now, we're going to we're going to put everything out on the table.

We're going to redesign our network based on what's best for Norfolk Southern.

And the outcomes of that are going to be a balance between service productivity and growth.

We've.

Jim Jim started us on our digital transformation and you've heard us talk about technology improvements in customer facing technology technology improvements at our.

Efforts to improve our efficiency on line of road and then.

And our intermodal terminals and that's we're going to continue that because we fully believe that that is going to help us better utilize our resources and make us more consistent more reliable going forward.

Understood Great. Great example, is the one that Ed highlighted within our sites.

Does that mean that some of those productivity is important there, but does it some of those more customer facing technology investments do they start to take more precedence here or is it still very well balanced under all of that.

That continues to be a balance.

We got we will continue to recognize that our relationships with our customers are shifting from b to b to B to C.

<unk>.

Cindy has has really helped us focus our technology on operations and productivity improvements as well.

And Allison I would put the operating side or the operating improvements into three big buckets that would be mobility automation and predictive analytics and we've got a robust set of initiatives in each of those areas.

And we've talked about them in prior earnings calls so that as that is a big part of our productivity opportunity.

Great. Thank you.

Our next question comes from the line of Tom <unk> with UBS. Please proceed with your question.

Yes. Good morning, So I guess I'll give you got kind of two broader thanks.

<unk>.

SPG.

I'm wondering.

We think about <unk>, having <unk>.

<unk> schedule focus running longer trains.

I know there are a lot of different pieces to it and we have certain metrics that we'll watch to see how youre doing.

Should we be considering different metrics for the output of SPG train length velocity dwell time or this is going to be the kind of the right metrics or are there different things that we would look at for kind of outputs of SPG and then I guess the other topic would just be on labor do you.

Thank you are at steady state on labor or when you talk about elevated attrition is there.

No. It's still risk that you you don't make the progress because youre kind of.

Fighting against that attrition and that remains a.

Challenge. Thank you.

Tom I'll start first with respect to the metrics.

For top SPG and what we'll be looking for is what we outlined improved service improved productivity and a platform for growth and then I'll, let Cindy talk about the specifics of that.

Yes, Tom from an SPG perspective, we think it's a very <unk> based on its and its at its core its three main things thats driving train length.

<unk> balance and it's driving execute ability, which then provides service. So as you put those together with SPG, meaning service productivity and growth both of the all three of those initiatives drive growth in the future as well as service and the present, so we're real excited about it.

We had a top 21 in 2019, a lot has changed since 2019 and so.

It's really good timing for us to take on this initiative as well.

Let me go to the labor side I think we are an attractive company to work for and we are able to attract people to work for us.

And I think as I've described our hiring plan.

<unk> is very robust as we as we head into the first quarter, but a lot of that work has been done in 2021 in fact six straight months of increased.

Conductor trainees.

And 10 out of the last 12 months, we had an increase and conductor trainees. So we're going to continue working towards getting onboarding folks that want to be here. We have folks that do come are excited about working for us as a company are benefits that we provide and.

I enjoy working on the railroad. So we're going to we'll find those folks and bring them on board. It is a challenging environment.

But but we feel like we'll be able to get the people that we need and from a measurement perspective.

When we look at dwell dwell and train velocity.

These really are the key ingredients to seeing how we're performing we have a lot of internal measures, both customer facing and network performance and specific customer measure so.

I don't know the SPG changes the measurement outlook I think what you will see is as it.

As an improved service product and you will see that in the measures that we that we that you can see publicly now.

Has the attrition stabilized can you give a quick comment on that that seems like kind of a key variable.

It's about the same.

I think it.

It's very hard to predict.

Looking at the <unk>.

<unk> of last year and did a lot of introspect and about what we could have figured out what could we have done differently.

Now we have about list right at a 100 hiring locations and saw some outpaced our.

Unusual attrition at 12 of those hiring locations and those are still challenging locations too.

Nutrition standpoint, but I think we've got our hiring plans aimed to manage through that the best we can we've got we've got some that we're really seeing an improvement in our pipeline. Some are staying about the same but we've got a great HR team working on sourcing folks even in a challenging environment because again, we have a very very compelling.

<unk>.

We are a compelling company to work for.

Great. Thank you.

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

Thanks, Jim Allen and add congrats on all the transitions.

Two part question.

First for Sandy just curious when you think service can get back to pre pandemic levels. When you put all the pieces together and then for Mark when you look at the implied incremental margins.

Excluding the big gain on sale from last year of $55 million. It seems it seems to imply incrementals in the mid fifties.

I know the network challenges are weighing on that number but any thoughts on where incremental margins could normalize once we get through some of these network challenges in the second half of this year and into 2023.

Justin I'll start with service levels, I think will be challenging at first quarter. I think we will start to see some improvement in the second and.

Our employee as our new employees come onboard and then I think we'll we'll be back to planned levels of what our philosophy, we have in our plan and while we have in our plan and that should look.

Close to what you describe as pre pre pandemic levels.

That's what we're aiming for and I think top SPG helps us with that as well.

Yes, Justin I would say.

The incremental margin question.

Your math is right. That's the way you calculate and look we have a little bit less tailwind than we did last year.

You'd think about Incrementals.

Little bit on the coal side coal pricing in coal volumes will be as robust.

We've got that property gain compare that also impacts the year over year look at the Incrementals.

And as volumes increase some of the <unk> come down and that is also.

An impact as well.

And.

Look the inflationary environment is certainly stronger than it was last year, although we're hoping that incremental pricing will help mitigate that.

So that's those are really the drivers here a while youll see the step down in Incrementals from say last year full year to this year, although it.

Incrementals in the fourth quarter is kind of consistent with what you've seen what youre seeing in the guidance for next year.

Okay. Thank you.

Welcome.

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

Hey, Thanks, a lot hi, everyone.

Mark I just wanted to follow up on that question, maybe ask it a little bit of a different way because I know, there's a lot of focus on operating ratio on incremental margins, which is perfectly valid.

But the industry and I think you guys are also kind of moving to more of a investment for growth phase and so I'm just trying to think about maybe the right way to think about.

Perspective performance is really about earnings growth potential and total earnings growth potential as opposed to just exclusively on operating ratio expansion and I'm wondering to get your thoughts on that and it looks like kind of low double digit earnings growth is what you guys are pointing to for this year and if you think that type of level or trajectory.

He is kind of sustainable over the course of many years.

Yes, Amit.

The bottom line growth is obviously a function of margin expansion and the topline growth.

So as the runway for margin expansion lessons, you're going to have to rely more on top line growth and Thats why.

There is a G in the SPG, we're looking to grow this business.

Not waiting until we get to margins at the right level to do that so the incrementals. This year for example that we're guiding to.

If we can outperform on the topline and even get more revenue and more volume onto this railroad that should really healthy incremental equation. So every extra point of revenue growth you get I do believe you'll have stronger incrementals. So.

Certainly as we look.

Out from 2022, and when we're back to where we want to be from a service level perspective provided the external environment is supportive from an economic growth perspective, we would hope to be able to outperform on the topline and have that would be a primary catalyst for that bottom line growth in conjunction with continued improvement on.

Or because you are going to have accretive Incrementals is just I think your incrementals will be larger.

Larger topline growth as well.

So if I understand what youre, saying.

The optics around the muted incrementals this year the answer to your previous question is really reflective of first half but the.

The operating leverage in the business in terms of 60% to 70% Incrementals, that's still the right way to think about perspective incrementals.

Growth year environment is that correct, yes, I mean, I'm not going to range bound it for the future, but yes I.

I do believe Incrementals should be better when we don't have some of the headwinds that we're dealing with this year.

Yeah. Okay. Thank you very much I appreciate it.

Okay.

Our next question comes from the line of Ben Nolan with Stifel. Please proceed with your question.

Yes. Thanks.

I was a little curious on the coal side.

Certainly from what we've heard from some of your competitors, there's a lot more optimism for this year.

With respect to exports and just coal volumes in general.

Is this something that you are hearing from your clients or just macro view and maybe just the differentiated opinion.

I'm wondering if you could put a little color on that.

Sure.

Thank you for the question.

If you look at the futures. They are they are all pointing in a downward direction for 'twenty two as it progresses and into 'twenty three.

The indices are already down a little bit from where they were in the Q4 mix is going to play a part of course and.

On the seaborne side in particular for export I think there is 20 million tonnes of new capacity, that's coming online globally.

And while demand right now I think is being held up by.

Some supply issues will it keep up with that additional.

Production is coming online.

We're we're very guarded on that.

Okay, Alright, so just macro then.

I appreciate it thanks.

Thank you. Our next question is from the line of basketball majors with Susquehanna. Please proceed with your question.

Yes, thanks for taking my questions.

Alan you've been at the railroad for 27 years.

<unk> been in the marketing officer seat for seven there's probably not a big customer you hadn't met with multiple times, but so I know, you're probably not going to have the traditional kind of a 100 days to start the CEO role and a couple of months here in May when you take over but can you give us a little view on really what your near term objectives are and what.

Constituencies, you want to engage with when you do eventually take the rates.

Yes in the near term objectives are.

Proving service continue on the phenomenal momentum that we've had with our efficiency.

And when you provide a safe and efficient and reliable service product you can grow and we've got this fantastic franchise that faces the fastest growing segments of the U S economy, we're positioned really well over the long term.

The folks that I have been spending the most time with right now have been our ops team and the ops leadership and our craft employees out in the field and really engaging in conversations with them Im listening and getting their feedback on how we continue to focus on efficiency improvements and.

And restoring our service levels to where we all want it because thats going to be a big boost to our efficiency and our margins as well as Mark noted.

Thank you.

Thank you. Our next question is from the line of Jeff Kauffman with vertical research. Please proceed with your question.

Thank you for taking my question and congratulations Jim and congratulations Alan.

Well in the executive changes.

Just two quick modeling questions I'll cram it on the same one.

So did I understand you right and that share repurchases going forward are more of a function of leftover cash flow after dividends and free cash and that youre not really looking to lever up to repurchase shares and then the second part of that just.

Any guidance on tax rate for 2022.

Yes, Jeff.

That's exactly right if the share repurchases a function of leftover cash so as earnings grow.

We're also growing our capex, but whatever money is leftover.

Being committed to our.

Two our credit rating.

Whatever money is left over we distribute to shareholders in the form of dividends, which we've increased and share repurchase so thats.

That's that and then with regard to the tax rate, we typically guide to 23% to 24%.

We're not we're not anticipating any change to the corporate tax rate in 2022.

So thats that maintains that guidance is.

Is maintained.

That's my one and a half thank you.

Okay.

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

Hey, Good morning, guys, Jim I'd Love to get your perspective on a couple of regulatory issues.

Obviously, there is more discussions around.

Access debate and open access hearings coming up in the.

In the next couple of quarters here.

How worried should investors be about this issue can you help kind of frame kind of your perspective on.

On what the proposed changes could mean from.

From a business impact standpoint for Norfolk, Southern and then if you could also kind of comment a little bit around.

Kind of what the objectives are around the responsive application filed in CPE Casey asked like what is the size of the opportunity that youre seeing there from from from looking for more access over the meridian and potentially more of the case, yes.

To tell you what David let me take the first part of that regarding the STB proceedings and slight and then I'll ask Alan to address the CPE Casey Matt.

Matter.

With respect to the STB proceedings.

We've made known to the STB that we oppose 711 and forced forced access I personally was in front of the Ven sitting commissioners late last year and made the case with our team.

Based on the potential for operational disruption supply change in flocks.

The outdated nature of the evidence in the record.

Have it years old and we think scale.

And so we made our case and we will continue to do so as these proceedings unfold.

Alan talk a little bit about CP Casey.

The FCB provides us a forum to protect our customers and our shareholders interest we've had a very constructive dialogue.

And for US is really centered around the Meridian Speedway, which is part of the fastest route between the southeast and the southwest which are the two fastest growing regions in the country.

We're convinced that that is only going to continue to grow and we're going to make sure that we protect our shareholders and our customers interest there the big part of our plans moving forward.

Thank you.

At this time. This concludes the question and answer session and I will now turn the call back over to Mr. Jim Squires for closing comments.

Thank you everyone. We look forward to talking with you again next quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines and have a wonderful day.

[music].

Greetings and welcome to the Norfolk Southern Corporation fourth quarter 2021 earnings call at.

At this time all participants are in a listen only mode a.

A brief question answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce making Akamatsu senior director of Investor Relations. Thank you Ms. Nakamachi you may begin.

Our presentation slides are available at an S Corp Dot com in the investors section along with a reconciliation of non-GAAP measures used today to the comparable GAAP measures.

Along those lines recall two adjustments during 2020, including a noncash charge in the first quarter of 2020 related to the sale of 703 locomotives for $385 million and a $99 million impairment charge in the third quarter of 2020 related to an equity method investment.

We will speak to full year comparisons excluding those charges from 2020.

A full transcript and downloads will be posted after the call. It is now my pleasure to introduce Norfolk, Southern's, Chairman and CEO Jim Squires.

Good morning, everyone and welcome to Norfolk, Southern's fourth quarter 2021 earnings call.

I am pleased to be joined by Alan Shaw, President Cindy Sanborn, Chief Operating Officer, Ed Elkins, Chief Marketing Officer, and Mark George Chief Financial Officer.

Let me start by acknowledging and thanking the entire NSA team for the tremendous effort that's gone into the fulfillment of our financial targets established in our three year strategic plan.

2021 serves as the pinnacle of the plan and is marked by the achievement of our 60% full year operating ratio and record productivity levels across our operation.

Through a multi year effort, we delivered on our commitments overcoming significant headwinds associated with first a freight recession and then a global pandemic over the course of our plan.

In the past three years, we've produced industry, leading total shareholder return.

We've grown EPS by 27% reduced our operating ratio by 530 basis points and returned nearly $10 billion back to our shareholders in the form of share repurchases and dividends, we met and exceeded our goals, albeit with a very different formula than originally anticipated given the volume of <unk>.

Wins, demonstrating our ability to adapt and innovate and our dedication to deliver upon our commitments.

I'm, so proud to be a part of this team and humbled to serve as its leader.

We're poised to build upon our momentum and write a new record book.

The company has been rock solid position and we have the right team to guide our next chapter of success.

With that I welcome Ed to his new role as Chief marketing Officer, and congratulate Alan on his appointment as president.

It's my pleasure now to turn the discussion over to Alan for a detailed look at the fourth quarter and full year results Alan.

Thank you Jim as Jim noted 2021 represents the culmination of our multi year plan and I am pleased to share with you. The progress we made in the fourth quarter.

As you see from our results on slide five.

Revenue growth of 11% outpaced our expense increase of 8%.

Producing an 18% improvement in earnings per share and a fourth quarter record operating ratio of 64%.

For the full year revenues improved 14%, which more than offset the 6% increase in operating expenses.

We delivered the hallmark, 60% operating ratio for the full year, an improvement of 430 basis points over the adjusted full year 2020 results and our sixth consecutive year of improvement.

We are excited to share more details of our results.

And you'll hear from both Cindy and add about work to iterate on the next phase of our thorough bright operating plan.

That will serve as the framework for our continued progress on service productivity and growth.

I'll first turn to Cindy for a review of our operations.

Andy.

Thank you Alan and good morning.

During the fourth quarter headwinds from the tight labor market created acute operational challenges across several parts of our network.

While working to overcome the workforce planning hurdles, we remain focused on leveraging productivity initiatives to move freight for our customers. These efforts did bear fruit, but our service quality was significantly below where we needed it to be.

I am going to discuss with you today the strategic approach we are taking to change this.

Turning to slide seven pronounced changes in business mix were evidenced by their unit volume declined 4%, while GTS were up 1% productivity.

Gains were key to handling volumes in the quarter as the transportation workforce contracted by 8%.

The reduction in crew starts a 4% growth in train weight of 10% and growth in train length of 8% were critical elements of this productivity formula as well.

As I mentioned, a few moments ago, you can see the degradation of network fluidity on slide eight.

Let me be clear our top priority is to drive the service improvements our customers expect and need and we will get there.

We are working very hard to leverage an increased hiring pipeline as well as productivity initiatives to drive our performance.

Next I will provide more details on the hiring process on slide nine.

We have made significant progress in ramping up resources to improve the pace of hiring while pursuing productivity.

Number two <unk>.

Streamlining the hiring and Onboarding process, we've trimmed weeks from their process of first identifying a candidate to have them onboard.

Three increasing trainee pay and offering incentives such as signing retention and referral bonuses for lengthening in combining trains we've made solid progress in this regard.

And finally, five we are using a variety of techniques to optimize our existing crews, including realigning crew districts and making crude grip crew basis more fungible.

Our people are getting creative in rising to the challenge and resource additions are bearing fruit as we've on boarded over three times more conductor trainees in January than any month in 2021.

These trainees will promote throughout the second quarter, which is when we expect to start improving train and engine service staffing levels.

We do expect to see some relief in critical crew basis. During Q1 as trainees that started in 2021 became promoted though we are still experiencing high levels of attrition in those same areas.

On average we expect the number of certified train and engine employees in 2022 to approximate that of 2021 and are expecting <unk> per employee to increase.

So when looking at the year as a whole our plan is to leverage productivity gains to absorb volume growth, while getting the workforce rebalanced to drive improvements in service quality.

Let's unpack the productivity discussion a little more on slide 10.

We've improved average train weight and length of 21% and 20% respectively. Since mid 2019, when top 21 was launched there.

This has been a key to our success and will continue to be so going forward large.

Larger trains reduce labor intensity improve locomotive productivity improved fuel efficiency and provide our customers with a platform for growth.

We have efforts in the pipeline to continue this trend.

First on the infrastructure front in 2021, we launched work on nine siding extensions, one of which was quickly completed and in service by the fourth quarter.

Most of the others will be completed throughout 2022.

<unk> are very capital efficient and high performing DC to AC locomotive modernization program is ongoing.

As a reminder, this is a dual purpose program to rebuild engines at the end of their life, while converting them to the latest and greatest technology.

In 2021, we improved our fleet composition to nearly 60% AC power and 65% of our road fleet is capable of distributed power both of these gabe with running larger trains.

Lastly, our operating plan and growth initiatives must be well aligned to add capacity to existing trains, which brings me to slide 11.

In 2022, we have already kicked off the next generation of our <unk> based operating plan, which we are calling top SPG.

You may be familiar with NSS legacy of Thoroughbred operating plans or top the next generation SPG represents a new era of service productivity and growth.

Equally important facets of our new operating plan.

We are embarking on this next era, because we have significant improvements that need to be made in each of these areas service productivity and growth to reach our full potential we.

We're taking a ground up approach to the development of the plan in order to explore what is possible when we remove historical constraints and take a fresh look at our business.

We are leveraging lessons learned from the first three years of <unk> operations under top 21, and using a rich data set to execute in a customer centric collaborative process with.

We look forward to keeping you updated as this initiative unfolds throughout the year.

And I'll now turn it over to Ed.

Thank you Cindy and good morning, everyone.

Now beginning on slide 13.

Highlight our results for the fourth quarter.