Q4 2022 Norfolk Southern Corp Earnings Call
Greetings and welcome to the Norfolk Southern Corporation fourth quarter fiscal year 2022 earnings call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
It is now my pleasure to introduce Duke Nichols Senior director of Investor Relations. Thank you. Mr. Nicholls you may begin.
Thank you and good morning, everyone.
Please note that during today's call, we will make certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
These statements relate to future events or future performance of Norfolk, Southern 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 disclosure of those risks and uncertainties, we view as most important.
Our presentation slides are available at an S Corp Dot com in the investors' section along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures.
Turning to slide three it's now my pleasure to introduce Norfolk, Southern's, President and Chief Executive Officer, Alan Shaw.
Good morning, everyone welcome to Norfolk, Southern's fourth quarter 2022 earnings call.
Here with me today are Ed Elkins, our Chief marketing Officer, and Mark George Our Chief Financial Officer.
I'm also pleased to welcome Paul Duncan, who moved into the role of Chief operating Officer on January 1st.
At our Investor Day last month, we shared our strategy to create long term shareholder value through a balanced approach of reliable and resilient service continuous productivity improvement is smart and sustainable growth.
At the heart of that strategy as a service product that allows us to compete in that 860 billion dollar trucking logistics market.
It gives our customers the confidence to build Norfolk southern into their supply chain.
I was at the Midwest Association of rail shippers Winter meeting last week.
With customers about our new strategy.
And the reactions were extremely positive.
Now.
Our job is to prove it consistently with performance we made great strides to close the year and are encouraged by our progress.
We will continue to refine and evolve to provide a service product to market values.
Services at the best it's been in more than two years and customers are noticing.
Volumes in December were at 52 week highs outperforming.
Outperforming typical seasonality as Ed and Paul's teams worked collaboratively with our customers to attract business to Norfolk Southern.
Overcoming headwinds associated with a slower network in the first three quarters that constricted our capacity our team persevered adapted and achieved strong results in a challenging year.
For both the fourth quarter and full year 2022, we were able to achieve double digit growth in both revenue and EPS.
We established new records for full year revenue operating income and other metrics that the team will detail later this morning.
Also this quarter, we finalized national contracts with the unions, representing our craft colleagues.
These agreements recognize the hard work and dedication of our frontline railroads with historic wage increases and an unparalleled health and welfare benefits package.
With National bargaining now complete we started discussions at the local level to address important quality of life issues.
I would like to thank the entire Norfolk southern team for their accretable effort during the fourth quarter and throughout all of 2022.
I am proud of the improvement our team has delivered in the momentum we have created.
Our relentless focus on service continues in 2023.
You'll hear more from Paul momentarily about how our across the board improvement is now, allowing us to target specific opportunities for service and productivity enhancements.
We recognize that the macroeconomic environment in which we operate is uncertain and you'll hear more about the impact of that from Ed and Mark.
Longer term, we are building on the momentum we carry into 2023 and of course, we've chartered and our new strategy.
As you heard at our Investor Day, we believe Norfolk Southern is uniquely positioned to deliver long term shareholder value through top tier revenue and earnings growth industry competitive margins and balanced capital deployment.
We will get there by being a customer centric operations driven service organization and we look forward to sharing our progress with you.
Now I'll turn it over to Paul for more detail on the improved service, we're providing to our customers.
Paul.
Thank you Alan and good morning.
I'm excited to be leading the operating team as we implement the vision set forth this last quarter.
My focus since assuming the role of Chief operating officer has been in two areas.
Writing with marketing and our customers to convert improved service into increased volume on the network and.
And getting now to talk with our field leaders about our new strategy to be customer centric operations driven organization.
The team has tremendous pride in Norfolk, Southern and the feedback we are hearing is overwhelmingly positive.
When we talk about growth our people here stability and opportunity.
140 year, Norfolk Southern veteran in Birmingham told me last week. He has never been more optimistic about the direction and culture of the company.
I'll begin with a safety discussion on slide five.
Our injury frequency rate improved 22%.
Every conversation we will begin with safety in 2023 and beyond operating safely is the right thing for our employees customers shareholders and the communities that we serve.
This is an area, where we have made great strides, but even one serious incident is too many.
Thank you to those closest to the bell sign for the gains we achieved in safety in 2022 and for the efforts we will all make safely delivering in 2023.
Moving to slide six since we spoke last at our Investor Day. Our service is the best it has been in more than two years.
Our leadership the implementation of our simpler more executable operating plan top SPG and our continued resource ads have contributed to significant improvements in service for all of our customers.
For premium intermodal, we safely delivered a perfect peak season for our largest personal customer.
Domestic intermodal performance has improved average container transit times have been reduced by 12 hours between Chicago and the northeast our largest corridor with consistency also now meeting your expectations.
Merchandise performance is consistent and this is another segment, where our improved velocity is creating capacity.
Bulk trains are cycling at a historic best Transit turn times, maximizing our asset utilization across commodities.
You'll note that train speed has continued decline from our low point last year with terminal dwell also creating capacity for growth.
Our service product has turned the corner and we are focused on building further reliability and resiliency into our network that our customers expect moving forward.
Moving to a productivity update on slide seven we are committed to our balanced approach to service productivity and growth.
Let's start with locomotives, we have made solid progress on getting more productive use out of our fleet you can see that here in terms of increase in our locomotive miles per day.
At Investor Day, I referenced the flywheel effect of speeding up the network co produce.
This is the start of that flywheel, which produced a 6% improvement last quarter and has improved 12% so far in January .
Getting our locomotives moving more efficiently ensures we're creating capacity for growth.
Next we have grown our workforce and that has been a critical element to our service improvement, our GTS or flat versus last year, while our training pipeline has remained above steady state levels pressuring workforce productivity.
This is a good news story looking forward as we are building the capacity, we need to be reliable and resilient with a gains in service that we have made.
We will build upon this foundation to drive greater workforce productivity as we bring volume back onto the railroad.
Lastly, we have set yet another quarterly record for fuel efficiency, our increasing fluidity certainly has played a role alongside our portfolio of fuel efficiency initiatives, including our fleet Modernizations and idling compliance initiatives.
Improving productivity is key to our balanced plan and we're going to continue driving sustainable efficiency gains to provide value for our shareholders and our customers.
On slide eight I will recap the industry, leading progress that we have made on hiring in 2022 and talk about what we see ahead, we entered the year in the very early stages of primary the conductor trainee pipeline and ramped up in record time, which was no easy task given the tightness in the labor market.
We increased training wages drove efficiencies in our onboarding process Jumpstarted, a grassroots campaign, leveraging referral incentives or more.
These efforts have paid off with much of our network, reaching the minimum staffing levels determined by our data driven approach.
As we make progress we are deploying go teams more effectively and are executing their resiliency vision laid out in investor day, like cross qualifying crews and expanding training efforts.
Moving to slide nine I will cover a few items that we're working on as we enter the new year.
First let's talk about the culture of continuous improvement we are building.
We have greatly improved service and to bring our vision of long term service resilience to reality, we know we have to keep getting better. Let me provide a few examples with intermodal where you're using the initial rollout and learnings from our high frequency operating plan discussed at Investor day, along with our perfect peak season to improve capacity and really.
The ability across our intermodal franchise on.
On the merchandise side, we are applying continuous improvement principles identifying and implementing those next levers that will drive even greater resiliency and resource productivity to move cars faster and more consistently.
We are building tools as part of our digital transformation to provide more actionable and timely information to a more empowered workforce. These are just a few examples of how we are driving continuous improvement into our DNA.
Next we have slated or modernize another 115 locomotives this year converting them from DC to AC traction technology, and giving them a full rejuvenation. These.
These 115 rebuilds of reduced locomotive hauling capability equivalent to 150 D. C locomotives, providing additional capacity for growth with fewer assets.
Our DC to AC conversions will continue to provide even greater fuel efficiency and added pulling power to increase train productivity further.
Our DC to AC conversion strategy will provide further opportunities to grow train size and increased strained productivity, which we discussed at Investor day.
We have made marked progress on this long term initiative and just this month, we increased train size, 53% in one of our two highest volume export coal lanes, which will provide greater capacity and resiliency in our customer supply chain.
Next up let's talk about our capital investments are best in class engineering team safely delivered a productive year with more than 520 track miles of rail replaced the most N. S is done in three decades.
We installed 10% more ties in 2022 than in 2021 with the same level of production teams and our servicing teams worked 27% more track.
Then in 2021.
We are committed to safely building and maintaining a reliable and resilient infrastructure for our customers productively.
We're primed to execute on our capital plan in support of safety resiliency growth and productivity. This will include a longer citing between Cincinnati and Fort Wayne, which will incorporate additional resilience into our train network.
This is just one of the efforts we will highlight as the year progresses.
Lastly, we were intensely focused on converting the capacity gains that we have made with top SPG and our disciplined execution of the plan into additional volume moving over the railroad in 2023.
Our intermodal merchandise and bulk service are all now consistently performing at high levels of service across our network.
I will now hand, it to Ed to expand on the market outlook and talk about how we can put this capacity to work. Thank you.
Thank you Paul it's great to have you with us and good morning to everyone.
Let's review our results for the fourth quarter, starting on slide 11.
Overall revenue grew 13% year over year to $3 $2 billion with higher revenue from fuel surcharge and price improvements more than offsetting a 1% decline in volume.
The pricing environment remains strong and we capitalized by delivering our 24th consecutive quarter of year over year RP, you less fuel growth in intermodal and our 30th out of 31 quarters and merchandise.
Speaking of merchandize.
Volumes recovered to prior year levels as service improved in the fourth quarter enhancing our ability to drive value for our customers our largest gains were in the sand and proppant market to support the recent surge in demand for natural gas production.
Followed by corn and soybeans also driven by exceptionally high demand.
We saw declines in our steel and automotive markets, where equipment availability was particularly challenged.
As Paul highlighted earlier, we're making meaningful progress on improving car velocity and our merchandize fleets and we started to see the result of that increased velocity toward the end of the quarter.
Merchandise revenue increased 12% year over year to $1 $9 billion in revenue per unit, excluding fuel reached a record level from price gains and positive mix.
Shifting to intermodal.
Revenue improved 10% year over year as higher revenue from fuel surcharge and price gains more than offset.
<unk>, 4% decline in volume.
The volume decline was concentrated within our domestic lines of business were headwinds from a loosening truck market and higher inventories heading into the holiday season negatively impacted demand.
Conversely, our international why the business grew in the fourth quarter.
Our international intermodal volume rose, 5% year over year as several of our customers shifted back to inland point intermodal services amid lower ocean rates, an easing in supply chain congestion.
Total intermodal revenue per unit and revenue per unit, excluding fuel were up year over year on higher fuel revenue and price gains.
If we turn to coal our results for the quarter reflect both our success in capturing upside revenue potential from the market dynamics as well as our ability to create capacity for growth through improved service.
Coal revenue for the quarter increased 28% driven by price gains volume growth higher revenue from fuel surcharge and liquidated damages from prior volume shortfalls.
Both revenue per unit and revenue per unit, excluding fuel reached record levels, reflecting the value of our market based pricing approach in these volatile energy markets.
We were able to leverage increased equipment availability from improved cycle times to capture more utility coal business.
Which led to a 9% volume gain and utility coal in the fourth quarter.
Our export coal markets also grew due to higher demand driven by geopolitical conflict.
Overall coal volumes increased 8% in the quarter and this volume growth was partially offset by year over year declines in coke shipments, resulting from facility closures.
Let's move to slide 12 for the full year of 2022.
Total revenue for the year reached $12 7 billion, a 14% increase from 2021 driven by higher revenue from fuel surcharge and price gains partially offset by volume declines we.
We delivered record level total revenue and revenue less fuel revenue per unit and revenue per unit, excluding fuel despite a 3% decline in total volume.
Volume headwinds were strongest in our intermodal franchise, where a weakening truck market and supply chain congestion led to declines in annual volume we.
We saw growth in our coal business is a strong export market and a strong global market for energy increased volumes on for coal on N S.
Our performance as the year progressed into 2022 provides evidence that our recovering service product is providing momentum to the commercial side of our business. We're working together internally to enhance our offerings in the marketplace and to ensure that we are delivering the value our customers need to be successful.
Lastly, if you'll join me on slide 13, our outlook for 2023 is cautiously optimistic amid uncertainty in the macroeconomic environment and some signals of a slowdown in activity.
Our improving service levels will drive opportunities for modal conversion from truck and increase our capacity to address unmet demand at the same time.
Economic conditions could be a headwind to volume at least in the near term, while lower fuel prices and accessorial revenues will temper our revenue per unit.
Within merchandise, we anticipate that macroeconomic conditions will pressure a variety of the markets that we participate in.
We're mindful of recent weakness in industrial production, particularly with respect to manufacturing and that drives many of our markets current forecasts for manufacturing in the U S shows contraction in 2023 as businesses rightsize inventories to demand.
Additionally, the weak housing market will be a headwind to many of our industrial businesses and we expect this weakness to persist in 2023 as the housing market adjusts to higher interest rates.
Volumes will also be supported by increased equipment availability and overall network fluidity.
Looking at intermodal volume growth will be dependent on the macroeconomic environment, although our improving service levels will create capacity for growth.
Total revenue will be pressured by lower fuel surcharges and reduced storage revenue as supply chains continue to normalize throughout the year.
Household balance sheets are supported by excess savings accumulated during the pandemic and credit remains available for many despite becoming more expensive.
And so long as the U S. Consumer remains resilient, we would expect supportive demand for intermodal.
Weakness in the truck market to start the year, along with housing will be a headwind, but we anticipate the truck market to rebalance supply and demand later this year.
Our international business will continue to benefit from lower ocean rates and improving supply chain fluidity at inland points, prompting a return of our customers to inland port intermodal.
Turning to coal the current outlook for the utility and export coal markets supports a flat to modest year over year volume improvement.
Overall utility demand is likely to remain flat our capacity to handle more of that demand will increase with efficiency and productivity improvements on our network.
For export Norfolk, Southern will benefit from additional coal supply coming online. Despite softening seaborne prices, we expect the global supply of met coal to continue to be restricted by geopolitical factors, which should support demand for U S. Sourced coal, we will experience tough coal pricing comps in the first half of the year.
<unk>, which will pressure export met our pews on a year over year basis.
Overall, we are energized by our recent momentum heading into 'twenty three and we are focused on leveraging that momentum to drive value for our customers and grow our business.
Uncertainty and downside risks are certainly still present, but we're going to continue to focus on the things that we can control to successfully execute our strategic plan and deliver results for our customers and for our shareholders and lastly, I'd like once again to recognize our customers for their partnership throughout 2022 and thank them for their.
We appreciate all of their support as we move forward in 2023 with sustained momentum toward delivering the service product that they need to succeed.
I will now I'll turn it over to Mark for an update on our financial results.
Thank you and good morning, everyone I'm on slide 15.
As you heard from Ed we had another quarter of strong revenue performance up 13%.
Operating expenses in the quarter were up 333 million or 19% year on year, driven primarily by elevated fuel prices and some significant adverse accrual adjustments that I will describe shortly which had an outsized impact on the operating ratio.
Operating income at 1.18 billion set a fourth quarter record.
EPS was $3.42 up double.
Digits year over year.
Moving to slide 16.
Lets reconcile the drivers of the changes in operating income operating ratio and earnings per share.
Talking specifically to operating income of 52 million dollar improvement.
Was aided by the first row in the bottom section a favorable wage accrual true up related to our commitment to getting retroactive wages distributed to our employees before the end of the year.
It was not only the right thing to do but the acceleration created the added benefit of.
Saving payroll taxes for employees as well as for the company.
That adjustment provided a $16 million of expense savings, which equates to 50 basis point tailwind to the or and a nickel boost to EPS.
But in the second row of the reconciliation at the bottom you will see that there was a $57 million expense headwind from numerous unexpected adverse items in the claims category.
I'll put in three buckets.
Accrual adjustments related to personal injury reserves based on actuarial studies.
Adjustments to environmental reserves based on activity.
And costs associated with derailments that occurred during the quarter.
Combined these adverse items versus a smaller positive adjustment glass Q4 results and $57 million of year over year headwind in the fourth quarter.
Which equates to 180 basis points or drag and 19 cents of EPS.
Absent those two reconciling items I just detailed core operating income growth was actually $93 million and that translates to EPS growth of 44.
The or contraction at 180 basis points reflects lower incrementals, driven by the net inflation impact as well as service related costs.
So let's drill into the operating expenses for the quarter now on slide 17.
Fuel was again, a primary expense driver this quarter up $141 million or 62% due.
Due to elevated fuel prices.
Materials and other was up $78 million, which included the $71 million increase in claims that was heavily impacted by the items. We just discussed.
Compensation and benefits were up 55 million or 9% driven by elevated wages from the new labor contracts.
As well as higher employment levels.
Purchased services were up $48 million or 10% in the quarter.
Driven primarily from continued inflationary pressures.
Costs related to our service environment as well as technology related costs as we progress our digital transformation.
Some of the inflation impacts or associated with intermodal operations that more than offset savings from lower intermodal volumes.
Depreciation was up 11 million year over year consistent with prior quarters, but let me point out that we are nearing completion of our periodic roadway depreciation study.
And the findings will result in a quarterly step up in our 2023 depreciation expense.
You can expect in 2023 that the quarterly year over year growth will be around double what you see here, meaning that the full year impact will be a step up in the $40 million to $50 million range.
Shifting to slide 18, let's look at our results below the line.
After spending much of the year as a net expense.
Other income flipped back to a more normal profile.
And amounted to $34 million, an increase of $13 million over last year.
Net income in the quarter was up $30 million or 4%.
E P S growth at.
At 10% exceeded the net income growth due to strong share repurchase activity.
Turning now to slide 19, and looking at the full year results.
E. P. S was $13.88 an increase of $1 77, or 15% relative to 2021, driven by record revenues of $12 7 billion, which was up 14% compared to 2021.
As you look at the full year, Opex and operating ratio headwinds versus prior year recall, the adverse impact of the wage settlement.
Moving to slide 'twenty property additions at 1.9 billion ended the year exactly as we had been guiding.
We had another strong year for shareholder distributions with over 4 billion returned again in 2022.
With over $12 6 million shares repurchased.
Dividend distributions were up 14% and you will have read about our board just approving a 9% or 11% increase to our quarterly dividend here in the first quarter.
All of this demonstrates our commitment to return capital to shareholders.
With that I'll now turn it back over to Alan.
Thanks Mark.
Let's turn to slide 21.
Our outlook for 2023 reflects the uncertainty of a challenging macro landscape in which the path of the demand environment and inflation are unclear.
At this time, we see full year revenue level with 2022 performance.
We expect to be able to absorb volume pressure with share recapture.
Thanks to our improving service product.
ARPA, you will be down to flat as we deal with pressure from softening coal pricing.
Lower fuel surcharge revenue and the eventual unwinding of accessorial revenues as supply chains unlock.
<unk> will benefit from another strong year in core pricing gains.
There are a lot of variables that are hard to predict in this uncertain environment.
But in a flat revenue environment, it will be difficult to grow operating income in 2023.
With the cost benefits from an improving service product.
More than neutralized by inflation as well as the <unk> headwinds I just described.
As you heard from Mark at Investor Day, we're expecting capex to be roughly $2 $1 billion for 2023.
This is consistent with and supportive of the balanced and disciplined spending plan that mark detailed in December .
Despite the uncertainty we enter 2023 with great confidence and momentum when.
When we look ahead, we see more than cyclical economic challenges in front of us.
We see long term macro trends that create opportunities for our franchise built for growth like Norfolk Southern.
We have the right strategy balancing service productivity and growth, we have a strong and still improving service product we.
We have the right team of talented dedicated railroads.
And we are just getting started.
We will now open the call to questions.
Operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Information tone will indicate your line is in the question can.
You May press star two if you'd like to remove your question from the queue.
Artist minutes, using speaker equipment, it 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 questions as possible.
Our first question comes from the line of Tom <unk> with UBS. Please proceed with your question.
Yeah, great. Thanks, good morning.
Wanted to see if you could offer some more I don't know some more detail. Some additional perspective on the yields the revenue per car in intermodal and also in coal I guess on intermodal I, you sound pretty constructive, but I'm just wondering if on domestic intermodal you see.
Some flow through of potentially lower market pricing into your what you get paid or whether you think.
Your contracts protect you on that and then I guess I would call just a little more detail on that kind of how we ought to model things given some of the puts and takes thank you.
Good morning, Tom I'm going to turn it over to Ed and let him address your questions on our yield and Rps.
Hey, good morning.
You listen to some of our customers on their earnings calls and you've heard their outlook.
No doubt the loose truck market right now.
Into any individual contracts.
We see some what I would call green shoots out there in terms of.
Bottoming, perhaps in the spot market.
It's reached what we think is the sustained bottom for the last few weeks. We've also seen a decrease in the total number of motor carriers that are licensed in the U S. We think that's a very positive development sustained for the last three months and export of used trucks is continuing to increase so.
As we go forward I think that we reached.
A point of stability in the markets going to rebalance.
We feel okay about RPE, you're going in and our opportunities for our view going into 'twenty three in the in the market space for us.
For truck on the coal side fourth quarter, we had a loopnet.
Damage claim, which which beefed.
Beefed up that our view in the fourth quarter looking forward as you can see the forward curve as well we knew we're going to have a tough comp and a tough row to hoe, particularly in the second quarter in terms of comparisons.
But theres still support out there for export met coal in the market and we're going to handle more utility coal than we did last year.
Okay can you ballpark the L D impact and four can you just frame it a little bit for us.
I think without the L. D. You would see you would have seen a slight downward.
<unk>.
Sequential down.
Sequentially, Okay great.
Thank you very much.
Thank you. Our next question comes from the line of Jordan <unk> with Goldman Sachs. Please proceed with your question.
Good morning, I think you mentioned in quality and that.
The macro backdrop it might be tough from a full year perspective to grow EBIT dollars I'm, just sort of curious as you think about it.
The outlook is there a differential first half second half view.
Yes, EBIT growth to be possible at some point as we move through the year frankly.
Good morning, George Thank you for the call. There are as you noted a lot of uncertainties out there and some cross currents. There is some tailwind for us but also we've got a number of headwinds and Ed just articulated a couple of that is rate pressures I'm going to let mark talk a little bit about the.
Cadence.
What we're seeing through the year on revenue and expense, yes, really it's going to depend a lot on the way the top line evolves.
If in fact, there's a recession that we have to deal with with some demand destruction, but as we think about you know we've got a lot of tailwind.
In the year, including really strong core pricing that we anticipate as well as fuel efficiency.
We had 3% fuel efficiency. This year, we expect another good year next year.
And I do expect that we'll have a wind down of some of the service related costs now that our service product has improved however that would probably start to manifest more in the back half.
And then of course, we'll have the absence of some of the you know the <unk>.
Wage adjustment that we booked in the third quarter related to prior years.
And in this quarter I would expect that that big claims impact that we had in the fourth quarter.
It was truly anomaly anomalous and I wouldn't expect it to be.
Repeating nature at all so those are some of the tailwind as we look into the year, but.
But we are swimming against some pretty heavy headwinds as we talked about on the call. We do have meaningful inflation to absorb.
Including the wage wage increases.
And we've got some level of diminishing Kolar P. You and ask the soil revenues.
As we go through the year again, mainly in the back half.
And then the depreciation step up that I mentioned, which would be more evenly evenly spaced throughout.
Throughout the year, so, but again a lot of good a lot of good tailwind, we got good core pricing and.
But the headwinds are kind of what I laid out the biggest variable is really going to be volumes. So.
How much we get win.
Thank you.
Okay.
Thank you. Our next question comes from the line of Chris Wetherbee with Citigroup. Please proceed with your question.
Great. Thanks, Good morning, maybe.
Maybe I could pick up on that last comment so.
In terms of the volume I know you you expect to be able to get some share recapture here do you think that ultimately yields a positive volume outcome for for the year and I guess.
Mark you've been helpful in terms of laying out.
Our expectations, particularly a little bit more closely at them. So certainly would love to understand sort of your view on the potential for a lot of improvement or maybe holding the line in 2023, but if not maybe sort of first quarter first half or how do we think about how things are trending out just given some of the puts and takes it was outlined.
I'll I'll I'll take a swing at it this is Ed good morning.
We finally have a service back to a place where we were able to take on additional volume and we're seeing the benefits of that improved service right. Now. So yeah, I think we're going to be able to claw back. Some volume effect is uncertain of it. The question I think that we're all trying to answer is.
Can we claw back enough to overcome the demand destruction, that's present or might be present in the market in 'twenty three.
I know I don't have to but just to give you a flavor for what we are what we look at it you start with inflation you go to interest rates and what that is doing too many markets, including housing which is very important for our business.
We've seen manufacturing inflect in the past three months.
Two are negative.
There's a lot of uncertainty.
The way I would describe our position is we are guarded but we're poised for opportunity. We have the right service right now we're building the capacity as soon as the opportunity manifests itself, we're going to be able to deliver.
Think about what are the what are the positive tailwind for US service recovery starts right, there, which leads the network fluidity and capacity improvement. There is some chance that there might be a soft landing there is theres a lot of people didn't think there could be a.
The customer that we talk to our customers. They are poised for growth and they want to grow they are investing for growth.
And we're going to look at all those factors and we will be ready.
Yeah.
Yes, and Chris we don't really want to get into quarterly.
Well our guidance because there are a lot of variables.
But I can just.
Point, you back to the tailwind as we talked about you know right now here in the first quarter, we're gonna have probably.
Pretty good compare.
Given where volumes were last year, so I think that's.
That will be that will probably represented one of our better year over year quarters, but.
But we're really looking at a very uncertain outlook here in the second and third quarter.
And we don't want to get into projecting right now at that level of granularity.
Understood. Thank you.
Hum.
Thank you. Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.
Thanks, Operator, hi, everyone.
Mark just a couple just quick follow ups for me. So one with flat operating income translate to EPS growth. This year I suppose you can still eke out some earnings growth under that scenario given.
Maybe some share repurchase and then the other income kind of coming back. If you can just talk about that and then totally get the uncertainty.
And it's one of the most uncertainty I've ever seen but I wanted to ask you about what you can control, which is the opex base ex the fuel. So you mentioned the depreciation step up you have some visibility on labor.
Per the agreement.
I also think you said in the past, there's like $40 million a quarter of inefficiencies that you endured last year. So I assume that some of that can unwind. So I'm just trying to understand how do you think the opex base ex fuel moves you know relative to that $6 4 billion that you did in 2022 so.
EPS growth relative to EBIT growth and then Opex base ex fuel.
Expectations for 'twenty three.
Thanks, Amit I think if you go back to our financial framework, we would expect that if we have kind of flattish earnings that EPS growth should should exceed that and be positive for sure. So.
That just fits right into the framework, we talked about back in December at Investor Day.
The $40 million ex sorry, the $40 million of service related cost.
We'll start to unwind here I mean right now we've got.
Much improved service, although we are spending money to compensate for the fact that many of our locations are still below minimum staffing levels. So there is still a fair amount of overtime re crews incentives out there.
But as the head count starts to increase in many of those core locations I do expect.
Towards the back half, especially that these costs will start to unwind from the $40 million per quarter.
So significantly lower.
As I said more into the back half.
And then we've got inflation and a lot of the other P&L line items, but we're working to mitigate a lot of those costs.
Through more stringent control I think.
Equipment rents as an example.
That's one area, where higher network speed.
That should help us try to keep keep a lid on the growth on equipment rents and even purchase services is an area, where we've had a significant escalation due to the cost of poor service.
As well as inflation impacts as inflation moderates I do believe that that will come under control as well.
Okay very good thank you thank.
Thank you.
Thank you. Our next question comes from the line of Allison Plenty Act with Wells Fargo. Please proceed with your question.
Hi, good morning.
Just wanted to go back to the comment on labor and the crew bases. I know you said you were targeting them staffing is there a minimum level is there any way to quantify is it sort of less than 10% of those at this point that you need to go and then I guess with respect to that.
Staffing levels at the pieces that are fully staffed are you starting to look at maybe building incremental staff there to potentially capture any inflection as we go forward given the growth opportunities. Thanks.
Yeah, Allison we had talked about.
In the fourth quarter number that was about a quarter of our crew base is.
As below minimum staffing levels at <unk>.
It's roughly in that neighborhood right now and frankly as we move forward, it's going to be highly dependent upon where we see market is headed in and overall demand. So we are continuing to hire into our environment are into that environment pardon me.
Our conductor trainee pipeline remains very robust and certainly you're seeing the improvements at our service product is we've addressed both <unk>.
Resources leadership and plan and our service is now the best it's been in over two years, Paul Why don't you talk a little bit more specificity on what we're doing with respect to our craft colleagues yeah, absolutely Alan.
As you stated we remain on pace to hit our hiring targets and as Ed alluded to we're going to continue to match that towards the that the forecast is as we go.
As we've come out of the contract negotiations now it's a matter of focusing on what the future looks like as far as conductor redeployment predictive work schedules as well as quality of life and those discussions are taking place as we speak.
Great. Thank you.
Yeah.
Thank you. Our next question comes from the line of Justin Long with Stephens Inc. Please proceed with your question.
Thanks, and good morning, I wanted to see if you could give any additional color on the potential impact from accessorial fees winding down next year and Mark maybe compare that timing of that wind down to the timing of the moderation in that service related costs.
But you talked about I'm, just trying to figure out what the net impact from that could be over the balance of this year.
This is ed thanks for the question.
We look at this very carefully along with our customers and stakeholders.
When we look globally, we see that the the congestion at the port that both coasts as really alleviate itself and that's also true in most of our intermodal ramps on the inland side, but you know you look at good spending in the U S, which has plateaued for the consumer but it has plateaued at a level that essentially is.
We should be like 2025 or 2026, so there's still a tremendous number of goods being brought into the country trying to fit through a pipeline that is designed for you know arguably 2023, and so so that congestion still exist in some places really around the warehousing on the hinterland and inland locations.
It's going to unwind.
In terms of the timing of that unwinding.
We're we're we're watching very carefully we think it'll happen in 'twenty three at some point.
Yes, Justin probably more like the back half.
And it won't be necessarily precipitous, we're assuming but I would.
I would say, it's roughly on par with kind of the timing we're thinking about the.
Relief on service related costs as well.
That's helpful and any color on that net impact from a dollar perspective.
No no once once you start getting out that far.
The margin for error is too big.
Well, we'll lose accessorial revenue will gain in freight revenue because all of.
Our customer supply chains will be more fluid and we'll be able to.
Move more business right.
Got it thanks for the time.
Thank you.
Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks, good morning.
I wanted to make sure I'm understanding the guidance right. So it sounds like flattish revenue not growing operating income, but not really declining a lot so sort of flattish revenue flattish operating income flattish.
Plus or minus a little bit, but no big growth or declines is that ultimately what you guys are trying to say at this point I just want to make sure I understand that and then just one thing I just want to clarify where does where do you think head count goes from the January levels, you gave us some slides.
Scott This is Alan Thanks for the question you have flattish is in the ballpark for revenue.
I think mark talked a little bit about some of the crosscurrents that we have both on the top line and on the expense category.
Can you can you repeat your second question, we don't break up quite a little bit in the middle of head count, but yes, I'm associated with head count.
Yes. It was just where do we go from the January levels, you had in the slides.
Paul why don't you you're talking about yes, Scott good as of this morning, we're north of 7500, G&A and our target right now for May is to be in the 76, plus 7600 plus range and as stated earlier, we will continue to adjust that target as as we see the markets play out.
Yeah.
Thank you. Our next question comes from the line of Brandon <unk> with Barclays. Please proceed with your question.
Hey, good morning, everyone and thanks for taking my question. So I guess Eleanor Mark I mean, we just had your Investor day, a month ago, where you guys talked about resiliency and I don't think anyone's fault me here for a weak macro but is this the environment, where you want to build and the resiliency into the network, maybe kind of piggybacking off that view on head count.
Is this where you're adding capacity and really look to set up for growth potential in 'twenty four and beyond.
Yeah. This is this is exactly what the.
The environment, we were contemplating.
Our.
We're continuing to hire we're hiring aggressively we need to because in some locations as we talked about.
We're short of crews resiliency is also about investing consistent.
<unk> and our assets, which includes our technology. It includes locomotives track intermodal terminals includes.
Freight cars designed to help us compete with truck.
And it includes yes. It includes our people as well and also includes processes and our continuous improvement plan as we lift our service is the best it's been in over two years, but we're not stopping there.
Are going to continue to evolve our product and we're going to continue to improve and we're looking a couple years out how do we position ourselves so that our customers can compete and grow and we can compete and grow with them.
Thank you.
Thank you. Our next question comes from the line of Ravi Shanker with Morgan Stanley . Please proceed with your question.
Thanks, Good morning, everyone.
Pardon me if I may. Please you said that you expect share gains to offset some of the natural macro volume deterioration can you help us understand how much of that is quote unquote in the bag with kind of new contract wins or contract to give assigned worse as prospective I just service improves and the second question is.
There has been some chatter on the regulatory scrutiny on train length, obviously, it's a big part of top SPG and also for some of your peers can you talk about kind of how real that risk might be over time. Thank you.
Okay.
Thank you Ravi.
For volume.
We're going to we are producing any service that allowing us to take back share that should be on Norfolk southern that includes from the highway.
That's where we're really focused it's it's how can we add value for our customers. So that their top selection is norfolk southern and over the past couple of years, our customers have to make difficult decisions and we are helping them come back to the place where we can add most value for them and we're confident sure theres going be lots of macro headwinds, but we're seeing it now.
Earn back some of that freight even in a down environment.
Yes, Ravi let me talk about the regulatory environment.
Well for just a second.
What we are.
We're fully engaged with.
With the STB, we've met with four of the five members just since our Investor day on December six and.
Yeah, they're really encouraged what we what we told them as we as we spoke with them last year as we were fully committed to restoring service they've seen that they see it in the metrics and they hear it from our customers as well and now there.
Theyre seeing us start to grow a little bit and so where are we.
We're aligned with them and.
Oliver and on our promises for service and our promises to help our customers compete and grow.
Thank you.
Thank you. Our next question comes from the line of Walter <unk> with RBC capital markets. Please proceed with your question Hey, Thanks, very much operator, good morning, everyone.
Just coming back on the trucking market your long term.
Our approach to gaining share against truck through higher service and just curious whether with the capacity the slippery cap capacity and pricing environment that you're seeing right now and should that persist does that provide you with a significant challenge with regards to gaining market share given that price dynamic.
No at least two of your competitors have started acquiring trucking companies every CN, but shneur and transact.
Closer to home.
S X by quality is that something that you would envision doing is as a way to offset some of that that challenge a bike by buying a trucking company and then converting it to rail is that something you'd consider.
Just curious.
It's all about how that pertains to electric strategy.
Oh, Walter let me address the second question first and I'll turn it over to Ed on how we compete with truck, but we got a franchise built for growth and there are a lot of unique strengths about Norfolk Southern's franchise. The markets, we serve and the customers with whom we are aligned and so we are extremely confident and all.
Our ability to deliver organic growth and we laid out that investment thesis in our in our Investor day.
Why don't you talk about how we're going to grow and compete with truck sure well first of all we.
We have a fantastic partnership with our key customers and that includes our key customers in that trucking space I'd say all the time, we are not competing against drugs, we're competing against the highway.
Truckers are our customers and that's a great place to be.
Sure. The current environment is challenging but we've been there before we've seen these cycles play out time and time again the market is rebalancing right now and I think when you look out past 'twenty three it's clear that rail intermodal specifically on Norfolk Southern is going to be a very compelling a place to be for customers. We talk all the time internally.
All the innovation, that's going into reducing the carbon footprint for transportation, but anyway.
If you want to reduce your carbon footprint by about 70% to 90% just put it put it on train on Norfolk, Southern it's the easiest way to do it. So we think the value the value prop long term is compelling and even in the short term. We think we are very well positioned to compete with our customers.
That's great I appreciate the time.
Thank you. Our next question comes from the line of Jon Chappell with Evercore ISI. Please proceed with your question.
Thank you and good morning, Ed.
And circling back to yield a little bit identifiable headwinds of fuel and accessorial and lines are very clear.
It sounds like you think the core can still offset a lot of that which has been really normal spread and butter for the last several years, but in this loosening truckload market weaker economic backdrop are you finding that there's any areas, where you're pricing power is coming under pressure a little bit.
Customers unwillingness, especially loosening truckload market as we think to intermodal.
I think what makes me optimistic about our ability to continue to price in the same way that we have for years and years is the increasing value of the service that we're providing.
Now we're producing a service that is very valuable to our customers. We're supplying capacity that allows them to move that freight from the highway back to the railroad.
And you know what we're going to continue to develop and enhance that value just like.
Just like Allen talked about we're not stopping in terms of understanding what our customers need and what sort of service will provide value to them, where we're really looking at the three five to seven year horizon on how we can deliver value for our customers. That's how we're going to continue to produce the results that we have so far we're confident in that.
So does that mean quarters, a little bit stickier than in intermodal because theres more modal conversion potential there as opposed to maybe economically sensitive merchandize.
You're breaking up just a hair can you repeat that.
So does that mean, the cores, maybe a bit stickier and intermodal given the potential for share gain as opposed to more economically sensitive merchandize.
I don't know I think when I when I look across the markets that we serve and I think we've got potential to continue to produce.
Leaving coal out of this for the time being because of the year over year headwind.
We've got a great track record, we're going to continue to do that.
Alright, I appreciate it thanks.
Thank you. Our next question comes from the line of Brian Austin back with Jpmorgan. Please proceed with your question.
Hey, good morning, Thanks for taking the question.
One for Mark can you just give us a little bit of color on the average comp per employee going forward. Obviously this quarter you got the accrual the incentive comp tailwind, you've probably got some mix of new hires still in there. So.
Any color you can provide on the opex side, when we look at that throughout the rest of 2023 would be helpful.
And then for Paul I know, we're talking a lot about.
Grounded conductors.
The headlines and this is a big thing that's starting in the industry, but maybe you can just level set the timeline.
You think this could progress to the extent you can offer one because it does seem like it's it's a it's a new event that will obviously I think at least take quite a bit of time for this to really get past pilot program implementation to be more meaningful that we might see something alive and in the field. Thank you.
I'll start with the comp from them per employee Bryan we ended pretty much where you had signaled we'd be on a per employee basis, excluding the adjustment there that inflated it a little bit.
I would expect in 'twenty three you'll see that number a step up in Q1 like we've talked about due to the payroll tax resets and it will probably be in that 35 and change range.
And while it would normally step up again in Q3.
Due to the you know the.
Wage accruals as wage increases that take effect there in the in the third quarter that will probably get offset to a large degree by the.
The unwinding of some of these service related costs. So I would expect kind of flat in that 35000 and change territory throughout the year.
Oh, yes, and just adding to the second question on that as we stated national bargaining was complete here in December we've already begun negotiations with our with our labor unions on conductor redeployment from the fact is the timeline we're in negotiations, but theres certainly a regulatory piece of this but as we as we have the discussion.
And when you think about the long term future of of where we want to be you know there are benefits from it predictive work standpoint, there are certainly benefits from a work life balance and quality of life standpoint, there have been challenges in the industry for a number of years that are that we feel get addressed through some level of conductor redeployments.
We think there is a compelling reason the certainly for the industry and the regulations to to move forward in support of conductor redeployment.
And certainly back to what what Ed was talking about we have to continue to find through our balanced approach of service productivity and growth are those next opportunities too.
Drive greater value for our customers and bring that volume on our railroad. So we think that's all part of our value proposition in the a and the long term.
And do you think you could see a pilot program for.
Are those initiatives starting this year or is that a little too soon to expect.
It's too soon to say at this point.
We're ongoing negotiations we want to have those discussions first in and cross that cross that bridge when it comes.
Okay understood thanks very much.
Thank you. Our next question comes from the line of Cherilyn Radbourne with TD Securities. Please proceed with your question.
Thanks, very much and good morning, I was hoping you could speak to the kind of visibility that you have in automotive for 2023.
Alright, you think that goes and perhaps looking at a little further you could also comment on any changes that you anticipate in that franchise as far as routing et cetera, as the industry convert to electric vehicles.
Sure.
There's clearly a bow wave of unmet demand out there for for automobiles and North America.
The industry is really focused on delivering and trying to work that off we are too we've invested in and new cars for that fleet and our fluidity has improved significantly we're continuing to refine that that's going to offer us the opportunity to help our automotive customers meet some of that unmet demand.
Going forward I think it takes a while to work that off I don't know that it ends this year turning to the question I think your question was about Evs and future supply chains.
We've seen a tremendous amount of investment in a new capability for whether it's evs construction, whether it's battery construction, whether it's battery recycling, there's a tremendous amount of interest out there and some investment going forward.
We are working to make sure that we can support.
And keep it at that time.
Thank you. Our next question comes from the line of Ari Rosa with Credit Suisse. Please proceed with your question.
Hey, good morning.
I wanted to ask about the state of Labor relations as you see it.
Then as it moved or has it improved since moving past the P. B, obviously negotiations had gotten a little bit contentious, but wanted to hear your perspective on if that has improved since then.
And then what.
Or anything around that sort of thing.
And then given the benefits youre, describing around kind of the flywheel.
And the service improvements that you're seeing I'm wondering if volumes do come in a little bit weaker than expected for this year.
Given the aggressive hiring.
Do you do with those excess employees or do you see yourself in an environment, where maybe you have a little bit more head count than what's needed and what do you do with those in place. Thanks.
Yeah, I'll I'll address part of that and then turn it over to Paul now that we're done with national negotiations, we concern to local negotiations in which we are collaborating with our craft colleagues to modernize our labor agreements to improve their quality of life enhance operational flexibility and.
<unk> more predictable work schedules.
It benefits us that benefits, our our craft colleagues on benefits employee engagement and we're seeing that as we get out into the field and talk to our employees about the future of Norfolk, Southern a balanced approach on service productivity and growth now in respect to what would happen.
<unk>.
We did enter into a downturn yet that is factored into our thinking and it certainly provides an opportunity for enhanced training and enhanced flexibility for our for our employees. All you want to talk a little bit about what youre seeing out in the field yeah. Alan I mean, you touched very well on the very first level.
Lever would certainly be investing in our workforce cross qualification extended training ex word consolidations et cetera, where we have a you know opportunities there.
But we also have the lever of attrition and we've seen.
What has taken place in the industry with.
With furloughs, we just have not seen for Loews come back it's very expensive in the long term.
And we do not see that as the as certainly one if any lever that we want to pull we wanted to ensure again if there is a volume downturn, we earned a position as that volume comes back to handle it and handle it well so that is how we're going to approach.
You know a downturn a potential volume.
Thank you. Our next question comes from the line of Bascom majors with Susquehanna. Please proceed with your question.
Thanks for taking my questions.
If you look at the senior management incentives they've recently been very much in the short term I'd Oh are in operating income with a long term tied to returns on capital with a T. S. Our multiplier at the Investor Day, a few weeks ago and he Adam said that she was working with the board to do really redo the incentives both for senior management.
And for some other employees subject to the incentive program to really align with this new.
The strategy that you guys laid out for US a few weeks back can you talk a little more about the changes that are being made in it and what you're doing.
Going at the compensation structure level to really encourage the behavior, you're looking forward to the long term strategy. Thanks.
Hum.
Thanks for the question.
As Andy noted.
We're in discussions with our board to make sure that our compensation plan is aligned with our strategic goals.
He's done that right.
And as we noted and at Investor Day, you know our strategic goal is to deliver top tier revenue and earnings growth through industry competitive margins and a balanced capital deployment.
And I think you'll you'll you'll end up seeing in 'twenty three that the structure.
Has been amended a bit to reflect the alignment with our strategy.
Yeah.
Can you talk a little more specifically about those changes.
Not right now we can't know.
Still in discussion at the time.
Thank you.
Thank you. Our next question comes from the line of Jeff Kauffman with vertical Research partners. Please proceed with your question.
Thank you very much and thank you for the guidance.
Yes.
There were a lot of other issues that occurred this year and I think you hit some of them in terms of massive sorial and in terms of liquidated damages I am kind of curious with the big shifts that we saw with west coast to East coast shipments from customers and now we're dealing with this inventory overhang how do you how do you think that affected.
Your business in the Eastern U S is it better for you. If these containers dock in the west and get handed over in Chicago and do your customers see a return to the west coast at some point.
This year may be when that labor situation settles as my understanding is it still tends to be a little cheaper to dock west than east.
Just kind of curious how you thought that that shift, it's probably a little more transient impacted your business.
Well you know this is Ed. Thank you for the question I Love talking about the business.
The shift from West Coast East Coast has been ongoing for the better part of 20 years.
And that that evolution has occurred because of economics over time as manufacturing has shifted south and west from Japan to Korea to China, now towards Vietnam, and Myanmar et cetera.
It makes those all water sailings more attractive when you look at the population center in the U S, which is east of Mississippi.
The expansion of the Panama Canal and now the use of the Suez is also a compelling reason why those economics tend to work more our position is pretty simple we want to be able to handle those shipments effectively whether they come in through the west coast, which I think so.
Quite a few still will or whether it comes through the east coast. There is no doubt that there is a lot of inland infrastructure associated with trans loading on the west coast. It makes that compelling and we're perfectly positioned to help our customers deliver that volume to the population centers in the east at the same time, we've invested a lot of money to make sure that where we can.
Telling our partner for airports and for a steamship lines as they come through the East coast. We've invested a lot of money in some of our largest lanes are those shorter links all of that that emanate from whether it's Savannah, Charleston, Norfolk or from New York et cetera.
How us to add value to those shipments.
And just to follow up to that.
Are your customers telling you in terms of their plans on inventory reduction, where you may see more normalized shipment levels.
Yeah, I think the outlook from our customers is that theres been a work down in inventory recently after that run up and I think I think many of their customers are now getting their inventories in much better shape.
And it really comes down to having the right product not necessarily the right number of any given product, but the right time and so we're encouraged by those those recent work downs and as we move into 'twenty. Three again, you know guarded in terms of economic outlook, but poised for opportunity as soon as soon as they manifest themselves.
Okay. Thanks, Ed.
Sure.
Thank you. Our next question comes from the line of David Vernon with Bernstein. Please proceed with your question.
Hey, good morning, guys.
So one one sort of detailed question and then I had a question for you Ed.
Rail share.
So just to start off if you think about the starting off point for flattish EBIT guidance can you just get let us help us understand is that from a GAAP basis or adjusting for some of the accruals and then as you think about the last couple of quarters. It noticed the carload traffic, particularly in chemicals and add you guys had been outperforming CSF that I'd love to get your perspective on.
How important sort of rail share is to you in our growth strategy going forward.
I actually have historically had a little bit bigger carload footprint I think than you guys had had as you've been investing a lot in intermodal over the last decade.
How do you think about that sure.
Situation, playing out right or you guys are outgrowing them because of some some some specific network advantages are you winning them in the marketplace any any thoughts on that would be would be really helpful. Thank you.
Yeah.
Real quick David I mean, we were talking on a GAAP basis.
Oh sure yes.
The market that we really study is that $860 billion trucking logistics market.
There's five trillion tonne miles moving in North America and the.
The majority of those move adverse to railroads, we that's that's where I'm focused on how do we how do we convert that business more of that business towards to Norfolk Southern rail.
The railroads are in some ways defined by geography, but we are defined by our customer base and that's what we're focused on.
Thank you ladies and gentlemen, our last question today comes from the line of Ken <unk> with Bank of America. Please proceed with your question.
Great. Thanks for squeezing me in and good morning.
So just a follow a couple of clarifications on staffing are you, saying, you're only 100 off your <unk> target and Thats. Your your your your.
Your goal there and then I guess the total employees you ended with about 19250 up about 1200 from a year ago, maybe give your thoughts on where that is a year from now.
And then maybe.
Mark can you talk about what service level costs are still embedded in there given the service gains versus inflation I'm, just trying to figure out where the opportunity is.
Yeah, Ken for now based on the economic outlook 7600.
Target that we had.
He'll exists.
Going to continue to hire in locations, where we are we're tight.
<unk>.
Going forward as you look here into 2024, obviously, there's a lot of uncertainty out there.
And when we've talked about that so I don't I don't want to get too far ahead of ourselves, but I will tell you that right now the the conductor trainee pipeline is elevated but it will remain so until we get to target and feel like were higher recruiting hiring and training at a steady state.
And certainly volume growth profile will mean that that number is a constantly moving target head count number is constantly moving in.
Specific to your question on where the service costs reside Ken.
I'd say roughly half of those sit in comp and Ben.
You know between over time re crews incentive expenses.
As well as recruiting and training.
That's really where I'd say half of it sits.
There's also a fair amount in purchase services you know, there's a lot of the disruption cost sits there.
And there was also a little bit sitting in materials as well with regard to locomotives. So its spatter throughout the rest of the P&L, but half is half of it sits in comp and Ben.
And is there a total.
Dollar amount that youre pointing to that youre looking at offset with the inflation.
Well, what we indicated was it's roughly $40 million a quarter that we're dealing with and I would expect that that number to come back come back down closer closer to but not all the way to zero by the time you get to the end of the year.
Okay. So that's it.
Great and then just a follow up from me if I can Paul.
202 locomotive miles per day can you talk about targets there given the service improvements where are you.
We end the year with.
We are just now beginning to get the service back to where we wanted it to be here for the past.
Within the past several weeks and if not the past couple of months so.
We described at Investor day, the flywheel effect that is going to take place fully expect as we continue to resource up to the group piece that we spoke to them.
And the service gains that we've made that we're going to continue to see that that improve throughout the year.
Okay. Great. Appreciate you squeezing me in thanks, guys. Thanks again.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Alan Shaw for any final comments.
I'd like to thank everyone for their interest in Norfolk, Southern and for joining us today. Thanks.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.