Q3 2023 Union Pacific Corp Earnings Call

Speaker 1: Greetings, welcome to Union Pacific's third quarter earnings call. At this time all participants will be in listen-only mode. A brief question and answer session will follow.

Greetings and welcome to Union Pacific's third quarter earnings call.

At this time, all participants will be in listen only mode.

A brief question and answer session will follow the formal presentation.

Speaker 1: If anyone should acquire operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference...

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.

Speaker 1: and the slides for today's presentation will be available on Union Pacific's website.

And the slides for today's presentation will be available on Union Pacific's website.

Speaker 1: Is now my pleasure to introduce your host, Mr. Jim Vena. Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

It's now my pleasure to introduce your host Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you. Mr event, and you may now begin.

Speaker 1: Rob, thank you very much and good morning. And good morning to everyone that's joined us. And thank you for joining us today to discuss Union Pacific's third quarter results.

Rob. Thank you very much and good morning, and good morning to everyone that has joined US and thank you for joining us today to discuss Union Pacific's third quarter results.

Speaker 1: I'm joined in Omaha by our Chief Financial Officer, Jennifer Heyman.

And in Omaha by our Chief Financial Officer, Jennifer Hayman Exec.

Speaker 1: Executive Vice President marketing and sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Garand-Gurr. It's been a busy couple of months.

Our executive Vice President of marketing and sales Kenny rocker.

Executive Vice President of operations, Eric Garen.

It's been a busy couple of months since rejoining Union Pacific I'm very excited to be back to come back to work with over 40 years of railroading experience, including two years here at U P. I know this railroad I understand the opportunity to win you need a strong management team the right culture and a <unk>.

Speaker 1: I'm very excited to be back. To come back to work with over 40 years of railroad experience, including two years here at U.P. I know this railroad, and I understand the opportunity. To win, you need a strong management team, the right culture, and a great franchise. And that's the goal. Win and be the best of them.

Great franchise, and that's the goal win and be the best in the industry.

Speaker 1: Since I started, I've spoken with employees, customers, regulators, community officials, and investors, and my message has been consistent. It starts with safe...

Since I started I've spoken with employees customers regulators community officials and investors and my message has been consistent it starts with safety.

Speaker 1: Our goal is to be the safest railroad in North America. That's the standard we should set for ourselves.

Our goal is to be the safest railroad in North America. That's the standard we should set for ourselves.

Speaker 1: We also expect to be the best in service and operational excellence. Service is delivering...

We also expect to be the best in service and operational Excellence service is deliberate in what we sold to our customers operational excellence is using our resources and assets as efficiently as possible.

Speaker 1: Operational excellence is using our resources and assets as efficiently as possible. It's being mindful of our costs.

Being mindful of our costs and developing our people are key early initiative, but mine is to drive decision, making lower in the organization. This means reducing layers and simplifying how we work.

Speaker 1: The key early initiative of mine is to drive decision-making lower in the organization. This means reducing layers and simplifying how we work.

Speaker 1: We need to deliver value with speed. This is a cultural change to empower our people.

We need to deliver value with speed. This is a cultural change to empower our people.

Speaker 1: We recognize that our business volumes fluctuate and weather presents its challenges. So we will always keep a buffer of resources to manage those situations.

We recognize that our business volumes fluctuate and weather presents its challenges. So we will always keep a buffer of resources to manage those situations.

Speaker 1: This commitment to safety, service, and operational excellence will lead to growth. And for you, our owners, that generates industry leading.

This commitment to safety service and operational excellence will lead to growth for you our owners that generates industry, leading returns there's work to be done, but the entire team understands our strategy for success.

Speaker 1: There's work to be done, but the entire team understands our strategy for success.

Speaker 1: Now let's discuss third quarter results starting on slide three.

Now, let's discuss third quarter results starting on slide three.

Speaker 1: This morning, Union Pacific reported 2023 third quarter net income of $1.5 billion or $2.51 per share. This compares the 2022 third quarter net income of $1.9 billion or $3.5 per share.

This morning Union Pacific reported 2023 third quarter net income of $1 $5 billion or $2 51 per share. This compares to 2022 third quarter net income of $1 $9 billion or $3.05 per share our third quarter operating revenue declined 10%, reflecting.

Speaker 1: Our third quarter operating revenue declined 10% reflecting lower fuel surcharge revenue, reduced volumes, and decreased other revenue. Expenses also were lower year-over-year, driven by fuel expense, and last year's one-time charge for labor agreements.

Lower fuel surcharge revenue reduced volumes and decreased other revenue expenses also were lower year over year, driven by fuel expense in last year's one time charge for labor agreements, but there's an ongoing mismatch in our cost structure, resulting in an operating ratio of 63.4 as we continue to be challenged.

Speaker 1: But there's an ongoing mismatch in our cost structure, resulting in an operating ratio of 63.4. As we continue to be challenged by inflation, including pressure from new labor agreements, and higher casual.

By inflation, including pressure from the new labor agreements and higher casualty costs.

Speaker 1: Additionally, the lag on our fuel search art program negative will be impacted results as fuel prices rose during the course.

Additionally, the lag on our fuel surcharge program negatively impacted results as fuel prices rose during the quarter.

Speaker 1: No doubt about it. It was a tough quarter, but I'm pleased with the positive productivity we're quickly gaining. Our service performance also is strengthening as we're positioning ourselves to meet customer demand while at the same time storing assets. I'll let Eric and Kenny discuss both in more detail. Ultimately, we're taking the right actions to build from here. So with that, let me hand it to Jennifer to provide more details on the third quarter.

No doubt about it it was a tough quarter, but I'm pleased with the positive productivity. We are quickly gaining our service performance also was striking as we're positioning ourselves to meet customer demand while at the same time storied assets I'll, let Eric and Kenny discuss both in more detail ultimately, we're taking the right actions to build from here so with that.

Let me hand, it to Jennifer to provide more details on the third quarter was a financials.

Speaker 2: Thanks Jim and good morning. I'm going to discuss our third quarter results by walking through the income statement on slide five. Starting with operating revenue of $5.9 billion, down 10% versus last year on a 3% year over year volume decline. Break it it down further as illustrated in the appendix slides, print revenue totaled $5.5 billion, down 9% versus 2022. Total fuel surcharge revenue of $637 million declined $515 million from us.

Thanks, Jim and good morning, I'm going to discuss our third quarter results by walking through the income statement on slide five starting with operating revenue of $5 $9 billion down 10% versus last year on a 3% year over year volume decline breaking it down further as illustrated in the appendix slides freight revenue totaled $5 five.

Dollars down 9% versus 2022.

Total fuel surcharge revenue of $637 million declined $515 million from last year, the impact of lower year over year over year fuel prices as well as the lag in our surcharge programs reduced freight revenue 8%.

Speaker 2: impact of lower year-over yield fuel prices as well as the lag in our surcharge programs reduce freight revenue 8%.

Speaker 2: The combination of price and mix increased rate revenue 150 base.

The combination of price and mix increased freight revenue of 150 basis points and solid core pricing gains were partially offset by an unfavorable business mix increase short haul rothmans and fewer lumber carload outweighed the impact of moving fewer low average revenue per car intermodal shipments in addition, our pricing.

Speaker 2: As solid core pricing gains were partially offset by an unfavorable business mix, increased short haul rock moves and fewer lumber car loads outweighed the impact of moving fewer low average revenue per car and a load.

Speaker 2: In addition, our pricing gains continue to include the impact of certain coal and intermodal contracts that are more reflective of current market conditions.

<unk> continue to include the impact of certain coal and intermodal contracts that are more reflective of current market conditions wrapping.

Speaker 2: Rapping up the top line, other revenue decreased 13% versus last year driven by a $70 million year-over-year reduction in assets.

Wrapping up the top line other revenue decreased 13% versus last year, driven by a $70 million a year over year reduction in accessorial.

Speaker 2: Switching to expenses, where again, more detailed information can be found in the appendix, operating expense of $3.8 billion to client 4 percent, driven by lower fuel prices, last year's one-time charge for labor agreements, and volume-related costs.

Switching to expenses were again more detailed information can be found in the appendix operating expense of $3 $8 billion declined 4% driven by lower fuel prices last year's one time charge for labor agreements and volume related cost.

Speaker 2: Digging deeper into a few of the expense line, compensation and benefits expense decreased 77 million versus 2022, which does include last year's $114 million one-time labor chart.

And deeper into a few of the expense line compensation and benefits expense decreased 77 million versus 2022, which does include last year's $114 million, one time labor charge third quarter workforce levels increased 3% and our active T. E. N Y workforce is up 2% as we graduated new train crew.

Speaker 2: Third quarter workforce levels increased 3% and our active TE and Y workforce is up 2%. As we graduated new train crew personnel during the quarter. At this point, with our train crews more appropriately staffed, our training pipeline is shrinking. Today we have just over 500 employees in training down more than 50% from last quarter's pipeline of roughly 1200.

Personnel during the quarter at this point with our train crews more appropriately staffed our training pipeline is shrinking today, we have just over 500 employees in training down more than 50% from last quarter's pipeline of roughly 1200.

Speaker 2: excluding the impact of last year's labor charge cost per employee was essentially flat in the third quarter as we are starting to generate better overall productivity. As a result, we now expect full year cost per employee to be up closer to 3%. Both third quarter and full year cost per employee reflect elevated workforce levels and better crew efficiency. Partially offset by wage inflation, which includes $20 million in the third quarter from paid six-

Excluding the impact of last year's labor charge cost per employee was essentially flat in the third quarter as we are starting to generate better overall productivity. As a result, we now expect full year cost per employee to be up closer to 3%.

The third quarter and full year cost per employee with like elevated workforce levels and better crew efficiency, partially offset by wage inflation, which includes $20 million in the third quarter from paid sick leave.

Speaker 2: Fuel expense in the quarter decrease 25% on a 21% decrease in fuel prices. From $3.96 a gallon to $3.12.

Fuel expense in the quarter decreased 25% on a 21% decrease in fuel prices from $3.96 a gallon to $3.12. Our fuel consumption rate was flat, but showed positive momentum through the quarter as we stored locomotives and improved freight car velocity.

Speaker 2: Our fuel consumption rate was flat, but showed positive momentum through the quarter as we stored locomotives and improved freight car volass.

Speaker 2: Finally, other expense grew 18%, primarily related to continued pressure and casually cost. It also reflects the impact of one-time write-off, as highlighted in the financial walk-down slides on 22 in the appendix. The resulting outcome is third quarter operating income of $2.2 billion down 17% versus last year. Below the line, other income decreased $18 million, driven by last year's $35 million gained from a real estate transaction.

Finally, other expense grew 18% primarily related to continued pressure in casualty costs. It also reflects the impact of one time write offs as highlighted in the financial walk down slide on 22 in the appendix the resulting outcome is third quarter operating income of $2.2 billion down 17% versus last year.

Below the line other income decreased $18 million driven by last year's $35 million gain from a real estate transaction interest expense increased 6%, reflecting higher average debt levels income taxes are lower in the quarter on reduced income and lower tax rates resulted in a 41 million deferred tax expense reduction.

Speaker 2: Interest expense increased 6% reflecting higher average debt levels. Income taxes are lower in the quarter, unreduced income and lower tax rates that resulted in a 41 million deferred tax expense reduction.

Speaker 2: Similar to last year's $40 million tax reduction, we again had three states cut corporate income tax rates in the third quarter.

Similar to last years $40 million tax reduction, we again had three states cut corporate income tax rates in the third quarter.

Speaker 2: Net income of $1.5 billion to COVID-19% versus 2022, which when combined with a lower average share count resulted in an 18% decrease in earnings per share to $2.51.

Net income of $1 $5 billion declined 19% versus 2022, which when combined with a lower average share count resulted in an 18% decrease in earnings per share to $2.51.

Speaker 2: Third quarter operating ratio increased 3.5 points to 63.4%. Core results which include the impact of inflation, lower volumes and cost inefficiencies accounted for the majority of the year over year chain.

Third quarter operating ratio increased three five points to 63, 4% core results, which include the impact of inflation lower volumes and cost inefficiencies accounted for the majority of the year over year change.

Speaker 2: Turning down to slide six and cash flows. Year-to-date, cash from operations totaled $6 billion. A decrease of roughly $1 billion from 2022. The combination of lower net income and nearly $450 million of labor payments were the main driver.

Turning now to slide six in cash flows year to date cash from operations totaled $6 billion. A decrease of roughly 1 billion from 2022, the combination of lower net income and nearly $450 million of labor payments were the main drivers of free cash flow and our cash flow conversion rate also were impacted.

Speaker 2: free cash flow and our cash flow conversion rate also were impacted. Year to date, we've returned a little more than half of the cash generated or 3.1 billion to shareholders through dividends and share reperto-

Year to date, we've returned a little more than half of the cash generated or $3 1 billion to shareholders through dividends and share repurchases and we finished the third quarter with an adjusted debt to EBITDA ratio up slightly from 2022 levels at three times as we continue to be a rated by all three credit agencies.

Speaker 2: And we finished the third quarter with an adjusted debt to EBITDA ratio up slightly from 2022 levels at three times. As we continue to be a-rated by our three credit agents.

Speaker 2: Rappin' up now on Slide 7. The overall financial story and outlook for the remainder of 2023 is largely unchanged.

Wrapping up now on slide seven the overall financial story and outlook for the remainder of 2023 is largely unchanged. We're facing the demand environment, where we don't expect full year volumes to exceed industrial production. We do however, still expect to generate pricing dollars in excess of inflation dollars, although as we've discussed through the year now.

Speaker 2: We're facing a demand environment where we don't expect full-year volumes to exceed industrial production. We do, however, still expect to generate pricing dollars in excessive inflation dollars. Although, as we've discussed through the year, not to the level that offsets the negative impact of elevated costs on our operating ratio.

Not to the level that offsets the negative impact of elevated costs on our operating ratio feel.

Speaker 2: Fuel also remains a headwind on earnings for share, although moderating from the 34 cents negative EPS impact in the third quarter, to approximately 10 cents of negative year over your impact in the fourth quarter. And that assumes fuel prices in the fourth quarter are around $3.30 a gallon.

He'll also remains a headwind on earnings per share, although moderating from the 34 cent negative E. P. S impact in the third quarter to approximately 10 cents of negative year over year impact in the fourth quarter and that assumes fuel prices in the fourth quarter are around $3 30, a gallon.

Speaker 2: and significant inflation headwinds remain. Primarily in the form of the new labor agreements, we expect similar levels for fourth quarter paid sick leave expense to third quarter, and the impact of the BLET work rest agreements will primarily be seen through elevated force levels.

And significant inflation headwinds remain primarily in the form of the new labor agreements, we expect similar levels for fourth quarter paid sick leave expense to third quarter and the impact of the B L. E. T work rast agreements will primarily be seen through elevated force levels. Finally, our capital plan is coming in a little bit higher at three point.

Speaker 2: Finally, our capital plan is coming in a little bit higher at 3.7 billion. All that said, the important takeaway from today's results and our view of tomorrow is that we're making gains. For maximizing growth opportunities and reprising our business, the improving service and generating productivity, we're striving to build on the current momentum as we end 2023 and enter 2024 on a path to further financial improvement. With that, I'll turn it over to Kenny to give us a view of the business environment.

7 billion all of that said the important take away from today's results and our view of Tomorrow is that were making games for maximizing growth opportunities and repricing our business, the improving service and generating productivity, we're striving to build on the current momentum as we enter 2023 and enter 2024 on a P.

To further financial improvement with that I'll turn it over to Kenny to give us a view of the business environment.

Speaker 3: Thank you, Jennifer. And good morning. You just heard from Jennifer that freight revenue declined 9% with a 3% decrease in volume for the third quarter. Let's jump right into the business team to recap the market drivers on the revenue.

Thank you Jennifer and good morning.

You just heard from Jennifer that freight revenue declined 9% with a 3% decrease in volume for the third quarter, let's jump right into the business team to recap the market drivers on the revenue side.

Speaker 3: Starting with bulk, revenue for the quarter was down 10% compared to last year. Dreven by a 6% decrease in average revenue per car due to lower fuel surcharges and a 4% decline in volume.

With bulk revenue for the quarter was down 10% compare to last year, driven by a 6% decrease in average revenue per car due to lower fuel surcharges and a 4% decline in volume.

Speaker 3: The graynecks forts were softer than last year due to tight supplies.

Grain exports were softer than last year due to tight supply.

Speaker 3: Co-volume was down 5% for the quarter by continuing to climb for the use of coal and electricity generation, combined with competitive pressures from lower natural gas prices.

Coal volume was down 5% for the quarter by continued decline for the use of coal and electricity generation combined with competitive pressures from lower natural gas prices.

Speaker 3: Lastly, we saw reduction in import beer car loads due to the increased utilization of larger rail cars, which creates value for both the customer and union.

Lastly, we saw reduction in import beer carloads due to the increased utilization of larger railcars, which creates value for both the customer and Union Pacific.

Operator: Greetings. Welcome to Union Pacific's third quarter earnings call. At this time, all participants will be in listenily mode.

Speaker 3: Industrial revenue was down for the quarter driven by 6% decrease in average revenue per car.

Industrial revenue was down for the quarter driven by a 6% decrease in average revenue per car.

Operator: A brief question and answer session will follow the formal presentation. If anyone should acquire operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded.

Speaker 3: core pricing gains in the quarter were offset by lower fuel surcharges and a negative mix and buy.

Core pricing gains in the quarter were offset by lower fuel surcharges and a negative mix and volume.

Speaker 3: Solved to decline for lumber and corrugated boxes continues to be a challenge. But our relentless focus on business development is driving excellent growth in our rocknet work that supports construction of newly-merging LNG facilities along the Texas Gulf and growth in petroleum products for both domestic and Mexico energy.

Software declined for lumber in corrugated boxes continues to be a challenge, but our relentless focus on business development as Robyn excellent growth in our rock network that supports construction of new emerging LNG facilities, along the Texas Gulf and growth in our petroleum products for both domestic.

Operator: And the slides for today's presentation will be available on Union Pacific's website.

Jim Vena: Is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin. Rob, thank you very much and good morning. And good morning to everyone that's joined us. And thank you for joining us today to discuss Union Pacific's third quarter results. I'm joined in Omaha by our chief financial officer, Jennifer Hamann, our Executive Vice President, Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer.

In Mexico Energy reform.

Speaker 3: Premium revenue for the quarter was down 12% on a 4% decrease in volume and a 9% decrease in average revenue per car from fuel surcharges in a challenging truck.

Premium revenue for the quarter was down 12% on a 4% decrease in volume and a 9% decrease in average revenue per car from fuel surcharges and a challenging truck market.

Speaker 3: Automotive volumes were positive with continued strength and OEM production and dealer inventory replenishment for finished vehicles and auto parts.

Automotive volumes were positive with continued shrimp and OEM production and dealer inventory replenishment for finished vehicles and auto parts. In addition, a robust business development pipeline like winning both wagons shipments from the Texas Gulf enabled us to outperform the market in the quarter.

Jim Vena: It's been a busy couple of months since we joined in Union Pacific. I'm very excited to be back, to come back to work with over 40 years of railroad experience, including two years here at U.P. I know this railroad, and I understand the opportunity. To win, you need a strong management team, the right culture, and a great franchise. And that's the goal, win, and be the best in the industry. Since I started, I've spoken with employees, customers, regulators, community officials, and investors, and my message has been consistent.

Speaker 3: In addition, a robust business development pipeline like winning both wagon shipments from the Texas Gulf enabled us to outperform the market in the quarter.

Order.

Speaker 3: Intermodal volumes were down in the quarter primarily driven by softness in parcel segment and weak imports on the west coast. However, domestic truckload volume was slightly up driven by business development wins and strengthen our Mexico.

Intermodal volumes were down in the quarter, primarily driven by softness in parcel segment am weekend ports on the West Coast. However.

However, domestic truckload volume was slightly up driven by business development wins and shrink in our Mexico shipment.

Jim Vena: It starts with safety. Our goal is to be the safest railroad in North America. That's the standard we should set for ourselves. We also expect to be the best in service and operational excellence. Service is delivering what we sold to our customers. Operational excellence is using our resources and assets as efficiently as possible. It's being mindful of our costs and developing our people. A key early initiative of mine is to drive decision-making lower in the organization.

Speaker 3: Turning the fly 10, here is our outlook for the fourth quarter as we see it today.

Turning to slide 10, here's our outlook for the fourth quarter as we see it today.

Speaker 3: Starting with bulk, we anticipate continued challenges in coal as natural gas futures remain followed.

Starting with vault, we anticipate continued challenges in coal as natural gas futures remain volatile.

Speaker 3: We are watching grain closely as we enter the export season. Crop to being harvested right now, an increase supplies will be available to move. US-sorbene export sales have started out slower than forecasted. However, we have an improved service product this year to capture more available demand.

We were watching grain closely as we enter the export season.

They're being harvested right now and increased supplies will be available to move U S. Soybean export sales have started out floor than forecasted. However, we have an improved service product this year to capture more available demand.

Jim Vena: This means reducing layers and simplifying how we work. We need to deliver value with speed. This is a cultural change to empower our people. We recognize that our business volumes fluctuate and weather presents its challenges. So we will always keep a buffer of resources to manage those situations. This commitment to safety, service, and operational excellence will lead to growth. And for you, our owners, that generates industry leading returns. There's work to be done, but the entire team understands our strategy for success.

Speaker 3: Lastly, our pork calf, where a renewable bio-fuel beef dot, continues to remain strong. We see solid demand in this market and continue to capture new business.

Lastly, our forecast for renewable biofuel feedstocks continues to remain strong we see solid demand in this market and continue to capture new business.

Speaker 3: We recently landed opportunities with projects coming online soon in Iowa, Louisiana, and Nevada.

We recently landed opportunities with projects coming online soon and Iowa, and Louisiana and Nevada moving.

Speaker 3: Moving on to industrial, the economic forecast for industrial production lets the state depress in the fourth quarter. However, we expect petroleum and construction markets to remain favorable due to our focus on business development.

Moving on to industrial the economic forecast for industrial production looks to stay depressed in the fourth quarter. However, we expect petroleum air.

Jim Vena: Now, let's discuss third quarter results starting on slide three. This morning, Union Pacific reported 2023 third quarter net income of $1.5 billion or $2.51 per share. This compares the 2022 third quarter net income of $1.9 billion or $3.5 per share. Our third quarter operating revenue declined 10 percent, reflecting lower fuel surcharge revenue, reduced volumes, and decreased other revenue. Expenses also were lower year-over-year driven by fuel expense and last year's one-time charge for labor agreements.

Construction markets to remain favorable due to our focus on business development.

Speaker 3: And finally, for premium, we are staying close with our neuromortal customer than this challenging demand environment. We've seen a seasonal uptick at the beginning of the quarter, and we believe our improved service product positions us well to handle market demand.

And finally for premium we are staying close with our intermodal customers in this challenging demand environment, we've seen a seasonal uptick at the beginning of the quarter and we believe our improved service product positions us well to handle market demand.

Speaker 3: In addition, we expect automotive growth to continue during by strong OEM production and elevate its shipable ground.

In addition, we expect automotive growth to continue driven by strong OEM production and elevated shippable ground counts.

Speaker 3: However, we are watching closely the ongoing UAW negotiation and the negative impact they are having on 4-4 volumes as the strikes persist.

However, we are watching closely the ongoing UAW negotiation and the negative impact they are having on four quarter volumes as the strikes persists.

Jim Vena: But there's an ongoing mismatch in our cost structure, resulting in an operating ratio of 63.4. As we continue to be challenged by inflation, including pressure from new labor agreements, and higher casualties. Decaus. Additionally, the lag on our fuel search art program negatively impacted results as fuel prices rose during the quarter. No doubt about it, it was a tough quarter, but I'm pleased with the positive productivity we're quickly gaining. Our service performance also is strengthening as we're positioning ourselves to meet customer demand while at the same time storing assets.

Speaker 3: In summary, we are fortunate to have a diverse portfolio that allows us to see positive momentum in some of our community.

In summary, we are fortunate to have a diverse portfolio that allows us to see positive momentum in some of our commodities. The team remains focused on what we can control and I'm proud of the progress we've made in such a challenging market.

Speaker 3: team remains focused on what we can control. And I'm proud of the progress we've made in such a challenging mark.

Speaker 3: We have a strong pipeline of opportunities that are actively pursuing by leveraging our great franchise and extending our reach with Translope, Interline and Shortline Parton.

We have a strong pipeline of opportunities that are active but were actively pursuing by leveraging our great franchise and extending our reach with trans load Interline and short line partners, we are winning new business and I'm confident that with our improved service product, we can open up more doors to new.

Jim Vena: I'll let Eric and Keny discuss both in more detail. Ultimately, we're taking the right actions to build from here.

Speaker 3: We are a winning new business, and I'm confident that with our improved service product, we can open up more doors to new profitable growth opportunities.

Jennifer Hamann: So with that, let me hand it to Jennifer. I'm going to provide more details on the third quarter with financials. Thanks, Jim, and good morning. I'm going to discuss our third quarter results by walking through the income statement on slide five, starting with operating revenue of $5.9 billion, down 10% versus last year on a 3% year over year volume decline, breaking it down further as illustrated in the appendix slides, freight revenue total $5.5 billion, down 9% versus 2022.

New profitable growth opportunities with that I'll turn it over to Eric to review our operational performance.

Speaker 3: With that, I'll turn it over to Eric to review operational performance.

Speaker 4: Thank you, Kenny, and good morning. Starting on slide 12, as Jim mentioned, safety is the foundation of everything we do, and our goal is to lead the industry. Union Pacific can be the best.

Thank you Kenny and good morning, starting on slide 12.

Jim mentioned safety is the foundation of everything we do and our goal is to lead the industry.

Pacific can be the best because we've been there before we have exceptional people and the entire team is focused on returning every employee home safely every day.

Speaker 4: We have exceptional people and the entire team is focused on returning every employee home safely.

Speaker 4: While our progress has been encouraging, we must continue to improve technology and strive to provide best practices to the industry and the communities that we serve.

While our progress has been encouraging we must continue to improve technology and strive to provide best practices to the industry and the communities that we serve.

Jennifer Hamann: Total fuel search art revenue of $600 million and $37 million declined $515 million from last year. The impact of lower year-over-year fuel prices as well as the lag in our surcharge programs reduce freight revenue 8%. The combination of price and mix increased freight revenue 150 basis points as solid core pricing gains were partially offset by an unfavorable business mix. Increased short haul rock moves and fewer lumber carloads outweighed the impact of moving fewer low average revenue per car and a modal shipment.

Speaker 4: Safety impacts every facet of our business, our employees, customers, communities, and shareholders. And we are committed to world-class safety.

Safety impacts every facet of our business our employees customers communities and shareholders and we are committed to world class safety performance.

Speaker 4: Coatly aligned with our goal of industry leading safety, we are confident in our ability to lead the industry in both service and operational

Closely aligned with our goal of industry, leading safety, we are confident in our ability to lead the industry in both service and operational excellence in late August the southwestern portion of our network was challenged by a series of intense weather events that caused widespread flash flooding and washouts, however through the bold and relentless efforts of our team we were.

Speaker 4: In late August , the Southwestern portion of our network was challenged by a series of intense weather events that caused widespread flash flooding and washing.

Speaker 4: However, through the bold and relentless efforts of our team, we were able to quickly respond and rapidly restore our parade.

Jennifer Hamann: In addition, our pricing gains continue to include the impact of certain coal and intermodal contracts that are more reflective of current market conditions. Wrapping up the top line, other revenue decreased 13% versus last year driven by a $70 million year-over-year reduction in assets.

To quickly respond and rapidly restore operations.

Speaker 4: Despite the weather headwinds, our performance metrics improved year over year. We look to maintain that positive momentum as the vast majority of our metrics in the month of September represented our best performance year to date.

Despite the weather headwinds our performance metrics improved year over year, we look to maintain that positive momentum as the vast majority of our metrics in the month of September represented our best performance year to date.

Jennifer Hamann: Switching to expenses were, again, more detailed information can be found in the appendix operating expense of $3.8 billion to climbed 4% driven by lower fuel prices last year's one-time charge for labor agreements and volume-related costs. Digging deeper into a few of the expense line, compensation and benefits expense decreased 77 million versus 2022, which does include last year's $114 million one-time labor charge. Third quarter workforce levels increased 3% and our active TE and Y workforce is up 2% as we graduated new train crew personnel during the quarter.

Speaker 4: Freight car velocity improved 5% this quarter versus last year. Throughout the last several weeks, we have maintained a freight car velocity of around 210 miles per day.

Freight car velocity improved 5% this quarter versus last year throughout the last several weeks, we have maintained our freight car velocity of around 210 miles per day.

Speaker 4: The impact of increased freight car velocity can be felt by our customers through the benefit of improved trip length.

The impact of increased freight car velocity can be felt by our customers through the benefit of improved trip plan compliance, both intermodal and manifest and auto T. P. C saw a sizable 13 and six point year over year improvement respectively. We will continue our work to deliver the service we sold our customers.

Speaker 4: Both Intermodal and Manifest and AutoTPC saw a sizeable 13 and 6-point year-over-year improvement respectively. We will continue our work to deliver the service.

Speaker 4: Now let's review our key efficiency metrics for the quarter on flight 13.

Now, let's review our key efficiency metrics for the quarter on slide 13.

Speaker 4: The team is continuing to take actions to right size resources to align with current volumes and run an even more efficient network.

The team is continuing to take actions to rightsize resources to align with current volumes and run an even more efficient network.

Jennifer Hamann: At this point, with our train crews more appropriately staffed, our training pipeline is shrinking. Today, we have just over 500 employees in training down more than 50% from last quarter's pipeline of roughly 1200. Excluding the impact of last year's labor charge, cost per employee was essentially flat in the third quarter as we are starting to generate better overall productivity. As a result, we now expect full-year cost per employee to be up closer to 3%.

Speaker 4: This incorporates gym strategy of empowering our people closest to the work and removing layers to increase the speed of decision.

This incorporates Jim strategy of empowering our people closest to the work and removing layers to increase the speed of decision making.

Speaker 4: Locomotive productivity improved 4% versus last year, as we continue to identify opportunities to utilize the fleet more fish.

Locomotive productivity improved 4% versus last year as we continue to identify opportunities to utilize the fleet more efficiently.

Speaker 4: The third quarter marked both our lowest active high horsepower fleet size and the highest quarterly locomotive productivity number since the first quarter of 2020.

The third quarter marked both our lowest active high horsepower fleet size and our highest quarterly locomotive productivity number since the first quarter of 2022.

Jennifer Hamann: Both third quarter and full-year cost per employee reflect elevated workforce levels and better crew efficiency, partially offset by wage inflation, which includes $20 million in the third quarter from paid sick leave. Fuel expense in the quarter decreased 25% on a 21% decrease in fuel prices from $3.96 a gallon to $3.12. Our fuel consumption rate was flat, but showed positive momentum through the quarter as we stored locomotives and improved freight car velocities.

Speaker 4: Workforce productivity, which includes all employees, was down 6% versus last year, reflecting the impact of volume declines coupled with increased workforce level.

Workforce productivity, which includes all employees was down 6% versus last year, reflecting the impact of volume declines coupled with increased work force levels.

Speaker 4: Leveraging a larger workforce, we have reduced borrowouts to the lowest total of the year in slowed hiring.

Leveraging a larger workforce, we have reduced bar wells for the lowest total of the year and slowed hiring.

Speaker 4: We remain firmly focused on effectively managing our workforce levels and recognize the importance of balancing our resources as we plan for the future.

We remain firmly focused on effectively managing our workforce levels and recognize the importance of balancing our resources as we plan for the future.

Speaker 4: Train length improved 1% compared to third quarter 2022, despite lower volumes in our inner model.

Train length improved 1% compared to third quarter 2022, despite lower volumes in our intermodal business by putting more product on fewer trains we have increased train length across our system by over 500 feet or 6% since January of this year.

Jennifer Hamann: Fadi. Finally, other expense grew 18%, primarily related to continued pressure and casually cost. It also reflects the impact of one-time write-off as highlighted in the financial walk-down slide on 22 in the appendix. The resulting outcome is third quarter operating income of $2.2 billion down 17% versus last year. Below the line, other income decreased $18 million, driven by last year's $35 million gained from a real estate transaction. Interest expense increase 36% reflecting higher average debt levels.

Speaker 4: By putting more product on fewer trains, we have increased train length across our system by over 500 feet or 6% since January of the...

Speaker 4: Our focus on train length is pain dividends and we are continuing our work to further improve this measure.

Our focus on train length is paying dividends and we are continuing our work to further improve this measure.

Speaker 4: While our service product demonstrated noticeable improvement, there are more opportunities to improve the efficiency of our locomotive fleet, increase workforce productivity, and maximize train length. We must sustain momentum across all of our operating metrics as we exit the year. So with that, I'll turn it back to Jim. Thank you, Eric. Thank you.

While our service product demonstrated noticeable improvement there are more opportunities to improve the efficiency of our locomotive fleet increased workforce productivity and maximize trailing we must sustained momentum across all of our operating metrics as we exit the year, so with that I'll turn it back to Jim. Thank.

Jennifer Hamann: Income taxes are lower in the quarter, unreduced income and lower tax rates that resulted in a 41 million deferred tax expense reduction. Similar to last year's $40 million tax reduction, we again had three states cut corporate income tax rates in the third quarter. Net income of $1.5 billion declined 19% versus 2022, which when combined with a lower average share count resulted in an 18% decrease in earnings per share to $2.51. Third quarter operating ratio increased 3.5 points to 63.4%, core results which include the impact of inflation, lower volumes and cost inefficiencies accounted for the majority of the year-over-year change.

Thank you Eric turning to slide 15.

Speaker 1: Before we get to your questions, I'd like to quickly summarize what you've heard from our team. Jennifer, walk you through the inflationary pressure we continue to face broadly throughout our cost structure, but more specifically from you labor agreements. These are real hurdles that will require price generation and productivity to over.

Before we get to your questions I'd like to quickly summarize what we've you've heard from our team.

Jennifer walk you through the inflationary pressure, we continue to face broadly throughout our cost structure, but more specifically from your labor agreements. These are real hurdles that were acquired price generation and productivity to overcome candy.

Speaker 1: Kenny outlined a challenging volume environment, one with bright spots like construction and biofuze, but ultimately is being overwhelmed by soft consumer.

Kenny outlined a challenging volume environment, one with bright spots like construction of Biofuels, but ultimately is being overwhelmed by soft consumer markets. Despite this environment. The team is leveraging our business available pipeline to bring new business to the railroad.

Speaker 1: Despite this environment, the team is leveraging our business development pipeline to bring new business to the road.

Speaker 1: And finally, for America, you heard that we're improving safety, service, and efficiency. We exited the quarter with great momentum. September was a very strong month across all of our operating metrics, and the momentum continues today. But we're still nowhere near what I believe we can deliver. There's still plenty of room to improve. I came back to win.

Finally, primerica you heard that we're improving safety service and efficiency, we exited the quarter with great momentum September was a very strong month across all of our operating metrics and the momentum continues today, but we're still nowhere near what I believe we can deliver there's still plenty of room to improve.

Jennifer Hamann: Turning down to slide 6 and cash flows. Year-to-date cash from operations totaled $6 billion, a decrease of roughly $1 billion from 2022. The combination of lower net income and nearly $450 million of labor payments were the main drivers. Free cash flow and our cash flow conversion rate also were impacted. Year-to-date, we've returned a little more than half of the cash generated or $3.1 billion to shareholders through dividends and share repurchases. And we finished the third quarter with an adjusted debt to EBITDA ratio up slightly from 2022 levels at three times, as we continue to be arated by our three credit agencies.

I came back to win.

Speaker 1: and I could see the opportunity at Union Pacific. In a short period, we've increased the urgency across all facets of our strategy. The ultimate outcome is better service for our customers, which drives growth to the railroad. By aligning the team with a strategy of safety, service, and operational excellence, we will win. We're now ready to take your questions. Rob. Rob.

I could see the opportunity of Union Pacific in a short period, we've increased the urgency across all facets of our strategy. The ultimate outcome is better service for our customers, which drives growth for the railroad by aligning the team with a strategy of safety service and operational excellence, we will win.

Jennifer Hamann: Rapping up now on slide 7, the overall financial story and outlook for the remainder of 2023 is largely unchanged. We're facing a demand environment where we don't expect full-year volumes to exceed industrial production. We do, however, still expect to generate pricing dollars in excessive inflation dollars, although as we've discussed through the year, not to the level that offsets the negative impact of elevated costs on our operating ratio. Fuel also remains a headwind on earnings per share, although moderating from the 34-cent negative EPS impact in the third quarter to approximately 10 cents of negative year over your impact in the fourth quarter.

We're now ready to take your questions Rob.

Thank you well now be conducting a question and answer session.

Speaker 5: If you'd like to ask a question today, please press star one on your telephone keypad and a confirmation telephone will indicate your line is in the question queue. You may press star two if you'd like to remove your question.

If you'd like to ask a question today. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue.

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

Speaker 5: from distance using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 5: Do the number of analysts joining us on the call today? We'll be limiting everyone to one question. Two comedies, many as possible.

Due to the number of analysts jonny who's on the call today, well be limiting everyone to one question to accommodate as many as possible.

Speaker 5: Thank you, and our first question will be from the line of Ken Hexert with Bank of America. Please receive your question.

Thank you and our first question will be from the line of Ken texture with Bank of America. Please proceed with your question.

Jennifer Hamann: And that assumes fuel prices in the fourth quarter are around $3.30 a gallon. And significant inflation headwinds remain, primarily in the form of the new labor agreements. We expect similar levels for fourth quarter pay sick leave expense to third quarter, and the impact of the BLET work rest agreements will primarily be seen through elevated force levels. Finally, our capital plan is coming in a little bit higher at $3.7 billion. All that said, the important takeaway from today's results and our view of tomorrow is that we're making gains.

Speaker 6: Good morning and congrats on the new role, Jim. Jim, maybe just starting there on operations and Eric, is this, what is changing here, what needs to change? Is it a plan, is it, you have too much equipment, maybe talk a little bit about what metrics you focus on as you get started or productivity. You're throughout there, there were too many local motives, maybe provide some numbers and targets and thoughts on how you get there. Thanks.

Good morning, and congrats on the new role Jim So.

Maybe just starting there on operations.

Eric You know is this you know what what is changing here and what needs to change is it. The plan is it you have too much equipment, maybe talk a little bit about what metrics you're focused on as you get started our productivity you threw out there there were too many locomotives, maybe provide some numbers and targets and thoughts on how you get there. Thanks.

Speaker 1: and nice to be back and nice to hear your voice again. And I'll let Eric jump in in a minute, but he's the operating person. He's responsible. He's the person I want to keep accountable for to make sure we drive it. But what metrics do I look at? I haven't changed.

And the nice to be back and nice to hear your voice again and I'll, let Eric jump in in a minute but.

Jennifer Hamann: From maximizing growth opportunities and repricing our business to improving service and generating productivity, we're striving to build on the current momentum as we end 2023 and enter 2024 on a path to further financial improvement.

Because he is the operating person he's responsible he is the person I'm going to keep accounts accountable for to make sure we drive it but what metrics do I look at I haven't changed that.

Speaker 1: And a successful railroad is always fluid. Make sure that you operate in a matter where you don't impact the network because of decisions you made with the kind of service that you've sold and the way you use your assets and people. And whether you have the capacity on the railroad.

Successful railroad is is always fluid make sure that you operate in a matter where you don't impact the network because of decisions you've made with the kind of service that you've sold and the way you use your assets and people and whether you have the capacity on the railroad. So when I look at Union Pacific What do I have.

Kenny Rocker: With that, I'll turn it over to Kenny to give us a view of the business environment.

Kenny Rocker: Thank you, Jennifer, and good morning. You just heard from Jennifer that freight revenue declined 9% with a 3% decrease in volume for the third quarter. Let's jump right into the business team to recap the market drivers on the revenue. Scythe. Starting with bulk, revenue for the quarter was down 10% compared to last year, driven by a 6% decrease in average revenue per car due to lower fuel surcharges and a 4% decline in volume.

Speaker 1: So when I look at Union Pacific, what do I look at at a high level? I look at, do we have the physical plant to be able to handle the traffic and be able to handle the ups and downs that every railroad or nose happens with weather?

Look at it at a high level I look at do we have the physical plant to be able to handle the traffic and be able to handle the ups and downs that every railroad or knows happens with weather.

Speaker 1: Who thought we were ever going to get a hurricane in the West Coast?

Who thought we were ever going to get a hurricane in the West coast. Okay. That's always in eastern seaboard issue more than a golf issue, but not a western but I think.

Speaker 1: Okay, that's always an Eastern Seaboard issue, more an a golf issue, but not a Western boat. I think we did as a team, we did a great job of recovering. So you need a strong network.

Kenny Rocker: Granex ports were softer than last year due to tight supply. Co-volume was down 5% for the quarter, by continued decline for the use of coal and electricity generation, combined with competitive pressures from lower natural gas prices. Lastly, we saw reduction in import beer car loads due to the increased utilization of larger rail cars, which creates value for both the customer and union Pacific. Industrial revenue was down for the quarter driven by a 6% decrease in average revenue per car.

We did as a team we did a great job of recovering so you need a strong network and we have the capacity there will continue to invest to make sure. So that's important to me and we have to make sure that we have a buffer of people and assets.

Speaker 1: And we have the capacity there. We'll continue to invest and make sure. So that's important to me.

Speaker 1: and we have to make sure that we have a buffer of people and <expletive>

Speaker 1: So that we're ready for the ups and downs of the business that happens. I wish it was flatline cannon, you know it as well as I do. You've been following real roads for a long time.

So that we're ready for the ups and downs of the business that happens because I wish it was flatline Camden you know it as well as I do you mean, followed railroads for a long time. So let me go on because this is an important question is what do I look at.

Speaker 1: So let me go on because this is an important question. What do I look at?

Speaker 1: I look at it in the morning, first thing when I get up, I probably get about 100 different touch points on the railroad.

I look at it in the morning first thing when I get up I, probably get about 100 hundred different touch.

Kenny Rocker: Core pricing gains in the quarter were offset by lower fuel surcharges and a negative mix in volume. Solved to decline for Bloomberg and corrugated boxes continues to be a challenge, but our relentless focus on business development is driving excellent growth in our rock network that supports construction of newly-merging LNG facilities along the Texas Gulf and growth in petroleum products for both domestic and Mexico energy reform. Premium revenue for the quarter was down 12% on a 4% decrease in volume and a 9% decrease in average revenue per car from fuel surcharges and a challenging truck market.

Touch points on the railroad.

Speaker 1: all in one spreadsheet. But what I actually look at is, I look at revenue first. Where are we financially? What was our volume like and what kind of, where the revenue is? And if it's not good, the next calls to Kenny. Okay?

All in one spreadsheet, but what I actually look at is I look at revenue first where are we financially what was our volume like and what kind of where the revenue is and if it's not good the next calls to Kenny Okay.

Speaker 1: Then the next thing I look at is car velocity. It's an end to end measure. It tells me how well the railroad's doing. You know, in two tens of good number, but nowhere near what's possible. So Eric's got done a great job so far, but we need to push more. Then it's...

Then the next thing I looked at his car velocity. It's an end to end measure tells me how well the railroads doing you know in two tenths of a good number but nowhere near was possible. So eric's got done a great job, so far, but we need to push more than.

And then it's.

Speaker 1: then you continue to look at the fluidity numbers. How well we are at crew changes, how the intermodal terminals, how fast we're getting to pad, how fast we're allowing the truckers to go through. So there's a lot of metrics that we look at that most people probably haven't heard me talk about, but I thought I'd give you a little broader view of what I look at.

Then you can continue to look at the fluidity numbers, how well we are at the crew changes how the intermodal terminals, how fast we're getting to pad how fast we're allowing the truckers to go through so there's a lot of metrics that we look at that most people probably haven't heard me talk about but I thought I'd give you a little broader view of what I look.

Kenny Rocker: Automotive volumes were positive with continued strength in OEM production and dealer inventory replenishment for finished vehicles and auto parts. In addition, a robust business development pipeline, like winning both wagon shipments from the Texas Gulf, enabled us to outperform the market in the quarter. Intermodal volumes were down in the quarter primarily driven by softness and parcel segment and weak imports on the west coast. However, domestic truck low volume was slightly up driven by business development wins and strengthen our Mexico shipments.

Speaker 1: And then after you do that, there's the hot, the asset issue. How many cars per car load, the locomotives? So we've got over 500 locomotives parked, and those 500 are ready to go locomotive.

At.

And then after you do that there's a hot the asset issue how many cars per carload locomotives. So we you know we've got over 500 locomotives parked and those 500 are ready to go locomotives.

Speaker 1: So we can turn them on in a short period of time. We've got some place in strategic locations. If we need them on the network to keep the service level that we sold. On top of that, we have more locomotives that are stored for longer term. So we're in good shape on assets.

So we can turn them on in a short period of time, we've got some place in strategic locations. If we need them on the network to keep the service level that we sold on top of that we have more locomotives that are stored for longer term. So we're in good shape on assets.

Kenny Rocker: Turning to slide 10, here is our outlook for the fourth quarter as we see it today. Starting with bulk, we anticipate continued challenges in coal as natural gas futures remain volatile. We are watching grain closely as we enter the export season. Props are being harvested right now and increased supplies will be available to move. US soybean export sales have started out slower than forecast it. However, we have an improved service product this year to capture more available demand.

Speaker 1: We spool up this railroad to operate at the level that is possible with the type of business that we have. And I think it's a win-win for us. Ken, and that's what I look at every morning. Eric, you want to...

We spool.

Spool up this railroad to operate at the level that is possible with the type of business that we have and I think it's a win win for us Ken and that's what I look at every morning, Eric do you want to.

Speaker 4: So when we think about recapping the court, the court can start thinking about we did make great progress in the court from a 40 perspective to Jim.

So when we think about recapping the quarter can you start thinking about we did make great progress in the quarter from a food perspective to Jim's point.

Speaker 4: And when you think about what did we do with that, we were able to store approximately 300 locomotives during the quarter, we were able to reduce our re-cruel rate. We took down our borrowout to the lowest level we've had all year.

Kenny Rocker: Lastly, our forecast for renewable biofuels, beef dots, continues to remain strong. We see solid demand in this market and continue to capture new business. We recently landed opportunities with projects coming online soon in Iowa, Louisiana and Nevada.

And when you think about what did we do with that we were able to store approximately 300 locomotives during the quarter were able to reduce our re crew rate, we took down our borrower to the lowest level we've had all year.

Speaker 4: Now, we continue to face the headwind from a workforce productivity of some of our agreements. So clearly the challenge that we've given ourselves and we continue to challenge ourselves with is how do you work to overcome that productivity headwind? So when you think about things like some of the agreements that we've signed that actually allow us to remove certain people off of certain jobs across the system.

We continue to face the headwind from a workforce productivity of some of our agreements. So clearly the challenge that we've given ourselves and we continue to challenge ourselves with is how do you work to overcome that productivity headwind. So when you think about things like some of the agreements that we've signed that actually allow us to remove certain people off of certain jobs across the.

Kenny Rocker: Moving on to industrial, the economic forecast for industrial production looks to stay depressed in the fourth quarter. However, we expect petroleum and construction markets to remain favorable due to our focus on business development.

Speaker 4: We work to continue to reduce the fleet even more as we grow train links. I'm super proud of the team for the train links they've grown since January . There's still more opportunity there. When I think about remote control locomotives and being able to reduce some of our gain productivity and some of that, that's an opportunity for us. And the list goes on and on. We probably could talk about it for an hour. So I'm very excited about it. I think this is just the beginning. Thanks for the question.

Hmm and we work to continue to reduce the fleet, even more as we grow train links I'm Super proud of the team for the train length they've grown since January there's still more opportunity there when I think about remote control locomotives and been able to reduce some of our good gain productivity and some of that that's an opportunity for us and the list goes on and I would probably can talk about it for an hour so I'm I'm.

Kenny Rocker: Amit. And finally, for premium, we are staying close with our in our modal customer than this challenging demand environment. We've seen a seasonal uptick at the beginning of the quarter, and we believe our improved service product positions up well to handle market demand. In addition, we expect automotive growth to continue during by strong OEM production and elevated shipable ground count. However, we are watching closely the ongoing UAW negotiation and the negative impact they are having on four quarter volumes as the strikes persist.

We're excited about it and I think this is just the beginning Jan and thanks for the question I appreciate it great. Thanks for the time.

Speaker 5: The next question to the line of 5-E Shimon with BMO Capital Markets. Please receive your questions.

The next question is from the line of Savi Shemona with BMO capital markets. Please proceed with your question.

Speaker 7: Yeah, good morning and welcome back Jim.

Yeah, Good morning, and welcome back Jim.

Speaker 7: I mean, a quick question, I think, we've heard this in the past many times and maybe from huge emits.

Quick question I I think you know we've heard this in the past you know many times and you know maybe from here Jim.

Kenny Rocker: In summary, we are fortunate to have a diverse portfolio that allows us to see positive momentum in some of our commodities. The team remains focused on what we can control, and I'm proud of the progress we've made in such a challenging market. We have a strong pipeline of opportunities that we're actively pursuing by leveraging our great franchise and extending our reach with Translose, Interline, and Shortline partners. We are a winning new business, and I'm confident that with our improved service product, we can open up more doors to new profitable growth opportunities.

Speaker 7: First, you have to fix the engine and ultimately, energize the commercial momentum. And I think the success story around the industry really are in that vein where collaboration between operation and commercial have been, have been big catalyst for that. So my question is, it doesn't fix the engine and you talked about car velocity. What do you think?

First you have to fix the engine.

Ultimately.

The commercial momentum and.

The success story around the industry really.

Or in that in that vein, where you know a collaboration between operation and commercial have been have been a you know a big catalyst for that.

So my question is it done the fixing of the engine and you talked about car velocity, what what do you think you are for the network that you have and in that process and what is ultimately the right kind of.

Speaker 7: You are for the network that you have in that process. And what is ultimately the right kind of...

Eric Gehringer: With that, I'll turn it over to Eric to review our operational performance. Thank you, Kenny, and good morning.

Speaker 7: you know, goal from a car velocity perspective, from an acid velocity perspective for UP, where are you in that process? And as you go into 2024, can you kind of make progress? Can you improve operating ratio? Even if volume or flight or the economy is muted and there is a normal amount among that fund?

Eric Gehringer: Starting on flight 12, as Jim mentioned, safety is the foundation of everything we do, and our goal is to leave the industry. Union Pacific can be the best because we've been there before. We have exceptional people, and the entire team is focused on returning every employee home safely every day. While our progress has been encouraging, we must continue to improve technology and strive to provide best practices to the industry and the communities that we serve.

You know going from a car velocity perspective from an outfit velocity of groups.

Therefore, you'd be where are you in that process and and.

And you know as you go into 'twenty 'twenty four Ken can you kind of make progress can you improve operating ratio, even if volume on the fly but the economy is muted and there is no momentum on that front.

Eric Gehringer: Safety impacts every facet of our business, our employees, customers, communities, and shareholders, and we are committed to world-class safety performance. Bothly aligned with our goal of industry leading safety, we are confident in our ability to lead the industry in both service and operational excellence.

So savi.

Speaker 1: I like the question because it frames exactly what what when I came back to work the challenges that I could see that the first challenge we had was was inflation both

I like the question because it brings exactly what would what are when they came back to work the challenges that I could see that the first challenge that we had was.

It was inflation both.

Speaker 1: input cost plus labor cost and some of the collective agreements we signed.

Input cost plus our labor costs and some of the collective agreements we signed.

Eric Gehringer: In late August, the Southwestern portion of our network was challenged by a series of intense weather events that caused widespread flash flooding and wash-outs. However, through the bold and relentless efforts of our team, we were able to quickly respond and rapidly restore operations. Despite the weather headwinds, our performance metrics improved year over year. We looked to maintain that positive momentum as the vast majority of our metrics in the month of September represented our best performance year-to-date.

Speaker 1: You know, every CEO that comes in always wants to blame people beforehand, that's not the way I look at it, that's the challenge. I knew what I would get myself into. So we do, how do we fix that piece? Is as we drive and look for efficiency, and there's efficiency there. Usually I don't give up, and you know that, that I don't forecast numbers.

Every CEO that comes in always once the plane people beforehand, that's not the way I look at it that's the challenge I knew what I would get myself into so we do how do we fix fix that piece is as we drive and look for efficiency and there is efficiency there usually I don't give up and you know that Saturday I don't forecast numbers, but I'll tell you I'll be disappointed.

Speaker 1: But I'll tell you, I'll be disappointed if that car velocity doesn't return to where it was before that we had in 2020. There's no reason for us to not be low to 20s.

Pointed at that.

Our velocity doesn't return to where it was before that we had in 2020, there's no reason for us to not be a you know a low two twenties.

Eric Gehringer: Freight car velocity improved 5% this quarter versus last year. Throughout the last several weeks, we have maintained a freight car velocity of around 210 miles per day. The impact of increased freight car velocity can be felt by our customers through the benefit of improved trip plan compliance. Both Intermodal and Manifest and Auto-TPC saw a sizeable 13 and 6-point year-over-year improvement respectively. We will continue our work to deliver the service we sold our customers.

Speaker 1: That's about as far as I'm going to get on that number. If I look at the other piece that we have to do, and Kenny's all over it and his team is, we know that we can't through efficiency and productivity recover everything in a...

So that's about as far as I'm going to get on that number if I look at it but the other piece that we have to do and Kenny is all over it and his team is as we know that we can't through efficiency.

The efficiency and productivity recover everything.

Speaker 1: in the long term. But what we can do is we can price properly for what the service that we're providing our customers and Kenny's all over that. Now that's gonna take a little bit of time and I'll let Kenny later on talk about this. But so the way I look at it is those two things if we do them right, and let's leverage this real-

In the long term, but what we can do is we can price properly for what the service that we're providing our customers in Canada is all over that and that's going to take a little bit of time and I'll, let Kenny later on talk about this but.

Eric Gehringer: Now let's review our key efficiency metrics for the quarter on flight 13. The team is continuing to take actions to right-size resources to align with current volumes and run an even more efficient network. This incorporates Jim's strategy of empowering our people closest to the work and removing layers to increase the speed of decision, and Making. Locomotive productivity improved 4% versus last year, as we continue to identify opportunities to utilize the fleet more efficiently.

The way I look at it is those two things if we do them right and let's leverage this railroad that we have okay were a 70 mile. Our railroad there's only one other railroad in North America that runs their freight trains at 70 miles an hour. Okay. So let's leverage that and you could see that when we change the service out of Mexico, because we want to leverage.

Speaker 1: Okay, we're a 70 mile an hour railroad. There's only one other railroad in North America that runs their freight trains at 70 miles an hour. Okay, so let's leverage that. And you could see that when we change the service out of Mexico, because we want to leverage Mexico to grow our business in and out. And by doing that, and providing customers a service that from the border nobody can beat us to Chicago. We have the fastest service of anybody.

Mexico to grow our business in and out and by doing that and providing customers. A service that are from the border nobody can beat us to Chicago, we have the fastest service of anybody, especially with the new train service that we have on that so we should leverage that now not everybody wants speed. So we have to make sure. We're there with consistent we are.

Eric Gehringer: The third quarter marked both our lowest active high horsepower fleet size and the highest quarterly locomotive productivity number since the first quarter of 2022. Workforce productivity, which includes all employees, was down 6% versus last year, reflecting the impact of volume declines coupled with increased workforce levels. Leveraging a larger workforce, we have reduced borrowouts to the lowest total of the year in slowed hiring. We remain firmly focused on effectively managing our workforce levels and recognize the importance of balancing our resources as we plan for the future.

Speaker 1: especially with the new train service that we have on. So we should leverage that. Now, not everybody wants speed, so we have to make sure whether we're consistent. We also have to leverage our network.

Also have to leverage our network.

Speaker 1: I love the places we serve and where we can take our customers to. I love the way our origination.

I Love the places, we serve and where we can take our customers too.

I love the way our origination.

Speaker 1: customers are and the number we have in the variety crossing all market segments and If we do that, that we become the most

Our customers are in the number we have and the variety crossing all market segments and if we do that study.

Eric Gehringer: Train length improved 1% compared to third quarter 2022, despite lower volumes in our intermodal business. By putting more product on fewer trains, we have increased train length across our system by over 500 feet or 6% since January of this year. Our focus on train length is paying dividends and we are continuing our work to further improve this measure. While our service product demonstrated noticeable improvement, there are more opportunities to improve the efficiency of our locomotive fleet, increased workforce productivity, and maximize train length. We must sustain momentum across all of our operating metrics as we exit the year.

We become the most efficient railroad.

Speaker 1: Operationally we have always said this and I will continue to say it. We will have the best margin Railroad and

Operationally, we I've always said this and I'll continue to say it we will have the best margin.

Railroad in North America.

Speaker 1: best operating ratio, best margin, whichever way you want to look at it. I'm comfortable with that. And we give a chance for the customers that are with us to win. And we look to move customers that are using other modes.

Best operating ratio best margin whichever way you want to look at it I'm comfortable with that and we give them a chance for the customers that are with us to win and we look to move customers that are using other modes, including trucks they'll look at the railroad as their way that they want to win so I'm I'm happy I do.

Speaker 1: including trucks that look at the railroad as their way that they want to win. So I'm happy. I didn't come back to work to lose. I came back to win. I was more than comfortable. You know, most people my age are thinking about doing other things. In fact, I had a trip to K2 plans.

Jim Vena: So with that, I'll turn it back to Jim. Thank you, Eric. Turn it to slide 15.

Didn't come back to work to lose I came back to when I was more than comfortable you know most people my age or thinking about doing other things and in fact I had a trip to K two planned and when the opportunity came up and we agreed with the board on what the strategy was and what we wanted to do moving forward I said listen I'm all in let's go.

Jim Vena: Before we get to your questions, I'd like to quickly summarize what you've heard from our team. Jennifer, walk you through the inflationary pressure we continue to face broadly throughout our cost structure, but more specifically from you labor agreements. These are real hurdles that will require price generation and productivity to overcome. Candy outlined a challenging volume environment, one with price spots like construction and biofuse, but ultimately is being overwhelmed by soft consumer markets.

Speaker 1: And when the opportunity came up and we agreed with the board and what the strategy was and what we wanted to do moving forward, I said, listen, I'm all in. Let's go. So I've been working hard with the team.

I've been working hard with the team.

Speaker 1: And I'm pushing them hard. At the end of the day, we need to make decisions quicker. We need to react quicker. We need to quit having so many layers and that slow down the decision making. And with that, we end up winning fatty. Hopefully I answered your question. I know it was a long answer. And maybe there won't be any other questions after this.

And I'm pushing them hard at the end of the day, we need to make decisions quicker, we need to react quicker we need to quit having so many layers and that slow down the decision, making and with that we ended up winning fatty hopefully I answered. Your question I know it was a long answer and maybe there won't be any other questions. After this.

Jim Vena: Despite this environment, the team is leveraging our business development pipeline to bring new business to the railroad. And finally, for Eric, you heard that we're improving safety, service, and efficiency. We exited the quarter with great momentum. September was a very strong month across all of our operating metrics, and momentum continues today. But we're still nowhere near what I believe we can deliver. There's still plenty of room to improve.

I appreciate it thanks.

Okay.

Speaker 5: Our next question is from the line of Jason Fyattult with PD Count. Please receive it.

Our next question is from the line of Jason Seidl with TD Cowen. Please proceed with your question.

Speaker 8: Thank you, operator. Good morning, Jim. Welcome back, Jennifer Kenney and Eric. Wanted to focus a little bit on sort of the inflation and pricing dynamic that we have going on here currently. Is this just a case for waiting until we can get to repricing some more of the contracts as we move through and seeing sort of better fluidity in the railroad and are we just sort of in for a few tough quarters here in terms of the comps? There.

Good morning, Jim Welcome back Jennifer Kenny generic wanted to focus a little bit more on sort of the inflation and pricing dynamic that we have going on here. Currently you know is this just a case for waiting until we can get to repricing some more of the contracts as we move through.

Jim Vena: I came back to win, and I could see the opportunity at Union Pacific. In a short period, we've increased the urgency across all facets of our strategy. The ultimate outcome is better service for our customers, which drives growth to the railroad. By aligning the team with a strategy of safety, service, and operational excellence, we will win.

And you know sort of better fluidity in the railroad.

And are we just sort of in for a few tough quarters here in terms of the comps.

Jim Vena: We're now ready to take your questions, Rob. Thank you.

Go ahead, yeah, thanks for that.

Speaker 3: questions. No, we're not waiting. We're repricing these contracts right now, real time. We're having some very clear and direct conversations with customers. The commercial team is doing an excellent job of really articulating what has placed from a labor standpoint in these costs. And specifically how what we're doing and what Eric is doing on his side, how will benefit our customers. Now our hotel is our customers are seeing some of the same.

Operator: We'll now be conducting a question and answer session. If you'd like to ask a question today, please press star one on your telephone keypad and a confirmation telephone to indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For districts using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Question No we're not we're not waiting we're.

Reprice when these contracts are right now real time.

Having some very clear and direct conversations with customers the.

The commercial team is doing a excellent job of really articulating.

What took place from a labor standpoint, and these cough and specifically how what we're doing and what Eric is doing on the on his side, how it will benefit our customers now I'll tell you our customers are seeing some of the same pressures.

Operator: Due to the number of analysts joining us on the call today, we'll be limiting everyone to one question. Two comedies, many as possible. Thank you.

Kenneth Hoexter: Our first question will be from the line of Ken Hexter with Bank of America. Please receive your questions.

Speaker 3: pressures and it's playing out in their markets that way too. The other thing in Jennifer talked about this a little bit, you know, we're investing a lot of money here. We're investing 3.7 billion. We don't lose an opportunity to share that with customers and talk about the value that they get from a nose investment. And so...

Pressures and it's playing out in their markets that way too. The other thing that Jennifer talked about this a little bit you know, we're investing a lot of money here, we're investing $3 7 billion, we don't lose an opportunity to share that with customers and talk about the value that they get.

Jim Vena: Good morning, and congrats on the new role, Jim. Jim, maybe just starting there on operations and Eric, you know, is this, you know, what is changing here? What needs to change? Is it the plan? Is it you have too much equipment? Maybe talk a little bit about what metrics you focus on as you get started or productivity? It's right there. There were too many locomotives. Maybe, you know, provide some numbers and targets and thoughts on how you get there.

And those investments and so you look at that you look at the improved service product that Eric is delivering Oh, we have no problem looking our customers and I talking to them about price and the value is there.

Speaker 3: You look at that, you look at the improved service product that Eric is delivering up. We have no problem looking at our customers in the high, talking to them about price and the value.

Jim Vena: Thanks. And nice to be back and nice to hear your voice again. And I'll let Eric jump in in a minute because he's the operating person. He's responsible. He's the person I want to keep accountable for to make sure we drive it. But what metrics do I look at? I haven't changed. A successful railroad is always fluid. Make sure that you operate in a matter where you don't impact the network because of decisions you made with the kind of service that you've sold.

Yes.

Speaker 2: and others though, we can't access all of our contracts immediately from a price.

And then in others, though we can't access all of our contracts immediately from a price standpoint. So you know we do have call. It half of our book of business isn't multiyear contracts. So to your question, Jason It does take us a bit to work through and reprice those contracts, but Kenny and team are very focused on every opportunity they get they're having that conversation and they're winning.

Speaker 2: So, you know, we do have, call it, half of our book of business is in multi-year contracts. So, to your question, Jason, it does take us a bit to work through and reprice those contracts, but Ken and Team are very focused at every opportunity they get. They're having that conversation and they're winning in the marketplace with higher.

And in the marketplace with higher prices.

Speaker 8: And Jennifer, could you remind us how they renew to the course of 24 or what percent?

And Jennifer could you remind us how they renew through the course of 'twenty four what percent.

Jim Vena: And the way you use your assets and people and whether you have the capacity on the railroad. So when I look at Union Pacific, what do I look at at a high level? I look at, do we have the physical plant to be able to handle the traffic and be able to handle the ups and downs that every railroad or nose happens with whether, you know, who thought we were ever going to get a hurricane in the West Coast?

Speaker 2: So we've not talked about 2024, but in general, call it half of our book is multi-year contract. 25% is tariff and the other 25% are so our contracts that are a year or less in duration. Okay. There.

So and we've not talked about 'twenty 'twenty four but in general call. It half of our book is multiyear contract, 25% is tariffs and the other 25% or so are our contracts that are a year or less and duration.

Okay Fair enough I appreciate the time thank.

Thank you.

Speaker 5: Our next question is from Amit Mahatra with Dr. Jemank. Please use your fingers.

Our next question is from Amit Malhotra with Deutsche Bank. Please proceed with your question.

Jim Vena: Okay, that's always an eastern seaboard issue more and a golf issue, but not a western. But I think we did as a team, we did a great job of recovering. So you need a strong network and we have the capacity there. We'll continue to invest to make sure. So that's important to me. And we have to make sure that we have a buffer of people and assets. So that we're ready for the ups and downs of the business that happens because I wish it was flatline can and you know it as well as I do.

Speaker 9: Thank you very much. Hi Jim, hi Jennifer, everyone. You ever can you talk about

Thanks, very much hi, Jim Hi, Jennifer everyone you have ever can you talk about I.

Speaker 9: I guess OR expectations is really from 3Q to 4Q. Obviously, the fuel headwind, I think gets even better sequentially. You talked about year over year, but I think it actually gets a little bit better sequentially. You're moving 8,000 more car loads per week.

Oh, our expectations as we do with some <unk> obviously.

<unk> headwind I think it gets even better sequentially you talked about year over year, but I think it actually gets a little bit better sequentially Youre moving 8000 more carloads per week, it's only two weeks into the quarter. So I don't want to get ahead of myself, but we're seeing we're seeing some decent sequential volume growth. So could you talk about that and then Jim just related to Jim and Eric actually.

Speaker 9: It's only two weeks into the quarter so I don't wanna get ahead of myself, but we're seeing some decent sequential volume growth. Can you talk about that? And then Jim, just related to Jim and Eric actually, you talked about getting car velocity up to 220 miles per day. You've already had great improvement on that in recent months and that has corresponded nicely to...

Jim Vena: You've been following the railroads for a long time. So let me go on because this is an important question. What do I look at? I look at in the morning, first thing when I get up, I probably get about 100 different touch points on the railroad, all in one spreadsheet. But what I actually look at is I look at revenue first. Where are we financially? What was our volume like and what kind of where the revenue is?

You talked about getting car velocity up to 220 miles per day, you've already had great improvement on that in recent months and that has a corresponding nicely to kind of this improvement in volume.

Speaker 9: kind of this improvement in volume. Should we think that, you know, that increase to 220 allows you to essentially move more volume that's waiting to be moved and we can see kind of a corresponding increase in kind of the seven day car loading. That...

Should we should we think that you know that increased to 220 allows you to essentially move more volume that's waiting to be moved in and we can see kind of a corresponding increase in kind of the seven day carloadings that and how do you get comfortable or how do you get us comfortable that you know the added volume doesn't drive service challenges, which historically has been the case for us.

Jim Vena: And if it's not good, the next call to Kenny. Okay. Then the next thing I look at is car velocity. It's an end to end measure tells me how well the railroads do it. You know in two tens of good number, but nowhere near what's possible. So Eric's got done the great job so far, but we need to push more. Then it's then you continue to look at the fluidity numbers. How well we are at crew changes, how the intermodal terminals, how fast we're getting to pad, how fast we're allowing the truckers to go through.

Speaker 9: How do you get comfortable, how do you get uncomfortable that the added volume doesn't drive service challenges, which historically has been the case for all railroads. So if you can just talk about that as well.

For all railroads. So if you could just talk about that as well. Thank you.

Speaker 2: Well maybe start off with an address, your question, at least the question about sequential OR improvement. You know, as I said in my prepared remarks, we're looking to build off the momentum that we have here as we ended off the third quarter and take that into the fourth quarter. And so...

So maybe I'll start off and then and then address your question at least the question about sequential or improvement.

You know as I said in my prepared remarks, we're looking to build off the momentum that we have here is we ended up the third quarter and take that into the fourth quarter and so without making any guide relative to what fourth quarter volumes are going to do to your point, we're off to a good start very pleased by that but we're going to operate as efficiently as we can and we do think we have an opportunity.

Speaker 2: without making any guide relative to what fourth quarter volumes are going to do. To your point, we're off to a good start. Very pleased by that. But we're going to operate as efficiently as we can. We do think we have an opportunity to have sequential gains going from third quarter to fourth quarter on the OR basis. It's going to take hard work by the team. It's going to take continued gains in terms of how we're operating the road and driving efficiency. But that's absolutely the goal that we're looking at. Jim, you want to maybe hit the...

Jim Vena: So there's a lot of metrics that we look at that most people probably haven't heard me talk about, but I thought I'd give you a little broader view of what I look at. And then after you do that, there's the hot the asset issue. How many cars per car load the locomotives. So we've got over 500 locomotives part and those 500 are ready to go locomotives. So we can turn them on in a short period of time.

To have sequential gains going from third quarter fourth quarter on AOR basis, it's going to take hard work by the team its going to take continued gains in terms of how we're operating the railroad and driving efficiency, but that's absolutely. The goal that we're looking at Jim you want to maybe hit the rest of his question about freight car velocity.

Jim Vena: We've got some place in strategic locations if we need them on the network to keep the service level that we sold on top of that. We have more locomotives that are stored for longer term. So we're in good shape on assets. We spool up this railroad to operate at the level that is possible with the type of business that we have. And I think it's a win-win for us. Ken, and that's what I look at every morning.

Speaker 1: So, the reason I use carbuloster is it truly is that end end number that gives you a great indication. And it's not the only indicator, but it gives you an indicator.

So what.

The reason I use for it.

Car velocity is it truly is that in the end number that gives you a feel it gives you a great indication and it's not the only indicator, but it gives you an indicator.

Speaker 1: So I like the question. You said, can you handle an increase in business and are you leaving business behind? I wish we were leaving business behind. I really do, and we are not. And we will look for everything we can to get more business.

I like the question you said can you handle an increase in business and are you, leaving business behind I wish we were leaving business behind I really do and we are not and we will look for everything we can to get more business.

Eric Gehringer: Eric, you want to? So when we think about recapping the quarter, Ken, you start thinking about we did make great progress in the quarter from the 40 perspective to Jim. Williams Point. And when you think about what did we do with that, we were able to store approximately 300 locomotives during the quarter, we were able to reduce our recruer rate, we took down our borrow out to the lowest level we've had all year.

The railroad.

Speaker 1: and real roads get themselves in trouble when they lose sight of what the fundamentals are for an increase in business. Increasing business can come in in a lot of different ways. One is, as it can be bulked.

And railroads get themselves in trouble when they they lose sight of what the fundamentals are for an increase in business increasing business can come in and a lot of different ways. One is as it can be bulk.

Speaker 1: as people, as locomotives, as puts more pressure on the capacity, and we built this railroad that has the capacity. Which always have to concentrate on and usually is the limiting factor when you increase especially on the carlo business is how well your terminals and what the capacity is on the terminals. And when I was here last time, we worked on

Which.

As people as locomotives ads puts more pressure on the capacity and we built this railroad that has the capacity, which you always have to concentrate on and usually is the limiting factor when you increase especially on the carload business is how well your terminals and what the capacity is on the terminals and when I was here last.

Eric Gehringer: Now, we continue to face the headwind from a workforce productivity of some of our agreements. So clearly the challenge that we've given ourselves and we continue to challenge ourselves with is how do you work to overcome that productivity headwind? So when you think about things like some of the agreements that we've signed that actually allow us to remove certain people off of certain jobs across the system. We work to continue to reduce the fleet even more as we grow train links.

We worked on in.

Speaker 1: in the Houston area and invested a lot of money to make sure that that terminal has the capacity to grow with the products that we handle in the industrial landscape. And it's important for us and we are going through a process to make sure that every car has the least amount of touch points. Fluidity is king and that we can handle the most cars per employee within all those terminals. And we have the gap that allows us to be able to react when the business comes up.

In the Houston area and invested a lot of money to make sure that that terminal had the capacity the girl with the with the products that we handle in the.

Eric Gehringer: I'm super proud of the team for the train link they've grown since January. There's still more opportunity there. When I think about remote control locomotives and been able to reduce some of our gain productivity and some of that, that's an opportunity for us. And the list goes on and on. We probably could talk about it for an hour. So I'm very excited about it. I think this is just the beginning. Thanks for the question. Appreciate it. Great.

Kenneth Hoexter: Thanks for the time.

Industrial landscape and it's important for us and we are going through a process to make sure that every car has the least amount of touch points fluidity is king and that we can handle the most cars per employee within all of those terminals and we have the gap that allows us to be able to react when the business comes up.

Amit Mehrotra: The next question to the line of 5 a.m, with BMO capital markets. Please just use your question.

Speaker 1: You know, if you add an extra inner motor train, or you add an extra thousand feet on one of our local motor trains, that's an easier fix, again, as long as the terminals, whether it's Jeep or in Chicago, or it's the Dallas terminals.

You know if you add an extra intermodal train or you add an extra 1000 feet on one of our locomotive trains that's an easier fix again as long as the terminals, whether it's jeep or in Chicago or Dallas terminals.

Jason Seidl: Yeah, good morning and welcome back Jim. I mean, quick question. I think, you know, we've heard this in the past, you know, many times and, you know, maybe from Gujim. It's, you know, first you have to fix kind of the engine and, you know, ultimately energize the commercial momentum. And I think the success story around the industry really are in that vein where, you know, collaboration between operation and commercial have been, have been, you know, big catalyst for that.

Speaker 1: have the capability to handle it in an expeditious manner the same way. I think we have it with all the business that Kenny's promised me. Okay. Is as we have the capacity, but we will invest and make sure we try to stay ahead of the curve on the fluidity on our terminals. And if we drive the terminals properly, because that's usually your limiting factor more sold than what the physical plant is out in the railroad, and we keep that buffer of people so that we have the people.

Have the capability to handle it in a expeditious manner. The same way I think we have it with all the business that can be as promised me [laughter]. Okay is is we have the capacity, but we will invest and make sure. We try to stay ahead of the curve on the fluidity on our terminals and if we drive the terminals properly.

Cause that's usually you're limiting factor more so than what the physical plant that was out in the railroad and we keep that buffer of people. So that we have the people to react.

Jason Seidl: So my question is, in terms of fixing the engine and you talked about car velocity. What do you think, kind of, you are for the network that you have in that process and what is ultimately the right kind of, you know, goal from a car velocity perspective from an acid velocity perspective for you, where are you in that process and, and. And, you know, as you go into 2024, can, can you kind of make progress, can you improve operating ratio, even if volume or flat or the economy is muted and there is a normal man, come on, that's fine.

Speaker 1: I'm not really worried about if we go up another 10,000 car loads. In fact, what a challenge to have. So Kenny, your job to bring it on.

Not real worried about if we go up another 10000 carloads, but.

What a challenge to have so Kenny your job to bring it on absolutely. So thank you very much for the question.

Speaker 5: Thank you. Our next questions from the line of to our now with Goldman Sachs. This is your.

Thank you our.

Next question is from the line of Jordan Alger with Goldman Sachs. Please proceed with your questions.

Speaker 10: Yeah, hi, thanks. Yeah, I think Intermodal is often viewed as, you know, critical or key long term growth engine for the industry.

Oh, hi, Thanks, Yeah, I think intermodal is often viewed as critical or key long term growth engine for the industry.

Speaker 10: Are you now in a position, do you think, to start taking more share from trucks, the truck plan compliance moving higher? But and if not, what still needs to happen to get into mold to grow? Obviously other than the macro, is it more service from you? Do, do, proper rates have to move up? Give some thoughts around that. Thank you.

Are you now in a position do you think to start taking more share from trucks with trip plan compliance moving higher and if not what still needs to happen to get intermodal to grow obviously other than the macro is it more service from you do preparations have to move up and can you give some thoughts around that thank you.

Jason Seidl: So, fatty, I like the question because it frames exactly what, what, what, when I came back to work, the challenges that I could see, the first challenge that we had was, was inflation, both input costs plus labor costs and some of the collective agreements we signed. You know, every CEO that comes in always wants to blame people beforehand, that's not the way I look at it, that's the challenge, I knew what I would get myself into.

Speaker 1: If I can just start real quick and then I'll pass over to you. Price is important. You have to have the right price that allows you, but service has to be consistent. And in a few weeks is not good enough for any customer to say, how's the railroad doing? If I was a customer, number it up.

And if I can just start real quick and then I'll pass it over to you.

This is important.

Have to have the right price that allows you but service has to be consistent in a few weeks is not good enough for any customer to say how's the railroad doing if I was a customer I'd be looking at.

Jason Seidl: So, we do, how do we fix that piece, is as we drive and look for efficiency and there's efficiency there, usually I don't give a, and you know that, fatty, I don't forecast numbers, but I'll tell you, I'll be disappointed if that car velocity doesn't return to where it was before that we had in 2020. There's no reason for us to not be low to 20s, so that's about as far as I'm going to get on that number.

Speaker 1: Are you consistent in your service? And when you get impacted, because our car velocity will drop with some weather events through the winter. This is not a game where you can forecast that the B at a 220 level all the time. We're going to have some impact. Sometimes it'll be higher, sometimes lower. It's how fast we recover. If we can do that, and we can show.

Are you consistent in your service and when you get impacted because our car velocity will drop with some weather events through the winter. This is not a game where you can forecast it to be at a 220 level. All the time, we're going to have some impact sometimes it will be higher sometimes lower it's how fast we recover if we can do.

Jason Seidl: If I look at the other piece that we have to do, and Kenny's all over it and his team is, we know that we can't, through efficiency and productivity, recover everything in the long term, but what we can do is we can price properly for what the service that we're providing our customers, and Kenny's all over that. Now, that's going to take a little bit of time, and I'll let Kenny later on talk about this, but so the way I look at it is those two things if we do them right, and let's leverage this railroad that we have.

That and we can show.

Speaker 1: shippers that we have the capability to deliver their products in a consistent manner, recover fast, then I think we have the opportunity. But it takes time. No one's going to believe you the first time you show up and say, well, we've had a great September . Well, how about January ? How was that? And how was 2022? I think they have memories.

Shippers that we have the capability to deliver their products in a consistent manner recover faster than I think we have the opportunity, but it takes time no one's going to believe you. The first time, you show up and say, while we didn't have a great September well how about January how was that and how is 2022 I think they have memories of that.

Speaker 3: Kenny? Just build on what Jim mentioned. Let me just level fast.

Just to build on what Jim mentioned, let me just level set you know first we've got a really strong stable of customers private asset customers that are on our network along with our own railroad Asics.

Speaker 3: First, we've got a really strong stable of customers, private asset customers that are on our network along with our own railroad assets with EMPU Max. And so what that does is that provides optionality for the BCOs. So that's the first thing that we are appreciative of. Next is.

Jason Seidl: Okay, we're a 70 mile an hour railroad. There's only one other railroad in North America that runs their freight trains at 70 miles an hour. Okay, so let's leverage that, and you can see that when we change the service out of Mexico, because we want to leverage Mexico to grow our business in and out, and by doing that and providing customers a service that from the border nobody can beat us to Chicago.

M P. You Max and so what that does is that provides optionality for the bcl. So that's the first thing that we.

Are appreciative.

Next as you look at all the product development that were in bad thing.

Speaker 3: investing in a little bit more expansion in Kansas City. The new product development with Twin Cities and Lennon Pire. You look at the discussion around Eric.

Investing in a little bit more expansion in Kansas City.

Jason Seidl: We have the fastest service of anybody, especially with the new train service that we have on, so we should leverage that. Now, not everybody wants speed, so we have to make sure whether we're consistent. We also have to leverage our network. I love the places we serve and where we can take our customers to. I love the way our origination customers are. And the number we have in the variety, crossing all market segments.

The new product development with twin cities Inland Empire, you look at the discussion around Eric's really improved product around coming into and out of Mexico, that's been great for us.

Speaker 3: really improved product around coming into an auto Mexico. That's been great for setting aside this macro thing as our service improves really the North stars going over the road. You've heard us say by our estimation that we've got a pretty low market share in terms of overall rail coming into an auto Mexico and that's right for.

Setting aside the macro thing as our service improve really the North star is going over the road you've heard us say bar estimation that we've got a pretty low market share in terms of overall rail coming into and out of Mexico and that's ripe for.

Jason Seidl: And if we do that, Fadi, we become the most efficient railroad. Operationally, I've always said this and I will continue to say it. We will have the best margin, railroad in North America. Best operating ratio, best margin, whichever way you want to look at it. I'm comfortable with that. And we give a chance for the customers that are with us to win, and we look to move customers that are using other modes, including trucks to look at the railroad as their way that they want to win.

Speaker 3: more penetration and work and certain more products out there. We are now, we've got a product to the southeast that we're taking advantage of. So very bullish, we're on offense, and we're clearied about growing there.

More penetration of work and sort of more products out. There. We are now that we've got a product to the south east that were taken advantage of and so very bullish we're on offense and we we're clear eyed about growing there.

Thanks for the question George.

Speaker 5: Our next question comes to the line of Brian Osson Beck with JP Morgan. Please, excuse me.

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

Jason Seidl: So, I'm happy. I didn't come back to work to lose. I came back to win. I was more than comfortable. You know, most people in my age are thinking about doing other things. In fact, I had a trip to K2, a new plan. And when the opportunity came up and we agreed with the board and what the strategy was and what we wanted to do moving forward, I said, listen, I'm all in.

Speaker 11: Thanks, good morning, welcome back Jim. Just wanted to ask more about

Thanks, Good morning, we'll come back to him.

Just wanted to ask more about.

Speaker 11: ability to the cost inflation on labor sites specifically into 24 obviously it's been a challenge but it's going to get

Visibility to the cost inflation on labor side, specifically into 'twenty four obviously, it's been a challenge, but it's going to get.

Speaker 11: There'll be a little bit more challenging next year. I think if the 4.5% increased the bonus, and maybe some work rest rules around smart PD. Maybe Jennifer give us some senses to how much visibility have to the cost of the patient's side when it comes to labor. And then Jim would just love to get your thoughts on perhaps just the broader regulatory picture. Obviously, UP had some challenges with regulator on embargo's last year. There was the FRA letter about

There'll be a little bit more challenging next year I think if the 45% increased bonus.

Jason Seidl: Let's go. So I've been working hard with the team. And I'm pushing them hard. At the end of the day, we need to make decisions quicker. We need to react quicker. We need to quit having so many layers and that slow down the decision making. And with that, we end up winning Fadi. Hopefully, I answered your question. I know it was a long answer. And maybe there won't be any other questions after this. Oh, shit. Thanks. Okay.

And maybe some work rest rules around smart T. D. Maybe Jennifer you can give us some sense as to how much visibility you have for the cost inflation side. When it comes to labor and then Jim would just love to get your thoughts on.

Perhaps just the broader regulatory picture obviously.

<unk> had some challenges with the regulator on embargoes last year, there was a there for a letter about some of the infections. So.

Speaker 11: If you've been under the microscope a little bit, just wanted to see how you perceive that.

Brian Ossenbeck: Our next question is from the line of Jason Fidel with PD County. Please just see your question. Thank you, operator. Good morning. Jim. Welcome back. Jennifer Kenny and Eric.

He has been under the microscope, a little bit just wanted to see how you perceive that as you're new into the seat. Thank you.

Speaker 2: We're talking about inflation. I mean, we're still in the process of putting together our 2024 plan, but you hit some of the key ones there, Brian , in terms of July 1 is the last of the scheduled wage increases for the craft professionals from the PEB, and that's 4.5%. Obviously, there'll be wage increases on the non-agreement side as well, so there will be labor inflation pressures.

I'm talking about inflation I mean, we're still in the process of putting together our 2024 plan, but then you hit some of the key ones there Brian in terms of you know July one is the last of the scheduled wage increases for the craft professionals from the Ped and that's four 5%, obviously there'll be you know wage ing.

Scott Group: Wanted to focus a little bit on sort of the inflation and pricing dynamic that we have going on here currently. You know, is this just a case for waiting until we can get to repricing some more of the contract? As we move through and seeing, you know, sort of better fluidity in the railroad. And are we just sort of in for a few tough quarters here in terms of the cops? Kenny, go ahead.

Creases on the non agreement side as well so there will be labor inflation pressures you mentioned the word crest and so those are all a while there there are pressures there are opportunities right for us to look at how we can be more productive and how we do every part of our business and so that's one of the things we always challenge the team with is how can we.

Speaker 2: You mentioned the work rest and so those are all, while their pressures, there are opportunities, right, for us to look at how we can be more productive in how we do every part of our business. And so.

Scott Group: Yeah. Thanks for that question. No, we're not we're not waiting. We're repricing these contracts. Right now, real time. We're having some very clear and direct conversations with customers. The commercial team is doing an excellent job of really articulating what has placed from a labor standpoint in these costs. And specifically how what we're doing and what Eric is doing on the on his side, how will benefit our customers. Now, I'll tell you, our customers are seeing some of the same pressures and it's playing out in their markets that way too.

Speaker 2: That's one of the things we always challenge the team with is how can we?

Speaker 2: you know, chip away at inflation. It's not just Kenny's job from a price standpoint. It's all of our job as we look to drive productivity and work more.

You know chip away at inflation, it's not just kenny's job from a price standpoint, it's all of our jobs as we look to drive productivity and work more efficiently.

Speaker 2: You know, purchase service and materials, that's an area that also has seen some pretty heaven inflation over the last couple of years. The labor piece of that probably will continue as the labor market stays tight, probably will continue to see more pressure as well.

Purchased services and materials. That's an area that also has seen some pretty heavy inflation over the last couple of years.

The labor piece of that probably will continue as the labor market stays tight probably will continue to see more pressure as well.

Speaker 2: you know beyond that, if I think about fuel, obviously driven by energy markets, we have opportunities there to be more efficient on the equipment rent side. You know, that's where Carvellocty certainly can play a role for us as we speed up the network, turn the assets more efficiently. And then the last one I'll mention is the other expense line which, as you know, has been pressured the last year or so on the casualty side. And that's it.

Beyond that.

Scott Group: The other thing in Jennifer talked about this a little bit, you know, we're investing a lot of money here. We're investing 3.7 billion. We don't lose an opportunity to share that with customers and talk about the value that they get from a knows investment. And so you look at that, you look at the improved service product that Eric is delivering us. We have no problem looking to our customers in the high talking to them about price and the value that's there.

So I think about fuel, obviously, driven by energy markets, we have opportunities there to be more efficient on the equipment rental side, you know, that's where our car velocity certainly can play a role for us as we speed up the network turn the assets more efficiently and then the last one I'll mention is the other expense line, which is.

You know has been pressured the last year or so on the casualty side and that you know so.

Speaker 2: higher verdicts, higher awards, and that's probably something that's gonna be around for a bit. That's why, you know, that's the corollary benefit to us running a safer railroad is taking those incidents off the table. We want everybody to go home safe. We want our customers free to arrive undamaged, but then it flows through from a cost standpoint as well. So those are kind of the big buckets I'll allow for you, and obviously we'll talk in more specifics, when we need.

Higher verdicts higher awards, and that's probably something that's going to be around for a bit. That's why you know that's the corollary benefit to us running a safer railroad is taking those incidents off the table, we want everybody to go home safe, we want our customers freight to arrive undamaged, but then it flows through from a cost standpoint as well so those are kind of the.

Scott Group: And can you just remind Jason and others, though, we can't access all of our contracts immediately from the price, standpoint. So, you know, we do have, call it, half of our book of business is in multi-year contract. So, to your question Jason, it does take us a bit to work through and reprice those contracts, but Keny and team are very focused at every opportunity they get. They're having that conversation and they're winning in the marketplace with higher prices.

Big buckets I'll outline for you and obviously, we will talk in more specifics when we when we put the plan together and talk to you in January .

Scott Group: And Jennifer, could you remind us how they renew to the course of 24 what percent? So, we've not talked about 2024, but in general, call it half of our book is multi-year contract. 25% is tariff and the other 25% are so are contracts that are a year or less in duration. Okay, fair enough. I appreciate the time. Thank you.

Speaker 1: So Brian listened good article on the Cars for Employee. I think it was a great comparison and it shows where the opportunity is. So well done on that. I enjoyed reading that last night. One of the last things I did before I went to bed.

You bet. So so Brian listen good article on the cars per employee I think it was a great comparison and it shows where the opportunity is so well done on that I enjoyed reading that last night one of the lessons I did before I went to bed.

Speaker 1: You asked about the regulatory agencies and how the relationship is.

You asked about the regulatory agencies and how the relationship is.

Speaker 1: I think it's best to describe it like this. With the FRA, we're aligned. We have the exact same goal. And...

I think it's best to describe it like this with the FRE. We're aligned we have at the exact same goal and.

Walter Spracklin: Our next question is from Amit Mehrotra with Deutsche Bank. Please excuse me for your question. Thanks very much.

David Vernon: Hi, Jim. Hi, Jennifer, everyone. Jennifer, can you talk about, I guess, OR expectations as we look from 3Q to 4Q. Obviously, the fuel headwind, I think, gets even better sequentially. You talked about year over year, but I think it actually gets a little bit better sequentially. You're moving 8,000 more car loads per week. It's only two weeks into the quarter. So, I don't want to get ahead of myself, but we're seeing, we're seeing some decent sequential volume growth.

Speaker 1: I like that the FRA wants to come out and look at the railroad to see if our safety management system is proper. We're using the railroad in the proper manner and that we're safe. So I love that. I have no issue with it.

I like that the F O Ray wants to come out and look at the railroad to see if our safety management system is a proper, whereas getting the using the railroad in the proper manner and that we're safe. So I love that I have no issue with it and.

Speaker 1: I have a good relationship. I've reached out. Good relationship with the FRA, but it's not my relationship. It's the most important. It's how we deal with things out in the field. We're professional. We look for ways to improve, and we work with the FRA because they get to look at other railroads. And when they give us some feedback, we need to take it to see how we improve.

I have a good relationship I've reached out good relationship with <unk>, but it's not my relationship. That's the most important is how we deal with things out in the field, where professional we look for ways to improve and we work with the FRE because they get to look at other railroads and when they give us some feedback we need to take it to see how we improve so I think that's the way the relationship.

David Vernon: If you can talk about that. And then Jim, just related to Jim and Eric, actually, you talked about getting car velocity up to 220 miles per day. You've already had great improvement on that in recent months and that has corresponded nicely to that kind of this improvement in volume. Should we think that increase to 220 allows you to essentially move more volume that's waiting to be moved, and we can see kind of a corresponding increase in the 7-day car loadings.

Speaker 1: So I think that's the way the relationship. And on the STB, there's lots going on and I won't discuss this specific.

And on the STB, there's lots going on and I want to discuss the specifics, but I grew up in Canada working in a on a railroad that had inter switching for a distance and I know what the pluses and minuses are there I don't see anything as we're moving forward and we will give our feedback because I think.

Speaker 1: But I grew up in Canada working on a railroad that had

Speaker 1: for a distance and I know what the pluses and minuses are there. I don't see anything as we're moving forward and we'll give our feedback because I think we want to make sure that we don't impact our customers and what we serve and

David Vernon: And how do you get comfortable? How do you get uncomfortable that the added volume doesn't drive service challenges, which historically has been the case for all railroads. So, if you can just talk about that as well. Thank you. So, maybe start off a minute and address your question, at least the question about sequential OR improvement. You know, as I said in my prepared remarks, we're looking to build off the momentum that we have here as we ended out the third quarter and take that into the fourth quarter.

We want to make sure that we don't impact our customers and what we serve in and and slow down the railroads because of a regulatory framework. So we have to be careful because our customers compete with people with other of course within the U S. Other modes, but they also compete in the world there's products that we.

Speaker 1: Slow down the railroads because of a regulatory framework.

David Vernon: And so, without making any guide relative to what fourth quarter volumes are going to do to your point, we're off to a good start. Very pleased by that. But we're going to operate as efficiently as we can, and we do think we have an opportunity to have sequential gains going from third quarter to fourth quarter on the OR basis. It's going to take hard work by the team. It's going to take continued gains in terms of how we're operating the road and driving efficiency.

Speaker 1: So we have to be careful because our customers compete with people with other, of course, within the U.S., other modes, but they also compete in the world. There's products that we move for customers to go around the world that if we wreck the efficiency of the world,

Move for customers that go around the world that we wreck the efficiency efficiency of the railroads, it's a mistake and I know the STB does not want that what they want is they want to make sure that we have good service and that's the best way for us to make sure that.

Speaker 1: It's a mistake and I know the SPB does not want that. What they want is they want to make sure that we have good service. And that's the best way for us to make sure that

Speaker 1: that the regulatory environment doesn't affect us is we provide good service. If we provide the service that we sold to our customers, then we win. So I'm very comfortable with the relationship. I think we need to continue to communicate. And we both, we have the same, same...

That the regulatory environment doesn't affect us as we provide good service if we provide the service that we sold to our customers than we win so I'm very comfortable with the relationship I think we need to continue to communicate and we both we have the same same end goal with the STB and the FRE So Brian I think.

David Vernon: But that's absolutely the goal that we're looking at. Jim, you want to maybe hit the rest of this question about freight car velocity? So, the reason I use carbon velocity is it truly is that end end number that gives you a great indication and it's not the only indicator, but it gives you an indicator. So, I like the question. You said, can you handle an increase in business and are you leaving business behind?

Speaker 1: end goal with the STB and the FRA. So Brian , I think the relationship is good. We'll take the feedback and we'll see where we can improve.

The relationship is good we will take the feedback and we'll see where we can improve.

Thank you Jamie.

Thanks.

Speaker 5: Our next question is from the line of Scott Group with Wolf Research. Please receive their questions.

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

Speaker 12: Hey, thanks. Morning and welcome back, Jim. So it sounds like we want to get more price.

Hey, Thanks, Good morning, and welcome back Jim So it sounds like we want to get more price more productivity, but we still have an inflation. You said you want to get to best in class margin I guess, we got to get improvement first so when do you think you can start improving margins again.

David Vernon: I wish we were leaving business behind. I really do, and we are not, and we will look for everything we can to get more business. The railroad and railroads get themselves in trouble when they lose sight of what the fundamentals are for an increase in business. Increasing business can come in in a lot of different ways. One is, as it can be bulk, which adds people, adds locomotives, adds puts more pressure on the capacity and we built this railroad that has the capacity which you always have to concentrate on and usually is the limiting factor when you increase especially on the carlobe business is how well your terminals and what the capacity is on the terminals.

Speaker 12: more productivity, but we still have an inflation. You said you want to get to fast and class margin. I guess we got to get improvement first. So when do you think you can start improving margins again? And then separately, Jennifer, the buybacks has been a big part of the earnings growth for a long time. Is this a temporary pause? More of a prolonged change? Now you're thinking about the buyback any thoughts?

And then.

Separately, Jennifer the buybacks, it's been a big part of the earnings growth for a long time is this a temporary pause more of a prolonged changed how you're thinking about the buyback any any thoughts there. Thank you.

To answer the first.

Speaker 2: First piece of Scott's question. Sure, no. This is not a change in our philosophy around capital allocation. Scott, as we talked back in July , this is just looking at cash loads, looking at the balance sheet and taking a temporary pause. You heard me mention that our debt to EBITDA levels are around three times here at the end of the quarter, a little bit elevated from where they have been historically. And so our job is to hit on the things you mentioned earlier with the price productivity, grow the business, and generate more EBITDA, generate more cash flow, and resume our shared.

First piece of Scott's question sure no. This is not a change in our philosophy around capital allocation Scott as we talked back in July . This is just looking at cash flows looking at the balance sheet and taking a temporary pause you heard me mention that you know our debt to EBITDA levels are around three times here at the end of the quarter, a little bit elevated from where they have been historically.

David Vernon: And when I was here last time we worked on in the Houston area and invested a lot of money to make sure that that terminal had the capacity to grow with the products that we handle in the industrial landscape. And it's important for us and we are going through a process to make sure that every car has the least amount of touch points fluidity is king and that we can handle the most cars per employee within all those terminals and we have the gap that allows us to be able to react when the business comes up.

And so our job is to hit on the things you mentioned earlier with the price productivity grow the business and generate more EBITA generate more cash flow and resume our share repurchase program.

Speaker 1: ?

And Scott on the second pieces.

Speaker 1: The last time I showed up in January 14th of 2019

The last time I showed up in January 14th of 2019.

David Vernon: You know if you add an extra intermodal train or you add an extra thousand feet on one of our locomotive trains that's an easier fix again as long as the terminals whether it's Jeep or in Chicago or it's the Dallas terminals have the capability to handle it in an expeditious manner the same way. I think we have it with all the business that Kenny's promised me. Okay is that we have the capacity but we will invest and make sure we try to stay ahead of the curve on on the fluidity on our terminals and if we drive the terminals properly because that's usually your limiting factor more so than what the physical plant is out in the railroad and we keep that buffer of people so that we have the people to react.

Speaker 1: versus August 14th of this year is the railroad is more efficient. It did not back up to the place where it was before. It was very easy pickings to go park of Thousand O'Camotos.

Versus August 14th of this year is the railroad is is.

More efficient it did not back up to the place where it was before it was very easy pickings they'll go Park 1000 locomotives. So we don't have that but what we do have is we still have productivity I see productivity across everything that we do.

Speaker 13: So we don't have that. But what we do have is we still have productivity. I see productivity across everything that we do.

Speaker 13: from how management works, how many people we need to operate the railroad to how well we use our assets. So it won't be quite as large, it won't be the billionth read that we did last time, but there is productivity gain that we can do. So with that, it's going to take a little bit longer. Some of these changes that I see will not be as quick. I won't be able to go to North Platt and park 90 locomotives because we have them parked outside the diesel shop first day.

From how management works, how many people we need the operate the railroad to how well we use our assets. So it won't be quite as large it won't be the 1 billion three that we did last time, but there is productivity gain that we can do so with that it's going to take a little bit longer. Some of these changes that I see will not.

He is quick I won't be able to go to north Platte and part of the 19th locomotives because we had the parked outside the diesel shop first day.

David Vernon: I'm not really worried about if we go up another 10,000 car loads in fact what a challenge to have so Kenny your job to bring it on. So thank you very much for the question. Thank you.

Speaker 13: But there is ways for us to speed it up. And there's still locomotives that we can park and make sure that they're used efficiently. So it'll take us a little bit longer.

But there is ways for us to speed it up and Theres still locomotives that we can we can park and make sure that the that the they're.

They're used efficiently so it'll take us a little bit longer.

Jonathan Chappell: Our next question is from the line of toward analogy with Goldman Sachs. Please excuse me for your questions. Yeah, hi thanks. I think intermodal is often viewed as critical or key long term growth engine for the industry. Are you now in a position do you think to start taking more share from trucks with trip plan compliance moving higher but and if not what still needs to happen to get intermodal to grow. So obviously other than the macro is it more service from you do. Preparations have to move up give some thoughts around that thank you.

Speaker 13: and stay tuned with us and you'll see hopefully incremental changes to our numbers that'll tell you that we're headed the right way. And there'll be ups and downs. There is no adventure but some things we can't that control. I really don't know what's going to happen to the economy. Next year, are we going to have a recession? Are we not going to have a recession? I'm hoping the country does not have a recession and that would help us. So hopefully I answered your question. Scott.

Stay tuned with us and you'll see hopefully incremental changes to our numbers that will tell you that we're headed the right way and there'll be ups and downs. There is no ifs ands or buts that some things we can't control I really don't know what's going to happen to the economy.

Next year are we going to have a recession or are we not gonna have a recession I'm hoping.

The country does not have a recession and that would help us so hopefully I answered your question Scott.

Thank you guys.

Speaker 5: Our next question is from the line of Walter Sprakland with RBC. Please use your question.

Our next.

This is from the line of Walter <unk> with RBC. Please proceed with your question. Thanks, very much operator and welcome back Jim.

Jim Vena: Kenny if I can just start real quick and then I'll pass over to you price is important. You have to have the right price that allows you but service has to be consistent and in a few weeks is not good enough for any customer to say how's the railroad doing. If I was a customer I'd be looking at are you consistent in your service and when you get impacted because our car velocity will drop with some weather events through the winter.

Speaker 14: And thanks very much operator and welcome back to him.

Speaker 14: I know when you first came back and you just mentioned locomotive storage employee productivity improvement, we're really a key focus for you and you're very successful on that. They had some pretty quick turnarounds. Just wondering now, you're in the seat. You probably have multi-year views here and whether you can...

I know when you first came back can you just mentioned locomotive storage employee.

Productivity improvement, we're really a key focus for you very successful on that.

Some pretty quick turnarounds just wondering no.

You're in the seat you probably have multiyear views here and whether you can grab some longer term kind of structural efficiency.

Speaker 14: grab some longer term kind of structural efficiency.

Jim Vena: This is not a game where you can forecast it to be at a 220 level all the time we're going to have some impact sometimes it'll be higher sometimes lower. It's how fast we recover if we can do that and we can show. Shippers that we have the capability to deliver their products in a consistent manner recover fast and I think we have the opportunity but it takes time no one's going to believe. You the first time you show up and say well we had a great September well how about January how was that and how was 2022 I think they have memories, to that.

Speaker 14: objectives and I'm referring here to things like comp yards and things that take a little longer time to To address that perhaps you didn't look at immediately when you first were in the role that that you

Objectives, and I'm, referring here to things like hump yards and things that take a little longer time to to address that perhaps you didn't look at immediately when you first we're in the role that the that you.

Speaker 14: You know, maybe looking at here now and just wondering if, when you look at the humpyards that you need specific has on its network, do you think they're right aligned or do you see some opportunity to reduce some of those or any other infrastructure assets that are on the network?

Maybe looking at here now and just wondering if.

When you look at the hump yards that Union Pacific has on its network do you think they are right aligned or do you see some opportunity to reduce some of those or any other infrastructure assets that are on the network.

Kenny Rocker: Kenny, just to build on what Jim mentioned, let me just level set, you know, first we've got a really strong stable of customers, private asset, customers that are on our network along with our own railroad assets with MPU, Max, and so what that does is that provides optionality for the BCO. So that's the first thing that we are appreciative of. Next is you look at all the product development that we're investing.

Speaker 13: Walter, a nice talk to you again and good question.

Walter Nice talking to you again at the end.

Good question.

Speaker 13: So the railroad, the railroad the way I look at it is, is there's nothing wrong with humpyards, but they have to fit into the fluidity and the touch points of how many times we touch cars and how many cars we actually have.

So.

The railroad the railroad the way I look at it is is theres nothing wrong with hump yards, but they have to they have to fit into the fluidity in the touch points of how many times, we touch cars and how many cars, we actually have to handle and hump yards. There. Okay. So at this point with the way the network is as far as getting into that detail is good what.

Speaker 13: Um, be sure to be okay. So at this point, with the way the network is as far as getting into that detail is good. What I don't like that I've seen is our puts who's not as fast. Our dwell needs to drop or dwell in the amount of time that we have rail cars in yards at the intermodal terminals at the intermediate points will drive productivity gains so that we are able to have more fluidity and that's real important.

I don't like that I've seen is as our puts who's not as fast or dwell needs to drop our dwell in the amount of time that we have.

Kenny Rocker: Investing in a little bit more expansion in Kansas City, the new product development with Twin Cities, Inland Empire. You look at the discussion around Eric's really improved product around coming into an out of Mexico. That's been great for setting aside this macro thing as our service improves really the North stars going over the road. You've heard us say by our estimation that we've got a lot of work to do. We've got a pretty low market share in terms of overall rail coming into an out of Mexico and that's right for more penetration and certain more products out there. We are now that we've got a product to the southeast that we're taking advantage of and so very bullish. We're on office and we we're clear out about growing there.

Railcars in yards at the intermodal terminals at the intermediate points will drive.

Productivity gains so that we are able to have more fluidity and that's real important to me now when I came back last time I came with one goal.

Speaker 13: Now, when I came back, last time I came with one goal. I came back, I came to work.

I came back I came to work.

Speaker 13: to drive operational efficiency. I didn't look at the rest of the company very much, and the rest of the company needs to be looked at, and that's what we're doing now. So, everything that we did operationally, we're going to look at what we've done, and one example is this delay or index.

To drive operational efficiency I didn't we didn't look at the rest of the company very much in the rest of the company needs to be looked at and that's what we're doing now so everything that we did operationally we are going to look at what we've done and one example is the delayering exercise you can't have nine levels from the <unk>.

Speaker 13: You can't have nine levels from the CEO to the people who actually do the work and expect that the message is clear, the decisions are made clear, and there isn't some hiccup in the decision stop.

<unk> to the people, who actually do the work and expect that the message is clear the decisions are made clear and there isn't some hiccup in their decision stops and I want to drive it. So that we have way less layers and that means with less layers. The people out in the field are empowered to make the right decision which trained.

Speaker 13: And I want to drive it so that we have wheel-ass layers. And that means...

Speaker 13: with less layers, the people out in the field are empowered to make the right decision which train to hump, which train to switch, how we move the cars, what are we doing to customers, what are we doing for scheduling, how are we loading, as our loading pattern writes, so many things that we can do, and if we do that, they're better at it than us, Walter.

Brian Ossenbeck: Next question comes to the line of Brian awesome back with JP Morgan. Please receive a third question. Thanks.

The hump, which trained to switch how we move the cars what do we do into customers. What are we doing for scheduling how are we loading loading pattern right. So many things that we can do and if we do that they are better at it than us Walter.

Walter Spracklin: Good morning. Welcome back Jim. Just wanted to ask more about the ability to the cost inflation on labor side specifically into 24. Obviously it's been a challenge, but it's going to get. There'll be a little bit more challenging next year. I think if the 4.5% increased bonus and maybe some work rest rules around smart PD maybe Jennifer give us some senses to how much visibility have to the cost of the place inside when it comes to labor.

Speaker 13: There's no way that Jim Venna, even though I think I'm a decent operator, I could go operate the Humph-Yard, maybe when I retire next time. I'll become just a Humph-Yard operator in one place and see how well, because I think a few people would love me to go out there.

Theres no way that Jim Vena, even though I think a decent operator I could go operated the hump yard maybe when I retire next time I'll. It becomes just a hump yard operator in one place and see how well because I think a few people would love me to go out there and see if I'm was good as I say, sometimes okay, but at the end of the day. That's what is important and that's one of the things that's that's.

Walter Spracklin: And then Jim would just love to get your thoughts on perhaps just the broader regulatory picture. Obviously UP had some challenges with regulator on embargo's last year. There was an FRA letter about some of the inspections. So UP's been under the microscope a little bit. Just wanted to see how you perceive that as you're into the seat. Thank you. Talking about inflation. I mean we're still in the process is putting together our 2024 plan, but but you hit some of the key ones there Brian in terms of July one is the last of the scheduled wage increases for the craft professionals from the PEB and that's 4.5%.

Speaker 13: see if I'm as good as I say sometimes, okay? But at the end of the day, that's what's important and that's one of the things. That's a big change, this delay and exercise that we're going through and stay tuned, we'll announce what the findings are as we move ahead. Let's welcome for it here again. Good question.

A big change, there's delayering exercise that we're going through and stay tuned we'll we'll announce what the findings are as we move ahead on the Walker hard of hearing your question.

Thank you.

Speaker 5: Our next question from the line of Tom Wattowitz with UBS. Pleases you with your question.

Our next question is from the line of Tom one of its with UBS. Please proceed with your question.

Speaker 15: Yeah, good morning and Jim also wanted to say welcome back. I.

Yeah, Good morning, and in Jim I also wanted to say welcome back.

Aye.

Speaker 15: I think the, you know, this is a bit of a high level question and I'm guessing the answer is kind of both, but wanted to see if you could give some color on how we should look at the opportunity in terms of being a volume story or a cost story. You know, I mean, you clearly did a lot with cost last time in, you know, 2019, 2020. You are talking a lot about productivity, but what's the, you know, what's really the more important lever

I think the.

This is a bit of a high level question and I'm guessing the answer is kind of both but wanted.

Walter Spracklin: Obviously there'll be you know wage increases on the non agreement side as well. So there will be labor inflation pressures. You mentioned the work rest and so those are all while they're their pressures there are opportunities right for us to look at how we can be more productive in how we do every part of our business. And so that's one of the things we always challenge the team with is how can we you know chip away at inflation.

I wanted to see if you could give some color on how we should look at the opportunity.

In terms of being a volume story or a cost story.

You clearly did a lot with cost last time, and you know 2019 'twenty 'twenty you are talking a lot about productivity, but what's the you know what's really the more important lever for.

Speaker 15: for operating income growth the next couple of years. Is this a little bit of productivity and a lot of volume?

Walter Spracklin: It's not just Kenny's job from a price standpoint. It's all of our job as we look to drive productivity and work more efficiently. You know purchase service and materials. That's an area that also has seen some pretty heaven inflation over the last couple of years. The labor piece of that probably will continue as the labor market stays tight probably will continue to see more pressure as well. You know, beyond that, if I think about fuel, obviously driven by energy markets, we have opportunities there to be more efficient on the equipment rent side.

For operating income growth. The next couple of years is this a.

A little bit of productivity and a lot of volume.

Speaker 15: And then I guess to the extent that there's the productivity side.

And then I guess to the extent that there is the productivity side is.

Speaker 15: Is that driven by head count reduction or is that really more other cost buckets like you know locomotive cost car costs that type of thing?

Is that driven by head count reduction or is that really more other cost buckets like you know locomotive cars car cause that type of thing.

Thank you.

Speaker 13: Good question. When we start with, Kenny, why don't you talk about the opportunity on the growth side, the price inside, and what we have?

Good question, what do we start with the Kenny why don't you talk about the opportunity on the on the growth side, the pricing side than what we have.

Speaker 3: We talked a little bit about it in terms of markets like our biofuels.

Walter Spracklin: You know, that's where Corvallocty certainly can play a role for us as we speed up the network, turn the assets more efficiently. And then the last one I'll mention is the other expense line which, as you know, has been pressured the last year or so on the casualty side. And that's, you know, some higher verdicts, higher awards. And you know, that's probably something that's going to be around for a bit. That's why, you know, that's the corollary benefit to us running a safer row road is taking those incidents off the table.

We're looking forward to yeah, so we talked a little bit about it in terms of market like our biofuels.

Speaker 3: Very bullish on our construction and All those I mean just set aside the strike that's going on now I talked about the business development when but it's still holding up from a demand environment We need to strike to come back and then we've talked about international in a model Now we've had a little bit of a what I'll call a seasonal bond. We'll call it peak season and you've heard me say We haven't had one in a few years, so it's nice to see one but

I'm very bullish on our construction in autos and I mean, just satisfy the strike that's going on now I talked about the business development when but if.

Still holding up from a demand environment, we need to strike to come back and then we've talked about international intermodal now we've had a little bit of a what I'll call a seasonal bump we'll call. It peak season, and you've heard me say, we haven't had one in a few years. So it's nice to see one but.

Walter Spracklin: We want everybody to go home safe. We want our customers free to arrive undamaged, but then it flows through from a cost standpoint as well. So, those are kind of the big buckets I'll allow for you. And obviously we'll talk in more specifics when we put the plan together and talk to you in January. So Brian, listen, good article on the cars per employee. I think it was a great comparison and it shows where the opportunity is.

Speaker 3: On the domestic side also, there's just still a tremendous amount of over the road share that there, you know, we think it's in the low teens that's in between out of Mexico and in the Mexico in terms of over the road share that we should be gathering.

On the domestic side also there's just still a tremendous amount of over the road share that there you know we think it's in the low teens and between out of.

Mexico and into Mexico in terms of our over.

Over the road share that we should be gathering.

Speaker 3: Eric is out there getting us a more improved product. We've got a lot of optionality out of Mexico. We see that as a growth engine. As some of these consumer-facing products improve, we've always said that we felt good about our petroquem business. Industrial kinem is also included in that. So if you look across the line, there's a lot of upside, and we're very bullish on the volume growth is there.

Eric is out there get enough more improved product.

We've got a lot of Optionality out of Mexico, we see that as a growth engine as some of these consumer facing products improve we've always said that we felt good about our Petro Chem business Industrial Chem is also included in that so if you look across the line.

Walter Spracklin: So well done on that. I enjoyed reading that last night, one of the last things I did before I went to bed. You asked about the regulatory agencies and how the relationship is. I think it's best to describe it like this. With the FRA, we're aligned. We have the exact same goal. And I like that the FRA wants to come out and look at the railroad to see if our safety management system is proper.

There's a lot of upside and we're very bullish on the volume growth there.

Speaker 13: Eric, why don't you talk about it because the question is great. There's no advantage of us that we have to grow the business. We have to price and take care.

So Eric wanted to talk about it because the question is great. It's there's no ifs ands or buts that we have to grow the grow business with the price.

Walter Spracklin: We're getting the, we're using the railroad in the proper manner and that we're safe. So, I love that. I have no issue with it. And I have a good relationship. I've reached out. Good relationship with the FRA, but it's not my relationship that's the most important. It's how we deal with things out in the field. We're professional. We look for ways to improve and we work with the FRA because they get to look at other railroads.

And take care of what's happened to us inflation wise and leverage our network, but its productivity what do you see your piece of it absolutely you know we talked about productivity that really differentiate into two buckets. So some of our commentary already this morning.

Speaker 4: and leverage our network, but productivity, what do you see here, piece of that? Absolutely. We talk about productivity, we really differentiate into two buckets. To some of our commentary already this morning, there's no easy productivity, but this most straightforward productivity is when you get that volume, how do you leverage it on the existing network that we have, the existing trains we have?

There's no easy productivity, but this most straightforward straightforward productivity is when you get that volume how do you leverage is on the existing network that we have the existing trains we have under the whole idea of being volume variable plus the other bucket of productivity is how we actually do the work. So when we think about our locomotive shops in our mechanical shops or engineering games for example.

Walter Spracklin: And when they give us some feedback, we need to take it to see how we improve. So I think that's the way the relationship. And on the STB, there's lots going on and I won't discuss the specifics. But I grew up in Canada working on a railroad that had interswitching for a distance. And I know what the pluses and minuses are there. I don't see anything as we're moving forward and we'll give our feedback because I think we want to make sure that we don't impact our customers and what we serve.

Speaker 4: volume variable plus. The other bucket of particularity is how we actually do the work. So when we think about our locomotive shops or mechanical shops or engineering gangs, for example, on the Nana.

Ample on the non op side, it's a real challenge to them to say, Hey, you still need to do the important work how you do it more efficiently. So when we think about going into a locomotive facility and making sure that we balance the head count to the exact number of locomotives. They have to the forecasted number two being really thoughtful about how do we use that material in there to being thoughtful about how do we think about redoing core.

Speaker 4: It's a real challenge to them to say, hey, you still need to do the important work. How do you do it more efficient?

Speaker 4: So when we think about going into a locomotive facility and making sure that we balance the headcount to the exact number of locomotives they have to the forecasted number to be really thoughtful about how do we use that material in there, to be thoughtful about how do we think about redoing cores. I mean, there's infinite areas of opportunity within each one of our departments.

Walter Spracklin: And slow down the railroads because of a regulatory framework. So we have to be careful because our customers compete with other, of course, within the US, other modes, but they also compete in the world. There's products that we move for customers that go around the world. That if we wreck the efficiency of the railroads, it's a mistake. And I know the STB does not want that. What they want is they want to make sure that we have good service.

I mean there is.

Infinite areas of opportunity within each one of our departments to be able to look deep into the business and deep into the work and really find those opportunities to Jim's point, it's a little bit harder work than it was a few years ago, but it's still work that we know how to do and work that we'll be successful doing.

Speaker 4: to be able to look deep into the business, deep into the work, and really find those opportunities. To Jim's point, it's a little bit harder work than it was a few years ago, but it still worked that we know how to do and work that will be successful.

Speaker 13: And I know neither one of them wanted to touch it. They always leave those things for me.

And I know neither one of them wanted to touch it they always leave those things for me.

Speaker 13: People are going to be one. You know, we look for cost savings on what our input costs are.

People is gonna be one we look for cost savings on what our input costs are and of course, it's much more difficult on our India inflationary of place that we find ourselves in this country, but we're going to look for every opportunity to use less so the weaken save costs that way and on the headcount absolutely we're going to use attrition.

Walter Spracklin: And that's the best way for us to make sure that the regulatory environment doesn't affect us is we provide good service. If we provide the service that we sold to our customers, then we win. So I'm very comfortable with the relationship. I think we need to continue to communicate. And we both, we have the same same end goal with the STB and the FRA. So Brian, I think the relationship is good. We'll take the feedback and we'll see where we can improve. Thank you, Jim. Thank you.

Speaker 13: And of course, it's much more difficult in the inflation area, place that we find ourselves in this country, but we're gonna look for every opportunity to use less so that we can save costs that way. And on head count, absolutely, we're gonna use the tradition to right size the company as much as we can to what we know now, we've identified of where we wanna get to. So it'll be through a tradition mostly, and we'll move ahead from there. Thanks for the question.

To rightsize the company as much as we can to what we know now we've identified of where we want to get too. So it will be through attrition mostly.

We will move ahead from there thanks for the question.

Jeff Kaufman: Our next question is from the line of Scott Group with Wolf Research. Pleases you with your question. Hey, thanks.

Speaker 5: The next question comes to the line of David Vernon with Bernstein. Please receive their questions.

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

Speaker 16: Hey, good morning guys. So I wanted to talk a little bit about, I wonder if you could talk a little bit about the earnings leverage we should have from some of the intermodal agreements you guys are signing. Obviously the FALC and service, the partnership with NS.

Ravi Shanker: Morning and welcome back, Jim. So it sounds like we want to get more price, more productivity, but we still have an inflation. You said you want to get to best in class margin. I guess we got to get improvement first. So when do you think you can start improving margins again? And then separately, Jennifer, the buybacks just been a big part of the earnings growth for a long time. Is this a temporary pause, more of a prolonged change? Now you're thinking about the buyback, any thoughts there? Thank you.

Hey, good morning, guys. So I wanted to talk a little bit about I Wonder if you could talk a little bit about you know the.

The earnings leverage we should have from some of the intermodal agreements you guys are signing obviously the Falcon service partnership with N S.

Speaker 16: How should we be thinking about the profile from a margin perspective of that traffic coming on, particularly early here as truck rates remain low, and it seems like in our old companies are out there just counting the service to take some share. And then maybe bigger picture, Jim, could you talk a little bit about?

Should we be thinking about thinking about the profile from a margin perspective of that traffic coming on particularly.

Early here as truck rates remain low and it seems like intermodal companies are out there discount into service to take some share and then maybe bigger picture Jim could you talk a little bit about how you see the competitive dynamics for you P. Changing post the CP KC acquisition, we've heard a lot from a.

Speaker 16: how you see the competitive dynamics for UP changing post the CPKC acquisition. We've heard a lot from a length in the past on this, but I don't think we've had a chance to hear you.

Justin Long: I want to answer the first piece of Scott's question. Sure. No, this is not a change in our philosophy around capital allocation. Scott, as we talked back in July, this is just looking at cash loads, looking at the balance sheet and taking a temporary pause. You heard me mention that, you know, our debt to EBITDA levels are around three times here at the end of the quarter, a little bit elevated from where they have been historically. And so our job is to hit on the things you mentioned earlier with the price productivity, grow the business. And generate more EBITDA, generate more cash flow and resume our sharing purchase program.

Last in the past on this but I don't think we've had a chance to hear you talk about how that.

Speaker 16: Talk about how that acquisition creates risks or opportunities for you and Pacific from your perspective. Thank you.

Acquisition.

Creates risks or opportunities for Union Pacific from your perspective. Thank you.

Hey, Jennifer.

Speaker 2: David's in that question. You know, you've heard us talk about margins before in terms of the, when we look at it, where you see some of the greatest margin pressure relative to our book of business, is in that business it's truck competitive, and we certainly are in a truck competitive market today.

David for that question, you know you've heard us talk about margins before in terms of that when we look at it where you see some of the greatest margin pressure relative to our book of business isn't that business, that's truck competitive and we certainly are in a truck competitive market today, but.

Speaker 2: But that's also our opportunity that you've heard us talk about in terms of tremendous growth and we know that there's leverage in margins from volume growth. That can help drive greater productivity.

Jim Vena: Let's go on the second piece is the last time I showed up in January 14th of 2019 versus August 14th of this year is the railroad is more efficient. It did not back up to the place where it was before. It was very easy pickings to go park a thousand locomotives. So we don't have that. But what we do have is we still have productivity. I see productivity across everything that we do from how management works, how many people we need to operate the railroad to how well we use our assets.

But that's also our opportunity that you've heard us talk about in terms of tremendous growth and we know that theres leverage in margins from from volume growth that can help drive greater productivity and as we are building a better service product certainly you know as we provide better service, there's a price for that service.

Speaker 2: And as we are building a better service product, certainly as we provide better service, there's a price for that service. And we look to price to that to be able to meet that customer demand. I don't know, can if you want to add anything to that.

Look to price to that to be able to meet that customer demand I don't know Ken if you want to add anything to that no. The only thing I'd say is that we're.

Speaker 3: No, the only thing I'd say is that as we're looking in the current environment.

We're looking in the current environment.

Speaker 3: We're certainly keeping our customers competitive With mechanisms that we have in our contract and we are clear out about as the market change their stable now If they get a little bit more tighter the man's strength and we'll see upside from a price perspective which is you up and

We're certainly keeping our customers competitive what mechanisms that we have in our contracts in a.

Jim Vena: So it won't be quite as large. It won't be the billion three that we did last time, but there is productivity gain that we can do. So with that, it's going to take a little bit longer. Some of these changes that I see will not be as quick. I won't be able to go to North Platt and park 90 locomotives because we have them parked outside the diesel shop first day. But there is ways for us to speed it up.

We are clear eyed about as the market has changed their stable now they get a little bit more tighter demand strengthen we'll see upside from a price perspective, which show up in margin.

Speaker 13: on the competitive dynamic in the specific example of CPKC. So I think they're a great railroad. I think they have a great network. I think their leader, Keith, he's a friend of the one who for a long time, and he's smart, knows how to railroad. So he knows how to balance safety service, asset utilization, cost control, and developing his people. Same thing as we do.

And on the competitive dynamic in the specific example of CPE Casey So I think they're a great railroad.

I think they have a great network.

There leader Keith He's a friend I've known him for a long time and a smart knows how to railroad. So he knows how to balance safety service asset utilization and cost control in developing this people same thing as we do.

Jim Vena: And there's still locomotives that we can park and make sure that they're used efficiently. So it'll take us a little bit longer and stay tuned with us and you'll see hopefully incremental changes to our numbers that will tell you that we're headed the right way. And there'll be ups and downs. There is no adventure but some things we can't that control. I really don't know what's going to happen to the economy next year.

Speaker 13: So the competition is, and I like it. There's nothing wrong with Lelou competition. So I want to win, he wants to win. There's no way to banter butts that the CPKC, if it's origination to destination on their railroad.

So the competition is and I like it there's nothing wrong with little competition. So I want to win he wants to win there's no way to answer button that the CPE Casey if its origination destination on our railroad.

Jim Vena: Are we going to have a recession? Are we not going to have a recession? I'm open. The country does not have a recession and that would help us. So hopefully I answered your question. Scott. Thank you, guys. Thank you.

Speaker 13: You know, we have a competitive disadvantage. But the advantage we have is, is we've got this great network. We go through 23 states. We serve the population in the US. We have fast access. We have a 70 mile hour railroad. We're fast. And if we have to be, if that's what we sold was fast, we can do that. And you can see it when we move our parcel business.

We have a competitive disadvantage, but the advantage. We have is is we've got this great network. We go through 23 states. We serve the population in the U S. We have fast access we have a 70 mile of our railroad we're fast.

Bascome Majors: Our next question is from the line of Walter Sprakland with RBC. Please excuse me for your question. Thanks very much operator and welcome back to him. I know when you first came back and you just mentioned locomotive storage employee productivity improvement, we're really a key focus for you and very successful on that. They had some pretty quick turnarounds. Just wondering now, you know, you're in the sea. You probably have multi-year views here and whether you can grab some longer term kind of structural efficiency objectives.

And if we have to be if that's what we sold was fast we can do that and you can see it when we move our parcel business.

Speaker 13: as we're doing and getting up to their peak period.

As we were doing and getting up to their peak period.

Speaker 13: coming up towards Christmas. So all those things, plus we have access in the Mexico.

It's coming up towards Christmas So all those things plus we have access into Mexico.

Speaker 13: broader access than one or two places. We go into Mexico from the west coast all the way east to a number of locations.

Broader access in one or two places we go into the into Mexico from the West Coast All the way he's still a number of locations and we have a strong partner in FX C and as you know we own a 26% of them and that helps us so I'm excited.

Speaker 13: And we have a strong partner in FXB, and as you know, we own a 26% of them, and that helps us. So I'm excited. I'm CPKC's gonna make it difficult, and we're gonna make it difficult. Now, I don't chase price. This is not a price discussion. It's about a service and access to markets, and how we do it. And I'll walk away from business if somebody wants to lower their price. Go ahead, take the business. I'll bring in business that fits our network that makes sense.

Bascome Majors: And I'm referring here to things like hump yards and things that take a little longer time to address that perhaps you didn't look at immediately. When you first were in the role that you may be looking at here now and just wondering if when you look at the hump yards that unit pacific has on its network, do you think they're right aligned or do you see some opportunity to reduce some of those or any other infrastructure assets that are on the network? Thank you very much.

C. P case, he's going to make a difficult and we're gonna make a difficult now I don't Chase price. This is not a this is not a price discussion, it's about our service and access to markets and how we do it and I'll walk away from business, if somebody wants to lower their price go ahead and take the business all bringing business that fits our network.

That makes sense. So that's how I think of the competitor than I could have that discussion about all the other railroads I want us all to be really good and strong.

Speaker 13: That's how I think of the competitive and I could have that discussion about all the other railroads. I want us all to be really good and strong.

Jim Vena: Walter, a nice talk to you again and a good question. So the real road, the real road the way I look at it is there's nothing wrong with Humphiards but they have to fit into the fluidity and the touch points of how many times we touch cars and how many cars we actually have to handle. And Humphiards are okay. So at this point with the way the network is as far as getting into that detail is good.

Speaker 16: So are you seeing a potential volume risk from a diversion standpoint?

So are you are you seeing a potential volume risk from a diversion standpoint.

Speaker 3: Kenny? No, we're going out there. We feel good about the service product. We're going hand on. We're ready to compete again. The North Star, and I said this earlier, it's over the road. So we're on office, and we're starting off well.

Kenny no we're going out there we feel good about the service product.

We're going head on we're ready to compete again, the North Star and I said this earlier, it's over the road. So you know we're on offense and we're starting off well.

Jim Vena: What I don't like that I've seen is our puts who's not as fast. Our dwell needs to drop or dwell in the amount of time that we have real cars in yards at the intermodal terminals at intermediate points will drive productivity gains so that we are able to have more fluidity and that's real important to me. Now, when I came back last time I came with one goal. I came back I came to work the drive operational efficiency.

Alright, Thank you guys.

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Speaker 5: Thank you. As a reminder, due to the number of analysts joining us on the call today, we ask you please lemme yourself to one question, to come as many participants as possible.

Thank you as a reminder, due to the number of analysts joining us on the call. Today. We ask you. Please limit yourself to one question to comments made there's many participants as possible.

Speaker 5: The next question will be coming from the line of Allison Poliniac with Wells Fargo. Let's just use your question.

The next question will be coming from the line of Allison <unk> with Wells Fargo. Please proceed with your question.

Speaker 17: Hi, good morning. Hey, can you expand a little bit on that over the road opportunity? Is it something that you're seeing build a lot more in the pipeline today? I know you had talked about some of your customers wanting to see maybe more reliable service before that sort of conversion happens in terms of those opportunities. But any color in how we should think of that progression in terms of today versus the multi-year out?

Hi, good morning.

Can you expand a little bit on that over the road opportunity.

Is it something that youre seeing a lot more in the pipeline today I know you had talked about some of your customers wanting to see maybe more reliable service before that sort of conversion happens.

Jim Vena: I didn't look at the rest of the company very much. And the rest of the company needs to be looked at and that's what we're doing now. So everything that we did operationally we're going to look at what we've done and one example is the delay in exercise. You can't have nine levels from the CEO to the people who actually do the work and expect that the message is clear the decisions are made clear and there isn't some hiccup in the decision stops.

So there's opportunities, but any color on how we should think of that progression in terms of today versus the multiyear out. Thanks.

Speaker 3: Yeah, so again, I mentioned roughly May 18, 50 call it 15% that.

Yeah. So again I I mentioned you know.

Roughly mid teens call it 15% that's our estimation that's moving we're all out of there we see that as a ripe opportunity to go after that over the road product we've got a revised.

Speaker 3: our estimation that's moving real out of there, we see that as a right opportunity to go after that over the road.

Jim Vena: And I want to drive it so that we have way less layers and that means with less layers the people out in the field are empowered to make the right decision which train to hump which train to switch how we move the cars. What are we doing to customers what are we doing for scheduling how are we loading as our loading pattern right so many things that we can do and if we do that they're better at it than us Walter.

Speaker 3: We've got to revise, you know, more competitive, faster service product that Eric is delivering on and the, you know, high 90s percentile for what we've scheduled that to. And we have seen some wins. We have seen some over the road when come early. We've added extra products that I talked about going into the southeast. Remember, we're moving now and our product seven days a week, this in a few days a week and customers like that.

More competitive faster service product that Eric is delivering on and.

High 90 percentile for what we've scheduled that too and we have seen some way as we have seen some over the road wins come early.

Got it.

It's a product that I talked about one until the southeast remember, we're moving Allison our products seven days a week.

Jim Vena: There's no way that Jim Venna even though I think I'm a decent operator I could go operate the hump yard maybe when I retire next time I'll become just a hump yard operator in one place and see how well because I think a few people would love me to go out there and see if I'm as good as I say sometimes. But at the end of the day that's what's important and that's one of the things that's a big change this delay and exercise that we're going through and stay tuned we'll announce what the findings are as we move ahead. Let's welcome forward to hearing about it. Good question. Thank you.

A few days, a week and customers like that and we see it at the right spot to go after and growth.

Speaker 3: and we see it out the right spot to go after and grow.

Great. Thank you.

Speaker 5: Our next questions from the line of Chris Weatherby with City Group. Please just hear their comments.

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

Speaker 18: Hey, thanks, morning. So notice that headcount we've down sequentially for the first time in a while and you've noted using attrition here. So maybe thinking about the next couple of quarters, should we expect headcount to stay relatively flat and maybe come down a little bit as you use attrition and then maybe ask a different way, how much volume do you think you can manage with current headcount? So as we hopefully see a recovery and freight as we move forward, is there an opportunity to leverage this existing workforce to drive more productivity without adding head?

Hey, Thanks, good morning.

So we noticed that head count was down sequentially for the first time in a while and Jim you'd noted using attrition here. So maybe thinking about the next couple of quarters should we expect head count to stay relatively flat maybe come down a little bit that you use attrition and then maybe asked a different way how much volume do you think you can manage with current head count so as we.

Kenny Rocker: Our next question is from the line of Tom Roberts with UBS. Pleasure to hear your question. Yeah, good morning and Jim also wanted to say welcome back. I think the, you know, this is a bit of a high level question and I'm guessing the answer is kind of both but wanted to see if you could give some color on how we should look. I'm going to look at the opportunity in terms of being a volume story or a cost story.

Hopefully see a recovery in trade as we move forward is there an opportunity to leverage this existing workforce to drive more productivity without adding heads.

Speaker 13: Chris, nice to hear your voice again. There's so many pluses and minuses, additions, or subtractions. We still haven't fully implemented the 11 and 4 deal on scheduling with BLET. And we haven't concluded negotiations with Smart TD on what that.

Chris Nice to hear your voice again, theres, so many pluses and minuses additions or Subtractions, we still haven't fully implemented the 11 in for a deal.

Steel on scheduling with the BLA.

And we haven't.

Kenny Rocker: You know, I mean, you clearly did a lot with cost last time in, you know, 2019, 2020. You are talking a lot about productivity. But what's the, you know, what's really the more important lever for operating income growth in the next couple of years. Is this, you know, a little bit of productivity and a lot of volume. And then I guess the extent that there's the productivity side. Is that driven by head count reduction or is that really more other cost buckets like, you know, locomotive costs, car costs, that type of thing. Thank you.

Concluded negotiations with Smart T D on what that dose. So we have to see how that goes the general way I see it though is is that.

Speaker 13: So we have to see how that goes. The general way I see it though is that we do want to see a...

We do want to see a more productive workforce and the company as we move ahead, but I would be remiss to tell you without those collective agreements in place of exactly what the timeline is but.

Speaker 13: more productive workforce in the company as we move.

Speaker 13: But I would be remiss to tell you without those collective agreements in place of exactly what the timeline is. But that...

Speaker 13: You know me by now that I always look at what do we need of the railroad and is at the right level to be productive with it. So I'll do everything I can, but with those outstanding items.

You know me by now that the I always look at what do we need of the railroad and is at the right level to be.

To be productive with it so I'll do everything I can but with those outstanding items, we still.

Eric Gehringer: Good question. Kenny, why don't you talk about the opportunity on the growth side, the price inside and what we have, what we're looking for. We talked a little bit about it in terms of markets like our biofuels, very bullish on our construction and autos. I mean, just set aside the price right that's going on now. I talked about the business development when, but it's still holding up from a demand environment. We need to strike to come back.

Speaker 13: We still, I just can't give you a black and white answer of what the timeline is and how fast those changes go to where I want to take it. It might take a little bit longer than when...

I just can't give you a black and white answer of what the timeline is and how fast those changes go to where I want to take it might take a little bit longer than when if we didn't have those deals in place.

Speaker 2: Do you think it's safe to say once we have those deals implemented and we're working to drive the productivity Our long-term view is that we can grow volumes faster than we grow headcount absolutely Absolutely

Do you think it's safe to say once we have those deals.

<unk> implemented and we're working to drive the productivity of our long term view is that we can grow volumes faster than we grow head count absolutely.

Okay. Thanks for the time I appreciate it thanks, Greg.

Speaker 5: Our next question is from the line of Brandon Eglinski with Barclays. Please just hear with your question. Hey, good morning.

Our next question is from the line of friend in accordance with Barclays. Please proceed with your question.

Eric Gehringer: And then we've talked about international in a model. Now, we've had a little bit of a what I'll call a seasonal bond. We'll call it peak season and you've heard me say we haven't had one in a few years, so it's nice to see one. But on the domestic side, also there's just still a tremendous amount of over the road share that they're, you know, we think it's in the low teens that's in between out of Mexico and in the Mexico in terms of over the road share that we should be gathering.

Hey, good morning, and congrats Jim So Jim I guess, you know I think if we look back over the last number of Ceos at Union Pacific.

Speaker 19: So Jim, I guess, you know, I think if we look back over the last number of CEOs at Union Pacific,

Speaker 19: The disappointment that I think probably all of them with share would be lack of relative volume growth. And as I'm looking at my model here, I think RTM this year are probably gonna end up being down more than like 25% from where this company peaked way back in 2006.

Disappointment that I think probably all of them with share would be you know a lack of relative volume growth and as I'm looking at my model here I think our team. This year are probably going to end up being down more than like 25% from where this company peaks way back in 2006, so as.

Speaker 19: So as much as we're talking about service and the ability to grow and the pipeline looks strong, like we've heard that before. So what is different looking forward with US CEO at Union Pacific that you think you can really capture some of that market opportunity?

As much as we're talking about service and the ability to grow and the pipeline looks strong like we've heard that before so what is different looking forward with you as CEO at Union Pacific that you think you can really capture some of that market opportunity.

Eric Gehringer: Eric is out there getting us a more improved product. We've got a lot of optionality out of Mexico. We see that as a growth engine. As some of these consumer-facing products improve, we've always said that we felt good about our petroquem business. Conductroquem is also included in that. So if you look across the line, there's a lot of upside and we're very bullish on the volume growth that's there. So Eric, why don't you talk about it because the question is great.

Speaker 13: Well, you know, I'm gonna repeat myself, but it truly is. You have to have the fundamentals. You have to provide the service. You have to see what's happening.

Well, you know I'm going to repeat myself, but it truly is you have to have the fundamentals you have to provide the service you have to see what's happening and I think we can that we can grow faster than what the economy gives us and that's our goal and that's what we're going to drive it.

Speaker 13: I think we can grow faster than what the economy gives us. That's our goal. That's where we're going to drive it. Judge me in a year.

Judge me in a year, Okay I want the board to Judge me I want the shareholders to judge me and the team and I think we're there I think we can do that do we have some headwinds absolutely you know the industry as well as I do coal is always an issue that we have to deal with but the rest of the products that we have we're going to go after it.

Speaker 13: I want the board to judge me. I want the shareholders to judge me and the team. And I think we're there. I think we can do that. Do we have some headwinds? Absolutely. You know the industry as well as I do. Cole is always an issue that we have to deal with. But the rest of the products that we have, we're going to go after it. We're going to go get it. We're going to bring it on in the right place. And if we grow not as fast as we want, we're going to price properly for the service we're providing. So I think it's a win-win. And...

Eric Gehringer: There's no advantage of us that we have to grow the grow business. We have to price and take care of what's happened to us inflation-wise. And leverage our network. But productivity, what do you see on your piece of that? Absolutely. You know, we talked about productivity to really differentiate into two buckets. To some of our commentary already this morning, there's no easy productivity. But the most straightforward productivity is when you get that volume, how do you leverage it on the existing network that we have, the existing trains we have, or the whole idea of being volume variable plus.

Eric Gehringer: The other bucket of productivity is how we actually do the work. So when we think about our locomotive shops, our mechanical shops, our engineering gangs, for example, on the non-upside, it's a real challenge to them to say, hey, you still need to do the important work, how you do it more efficiently. So when we think about going into a locomotive facility and making sure that we balance the head count to the exact number of locomotives they have to be in the forecasted number to be really thoughtful about how do we use that material in there, to be thoughtful about how do we think about redoing cores.

We're gonna go get it we're going to bring it on in the right place and if we grow not as fast as we want we're going to price properly for the service, we're providing so I think it's a win win and.

Speaker 13: Let's talk next year. I'll put it on my calendar. You can ask me the question of how we're doing. OK?

Let's talk next year I'll put it on my calendar you can ask me the question of how we're doing.

Okay.

We'll do different things.

<unk>.

Speaker 5: Our next question is from the line of Jonathan Chappelle with Evercore ISI. This is your third question.

Our next question is from the line of Jonathan <unk> with Evercore ISI. Please proceed with your question.

Speaker 20: Thank you, good morning. Kenny, we've talked about a lot of things. Is it related to intermodal, new services, that wins, conceptually there should be some share shift back to the West Coast, hopefully after a couple of years of losses there. But the truck load market on the over the road opportunity continues to bounce along the bottom. So how competitive is the pricing dynamic within intermodal? Whether, you know, it's your new services.

Thank you and good morning, Canada, we've talked about a lot of things as it relates to intermodal and new services wins conceptually there should be some share shift back to the west coast hopefully after a couple of years of losses there.

But the truckload market and they are on the over the road opportunity you know continues to bounce along this bottom so how competitive is the pricing dynamic within intermodal, whether it's your new services relative to other rail options or relatively truck and how do you manage then the capacity you're willing to commit.

Eric Gehringer: I mean, there's infinite areas of opportunity within each one of our departments to be able to look deep into the business, deep into the work, and really find those opportunities. To Jim's point, it's a little bit harder work than it was a few years ago, but it's still work that we know how to do and work that will be successful doing. And I know neither one of them wanted to touch it.

Speaker 20: relative to other rail options or relative to be truck and how do you manage them the capacity you're willing to commit To these new kind of growth alternatives when you do have maybe a competitive pricing landscape It's more difficult at this point in the cycle

To these new tenant growth alternatives. When you do have maybe a competitive pricing landscape that's more difficult at this point in the cycle.

Eric Gehringer: They always leave those things for me. People are going to be one. You know, we look for cost savings on what our input costs are, and of course, it's much more difficult in the inflation area, a place that we find ourselves in this country, but we're going to look for every opportunity to use less so that we can save costs that way. And on head count, absolutely, we're going to use the tradition to right size the company as much as we can, to what we know now, we've identified of where we want to get to. So it'll be through attrition mostly, and we'll move ahead from there. Thanks for the question.

Justin Long: Thank you for your question.

Speaker 3: Yeah, first of all, it's great that we put the investments in for our Intermodal Network. You've heard me mention them. I won't go over them again, but it does aren't there. Obviously the service matters.

Yeah first of all it's great that we put the investments for our intermodal network you've heard me mention them I won't go over them again, but it does start there obviously the service matters.

Speaker 3: We've been deliberate about making sure we can insert optionality on that domestic and a model product and we've done that. You've heard us talk about the strong stable week.

Been deliberate about making sure we can insert optionality on that domestic intermodal product and we've done that.

You've heard us talk about the strong stable we have as you look at hub and Schneider and with an S. T. G that there are rail product with M. P. You Max and we've invested in that fleet from a G. P. S perspective investing in the round so were prepare.

Speaker 3: As you look at hub and Schneider and flip an FTG that there

Speaker 3: our real product with EMPU Max and we've invested in that fleet from a GPS perspective invested in the round.

Speaker 3: So we'll prepare from that standpoint.

David Vernon: The next question comes from the line of David Vernon with Bernstein. Please receive their question. Hey, good morning, guys. So I wanted to talk a little bit about, I wonder if you could talk a little bit about, you know, the, the earnings leverage we should have from some of the intermodal agreements you guys are signing. Obviously, the, the, the foul conservist, the partnership with NS, how should we be thinking about, thinking about the profile from a margin perspective of that traffic coming on, particularly early here as Trump.

From that standpoint.

Speaker 3: You think your question is a little bit about how we keep them competitive. And I've talked about that in terms of, again, we have mechanisms to make sure that our customers, regardless, IMC, private assets are competitive. And what we want to be is just nimble and quick and change with the market so that we can get that margin and price improvement as we move along.

I think your question a little bit about how we keep them competitive and I've talked about that.

In terms of again, we have mechanisms to make sure that our.

Customers, regardless IMC as private assets are competitive and what we want to be is just nimble and quick and change with the market. So that we can get that that margin and price improvement as we move along.

David Vernon: Mark rates remain low and it seems like intermodal companies are out there discounting the service to, to take some share. And then maybe bigger picture, Jim, could you talk a little bit about how you see the competitive dynamics for, for, for U.P, changing, post the C.P. Casey acquisition. We've heard a lot from Lance in the past on this, but I don't think we've had a chance to hear you talk about how that acquisition creates risks or opportunities for you and Pacific from your perspective.

Great. Thanks again.

Speaker 5: Thank you. Our next question from the line of BASCO majors with Susquehanna. Let's just see what's your question.

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

Speaker 21: Jim, you think you had about 500 locomotives parked? With curious, just high level, how do you think about the locomotive strategy at UPP versus what you inherited? And I've got a big order for refurbishment that will go out several years, but just strategically longer term, however, refurbished locomotives performing, where do you see your CAPEX going over the next three, five, seven years to satisfy both the service needs you have and the emissions targets you put out there. Thank you.

Jim You said you had about 500 locomotives parked was curious just high level. How do you think about the locomotive strategy P versus what you inherited and they've got a big order for for refurbishment that will go out several years, but just strategically longer term you know how our refurbished locomotives performing.

Jim Vena: Thank you. So thanks, David, for that question. You know, you've heard us talk about margins before in terms of the, when we look at it, where you see some of the, the greatest margin pressure relative to our book of business is in that business, it's truck competitive and we certainly are in a truck competitive market today. But that's also our opportunity that you've heard us talk about in terms of tremendous growth and we know that there's leverage in margins from, from volume growth, that can help drive greater productivity.

Where do you see.

Your capex going over the next 357 years to satisfy both the service needs you have in the emissions targets you put out there. Thank you.

Speaker 13: So, you know, we'll continue to invest in our local order.

Okay. So you know, we'll continue to invest in our locomotives.

Speaker 13: And Vaskin will always make sure that we have the right locomotive and make them as fuel efficient as possible so that we can...

And basketball will always make sure that we have the right locomotive and make them as fuel efficient as possible. So that we can we can save fuel when we're operating no if ands or buts, that's what we'll continue to do it.

Speaker 13: we can save fuel when we're operating. No advance or budget, that's what we'll continue to do. And as far as where the cap act.

Jim Vena: And as we are building a better service product, certainly, you know, as we provide better service, there's a price for that service. And we look to price to that to be able to meet that customer demand. I don't know if you want to add anything to that. No, the only thing I'd say is that as we're looking in the current environment, we're certainly keeping our customers competitive with mechanisms that we have in our contract.

As far as where the Capex.

Speaker 13: You know, we're not ready now, but I'm pretty sure that you'll see our CAPEX being at a different starting point next year than where we were this year. And that's how I dive you as an adult. Stay tuned and when we get into January , we'll give you the numbers of what our plan is for next year.

We're not ready now, but I'm pretty sure that you'll see our capex be in.

A different starting point next year than where we were this year and that's how I view, it and stay tuned and when we get into January we'll we'll give you the numbers of what their plan is for next year.

Jim Vena: And we are clear out about as the market's changed, their stable now, if they get a little bit more tighter, the management will see upside from a price perspective, which issue up in margins. And on the competitive dynamic in the specific example of CPKC, so I think they're a great railroad. I think they have a great network. I think their leader Keith, he's a friend of the one who for a long time, and he's smart, knows how to railroad.

Thank you.

Thanks.

Speaker 5: Our next question is from the line of Jeff Kaufman with Vertical Research Partners. Please excuse your question.

Our next question is from the line of Jeff Kauffman with vertical Research partners. Please proceed with your question.

Speaker 13: Thank you very much, Jim. Welcome back and congratulations. You know, you've answered this a couple different ways, but let me come at this in terms of what's different from 2019 since you came back. I think you talked a little bit about what's different at the railroad, but maybe talk about in terms of the customer expectations in the market or kind of where volume is, where business is, and how the railroad in your view needs to adapt.

Jim Vena: So he knows how to balance safety service, asset utilization, cost control, and developing his people. Same thing as we do. So the competition is, and I like it, there's nothing wrong with a little competition. So I want to win, he wants to win. There's no advantage of butts that the CPKC, if it's origination to destination on their railroad, you know, we have a competitive disadvantage. But the advantage we have is, we've got this great network.

Thank you very much Jim welcome back and congratulations.

You know you've answered this a couple of different ways, but let me come at this in terms of what's different.

From 2019 since she came back I think you talked a little bit about what's different at the railroad, but maybe talk about in terms of customer expectations in the market or kind of where volume is where business is and how the railroad.

Your view needs to adapt.

Speaker 13: Well, I think railroading the basic foundation of railroad hasn't changed from 2019. How we look at the business, at Union Pacific, how fast we are making decisions needs the change. You know, when I showed up, I asked Kenny to give me a number of customers that I could talk to at a high level and talk about what our service is, what our plan was. One of them said to me that they wanted to invest a lot of money.

Well I think the railroad in the basic foundation of railroad and Hasnt changed from 2019, how we look at the business at Union Pacific How fast we are making decisions needs to change.

When I showed up.

Aye.

Ask Kenny to give me a number of customers that I could talk to at a high level and talk about what our services. What our plan was one of them said to me that they wanted to invest a lot of money.

Jim Vena: We go through 23 states. We serve the population in the US. We have fast access. We have a 70 mile hour railroad. We're fast. And if we have to be, if that's what we sold was fast, we can do that. And you can see it when we move our parcel business as we're doing and getting up to their peak period coming up towards Christmas. So all those things, plus we have access into Mexico, broader access than one or two places.

Speaker 13: to be able to build out because there was expansion going on in the sort of

To be able to build out because there was expansion going on in the in the soda patch soda ash badge. So at the end of it it was taken us over a year to give them a decision on whether we can do that we need to change that and if we change that and we were able to make the decision in four days I got it we can't make decisions in four days all the time, but we.

Speaker 13: So that's bad. So at the end of it, it was taking us over a year to give them a decision on whether we could do that. We need to change that. And if we change that, and we were able to make the decision in four days, I got it. We can't make decisions in four days all the time. But we share can make them in a few weeks instead of months. That's real important. That's a change in the way we want to do business. And the customers, the feedback was,

Jim Vena: We go into the, in the Mexico, from the west coast all the way east to a number of locations. And we have a strong partner in FXB. And as you know, we own a 26% of them. And that helps us. So I'm excited. CPKC is going to make it difficult. And we're going to make it difficult. Now, I don't chase price. This is not a price discussion. It's about a service and access to markets and how we do it.

Sure can make them in a few weeks instead of months, that's real important that's a change in the way we want to do business and the customers. The feedback was there's opportunity for them to win in their marketplace. The customers that we have so we need to build on that and that's really important that the foundations of the same we're going to operate a very efficient railroad.

Speaker 13: There's opportunity for them to win in their marketplace, the customers that we have. So we need to build on that, and that's real important. That's the foundations the same. We're going to operate a very efficient railroad. Have a.

Having a buffer.

Speaker 13: The fundamentals, the five key fundamentals of how you operate a railroad, I'm not changing from. It's true, it's tested.

The fundamentals the five key fundamentals on how you operated a railroad I'm not changing from its true its tested.

Jim Vena: And I'll walk away from business if somebody wants to lower their price. Go ahead, take the business. I'll bring in business that fits our network that makes sense. So that's how I think of the competitive and I could have that discussion about all the other railroads. I want us all to be really good and strong. So are you seeing a potential volume risk from a diversion standpoint? Kenny? No, we're going out there.

Speaker 13: It wins, it puts us in the right place. I'm not changing. And, but we need to be consistent with our customers, work better for them to grow, and we win. So I'm looking forward to the challenge. One big difference between 2019 and now.

It wins it puts us in the right place I'm, not changing and but we need to be consistent with our customers' work better for them to grow and we win so I'm looking forward to the challenge one big difference between our 2019 and now.

Speaker 13: My wife is still mad at me that I went back to work. Okay? But other than that, everything else is good. All right, so we'll best elect you.

My wife is still Mad at me that I went back to work, okay, but other than that everything else is good.

Jim Vena: We feel good about the service product. We're going head on. We're ready to compete again. The North Star, and I said this earlier, it's over the road. So, you know, we're on office and we're starting off well.

Awesome Best of luck to you. Thank you.

<unk>.

Speaker 5: Our next question to an Alina Ravi Shankar with Morgan Stanley . Please receive your question.

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

Speaker 22: Thanks for the everybody. Just to follow up on the Mexico and Falcon Service commentary.

Thanks, Hello, everybody just a follow up on the on the on the Mexico and Socgen service commentary.

Kenny Rocker: All right. Thank you, guys. Thank you.

Operator: As a reminder, due to the number of analysts joining us on the call today, we ask you, please send me yourself to one question to come as many participants as possible.

Speaker 22: Jim or Kenny, when you talk to customers who are looking to potentially work from truck or work from another railroad, how important is speed in their equation relative to an overall value proposition? You said that you are at a built up structure disadvantage, given the interchange versus your peer. What can you do from an overall value prop to be competitive and work against that structure if it doesn't want you to be well?

Jim or Kevin.

But when you talk to customers, who are looking to potentially it can work from truck work and work from another railroad.

Allison Poliniak: The next question will be coming from the line of Allison Poliniak with Wells Fargo. Let's just use your question.

How important to speed are in their equation relative to the overall value proposition. I mean, you said that there you are at a bit of a structure or does it want to just kind of given the interchange versus your peer but like what can you do from an overall value prop to kind of be competitive and kind of you know.

Kenny Rocker: Hi, good morning. Can you expand a little bit on that over the road opportunity? Is it something that you're seeing bill? There's a little lot more in the pipeline today. I know you had talked about some of your customers wanting to see maybe more reliable service before that sort of conversion happens in terms of those opportunities. But any color in how we should think of that progression in terms of today versus the multi year out.

What work against that structure does it why don't you people yeah.

Listen I probably wasn't clear.

Speaker 13: I don't think structurally we have any issue with any competitor. I just wanted to give you the CPKC, if you're a rigidization railroad just like us. If we originate in Salt Lake and we're going to Boise, Idaho, it's pretty hard for somebody to compete against us another railroad. That's all I was saying. At the end of the day, I think we compete against...

I don't think structurally we have any issue with any competitor I just wanted to give you. The CPE Casey if your origination railroad just like US if we originate in Salt Lake and we're going to Boise, Idaho, It's pretty hard for somebody to compete against us of other railroads. That's all I was saying at the end of the day.

Kenny Rocker: Thanks. Yeah. So, again, I mentioned, you know, roughly made teams, 15% of our estimation, that's moving real out of there. We see that as a right opportunity to go after that over the road product. We've got to revise, you know, more competitive, faster service product that Eric is delivering on in the high 90s percentile for what we've scheduled that to. And we have seen some wins. We have seen some over the road wins come early.

I think we compete against anybody.

Speaker 3: Because of the network we have, the speed we have, and what we're capable to open up for markets. Kenny? So first of all, we know our customers. We know that automotive OEM with auto-part for production is different than say an FAK business of, you know, container pillars. They are...

Well the network, we have the speed, we have and what we're capable to open up for markets. Kenny go first of all we know our customers, we know that automotive OEM.

Auto.

Hard for production is different.

Kenny Rocker: We've added extra products that I talked about going into the southeast. Remember, we're moving now in our product seven days a week. This in a few days a week and customers like that. And we see it out the right spot to go after and grow.

Say, an FHA business.

<unk> contained our pillar they are different.

Chris Wetherbee: Great. Thank you.

Speaker 3: what differentiates us and that says I talked about the revised.

What differentiates us in that sense I talked about the revised service product that is going to help us with customers that are speeds sensitive.

Speaker 3: service products that is going to help us with customer that our speed system. The fact that we have every

But we have every day per week service, that's going to help us because that matter is also the fact that we have a group of private asset owners.

Speaker 3: per week service. That's gonna help us because that matters also. The fact that we have a group of...

Chris Wetherbee: Next questions from the line of Chris, whether be with city group. Please just hear their question. Yeah. Thanks. Morning. So we noticed that headcount we down sequentially for the first time in a while and you noted using a trition here. So, you know, maybe thinking about the next couple of quarters, should we expect headcount to stay relatively flat, maybe come down a little bit and you use a trition and then maybe ask the different way.

Speaker 3: private assets, owners, and we all have our own containers.

Owners and we also have our own containers to go on in Mexico that makes the difference. So again, we know our customers and those are the things that we talk to our customers about it we're winning business over the road.

Speaker 3: to go on a Mexico, that makes a difference. So again, we know our customers and those are the things that we talk to our customers about as we're winning business over the road. You

Great. Thank you.

Thanks for the questions I appreciate it.

Chris Wetherbee: How much volume do you think you can manage with current headcount? So as we, you know, hopefully see a recovery and freight as we move forward. Is there an opportunity to leverage this existing workforce to drive more productivity without adding heads?

Speaker 5: Our final question is from Leonard Justin Long, who's Stevens. Please receive your questions. Thank you. Thank you.

Our final question is from the line of Justin Long with Stephens. Please proceed with your question.

Thanks.

Speaker 6: Good morning, Jennifer. You talked about comp per employee being up about 3% this year, but I wasn't sure if that included the impact of the abnormal labor costs from last year. So how do you expect comp per employee to trends sequentially into the fourth quarter? And as we move into 2024, do you think this is an area where the productivity opportunity has potential to fully offset the inflation headwinds we're seeing?

Good morning, Jennifer you talked about comp per employee being up about 3% this year, but I wasn't sure. If that included the impact of the abnormal labor costs from last year. So how do you expect comp per employee to trend sequentially into the fourth quarter and as we move into 2024.

Jim Vena: Chris, nice to hear your voice again. There's so many pluses and minuses, additions or subtractions. We still haven't fully implemented the 11 and 4. We are a deal on scheduling with BLET and we haven't concluded negotiations with Smart TD on what that does. So we have to see how that goes. The general way I see it though is that we do want to see a more productive workforce in the company as we move ahead.

Do you think this is an area where the productivity opportunity has the potential to fully offset the inflation headwinds we're seeing.

Okay.

Speaker 2: Thanks for the question, Justin. In terms of your first question, when we talk about comp for employee, we do try to make it apples to apples, so we take out any of the one-timers.

So thanks for the question Justin in terms of your first question when we talk about comp per employee we do try to make it apples to apples. So we take out any any of the one timers in terms of looking at it sequentially. You know as we go into the fourth quarter, there's probably a couple of things going on there to think about and consider one is has worked.

Jim Vena: But I would be remiss to tell you without those collective agreements in place of exactly what the timeline is. But you know me by now that I always look at what do we need of the railroad and is at the right level to be productive with it. So I'll do everything I can. But with those outstanding items, we still, I just can't give you a black and white answer of what the timeline is and how fast those changes go to where I want to take it.

Speaker 2: In terms of looking at it sequentially, as we go into the fourth quarter, there's a prior couple things going on there that to think about and consider. One is, as we're continuing to take people out of training classes, put them into full-time positions on the row road, there's a little bit higher cost associated with that. And then just some of the OE capital mix that you get in the fourth quarter as you wind down some of the capital programs, that can put a little pressure on there as well.

Continuing to take people out of training classes put them into full time positions on the railroad are theres, a little bit higher cost associated with that and then just some of the OE capital Nick that you get in the fourth quarter as you wind down some of the capital programs that can put a little pressure on there as well looking long term you know again.

Jim Vena: It will take a little bit longer, and if we didn't have those deals in place. Yeah, but Juma, do you think it's safe to say once we have those deals implemented and we're working to drive the productivity our long-term view is that we can grow volumes faster than we grow headcount.

Speaker 2: Looking long term, you know, again, productivity and being able to offset cost inflation with productivity is always one of our objectives. It certainly is hard in a very high inflation environment, but that's our opportunity as well. That gives us the opportunity to really look.

Productivity and being able to offset cost inflation with productivity is always one of our objective certainly is hard and very high inflation environment.

The environment.

Jim Vena: Absolutely. Thanks for the time. Appreciate it. Thanks, Grant.

But that's our opportunity as well that gives us the opportunity to really look critically at the work that's been done and make sure that we're being as efficient as we possibly can be and I think you've heard on the call today, we see opportunities across the board, whether you're talking about how we are maintaining our locomotive fleet, how we're looking at our back office.

Speaker 2: critically at the work that's being done and make sure that we're being as efficient as we possibly can be. And I think you've heard on the call today, we see opportunities across the board, whether you're talking about how we're maintaining our locomotive fleet, how we're looking at our back office functions, how we're managing the transportation employees. We have opportunities to be more...

Brandon Oglenski: My next question is from Nolan of Brandon Oglenski with Barclays. Please just hear with your question.

Jim Vena: Hey, good morning and congrats, Jim. So, Jim, I guess, you know, I think if we look back over the last number of CEOs at Union Pacific, the disappointment that I think probably all of them would share would be, you know, lack of relative volume growth. And as I'm looking at my model here, I think, you know, our teams this year are probably going to end up being down more than like 25% from where this company peeks way back in 2006.

Functions, how were managing the transportation employees, we have opportunities to be more efficient there.

Speaker 13: Well, listen, thanks everyone, and let me tie this up. And I really appreciate everybody taking the time this morning to join us and talk about Union Pacific. And I think the team that's with me here has done a great job of explaining what we do, but let me summarize it real quick.

Well listen up.

Thanks, everyone and let me tie this up and I really appreciate everybody taking the time this morning to join US and talk about Union Pacific and I think the team that so with me here has done a great job of explaining what we do but let me summarize it real quick.

Jim Vena: So, as much as we're talking about service and the ability to grow and the pipeline looks strong, like we've heard that before. So what is different looking forward with US CEO at Union Pacific? That you think you can really capture some of that market opportunity? Well, you know, I'm going to repeat myself, but it truly is. You have to have the fundamentals. You have to provide the service. You have to see what's happening. And I think we can grow faster than what the economy gives us. And that's our goal. And that's where we're going to drive it.

Speaker 13: Our goals are clear. It's about safety, service, and operating excellence. That's how we win. And we're going to be really good at operations. We're going to provide consistent service to what we sold. Every customer has a different level of service they require. Some of them is fast. Some of them is sustainable. Some of it is making sure you're consistent.

Our goals are clear, it's about safety service and operating excellence, that's how we win and we're going to be really good at operations, we're going to provide consistent service, but what we sold.

Customer has a different level of service they required some of them as fast some of them is a sustain.

Sustainable some of it is making sure you're consistent we're going to leverage the railroad we're going to do everything we can to leverage though the physical plant that we have we're gonna be efficient in how we do it.

Speaker 13: We're going to leverage the railroad. We're going to do everything we can to leverage the physical plants that we have. We're going to be efficient on how we do it.

Jim Vena: Judge me in a year. Okay. I want the board to judge me. I want the shareholders to judge me and the team. And I think we're there. I think we can do that. Do we have some headwinds? Absolutely. You know the industry as well as I do. You know, coal is always an issue that we have to deal with. But the rest of the products that we have, we're going to go after it.

Speaker 13: We are going to deal with stakeholders at all levels in a professional manner and listen to their inputs and see what we can do. I think we can win. This is not going to be a short-term fix that you'll see it, but what you should notice is as we go through the next quarters.

We are going to deal with the with stakeholders at all levels in a professional manner and listened to their inputs and see what we can do I think we can win this is not going to be a short term fix that you'll see it but what you should notice is as we go through the next quarters, you will see us improve and we will.

Jim Vena: We're going to go get it. We're going to bring it on in the right place. And if we grow not as fast as we want, we're going to price properly for the service we're providing. So I think it's a win-win.

Speaker 13: You will see us improve and we will get to the right place with the inputs that we have in this railroad. I'm excited, the team's excited. We're moving fast and again, thank you very much everyone for joining us and we'll talk to you all in the next quarter if not sometime before. Thank you very much.

Get to the right place with.

Jim Vena: And let's talk next year. I'll put it on my calendar. You can ask me the question of how we're doing. Okay.

The inputs that we have in this railroad I'm excited the team is excited we're moving fast and again. Thank you very much everyone for joining us and we'll talk to you all in the next quarter if not sometime before thank you very much.

Jim Vena: Well, Jim, thanks. Thank you.

Jonathan Chappell: Our next question is from the line of Jonathan Chiffell with Evercore ISI.

Jonathan Chappell: This is your third question. Thank you.

Speaker 5: Please, in gentlemen, thank you for your participation. This does conclude space teleconference. You may now disconnect your lines at this time and have a wonderful day.

Ladies and.

And thank you for your participation. This does conclude today's teleconference. You may now disconnect. Your lines at this time and have a wonderful day.

Kenny Rocker: Good morning. Kenny, we've talked about a lot of things as it relates to intermodal new services that wins. Conceptually, there should be some share shift back to the West Coast. Hopefully after a couple of years of losses there. But the truck load market on the over the road opportunity, you know, continues to bounce along this bottom. So how competitive is the pricing dynamic within intermodal? Whether, you know, it's your new services relative to other rail options or relative to truck? And how do you manage them, the capacity you're willing to commit to these new kind of growth alternatives when you do have maybe a competitive pricing landscape that's more difficult at this point of the cycle.

Kenny Rocker: Yeah, first of all, it's great that we put the investment in for our intermodal network. You've heard me mention them. I won't go over them again, but it does aren't there. Obviously the service matters. We've been deliberate about making sure we can insert optionality on that domestic intermodal product and we've done that. You've heard us talk about the strong stable we have as you look at hub and Schneider and with an STG that's there.

Kenny Rocker: Our rail product with the MPU max and we've invested in that fleet from a GPS perspective invested in the round. So we'll prepare from that standpoint. You think your question is a little bit about how we keep them competitive and I've talked about that in terms of, again, we have mechanisms to make sure that our customers, regardless, IMC, private assets are competitive and what we want to be is just nimble and quick and change with the market so that we can get that margin and price improvement as we move along. Thank you.

Bascome Majors: Our next question from the line of Bascome Majors with Susquehanna, please just see it with your question. Jim, you said you had about 500 locomotives parked with curious, just high level, how do you think about the locomotive strategy at UPP versus what you inherited? And I've got a big order for refurbishment that will go out several years but just strategically longer term, how are refurbished locomotives performing? Where do you see your CAPEX going over the next three, five, seven years to satisfy both the service needs you have and the emissions targets you put out there?

Bascome Majors: Thank you. Okay. So, you know, we'll continue to invest in our locomotives and Bascome will always make sure that we have the right locomotive and make them as fuel efficient as possible so that we can save fuel when we're operating. No advance or buzz, that's what we'll continue to do. And as far as where the CAPEX, you know, we're not ready now but I'm pretty sure that you'll see our CAPEX being at a different starting point next year than where we were this year. And that's how I view it. Stay tuned and when we get into January, we'll give you the numbers of what they're applying this for next year. Thank you.

Jeff Kaufman: Our next question is from the line of Jeff Kaufman with vertical research partners. Please excuse your question. Thank you very much.

Jim Vena: Jim, welcome back and congratulations. You know, you've answered this a couple different ways, but let me come at this in terms of what's different from 2019 since you came back. I think you talked a little bit about what's different at the railroad, but maybe talk about in terms of the customer expectations and the market or kind of where volume is, where business is and how the railroad in your view needs to adapt.

Jim Vena: Well, I think the railroad in the basic foundation of railroad hasn't changed from 2019, how we look at the business at Union Pacific, how fast we are making decisions needs to change. You know, when I showed up, I asked Kenny to give me a number of customers that I could talk to at a high level and talk about what our service is, what our plan was. And one of them said to me that they wanted to invest a lot of money to be able to build out because there was expansions going on in the soda patch, soda ash patch.

Jim Vena: So at the end of it, it was taking us over a year to give them a decision on whether we could do that. We need to change that. And if we change that and we were able to make the decision in four days, I got it, we can't make decisions in four days all the time. But we sure can make them in a few weeks instead of months. That's real important. That's a change in the way we want to do business.

Jim Vena: And the customers, the feedback was there's opportunity for them to win in their marketplace, the customers that we have. So we need to build on that. And that's real important. The foundation is the same. We're going to operate a very efficient railroad. Having a buffer, the fundamentals, the five key fundamentals of how you operate a railroad, I'm not changing from. It's true. It's tested. It wins. It puts us in the right place. I'm not changing. But we need to be consistent with our customers, work better for them to grow and we win. So I'm looking forward to the challenge. One big difference between 2019 and now.

Jim Vena: My wife is still mad at me that I went back to work, okay? But other than that, everything else is good.

Operator: Awesome, we'll best the lecture here, thank you. Thank you.

Operator: Our next question is from the line of Ravi Shanker with Morgan Stanley. Please just hear the question. Thanks for the little everybody.

Ravi Shanker: Just to follow up on the Mexico and Falcon service commentary, when you talk to customers, kind of who are looking to potentially can work from truck or can work from another railroad, how important the speed in their equation relative to an overall value proposition? I mean, you said that you're at a build of a structural disadvantage, kind of given the interchange versus your peer, but what can you do from an overall value prop to kind of be competitive and kind of work against that structure?

Ravi Shanker: Does it want you people? Yeah, listen, I probably wasn't clear. I don't think structurally we have any issue with any competitor. I just wanted to give due to CPKC, if you're an origination railroad just like us, if we originate in Salt Lake and we're going to Boise, Idaho, it's pretty hard for somebody to compete against us another railroad. That's all I was saying. At the end of the day, I think we compete against anybody because of the network we have the speed we have and what we're capable to open up for markets.

Ravi Shanker: Can you go first of all? We know our cup. We know that automotive OEM with auto parts for production is different and say an FAK business of container pillars. They are different. What differentiates us in that sense, I talked about the revised service products. That is going to help us with customer that our speed system. The fact that we have every day per week service, that's going to help us because that matters also.

Ravi Shanker: The fact that we have a group of private asset owners and we also have our own containers to go into Mexico, that makes a difference. Again, we know our customers and those are the things that we talk to our customers about as we're winning business over the road. Great. Thank you. Thanks for the question. We appreciate it. Thank you.

Justin Long: Our final question is from one of Justin Long, who's Steven's.

We should see you with your question.

Good morning, Jennifer. You talked about comp per employee being up about 3% this year but I wasn't sure if that included the impact of the abnormal labor costs from last year. How do you expect comp per employee to turn sequentially into the fourth quarter? As we move into 2024, do you think this is an area where the productivity opportunity has potential to fully offset the inflation headlands we're seeing? Thanks for the question, Justin.

In terms of your first question, when we talk about comp per employee, we do try to make it apples to apples, so we take out any of the one-timers. In terms of looking at it sequentially, as we go into the fourth quarter, there's probably a couple things going on there to think about and consider. One is we're continuing to take people out of training classes, put them into full-time positions on the road.

There's a little bit higher cost associated with that. And then just some of the OE capital mix that you get in the fourth quarter, as you wind down some of the capital programs, that can put a little pressure on there as well. Looking long-term, again, productivity and being able to offset cost inflation with productivity is always one of our objectives. It certainly is hard in a very high inflation environment, but that's our opportunity as well.

That gives us the opportunity to really look critically at the work that's being done and make sure that we're being as efficient as we possibly can be. And I think you've heard on the call today, we see opportunities across the board, whether you're talking about how we're maintaining our locomotive fleet, how we're looking at our back office functions, how we're managing the transportation employees. We have opportunities to be more...

Well listen, thanks everyone, and let me tie this up, and I really appreciate everybody taking the time this morning to join us and talk about Union Pacific, and I think the team that's with me here has done a great job of explaining what we do, but let me summarize it real quick. Our goals are clear, it's about safety, service and operating excellence, that's how we win, and we're going to be really good at operations, we're going to provide consistent service to what we sold, every customer has a different level of service they require, some of them is fast, some of them is sustainable, some of it is making sure you're consistent, we're going to leverage the railroad, we're going to do everything we can to leverage the physical plant that we have, we're going to be efficient on how we do it, we are going to deal with stakeholders at all levels in a professional manner and listen to their inputs and see what we can do, I think we can win.

This is not going to be a short-term fix that you'll see it, but what you should notice is as we go through the next quarters, you will see us improve, and we'll get to the right place with the inputs that we have in this railroad, I'm excited, the teams excited, we're moving fast, and again thank you very much everyone for joining us and we'll talk to you all in the next quarter if not sometime before, thank you very much.

Ladies and gentlemen, thank you for your participation, this does conclude space health conference, you may now disconnect your lines at this time and have a wonderful day.