Q4 2023 Norfolk Southern Corp Earnings Call

Yeah.

Greetings and welcome to the Norfolk Southern Corporation fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as your mind.

This conference is being recorded its now my pleasure to introduce Luke Nicholas Senior director of Investor Relations. Thank you. Mr. Nicholls you may begin.

Thank you and good morning, everyone. Please note that during today's call we will make certain forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk, Southern Corporation, which are subject to risks and uncertainties.

And may differ materially from actual results.

Please refer to our annual and quarterly reports filed with the SEC for a full disclosure of those risks and uncertainties, we view as the most important.

Presentation slides are available at Norfolk, Southern Dot com in the investors section along with a reconciliation of any non-GAAP measures used today to comparable GAAP measures.

Turning to slide three it's now my pleasure to introduce Norfolk, Southern's, President and Chief Executive Officer, Alan Shaw.

Good morning, everyone and thank you for joining Norfolk, Southern's fourth quarter 2023 earnings call.

Here with me today are Mark George our Chief Financial Officer, Paul Duncan, Our Chief operating Officer, and Ed Elkins, Our Chief marketing Officer.

Last year was historically challenging with a major derailment to start off the year, followed by network disruptions and compounded by stubbornly weak freight market.

The eastern Ohio incident tested our resolve.

I'm proud that our team responded decisively and responsibly.

To protect this great franchise, and our shareholders and to address the community's concerns.

With an unwavering commitment we have strengthened our safety and service.

We have kept and will continue to keep our promises to make things right in Ohio.

To improve our service to our customers and to make a safe railroad even safer.

A crisis allows you to accelerate change and we acted.

This includes a number of positive changes, how we design the network and assemble trains.

With measurable results.

As we show on slide four our improvement in safety is already been highlighted by a dramatic 42% reduction in our mainline accident rate in 2023.

2023 was also historically important from Norfolk, Southern because we began to implement and advance our new strategy.

To position our business for sustainable growth and success.

The intermodal service composite chart on the right side of Slide four tells an important story that speaks to a clear gaze.

We have made in both resiliency and service.

Following significant strides of service in 2022.

With our investments and resiliency through leadership plan and resources, we demonstrated the ability to execute our strategy to run a safer railroad that delivers a compelling service product to our customers.

And handles increased business.

Balanced approach to safely deliver any service productivity and growth.

We overcame multiple significant network disruptions in 2023.

And exited the year with the best Intermodal service, we have delivered in over three years.

All while intermodal volume grew 5%.

Entering 2024, with a safer and more fluid network that is attracting growth.

We have the platform to narrow our focus to specific areas to drive increased productivity.

And we are building positive momentum by executing on our strategic vision.

Part of that strategic vision is our commitment to industry competitive margins.

And we are determined to deliver on that promise just as we have delivered on our promises on service and safety as volumes grew.

We will leverage our P. S. Our operating plan with our current resource base to meaningfully improve velocity and resilience within our merchandise network.

Which accounts for two thirds of our train starts.

As we achieve a high degree of compliance to the plan in merchandize, we will reduce variability complexity and costs.

We are driving that forward now with the results already seen in December and January.

It will drive asset velocity that will lead to productivity gains and cost savings.

And in 'twenty 'twenty four we are targeting a double digit percentage improvement in terminal dwell.

Which is a good barometer of the health of our and fluidity of our merchandise network.

Paul will go into more detail about how we are planning to build on our success in intermodal.

Point changes to accelerate our merchandise network.

Which I've noted will be a major source of productivity for Norfolk, Southern that 'twenty 'twenty four and beyond.

To further describe what we're doing to improve profitability and drive smart growth in 2020 for Ed.

Ed will talk about how his team is winning business.

And pushing hard and negotiate price in excess of inflation.

Importantly, we.

We are streamlining our cost structure and eliminating inefficiencies.

We invested in 2023 to enhance safety and service.

We will see the benefits of this in our cost structure in 2024 and will take actions this year to reduce costs in other areas.

This includes a program to reduce management head count by roughly 7%.

Offset increases in critical operating areas.

Our groundbreaking transformation will take time.

We recognize the necessary investments in resiliency and service at temporarily increased our cost structure.

Particularly visible during the trough and this freight cycle.

On slide five Youll see we laid out the scenario where during a down cycle. We may modestly underperformed in order to be coiled to secure volume and incremental margin when the freight cycle recovers.

While we didn't expect 2023 to be a continuation of a soft rate market coupled with numerous disruptions. We are optimistic that recoveries on the horizon and our investments will yield returns.

We will deliver near term margin improvement as we implement our strategic vision.

A balance between safe service productivity and smart growth.

Yeah.

We are on the path to achieve that balance.

In the aftermath of the derailment and network disruptions.

We have improved safety and service in a responsible manner and orange securing new business.

With a stabilized network and a high degree of compliance to the plan, we will continue to iterate the plan, reducing complexity and enhancing execute ability and balance.

All of this will unlock productivity and fluidity, which in line with our strategy will allow us to attract more volume at accretive incremental margins and deliver top tier revenue and earnings growth that industry competitive margins.

With strong franchise advantages that.

And that will serve us well as we move through this economic cycle, we are poised for a bright future as we balance safe service productivity and growth.

I'll turn it over to Mark and the rest of the team to add some context around the timing and magnitude of our planned improvements.

In performance and profitability.

Thank you Ellen and good morning, everyone.

I'll start on slide seven with an update on our costs related to the eastern Ohio derailment.

During the fourth quarter, we reached a significant milestone with the bulk of the soil remediation being completed.

So an encouraging achievement however, as you'll note, we incurred $137 million charge in the quarter, which related to an extension of the timeline for ongoing testing as well as additional work that will be completed in nearby streams.

There was another $89 million incurred in legal costs and other fees.

But of note, we received $76 million of insurance recoveries, bringing the total recoveries in 2023 to just over $100 million.

From a cash perspective, the net outflow in 2023 with $652 million after the insurance recoveries.

While we're pleased with our remediation accomplishments. We currently expect the ongoing monitoring efforts and cleanup efforts will continue through 2024.

There will be additional costs in the future related to legal settlements of fees, although the amounts and timing cannot currently be estimated.

Moving to slide eight we illustrate the impact of these fourth quarter results on our results.

Our GAAP results are in the first row, while on row, two we isolate the accounting to our Q4 financials related to the incident at.

At the bottom of the chart you will note the comparisons of the adjusted results to prior year.

I'll be talking.

Talking about our adjusted results for the remainder of the discussion.

Revenues were down nearly 5%, while adjusted operating expense was 3% higher.

The adjusted operating ratio for Q4, 2023 was 68, 8%, which represented a year over year deterioration, but notably was a 30 basis point sequential improvement from our third quarter performance.

The sequential improvement is encouraging, but we fell short of our expectations as service related costs did not come down as we anticipated.

While our recovery efforts related to the I T outages in late Q3 restored service quickly for our customers.

It allowed us to handle more business it costs more money in the form of crew related expenses that persisted well into the fourth quarter.

On an adjusted basis operating income was down 19% year over year.

Net income and EPS were down, 19% and 17% respectively.

Turning now to slide nine.

Adjusted operating expense for the quarter was up $59 million the increase excluding fuel decline was up $123 million.

The largest drivers of the increase where employment growth as well as inflation across all categories.

In comp and Ben looking to 'twenty four we plan to keep overall head count levels flat versus the year end twenty-three exit rate.

With some additional mechanical craft hiring to be offset by upcoming reductions in the non agreement category that Alan discussed.

Purchased services was up due to higher costs associated with technology spend as well as increased mechanical services, including repairs around our auto fleet as we prepare for growth opportunities in 2024.

The increase in rents was driven by short term locomotive resources and increased car supply for our auto fleet.

We expect quarterly rents in 2024 to remain slightly above these fourth quarter levels due to more adverse gtx equity costs and volumetric related increases partially offset by benefits coming from improved velocity.

The increase in materials relates to locomotive and freight car repairs.

Claims were lower year over year.

Recall that in Q4 2022, we had a large adverse adjustment.

The other component is unfavorable driven mainly by fewer real estate gains moves.

Moving now to slide 10.

Last quarter, we introduced this slide to help investors think about our service costs and resiliency investments.

Which are two components of our current cost structure.

On the left side, we see costs that should not be part of our cost structure and have grown out of service that has not met planned levels.

Mainly related to re crews and overtime.

These costs did not step down as expected in Q4 due to the crew related costs, we incurred to accelerate service recovery for our customers after the outages.

So while service has been at strong levels exiting the year.

Q1 cost will remain somewhat elevated in part from the cold weather, we are seeing here in January.

Overall service calls should meaningfully unwind in Q2.

On the right hand.

We show costs tied to our investments in resiliency, mainly related to additional <unk> crews that we have added in locations, where we were understaffed as we position Norfolk southern to realize outsized growth of revenue and margin in a growing volume environment.

Our total teeny head count is now at an appropriate level that will allow us to absorb volume growth in 'twenty four and beyond.

There will be some additional hiring and mechanical crafts that will be offset by reductions in non agreement positions.

The additional craft hires mean that resiliency costs will settle in roughly in the $55 million per quarter range in 2024.

Adding those resources will drive benefits over time of being an even safer and higher velocity operation.

Moving to slide 11 and results below operating income other income of $38 million was up $4 million in the quarter driven by higher interest income on the extra cash we are carrying ahead of the CSR closing.

The adjusted effective tax rate was 19, 2% due to a rate adjustment on our deferred state income taxes and tax free gains on favorable company owned life insurance.

For 2024, we expect our tax rate to be in the usual, 23% to 24% range.

Turning to slide 12, and recapping our full year results.

We started the year planning for modest topline growth that would afford a level of expense growth to help drive our strategic track towards resiliency.

The disruptive events of the year and an adverse macro environment up end of this <unk>.

Revenue declined, 5%, which was meaningfully affected by about six points of pressure from lower fuel surcharge revenue and a sharp year over year decline in storage fees.

At the same time, Opex rose, 5% fueled by inflation and investments in our business.

As a result operating income fell 18% with the operating ratio rising to 67, 4%.

Favorable below the line items and benefits from share repurchases held the EPS declined to 15%.

Operator: Greetings and welcome to the Norfolk Southern Corporation Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode.

In 2023 free cash flow was $1 $4 billion lower than the prior year, representing the impact of the $650 million derailment related outlays as.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Luke Nichols, Senior Director, Investor Relations. Thank you, Mr. Nichols. You may begin. Thank you, and good morning, everyone.

As well as the lower operating income coupled with higher capex.

Shareholder distributions in 'twenty, three were $1 8 billion with two thirds being driven by a rock solid dividend and the remainder from share repurchase activity.

Luke Nichols: Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1994. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full disclosure of those risks and uncertainties we view as the most important. Presentation slides are available at NorfolkSouthern.com in the investor section, along with a reconciliation of any non-GAAP measures used today to comparable GAAP measures. Turning to slide three, it's now my pleasure to introduce Norfolk Southern's President and Chief Executive Officer, Alan Shaw. Good morning, everyone. Thank you for joining Norfolk Sovereign's fourth quarter 2023. Here with me today are Mark George, Paul Duncan, our chief operator, et al. Keefe-Marx.

I'll mention that we did issue debt in November and built up our cash balance to $1 6 billion at year end as we prepare to fund the strategic CSR purchase that is scheduled to close on March 15.

As a result, we will see higher interest expense in 2024, and we will temporarily suspend share repurchases, while we absorb the asset and bring our credit metrics back into our target range.

It is important to remember that CSR is a highly strategic critical artery in our network.

For which we had a rear window to secure and guarantee control of the asset forever.

This also enables us to control longer term cost that could have begun to escalate sharply with the upcoming lease renewals.

I'll now hand over to Paul who can provide an update on our operations.

Thank you Mark and good morning.

Turning to slide 15 to begin our operations discussion with safety, we made progress in enhancing safety in 2023, we finished the year with our second best injury rate in eight years, but we are striving for better.

Alan H. Shaw: Last year was historically, a major derailment at the start of the year, followed by Compounded by Stubbornly, Eastern Ohio Incident Tested R. I'm proud that our team responded decisively and responsibly. Texas great, and our team addressed the community with an unwavering commitment. We have strengthened our safety and will continue to make things right in Ohio, to improve our service to our customers, and to make a safe railroad even safer. A crisis allows you to accelerate, Weir. This includes a number of positive features. How do we design the network? Assemble them, with measurable.

We enhanced our conductor training program and continue to leverage our partnership with Atkins nuclear a foremost expert in safety across all industries. We also closed 2023 with a 42% reduction in our mainline accident rate and the fewest mainline accidents since 1999.

Thank you to all of our craft colleagues and leaders for enhancing safety at Norfolk Southern This last year. While these are very noteworthy accomplishments, we must become even safer.

When the major incident in Eastern Ohio happened in early 2023, we were already in the process of reviewing and adjusting our trained makeup rules and it was a high priority of mine, we ended up accelerating that work by a lot.

What we produce was an even better product and we already had which helped us make such progress in mainline accidents, and we are striving to become even safer.

Alan H. Shaw: As we show on slide 4, our improvement in safety is already being highlighted by a dramatic 42% reduction in our mainline. 2023 was also historically important for Norfolk because we began to implement and advance our new system. We position our business, Sustainable Growth and The Intermodal Service Composite chart on the right side of slide 4 tells an important, B. Cleargate, We have made in both resiliency and, following significant strides of service in 2022. With our investments in resiliency through leadership, planning, and research, we will continue. We demonstrated the ability to execute our strategy to run a safer railroad that delivers a compelling service product to our community. Channels, and Chris Bennett.

This is a platform for which we can now lever up our train plan to deliver productivity and growth.

So the change in our operating rules was implemented on an accelerated timeline and cost network disruption. We know it was the right move for the long term and we kept our promises to restore fluidity and service levels in the second half of 2023, the future of our operation is very bright and I am proud of the work we did in 2023 on this front to keep our.

Promises.

Moving to slide 16 for further discussion on service levels, we took a modest step backwards to begin the quarter related to the system outages that we experienced but quickly regained footing and continued our glide path of improvement in November and December. It is important to note that we deliberately chose to deploy additional resource.

So that we could balance restoring fluidity, while delivering peak volume.

We were successful on that front, we delivered a very strong service for our intermodal customers during peak season, and pushed overall volumes to their highest levels in over two and a half years as you will hear more about from Ed.

Alan H. Shaw: A balance. Faithfully delivering service, productivity, and, we overcame multiple significant network dyslexia. Exeter did the year with the best intermodal service we have delivered in over three years, All, while Intermodal Volume Group 5... Entering 2024 with a safer and more fluid network that is attracting growth. We have the platform to narrow our focus to specific areas that drive increased productivity. For more information, visit www.fema.gov, and we're building positive momentum by

But as you heard from Marc It did result in higher than planned service recovery costs in the quarter. We remained sharply focused on reducing those and have actively been unwinding more teeny crew expense in recent weeks in areas such as temporary deployments over time re crews and other crew related expenses. This has included reducing our intensity.

You have go team members deployed on the network now that we have made this next step function improvement in intermodal service, we expect to remain there as we transition to leveraging our resources to drive greater productivity and growth.

Alan H. Shaw: Part of that strategic vision is our commitment to industry competitiveness, and we are determined to deliver on that. Just as we have delivered our promises of service and safety, we will leverage our PSR operators. With our current, Meaningfully improve velocity and resilience within our merchandise, which accounts for two-thirds of our As we achieve a high degree of compliance to the plan and merchandise, we will reduce variability, complexity, and We are driving that forward now. The results already seen in December, it will dry, that will lead to productivity gains and cost savings.

Turning to slide 17 for a discussion on productivity, we've improved 4% sequentially within workforce productivity and expect an improving glide path to continue we are driving this in four ways, one by improving fluidity to by maintaining strict discipline and accountability to plan compliance in our operation.

Three through discrete productivity initiatives that will discuss in a moment and finally through converting trainees to productive employees.

As promised last quarter, we ended the year with 600 conductor trainees. We are now confident with the overall size of our teeny workforce to efficiently serve the growth that is on the horizon on.

On the locomotive front referencing our service commentary miles per day remained lower as we kept additional power and service to jumpstart the network with peak volume.

Alan H. Shaw: And in 2024, we are targeting a double-digit percentage improvement in term reform. This is a good barometer of the health and fluidity of our March; Paul will go into more detail about how we are planning to build on our success. Point Changes to Accelerate Our Merchandise, which I have noted, will be a major source of productivity for North, and further describe what we are doing to improve profitability and drive smarter, Ed, we'll talk about how his team is winning business. Working hard in the dossier is important.

This is an area that will benefit significantly from further improvements in velocity as faster train speeds allow us to drive our locomotives in the terminals on time and send them back out on their scheduled connections and lastly fuel efficiency finished flat. Despite the additional locomotives online thanks to our initiatives and this is an area. We are intensely focused on <unk>.

Moving in 2024.

Moving to slide 18, the next phase of our operational improvement will be marked by enhancing the velocity and resilience within our merchandise network.

Call that our top SPG operating plan, which we launched in 2022 brought further P. S. Our principles to our intermodal network driving enhancements to container velocity and resilience within intermodal. That's successful evolution enabled intermodal service to remain strong throughout 2023, particularly in Q4, where we delivered the best cinema.

Alan H. Shaw: We are streamlining our cost structure and eliminating waste. We invested in 2023 to enhance safety. We will see the benefits of this in our cost structure in 2020. We'll take ashes this year to reduce costs and other expenses, This includes a program to reduce management headcount by roughly 7% awesome Critical Operating. Our groundbreaking transformation will take place. We recognize the necessary investments in resiliency and service have temporarily increased our costs. During the trough in this Five-Five, you'll see me laid out, We're doing a Delphi We made modestly under, Where did we quit? volume and incremental margin when the freight cycle Michael. Well, we didn't expect 2023 to be a continuation of a soft right. Coupled with numerous disruptions... We are optimistic that recovery is on the horizon, and our investigations continue to yield return. We will deliver near-term margin. Thank you.

<unk> service in over three years, while delivering on peak season.

Now we are building on that success with further enhancements in our merchandise network.

First we are improving our execution and discipline to run with a higher level of planned compliance we're tying together the improvements we've made around our operational strategy leadership, Accountabilities and resource allocation by sweating their assets further and strict execution of the plan.

Next we are leveraging precision train building processes embedded into our terminals to optimize connections and depart trains on time.

We're already seeing the benefits that arise from success in driving scheduled network velocity.

Our success will be demonstrated by making sustained improvement in terminal dwell, whereas Alan mentioned in his opening remarks, we expect to drive a low double digit percentage improvement in 2024 versus 2023.

Investors can also track our progress in the air train speed, particularly the subset of manifest train speed, which has an outsized impact on our cost structure as well as merchandise trip plan compliance and car velocity. The outcomes are improving speed dwell and disciplined execution to plan.

Alan H. Shaw: As we implement our strategic vision, [inaudible] Avalanche Pay Service, Productivity, and Smart, We are on the path to achieve that. In the aftermath of the Derailment and Network, we have improved safety and service in a responsible manner, and we have secured new business. This was a stabilized network and a high degree of compliance. We will continue to iterate. Producing Complexity and Enhancing Executability and Value. All of this will unlock productivity and fluidity, which aligned with our strategy will allow us to attract more volume at accretive incremental margins and deliver top-tier revenue and earnings. Industry Competitors with strong franchises will serve us well as we move through this economic We're poised for a bright future. As we balance safe service with productivity, Turn it I'll start on slide seven with an update on our costs related to the Eastern Ohio derailment. During the fourth quarter, we reached a significant milestone with the bulk of the thorough remediation being completed. It's an encouraging achievement.

Of course, Theres always week to week noise in these measures. So we would look for improvements in trends on a rolling 12 week basis.

On slide 19, I'd like to provide more detail on how sustaining these velocity improvements will drive down our cost structure first we will see reductions in various buckets of teeny related expense and that will also help to lower our head count intensity <unk>.

Next as we spin up the flywheel will get cars moving faster a critical element to scheduled railroading and overall productivity, having our yards and main lines more fluid will indicate their cars are flowing unimpeded through the network. This.

This will drive a capacity and productivity dividend within our fleets in our yards and on our main lines that in turn will allow us to bring on growth at low incremental cost lifting overall workforce and locomotive productivity and achieving service resilience that will allow us to take further share from truck.

Driving these benefits in our operation by improving the velocity and resilience of the merchandise network will be a key aspect of delivering progress in 2024.

Thank you and I'll now turn the call over to Ed.

Thanks, Paul and good morning to everybody on the call.

Beginning on slide 21, let's cover our commercial results for the fourth quarter.

Overall volume improved 3% led by growth in intermodal and our automotive markets now despite volume growth total revenue and revenue per unit declined for the quarter due to lower revenue from fuel surcharge and intermodal storage and fees along with negative shipment mix within the portfolio continuing from <unk>.

Alan H. Shaw: However, as you'll note, we incurred $137 million in charges in the quarter, which related to an extension of the timeline for ongoing testing, as well as additional work that will be completed in nearby states. There was another $89 million incurred in legal costs and other. But of note, we received $76 million of insurance, bringing the total recoveries in 2023 to just over $100 million. From a cash perspective, the net outflow in 2023 is $652 million, to be insured.

Last quarter as well as headwinds from a weak truck price environment due to the persistent overabundance of capacity.

Looking at merchandise volume was flat compared to the prior period and revenue was challenged by lower revenue from fuel surcharge compared to that prior period.

P. You less fuel increased 1% as price gains more than offset the impacts from negative mix.

This increase set a new quarterly record for NASDAQ Southern and marks the 34th of the last 35 consecutive quarters of year over year growth in merchandise our P U less fuel.

Alan H. Shaw: While we're pleased with our remediation accomplishments, we currently expect ongoing monitoring efforts and clean-up to continue through 2020. There will be additional costs in the future related to legal settlements and fees, although the amounts and timing cannot currently be determined. Moving to slide 8, where we illustrate the impact of these fourth quarter results on our. Our gap results are in the first row, while on row two, we isolate the accounting for our. At the bottom of the chart, you'll note the comparisons of the adjusted results to prior. I'll be talking about our adjusted results for the remainder of the discussion. Revenues were down nearly 5% while adjusted operating expense was 3%. The Adjusted Operating Ratio for Q4 2023 was 68.8%, which represented a year-over-year deterioration, but notably was a 30-basis-point sequential improvement from our third quarter performance.

We're committed to driving value through price and this commitment is demonstrated through quarterly records set in our automotive market for revenue revenue less fuel revenue per unit and revenue per unit less fuel.

Let's move to intermodal volume in the quarter increased 5% year over year with gains in both our domestic and international lines of business Rev.

Revenue for intermodal was down 13% year over year.

Primarily driven by significantly lower revenue from storage in fees in the prior period.

Also lower fuel prices and an excess supply of available trucks as well as negative mix within our international business impacted revenue per unit negatively excluding the impacts of fuel and the elevated storage and fees, which are related to supply chain congestion intermodal <unk> declined 1% in the quarter.

We're confident our domestic franchise as a coiled spring position to yield strong incremental value as the truck market recovers.

Alan H. Shaw: The sequential improvement is encouraging, but we fell short of our expectations, as service-related costs did not come down as we intended. While our recovery efforts related to the IC outages in May 2-3 restored service quickly and allowed us to handle more business, it cost more money in the form of crew-related expenses that persisted well into the fourth quarter. On an adjusted basis, operating income was down 19% year-over-year.

Turning to coal.

Overall volume increased slightly with strong demand for export more than offsetting declines in our utility coal franchise the market for utility confronted persistently high stockpiles and low natural gas prices.

Coal revenue was down 4% year over year with lower commodity prices and lower revenue from fuel surcharge negatively impacting our P. M.

Now, let's turn to slide 22, and review results for the full year.

Alan H. Shaw: Net income and EPS were down 19% and 17% Turning now to slide 9, the adjusted operating expense for the quarter was up $59 million. The increase, excluding fuel decline, was up 125 percent. The largest drivers of the increase were employment growth, as well as inflation across all categories, and Topham Benn looking to 24. We plan to keep overall headcount levels flat versus the year-end 23 egg, with some additional mechanical craft hiring to be offset by upcoming reductions in the non-agreement category that Alan Purchase services. Higher costs associated with technology spend as well as increased mechanical services, including repairs around our autos, as we prepare for growth opportunities in 2020 The increase in rents was driven by short-term locomotive resources and an increased car supply for our auto fleet.

Total volume came in at $6 7 million units, a 1% decrease from 2022.

Volume declines were most significant in intermodal and our energy related chemical commodities.

On the positive side lower ocean freight rates advanced demand for international intermodal and rising vehicle production activity drove growth in our automotive franchise, both of which contribute meaningfully to offsetting larger declines.

Revenue for the year was $12 2 billion down, 5% or $590 million from 2022, driven by lower revenue from fuel surcharge and storage fees as well as lower volume.

I do think it's important to point out however that if we exclude the $650 million revenue hit from fuel and storage fees, which is essentially a post pandemic normalization of those items.

Underlying revenue was actually positive.

Even with volume down, 1%, which speaks to our commitment to core pricing smart growth.

Alan H. Shaw: We expect quarterly rents in 2024 to remain slightly above these fourth-quarter levels due to more adverse TTX equity and volumetric-related..., partially offset by benefits coming from improving the law. The increase in materials relates to locomotives and freight. Claims or lower your, Recall that in Q4 2022, we had a large adverse. The other component is unfavorable, driven mainly by fewer real, Moving now to slide 10. Last quarter, we introduced this slide to help investors think about our service costs and resiliency investments, which are two components of our current On the left side, we see costs that should not be part of our, grown out of service that has not met planned, mainly related to recruits and over These costs did not step down as expected in Q4 due to the crew related, will be incurred to accelerate service recovery for our ITR.

<unk>, excluding fuel intermodal storage and fees increased 2% as we realized above budget price results in merchandise and in coal in fact, we set annual records for merchandize revenue revenue less fuel and <unk> less fuel.

[noise] objectively the freight environment in 2023 was soft with weak demand for goods lower levels of manufacturing activity and generally less freight coming in from overseas. These.

These conditions amplified the excess capacity and transportation pressuring margins and growth opportunities.

Our focus throughout the year was creating value with a resilient network to drive growth in the fourth quarter, we saw that growth materialize with improved volume and that volume will bolster our revenue performance in the coming year as we execute our pricing strategy to grow core revenue per unit.

Let's look ahead to 2024 on slide 23.

Our market outlook is for modest volume growth.

Alan H. Shaw: So while service has been at strong levels exiting the year, Q1 costs will remain somewhat elevated in part from the cold weather we are seeing here. Overall, service costs should meaningfully unwind on the right here. We show costs tied to our investments in resilience, mainly related to additional T&E crews that we have added in locations where we were under as we position Norfolk Southern to realize outsized growth in revenue and margin in a growing volume environment. Our total TME headcount is now at an appropriate level that will allow us to absorb volume growth. There will be some additional hiring and mechanical crafts that will be offset by reductions in non-agreement positions. The additional craft hires mean that resiliency costs will settle in roughly $55 million. Adding those resources will drive benefits over time of being an even safer and higher-velocity automobile.

And merchandise markets overall volume growth is expected to be driven by gains in steel shipments.

Automotive will grow on continued strength in vehicle production, including new <unk> business.

Improved fluidity and.

And increased network velocity will lift our effective capacity in both of these markets.

Shifting to intermodal, we are optimistic that increasing levels of international trade will boost demand for both our domestic and international services.

There is still uncertainty around how quickly capacity in the truck market right sizes. Additionally, the strength of the consumer could pressure growth.

If the economy softens.

Lastly, our coal outlook is for relatively flat volume levels compared to last year.

Demand for export coal is forecasted to be high but some of this demand will be met by a shift of historically domestic coal to export markets.

Utility demand will be driven by stockpile levels, which are forecast to remain elevated in 2024 aside from extreme weather events.

Looking at price, we expect strong pricing conditions in our merchandise markets aided by our improved service product. However.

Alan H. Shaw: Moving to slide 11 and results below operating, Other income of $38 million was up $4 million in the driven by higher interest income on the extra cash we are carrying ahead of the CSR close. The Adjusted Effective Tax Rate is 19.2%, due to a rate adjustment on our deferred skating and Patrick Gaines on Favorable Company Owned. In 2024, we expect our tax rate to be in the usual 23 to 24, Turning to slide 12 and recap The Disruptive Events of the Year in an Adverse Macro-Environment Upends, Revenue declined 5 percent, which was meaningfully affected by about six points of pressure from lower fuel surcharge revenue and a sharp year-over-year decline in storage Singh, fueled by inflation and investments in our business. As a result, operating income fell 18%, with the operating ratio rising to 67.4%. However, favorable below-the-line items and benefits from share repurchases held the EPS decline to 15.

As mentioned.

Persistently weak truck market will mute the opportunity for intermodal price with contract truck rates expected to trend roughly sideways from their current levels throughout 2024.

We also faced some headwinds on coal pricing this year related to difficult comparisons for seaborne coal prices with additional pressure from high stockpiles and weak natural gas prices.

All said, we still expect to generate pricing above rail inflation in 2024.

When we take all of this together we are reasonably confident that overall market fundamentals will create opportunities for us to bring on new freight and further the volume trend we achieved in the fourth quarter of 2023, while delivering incremental topline revenue growth through core pricing gains as we price into the value of.

Our enhanced service product.

Finally, let's turn to slide 24.

I'd like to give you. Some examples of how our customer centric approach is yielding smart and sustainable growth.

Last February our team met with Fedex ground with the intent to enhance Norfolk Southern service for their transportation network.

We listened to their business forecast and made strategic adjustments that we knew would set us up to better serve this valued customer.

Alan H. Shaw: In 2023, free cash flow was $1.4 billion lower than the prior year, representing the impact of the $650 million derailment-related expenses, as well as the lower operating coupled with... Shareholder distributions in 23 were 1.8 billion dollars, with two-thirds being driven by a rock-solid dividend and the remainder from share repurchase activity. I'll mention that we did issue debt in November and built up our cash balance to $1.6 billion as we prepared for the strategic CSR purchase that is scheduled to close on March 15th. As a result, we will see higher interest expense in 2024, and we will temporarily suspend share issuance while we absorb the asset and bring our credit metrics back into our target It's important to remember that CSR is a highly strategic, critical artery in our business, for which we have a rear window to secure and guarantee control of the asset. This also enables us to control longer-term costs that could have begun to escalate sharply with the upcoming lease Thank you, Mark, and good morning.

We charted a better way forward for both of our organizations.

As a result, we were able to significantly increase our volume for Fedex ground during peak season.

And we look forward to continuing that growth into the future.

We also landed a new plastic recycling plant in Ohio, with our new customer pure cycle, which is expected to launch this quarter.

This is a great example of the circular loop that is possible within the plastic supply chain and how Norfolk, southern can deliver that resin and a carbon friendly manner.

Finally, 2023 was another successful year for the Norfolk, Southern Industrial development team, we partnered with 62 customers to facilitate the completion of strategic industrial development projects in 2023.

Collectively these projects represent $3 1 billion in customer investment and the creation of more than 4150, new jobs, along Norfolk Southern lines as we look into 2024, we're encouraged by the continued robust pipeline of customers that are looking to locate facilities along.

Our lines.

These successes in 2023 are indicative of the success that we expect in 'twenty four.

And demonstrates our strategy to deliver a better way forward for our customers our communities and for our shareholders.

Alan H. Shaw: Turning to slide 15 to begin our operations discussion, we made progress in enhancing safety in 2020. We finished the year with our second best injury rate in eight years, but we are striving for better. We enhanced our conductor training program and continue to leverage our partnership with Atkins Nuclear, a foremost expert in safety across all, We also closed 2023 with a 42% reduction in our mainline actions and the fewest mainline accidents since 1999. Thank you to all of our craft colleagues and leaders for enhancing safety at Norfolk Southern. Well, these are very noteworthy accomplishments.

With that I'll turn it back over to Alan.

We overcame a number of challenges in 2023.

And we are moving forward with confidence.

Our resolve to deliver on all aspects of our strategy has never been stronger.

We restored service and improved safety in a responsible manner to protect our franchise and long term shareholder value.

We ended 2023 with the best Intermodal service, we've seen in years and with an encouraging 5% increase in intermodal volume.

Now, we enter 2024 with a fluid network, which will drive productivity gains and further growth this year.

Turning to our outlook, we anticipate roughly three points of revenue growth in 2024.

Alan H. Shaw: We must become even stronger. When the major incident in Eastern Ohio happened in early 2023, we were already in the process of reviewing and adjusting our train makeup rules, and it was a high priority. We ended up accelerating that work by a lot. What we produced was an even better product than we already had, which helped us make such progress in mainline accidents, and we are striving to become even stronger. This is a platform for which we can now lever up our train plan to deliver productivity and growth. Though the change in our operating rules was implemented on an accelerated timeline and caused network disruption, we know it was the right move for the long term, and we kept our promises to restore fluidity and service levels in the second half of the year.

This growth combined with our productivity initiatives will yield strong accretive incremental margins.

With operating income growing in excess of revenues.

Net income and EPS growth will be suppressed and 2024 versus 2023.

The higher interest expense from the highly strategic acquisition of CSR.

Along with the temporary suspension of our share repurchase program.

As for the progression through the year typical seasonality suggests that second quarter and third quarter should be our strongest in terms of margin performance.

Obviously, the first quarter will have some industry wide impact.

Alan H. Shaw: The future of our operation is very bright, and I am proud of the work we did in 2023 on this front to keep our, Moving to slide 16 for further discussion on service. We took a modest step backwards to begin the quarter related to the system outages, but we quickly regained footing and continued our glide path of improvement in November. It is important to note that we deliberately chose to deploy additional resources so that we could balance restoring fluidity while delivering peak flooring. We were successful in that. We delivered a very strong service for our intermodal customers during peak season and pushed overall volumes to their highest levels in over two and a half years, as you will hear more about. But, as you heard from Mark, it did result in higher-than-planned service recovery costs. We remain sharply focused on reducing those and have actively been underlining more team and crew expenses in recent weeks in areas such as temporary deployments, overtime, recruits, and other crew This has included reducing the intensity of GO Team members deployed on the 9th.

From widespread cold weather in January and our first quarter still has year over year headwinds from storage fees fuel revenue.

And export coal price.

In line with the Investor day guidance.

Over the midterm horizon.

We anticipate delivering strong incremental margins presuming, a normal freight cycle and mix and three to four points of revenue growth.

A combination of volume absorption productivity initiatives and a commitment to cost control will be key drivers.

Speaker Change: We arent going to give you a specific margin target.

But it should result in between 100 to 150 basis points of margin improvement annually.

On the pathway to narrow the margin gap with peers and.

And deliver industry competitive margins.

You'll start to see progress along those lines in 2024.

Once we lap some of the revenue compare challenges in the first half.

We see a path to outsized gains on the up cycle, leveraging volume growth within existing resources ample productivity runway and strong core pricing that can outpace inflation pressures.

Alan H. Shaw: Now that we have made this next step function improvement in intermodal service, we expect to remain there as we transition to leveraging our resources to drive greater productivity. Turning to slide 17, we've improved 4% sequentially within workforce productivity and expect an improving glide path to continue. We are driving this in four ways. One, by improving fluidity.

As we narrow our margin gap over time.

Our secular growth prospects of our powerful franchise will deliver shareholder value through earnings momentum and free cash flow generation.

And with that.

Let's open the call for questions.

Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.

Alan H. Shaw: Two, by maintaining strict discipline and accountability to plan compliance in our operations. Three, through discrete productivity initiatives that we'll discuss in a moment, and finally, through converting training to productivity. As promised, last quarter, we ended the year with 600 conductor trainees. We are now confident with the overall size of our teeny workforce to efficiently serve the growth that is on the horizon. On the locomotive front, referencing our service commentary, miles per day remained lower as we kept additional power in service to jumpstart the network with peak volume. This is an area that will benefit significantly from further improvements in velocity as faster train speeds allow us to drive our locomotives into terminals on time and send them back on their scheduled routes. And lastly, fuel efficiency finished flat despite the addition of locomotives online thanks to our initiatives. And this is an area we are intensely focused on improving in Turing.

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

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

Our first question comes from the line of Chris Wetherbee with Citigroup. Please proceed with your question.

Yeah, Hi, Thanks, good morning.

I wanted to think a little bit about the bigger picture here Alan you talked about the 100 to 150 basis points of or opportunity per year over three year period, as we kind of think about you guys relative to some of your closer peers. That's about half of the gap that exist today. So I guess as you think over is there more opportunity beyond that it just takes time to get there.

Alan H. Shaw: Moving to slide 18, the next phase of our operational improvement will be marked by enhancing the velocity and resilience within our merchandise, Recall that our Top SPG Operating Plan, which we launched in 2022, brought further PSR principles to our intermodal network, driving enhancements to container velocity and resilience within their That successful evolution enabled intermodal service to remain strong throughout 2023, particularly in Q4 where we delivered the best intermodal service in over three years while delivering on peak, Now we are building on that success with further enhancements in our merchant First, we are improving our execution and discipline to run with a higher level of plan, Time to get to the improvements we've made around our operational strategy, leadership accountabilities, and resource allocation by spreading our assets further in strict execution, Next we are leveraging precision train building processes embedded into our terminals to optimize connections and depart trains on time. We're already seeing the benefits that arise from success in driving scheduled networked alliances.

That they are still there is the potential for a structural gap between you and your closest geographic peer just want to get a sense of how you think about the opportunity and maybe beyond that three years.

And how it might play out.

Hey, Chris we've committed to industry competitive margins add in <unk> and 'twenty three we overcame a lot we made a lot of progress on our strategic plan.

Enhanced.

Safety, we improve service, we attractive new business, we overcame challenges as we look at it 24, it's really a focus on productivity.

We feel like we're going to be on that pathway of 100 to 150 basis points, a year, particularly as we get into the second half of the year and lap. Some of these revenue comps, but we gave a three year outlook that that's not the end point, we have talked about continuous productivity improvement as one of the three components of our balanced strategy of <unk>.

<unk> service continuous productivity improvement and smart growth.

Okay. Thanks for the time appreciate it.

Thank you. Our next question comes from the line of Ken <unk> with Bank of America. Please proceed with your question.

Hey, great. Good morning, I guess I'm still surprised by that timeframe right should should seem like theyre still moves that would get you that leverage a bit quicker I guess just compared to some moves we've seen some other rail so.

Alan H. Shaw: Our success will be demonstrated by making sustained improvement in terminal dwell, where, as Alan mentioned in his opening remarks, we expect to drive a low double-digit percentage improvement in 2024. Investors can also track our progress in AAR train speed, particularly the subset of manifest train speed, which has an outsized impact on our car structure, as well as merchandise trip lane compliance and car velocity, the outcomes of improving speed, dwell, and disciplined execution. Of course, there is always week-to-week noise in these measures, so we would look for improvements in trends on a rolling 12-week basis. On Flight 19, I'd like to provide more detail on how sustaining these velocity improvements will drive down our cost. First, we will see reductions in various buckets of teaming-related expenses, and that will also help to lower our headcount. Next, as we spin up the flywheel, we'll get cars moving faster, a critical element to schedule priority and overall productivity. Having our yards and mainlines more fluid will indicate that cars are flowing unimpeded through the night.

Maybe just what was the impetus for some of these changes the head count the three or all of our targets there's been some activist chatter in the market.

Is that something Thats edging you behind in terms of making some of these changes and then I guess ultimately the question is pricing accretive to margins.

In 24 thanks.

Thanks.

You know what the us entering the third year of a fragrance Sasha.

And with the investments that we've made in safety and service that are delivering meaningful results.

It's clear that our cost structure is too high for our revenue base and our in 2024 and so we address service we address safety, we addressed growth and 23, we did it in a responsible manner to protect our franchise and our shareholders now as we enter 2024, we've got a much more.

<unk> network, a safer network.

Alan H. Shaw: This will drive a capacity and productivity dividend within our fleets, in our yards, and on our main lines. That, in turn, will allow us to bring in growth at a low incremental cost. Lifting overall workforce and locomotive productivity and achieving service resilience that will allow us to take further share. Driving these benefits into our operation by improving the velocity and resilience of the Merchandise Network will be a key aspect of delivering progress. Thank you, and I'll now turn the call over to Paul. Good morning, Paul, and good morning to everybody on the call. Now, despite volume growth, total revenue and revenue per unit declined for the quarter due to lower revenue from fuel surcharge and intermodal storage and fees, along with negative shipment mix within the portfolio continuing from last quarter, as well as headwinds from a weak truck price environment due to a persistent overabundance of capacity. Looking at merchandise, volume was flat compared to the prior period, and revenue was challenged by lower revenue from fuel surcharge compared to the prior period.

Network that it's attracting growth and it is a focus on productivity and so yeah. We're looking at every cost out there and we're looking at discretionary costs, we're looking at.

Management costs, and we're focused on productivity because it is a balanced plan I'll, let ed talk about price.

Yes.

We're successful in 'twenty three on price and in 'twenty four we have a good price plan that strong.

And really it's going to produce value every quarter. This year. So we feel good about where we are with price and Theres a couple of things that I'll add to that we're feeling really good about where we are with our service trajectory at this point, we're hearing from customers that they appreciate the value that we're providing for them and we're doing it at the facility.

Level going out and talking to customers focused on that first and final mile and how we add value and that's going to produce value for us and for our shareholders all year long.

Thanks, I appreciate it and I know one question, but I'm just trying to understand are you, saying then we get better margins in 'twenty four is that pricing outpacing that cost.

I'm, sorry, just trying to understand that the answer there as part of the equation.

As part of the equation for sure.

Thanks Mark.

Thank you.

Thank you.

Alan H. Shaw: RPU Less Fuel increased 1% as price gains more than offset the impacts from negative. This increase set a new quarterly record for Norfolk Southern in March, the 34th of the last 35 consecutive quarters of year-over-year growth in merchandise RPU Less. Committed to driving value through price, and this commitment is demonstrated through quarterly records set in our automotive market for revenue, revenue less fuel, revenue per unit, and revenue per unit. Let's move to Inter Volume in the quarter increased 5% year-over-year with gains in both our domestic and international lines. However, revenue for Intermodal is down 13% year-over-year, primarily driven by significantly lower revenue from storage and fees in the prior period. Also, lower fuel prices and an excess supply of available trucks as well as a negative mix within our international business. Impacted Revenue Per Unit Negative Thank you all for joining us today.

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

Hey, Thanks, Good morning, guys, so Alan you've been telling us for a while.

For a while now that maybe we'll see weaker decrementals at the trough, but then we will see better incrementals on the way back up.

I think about Q4, where we started to see the way back up we saw some pretty good volume growth and the incremental margins were still really muted even with a nice fuel lag tailwind. So I don't know how do I think about why we didn't see it this quarter and then maybe just going forward. You. Just said the cost structure is too high I don't know that I.

Heard that youre, telling us that cost come down from here, maybe I misheard or do costs come down from here and then I don't know.

To put it all together Mark sometimes you just give us some color on near term Opex and margin how to think about Q1 that would be helpful. Thank you.

Thanks Scott.

We had to overcome a lot and 'twenty three.

And we've made investments in a prudent manner.

The enhanced safety enhanced service and attract growth, particularly in our most service sensitive markets. So we're putting with respect we're putting proof points up on the board as.

Alan H. Shaw: NMORPU declined 1% in the, We're confident our domestic franchise is a coiled spring, positioned to yield strong incremental value as the truck market turns to coal. Overall volume increased slightly. The market for utility gas confronted persistently high stockpiles and low natural gas prices. Cole Revenue is down 4% year-over-year with lower commodity prices and lower revenue from the fuel surcharge negatively impacting our. Now, let's turn to slide 22 and review results for the full year. Total volume came in at 6.7 million units.

As we move through into the fourth quarter, we're still wrestling with the <unk>.

Service product that was off plan.

Which adds complexity adds variability and adds cost we're operating in a really tough freight environment.

And we were.

Dealing with pretty healthy year over year inflation.

And we're still lapping some difficult comps with respect to.

The fuel surcharge revenue and with respect to storage revenue right and mix and mix and so as we move into 'twenty for those things are going to start to unwind themselves. We've got a much more fluid network or operating on plan that will drive out our service recovery costs and then after that we're going to continue to.

Iterate to our plant that's going to help drive productivity.

Alan H. Shaw: 1% decrease from 2020; volume declines were most significant in intermodal and our energy-related chemical On the positive side, lower ocean freight rates advance demand for international, and rising vehicle production activity drove growth in our automotive franchise, both of which contributed meaningfully to offsetting larger revenue for the year was $12.2 billion, down 5% or $590 million. From 2022, driven by lower revenue from fuel surcharge and storage fees, as well as lower. I do think it's important to point out, however, that if we exclude the $650 million revenue hit from fuel and storage fees, which is essentially a post-pandemic normalization of those items, underlying revenue was actually part, Even with volume down 1%. This speaks to our commitment to core pricing smart growth. RPU, excluding fuel, intermodal storage, and fees, increased 2%.

And we're going to attract new business.

As you noted our strategy is all about outperforming there in an up market.

I don't see that in the next six months when the economy does recover it always does on the freight market does recover and it always does we're going to be called for growth.

Mark any color on the Opex DLR Q1 again.

I don't know that.

You said the cost structure is too high does it come down or not I guess I'm not I'm not sure what the answers.

So I think as you go into Q1 Youre going to have some of the normal seasonality that has an impact on your or.

So I.

I think you need to expect that the first half Q1 in particular is probably going to step back, but then we feel much better as we lap a lot of the headwinds that we've been talking about from this first half.

The intermodal storage charges.

Some of the fuel price and.

Some of the other RV you challenges, we're having on coal price I think as we get to that back half is where you're going to really start to see much stronger.

Alan H. Shaw: As we realize above-budget price results in merchandise and in fuel. In fact, we set annual records for Merchandise Revenue, Revenue Less Fuel, and RPU Less Fuel. Objectively, the freight environment in 2023 was soft, with weak demand for goods, lower levels of manufacturing activity, and generally less freight coming in from overseas. These conditions amplified the excess capacity in transportation.

Incrementals and drop through.

Okay.

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

Thanks.

Speaker Change: Hi, everybody. Thanks for taking my question I guess, Alan if we look at the <unk>.

Alan H. Shaw: Pressuring Margins and Growth Opportunities. The focus throughout the year was creating value. In the fourth quarter, we saw that growth materialize. That volume will bolster our revenue performance in the coming year as we execute our pricing strategy, Moore. Let's look ahead to 2024 on slide 29.

Your plan.

I think if you ask every railroad in North America. They tell you that we also would expect to improve margins by 100 to 150 basis points a year from where we are today. So I guess the negative implications of that outlook is that youre not actually narrowing the gap, you're just improving your position from where you are but the gap absolutely stays intact. So I'd be.

To get your perspective on that and I think I think the cost structure is high which is <unk>.

Alan H. Shaw: Your market outlook is for modest volume, Merchanite Overall volume growth is expected to be driven by gains in steel, Automotive will grow on continued strength in vehicle production, including new, easy improved fluidity. An increased network velocity will lift our effective capacity in both of these. Shifting to intermodal, we are optimistic that increasing levels of international trade will boost demand for both our domestic and international services. There's still uncertainty around how quickly capacity in the truck market will rise. Additionally, the strength of the consumer could pressure growth if the economy softens.

We're addressing that by taking these difficult actions.

With non salaried workers and I know, that's a really difficult decision.

But but but.

But it seems also like when I look at the cost structure seems like the answer to something going wrong as long as many resources at that problem. It's possible. If I look at materials expands or rents expense and if I talk to any operating intensive railroad there Ann.

Answer is you'd never really.

Drown the problem with resources Thats, the opposite of what you should do so I'm trying to understand the removal of the non union or the rationalization of the non union employees is one step in that direction, but are we having a rethink about how we actually operate the railroad day in and day out and how we respond to issues that seems like that's kind of the root causes.

Alan H. Shaw: Lastly, our poll outlook is for relatively flat volume levels, and Peter Gillespie. Demand for export coal is forecasted to be high, but some of this demand will be met via a shift of historically domestic coal to export. Utility demand will be driven by stockpile levels which are forecast to remain elevated through 2024, aside from extreme weather events.

The problem in terms of where the gap is today sorry for the long winded question, but just wanted to get your perspective on that.

What was the first part of your question.

Well just in terms of the yes sure Alan the the three year outlook of 100 to 150 basis points every rail on the continent will think that so you're not actually narrowing the gap. So that was the question.

Alan H. Shaw: Looking at price, we expect strong pricing conditions in our merchandise, aided by our improved service. However, the constantly weak truck market will mute the opportunity for intermodal prices, with contract truck rates expected to trend roughly sideways from their current levels throughout 2022. We also face some headwinds on coal pricing this year related to difficult comparisons for seaborne coal, with additional pressure from high stockpiles and weak natural gas.

That's our commitment our commitment as industry competitive margins and top tier revenue and earnings growth and we said, we're going to do that through an economic cycle and we said we would have difficulty within the industry competitive margins Darrin.

The trough in the freight market and candidly, we didn't expect some of the incidents that occurred in 2023.

Network disruptions eastern Ohio incident, and a continuation of a very difficult truck market, we invested throughout 2023.

Alan H. Shaw: All said, we still expect to generate pricing above real inflation. When we take all of this together, we are reasonably confident that overall market fundamentals will create opportunities for us to bring on new trades and further the volume trend we achieved in the fourth quarter of 2023, while delivering incremental top-line revenue growth for Pricing In. Price, and to the value of our enhanced service. Finally, let's turn to slide 25. I'd like to give you some examples of how our customer-centric approach is yielding smart results. Thank you for watching. I hope you find this video helpful and that you find it useful. If you do, hit that like button and subscribe.

The long term and the long term best interests of Norfolk, Southern and our shareholders and we improve service we improve safety.

Volumes grew in the fourth quarter.

Now, we can really narrow our focus.

We can narrow our focus and the productivity and that's exactly what we're doing and we're going to drive that.

Operating to the plan a high degree of compliance to the plan that will shed resources, that's going to shed.

Lot of the service recovery resources that you just referenced as we get on plan, we'll continue to iterate the plan and look for additional ways to drive out complexity drive out cost and improve balance.

Alan H. Shaw: Also, if you have any questions or comments, leave them in the comments section below. Thank you for watching. Last February, our team met with FedExGround with the intent to enhance Norfolk Southern's service for their transportation. We listened to their business and made strategic adjustments that we knew would set us up to better serve this valued customer. We charted a better way forward for both of our organizations. As a result, we were able to significantly increase our volume for FedEx Ground during peak season, and we look forward to continuing that growth into the future. We also landed a new plastic recycling plant in Ohio with our new customer Pure Cycle, expected to launch this quarter. This is a great example of the circular loop that is within the Plastics Supply chain and how Norfolk Southern can deliver that resin in a carbon-friendly manner.

And just adding to what Alan said as we think back to the fourth quarter.

It was all about driving intermodal service recognizing the service sensitivity that that was going to directly drive growth of this railroad, which we did see the shift in the layering on now is towards driving that discipline and rigor inside of our merchandise network. We recognize that as were our single biggest opportunity is total TMA.

As a result of that essentially trough in October and we expect that we're going to see greater productivity as we continue to dial in our merchandise network, that's going to be a reduced number of re crews and all the associated costs taxes hotels that adding overtime car higher equipment expense.

We're going to see improved capacity in our merchandise network as cars per carload.

Alan H. Shaw: Finally, 2023 was another successful year for the Norfolk Southern Industrial Development. We partnered with 62 customers to facilitate the completion of the Strategic Industrial Development Project. Collectively, these projects represent $3.1 billion in customer investment and the creation of more than 150 new jobs along Norfolk Southern. As we look into 2024, we're encouraged by the continued robust pipeline of customers that are looking to locate facilities along our lines. These successes in 2023 are indicative of the success that we expect in With that, I'll turn it back over to you. We overcame a number of challenges in 2020, and we are moving forward with Congress. Our resolve to deliver on all aspects of our strategy has never been stronger. We restored service and improved safety in a responsible manner, protecting our franchise and long-term shareholders. We ended 2023 with the best intermodal service we've seen in years, and with an encouraging 5% increase in intermodal. Now, we enter 2024 with a fluid. Drive the Productivity Game. Porter-Griffith. Turney, who are out.

Improved so that's the flywheel impact that we're talking about so to your question about what is fundamentally changing moving forward.

From where we are now moving forward a direct focus on merchandise recognizing that's our next single biggest lever for productivity as our two thirds of our operating costs are.

Thank you. Our next question comes from the line of Jon Chappell with Evercore ISI. Please proceed with your question.

Yes.

Thank you.

To keep on the guidance a bit.

But I'm going to move up to the revenue line here I'm, just trying to understand the roughly 3% I get that there's macro headwinds I understand the first half may be difficult.

But by the same token you have incredibly easy volume comps.

Given all the disruption from February until August and I talked about the continuation of the pricing above inflation. So.

One would probably expect the volumes to be a little bit better than 3% just given the comparison so.

So are we saying that.

All in yield may be down this year or is there just like a healthy element of conservatism that youre putting into the macro economy in the first half of the year that may be tamping that number down.

I think there is this is ed by the way there is a lot of uncertainty around what's going to happen here in the first half of the year.

The street's baked a lot of expectations around fed actions, and we'll see where that goes.

But frankly.

You'll look at first quarter, and we see pretty sedate volume opportunities here in the first quarter and the recent weather events for the entire industry is kind of confirm that but then we see a steady progression of volume improvement throughout the year.

Alan H. Shaw: We anticipate roughly three points of revenue growth. This growth, combined with our productivity, will yield strong accretive incremental margins. Operating Income Growing in Excess, Net income, and EPS growth will be suppressed.

And I think I think volume improvement will probably lead the grade so to speak in terms of revenue.

And yield improvement for us but.

Alan H. Shaw: Owing to higher interest expense from the highly strategic acquisition of, along with the temporary suspension of our shared reverse As for the progression through the year, typical seasonality suggests that the second quarter and third. This should be our promise in terms of, Obviously, the first quarter will have some industry-wide impact. Black, Fred Coldweather, and our first quarter still has year-over-year headwinds from storage fees. Your revenue, in line with the investor day guidance, over the midterm rises. We anticipate delivering strong incremental, and zero, a normal freight cycle and. 3-4 points of revenue growth. A combination of volume absorption, productivity initiatives, and a commitment to cost will be key. We aren't going to give you a specific margin, but it should result in between 100 to 150 basis points of margin improvement annually, on the pathway to narrow the margin gap and deliver industry-competitive margins. You'll start to see progress along those lines in 2020.

We're pretty confident we might be conservative around coal price, but that's I think the <unk>.

Right thing to do for ourselves as well as for the rest of the industry.

Okay. Thank you Ed.

Thank you. Our next question comes from the line of Tom Moderates with UBS. Please proceed with your question.

Yes. Good morning, I wanted to ask you one granular one and then kind of a higher level. One so I guess on the granular question for Paul should we think about.

With a fairly muted volume backdrop that train starts would come down in 'twenty four or are you thinking kind of a hit as scheduled.

And we will keep that where it is.

And then a higher level question I think when investors look at Norfolk, They say okay.

There is a potential idiosyncratic opportunity to run the system better maybe that that runs on its own regardless of freight market, but I don't know that that's clear. So should we look at it as more of a kind of ideal improvement story or is this really a freight market freight cycle leverage story right.

That it's really.

When the freight market improves if that second half is that 25, then you're just really well positioned for that so I think just trying to figure out what's what's really the right way to look at the Norfolk story. Thank you.

Operator: Once we laugh, some of the revenue compared shall be, We see a path to outside gains on the up Leveraging Volume Growth Within Existing Resources, Ample Productivity Runway, Outpay, Inflation, As we narrow our margin gap over the Secular Growth Process of Our Powerful Friends, will deliver shareholder values through earnings momentum and free cash flow, and with that, I open the call. Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you'd like to remove your question from the, For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Well why don't you address the first question.

Yes, absolutely Tom Thanks for the question. So we think about it not just train starts but overall teeny productivity. It's all about getting the most from our from our crews and we're going to see that improve through not only the what we've seen here over the past several weeks for improvements in network velocity, but running more disciplined to plan and layer now in <unk>.

We know running more disciplined to plan is already starting to show itself and reductions in G&A expense you've seen it in the other productivity measures from the slides, we're going to make further iterations to the plan as we get more discipline, particularly in our merchandise network and that's only going to drive improvement.

<unk> <unk> per horsepower, but also on the <unk> side.

We've got a number of initiatives beyond just running the plan more disciplined and seeing that costs come out.

Chris Wetherbee: Due to the number of analysts joining us on the call today, we will be limiting everyone to one question each to accommodate as many participants as possible. Our first question comes from the line of Chris Wetherbee with Citigroup. Please proceed with your question. Yeah, hi, thanks. Good morning.

Again that we're layering on we've got pool transition is taking place. So as we have gotten more fluid and more consistent we have transitioned more.

Short pool runs to long pool runs again, because we've got greater consistency and velocity of the network that has productivity benefits. We have put more towards assigned service from a teeny standpoint that means we've got a signed crew pools and turns that reduces hotels van expenses has a quality of life benefit.

Alan H. Shaw: Yeah, I wanted to think a little bit about the bigger picture here, Alan. You talked about the 100 to 150 basis points of O.R. opportunity per year over a three-year period. As we kind of think about you guys relative to some of your closer peers, that's about half of the gap that exists today. So I guess as you think about it, is there more opportunity beyond that if it just takes time to get there? Do you think that there still is the potential for a structural gap between you and your closest geographic peers? I just want to get a sense of how you think about the opportunity maybe beyond that three years and how it might play out.

Were going to rollout predictable work scheduling this year on our conductors are with our conductor excuse me more than 80% of our scheduled network is scheduled meaning as we layer in predictable work scheduling we will see a benefit in reductions in displacement time, we've got a number of board consolidation initiatives that are taking place and where.

Alan H. Shaw: Yeah, Chris, you know, we've committed to industry competitive markets, and in 23, we overcame a lot, we made a lot of progress on our strategic plan, enhanced safety, improved service, attracted new business, we overcame challenges. As we look into 24, it's really a focus on productivity, that we feel like we're going to be on that pathway of 100 to 150 basis points a year, particularly as we get into the second half of the year and last some of these revenue costs. But you know, we gave a three-year outlook, but that's not an end point. You know, we have talked about continuous productivity improvement, as one of the three components of our balanced strategy of safe service. Continuous productivity improvement is smart growth, Booker.

Driving the Accountabilities to run lean and to plan inside of our merchandize charge. So that all translates into we're going to see train length on the merchandise side. We've got line of sight on some improvements we can make there not only through further iterations of the plan. We've also got some investments planned this year and some of our major merger.

<unk> that are going to drive productivity and train length intermodal train lengths went up in Q4 as a direct result of us not only delivering great service, but customers rewarding us with their business and again, we're going to continue to work on that and from a bulk standpoint, you've heard us talk about the various longer term initiatives, we have with our customers to invest in <unk>.

<unk>, particularly in our grain shell network. Several elevators are investing and we expect to really see the benefits is that those investments come to play.

Chris Wetherbee: Thanks for your time. I appreciate it. Thank you. Our next question comes from the line of Ken Hoexter with Bank of America. Please continue with your question. Hey, great. Good morning.

And Tom to your second question as we've.

We've gone through 2023, and we've made the necessary improvements in safety and service and attractive growth. We can really start to focus on productivity and our own plan and execution of that plan that provides benefit as well and then our whole strategy is about outperforming during the up cycle our franchises.

Ken Hoexter: I guess I'm still surprised by that time frame. It should seem like there's still moves that would get you that leverage a bit quicker, I guess, just compared to some moves we've seen from other rails. So maybe just what was the impetus for some of these changes? I had challenged the three OR targets, claiming there's been some activist chatter in the market. Is that something that's edging you behind in terms of making some of these changes? And then, I guess, ultimately, the question is, is pricing accretive to margins in 24? Thanks.

<unk> to outperform during the up cycle, you've seen us recover from network disruptions much faster than we have in the past so there's a proof point as well.

We're not calling when that upcycle occurs but when it does we do believe that we will outperform and we will attract new business with high incremental margins. So it's improving our own operations and execute ability with the plans. We can now narrow our focus on really operate into the plan of driving efficiencies and then parts.

Alan H. Shaw: You know, with us entering the third year of a freight recession and with the investments that we've made in safety and service, it's clear that our cost structure is too high for our revenue base to reach in 2024. And so we addressed service, we addressed safety, and we addressed growth in 2023. And we did it in a responsible manner to protect our franchise and our shareholders. Now as we enter 2024, we've got a much more fluid network, a much safer network, a network that's attracting growth, and it's focused on productivity. And so, yeah, we're looking at every cost out there, and we're looking at discretionary costs, we're looking at management costs, and we're focused on productivity because it is a balanced plan. I'll let Ed talk about price.

Dissipating and outperforming during the up cycle.

Thank you, ladies and gentlemen, as a reminder, we ask that you. Please keep to one question. Each our next question comes from the line of Brian often back with Jpmorgan. Please proceed with your question.

Hey, good morning, Thanks for taking.

Question.

Quick follow up for Paul If you can just give us some sense in terms of how much of those productivity metrics youre talking about or actually independent of volume I'm sure that would help but how much do you have line of sight, if volume stays flat or maybe it doesn't recover.

In the back half and just to ask more broadly.

Do you think there is a structural margin capture will always be here for this network versus some of your peers. When you do have roughly 10 percentage points more intermodal. It's more truck competitive you can have shorter length of haul dynamics with interval international as well lighter weight more touches. So I'd just be curious to hear if that's something you'd think about in the long term in terms of <unk>.

Alan H. Shaw: Yeah, we were successful in 23 on price, and in 24, we have a good price plan that's strong. And really, we're going to produce value every quarter of this year. So we feel good about where we are with price. And there are a couple of things that I'll add to that.

Alan H. Shaw: We're feeling really good about where we are with our service trajectory at this point; we're hearing from customers that they appreciate the value that we're providing for them. And we're doing it at the facility level, going out and talking to customers, focusing on that first and final mile and how we add value. And that's going to produce value for us and for our shareholders all year long. Thanks, I appreciate it, and I have one question. But I'm just trying to understand, are you saying then we get better margins in 24, is that pricing outpacing that cost? Sorry, I was just trying to understand the answer there.

And that gap that might be.

Be a hindrance or if there's something I'm not thinking about productivity density perspective.

Could make that an incorrect assumption. Thank you.

Brian each each franchise is unique strengths, we have committed to top tier revenue and top tier earnings growth coupled with industry competitive margins, we're going to deliver that we've got a franchise that basis, the fastest growing segments in the U S economy and our franchise.

Poised for growth, we're entering the third year of <unk>.

Ken Hoexter: That's part of the equation. Yeah, that's part of the equation, for sure. Thanks, Mark.

Freight recession.

That will unwind and when it does the enhancements that we've made to safety the enhancements that we've made to service the ability to attract.

Scott H. Group: Thanks, guys. Thank you. Our next question comes from the line of Scott Group with Wolf Research. Please proceed with your question. Hey, thanks. Good morning, guys.

Business in the fourth quarter, and automotive and intermodal, which are our most service sensitive markets.

Alan H. Shaw: So, Alan, you've been telling us for a little while now that maybe we'll see weaker decrements at the trough, but then we'll see better incrementals on the way back up. You know, I think about Q4, where we started to see the way back up, we saw some pretty good volume growth. And the incremental margins were still really muted, even with the, you know, nice fuel lag challenge. So, how do I think about why we didn't see it this quarter?

Give us a pathway to success going forward to allow us to unlock our full potential and Paul and his team and entire executive team are intently focused on driving out cost inefficiencies and driving productivity.

Let me, let me just add real quick.

His entire team recognizes that a margin gap exists today between where we are and where we should be at.

We're focused intently on closing of narrowing that gap before we get to an area of talking about why any remaining gap exists. There is a lot of runway still for us organically and self help.

Alan H. Shaw: And then maybe just going forward, you just said the cost structure is too high. I remember that I heard you're telling us that costs will come down from here, though. Maybe I misheard.

Alan H. Shaw: Do costs come down from here? And then, I don't know, just put it all together. Mark, sometimes you can just give us some color on near-term, op-ex, and margin, and how to think about Q1. That would be helpful. Thank you. Scott, you know, we had to overcome a lot in 23. And we made investments in a prudent manner to enhance safety, enhance service, and attract growth, particularly in our most service-sensitive markets. And so, with respect, we're putting proof points up on the board. Now, as we move through the fourth quarter, we were still wrestling with a service product that was off plan, which adds complexity, adds variability, and adds cost. And we were operating in a really tough freight environment. And we were dealing with pretty healthy year over year inflation. And we're still lapping some difficult comps with respect to field surcharge revenue and with respect to storage revenue, right? And mix them together. And mix them together.

The specific around how much is initiatives versus volume adjust.

Many of those initiatives that I spoke to.

Are going to continue regardless of the volume environment. The iterations to the plan are always going to continue but that is going to be the lever that is most sensitive to volume, but we're going to continue to drive train length, we're going to continue to drive crew productivity.

Regardless of the volume environment.

Thank you.

Thank you. Our next question comes from the line of Brandon <unk> with Barclays. Please proceed with your question.

Hey, good morning to everyone and thanks for taking my question and I guess, maybe the frustration from the Investor side is that if we go back a couple of analysts means maybe even back to 2015.

Mantra here has always been that we are trying to close the gap.

I guess constructively.

Ed can you help us understand where you are in trip plan compliance with your customers because I think ultimately its consistency of service that matters right. So what can you talk about what did you learn through changing the makeup rolls through 2023, and whereas the future on service to your customers what are you seeing today.

Alan H. Shaw: And so, you know, as we move into 24, those things are going to start to unwind themselves, right? We've got a much more fluid network. We're operating on plan. That'll drive out our service recovery costs. And then after that, we're going to continue to iterate through our plan. That's going to help drive productivity.

Well, let me start off and I would love to have a jump in here as well.

Alan H. Shaw: And, you know, we're going to attract new business. And, you know, as you noted, our strategy is all about outperforming during an upmarket. I'll see that in the next six months. When the economy does recover, it always does, and the freight market does recover, and it always does, we're going to be called for growth. Mark, any color on the outback?

From an intermodal perspective, as we look at where we finished the fourth quarter.

We delivered the best Intermodal service, we have put across this railroad in several years and customers rewarded us with volume.

As a result, we expect to maintain that level of service based on what we've heard from our customers is is their expectation.

Amit Mehrotra: the ORQ1 again and just I didn't I don't know that I you know I asked I mean you said the cost structure is too high does it come down or not I guess I'm not I'm not sure what the answer, So I think, you know, as you go into Q1, you're going to have some of the normal seasonality that has an impact on your OR. So you know, I think you need to expect that the first half, Q1 in particular, is probably going to step back, but then we feel much better as we lap a lot of the headwinds that we've been talking about from this first half. You know, the intermodal storage charges, some of the fuel price and, Some of the other RPU challenges we're having on coal price, I think as we get to that back half is where you're going to really start to see much stronger incrementals and drop-throughs. Cooper.

From a merchandise standpoint.

We continue to see improvements in merchandise trip plan compliance.

Throughout the year to your point around the train makeup rules.

We said that we were going to recover after we we had.

Move forward with those men to again drive greater safety and resiliency across our network, we feel very confident that we've seen.

Merchandize tripling compliance continue to come up throughout the year and we feel that we're very confident as we look at 2024 based on the further discipline that we're going to build.

And drive inside of our merchandize <unk>.

Network I'd offer a couple of proof points just to think about that a recent.

First one is we had one of our very largest customers comment to us.

Emerging from the weather events that just happened in the past year or so.

You mean in the past week that that we recovered better than just about anybody else and we.

Alan H. Shaw: Thank you. Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question. Thanks. Hi everybody.

We really take that hard because they themselves are a broad survey of many other railroads. So we think that that's really important as a proof point for resilience as we return back to planned faster and faster after inevitable event, that's going to define a large part of the value that we're offering customers.

Amit Mehrotra: Thanks for taking my question. I guess, Alan, if we look at the three-year plan, I think if you ask every railroad in North America, they would tell you that they also would expect to improve margins by 100 to 150 basis points a year from where we are today. So I guess the negative implication of that outlook is that you're not actually narrowing the gap, you're just improving your position from where you are, but the gap actually stays intact. So I'd be curious to get your perspective on that, and, you know, I think the cost structure is high, which is you're addressing that by taking these difficult actions with non-salaried workers, and I know that's a really difficult decision If I look at materials expense or rent expense, and, you know, if I talk to any kind of operating depensive railroad, their answer is you never really, you know, solve a problem with resources. That's the opposite of what you should do.

Thank you.

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

Thanks, and good morning. So for 2024, there are a lot of moving pieces that you've talked about but when you put it altogether do you think you'll be within that targeted longer term range of 100 to 150 basis points of annual improvement in the LR and Mark I think you and Alan both.

Ken mentioned the interest.

Spence headwind you'll have this year I was wondering if you could help quantify that year over year headwind.

Yes, Thanks Justin.

Let's be explicit with interest.

We've got we ended 2023 with about $17 2 billion of outstanding debt.

The effective interest rate is about four 7%.

Alan H. Shaw: So I'm trying to understand, you know, the removal of the non-union or the rationalization of the non-union employees is one step in that direction, but are we having a rethink about how we actually operate the railroad day in and day out and how we respond to issues? It seems like that's kind of the root cause of the problem in terms of where the gap is today. Sorry for the long-winded question, but I just wanted to get your perspective. All right.

So I would model about $210 million a quarter for interest expense on the go forward, we've essentially kind of pre funded that CSR acquisition. So that should be relatively steady within a couple of few million dollars per quarter of that.

And as we as we look at the moving pieces again, we've got some headwinds here in the first half I think as volume starts to grow as we go from Q2 to Q3 and then into Q4, we should really start to see with the compares.

Alan H. Shaw: What was the first part of your question? Well, just in terms of the three-year outlook, 100 to 150, every rail on the continent will think that, so you're not actually narrowing the gap, so that would be, Well, that's our commitment. Our commitment is to industry-competitive margins and top-tier revenue and earnings growth. And we said we're going to do that through an economic cycle. And we said we would have difficulty within this industry achieving competitive margins during a trough in the freight market.

A pretty a pretty good improvement year over year. So I don't I don't see so much in the first quarter, certainly I think there's a risk of progression there, but I think as we navigate the second quarter, depending on volumes, but in particular in the second half is where you'll see most of the improvement and look I think that 101 hundred.

50.

That we're talking about kind of on the go forward.

Alan H. Shaw: And candidly, you know, we didn't expect some of the incidents that occurred in 2023, the network disruptions, the Eastern Ohio incident, and a continuation of a very difficult truck market. We invested throughout 2023. For the long-term and in the long-term best interest of Norfolk Southern and our shareholders, we improve service, we improve safety, and we grow volumes in the fourth quarter. Now, if we could really narrow our focus... We can narrow our focus on productivity, and that's exactly what we're doing, and we're going to drive that by operating to the plan, a high degree of compliance with the plan, that will shed resources, that's going to shed a lot of the service recovery resources that you just referenced. As we get on plan, we'll continue to iterate the plan and look for additional ways And just adding to what Alan said, you know, as we think back to the fourth quarter, it was all about driving animal service, recognizing that the service sensitivity to that was going to directly drive growth of this railroad, which we did see.

Should definitely be there in the back half whether it translates into a full year amount or not I think depends on a number of other factors.

Okay. Thanks.

Thank you.

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

Thank you Robert and good morning, guys.

I'll put the bat away for the horse that as guidance here and turn the attention a little bit too.

What youre seeing in terms of impacts from any diversions on the port side, whether they're from geopolitical events from the Panama Canal and if you haven't seen them yet do you expect to see them and what sort of impact should we look forward going forward.

What are you hearing from customers, we're talking to our customers a lot about this.

It's a situation that has grown over time, we haven't seen any impact yet to our volumes effect as our east coast.

Volumes continue to be remarkably strong.

<unk>.

We are hearing customers starting to evaluate their west coast options and that makes sense given some rather unprecedented things that are going on but regardless the great thing about our network as we are well positioned to pick up that volume growth whether it comes in the east coast or the West Coast and I think we're going to be able to very ably server customers.

Alan H. Shaw: The shift and the layering on now is towards driving that discipline and rigor inside of our merchandise network. We recognize that is where our single biggest opportunity is. Total T&E as a result of that essentially dropped in October, and we expect that we're going to see greater productivity as we continue to dial in our merchandise network. That means a reduced number of recruits and all the associated costs, taxis, hotels, deadheading, overtime, car hire, and equipment expenses. You know, we're going to see improved capacity in our merchandise network as cars for carload improves. So that's the flywheel impact that we're talking about.

And satisfy their.

Sure.

Needs.

And is there a preference on east coast versus West coast in the network.

Well I've got our CASM preferences, but no.

We've got the network built for to take on volume whether it comes through the east coast or the West Coast, I think theres, probably more intermodal conversion opportunity when it comes through the West coast.

But we've gotten very good at doing short haul intermodal with our international customers frankly, that's one of the benefits of our franchise.

Alan H. Shaw: So to your question about what is fundamentally changing moving forward, it's from where we are now, moving forward, a direct focus on merchandise, recognizing that's our next single biggest lever for productivity and T&E of our operating costs. Thank you. Our next question comes from the line of John Chappell with Evercore ISI. Please proceed with your question. Thank you. I hate to keep on my job, but I'm going to move up to the revenue line here. I'm just trying to understand the roughly 3%.

<unk> powerful intermodal franchise in the east, which serve 60% of the consumer so no matter, where it comes in the east coast or West guys, we're going to handle it that's right.

I appreciate the time as always gentlemen.

Thank you.

Thank you. Our next question comes from the line of Allison <unk> with Wells Fargo. Please proceed with your question.

Hi, good morning.

With the focus on long term growth could you maybe talk to the growth investment embedded in Capex is it higher or is it lower and then with that longer term margin roadmap is there an offset embedded in that given just sort of the ongoing investment in service.

And then and this is making just any thoughts there. Thanks, Mark you want to talk about the capital program. Please yes, the capital the capital guidance actually for 'twenty three I think I've mentioned in my prepared remarks that was going to be largely flat with 2022.

Jonathan Chappell: I get that there are macro headwinds. I understand the first half may be difficult. But by the same token, we have incredibly easy volume comps given all the disruption from February until August, and Ed talked about the continuation of prices above inflation. So one would probably expect the volumes to be a little bit better than 3% given the comparison. So are we saying that all-in yield may be down this year? Or is there just like a healthy element of conservatism that you're putting into the macro economy in the first half of the year that may be tamping that number down?

And I would say that the mix within that between reinvesting in the business in safety and resilience. It's about the same.

As what it was in 'twenty two call it about 60%, 65% and the growth element to that is the balanced call it 35% and thats pretty consistent between the two years Allison.

Second part of your question again.

Recall.

That longer term margin roadmap, obviously youre investing in service is there sort of an offset embedded in that margin just given the ongoing investment into certainly doesn't end here just trying to think through that.

Alan H. Shaw: I think there is, this is Ed by the way, there is a lot of uncertainty around what's going to happen here in the first half of the year. You know, the streets have baked a lot of expectations around bad actions, and we'll see where that goes, but frankly, you look at the first quarter, and we see pretty sedate volume opportunities here in the first quarter. And the recent weather events for the entire industry kind of confirmed that. But then we see a steady progression of volume improvement throughout the year. And I think volume improvement will probably lead the parade, so to speak, in terms of revenue. We're pretty confident we might be conservative around coal prices, but that's, I think, the right thing to do for ourselves as well as for the rest of the industry. Okay, thank you.

Yes.

Well I know that a faster network is a less expensive that works as we invest in service and we invest in resiliency.

It translates to fewer re crews fewer network disruptions.

Fewer less overtime less equipment rents.

Improved fuel consumption and fuel efficiency. So yes. It does.

That's that's the part of our franchise or pardon me of our strategy does that balance between service productivity and growth and they build on each other.

Thank you.

<unk> plays into the growth.

Thank you got it thanks.

Okay.

Thank you. Our next question comes from the line of Jordan <unk>.

Oldman Sachs. Please proceed with your question.

Yeah, Hi, just a couple clarifications or make sure I understand in terms of thinking about.

Lauren: Thank you. Our next question comes from Lauren on behalf of Tom Wadewitz with UBS. Please proceed with your question. Yeah, good morning.

This year, you know in light of the.

Thomas Wadewitz: I want to ask you one granular question and then kind of a higher level one. So, I guess on the granular question for Paul, Did we think about, with a fairly muted volume backdrop, that train starts would come down in 24 or are you thinking kind of a, "hey, the schedule's set, and we'll keep that where it is?" And then the higher level question, I think, you know, when investors look at Norfolk, they say, okay, there's a potential idiosyncratic opportunity to run the system better. You know, maybe that it runs on its own, regardless of the freight market. But I don't know if that's clear.

You mentioned you have steadily increasing volume assumptions, and then increasing incrementals, particularly in the second half in the year over year improvement in margin and notably in the second half I guess the question is what needs to happen to do better than the one to 150 the longer term target I would imagine part of the plan for the back.

Half of this year is probably to exceed that I would think and then secondarily can.

Can you give a little more color around the use of cash. This year I think you said, you're suspending the buyback, but the interest is.

Spence is pretty high so is debt reduction part of it because I think you also mentioned you wanted to get the liquidity ratios more in line. So maybe where do you hope to end the year on that front. Thanks.

Yes.

Yes, Jordan on the cash side.

Alan H. Shaw: So should we look at it as more of a kind of ideal improvement story? Or is this really a freight market and freight cycle leverage story, right? That, you know, it's really, when the freight market improves, if that second half is at 25, then you're just really well positioned for that. So I think just trying to figure out what's really the right way to look at the Norfolk story. Thank you. I want you to address the first question. Yeah, yeah, absolutely.

We've got the big CSR purchase here in March.

We've gone outside of our preferred debt to EBITDA range at the very end of the year in part because we've had to also fund. These Palestine costs. So that will continue to consume some cash as well in 2024.

And then we've got the CSR purchase in addition to that there are no debt redemptions planned this year.

So it's really an issue of operating cash minus Capex gets you to free cash flow and then in that free cash flow. We've got our Capex budget, which is flat with last year as well as the CSR purchase.

Alan H. Shaw: Thanks for the question. So, you know, we think about it not just as train starts but overall team and productivity. It's all about getting the most from our crews, and we're going to see that improve through not only what we've seen here over the past several weeks for improvements in network velocity, but running more disciplined to plan and layer down initiatives. You know, we know running more disciplined to plan is already starting to show itself in reductions in T&A expense. You've seen it in the productivity measures on the slides. We're going to make further iterations to the plan as we get more disciplined, particularly in our merchandise network, and that's only going to drive improvements in GTMs per horsepower but also on the T&E side.

From there we don't expect to have remaining cash to do share repurchase. So as we go into 2025, we should be in a better track with EBITDA growth to start to have a more normal capital allocation cycle like we've experienced in the past.

Thanks, and then just the first part.

Yes, I wanted to repeat the first part, yes, sorry, Sir you've mentioned a few times that you expect steadily increasing volumes and steadily increasing incrementals as we move through the year with the second half saying.

Sir: The lion's share I suppose of the margin improvements I guess I'm just curious.

Alan H. Shaw: We've got a number of initiatives beyond just running the plan more disciplined and seeing that cost come out. Again, that we're layering on. We've got pool transitions taking place. So, as we have gotten more fluid and more consistent, we have transitioned more short pool runs to long pool runs.

The plan contemplate in excess of the one to 150 in the back half and what needs to happen to do that I assume its volume but.

Yes, So Jordan I think as you look at it one thing that's going to happen on the cost side as these service cost that I laid out in my chart will come out they.

They may not come out.

Alan H. Shaw: Again, because we've got greater consistency in velocity in the network, that has productivity benefits. We have put more towards assigned service from a T&E standpoint. That means we've got assigned crew pools and turns. That reduces hotels, van expenses, and adds a quality of life benefit.

Great in the first quarter, largely because of what we're doing to mitigate the cold weather, but theyre going to come out and they're going to start coming out in the first quarter end.

The plan is that most of those will start to release here in the second quarter, if not be completely gone. So that provides us some traction for sure a lot of the other fluidity and improvements at Paul mentioned, we'll start to really take hold and provide traction.

Where we actually think our <unk> accounts may end, the year, a little bit lower than where they started the year, which means you are taking on more volume.

And you're actually having perhaps fewer crews that's embedded productivity right there.

Alan H. Shaw: We are going to roll out predictable work scheduling this year on our conductors, or with our conductors, excuse me. More than 80% of our network is scheduled, meaning as we layer in predictable work scheduling, we will see a benefit in reductions in displacement time. We've got a number of board consolidation initiatives that are taking place.

So and then of course, we're doing we're doing actions on the <unk>.

Non agreement side that will also yield some benefit so we feel really good about our back half and our margin profile I think.

A little bit stronger revenue, we can absolutely outperform.

That $1 50 in the back half of $101 50 in the back half.

And possibly be there for the full year because of it.

Alan H. Shaw: And we're driving accountability to run lean and to plan inside of our merchandise yard. So, that all translates into we're going to see train length on the merchandise side. We've got a line of sight on some improvements we can make there. Not only through further iterations of the plan, but we've also got some investments planned this year in some of our major retail channels that are going to drive productivity and train length. And mobile train length went up in Q4 as a direct result of us not only delivering great service but customers rewarding us with business. And again, we're going to continue to work on that. And from a bulk standpoint, you've heard us talk about the various longer-term initiatives we have with our customers to invest in facilities, particularly in our grain trail network.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.

Thanks, Hello, everyone.

Maybe just a high level question here and then going back to some of the previous questions just tying it up.

I mean.

There's obviously a margin gap to your peers and it's kind of easy to point the cost of the reason why but you guys have been cutting costs for many years and you've taken a lot of resources down and you've done a lot to improve the service product.

I think you have the lowest cost per carload or any of your peers.

At what point is this not really a cost problem and as more of a revenue problem and that means the bulk of the resources addressing that rather than trying to take out more cost.

Alan H. Shaw: Several elevator companies are investing, and we expect to really see the benefits of those investments come to play, and Tommy asked a second question as we go through 2023. We've gone through 2023, and we've made the necessary improvements in safety and service and attractive growth. We can really start to focus on productivity in our own plan and execution of that plan. That provides benefits as well.

It's look it's it's a balanced approach and we overcame a lot of Norfolk Southern's specific headwinds.

In 2023 and.

And we entered 2024 with a safer network a more fluid network and that network that is attracting business from our most service sensitive customers. Once we get through this freight recession and we will.

Alan H. Shaw: And then our whole strategy is about outperforming during the upcycle. Our franchise is built to outperform during the upcycle. You've seen us recover from network disruptions much faster than we have in the past. So there's a proof point as well.

We are poised for outperformance during the up cycle that is the essence of our strategy. We're doing what we laid out at our Investor day 14 months ago I'm proud of the way that we've overcome these obstacles and 2023 and set the stage for margin improvement in 2024, while protecting.

Brian P. Ossenbeck: We're not calling when that upcycle occurs, but when it does, we do believe that we will outperform, and we will attract new business with higher incremental margins. So it's improving our own operations and the executionability of the plans. We can now narrow our focus on really operating within the plan and driving efficiencies and then participating and outperforming during the upcycle. Thank you. Ladies and gentlemen, as a reminder, we ask that you please keep to one question. Our next question comes from the line of Brian Ossenbeck with J.P. Morgan. Please proceed with your question. Hey, good morning.

The best long term interests of our shareholders and then off of selling franchise, yes.

No mistake Ravi.

This franchise. This network is built to handle a lot more volume, but we have a lot of cost runway ahead of us and that's what we're focused on right now and we're certainly going to welcome the revenue when it comes and I think again, that's going to drive the high Incrementals.

Brian P. Ossenbeck: Thanks for taking the time, Good question. Just a quick follow-up for Paul. If you can just give us... how much of the metrics you're talking about are actually in the back half. And just to pass more broadly, I think there's a structural margin gap that will always be here for this network versus some of your peers when you do have it. Thank you for joining us. Have a great day. Intermodal, Smart Truck Competitive; you can have shorter lengths of haulage and, Normal.dot Marta Stewart Microsoft Office Word Title: Microsoft Office Word Document MSWordDoc Word. Document.8 As well, lighter weight, more touches, so I'd just be curious to hear if that's something you think about in the long term in terms of closing that gap that might be a hindrance or if there's something that's, that makes that incorrect. Thank you.

At that point thank you.

Okay.

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

Alright, Thanks, guys. Thanks for taking the question so mark on the topic of cost I think there were some headlines last night about some head count actions 90 and workforce.

Is there a specific cost program in place with with a quantifiable number that we can be thinking about in terms of.

Pursuit of sort of the non operational costs as we.

Kind of a wait the flywheel starting to spin.

Well with regard to the to the non agreement.

Program, maybe I'm going to assume Thats, what youre, referring to.

We had mentioned about 7% was our was our target.

That's kind of a deal over 300 people.

But I think that the timing will probably start to take effect here in the second quarter.

Alan H. Shaw: Hey Brian, each franchise has unique strengths, you know. We've committed to top-tier revenue and top-tier earnings growth coupled with industry competitive markets. We're going to deliver that. You know, we've got a franchise that faces the fastest growing segments of the U.S. economy and a franchise that's poised for growth. We're entering the third year of a freight recession. That will unwind, and when it does, the enhancements that we've made to safety, the enhancements that we've made to service. The ability to attract.

Just the way the voluntary program works.

We will start to see the cost relief.

Take place here in the second quarter, and frankly, the savings amount will depend upon the mix of the folks that put their with their names and so.

We certainly internally have a have a number in mind.

Sir: <unk>.

We'll see where it settles after that but we're going to but aside from that there are other areas, we're going to go after.

Again, we're not happy with our purchase service spend.

We were in a year of very.

Very difficult challenging situation, where we had to quickly get our network up and running again from a number of.

Alan H. Shaw: Business in the fourth quarter and automotive and intermodal, which are our most service-sensitive, Right, give us a pathway to success going forward and allow us to unlock our full potential. And Paul and his team, and the entire executive team, are intently focused on driving out cost inefficiencies and driving productivity. Let me just add real quick that this entire team recognizes that a margin gap exists today between where we are and where we should be, and we're focused intently on closing and narrowing that gap before we get to the point of talking about why any remaining gap exists. There's a lot of runway still for us, organically, in health.

A number of challenges be it weather or or accidents. So we've put a lot of money into quickly revamp using some outside services to quickly revamp our network on the mechanical side as well as engineering side I would hope that those things start to really settle down thats, our focus Paul and I.

As well as even on the technology spend where we've been using a lot more software as a service.

Cloud based services, which show up in purchase services as opposed to Capex. So that's been putting pressure on our purchase services, but we've got to try to again put a lid on that growth and I will mention that can't discount inflation inflation in 2023 was well over 4%.

Alan H. Shaw: You know, many of those initiatives that I spoke about are going to continue regardless of the volume environment. The iterations to the plan are always going to continue, but that is going to be the lever that is most sensitive to volume, but we're going to continue to drive train life, we're going to continue to drive food productivity, you know, regardless of the volume environment. Thank you. Our next question comes from Lauren Oglenski with Barclays. Hey, good morning to everyone.

Our cost structure as we go into 2024, I expect to see inflation, maybe half of that impact.

So that's going to be another area of tailwind. So thanks for the question David.

That's helpful and maybe just squeeze one in here on the CSR purchase obviously youre going to be.

Adding depreciation on the rent side is there any sort of like net benefit of owning that property versus just renting or is this just more about avoiding future lease payments.

Yes look I think the biggest issue is these costs could have quickly run away from us upon lease renewal.

Brandon R. Oglenski: And thanks for taking my question. I guess, you know, maybe the frustration from the investor side is that, you know, if we go back to a couple of analyst meetings, maybe even back to like 2015, the mantra here has always been that, you know, we're trying to close the gap. But constructively, you know, Paul or Ed, can you help us understand where you are in trip plan compliance with your customers? Because I think, ultimately, it's consistency of service that matters, right?

We did not control what the lease rate was going to be and we knew that that would go to arbitration and it could be a significant multiple of where we were so it's really a benefit when you think about what it could be on a go forward. Overall there is some above the line benefits that we have in our depreciation today that.

Lesson as well as the rent payment that goes away, but again the interest burden.

In a pause on the share repurchase provides a temporary hurdle for us.

Alright, we've got it wrong, we got another question before we wrap up here.

Alan H. Shaw: So what can you talk about, you know, what did you learn through changes in makeup rules through 2023? And where's the future of service to your customers? What are you seeing today?

Thank you. Our next question comes from the line of Walter <unk> with RBC capital markets. Please proceed with your question.

Yes. Thanks for squeezing me in here I, just want to understand again at the end of the day here, you're talking about top tier volume growth at industry competitive margins and when I look at industry competitive margins.

Alan H. Shaw: Well, let me start off, and I'd love to have Ed jump in here as well. From an intermodal perspective, as we look at where we finished the fourth quarter, we delivered the best intermodal service we have put across this railroad in several years. And customers rewarded us with volume as a result. We expect to maintain that level of service based on what we've heard from our customers about their expectations. From a merchandise standpoint, we continue to see improvements in merchandise strip line compliance throughout the year. To your point about the trainmaker pools, you know, we said that we were going to recover after we had moved forward with those, meant to, again, drive greater safety and resiliency across our network. We feel very confident that we've seen, you know, merchandise strip line compliance continue to come up throughout the year. And we feel that we're very confident as we look at 2024, based on the further discipline that we are going to build and drive inside of our merchandise network. I'd offer a couple of proof points just to think about that are recent.

Consensus estimates for next year, it's in the 60% to 61% range of our wire for each of these each of your peers.

Even if they do nothing and they don't move in there or at all and I just take the midpoint of your 100 150, I mean that six years before you can get to industry competitive margins. So is that what what we're communicating here is that this setup.

Or are we just look at am I looking at it the wrong way and maybe you can help me there.

Baskin, we've given you a roadmap for the next three years.

We're going to narrow the gap.

West with our peers with respect to margin our commitment as industry competitive margins.

Giving you an outline of where we're headed based on where we see markets. If there is if there is more of a lift.

In the freight market, then I fully expect that we're going to outperform because our investments in safety and service and our ability to attract growth.

And the fastest growing markets in the most service sensitive markets are going to yield outsized benefits, Norfolk, southern and our shareholders during an up cycle, but we're not calling that yet.

Alan H. Shaw: The first one is we had one of our very largest customers comment to us that, emerging from the weather events that just happened in the past year, or excuse me, in the past week, that we recovered better than just about anybody else. And we really take that to heart because they themselves are a broad survey of many other railroads. So we think that that's really important as a proof point for resilience. As we return back to plan faster and faster after inevitable events, that's going to define a large part of the value that we're offering customers. Thank you. Thank you. Our next question comes from the line of Justin Long with Stephen Zink. Please proceed with your question. Thanks and good morning.

Thank you. Our final question. This morning comes from the line of Bascom majors with Susquehanna International Group. Please proceed with your question.

Hey, Mark you've been candid about the lumpy legal outflows in the insurance inflows on the cash flow front youre going to see from the eastern Ohio incident, and how that's going to be with you for some time here, but as we think about the cost structure can you talk a little more about the ongoing operating cost increases that came from that.

And how fully burden what we saw in the fourth quarter was.

For that and what May still be ahead, and I'm thinking things like <unk>.

Insurance premiums are depreciation or say maintenance or testing contracts, but really anything you can share on the ongoing cost increase and how far along we are in that process would be really helpful. Thank you.

Justin Long: So for 2024, there are a lot of moving pieces that you've talked about. But when you put it all together, do you think you'll be within that targeted longer-term range of 100 to 150 basis points of annual improvement in the OR? And Mark, I think you and Alan both mentioned the interest expense headwind you'll have this year. I was wondering if you could help quantify that year over year headwind. Yeah, thanks, Justin. Let's be explicit with interest.

So I'm interpreting the question beyond the east Palestine specific impacts that we reported.

The after effects of it that are in the operating results.

And I'll ask Paul to help but clearly there were impacts that.

Consequential from these Palestine, where we accelerated those trained makeup rule changes that certainly had an impact in the second quarter and probably going into the third quarter I think we've adjusted that now.

Alan H. Shaw: You know, we've got to the end of 2023 with about $17.2 billion in outstanding debt. You know, the effective interest rate is about 4.7%. So I would model about $210 million a quarter for interest expense on the go forward. We've essentially kind of pre-funded that TR card acquisition. So that should be relatively steady, you know, within a couple $2 million per quarter of that. You know, and as we look at the moving pieces, again, we've got some headwinds here in the first half, I think as volume starts to grow, as we go from Q2 to Q3, and then into Q4, we should really start to see, with the compares, a pretty, pretty good improvement year over year. So I don't, I don't see so much in the first quarter.

And that's that's not no longer really providing any adverse.

Paul: The adverse impact we have installed more additional wayside detectors that we're carrying we're doing more testing we've got some more people monitoring our wayside deaths et cetera, I wouldn't say that the incremental direct safety costs that come out of EEP or consequential.

And frankly, I think ultimately they're going to yield to better results in the go forward because we are running a safer railroad we're having.

Much better derailment experience in terms of less frequency.

As a result of some of the operational changes, including the makeup rules have had so overall.

There is there is probably some for sure some lingering incremental costs, because we're doing things different but there will be a benefit longer term or do you want to add anything ill just add thanks Mark.

Alan H. Shaw: Certainly, I think there's a risk of regression there. But I think as we navigate the second quarter, depending on volume, but in particular, the second half is where you'll see most of the improvement. And look, I think, you know, that 100 and 150 that we're talking about kind of on the go forward, we should definitely be there in the back half, whether it translates into a full year amount or not, I think depends on a number of other factors. Okay, thanks.

The proof is in the pudding that we saw a 42% reduction in our mainline accident rate.

This year so as Alan described part of our strategy has been to safely deliver reliable and resilient service and 2023 was a challenging year for us but those are the types of things that are going to move the needle in driving tour, we had a safer more resilient product on the railroad. So yes, there are going to be.

Some of those those costs as Mark just outlined very well that remain embedded with the offset being we're going to see and deliver a safer product for our customers and through the communities we serve.

Jason H. Seidl: Thank you. Thank you. Our next question comes from the line of Jason Seidl with TD Commons. Please proceed with your question. Thanks, Robert. Good morning, guys. I'll put the bat away for the horse that is guidance here and turn these to, you know, what you're seeing in terms of impact. Any Diversions. On the port side, whether they're from geopolitical events like the Panama Canal, and if you haven't seen them yet, do you expect to see them, and what sort of impact will they have? And Woody Harrelson.

Thank you ladies and gentlemen. This concludes our question and answer session I will turn the floor back to Mr. Shaw for final comments.

Thank you for joining us today.

Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.

Alan H. Shaw: We're talking to our customers a lot about this, it's a situation that has grown over time. We haven't seen any impact yet on our volume. The fact is, our East Coast port volumes continue to be remarkably strong, and we are hearing customers start to evaluate their West Coast options, and that makes sense given some rather unprecedented things that are going on, but regardless, the great thing about our network is we're well positioned to pick up that volume growth whether it comes from the East Coast or the West Coast, and I think we're going to be able to very ably serve our customers and satisfy their needs. I think there's probably more intermodal conversion opportunities when it comes to the West Coast, but we've gotten very good at doing short-haul intermodal with our international customers.

Alan H. Shaw: Frankly, that's one of the benefits of our franchise, right? We've got the most powerful intermodal franchise in the East, which serves 60% of the consumers, so no matter whether it comes from the East Coast or West Coast, we're handling it. That's right.

Alan H. Shaw: Thanks for tuning in. We appreciate it. Thank you. Thank you. Our next question comes from the line of Allison Poloniak with Wells Fargo. Please proceed with your question.

Allison M. Landry: So with the focus on long-term growth, could you maybe talk about the growth investment embedded in CapEx? Is it higher? Is it lower?

Alan H. Shaw: And then with that longer-term margin roadmap, is there an offset embedded in that given just sort of the ongoing investment in services that NMS is making? Just any thoughts there? Do you want to talk about the capital program, please? Yeah, the capital, I mean, the capital guidance, actually, for 23, I think I mentioned in my prepared remarks that it was going to be largely flat with 2022. And I would say that the mix within that between reinvesting in the business and safety and resilience is about the same as what it was in 22, call it about 60%, 65%. And the growth element to that is the balance, call it 35%. And that's pretty consistent between the two years, I would say.

Alan H. Shaw: Second part of your question, again, I don't recall. Yeah, just, you know, that longer-term margin roadmap, you know, obviously you're investing in service. Is there sort of an offset embedded in that margin, just given this ongoing investment? It just currently doesn't end here. Just trying to think through that.

Alan H. Shaw: Well, I know that a faster network is a less expensive network, so as we invest in services, we invest in resiliency, it translates to fewer leaks, fewer network disruptions, fewer less overtime, fewer equipment runs, and Improved Fuel Consumption and Fuel Efficiency, so yeah. That's the part of our franchise, or pardon me, of our strategy, right? It's that balance between service, productivity, and growth. And they build on each other.

Jordan Alliger: Yeah. Thank you. The velocity piece plays into the growth. Thank you, Ellen.

Jordan Alliger: Sure. Thank you. Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please state your question.

Jordan Alliger: Yeah, just a couple of clarifications to make sure I understand. In terms of thinking about this year, you know, in light of the, you mentioned, steadily increasing volume assumptions and then increasing incrementals, you know, particularly in the second half and the year-over-year improvement margin, notably in the second half. I guess the question is, what needs to happen to do better than the 1 to 150, the longer-term target? I would imagine part of the plan for the back half of this year is probably to exceed that, I would think, and then secondarily... Can you give a little more color around the use of cash this year? I think you said you're suspending the buyback, but the interest expense is pretty high, so is debt reduction part of it? Because I think you also mentioned you want to get the liquidity ratios more in line, so maybe, where do you hope to end the year on that front? Thanks.

Alan H. Shaw: Yeah, Jordan, on the cash side, you know, we've got the big CSR purchase here in March. We've gone outside of our preferred debt-to-debt range at the very end of the year, in part because we've had to also fund these balancing costs. So that will continue to consume some cash as well in 2024. And then we've got the CSR purchase. In addition to that, there are no debt redemptions planned this year.

David Vernon: So it's really an issue of operating cash minus CapEx gives you free cash flow, and then in that free cash flow, we've got our CapEx budget, which is flat with last year, as well as the CSR purchase. From there, we don't expect to have remaining cash to do share repurchases, so as we go into 2025, we should be on a better track with EBITDA growth to start to have a more normal capital allocation cycle like we've experienced in the past. Banks, and then just the first part.

Alan H. Shaw: Yeah, I wanted to repeat the first part. Yeah, I mean, you've mentioned a few times that you expect steadily increasing volumes and steadily increasing incrementals as we move through the year, with the second half seeing the, you know, the lion's share, I suppose, of the margin improvements. I guess I'm just curious.

Jordan Alliger: Would the plan contemplate an excess of the 1 to 150 in the back half? And what needs to happen to do that? I assume it's volume, but... Yeah, so Jordan, I think, as you look at it, one thing that's going to happen on the cost side is these service costs that I laid out in my chart will come out. They may not come out as great in the first quarter, largely because of what we're doing to mitigate the cold weather, but they're going to come out, and they're going to start coming out in the first quarter, A lot of the other fluidity and improvements that Paul mentioned will start to really take hold and provide traction, where, you know, we actually think our T&E counts may end the year a little bit lower than where they started the year, which means you're taking on more volume, and you're actually having perhaps fewer crews. That's embedded productivity right there.

David Vernon: And then, of course, we're doing actions on the non-agreement side that will also yield some benefits, so we feel really good about our back half and our margin profile. I think, you know, with a little bit stronger revenue, we can absolutely outperform that 150 in the back half, the 100 to 150 in the back half, and possibly be there for the full year because of that. Thank you. Thank you. Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question. Thanks for having me on.

Ravi Shanker: Maybe just a high-level question here, and then going back to some of the previous questions, I can just sign up. I mean, look, there's already a margin gap with your peers, and it's kind of easy to point to cost as a reason why, but you guys have been cutting costs for many years, and you've taken a lot of resources down, and you've done a lot to improve the service product. I think you have the lowest cost per carload of any of your peers. At what point is this not really a cost problem and is more of a revenue problem that needs the bulk of the resources addressing that rather than trying to take out more costs? It's a balanced approach, and we overcame a lot of Norfolk Stellar-specific headwinds. 2023.

Alan H. Shaw: And we enter 2024 with a safer network and a more fluid network and a network that is attracting business from our most service-sensitive customers. Once we get through this great recession, and we will, we are poised for outperformance during the up cycle. That is the essence of our strategy.

Alan H. Shaw: We're doing what we laid out at our investor day 14 months ago. I'm proud of the way that we've overcome these obstacles in 2023 and set the stage for margin improvement in 2024 while protecting the best long-term interests of our shareholders and an off-the-shelf franchise. Yeah, make no mistake, Ravi, this franchise, this network is built to handle a lot more volume, but we have a lot of cost runway ahead of us, and that's what we're focused on right now, and we're certainly going to welcome the revenue when it comes, and I think, again, that's going to drive high incrementals at that point. Thank you. Thank you. Our next question comes from the line David Vernon with Bernstein. Please proceed with your question.

David Vernon: Alright, thanks guys, and thanks for taking the questions. So Mark, on the topic of cost, I think there were some headlines last night about some hedge fund actions in our union workforce. Is there a specific cost program in place with a quantifiable number that we can be thinking about in terms of pursuit of sort of the non-operating costs as we kind of await the flywheel turn to spin?

Mark George: Well, with regard to the non-agreement program, maybe I'm going to assume that's what you're referring to. You know, we had mentioned about 7% was our target, and that's going to yield over 300 people. I think the timing will probably start to take effect here in the second quarter, just the way the voluntary program works. So we'll start to see the cost relief take place here in the second quarter. And frankly, the savings amount will depend upon the mix of the folks that put their names in. So we certainly internally have a number in mind.

Mark George: And we'll see where it settles after that, but aside from that, there are other areas we're going to go after. Again, we're not happy with our purchase service spend. We were in a year of very...

Mark George: There is a difficult, challenging situation where we have to quickly get our network up and running again from a number of... a number of challenges, be it weather or accidents, so we've put a lot of money in to quickly revamp using some outside services to quickly revamp our network on the mechanical side as well as the engineering side. I would hope that those things start to really settle down; that's our focus, Paul and I, as well as on the technology spend where we've been using a lot more software as a service, cloud-based services, which show up in purchase services as opposed to CapEx, so that's been putting pressure on our purchase services, but we've got to try to, again, put a lid on macros. I will mention that you can't discount inflation; inflation in 2023 was well over 4%.

Mark George: In our cost structure, as we go into 2024, I expect to see inflation, maybe half of that impact. So that's going to be another area of tailwind. So thanks for the question, David. That's helpful. And maybe just to squeeze one in here on the CSR purchase, you know, obviously you're going to be adding depreciation on the rent side. But is there any sort of net benefit of owning that property versus just renting, or is this just more about avoiding future lease payments?

Mark George: Yeah, look, I think the biggest issue is that these costs could have quickly run away from us upon lease renewal. We did not control what the lease rate was going to be, and we knew that that would go to arbitration, and it could be a significant multiple of where we were. So it's really a benefit when you think about what it could be on a go-forward overall. There are some above-the-line benefits that we have in our depreciation today, that lesson, as well as the rent payment that goes away, but again, the interest burden and a pause on share repurchase provide a temporary hurdle for us. All right, we've got one more question before we wrap up here. Thank you. Our next question comes from the line of Walter Spracklin with RBC Capital Markets. Please proceed with your question. Yeah, thanks for squeezing me in here.

Walter Spracklin: So I just want to understand again, you know, at the end of the day, sir, you're talking about top-tier volume growth at industry competitive margins. And when I look at industry competitive margins, say, you know, consensus assessments for next year, it's in the 60 to 61% range of OR for each of these, each of your peers, and even if they do nothing, and they don't move in their OR at all, and I just take the midpoint of your 100-150, I mean, that's six years before you can get to industry competitive margins. So, is that what we're communicating here? Is that the setup? Or am I looking at it the wrong way?

Alan H. Shaw: Maybe you can help me there. Das, can we give you a roadmap for the next three years on how we're going to narrow the gap? with our peers with respect to the market. Our commitment is industry competitive margins. We've given you an outline of where we're headed based on where we see markets. If there's more lift in the freight market, then I fully expect that we're going to outperform because our investment in safety and service and our ability to attract growth. And the fastest growing markets and the most service-sensitive markets are going to yield outsized benefits to Norfolk Southern and our shareholders during an upcycle, but we're not calling that yet.

Alan H. Shaw: Thank you. Our final question this morning comes from Ryan, a Bascom Major with Susquehanna International Group. Please proceed with your question. Hey Mark, you've been candid about the lumpy legal outflows and the insurance inflows on the cash flow front you're going to see from the Eastern Ohio incident and how that's going to be with you for some time here, but as we think about the cost structure, can you talk a little more about the ongoing operating cost increases that came from that and how fully burdened what we saw in the fourth quarter was for I'm thinking things like insurance premiums or depreciation or, say, maintenance or testing contracts, but really, anything you can share on the ongoing cost increase and how far along we are in that process would be really helpful.

Ryan: Thank you. I'm interpreting the question beyond the palatine-specific impacts that we reported and kind of the after effects of it that are in the operating results, and you know, I'll ask Paul to help, but clearly, there were impacts Consequential from the palace scene where we accelerated those train makeup rule changes that certainly had an impact in the second quarter and probably going into the third quarter. I think we've ingested that now, and it's no longer really providing any adverse impact.

Mark George: We have installed more additional wayside detectors that we're carrying. We're doing more testing. We've got some more people monitoring our wayside desk, et cetera. But I wouldn't say that the incremental direct safety costs that come out of EEP are consequential.

Mark George: And frankly, I think ultimately they're going to yield better results in the go forward because we are running a safer railroad. We're having a much better derailment experience in terms of less frequency as a result of some of the operational changes, including the makeup rules we have had. Thank you all. You know there's probably some, for sure, some lingering incremental cost because we're doing things differently. But there will be a benefit in the longer term.

Mark George: Paul, do you want to add anything? Yeah, I'll just add, thanks Mark. You know the proof is in the pudding that we saw a 42% reduction in our mainline accident rate this year, so as Alan described, part of our strategy has been to safely deliver reliable and resilient service, and 2023 was a challenging year for us. But those are the types of things that are going to move the needle in driving where we have a safer, more resilient product on the railroad. So yes, there Ladies and gentlemen, this concludes our question and answer session. I'll turn the phone back to Mrs. Roth for final comments. Thank you for joining us today. Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.