Q1 2024 Union Pacific Corp Earnings Call
Greetings and welcome to the Union Pacific first quarter 2020 for a conference call.
At this time, all participants are in listen only mode.
Brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.
It is now my pleasure to introduce your host Mr. Jim Vena, Chief Executive Officer for Union Pacific.
Vincenzo James Vena: Thank you Mr. Vendor you may now begin.
Vincenzo James Vena: Okay. Thanks, Rob and good morning to everyone Beautiful day in the Omaha, 660 degrees a little bit of rain. It is absolutely perfect for railroading. So why don't we get started.
Jennifer: And thank you for joining us today to discuss Union Pacific's first quarter results I'm joined in Omaha by our Chief Financial Officer, Jennifer Hey Man Alright.
Jennifer: Alright, executive Vice President of marketing and sales Kenny rocker Executive Vice President of operations, Eric Garringer as you'll hear from the team we continue to execute our multi year strategy to establish union Pacific as the industry leader in safety service and operational excellence, we again took positive steps towards that goal in the first quarter.
Jennifer: <unk> well challenges outside our control persist we are establishing a foundation for long term success.
Speaker Change: Now, let's discuss first quarter results starting on slide three.
Speaker Change: This morning Union Pacific reported 2024 first quarter net income of $1 $6 billion or $2 69 per share. This compares to 2023 first quarter net income of $1 $6 billion or $2 67 per share. We're pleased to be able to report earnings growth in a tough environment, especially since last year's results.
Speaker Change: Included a 14 cents per share a real estate game first quarter operating revenue was flat a solid core pricing gains and a positive business mix were offset by lower fuel surcharge revenue and reduced volumes.
Speaker Change: <unk> for the impact from fuel surcharge freight revenue was up 4% versus last year expenses year over year were down 3% driven by lower fuel prices and productivity gains. This was partially offset by inflation increased transportation workforce levels to compensate for.
Speaker Change: New label Labor agreements and higher depreciation.
Speaker Change: Our first quarter operating ratio of 67% improved 140 basis points versus last year. This also represents a 20 basis point improvement sequentially from the fourth quarter with further demonstrates the strong work by the team.
Speaker Change: Look it's a great start to the year I'm pleased with how the Union Pacific team is coming together to unlock what's possible for our company.
Speaker Change: But there's a lot of work to do I'll, let the team walk you through the quarter in more detail and I'll come back and wrap it up before we go to question and answer so what's that what's that Jennifer why don't you go through the first quarter financials, alright, Thanks, Jim and good morning, I'll begin with a walk down of our first quarter income statement on slide five we're operating revenue of six.
Jennifer L. Hamann: Billion dollars was flat versus last year on a 1% volume decline there was significantly driven by a 20% reduction in coal shipments in fact, excluding coal volumes would have been up close to 2% year over year, even in this tough rate environment.
Jennifer L. Hamann: Looking then at the revenue components further total freight revenue of $5 6 billion declined 1%. The single largest driver of the year over year decrease was at 25% reduction in fuel surcharge revenue to 665 million as lower fuel prices negatively impacted freight revenue 375 basis points.
Jennifer L. Hamann: <unk> core pricing gains and a favorable business mix combined to add 350 basis points to freight revenue we.
Speaker Change: Reduced coal in rock shipments as well as increased soda ash and petroleum carloads drove the positive mix dynamic excluding.
Speaker Change: Excluding fuel surcharge revenue grew 4%.
Speaker Change: Solid start to the year and demonstration of the great diversity of the U P franchise.
Speaker Change: Wrapping up the top line other revenue increased 4% driven by increased accessorial revenue that included a one time contract settlement of $25 million switching to expenses operating expense of $3 $7 billion decreased 3% as we generated solid productivity against lower demand they.
Speaker Change: Digging deeper into a few of the expense lines of compensation and benefits expense was up 4% versus last year first quarter workforce levels decreased 2% as reductions in non transportation employs more than offset a 4% increase in our active T E N Y workforce, although our training pipeline is significantly reduced we continue to.
Speaker Change: Carry additional train services employees as a buffer for our operations and to offset the impact of newly available sick pay benefits and work breast agreements well.
Speaker Change: Well talking about workforce levels I do want to mention one quick housekeeping item.
Speaker Change: Some of you might be aware, we are in the process of transferring operating responsibility for certain passenger lines in Chicago to Metro.
Speaker Change: As part of that in June we will be transferring around 350 mechanical employees to metro on a quarterly basis. This will lower both revenue and expense by roughly $15 million.
Speaker Change: Cost per employee in the first quarter increased 5%, reflecting wage inflation and additional cost associated with new Labour agreement field.
Speaker Change: Fuel expense in the quarter declined 14% on a 13% decrease in fuel prices from $3.22 per gallon to $2.81 per gallon. We also improved our fuel consumption rate by 1% as locomotive productivity more than offset our less fuel efficient business mix given the decline in coal shipments purchased.
Speaker Change: Services and materials expense decreased 6% versus last year as we maintained a smaller active locomotive fleet and our logistics subsidiary incurred less strange expense. In addition, a little less than half of the year over year variance related to resolution of a contract dispute.
Speaker Change: Finally equipment and other rents declined 8%, reflecting a more fluid network seem to improve cycle times and lower lease expenses.
Speaker Change: By controlling the controllable and our cost structure first quarter operating income of $2 $4 billion increased 3% versus last year below the line. Jim noted last year's real estate transaction in other income and our interest expense declined 4% on lower average debt levels.
Speaker Change: First quarter net income of $1 $6 billion and earnings per share of $2.69, both improved 1% versus 2023, and our quarterly operating ratio of 67% improved 140 basis points year over year, which includes a 60 basis point headwind from lower fuel prices.
Speaker Change: Turning to shareholder returns in the balance sheet on slide six first quarter cash from operations totaled $2 $1 billion up roughly $280 million versus last year growth in operating income as well as the impact from 'twenty to 'twenty three labor agreement payments are reflected in that increase in addition, free cash flow and our cash.
Speaker Change: Hello conversion rate both showed nice improvement.
Speaker Change: As planned we paid down $1.3 billion of debt maturities in March that resulted in our adjusted debt to EBITDA ratio declining to two nine times at the end of the quarter and we continue to be a rated by all three credit rating agencies also during the quarter, we paid dividends totaling $795 million.
Speaker Change: Wrapping things up on slide seven as you'll hear from Kenny our overall outlook on the freight environment hasn't changed a lot since January.
Speaker Change: Yes, there have been some pluses and minuses from our original outlook, but in totality, we still see the same economic uncertainty what I'm certain of however is that our service product is meeting and we will continue to meet the demand in the marketplace and when volume strengthen we will be ready to provide our customers with the service they need to grow with us.
Speaker Change: In addition, as evidenced by our first quarter results, we will continue to generate productivity that improves our network efficiency.
Speaker Change: Also demonstrated by those first quarter results is our commitment to generating pricing dollars in excess of inflation dollars.
Speaker Change: Fuel aside our price commitment as well as expectations for positive mix in 'twenty 'twenty four should allow us to pace freight revenue ahead of volume.
Speaker Change: And finally with capital allocation, we plan to start restart share repurchases in the second quarter. A further demonstration of the confidence we have in our strategy and the momentum that is building.
Speaker Change: The actions, we're taking to improve safety service and operational excellence are reflected in our financials and continuing on with this strategy will drive shareholder value in 'twenty, 'twenty, four and well into the future let.
Speaker Change: Let me turn it over to Kenny now to provide an update on the business environment.
Kenyatta G. Rocker: Thank you Jennifer and good morning.
Kenyatta G. Rocker: As Jennifer mentioned bright revenue totaled $5 6 billion for the quarter, which was down 1%. That's core pricing was offset by lower fuel surcharges and a 1% drop in volume.
Kenyatta G. Rocker: Let's jump right in and talk about the key drivers in each of our business groups.
Speaker Change: Starting with ball revenue for the quarter was down 4% compare to last year on a 5% decrease in volume and a 1% increase in average revenue per car.
Speaker Change: Solid core pricing gains across most bulk segment were largely offset by low natural gas prices that unfavorably impacted our coal index contract and lower fuel surcharges.
Speaker Change: I stayed at coal continued to face difficult market conditions in the first quarter of warmer temperatures overall led to record low natural gas prices and caused significant declines in demand.
Speaker Change: Grain and grain products volume was up for the quarter with increased shipments of corn to Mexico as well as more shipments from Canadian origin.
Speaker Change: Lastly, despite strong truck competition food and refrigerated shipments increase.
Speaker Change: Result of new business for dry goods solid demand and network service improvement.
Speaker Change: Moving to industrial revenue was up 4% for the quarter driven by a 1% increase in volume Schroth.
Speaker Change: Strong core pricing gains and a positive mix and traffic were partially offset by lower fuel surcharges.
Speaker Change: Our strong business development efforts and petroleum allowed us to capitalize on windows of opportunity along with new domestic contract win.
Speaker Change: Demand improve where our petrochemicals business in both export and domestic markets.
Speaker Change: However, challenges with high inventories and weather negatively impacted our broth volume.
Speaker Change: Premium revenue for the quarter was down 3% on a 1% increase in volume and a 4% decrease in average revenue per car, reflecting lower fuel surcharges and truck market pressures.
Speaker Change: Automotive volumes were positive due to business development wins, with Volkswagen and general Motors, along with continuous shrimp from dealer inventory replenishment.
Speaker Change: Intermodal volumes were positive in the quarter driven by strong international West Coast demand, which was partially offset by the international contract law. So I mentioned in January and soft market conditions in domestic intermodal.
Speaker Change: Turning to slide 10, here's our 'twenty 'twenty four outlook as we see it today for the key markets we serve.
Speaker Change: Starting with bulk we anticipate continued challenges in coal inventories are projected to be at record levels and natural gas futures remain depressed.
Speaker Change: We are closely watching grain, particularly as it relates to new crop conditions and fourth quarter export demand.
Speaker Change: We expect domestic grain demand to be stable.
Speaker Change: Lastly, we are optimistic about marine products as we continue to see growth in biofuel feedstocks.
Speaker Change: Additionally, we recently won incremental grain product business out of Iowa that started moving earlier this year by demonstrating our consistent service product and developing competitive solutions to support our customers' business.
Speaker Change: Turning to industrial the rock market will be challenged to exceed last year's record volume.
Speaker Change: However, we expect petroleum and petrochemical markets to remain favorable due to our focus on business development supported by our investments in the Gulf Coast and operational excellence.
Speaker Change: And finally for premium on the intermodal side, we expect to see consistent strong west coast import in the nearer term, but it's still too early to predict what will happen in the back half of the year.
Speaker Change: On the domestic intermodal side, we continue to see market softness, but expect our strong service product and diversified set of IMC and private asset partners will set us up well when demand returns.
Speaker Change: For automotive, we will see continued strength due to our business development wins and improved OEM production.
Speaker Change: In summary.
Speaker Change: Colon domestic intermodal will put pressure on our volumes this year, but the team has taken action.
Speaker Change: As you saw in the first quarter, excluding fuel we were able to grow revenue even after we've paid lower volumes overall I am confident that with our improved service product. We will continue to win new business and take trucks off the road.
Speaker Change: On the price side, we're having deliberate conversations with customers on price increases to overcome inflationary pressures.
Speaker Change: And those conversations are backed up by an efficient service product that Eric team has given to our customers. So that they can compete and win.
Speaker Change: We have a great franchise.
Speaker Change: Along with being the Premier Cross border rail provider to them from Mexico that positions us well at a third market in both the U S and Mexico.
Speaker Change: Our legacy service and the new service offering we've out it allows us to win in the marketplace and we see strong opportunities in front of us to grow with our customers and with that I'll turn it over to Eric to review our operational performance. Thank.
Eric J. Gehringer: Thank you Kenny and good morning, moving to slide 12, we exited 2023 with strong operational momentum across the board and while weather quickly presented its challenges the team rose to the task the speed with which our service product recovered as a testament to our strategy and the resiliency of our network we.
Speaker Change: We continue to see meaningful year over year improvements in our metrics. This is a direct result of our steadfast focus on providing industry, leading safety service and operational excellence.
Speaker Change: Starting with freight car velocity improvements of terminal dwell and overall network fluidity led to a 4% improvement compared to first quarter 2023 sequentially freight car velocity declined 6%, primarily due to shifts in product mix between our bulk manifest and intermodal services, particularly we are seeing an impact from decline.
Speaker Change: And intermodal and bulk shipments, which generally contribute higher average daily car miles.
Speaker Change: Key is that our service product remains consistent and we are delivering what we sold our customers we want our customers to win and if they win we win.
Speaker Change: To further deliver on the service we sold our customers. We recently introduced a new measure service performance index or S. P. I S.
Speaker Change: The name implies it's a combined metric that reflects the actual service provided and we believe is a better measure than trip plan compliance alone.
Speaker Change: For those customers with specific transit commitments, we measure against that and for the many customers who rely on our historical performance to inform their rail transportation planning decision S. P. I provides a measure that aligns with this practice for.
Speaker Change: For the first quarter, both intermodal and manifest and auto S. P. I saw a sizable 14 and seven point year over year improvement respectively.
Speaker Change: The team also delivered safety performance in the quarter, both on derailment in personal injury fronts.
Speaker Change: As we continue to emphasize the culture of safety. We're also investing in technology and process, ensuring our employees have the tools they need to operate safely and efficiently. Our goal is clear we want to lead the industry and drive tangible change so everyone goes home safely each day.
Speaker Change: Now, let's review our key efficiency metrics on slide 13.
Speaker Change: While maintaining focus on enhancing safety and service. It is equally crucial that we do so in a cost effective manner, enabling Kenny and the team to compete in a broader range of markets and alignment with this objective we saw year over year, a proven across all of our first quarter metrics, indicating that the efficiency of our railroad is on the right track.
Speaker Change: Yeah.
Speaker Change: Locomotive productivity improved 10% compared to first quarter 2023, as the team continues to run an efficient operation and a transportation plan that requires fewer locomotives to satisfy the demands of the business.
Speaker Change: In fact, we have reduced our active fleet by about 500 locomotives compared to last year.
Speaker Change: Workforce productivity, which includes all employees improved 1% as average daily car miles declined slightly and employees decreased 2% compared to 2023.
Speaker Change: While overall workforce counts declined our train engine and yard employees increased 4% as we continue to support our training pipeline scheduled work agreements and provide the capacity buffer necessary to navigate an ever changing environment.
Speaker Change: Train length improved 1% compared to first quarter 2023.
Speaker Change: After a particularly challenging in January due to winter weather, we quickly adjusted to set train length Records in both February and March.
Speaker Change: Notably manifest train length increased by around 300 feet.
Speaker Change: While train length increase for nearly all train categories year over year declines in intermodal shipments, which generally move on longer trains moderated sequential performance.
Speaker Change: Although we are encouraged by these results there are ample opportunities ahead for us to further improve asset utilization and the efficiency of our network. For instance, we are leveraging technology to automate terminal functions and engineering renewal activities, increasing energy management utilization to improve fuel consumption and developing car.
Speaker Change: Optimizer is to reduce car touches while these are just a few of key initiatives running a safe reliable and efficient railroad for all our stakeholders is vital and as we move forward. We will continue pushing the envelope in our pursuit of industry, leading safety service and operational excellence, so with that I'll turn it back to Jim.
Vincenzo James Vena: Thank you Eric turning now to slide 15.
Vincenzo James Vena: Before we get to your questions I'd like to quickly summarize what you've heard from our team first as you heard from Jennifer and Kenny our volume outlook in some markets continues to be challenged we are mitigating those challenges by driving efficiency in the network, which is driving stronger financial returns and this provides confidence to start repurchasing shares in the second quarter.
Vincenzo James Vena: Kenny provided you with an overview of the first quarter volumes and laid out some updated thoughts for the year.
Vincenzo James Vena: <unk> is going to be a headwind. It is what it is we need to outperform all of our markets give us naturally to offset that impact and if we provide the service we sold our customers I'm confident they'll grow with US. It's also imperative that we generate pricing for the value, we're providing our customers.
Vincenzo James Vena: Lastly, Eric walk you through the progress, we're making across safety service and operational excellence when I look at how we're performing I see improvement across the board. The network is operating fluidly and efficiently, allowing us to meet the demand in the market.
Eric J. Gehringer: And that drove the financial success as you saw here in the first quarter, there's certainly more to do but we're on the right path at the end of the day, we're demonstrating continuous improvement getting a little better each day in the long run our focus on being the best across the spectrum will generate sustainable long term value for the years ahead.
Speaker Change: One final item for for you all a save the date, we're planning an investor day on September 18th and 19th in Dallas, Texas more details to follow but we're excited to lay out more of our vision to demonstrate what is possible for this great company of ours and with that Rob we're ready to take on some of the questions.
Rob: Thank you.
Rob: Well that'd be conducting a question and answer session.
Speaker Change: 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.
Rob: Press Star two if you like to remove your question from the queue.
Rob: Competition series Speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Rob: In the interest of time, so we may accommodate as many analysts as possible we would.
Rob: I ask everyone to please limit themselves to one question.
Rob: Thank you and our first question comes from the line of David Vernon with Bernstein. Please proceed with your question.
David Scott Vernon: Hey, good morning, guys and thanks for taking the question. So so it seems like the operations are working pretty well Jim I I've looked like you did maybe talk about kind of what you're doing with Kenny and his team to start focusing on growth that may be different or it hasn't been done at U N T. In the past you know we know there's been a couple of the the the joint service.
David Scott Vernon: But to see it on the Falcon and stuff like that but you know internally in terms of you know focusing the team on an odd on more business development efforts can you just kind of talk to us a little bit about about what kind of changes, you're making or what kind of initiatives youre emphasizing to start driving a little bit more growth on the networks.
Speaker Change: You bet, David Thanks for the question and good morning, and I'll just summarize real quick what were doing and then Kenny maybe you want to get into a little bit more of the specifics okay.
David Scott Vernon: No.
Speaker Change: If we look at what we're doing on the railroad side and that's very important and how we're gonna be able to grow and grow with our customers is our customers. Some customers, we have expect speed and.
Kenyatta G. Rocker: Resiliency in the model and others. It is speed is less of a concern. It is consistency in the model. So if you take a look at what we're doing we are building the fundamental blocks that we are able to provide a service like no. One else. We can go from and world they're selling that.
Kenyatta G. Rocker: So in the high speed.
Kenyatta G. Rocker: High speed market to market, we have a service that operates very high speed 2000 miles in less than two days that makes us.
Kenyatta G. Rocker: [noise] makes us.
Kenyatta G. Rocker: Competitive against other modes of transportation, if we look at the consistency, we want our customers to win and the best way for us to grow as with the customers that we have whether it's the automobile business that we handle whether it's the export business that we handle whether it's in the golf whether its our access into Mexico.
Kenyatta G. Rocker: And our interchanges with other railroads and how we can originate and we all win together. So we're doing all of that I'm spending.
Speaker Change: Eric might say I'm not.
Kenyatta G. Rocker: He wishes I would spend more time on some other things so I still look at the operation. It is still there I think there's a lot more that needs to be delivered and when you do an analysis and the way I like to do in a regression analysis on what the operation is like I'm comfortable but theres more to do and the pressures on to be more consistent and faster.
Kenyatta G. Rocker: And be able to deliver a better service product, we do that we win but I've also spent a lot of time with Kenny and his team and myself personally.
Kenyatta G. Rocker: Meeting with customers understanding what they need to win our present customers and future customers and I think we continue down this path with consistent service and.
Kenyatta G. Rocker: The value that we can provide the customers for them to grow is such that where they want to partner with U P and we want to partner with them because we want our customers to win and I really like where we are and if we can keep this consistency.
Kenyatta G. Rocker: David going which I'm very confident we can then I think Kenny I hate to tell you it should be pretty easy for you to grow the business and the way you go alright, So look David you've hit it on the head what are we doing differently and I just want to talk to you about some of the product development that Eric and I and our teams are due.
Kenyatta G. Rocker: One together you look at the Phoenix ramp we're excited about it we're seeing that volume come in there and grow sequentially. It just gives our customers and the B C O.
Kenyatta G. Rocker: More optionality port of Houston, That's why we put that service back on we've been excited about the growth that we've seen come out of there and we'll continue to.
Kenyatta G. Rocker: And onto the destinations are there we started off with five now we're at 11, you look at inland Empire, We just add it on a new product. There now we're going to 20 cities east of Chicago with the C effect than the N a.
Kenyatta G. Rocker: On the unit train side, because we are seeing the cycle times improve we're naturally getting more volume and so we like that piece on the finished vehicle side you talk about product development.
Kenyatta G. Rocker: Business, that's coming off of a the water.
Kenyatta G. Rocker: Getting land bridge that we're moving back East Oh look this lower cost that we have really opens up new markets for us.
Kenyatta G. Rocker: Margin. So we're on offense I mean, we're pushing every lever we can to get business onto our network. We've got a beautiful franchise as Joe mentioned and we're taking advantage of it David. Thank you very much. Thanks for the question.
Speaker Change: Alright. Thank you if I could maybe sneak one quick follow up.
Speaker Change: How's the ethics, he performing with the extra volume I know you saw the board or is there a lot of shift over on to that and then are you thinking about sort of expanding capacity over to Eagle pass gateway to made to accommodate future growth out of Mexico.
David Scott Vernon: David Real quick.
David Scott Vernon: I've spent a lot of time I think I've made me like eight or nine trips down to Mexico already in the eight months I've been here are working very closely with efficacy with our ownership position in them, we know where the the points of concern or FX. He has done a good job of identifying what they have to do and I think they they've.
David Scott Vernon: We're on a good service product, they're going to continue with the same goal as we have described and we're working together on and in fact, a couple of weeks I'm going to write a train head end of a freight train are down on the FX either the take a look at the road the railroad even more.
David Scott Vernon: The border.
David Scott Vernon: We have processes in place to make it easier for our crews to not stop right at the border and gift cranes across was just makes sense just like between Canada and the U S and International falls. So we are in the process of cleaning up those items that are that limit the spa.
David Scott Vernon: The speed of the efficiency for our customers to get across the border. So I'm very happy to see where we are and we're trying to work as one railroad. You know we are I don't like to give all the railroads excess locomotives and you can you can understand why I don't have to explain it but we have provided.
David Scott Vernon: FX eat some locomotives to make sure that they can move the traffic that's out there and they've seen a large growth. There number is I'll, let them give you the exact number but there.
David Scott Vernon: We see growth in Mexico, both northbound and southbound them, that's a market we want to use those six.
David Scott Vernon: Touch points, we have to get into Mexico, and optimize it for Union Pacific.
Speaker Change: Thank you.
Speaker Change: Welcome.
Speaker Change: Our next question is from the line of Justin Long with Stephens. Please proceed with your question.
Justin Trennon Long: Thanks, and good morning. So it was good to see a V O or improve a little bit so sequentially. Despite the typical seasonality that you see and in the outlook you talked about profitability gaining momentum, but can you help us translate that into how you're expecting the O R to trend over the balance of the year it seem.
Justin Trennon Long: Like we're tracking towards that sub 60, the rest of 2024, but is there anything on the horizon that could prevent that from happening.
Speaker Change: Excuse me. Thanks, Justin you know, we are not providing oh, our guidance, but so I'm not going to comment on your number but I think the way that you're describing it in terms of what we expect from ourselves is to continue to make improvement you heard Jim talk about the fact that made good gains, but there's more to do and that's really our focus.
Speaker Change: Is to continue to do that quarter over quarter to make gains obviously, we're doing that in an environment that we can't totally control, we control a lot of things, especially about our service product and our cost structure and how we go into the market and how can he and his team of pricing, but we are doing that against an economic backdrop. That's a little uncertain, we don't know what's going to happen with interest.
Speaker Change: Rates yet so those are the things that you know do you have an impact on us including fuel prices. So just stay tuned we feel really good about the set up and are very confident about our ability to perform.
Speaker Change: Okay, great. Thanks.
Speaker Change: Thank you.
Speaker Change: Our next question is from the line of Amit Malhotra with Deutsche Bank. Please proceed with your question.
Amit Singh Mehrotra: Thanks, Operator, hi, everybody congrats on the strong results, Eric obviously, you and the team have done a phenomenal job with the with the operations and the metrics.
Amit Singh Mehrotra: We've kind of been stuck in this 155 ish.
Amit Singh Mehrotra: And seven day carload number I'd be curious to get your confidence in perspective on how much more you can handle.
Amit Singh Mehrotra: When can he gives you that to handle how do you feel comfortable about moving 510000 more carloads per week, you can talk about that and then just Jennifer related to that just a question that was just asked.
Speaker Change: I mean, the weather gets better from <unk> to <unk>, you you'd move more industrial carloads.
Speaker Change: Pretty meaningful advantages you've moved from once you did see if you can just talk about any in fuel I think fuel noise moderates a little bit. If you can just talk about you know anything that I'm missing there as we think about from <unk> that might be on the negative side of the ledger.
Speaker Change: Oh, good I'll start with Amit. Thank you very much for that question now I want to be really clear right off the bat, we have the capacity to be able to handle more than 155000 carloads what brings us tremendous confidence is when you think about the five critical resources that we have we clearly have enough terminal capacity, we clearly have enough mainline capacity.
Speaker Change: More specifically, we've talked about in the past and continue to maintain a buffer in our crew base. We have a couple of hundred extra crews spaced across the system that are available as to your point when that volume comes on we have the crews locomotives in my prepared comments I said that over the last 12 months, we've been able to store 500 locomotives do law.
Speaker Change: Largely because of the increase fluidity in the system those are available to us as Kenny brings more volume to the railroad. We don't have to wait a week, we don't have to wait 30 days, they're parked across the system available to US and then of course on the car side, we have cars not only spaced across the system that we call out the ready cars, but we actually have been working with customers in which were storing cars.
Speaker Change: Ours right at their facility. So the moment they are ready to give us that load we're ready to pick it up.
Speaker Change: Now when you think about capacity and the final thing you have to think about is the work that we do on train length, we talk often about driving volume variable approach to how we operate the railroad train length is one of the ways, we do it on.
Speaker Change: A 300 foot improvement in our manifest a quarter versus the same quarter last year. That's a huge lift that's a massive accomplishment by the team building train length in the manifest network because one of the hardest things. We do what that tells you is if we're really good at the hardest things we do as the intermodal volume starts to come back we don't have to add train pairs on we can take some of the latent capacity.
Speaker Change: We have on our existing train peers and utilize it so we're ready.
Speaker Change: I mean, the only thing I would add is as you know I've never given a guidance.
Speaker Change: Guidance on operating ratio because its a result of how you operate the railroad and that's real important but ex fuel a 60.1.
Speaker Change: Last quarter with where the volumes were what we did with price and what we did with efficiency on the railroad that's a pretty good number it's okay in the way I look at the World. Some people would say it's excellent I go it's pretty good so I see moving us forward and unless we get surprised can he does his job properly and we are able to written.
Speaker Change: The the proper price because of the great service and the product that we're delivering and we continue to operate the railroad efficiently and numbers underneath the numbers that people don't see everyday that I look at it makes me very comfortable that we have a clear view of how we become more productive down at the ground level in this railroad.
Speaker Change: Driving decision, making closer to the to the people that they need to make the decision and not trying to do with it here in Oman that headquarters so Amit.
Amit Singh Mehrotra: Yeah, I'm not going to give a number but I'm comfortable with where we're headed in the long term for Union Pacific.
Speaker Change: Okay very clear. Thank you very much appreciate it thank you.
Speaker Change: Our next question is from the line of Jon Chapell with Evercore ISI. Please proceed with your question.
Jonathan B. Chappell: Thank you good morning, I'm, Jim I was going to ask just kind of where you left off note in January you kind of admitted somewhat modestly that it would be difficult to improve the margin without a volume tailwind in here you are with the 200 basis points of core improvement with volumes down year over year. So what was the I guess change in the last couple of them.
Jonathan B. Chappell: Eric touched on a lot of things, but how are you able to make such a huge improvement in such a short period of time and what's your comfort in the sustainability of that when you actually do get a volume tailwind in the network.
Speaker Change: Well, let's start with the end of the question I Love, our volume and our love revenue. So at the end of the day, that's that's really important to us to be able to drive it forward and what we've done is as we worked hard it's a it looks easy sometimes to operate a railroad and especially as complicated as the Union Pacific Network is because it is complicated it's not.
Speaker Change: Linear railroad, it's very very spread out and the way it operates but I think we're focusing the people at the right level, we're doing the right things when it comes on the expense side and <unk>.
Speaker Change: Head count and everything that's involved in it making sure that we don't impact service.
Speaker Change: And I think we did a great job of it and I can see us improve in every one of those so ken he's going to deliver.
Speaker Change: Eric is going to deliver and the rest of us are going to make sure that we do everything we can possible to make sure that this company moves ahead, because if we can have better margins and opens up markets to us even more markets than what we have today. So that is the end game and you basically have asked me what our strategy.
Speaker Change: And I'm looking forward to delivering it in the next couple of years.
Speaker Change: Thanks, Jim.
Speaker Change: <unk>.
Speaker Change: Our next question comes from the line of Ken <unk> with Bank of America. Please proceed with your question good.
Ken: Yeah, Hey, good morning, gentlemen, and congrats to the team on the on some some great results in a tough volume environment, but I wanted to dig into maybe slipping Amit your question a little bit on the other side you know you've been focused on these operations for for eight months now I want understand the the more room to run right. So you've.
Amit Singh Mehrotra: You're getting service to where you want but maybe is there continued ability to pull out locomotives and cars as you continue to get more efficient maybe just give kind of some examples of of you know Eric talked about increasing train life isn't their ability to go further.
Amit Singh Mehrotra: Before the volumes come alive, but just you know P. S are typically as you focus on improving the service and then you get the ability to pull out the equipment and employees as you move forward. So maybe just talk about the opportunity to keep doing that.
Speaker Change: Well, that's a great question and I'm Gonna get Eric to talk about how he sees and what's moving forward and candy, but let me just summarize the way I like to look at things is.
Speaker Change: You always try to optimize the network operationally and look for ways to be able to to drive efficiencies in the network.
Speaker Change: But the base plan always is what did we sell the customers what did we tell the customers, we're going to deliver and make sure that that's the base plan and from that you build it up so we.
Speaker Change: We see our improvements not only in train length. You know we had a few more cars on every train that's very efficient in the network. It allows us to have better capacity, but we also look at how we got to handle the terminals touch points in the cars. How can we forward the cars without touching them for a longer distance so and the next piece for.
Speaker Change: US is how fast we can react our train plan. So that it takes us way too long kit right now and they'll be able to adjust our train plan and so we still provide the service that we sold so we have tools in place and we're developing them even further that allow us to change our plan.
Speaker Change: You're in a much shorter period of time in a few days or a week versus weeks. So the weekend, we can optimize the railroad even more so very excited about that and I see that as being a positive step Eric can be anything bad I'll start building off of that so kind to Jim's point when you look at our quarterly performance.
Speaker Change: From a dwell perspective, and we have a 5% improvement in our car dwell during the quarter. That's a full half of one hour off of every car on the Union Pacific.
Speaker Change: That's how we are able to move the cars faster.
Speaker Change: Now when you think about that going beyond that to Jim's point about being agile. We took out 4000 touch points just in the first quarter as we looked for more and more ways to be able to modify the transportation plan to move the cars faster now you build off of that and you start to get to the fundamentals of the railroad. The improvements we've made in re crew rate, there's still opportunity there.
Speaker Change: There certainly are investments in technology, both with our C O as well as mobile Nx, that's about getting more productive in the yards, even when we think about the break person deal that we signed last year that we spoke about working to ensure that we've capitalized on all of those opportunities. We've talked about locomotives 500 already out we see more opportunities you hit on.
Speaker Change: Train length to start with your question, but also sometimes things we don't talk about our purchase services, we made great progress as Jennifer reported in the quarter on purchase services, we did that from everything from maximizing the material movement using trains instead of trucks. So how many vehicles we have on the railroad you've seen with our head count has done over the last year we've aligned.
Speaker Change: Our fleet from a vehicle perspective to that to about 600 vehicles coming out so everything's in play right now can we look at it every single day, we worked through it every single day and the biggest thing that we're looking for is how do we ensure that we make meaningful changes to not only improve our service product, but also make us safe, while we drive financial success.
Speaker Change: Anything that I mean, we talked about the efficiency of shows up in the product development that we talked about it shows up in all.
Speaker Change: All of these small discrete things like adding more cars right at the customers plant and asking for more business by customer by plant.
Speaker Change: Perfect. Thank you very much thanks for the question Ken Thanks, Jim Thanks, guys.
Speaker Change: Our next question is from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Ravi Shanker: Thanks morning, everyone.
Ravi Shanker: 3.5% price mix number in <unk>, how do you think about that over the course of the year kind of all of the puts and takes on macro truck pricing et cetera, and some movements on the mixed side as well so how do we think that number evolves.
Speaker Change: So you know, we're probably not going to give you a number ravi which isn't going to surprise you, but I'll, let kenny talk to the market, but just from a mix perspective, you know with intermodal probably staying weak through most of the year that probably is going to give us the ability to have some positive mix within our business as we think about that for the rest of the year Kenny Yeah I've been.
Kenyatta G. Rocker: Very encouraged and proud of the commercial team and.
Kenyatta G. Rocker: Conversations that they're having with customers on price articulating.
Kenyatta G. Rocker: The inflationary pressures that are there and working with those customers to price to the market.
Kenyatta G. Rocker: Taken a little bit more risk to price that business.
Kenyatta G. Rocker: And at the end of the day, our service product has improved as you can see in our resolve and we're talking to our customers about that and are lining up with the capital investments, we're making so.
Ravi Shanker: Is it not.
Ravi Shanker: Not a coincidence or dialogue, we are having very deliberate conversations with our customers.
Ravi Shanker: Understood.
Ravi Shanker: A quick follow up kind of I think you had said in other revenue where there was a contract settlement under the claim settlement and other expenses as well is that the same one or are they two different ones I guess.
Speaker Change: Those are two different ones Robby thanks.
Speaker Change: Thank you very much Robby.
Ravi Shanker: Our next question is from the line of Brian <unk> with Jpmorgan. Please proceed with your question.
Brian: Morning, Brian.
Brian: Hey, good morning, Jim going team just wanted to kind of follow on that last question from Ravi in terms of just the mix. It sounds like it's getting better from here. Maybe you can you can give us some color in terms of the pace of renewals you know as it was always going to take a bit of time to touch the rest of the business and service is helping with that momentum. So it'd be helpful to hear that and then just.
Brian: Daily.
Brian: Really on the labor agreements in Cold Lake or both of those is called network right sized to the big drop you've seen right now are still a bit more to do and labor side. You. Obviously had some new agreements to just four as well so just trying to figure out where where there's three things stand in terms of where they are now and sort of looking the rest of the year. Thanks very much.
Speaker Change: Yeah I'll start off thanks for the question you know I understand that's back in January its not like we woke up January 1st and started decided that we needed to have these deliberate conversations with customers. They started well early last year and we've shared this weekend touch close to half.
Brian: Of our price.
Brian: Annually. The other half is a multi year deal I touched on it a little bit about the deliberate conversations that we having the risk that's out there.
Speaker Change: And then I'll talk about a couple of markets. You know you look at domestic intermodal.
Brian: Spot markets. If you look at it here, where we stand the day. They are the same that they were from a spot market perspective last year. So that's been a long time.
Brian: Same thing on the contracted rigs those contract rates have been.
Brian: And where they are for a long time over eight months.
Brian: And so the good thing if youre, an optimist like I am there are you you know you're at the trough, but the thing you don't know is when things will improve or get better and we're not in a position where we're going to forecast that they are when that'll happen what I will tell you and I talk about the product development already we're prepared.
Brian: We're ready we're working with Eric's team and we're bringing on more volume that comes on and so we'll see what happens there, but I can tell you that.
Brian: We're we're prepared and excited.
Brian: And Brian to your question about cruise and Nicole lines. So every single week. We review every board across the system and we're looking just as you pointed out for changes in the market that shows up and increase their reduced demand.
Brian: We've made adjustments will continue to make adjustments and I. It reminds me to make sure that we remind ourselves a year ago. We were talking to all of you about 200 250 borrowers across the system for the third month in a row, we have zero borrowers across the entire system now that doesn't mean that with some seasonal adjustments to some business like <unk>.
Brian: <unk> harvest, we might put some out there, but it's a it's a massive accomplishment I give the team credit for because they've been able to manage the cruise in a way that we don't have any borrower so agility all day long.
Speaker Change: Thanks, very much very much.
Brian: Our next question comes from the line of Jordan <unk> with Goldman Sachs.
Jordan: With your question.
Jordan: Yeah, Hi morning.
Jordan: You've alluded to this a few times this morning, but you know productivity and cost take out you know certainly seem better.
Jordan: And we would have had in our model, particularly in areas such as P. T, which you have alluded to as well as the rents and can you maybe talk to some of the.
Jordan: Sustainability of the current trend line because it was it was quite a bit of a delta versus what we've seen lately as we move forward from here. Thanks.
Speaker Change: Yeah, Jordan. Thanks for that question. So I think you're right you're hearing a lot of positivity by the team because we know that there are more opportunities and first it's it's building the momentum at sustaining the momentum and then keeping the costs out and so if you think about equipment rents that really is all about continuing to drive the car velocity continued to drive the cycle time and the dwell.
Speaker Change: The aircraft, France. So those are directly impacting that line and then purchase services certainly the locomotive fleet is a big part of that as we continue to use our locomotive fleet more productively and reduce those numbers, that's an opportunity to sustain and potentially improve there as well as across the rest of the contract.
Speaker Change: So as you use as we're being smarter in looking deeper at every dollar that we're spending and that's been one of Jim's messages to the team as you know when Youre looking at the resources spend the dollars like your own and make sure that it's a wise dollar that's being spent in that you're getting the appropriate return for it so feel good about continuing to make progress.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Fred Glinski: Our next question is from the line of friend into Glinski with Barclays. Please proceed with your question.
Fred Glinski: Brian.
Fred Glinski: Hey, Good morning. This is actually Eric Morgan on for Brandon. Thanks for taking the question I just wanted to ask another one about mix I appreciate the detail on the impact to yields but I was just curious if you could speak to any effects on margins.
Eric Morgan: Just because it was cold being down.
Eric Morgan: Drag on volumes right now in international intermodal as well should we be thinking sort of mixed things helped to drive strong or in the quarter or is it really just you know in our P U impact.
Speaker Change: Yeah. Thanks for that question. So you know mix. It does help on the R. P U and when we think about mix. There is some different mix in terms of the cost profile. That's that's behind that our opportunity and our job is to improve the profitability of every line of business that we have and so you know we are very <unk>.
Speaker Change: Out of our manifest franchise, that's really our sweet spot for sure, but as Eric talked you know intermodal grain.
Speaker Change: Grain coal those are very profitable business for us as well so to the extent that we can drive greater train length. So you know I'm not going to say were totally agnostic, but we want to grow and we want to grow across all lines of business and so I think if you see us do that you're going to like the margins that come from that you bet. Then you know just a sort of.
Speaker Change: Why do I summarize the way I look at the quarter and what we see moving forward first of all if you look if you take a look at our results our industrial and that's what I Love about Union Pacific as our industrial originations the Mexico product that is non intermodal, which gives us a different level of return and prices capability is strong and that's what we want to see in.
Speaker Change: That was that's what helped us in the first quarter and I can't see that changing except I, just don't know where the macro items are going to be in the short term in the U S and I was hoping with all the products that we miss that we ship and handle for people and consumers that Ah I would've seen a interest.
Speaker Change: Right.
Speaker Change: The next few months and maybe it'll happen later on this year. So you know in the interest rate cut would help us in footwear and what people are spending on their homes from lumber and number of products, but if you take a look at where we are and that's what I like we leverage that franchise, we have in the Gulf in originations in the middle.
Speaker Change: The heartland of the United States, and we are always look for ways to improve our efficiency, we drive better return with whatever price, we get out of the international and domestic business.
Speaker Change: And.
Speaker Change: You know every time I see your train full of boxcars and tank cars.
Speaker Change: The music to my ears, when those wheels roll by so thank you very much.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jeff Kauffman with vertical Research partners. Please proceed with your question.
Jeffrey Asher Kauffman: Thank you very much and congratulations this quarter tremendous result.
Jeffrey Asher Kauffman: What does it take a step back question for Kenny.
Jeffrey Asher Kauffman: What are you seeing in terms of our customer commitments to near shoring or re basing manufacturing and then in terms of.
Jeffrey Asher Kauffman: Summing back to the rail your service metrics are up and clearly there's a flywheel effect there, but what are your customers telling you they need to see those that maybe took business away before they would.
Jeffrey Asher Kauffman: Bring that business back.
Speaker Change: Yeah. Thanks for the question on the near Shoring piece Israel.
Speaker Change: You've seen the amount of investment that's there we've got a strong commercial presence is there and you look at the overall you know real I'm talking the rail industry.
Speaker Change: Market share you know into and out of Mexico is still relatively low if you put it in the mid teens or so our new service product that we have in place that Harman.
Speaker Change: Has been picking up steam and we've seen it grow we've seen it growing that north South corridor, we've seen it grow and the traffic that we put on a new product that we put on going in the south east. So tremendous growth. There. There's also more carload business that will come online and more plants that will come online.
Speaker Change: Some of them for some of the autos that are going to come on in and some just other what I'll call just an industrial pieces. We're set up for that we're engaging those customers our network strength and franchise gives us an opportunity to move a lot of that both of feedstocks in the Mexico and the finished product out of Mexico. So.
Speaker Change: Very strong place for the sixth gateways, we had a great quarter.
Speaker Change: Coming into and out of Mexico, and we want to build on that.
Speaker Change: As far as those customers coming back to us.
Speaker Change: With every month that we are able to you know.
Speaker Change: Sustain ensure reliable product.
Speaker Change: We're able to capture a little bit more business, but we're also able to sit down with them and talk to them about adding the one or two car loads or talk to them about a truck lane piece.
Speaker Change: Or talk to them about their rail versus truck by Alain percentage, though the stronger service product is certainly a positive for us and our commercial team has been very aggressive out there hustling to get every carload.
Speaker Change: Thank you very much like the question.
Speaker Change: Our next question is from the line of Tom White of it with UBS. Please proceed with your question.
Thomas Richard Wadewitz: Good morning, Tom.
Thomas Richard Wadewitz: Yeah, good morning, and a nice a nice performance on the or and are in the network and everything so congratulations on that well wanted to just get a little more color I think jennifer or whoever else wants to jump in on the expense side I know, you've got a couple of questions, but comp and benefits.
Thomas Richard Wadewitz: How do we think about that going forward is is head count stable is the you know as that go down a little bit.
Thomas Richard Wadewitz: And then on the purchase services line I know you know kind of storing locomotives cars that's helpful.
Thomas Richard Wadewitz: But is that should we model that kind of flat looking forward or I guess, you said theres, a one time or you didn't identify whether that's kind of a smaller or meaningful. So I think just from a modeling perspective and you know is there is there kind of further improvement or how do we think about it sequentially on comp and benefits and purchase services. Thank you.
Speaker Change: You bet, Tom So let me start with the purchase services. So I think I did say that the one time, one time item there accounted for about half of the year over year decrease. So you should you know set that aside when you're thinking about rolling that forward, but again as you heard me talk on another question, we still obviously think where we have opportunities there.
Speaker Change: If you switch to comp and benefits than you know back in January we said we were.
Speaker Change: We thought that we would probably see about a 5% increase in that line and for the year. We were at 4% here in the first quarter, So really kind of right online there and I think you know the drivers there wage inflation or the sick pay benefits you know some higher guarantee pay offset by what we're doing to improve our overall productivity and and how we're managing that.
Speaker Change: Head count when you think about those those are you know new contract benefits in terms of the sick pay is also you know one with rolling out the work rest agreements that is resulting in a little bit of an elevation in terms of I T and why head counts in anticipation of of of those benefits and so really the way to think about that is that were.
Speaker Change: Paint a little bit more due to those agreements for the same unit of work, but I think what's what's encouraging there is we're offsetting that with some of our productivity and that's our plan going forward.
Speaker Change: Okay, so that that kind of.
Speaker Change: Kind of a benefit flying probably stable is the right way to look at it.
Speaker Change: Yeah, I mean, obviously, if there's a significant change up or down from a volume perspective that can have an impact, but I think we feel like we're in a pretty good place right now it's a great way to look at a time in the in the short term you know let's.
Speaker Change: Let's see in the next few quarters, but the.
Speaker Change: The challenge and one that we know that we have to have to tackle is we have wage inflation.
Speaker Change: Deal with that absolutely and you have a great service product and you price properly I think we're doing the right things there.
Speaker Change: So that we don't impact our customers to the point, where they can't win in the marketplace, but efficiency wise. If you look at how the number of cars were switch important employee everything that we're doing with technology.
Speaker Change: I am very comfortable that we'll figure out a way to change that slope on that line on a what it costs us in the number of people per car to be able to handle the business level that we're at so little bit of all its a lot of hard work, but the I see over the next couple of years for us to get back in line to where we were.
Speaker Change: Okay, great. Thanks for the time appreciate it. Thank you thanks for the question.
Basketball Majors: The next question is coming from the line of basketball majors with Susquehanna. Please proceed with your question good.
Speaker Change: Bascom.
Basketball Majors: Good morning.
Basketball Majors: The owners of your Western competitor made some very public comments about really wanting more margin and profitability of that business. Just a few months ago can you speak to if you've seen anything different in either how they approach the market or operate their business and.
Basketball Majors: Is there can that create opportunities for you to grow in the midterm. Thank you.
Speaker Change: So I assume it's a it's a great question and the did I liked to hear that absolutely, but because I think we're in an industry, where we provide for the price that we charge.
Basketball Majors: Very competitive and we beat most modes of transportation.
Basketball Majors: So I think you need to be smart on how you price and I think you need to make sure that that we provide the service for that price that we sold.
Basketball Majors: So we compete every day against our competitor and and we're here to win and hopefully they are prudent in the way they look at their markets and I don't tell them what to do they need to do there and we're very comfortable that we're doing the right things and I think head to head.
Basketball Majors: We will put our complex of AR and what we have including the Mexico piece and I think it gives us a great opportunity to compete and you have to love it great competition against a great. Other railroad is a wonderful thing I love It makes us better it makes the whole industry better so.
Basketball Majors: I love the comments, but we'll see what their actions are as we see them go down the road.
Speaker Change: Thank you Jim.
Vincenzo James Vena: Thank you Beth.
Vincenzo James Vena: Our next question is from the line of Scott Group with Wolfe Research. Please proceed with your question.
Scott H. Group: Good morning, Scott Hey, Thanks, Good morning, guys.
Scott H. Group: Jennifer can you sounded a bit better on price I know last quarter, you talked about price cost as a margin headwind for the year I'm. Just wondering are we getting any closer to to that becoming a tailwind right. If we can combine some of the productivity stuff with price cost.
Vincenzo James Vena: The margins could get pretty good I, just I just don't know if we're getting closer to that inflection yet and then can you just clarify that if we've seen the full impact of the.
Vincenzo James Vena: Coal RP, you had dwayne from from lower Nat gas or if theres another step down coming there. Thank you.
Speaker Change: Yeah, I'll, let Kenny talk take that coal question, but you're you're hearing it right, we're putting a lot of pressure on Kenny and the team to go out there and deliver the price and they're very much stepping up to that and are taking on that challenge and being aggressive in the marketplace. I'm. Obviously, we improved our margins in the quarter. So the combination of our our volume which was down.
Speaker Change: A little bit the price and productivity is what's driving the margin improvement I cant say that were accretive yet from just a pure price inflation standpoint, but that absolutely is is the goal. We are though exceeding just the the dollars are exceeding the inflation dollars, we're still very confident of that Kenny.
Speaker Change: Just want to reiterate what Jennifer there will exceed our inflationary dollars on this cold question that you have.
Speaker Change: We're looking at the same things you're looking at in terms of the natural.
Speaker Change: Natural gas futures and we're talking to our customers.
Speaker Change: Similar to my comments around domestic intermodal yeah, I think we're at the trough levels you know when they will come up is yet to be seen they're still depressed we will see if we get some seasonal lift here going into the spring and the summer I want a hot and muggy summer. So we can move.
Speaker Change: More business, but [laughter], if that doesn't happen, we will see what Eric and the team to do for us to efficiently move the coal business. Thank you for the question I'm I'm, telling you and I have to jump in on this one here, yeah, Kenny and team and everybody told us what it is and I said it in my prepared comments on purpose, we have other markets.
Speaker Change: They're going to take care of that coal business its tough to replace the number of trains that we originate but we used to originate a heck of a lot more than we do today and we need to be able to grow. It. So we can hope and I'm not into hope I'm into let's go out there deliver have the right processes have the right things pause.
Speaker Change: And we go deliver and we win and.
Speaker Change: I've I've spoken about the power of our franchise a few times on this call. That's what allows us to win we provide good service and will more than offset anything that happens over the long term with coal. It is what it is okay I don't see it coming back to a large level that'll change us it might do it for a short term, but that's the way I look at it and that's the way the team.
Speaker Change: Here at Union Pacific is we're going to win regardless of what happens to one commodity that are that we ship.
Speaker Change: Thank you guys Youre.
Speaker Change: You're welcome thank you.
Stephanie Lynn Benjamin Moore: Our next question is from the line of Stephanie more with Jefferies. Please proceed with your question.
Stephanie Lynn Benjamin Moore: Good morning, Hey, good morning, yes. Thank you.
Stephanie Lynn Benjamin Moore: You know, Jim really really nice progress here across safety and service. So in terms of customer engagement post. These improvements what are you hearing from customers are you seeing you know engagement accelerate at all you know kind of what's the opportunity from here and as many know the flipside, Yeah I'd love to hear have you noticed any any challenges that network you know maybe rather.
Speaker Change: Oh I'm looking to fill that there may be lots of parents love to get your thoughts. Thank you.
Speaker Change: You know it's a great question I think it's a it's.
Speaker Change: When I came back to work a lot of people thought that the only thing I'd concentrate is on the operations and I have been spending some time, there, but I have spent a lot of time speaking to the.
Speaker Change: The customers I did it the first week I was on the job I, followed up with them I've gone to meetings, when we bring them in our industrial our bulk of our.
Speaker Change: Our premium business. So the feedback is they want us to win and they see themselves winning in the marketplace at Union Pacific can be successful and what our strategy is so the feedback has been positive theres always some markets and some customers that we have to that we have to truly understand what they are.
Stephanie Lynn Benjamin Moore: Impacts are and where they are because we want them to survive and win so we're doing everything we can and maybe Kenny you can speak a little bit more about our engagement in what we're doing with the customers. Yeah. You know if you look at it so far this year, our face to face meetings, either strong customer engagement strategies.
Kenyatta G. Rocker: Have a lot more significantly more contact with customers.
Kenyatta G. Rocker: And we're touching them in different ways one of the unique strategy that we have is I'm looking at Eric you know a third of our meetings have an operating leader or a local operating a person that's there and we're doing that to see how we can grow more business, specifically, so strong customer engagement.
Stephanie Lynn Benjamin Moore: Our strategy at all levels, and we're going to keep at it. Thanks for the question.
Speaker Change: Thank you very much.
Stephanie Lynn Benjamin Moore: Our next question is from the line of Elliot Alper with TD Cowen. Please proceed with your question.
Elliot Andrew Alper: Great. Thank you. This is elliott on for Jason Seidl. My question is on international intermodal.
Elliot Andrew Alper: The outlook calls for pretty muted international intermodal for the year I guess would appreciate some more.
Elliot Andrew Alper: Context around that I can understand there was a customer loss that you called out last quarter, we've seen some strong volumes coming out of the west coast ports I guess.
Elliott: Should we continue to think about that continued acceleration on the west coast, mostly offset or could there be some upside if the strength on the west coast continues.
Speaker Change: Yes Elliot thanks for the question. So a few things here, let's set aside the you know contract lost you you referenced it's been strong international intermodal has been strong for us a little bit of a pleasant surprise for us that we've been able to capitalize on it we're seeing more IPR business, where business is going into our network.
Elliot Andrew Alper: <unk> increased by a few points.
Elliot Andrew Alper: We are aware that there has been a small impact on the positive side because of some of the challenges with the Panama Canal will see what happens.
Elliot Andrew Alper: If some of the Bcl there a little bit more concerned with any labor issues on the east coast.
Elliot Andrew Alper: But as we go through the second quarter I feel pretty good about those volumes are staying where they are as we talk to our customers and their pipeline I'd like to see as we move a few weeks out what happens in the second half of the year. So I'm not ready today here in April a bet on what's going to happen in the second half of the year.
Elliot Andrew Alper: The last thing I'll end with him and I've said this quite a bit I do like the fact that regardless of what happens at the West coast, where prepare for if it does get trans vote. It more product for it to get to the east coast that I talked about the you know 20 cities that where it will move.
Elliot Andrew Alper: With the N S M. A C effects, our Phoenix product and are being Holistically and leveraging the entire franchise to go after more business out of the port of Houston.
Speaker Change: Thanks for your question Yeah. Thank you very much.
Elliot Andrew Alper: Yeah.
Walter Noel Spracklin: The next question is from the line of Walter's Crackling with RBC capital markets. Please proceed with your question.
Walter Noel Spracklin: Yeah, Thanks, very much operator, hi, Jeff how are you doing so.
Walter Noel Spracklin: So I wanted to take a little bit of a bigger bigger picture on on the competitive environment and how you interact with with your your competitors, both eastern and western.
Walter: When we were at or attending Uh huh.
Walter: Recent session with the Norfolk Southern campaign, they called out the C. P. K C. C. S acts as an actual alliance.
Walter: I'm, just curious whether you see yourself as naturally being able to.
Walter: Cooperate coordinate operations to bring in more effective.
Walter: Higher higher service.
Walter: Product to your customers.
Walter: Is there one company in particular or are they that you could align a little bit closer with given that the network.
Walter: Either a interplay between between the companies just curious what you're thinking about longer term in the absence of.
Walter: In the absence of acquisitions or mergers could there be increased cooperation that allows you to bring a higher higher service to the customer.
Speaker Change: Walter I appreciate the question and good morning.
Speaker Change: So.
Speaker Change: You have to think about it that 40% of the traffic that we either originate or receive starts somewhere else. So when you put that number in perspective, we can't be choosy, and say that we'd rather partner with with one eastern railroad or one Canadian I guess I can't call C. P. R C M Canadian railroads.
Speaker Change: Any more I apologize the both of them, but international railroads.
Speaker Change: And what we need to do and all the short lines. So we touch the way I look at it is what is the best and the fastest and the quickest. So if we're all efficient we all have good service. We all are smart in running a very fluid railroad that has buffer to be able to handle the ups and downs that naturally occur Walt.
Speaker Change: There we all win so I don't have a preference now I love it that we get to compete with some of them and we say you know we originate lots of.
Speaker Change: Many cars and we say to them, which one once the business is it C. S X or N S or is it C N or a C. P and I think we compete on some but when we work together, which we are we have we have very detailed meetings with the with C. P. K C with C N with an S and with C. S X they talk about.
Speaker Change: On that interline business, how do we make those interchanges fluids. So we don't spend 24 hours to interchange cars that some interchange when we go one way or the other so we can win and beef trucks, especially in that speed network that requires that kind of work. So well. If there are no preference best one wins and we want to be able to tell people.
Speaker Change: You Wanna interchange with Us because then versus the other carrier in the west the B N S. F. Because we have the best model, where the fastest we can get the markets and we move quick and once we get there because the customer looks at it and the and how good are you at origination are you on time, how fast you get it over the road and that's.
Speaker Change: Why I look at the I don't look at train speed, it's illogical measure on productivity on the railroad I look at car velocity and that's what's important so hopefully I answered your question Walter it.
Walter: It does thanks, very much and congrats on a great quarter.
Walter: This is Walter Thank you very much nice speaking with you.
Walter: Thank you.
Walter: And final question from the line of Ben Nolan with Stifel. Please proceed with your question.
Speaker Change: And they left.
Speaker Change: Good morning.
Benjamin Joel Nolan: Well better late than never I guess.
Benjamin Joel Nolan: And as.
Benjamin Joel Nolan: As much as we you guys don't want to talk about specific markets one of the things that I've been hearing about lately lot is.
Benjamin Joel Nolan: More crude by rail.
Walter: I was wondering if you could elaborate a little bit on that is that something that you guys are seeing and as you think about sort of it.
Walter: The outlet going forward, how how needle moving is that to the to the business.
Speaker Change: Yeah. Thanks for the question you heard my comments around our petroleum market and business development wins, there and it is yes.
Walter: Type of oil that we're moving that we're excited about and it's moving right.
Walter: Right now domestically, we seen some shrimp Eric team has been able to help us grow a little bit of that business and get as much of it as we can so we don't see that you know kind of traditional crude by rail that we saw 10 years ago, but we're seeing another emerging commodity and market that we're excited to be moving in it.
Walter: Going great for us.
Speaker Change: Alright, I appreciate it thanks for fitting me in.
Speaker Change: Thank you very much Rob just let me if I was the last question. Let me just summarize real quick because I think there's a few key points that I want to make sure that the that the.
Speaker Change: That we highlight what is is up I think the last two quarters have shown what is possible for this railroad and that's a real important to US is what's possible we will have headwinds.
Speaker Change: We have a wage increase coming July one that's a headwind we have certain segments of our business that are that are down and can be up and others that are up that are going to that are going to impact us, but but the way we look at it and I'm. So proud of this entire team and the entire railroad. If you look at what we're doing.
Speaker Change: Is is we're making ourselves more efficient we're driving decision making to the right level, we're providing service that we sold our customers at a high level and the franchise that we have in the network that we have gives us every possibility to win in the long term. That's the goal I'm looking forward to in September deep diving, what we looked like in the <unk>.
Speaker Change: Next two or three years have a longer term plan for everybody and I'm sure I'm going to run into some of you before but otherwise I'm looking forward to the next quarter that the closes April is a great start with where our carloads are and this is a great railroad great franchise and I'm looking forward to moving that forward.
Speaker Change: Thank you very much for joining us today.
Speaker Change: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.