Q1 2024 Norfolk Southern Corp Earnings Call

Operator: Greetings and welcome to Norfolk Southern Corporation's first quarter 2024 earnings call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Luke Nichols, Senior Director of Investor Relations. Thank you, Mr. Nichols. You may now begin.

Greetings and welcome to Norfolk, Southern Corporation's first quarter 2024 earnings call.

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

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

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

As a reminder, this conference is being recorded.

It's now my pleasure to introduce Luxe Nichols senior director of Investor Relations. Thank you. Mr. Nicholls you may now begin.

Luke Nichols: 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 discussion of those risks and uncertainties we view as most important.

Luke Nichols: 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.

Luke Nichols: 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.

Luke Nichols: Please refer to our annual and quarterly reports filed with the S. E C for a full discussion of those risks and uncertainties, we view as most important.

Luke Nichols: Our presentation slides are available at NorfolkSouthern.com in the investor section, along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratios. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis, as referenced in our earnings release. Turning to slide three, it's now my pleasure to introduce Norfolk Southern's President and Chief Executive Officer, Alan Shaw.

Luke Nichols: A 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 the comparable GAAP measures, including adjusted or non-GAAP operating ratio.

Luke Nichols: Please note that all references to our perspective operating ratio during today's call are being provided on an adjusted basis as referenced in our earnings release.

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

Alan H. Shaw: Good morning everyone, and thank you for joining Norfolk Southern's first quarter 2024 earnings call. Here with me today are Mark George, our Chief Financial Officer; Ed Elkins, our Chief Marketing Officer; and our new Chief Operating Officer, John Orr. I am excited to have John on the Norfolk Southern team.

Alan H. Shaw: Good morning, everyone and thank you for joining Norfolk, Southern's first quarter 'twenty 'twenty four earnings call.

Alan H. Shaw: Here with me today are Mark George our Chief Financial Officer, Ed Elkins, Our Chief Marketing Officer, and our new Chief operating officer, John or.

Alan H. Shaw: I'm excited to have John on the Norfolk Southern team.

Alan H. Shaw: John is a 40-year railroad industry veteran and a proven PSR expert who has worked with Hunter Harrison, Claude Mongeau, and Keith Creel to implement PSR railroads across three countries. I promised you that we would focus on productivity in 2024, and we're taking action to do just that. Bringing in someone of John's caliber was another step to accelerate our operational improvement. John is going to share the progress and our operating metrics that he and his team are already driving and his plans for furthering productivity in our merchandise network to deliver immediate margin enhancement.

Alan H. Shaw: John is a 40 year railroad industry veteran and a proven P. S. Our expert who has worked with Hunter Harrison Claude Marsha and Keith Creel.

Alan H. Shaw: <unk> T S arent railroads across three countries.

Alan H. Shaw: I promised you that we would focus on productivity in 'twenty 'twenty four and we're taking actions to do just that.

Alan H. Shaw: And someone of John's caliber was another step to accelerate our operational improvement.

Alan H. Shaw: John is going to share the progress in our operating metrics that he and his team are already driving and his plans for further productivity in our merchandise network to deliver immediate margin enhancement.

Alan H. Shaw: Our strategy is about balancing service, productivity, and growth, with safety at its core. The strategy is anchored in a PSR-driven operating plan and designed to deliver top-tier earnings and revenue growth with industry-competitive margins. When we say industry-competitive margins, it has to be within 100 to 200 basis points of the industry average.

Our strategy is about balancing service productivity and growth with safety at its core.

Alan H. Shaw: The strategy is anchored on a P. S are driven operating plan.

Alan H. Shaw: Designed to deliver top tier earnings and revenue growth with industry competitive margins.

Alan H. Shaw: When we say industry competitive margins has to be within 100 to 200 basis points of the industry average.

Alan H. Shaw: Let's recall where we are and discuss our path forward. Last year, in response to East Palestine, we prioritized investments in safety and service to protect our franchise and our shareholders, and we delivered on both fronts. We're operating one of the safest networks in North America and are producing service levels better than anything we've seen since 2019.

Alan H. Shaw: Let's recall, where we've been and discuss our path forward.

Alan H. Shaw: Last year in response to East Palestine, we prioritized investments in safety and service to protect our franchise and our shareholders and we delivered on both fronts.

Alan H. Shaw: We're operating one of the safest networks in North America, and are producing service levels better than anything we've seen since 2019.

Alan H. Shaw: Despite that progress, more work remains to be done to get us back to industry competitiveness. We were not delivering productivity, and we were not running fast enough or efficiently enough. I needed to make changes to accelerate our progress and to introduce greater operational discipline into our culture. To that end, we started making organizational and process changes last fall, culminating with the recent hiring of John Orr.

Despite that progress more work remains to be done to get us back to industry competitive margins.

Alan H. Shaw: We were not delivering the productivity and we were not running fast enough or efficiently enough.

Alan H. Shaw: I needed to make changes to accelerate our progress and to introduce greater operational discipline into our culture.

Alan H. Shaw: Does that and we started making organizational and process changes last fall, culminating with the recent hiring of John or.

Alan H. Shaw: Now, we have safely built the foundation to drive substantial gains in productivity, and we've committed to a 400 to 400 basis point OR improvement in the second half of this year. We will close the margin gap with peers. We will deliver a sub-60 operating ratio in the next three to four years, and we will do it in a safe, sustainable manner that recognizes our current operating environment and attracts key constituents. Including our shareholders, customers, employees, and regulators, along with us on our mission, we will urgently deliver productivity through disciplined operational excellence.

Now we are safely built the foundation to drive substantial gains in productivity and we've committed to a 400 to 400 basis point or improvement second half of this year.

Alan H. Shaw: We will close the margin gap with peers, we will deliver a sub 60 operating ratio in the next three to four years and we will do it in a safe sustainable manner. They recognize that our current operating environment and brains key constituents, including our shareholders customers employees and regular.

Alan H. Shaw: <unk> along with us on our mission.

Alan H. Shaw: We will urgently deliver productivity through disciplined operational excellence that continues to safely serve our customers.

Alan H. Shaw: That continues to safely serve our customers, positions us to grow by meeting markets as they evolve, and allows us to generate outsized returns for our shareholders. I'll now turn it over to Mark to review our first quarter financial results.

Alan H. Shaw: <unk> us to grow by many markets as they evolve and allows us to generate outsized returns for our shareholders.

Alan H. Shaw: I'll now turn it over to Mark to review, our first quarter financial results.

Mark George: Thanks, Alan. As seen on slide five, our gap results in Q1 were impacted by four items that we've called out for you. Earlier in the month, we announced a $600 million agreement in principle to resolve a consolidated class action lawsuit relating to the East Palestine derailment. That addresses the most significant remaining legal exposures for our shareholders. Including other cleanup costs and insurance recoveries in the quarter, our operating income was adversely impacted by $592 million.

Mark George: Thanks, Alan as seen on slide five our GAAP results in Q1 were impacted by four items that we've called out for you.

Mark George: Earlier in the month, we announced the $600 million agreement in principle to resolve a consolidated class action law suit relating to the east Palestine derailment.

Mark George: That addresses the most significant remaining legal exposures for our shareholders.

Mark George: Including other cleanup costs and insurance recoveries in the quarter.

Mark George: Our operating income was adversely impacted by $592 million.

Mark George: You'll note at the bottom, another $108 million of insurance recoveries in the quarter. That brings our recoveries to date in excess of $200 million toward our $1.1 billion insurance coverage tower. Moving to the right, we told you last quarter about our initiative to drive a 7% reduction in non-agreement headcount, for which savings will begin to materialize in Q2. That initiative, along with our operations leadership change, resulted in a $99 million charge.

Mark George: You'll notice a bottom another hundred and $8 million of insurance recoveries in the quarter.

Mark George: That brings our recoveries to date in excess of $200 million toward our 1.1 billion dollar insurance coverage tower.

Mark George: Moving to the right. We told you last quarter about our initiatives to drive a 7% reduction in non agreement head count for which savings will begin to materialize in Q2.

Mark George: That initiative, along with our operations leadership change resulted in a $99 million charge.

Mark George: Next are advisory costs associated with our now very public shareholder matter, recorded and non-operated. Finally, we also call out here a favorable deferred tax adjustment affecting our income tax expense. For the remaining slides, I'll speak to our adjusted results excluding these items, as shown here on the far right. Moving to slide 6, let's focus on the adjusted variances compared to Q1 of 2023 in the year-over-year column. Those results were impacted by 4% lower revenues driven by a meaningfully lower fuel surcharge, as well as headwinds in intramodal that Ed will detail later. Operating expenses were up 3% from inflation and an increased workforce.

Mark George: Next our advisory costs associated with our now very public shareholder matter.

Mark George: Accorded in nonoperating.

Mark George: Finally, we also called out here, a favorable deferred tax adjustment affecting our income tax expense for the remaining slides I'll speak to our adjusted results. Excluding these items as shown here on the far right.

Mark George: Moving to slide six let's focus on the adjusted variances compared to Q1 of 'twenty twenty-three in the year over year columns.

Those results were impacted by 4% lower revenues driven by meaningfully lower fuel surcharge as well as headwinds in intermodal that Ed will detail later.

Mark George: Operating expenses were up 3% from inflation and the increased workforce.

Mark George: You'll see an OPEX year-over-year waterfall in the appendix that provides more detail. Also, not on this page is non-operating income, which was down $17 million from lower gains on our company-owned life insurance. That decline, coupled with the lower operating income, drove the net income and EPS reductions you see here on a year-over-year basis. Now, let's talk on the right side about the sequential variance from Q4 2023, where we guide it to a 100 to 200 basis point deterioration in our OR, which is in line with normal seasonality. That's exactly where we landed, right at the lower end of that range.

Mark George: You'll see an opex year over year waterfall in the appendix that provides more detail.

Mark George: Not on this page is non operating income, which was down $17 million from lower gains at our company owned life insurance.

Mark George: That decline coupled with the lower operating income drove the net income and EPS reductions you see here on a year over year basis.

Mark George: Let's talk on the rate side about the sequential variance from Q4, 2023, where we guided to a 100 to 200 basis point deterioration in our or.

Mark George: Which is in line with normal seasonality.

Mark George: That's exactly where we landed right at the lower end of that range in the next couple of charts will detail the sequential revenue and Opex walks from Q4.

Mark George: On the next couple charts, we'll detail the sequential revenue and OPEX walks from Q4. So revenue here on slide seven moved down sequentially, driven by fuel surcharge headwinds and overall lower volumes driven by coal and intermodal. Coal pricing was weaker, and Intermodal faced difficult conditions with volumes down 3% and continued adverse mix from softness in a higher yield premium business.

Mark George: So revenue here on slide seven moved down sequentially, driven by fuel surcharge headwinds and overall lower volumes driven by coal and intermodal.

Mark George: Coal pricing was weaker and intermodal faced difficult conditions with volumes down 3% and.

Mark George: You'd adverse mix from softness in our higher yield premium business.

Mark George: Slide 8 Turning to our operating expenses, they were down 1% as compared to Q4. We face typical sequential headwinds associated with a reset of payroll tax. And we had meaningful headwinds from returning to normal incentive compensation accrual levels, as well as no property sales in the first quarter. However, we offset those headwinds by lower spend on purchase services, efficiency gains in comp embedded, as well as favorable fuel prices. While fuel expense was down 6% sequentially, recall that surcharge revenue was down 17% sequentially, and that drives a 40 basis point OR headwind on a sequential basis.

Mark George: Slide eight turning to our operating expenses, they were down 1% as compared to Q4.

Mark George: We faced typical sequential headwinds associated with the reset of payroll taxes, and we had meaningful headwinds from returning to normal incentive compensation accrual levels.

Mark George: As well as no property sales in the first quarter.

Mark George: We offset those headwinds by lower spend in purchase services efficiency gains in comp and Ben.

Mark George: As well as favorable fuel prices.

Mark George: While fuel expense was down 6% sequentially recall that surcharge revenue was down 17% sequentially.

Mark George: And that drives a 40 basis point or headwind on a sequential basis.

Mark George: As we turn to the balance of the year, we will see our margins improve materially from here. We are finally starting to see excess service costs unwind, and they will accelerate downward in Q2. That trajectory, along with the reduction in non-agreement headcount, as well as other productivity initiatives, leaves us confident in a strong productivity story for Q2. We anticipate a modest seasonal volume lift sequentially. Although there is some pressure on our coal business from the Baltimore Bridge disruption,

Mark George: As we turn to the balance of the year, we will see our margins improve materially from here.

Mark George: We are finally, starting to see excess service costs unwind.

Mark George: And they will accelerate downward in Q2.

Mark George: That trajectory along with a reduction in non agreement head count as well as other productivity initiatives leave us confident in our strong productivity story for Q2.

Mark George: We anticipate a modest seasonal volume lift sequentially.

Mark George: Although there is some pressure to our coal business from the Baltimore Bridge disruption.

Mark George: Despite the port closure, we still believe we will be within the first half 67 to 68% OR guidance range, assuming that the channel reopens at the beginning of June. The revenue impact from the channel closure is in the $25 to $35 million per month range. More productivity, momentum builds in the back half, as well as stronger volumes, and that provides us with confidence in the 400 to 450 basis points of OR improvement. John will talk more about the productivity runway in front of us, but first, I'll hand over to Ed to discuss revenues.

Mark George: Despite the port closure, we still believe we will be within the first half, 67% to 68% or guidance range.

Mark George: Assuming that the channel reopens the beginning of June.

Mark George: The revenue impact from the channel closure is in the $25 million to $35 million per month range.

Mark George: More productivity momentum builds in the back half as well as stronger volumes and that provides us with confidence in the 400 to 450 basis points of or improvement.

Mark George: John will talk more about the productivity runway in front of us, but first I'll hand over to Ed to discuss revenues.

Ed Elkins: Thank you, Mark, and good morning to everyone on the call. Starting on page 11, I'll go over our commercial results for the quarter. Overall, volume grew by 4% versus last year, driven by intermodal. However, revenue for the first quarter came in just above $3 billion, down 4% year-over-year as total RPU fell 8%. Starting with merchandise, volume was flat versus last year, while revenue ticked down a percent, driven by lower fuel surcharge revenue.

Ed Elkins: Thank you Mark and good morning to everyone on the call.

Ed Elkins: Starting on slide 11, I'll go over our commercial results for the quarter overall volume grew by 4% versus last year driven by intermodal.

Ed Elkins: Revenue for the first quarter came in just above $3 billion down 4% year over year as total ARPA you fell 8%.

Ed Elkins: Starting with merchandise volume was flat versus last year, while revenue ticked down a percent driven by lower fuel surcharge revenue.

Ed Elkins: RPU Less Fuel increased by 3% year-over-year, setting an all-time quarterly record, which also led to a new all-time quarterly record for revenue-less fuel. This marks the 35th out of the prior 36 quarters that Merchandise RPU grew year-over-year, and once again reaffirms our commitment to price and the increasing value of our service. Turning the Intermodal Volume grew 8% year-over-year, primarily on strength and international. However, revenue decreased 8% as RPU excluding fuel and storage and fees declined by 6% overall. Revenue is also impacted by the lane rationalization across Intermodal that simplified our network.

Ed Elkins: R P less fuel increased by 3% year over year setting an all time quarterly record, which also led to a new all time quarterly record for revenue less fuel.

Ed Elkins: This marks the 35th out of the prior 36 quarters that merchandize. Our P. You grew year over year and once again reaffirms our commitment to price and the increasing value of our service.

Ed Elkins: Turning to intermodal volume grew 8% year over year, primarily on strength in international However, revenue decreased 8% as RP, you, excluding fuel and storage and fees declined by 6% overall.

Revenue was also impacted by the lane rationalization across intermodal that simplified our network. This decision demonstrates how marketing operations and finance are aligned to increase productivity and drive smart and sustainable growth.

Ed Elkins: This decision demonstrates how marketing, operations, and finance are aligned to increase productivity and drive smart and sustainable growth. Digging into coal, volumes for the quarter declined by 4% as weakness in the utility market was only partially offset by export strength driven by a historically strong export quarter, as our cross-functional efforts to boost throughput at our Lambert's Point Terminal yielded positive results. These results are a great example of all of NS pulling together to deliver strong value for our shareholders and for our customers.

Ed Elkins: Digging into coal volumes for the quarter declined by 4% as weakness in the utility market was only partially offset by export strength driven by historically strong export quarter as our cross functional efforts to boost throughput at our Lamberts point terminal yielded positive results.

Ed Elkins: These results are a great example of all of it as pulling together to deliver strong value for our shareholders and for our customers.

Ed Elkins: Let's move to slide 12, where I'm introducing a new view of our results that helps frame the main first quarter drivers of revenue and revenue per unit. Overall, fuel surcharge revenue was the single largest headwind in the quarter, declining by $115 million. The first quarter was also the last one where internal storage and fees were a substantial year-over-year headwind, with revenues declining by $35 million.

Ed Elkins: Let's move to slide 12, where I'm, introducing a new view of our results that helps frame. The main first quarter drivers of revenue and revenue per unit overall.

Ed Elkins: Overall fuel surcharge revenue was the single largest headwind in the quarter declining by $115 million.

Ed Elkins: The first quarter was also the last one where animals storage and fees are a substantial year over year headwind with revenues declining by $35 million.

Ed Elkins: In coal, we experienced a positive mix from higher export volumes and higher utility shipments in the south. However, this positive mix was more than offset by lower realized prices and export shipments as seaborne coal prices weakened significantly throughout the quarter. Merchandise revenue, excluding fuel, was driven higher by pricing gains across the entire book.

Ed Elkins: In coal, we experienced positive mix from higher export volumes and higher utility shipments into south.

Ed Elkins: This positive mix was more than offset by lower realized price and export shipments as seaborne coal prices weakened significantly throughout the quarter.

Ed Elkins: Merchandise revenue, excluding fuel was driven higher by pricing gains across the entire book overall pricing and volume increases in our metals franchise were boosted by improved network fluidity from increased car velocity.

Ed Elkins: Overall pricing and volume increases in our metals franchise were boosted by improved network fluidity from increased car velocity. That same velocity and fluidity helped volumes in the automotive sector remain flat despite manufacturing headwinds at several of the plants that we serve. Internal revenue excluding fuel and storage and fees increased as higher volumes more than offset adverse mix and continued slack capacity of the domestic truck market created headwinds for RPUs. Higher international shipments and lower domestic premium shipments were the main drivers of adverse mix.

Ed Elkins: That same velocity and fluidity help volumes in automotive remained flat despite manufacturing headwinds at several of the plants that we serve.

Ed Elkins: Intermodal revenue, excluding fuel and storage and fees increased as higher volumes more than offset adverse mix and continued slight capacity in the domestic truck market created headwinds to our peers.

Ed Elkins: Higher international shipments and lower domestic premium shipments were the main drivers of adverse mix. Additionally, our P was impacted from higher international empty shipments as these grew 57% year over year in the quarter.

John Orr: Additionally, RPU is impacted from higher international empty shipments, as these grew 57% year-over-year in the quarter. We believe elongated ocean transit times are a driving factor pushing ocean carriers to deploy their capacity back on the water as soon as possible, which increases the need to reposition empty containers back to the ports. Turning to slide 13, let's go over our market outlook for the remainder of 2024. The macro landscape presents a mixed bag with uncertainty regarding inflation and future Fed rate actions overshadowing the recent recovery in manufacturing.

Ed Elkins: We believe elongated Ocean transit times are a driving factor pushing ocean carriers to deploy their capacity back on the water as soon as possible, which increases the need to reposition empty containers back to the ports turning to slide 13, let's go over our market outlook for the remainder of 'twenty four.

Ed Elkins: The macro landscape presents a mixed bag, but uncertainty regarding inflation and future fed rate actions overshadowing the recent recovery in manufacturing however.

Ed Elkins: However, our improving service product places us in an excellent position to capitalize on growth opportunities. Starting with our view on the widely varying merchandise markets, we generally see support for volume from the normalization of auto production and the continued strength in infrastructure projects across our network. A positive price environment will continue, which is supported by the increase in network fluidity. Improved cycle times, equipment availability, and network velocity will be a broad, positive tailwind across our merchandise portfolio.

Ed Elkins: However, our improving service product places us in an excellent position to capitalize on growth opportunities.

Ed Elkins: Starting with our view on the widely varying merchandise markets. We generally see support for volume from the normalization of auto production and the continued strength in infrastructure projects across our network.

Ed Elkins: A positive price environment will continue which is supported by the increase in network fluidity.

Ed Elkins: Improved cycle times equipment availability and network velocity will be a broad positive tailwind across our portfolio and merchandize and we also expect to drive incremental volumes through project development, such as our recently announced Great Lakes Reload acquisition the merger of T. D. I S into Triple Crown services and can.

Ed Elkins: And we also expect to drive incremental volumes through project development, such as our recently announced Great Lakes Reload Acquisition, the merger of TDIS into Triple Crown Services, and continued industrial development. Intermodal volumes are expected to increase as international trade remains robust. We expect continued mixed impacts from higher international empty shipments as geopolitical tensions remain elevated, but a weak truck market continues to drive stubbornly low truck rates, which will dampen domestic non-premium intermodal pricing.

Ed Elkins: Tenured industrial development wins.

Ed Elkins: Intermodal volumes are expected to increase as international trade remains robust, we expect continued mix impacts from higher international empty shipments as geopolitical tensions remain elevated but a weak truck market continues to drive stubbornly low truck rates, which will dampen domestic non.

Ed Elkins: Premium intermodal pricing.

Ed Elkins: Additionally, we expect volumes in our domestic premium business to fall as challenging LTL market forces reduce freight demand for parcel shipments. Finally, coal volumes will be challenged as high stockpiles and low natural gas prices reduce utility shipments. In addition, export shipments will be affected by the Baltimore Port shutdown. We are diligently working with our customers to provide alternate supply chain solutions, and the increased network fluidity is providing the capacity necessary to execute on those solutions.

Ed Elkins: Additionally, we expect volumes in our domestic premium business to fall as challenging L. T. L market forces reduce freight demand for parcel shipments.

Ed Elkins: Finally coal volumes will be challenged as high stockpiles and low natural gas prices reduced utility shipments net.

Ed Elkins: In addition, export shipments will be affected by the Baltimore port shut down.

Ed Elkins: We are diligently working with our customers to provide alternate supply chain solutions and the increased network fluidity is providing the capacity necessary to execute on those solutions.

Ed Elkins: Finally, coal prices have weakened as supplies outstrip global demand, and this headwind is expected to continue throughout the remainder of the year. Before I turn it over to John, I'd like to close by thanking our customers for trusting Norfolk Southern to move their freight.

Ed Elkins: Finally, seaborne coal prices have weakened as supply has outstripped global demand and this headwind is expected to continue throughout the remainder of the year.

Speaker Change: Before I turn it over to John I'd like to close by making our customers for trusting Norfolk southern to move their freight.

John: Thank you Ed.

John Orr: I arrived at NS in late March and immediately got to work immersing myself in the operations and connecting with our people. I've been boots on the ground assessing terminals and engaging craft colleagues and frontline supervisors. I've also met with our stakeholders from labor, regulatory, and community leadership.

John: I arrived at N S. In late March and immediately got to work immersing myself in the operations and connecting with our people.

John: I've had boots on the ground assessing terminals and engaging cross colleagues and frontline supervisors.

John: I've also met with our stakeholders from labor regulatory and community leadership.

John Orr: What I've seen confirms that NS is a robust franchise with a talented team and the resources to deliver impressive results when properly executed. Our safety performance, as shown on slide 15, has trended favorably. I have observed a strong safety commitment, and we are building on that. My first action as COO was a system safety blitz to provide clarity around the value of safety.

John: What I have seen confirms that N S. As a robust franchise with a talented team and the resources to deliver impressive results when properly executed.

John: Our safety performance as shown on slide 15 has trended favorably.

John: I have observed a strong safety commitment and we're building on that.

Speaker Change: My first action as C O O Wassa system safety Blitz to provide clarity around the value of safety.

John Orr: Turning to slide 16, it is imperative that we close the profitability gap with our peers. We are now delivering encouraging trends and productivity. Our strategy is balanced, for operating efficiency and service excellence are achieved in tandem. Our approach is a flywheel of value creation, where people, processes, and accountability intersect to drive performance. Anchoring Our Service and Profitability Proposition. Accountability is key.

Speaker Change: Turning to slide 16, it is imperative that we close the profitability gap with our peers.

Speaker Change: We are now delivering encouraging trends in productivity.

Speaker Change: Our strategy is balanced.

Speaker Change: Our operating efficiency and service excellence are achieved in tandem.

Speaker Change: Our approach is a flywheel of value creation or people processes and accountability intersect to drive performance.

Speaker Change: Incurring our service and profitability proposition.

Speaker Change: Accountability is key.

John Orr: We're providing our team with the metrics they need to track their performance. In my first 30 days, we have removed approximately 200 locomotives from the available fleet. Most of these have gone into stored status or driven offline for HPH ballots.

Speaker Change: We're providing our team with the metrics they need to track their performance.

Speaker Change: In my first 30 days, we have removed approximately 200 locomotives from the available fleet.

Speaker Change: Most of these have gone into storage status or driven offline for each ph balance.

John Orr: Our availability count is now below 2,500 units. As shown on the slide, we will be able to increase locomotive drawdown over the next six months. Terminal dwell time has improved by 8%. We are driving out more waste by fine-tuning the workload in our terminals through disciplined, planned execution. Near term, we are targeting 20% improvement. Car miles have improved by 8%. And this is another productivity measure we target for double-digit improvement. Recruits are trending down 22% as network and terminal improvements are combining to improve fluidity across the main line. And lastly, we are reviewing the entire train service plan, which will drive co-rationalization in the range of four percent.

Speaker Change: Our availability count is now below 2500 units.

Speaker Change: As shown on the slide we will be able to increase locomotive draw down over the next six months.

Speaker Change: Terminal dwell has improved by 8%.

Speaker Change: We are driving out more waste by fine tuning workload in our terminals through disciplined planned execution.

Near term, we are targeting 20% improvement.

Speaker Change: Car miles have improved by 8%.

Speaker Change: And this is another productivity measure we target for double digit improvement.

Speaker Change: Re crews are trending down 22% as network and terminal improvements are combining to improve fluidity across the main line.

Speaker Change: And lastly, we are reviewing the entire train service plan.

Speaker Change: This will drive core rationalization in the range of 4%.

John Orr: Resulting from these initiatives, we are driving out excess cost as we close the gap with our peers, referring to slide 17, network update. To accelerate improvements and address network underperformance, I have established a network optimization team that identifies areas for immediate improvement. I have deployed two task forces to drive field productivity and throughput at two major terminals. The outcomes from these efforts will rapidly go to scale throughout the network. We are training our operations leaders to think differently, to make faster decisions, and to eliminate waste more vigorously.

Speaker Change: Resulting from these initiatives, we are driving out excess costs as we close the gap to our peers.

Speaker Change: Referring to slide 17 network update.

Speaker Change: To accelerate improvements and address network underperformance I have established network optimization team that identifies areas for immediate improvement.

Speaker Change: I have deployed to task force to drive field productivity and throughput.

Speaker Change: At two major terminals.

Speaker Change: The outcomes from these efforts will rapidly go to scale throughout the network.

Speaker Change: We are training our operations leaders to think differently.

Speaker Change: To make faster decisions.

And to eliminate waste more vigorously.

John Orr: My commitment is to develop PSR Railroaders. To instill the discipline for continuous improvement and to streamline execution by relentlessly managing assets in context to our commercial obligations. The initial results across the entire network have been promised. Our people are driving PSR results.

Speaker Change: My commitment is to develop P S. Our railroad errors.

Speaker Change: To instill the discipline for continuous improvement in.

Speaker Change: And to streamline execution by relentlessly managing assets in context to our commercial obligations.

Speaker Change: The initial results across the entire network have been promising.

Speaker Change: Our people are driving P. S. Our results.

John Orr: To create accountability and to track progress, we're introducing a comprehensive set of metrics. I've laid out challenging and urgent near-term targets. And I'm taking an aggressive, disciplined approach to achieve our long-term financial glide path, and I can tell you now that we have a significant runway for cost reduction. As our fleet becomes more efficient, we benefit in rents and materials by shedding assets and from improving the fleet composition and getting out more costly cars.

Speaker Change: To create accountability and to track progress, we're introducing a comprehensive set of metrics.

Speaker Change: I've laid out challenging an urgent near term targets and I'm, taking an aggressive disciplined approach to achieve our long term financial glide path.

Speaker Change: And I can tell you now we have a significant runway on cost reduction.

Speaker Change: As our fleet becomes more efficient we benefit in rents and materials by shedding assets and from improving the fleet composition and getting a more costly cars.

John Orr: Our locomotive fleet now has significant capacity, so I believe we will be able to scale down discretionary capital spending on the fleet, and we have a robust terminal footprint covering a rich array of industrial activities. And as we optimize our terminals, we are challenging their historic use to create value through consolidation and efficiency. I am proud and excited to have the opportunity to lead the operations team at NS. I look forward to your questions, and I will turn the call back to Alan.

Speaker Change: Our locomotive fleet now has significant capacity I believe we will be able to scale down discretionary capital spending on the fleet.

Speaker Change: And we have a robust terminal footprint covering a rich array of industrial activity.

Speaker Change: And as we optimize our terminals, we are challenging our historic use to create value through consolidation and deficiencies.

I am proud and excited to have the opportunity to lead the operations team at N. S. I look forward to your questions and I will turn the call back to Ireland.

Alan H. Shaw: Our strategy is designed to mirror the great success stories of the Canadian Railroad, who recognized that PSR is about more than tearing a railroad down to its studs and slashing costs, regardless of the fallout. As our board member Claude Mongeau demonstrated when he was CEO of Canadian National, the PSR Operating Model, when part of a customer-focused balance strategy, can deliver top-tier revenue growth and a sub-60 operating ratio.

Speaker Change: Our strategy is designed to mirror the great success stories of the Canadian railroads.

Speaker Change: Who have recognized that P. S. R is about more than tearing of railroad down to as studs as slashing costs, regardless of the fallout.

Speaker Change: As our board member Claude Mahjong demonstrated when he was CEO of Canadian National.

Speaker Change: Our operating model when part of a customer focused balanced strategy can deliver top tier revenue growth and a sub 60 operating ratio.

Alan H. Shaw: John Orr was an integral part of Claude's leadership team at CN and thus a perfect fit for Norfolk Southern as we turbocharged productivity in pursuit of industry competitive margins and top-tier earnings growth. Core to this are the men and women of Norfolk Southern. I'm incredibly proud of all they've done to progress the execution of our differentiated strategy. To my colleagues, thank you for everything you do for Norfolk Southern, our shareholders, our customers, and your fellow team members. Together, we are on a transformational journey to a safer, more profitable railroad poised for growth with strong execution from an experienced leadership team. We will now open the call to questions. Operator.

John or was an integral part of clubs leadership team at C N and thus a perfect fit from Norfolk, Southern as we turbocharged productivity in pursuit of industry competitive margins and top tier earnings growth.

Speaker Change: Core to this are the men and women of Norfolk Southern.

Speaker Change: I'm incredibly proud of all they've done to progress the execution of our differentiated strategy.

Speaker Change: To my colleagues.

Speaker Change: Thank you for everything you do for Norfolk, Southern and our shareholders our customers and your fellow team members.

Speaker Change: Together, we are on a transformational journey to a safer more profitable railroad poised for growth with strong execution from an experienced leadership team.

Speaker Change: We will now open the call to questions.

Speaker Change: Operator.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Thank you.

Speaker Change: We'll now 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 and a confirmation tone will indicate your line in the question queue.

Speaker Change: You May press star two if he like to remove your question from the queue.

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

Operator: Due to the number of analysts joining us on the call today, we will be limiting everyone to one question. Thank you. And our first question comes from Brian Ossenbeck with JPMorgan. Please proceed with your question.

Speaker Change: Due to the number of analysts joining us on the call today will eliminate everyone to one question.

Speaker Change: Thank you and our first question comes from Brian Awesome Beck with J P. Morgan. Please proceed with your question.

Speaker Change: Hey, good morning, Thanks for taking the question here so.

Brian Ossenbeck: Hey, good morning. Thanks for taking the time to answer the question here. So I just wanted to understand, going back to the Meridian Speedway concession, does that actually have an impact, or does that cover anything related to traffic originating or terminating out of Mexico? And then, secondarily, maybe something for John or the team, can you just give us some sense behind the underlying assumptions as you're benchmarking these productivity savings going down to 60 OR in the next two, three years, and why can't you go there faster? What's holding you back from that? And maybe you can help with walking through some of the assumptions under your numbers versus what else we see out there.

Speaker Change: Just wanted to understand going back to the Meridian Speedway concession does that actually have an impact or is that cover anything related to traffic originating or terminating out of Mexico.

Speaker Change: And then secondarily, maybe something for her John as a team can you just give us some sense behind the underlying assumptions as you're benchmarking these productivity savings.

Speaker Change: Going down to 60 O R.

Speaker Change: Two three years and why can't you go there faster.

What's holding you back from that and maybe you can help with walking through some of the assumptions under your numbers versus what else we see out there.

Alan H. Shaw: Thanks for the question, Brian. Let me be really clear. The agreement related to Meridian Speedway is by no means a consequential concession, and it does not impact Mexico.

Speaker Change: Thanks for the question, Brian Let me be really clear the agreement related to the Meridian Speedway is by no means a consequential insertion and it does not impact Mexico, We said it impacts the Dallas business, which is largely defined by an abundant truck capacity.

John Orr: We said it impacts the Dallas business, which is largely defined by an abundant truck capacity. John, do you want to handle the second part of his one question? Sure. Hey, Brian. Nice to talk to you, and I'll tell you, I've been out assessing the network, and I'm really confident with the plans that I've got underway today that we're on track for the 400 to 500 basis points by year-end, and I'll tell you, our operating costs are a direct reflection of our asset management, and speed and accuracy are really essential for that, and our ability to rapidly cycle assets reduces our need for them, which is why we're focused on accelerating all of our operations simultaneously while taking out costs, and I'm very confident with our dwell, our over-the-road performance, the discipline we put on our locomotive fleets, the crew productivity, and some of the smart investments that we're making to unlock the

Speaker Change: John you want to handle the second part of is one question.

John: Sure Hey, Brian Nice to talk to you and Oh I'll tell you I've been out assessing the network and I'm really confident with the plans that I've got underway today that we're on track for the 400 to 500 basis points by year end and I'll tell you our operating costs are a directory.

John: Collection of our asset management and speed and accuracy.

John: It really essential so that and our ability to rapidly cycle assets reduces our need for them.

John: This is why we're focused on accelerating all of our operations simultaneously, while taking out costs and I'm very confident with our dwell our over the road performance the discipline, we put on our locomotive fleets.

John: The crew productivity and some of the smart investments that we're making to unlock the value we're well underway.

Operator: Thank you. Our next question is from the line of Scott Group with Wolf Research. Please proceed with your question.

John: Okay.

Speaker Change: Thank you.

Speaker Change: Next question is from the line of Scott Group with Wolfe Research. Please proceed with your question.

Scott H. Group: Hey, thanks. Good morning.

Scott H. Group: Hey, Thanks, good morning, so mark that you're guiding 400 to 500 basis points of sequential improvement.

Mark George: So, Mark, you're guiding 400 to 500 base points of sequential improvement. Q2. Just help us think about the drivers there, how much volume, and how we should think about cost x fuel. And, you know, there's a lot going on with the proxy. So I do want to ask also, Alan, A, what's the expectation in terms of timing for ISS? And then, you know, there is a lot of focus on this meridian speedway thing. It looks like there was another Second Amendment that you guys filed yesterday. Any color on what that Second Amendment is? Thank you.

Scott H. Group: Into Q2, just help us think about the drivers there how much volume how should we think about costs ex fuel and I know.

Scott H. Group: There's a lot going on with the proxy so I do want to ask also Alan.

Scott H. Group: Hey.

Alan H. Shaw: Any expectation in terms of timing for ISS and then no. There there is a lot of focus on this meridian Speedway thing.

Alan H. Shaw: It looks like there was another <unk> <unk>.

Second Amendment that you guys filed yesterday any color on what that second amendment is thank you.

Alan H. Shaw: Okay.

Alan H. Shaw: Yeah, I'll start. First, I think the amendment was just really formalizing things with the STB, who had requested that things get filed. You know, the whole exchange that we wanted, that we had had the 8K and some of the other stuff, they just wanted to see it formally filed. So we did exactly that. That's all it is. Nothing new than what's already been communicated. You know, ISS, we don't control it. We would imagine that it comes out likely at the end of this week or early next week. But we don't know for sure.

Speaker Change: Yeah I'll start first I think the amendment was just.

Speaker Change: It really formalizing with the STB, who had requested that things get filed.

Speaker Change: The whole exchange that we want that we had had the 8-K and some of the other stuff. They just wanted to to see it formally filed so we did exactly that that's all it is nothing new than what's already been communicated.

Speaker Change: You know I S. S. We don't control it we would imagine that comes out likely at the end of this week early next week, but we don't know and with regard to the Q1 to Q2 walk Scott.

Mark George: And with regard to the Q1 to Q2 walk, Scott. Really, what we would expect here is kind of the modest seasonal volume increase that you typically would see going into the second quarter, call it a point or two of increased costs, but then I think you're going to really start to see the cost lines start to show relief here, especially in Compton Bend. We've started to actually experience the unwinding of service costs in March, and that's going to really accelerate into the second quarter, and I think most of those will be gone by the end of the second quarter and into the third quarter.

Speaker Change: Really what we would expect here is how does the modest seasonal volume increase.

Speaker Change: That you typically would see going into the second quarter call. It a point or two.

Speaker Change: Increased costs, but then I think you are going to really start to see the cost lines start to show relief here, especially in comp and Ben.

Speaker Change: We've started to actually experience the unwinding of service costs in March and that's going to really accelerate into.

Speaker Change: Into the second quarter and I think most of those will be gone by the end of the second quarter going into the third quarter. So we've made tremendous progress there.

Mark George: So we've made tremendous progress there. In addition, we've got restructuring benefits, you know, the reduction of the 300 plus nonagreement workers; most of those have already left here in the middle of April. And there are a few more that leave at the end of May, but we're going to start really harvesting those benefits. And fuel is another area where we're going to see some benefits from efficiency. John's very focused on that right now, and then of course, we've got all of the other productivity stuff that's really starting to build productivity related to crew start savings, you know, overtime, car rental, things like that. So, you're going to see it show up in a lot of the P&L lines, especially in Comp and Bend. You know, and Scott, recall, and John's prepared.

Speaker Change: In addition, we've got restructuring benefits are the reduction of the 300 plus non agreement workers. Most of those have already left here in middle of April.

Speaker Change: There is a few more that leave at the end of May, but we're going to start really harvesting those benefits.

Speaker Change: And fuel is another area, where we're going to see some benefits with efficiency John's very focused on that right now.

Speaker Change: Then of course, we got all of the other productivity stuff, that's really starting to build the productivity related to crew start savings.

Speaker Change: Overtime car rent things like that so youre going to see it show up in a lot of the P&L lines, especially in comp and Ben and Scot recall and John's prepared remarks. He had a chart that showed about $250 million in productivity over the next six months.

Mark George: You know, and Scott, recall in John's prepared remarks? He had a chart that showed about $250 million in productivity over the next six months. Yeah.

Yeah.

Speaker Change: Yes.

Thomas Wadewitz: Thanks, Scott. Our next question is from the line of Tom Wadewitz with UBS. Please proceed with your question.

Thank you.

Speaker Change: Thanks Scott.

Next question is from the line of Tom <unk> with UBS. Please proceed with your question.

Alan H. Shaw: Yeah, good morning.

Tom: Yeah good morning.

Alan H. Shaw: Alan, I wanted to get your thoughts on, I guess, how you know you've had a pretty big change, obviously, with the new COO, who's, you know, John State being very aggressive, the team's being aggressive, with the, you know, taking local windows out, changing the schedule. How do you think about the risks of that? Because I think, you know, your prior approach was something where you thought it would be better for customers to, you know, to kind of have the resiliency approach.

Tom: Alan I wanted to get your thoughts on I guess, a how you've had a pretty big change obviously add a new C. O always you know John state being very aggressive the teams being aggressive.

Tom: With the you know why taking locomotives that are changing the schedule.

Tom: How do you think about the risks of that because they think you know your prior approach was something where.

Tom: You thought it would be better for customers to you know to.

Tom: Kind of have the resiliency approach. So I guess, how do you think about the change in tax on operations and some of the risks of of going that way and I guess also recognizing that before you had kind of pointed to a lot of risks of being too aggressive on the I guess on reducing people and our assets. Thank you Tom.

Alan H. Shaw: So I guess, how do you think about the change in TAC on operations and some of the risks of going that way? And I guess also recognizing that before you had kind of pointed to a lot of risks of being too aggressive on, I guess, on, you know, reducing people and assets. Thank you. Tom, thanks for the question.

Tom: Thanks for the question, let me be really clear.

John Orr: You know, we're still focused on that same strategy that we laid out a couple years ago. And that's that balance between service, productivity, and growth with safety at its core. And we made a lot of improvements last year in service. We made a safer road, even safer, but we weren't delivering the productivity. We weren't running fast enough, and we weren't running efficiently enough.

Speaker Change: We're still.

Speaker Change: Focused on that same strategy that we laid out a couple of years ago and that is that balance between service productivity and growth with safety at its core and we've made a lot of improvements last year and service, we made a safer erode even safer, but we weren't delivering the productivity, we werent run it fast enough when we werent running efficiently enough and.

John Orr: And so, I needed to make some changes, and that's what a CEO does, and I needed to accelerate our operational improvement, and we made a number of process changes and personnel changes starting last fall. Most recently, we hired John Orr, and what John's doing is he's driving productivity and continued service improvements. And so that's the balance of our strategy. That's what customers want. They want service, and they want us to be productive. John, do you have some thoughts on that? Yeah, and I

Speaker Change: So.

Speaker Change: I needed to make some changes and that's what our CEO does and I needed to accelerate our operational improvements.

Speaker Change: And we made a number of process changes and.

And personnel changes starting last fall and most recently, we hired John Award and what jobs. They want as he's driving productivity and continued service improvements and so that that's the balance of our strategy. That's what customers want they want service and they want us to be productive John you got some thoughts on that.

John Orr: Yeah, and as I've said in my prepared remarks, they're not mutually exclusive. In fact, they're complementary to each other.

John Award: As I've said in my in my prepared remarks, they're not mutually exclusive in fact, they are complementary to each other and my approach is as I evaluate the network and restructuring our yard and local plans. What are what are basically on ramps to our corridor that touch our service touch our customers.

John Orr: And my approach is, as I evaluate the network and restructure our yard and local plans, which are basically on ramps to our corridor that touch our service, touch our customers, and create efficiencies, new standards, and accelerate through our current dwell times, making improvements year over year, but also making improvements on the individual cars and the handoffs on those cars. It drives performance. And then the overall speed of the network picks up as there's more reliability.

John Award: And creating efficiencies new standards and accelerating through through our current dwell times.

John Award: Making improvements over year over year, but also making improvements on the individual cars and the handoffs on those cars. It drives performance and then the overall speed of the network picks up as there's more reliability. So that's that's why I talk to not only our craft employees and our frontline supervisors in my first first.

John Orr: So that's why I talked to not only our craft employees and our frontline supervisors in my first few days, but also union leadership and the regulators to make sure they understood we're going to go at a quick pace and give them a forecast of what we're doing. And I made it very clear, even with our union leadership, that I'm going to ask our people to do more, give them the resources, give them the training, give them the skills to do it.

John Award: A few days, but also union leadership and the regulators to make sure. They understood were going to go at a quick pace.

John Award: Give them a forecast of what we're doing.

John Award: And with very clear, even with our Union leadership that I'm going to ask our people to do more give them the resources give them the training give them the skills to do it but they're they're gonna be stretched in ways that there'll be proud of in the coming years, and we're going to do it sustainably we're gonna grow a team of.

John Orr: But they're going to be stretched in ways that they'll be proud of in the coming years. And we're going to do it sustainably; we're going to grow a team of capable PSR-driven leadership, and do it in a way that produces amazing results.

John Award: Bold P. S are driven leadership and do it in a way that produces amazing results.

John Award: Yes.

Operator: Our next question is coming from the line of John Chappell with Evercore ISI. Please just use your question.

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

Jonathan Chappell: Thank you. Good morning, gentlemen.

Jonathan Chappell: Thank you good morning, gentlemen, can follow up on a couple of things that have been touched on already as it relates to the things that you've done in the last 30 days the volume. So far this quarter had been relatively strong for Norfolk southern on a year over year basis granted there's easy comps, but as you go through the next six months and you deal with things like link 300 more.

John Orr: I'd like to follow up on a couple things that have been touched on already. As it relates to the things that you've done in the last 30 days, your volumes so far this quarter have been relatively strong for Norfolk Southern on a year-over-year basis. Granted, there are easy comps. But as you go through the next six months, and you deal with things like laying up 300 more locomotives or, you know, reducing merchandise handling by 10%, is there a situation where you don't maybe chase volume recovery as quickly as you would otherwise? What's more about getting the network where it needs to be and worrying about volume, and I guess the top line, you know, beyond that next six-month period?

Jonathan Chappell: Locomotives or reduce.

We're due to reducing merchandise families by 10% is there a situation where you don't maybe chase volume recovery as quickly as you would otherwise where it's more about getting the network, where it needs to be and worrying about volume.

Jonathan Chappell: The top line.

Beyond that next six month period.

John Orr: John, why don't you talk about that? And then, Ed, why don't you talk about the market? Yeah, I think that the most imperative thing we can do is to close the gap on performance, reliability, and drive the value of the network. As far as capacity is concerned, we're unlocking capacity in the existing terminals by being more efficient, more effective, and driving those on ramps to the network more effectively. Once they're in that pipeline, we have ample capacity to grow more trains or grow longer trains to get yield out of that, even at a single line capacity.

The point, John why don't you talk about that and then Ed why don't you talk about the market.

Ed Elkins: Think that the most it impair.

Ed Elkins: Imperative thing we can do is to close the gap.

Ed Elkins: On performance reliability and drives the value of the network as far as the capacity.

Ed Elkins: We're unlocking capacity in the existing terminals by being more efficient more effective and driving those on ramps to the network more effectively the what's there and that that pipeline, we have ample capacity to grow more trains or grow the longer trains to get yield out of that.

Ed Elkins: That even a single line capacity.

John Orr: So I don't see it as being one or the other; it's both. And whether or not the volume is there, depending on what the economy gives us, we're going to drive performance, we're going to close the gap faster than anyone else. So Ed, I'll turn it to you. Sure, and you're absolutely right, John.

Ed Elkins: So I don't see it as being one or the other it's both and whether or not the volume is there with depending on what the economy gives we're gonna drive performance, we're going to close the gap faster than than anyone else. So Ed I'll turn it to you sure and you're absolutely right John we've seen a fairly strong volume so far this.

Ed Elkins: Sure. And you're absolutely right, John. We've seen a fairly strong volume so far this month. And we're encouraged by that. Our customers are encouraged by the level of service that we're delivering. And to be clear, in intermodal, the level of service we're delivering is the best in a generation. And it's sustainable, and it's going to continue to be that way.

This month, we're encouraged by that are our customers are encouraged by the level of service that we're delivering and to be clear and intermodal the level of service. We're delivering is the best in a generation and it's sustainable and it's going to continue to be that way and were earning trust from our customers to do that where we're seeing very good response on.

Ed Elkins: And we're earning trust from our customers to do that. We're seeing very good responses on the bid front for new volume coming from the highway, which we're very encouraged by in intermodal. On the merchandise side, look, we spent the last six months building a sales conversion pipeline, which includes technology augmentation as well as institutional rigor. And we are going to deliver growth from the highway converting freight in the merchandise space that should be moving on Norfolk Southern. The capacity that John has unlocked, and we're going to use to go out and get back the freight that should be ours.

Ed Elkins: On the bid front for new volume converting from the highway which we're very encouraged by an intermodal on the merchandise side look we spent the last six months building a sales conversion pipeline, which includes technology augmentation as well as institutional rigor and we are going to deliver growth from the highway.

Ed Elkins: <unk> freight and the merchandise space that should be moving on Norfolk, Southern and the capacity that John has unlocked and we're going to use to go out and get back to freight that should be ours.

Speaker Change: Thank you.

Operator: Our next question is from the line of Justin Long with Stevens. Please proceed with your question.

Speaker Change: Our next question is from the line of Justin Long with Stephens. Please proceed with your question.

Justin Long: Thanks, and good morning. I guess to follow up on some of the commentary about intermodal. You've talked about rationalizing some lanes, and I wanted to get an update on where you are in that process. Is that now complete? Or is there more to come? And then, similarly, or along those lines, thinking about these multi-year OR targets, how do you envision the mix of the business changing? Do we need to see a shift to more general merchandise freight? Or is it not necessary to hit these OR objectives?

Justin Long: Thanks, and good morning, I guess to follow up on some of the commentary about intermodal you've talked about rationalizing some lanes I wanted to get an update on where you are in that process is that now complete or is there more to come and then similarly are along those lines thinking about these.

Justin Long: Multiyear award targets, how do you envision the mix of the business changing do we need to see a shift to more general merchandise freight or is that not necessary to hit these objectives.

Ed Elkins: Thanks.

Yeah.

Ed Elkins: I'll talk about the intermodal piece first, because I think that was your first question.

Speaker Change: I'll talk about the intermodal piece first I think I believe your first question.

Ed Elkins: You know, look, we took a very, very dispassionate view of our Intermodal Network and did a couple of things. Looked at lanes that were very low density, looked at lanes that were not strategic in terms of their capability for our customers, and then, thirdly, looked at lanes where we did not believe that there was going to be long-term growth potential that we had line of sight on. Once we passed all those filters, we talked to our partners that were engaged in those lanes.

Speaker Change: Look we took a very very <unk>.

Speaker Change: Disciplined view of our intermodal network and did a couple of things looked at lanes that were very low density looked at lanes that were not strategic in terms of their capability for our customers and then thirdly looked at lanes, where we did not believe that there was going to be long term growth potential that we have line.

Speaker Change: Syed on once we pass all those filters, we talked to our partners that we're engaged in those lanes that includes our port partners and some others and we made made some tough decisions. It's about 15% of the intermodal lane portfolio, but only about 1% of the intermodal revenue portfolio, which should tell you something about the density there.

Ed Elkins: That includes our port partners and some others. And we made some tough decisions. It's about 15% of the intermodal lane portfolio but only about 1% of the intermodal revenue portfolio, which should tell you something about the density there. Are we done? We're always looking at our network to make sure that we are applying our resources where the greatest growth potential is, and one thing that this exercise taught us is that we can redeploy some of that capacity that we're freeing up toward our powerhouse lanes, where we're delivering exceptional value for our customers.

Speaker Change: Are we done we're always looking at our network to make sure that we are applying our resources, where the greatest growth potential is and one thing that this exercise taught us is we can redeploy some of that capacity that we're freeing up toward our powerhouse lanes, where we're delivering exceptional value for our customers.

Speaker Change: And I would say.

Speaker Change: With regard to kind of the mix question.

Speaker Change: Uh huh.

Speaker Change: Intermodal is going to grow because that's where the growth is.

Speaker Change: We serve the consumers, but at the same time merchandise is probably suffered more than the past couple of years from the service challenges. We have so just unlocking the network and doing everything that John's doing should enable merchandise too to really return to better growth rates as we start to recover as we start to recover share in <unk>.

Ed Elkins: And I would say, with regard to kind of mixed question and intermodal is going to grow because that's where the growth is, you know, we serve the consumers, but at the same time, merchandise has probably suffered more in the past couple of years from the service challenges we have. So just unlocking the network and doing everything that John's doing should enable merchandise to really return to better growth rates as we start to recover. And, of course, that will help mix them. Absolutely not.

Speaker Change: That will help mix absolutely and the.

Speaker Change: As I said the the sales pipeline approach that were taking has a very disciplined view toward conversion from the highway both in the merchandise as well as the intermodal space.

Speaker Change: And I would say as far as capacity is concerned we're improving execution.

Speaker Change: And planning compliance and that facilitates blocking deeper into our network, which ultimately increases car velocity train speed and really drives performance that applies to intermodal merchandise and bolt and where we're actively engaging and challenging every asset that we've got we've got out there.

Ed Elkins: Absolutely. And the, as I said, the sales pipeline approach that we're taking has a very disciplined view toward conversion from the highway, both in merchandise and intermodal.

Speaker Change: Just in the last 30 days I've approved.

John Orr: And I would say, as far as capacity is concerned, we're improving execution and Pine Compliance, and that facilitates blocking deeper into our network, which ultimately increases car velocity, train speed, and really drives performance. That applies to intermodal, merchandise, and bulk.

Speaker Change: The.

Speaker Change: Elimination of over 487 turnouts that were redundant we're turning over every every rock bigger small to look for improvement and consistency.

Speaker Change: Okay.

Speaker Change: Thank you. Our next question is from the line of Jason Seidl with Cowen. Please proceed with your question.

Jason H. Seidl: Thank you operator.

John I wanted to talk a little bit about the new peak.

Jason H. Seidl: P T O and simply regulations and how much of an impact that you've seen there and sort of what you expect going forward and I guess a quick follow up is you know when you look at sort of the whole network. How are you viewing some of the yards and is there a chance that you look to close the yard or two down the road. Thanks.

John Orr: And we're actively engaging and challenging every asset that we've got out there. Just in the last 30 days, I've approved the elimination of over 487 turnouts that were redundant. We're turning over every rock, big or small, to look for improvement and consistency. Thank you. Our next question is from the line of Jason Seidl with Cowen. Please proceed with your question. Thank you, Operator.

Speaker Change: Yeah, obviously.

Speaker Change: Sick leave is a national issue.

Speaker Change: I think.

Speaker Change: No different than any other regulated or introduced.

Speaker Change: Crew.

Speaker Change: Crew limitation, we all have to deal with it what I'm really focused on is crew productivity and yard productivity and increasing the capabilities of each assignment to do more within the timeframe they've got to be <unk>.

Speaker Change: Got to work and so delivering more getting accountability to connections getting yield on our trains that's the most important piece.

Operator: Thank you. Our next question is from the line of Jason Seidl with Cowen. Please proceed with your question.

Jason H. Seidl: Yeah, obviously, sick leave is a national issue, but I think it is no different than any other regulated or introduced crew. I'm on the team every day on crew availability to make sure that whatever we've committed to with our labor organizations or through the CBA process, we're living up to that. And, on the flip side, making sure that the unions understand that they have an obligation to come to work within the timeframes, dressed and ready to deliver for our customers each and every day. So it's both sides of that coin.

Speaker Change: We're balancing that I'm I'm I'm on the team every day on crew availability to make sure that whatever we've committed to with our labor organizations or through the CBA process that we're living up to that and on the on the flip side, making sure that the unions understand that they have an obligation to come to work within.

Speaker Change: <unk> frames dressed and ready to deliver for our customers each and every day. So it's it's a it's both sides of that coin as far as as far as the terminals are concerned.

John Orr: As far as the terminals are concerned, the reason why I started with Hump Yards is because they can add a lot of value. They can drive a lot of mechanized performance, but, as we all know, they're costly. I want to get the most yield I can get out of them.

Speaker Change: The reason why I start with hump yards, just because they can add a lot of value.

Speaker Change: So they can drive a lot of mechanized performance.

Speaker Change: But as we all know they're costly I want to get the most yield I can get out of them I've already challenged our yard plan from from E. R. T Arden node to node.

John Orr: I've already challenged our yard plan from yard to yard, node to node, and we've started to eliminate power imbalances at a place like Chattanooga. We've reduced the bunching in the terminals by reestablishing a terminal clock at all of the major terminals, and we've even decreased a number of assignments that were moving car cars and causing multiple handlings between the yards. So I would say everything's open. I'm challenging the historic reason for a yard.

Speaker Change: And we've started to eliminate power imbalances at a place like Chattanooga, we've reduced the bunching in the terminals by reestablishing a terminal clock on all of the major terminals and we've even decreased a number of assignments that we're moving cars.

Speaker Change: And causing multiple handling between the yards, so I would say everything's open.

Speaker Change: I'm challenging the historic reason for yard.

John Orr: So whatever we do is going to meet the operational needs of today and tomorrow. So everything's on the table. Everything's being scrutinized. And we will be rolling out a redefined yard operating plan and yard operating strategies in the next 30 days. And that will then drive our or our redo redesign of most of the operating plan over the next 30, or sorry, 60 to 90 days.

Speaker Change: So that whatever we do is going to meet the operational needs of today and tomorrow.

Speaker Change: So everything's on the table.

Speaker Change: Everything is being scrutinized and we will be rolling out a redefined yard operating plan and yard operating strategies in the next 30 days and that will then drive our redo.

Speaker Change: Redo redesign of <unk>.

Speaker Change: Most of the operating plan over the next 30 to 60 to 90 days.

Operator: Our next question comes from the line of Jeff Kauffman with Vertical Research. Please state your question.

Speaker Change: Our next question comes from the line of Jeff Kauffman with vertical research. Please go ahead with your question.

Jeffrey Kauffman: Thank you very much John just kind of a question on your impression coming in.

Jeffrey Kauffman: Thank you very much. John, just kind of a question on your impression coming in. As you were an outsider, you had a certain view of what Norfolk might not have been able to do. Now you're an insider, you've had a chance to see an operation. I guess my question is twofold. Number one, what's different about when you actually got on board and got a chance to get out there and see what's going on? And then my second aspect of that is, what do you think somebody on the outside might not appreciate about the Norfolk network and what can and can't be done?

Jeff Kauffman:

Jeffrey Kauffman: As you were an outsider you had a certain view of what Norfolk might've might not have been able to do now you're in inside or you've had a chance to see an operation and I guess my question is two fold number one what's different.

Jeffrey Kauffman: How about when you actually came onboard and got a chance to get out there and see what's going on and then my second aspect of that is.

Jeffrey Kauffman: What do you think somebody on the outside might not appreciate.

Jeffrey Kauffman: About the Norfolk network and in what can and can't be done.

John Orr: Well, that's a great question. I'm glad you asked. I'll tell you, my first official act with boots on the ground was to go to East Palestine and really understand the scope of that issue. Because, I tell you, I've been a railroader for over 40 years. I've been the incident commander of a number of derailments, some very consequential, and some where I've had to make those same decisions that were made here to resolve imminent safety concerns and understand the scope and scale of the commitment that NS has made to that community. But I've never experienced anything like this.

Jeffrey Kauffman: Well.

Speaker Change: That's a great question I'm glad you asked it.

Speaker Change: I'll tell you in my first my first official act with boots on the ground was to go to east Palestine and truly understand.

Speaker Change: The scope of that issue Hey, guys I'll tell you I've been a railroader for over 40 years.

I've been the incident commander at a number of derailments some very consequential.

Speaker Change: And some that I've had to make the same decisions that were made.

Speaker Change: Here too to resolve our imminent safety concerns.

Speaker Change: And understanding the scope and scale of the commitment that NSS meat to that community.

Speaker Change: I've never experienced anything like that.

Speaker Change: And so I came in with a bias.

John Orr: And so I came in with a bias and really had to understand the magnitude of that event and how that could have had a more lasting impact across not only NS but the sector. Unknown Speaker As I looked at our operation, I always have a bias for yards because I think yards, especially in a merchandise environment, are where cars and customers kind of coincide. So how we handle them, how we accelerate or drag them, is really important to evaluate.

Speaker Change: And it really had to understand the magnitude of that event and how that could have had a more lasting impact across not only in the sector.

Speaker Change: As I looked at our operations.

Speaker Change: I always have a bias for yards, because I think yards, especially in our merchandise environment or where cars.

Speaker Change: And customers kind of coincide.

Speaker Change: So how we handle them how do we accelerate or drag is really important to evaluate <unk>.

John Orr: And so I was pleasantly surprised at the richness of the terminals but also quickly realized as I got under the hood that that was where a lot of the underperformance was happening. That's why I set up a task force to kind of look at the data and drive performance through data, but also have a field component to check in on a balance to make sure that what we were driving was actually going to add performance and not undermine or burn something down that didn't need to be either intentionally or unintentionally. But I think having a good perspective of what the network looks like, as an outsider, you have certain biases.

And so I was I was pleasantly surprised at the richness of the terminals, but also quickly realized as I got under the Hood that are that was where a lot of the underperformance was happening.

Speaker Change: And that's why I've set up a task force to to kind of look at that at the data and drive performance through data, but also had a field component too.

Speaker Change: Checking a balance to make sure that we're driving was actually can add performance and not undermined or burn something down that didn't need to be.

Speaker Change: Either intentionally or unintentionally.

Speaker Change: I think having a good perspective of what the network looks like.

Speaker Change: As an outsider you you'll have biases as an insider or you start to get under the Hood and realize okay. Here are here may be a big rock issue, but then you get to know the smaller rocks that needs to be moved out of the way to create that momentum.

John Orr: As an insider, you start to get under the hood and realize, okay, here may be a big rock issue, but then you get to know the smaller rocks that need to be moved out of the way to create that momentum. I've made a career out of going across Canada, the United States, and Mexico, unclogging drains and creating a lot of momentum and then leveraging that momentum to build, you know, very competent, capable Service Plans, very competent, capable operators of those service plans, and creating sustained improvements.

Speaker Change: I've made a career out of going across Canada, the United States and Mexico.

Speaker Change: Unclogging drains and creating a lot of momentum and then leveraging that momentum to build a very competent and capable.

Speaker Change: Service plans very competent and capable operators of those service plans and creating sustained improvements and that's what I'm seeing right now.

John Orr: And that's what I'm seeing right now. I think the architecture of NS is solid. And it does come down to execution. And it's a very complex nonlinear network. That's what the East is all about.

Speaker Change: I think that the architecture of E&S is solid.

Speaker Change: And it does come down to execution.

Speaker Change: And it's a it's a very complex non linear network. That's what the east is all about I've spent 35 of my 40 years in the east either as a craft employee or as a leader as a senior leader in.

John Orr: I've spent 35 of my 40 years in the East, either as a craft employee or as a leader, as a senior leader, in the United States, and a senior leader in Eastern Canada. And I know networks, I know the industrial complex that we're working in, it's very similar to the density that I just converted in Mexico. So I think we've got lots of work to do. But, as I said in my prepared remarks, it's a robust franchise with a talented team and the resources to deliver impressive results; we just have to properly execute.

Speaker Change: In the United States, a senior leader in Eastern Canada, and and I know I know networks I know the industrial complex that we're working and it's very similar to the density that I that I just.

Speaker Change: Converted in Mexico.

Speaker Change: So I think we've got lots of work to do but then as I said in my in my prepared remarks, it's a robust franchise with a talented team and the resources to deliver impressive results. We just have to properly execute.

Stephanie More: Thank you. Our next question from the line of Stephanie more with Jefferies. Please proceed with your question.

Operator: Thank you. Our next question is from the line of Stephanie Moore with Jeffrey. Please proceed with your question. Hi, good morning. Thank you. You know, I appreciate the color, especially from you, John, and just the detailed plans and

Stephanie Moore: Hi, good morning, Thank you.

Stephanie: I appreciate the color, especially me John and just the detailed plans in place around productivity initiatives and creating a P. S. Our mindset across the organization with this focus is the clear priority what has been the customer response, just given the changes underway. How does this translate into incremental volumes is there a natural lag.

Operator: Thank you. Our next question is in the line for Stephanie Moore with Jeffrey. Please proceed with your question.

Stephanie: Customers as they kind of get convinced of the changes happening any color there would be would be helpful. Thank you.

Ed Elkins: Why don't you address that? Sure. Thank you.

Ed Elkins: And thank you, Stephanie, for the question. You know, as I said earlier, our customers are encouraged by a couple of things. Number one, the velocity of change that they see happening in terms of service improvement. And, you know, think about our first quarter. We absorbed double-digit growth in our international book as well as low single-digit growth in our domestic book, and we could serve on our merchandise freight and improve service throughout that time and into April. So they're encouraged to do so.

Speaker Change: Hey, why don't you address that sure and thank you Stephanie for the question.

Speaker Change: As I said earlier, our customers are encouraged by a couple of things number one the velocity of change that they see happening in terms of service improvement and you think about our first quarter, we absorbed double digit growth in our international book as well as low single digit growth in our domestic book held serve.

Speaker Change: On our merchandise freight and improve service.

Speaker Change: Throughout that time and into April so they're encouraged on the intermodal front like I said, it's really the best service at a generation that we're delivering and I have I have a lot of confidence that we're going to continue to deliver that same level of service, which is only going to deliver more value for our customers on the merchandise side.

Ed Elkins: On the intermodal front, like I said, it's really the best service in a generation that we're delivering. And I have a lot of confidence that we're going to continue to deliver that same level of service, which is only going to deliver more value for our customers. On the merchandise side, in some cases, our customers are going to have to unwind alternatives that they've got in place, but you know what? Having exceptional service that is reliable and really just a conveyor belt is what they want. That's what allows them to unwind those alternatives and go back to where the natural value for them is, which is Norfolk Southern.

Speaker Change: In some cases, our customers are going to have to unwind alternatives that they've got in place, but you know what having exceptional service that is reliable and really just the conveyor belt, that's what they want and that's what allows them to unwind those alternatives and come back to where they are the natural value for them is which is Norfolk southern.

Alan H. Shaw: You know, I've had a number of customers approach me, Stephanie, over the last month since John was announced, encouraged by our approach, encouraged by our direction, and supporting our strategy. And our customers, as John noted in the east, are familiar with John, in large part, and they've seen what he's done, wherever he's been, to enhance service and enhance safety, and enhance productivity. And that's what customers are looking for. And I don't know if you know, but just this morning, we got an email from one of our largest customers thanking us for another excellent week of service. I was just about

Speaker Change: I've had a number of customers approach may Stephanie over the last month since John was was announced.

Speaker Change: Encouraged by our approach encouraged by our direction and supporting our strategy and our customers as John noted in the east are familiar with John in large part.

Speaker Change: <unk> seen what he's done wherever he's been to enhance service and enhanced safety and enhanced productivity and that's what customers are looking for and I don't know if you know, but just this morning, we got an email from one of our largest customers thanking us for another excellent week I'm sorry, I was just about to close that we'll have other [laughter]. Thank you for another week excellent service and you know who you are.

Speaker Change: We're out there and we've had to make hard decisions.

Alan H. Shaw: Thank you for another week of excellent service. You know who you are out there. And we've had to make hard decisions. Ed and I have had to take very, very decisive decisions about the University of Waterloo. That really, Stephanie, helps them understand what we're doing, why we're doing it, and how we're going to work together to create these standards.

Speaker Change: It's hard to I tried to take very very decisive.

Speaker Change: Decisions on.

Speaker Change: Car flows on even on how customers are interacting with some of our service facilities. It is but having the having the work on the front and engaging with people, helping them understand what we're doing helping them understand where they fit into that whether it's union leaders regulatory leaders or our <unk>.

Speaker Change: <unk> that that really Stephanie helps them understand.

Speaker Change: What we're doing why we're doing it and how we're going to work together to create these standards and Stephanie that that is our strategy is making sure that we bring along our customers.

Alan H. Shaw: And Stephanie, that is our strategy, making sure that we bring along our customers and our employees and our regulators and our shareholders with us as we transform Norfolk Southern into a more profitable organization with a safe and service product that is poised for growth.

Speaker Change: And our employees and our regulators and our shareholders with us as we transform Norfolk southern into a more profitable organization, but with the safest service product that is poised for growth.

Operator: Our next question is from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.

Speaker Change: Okay.

Speaker Change: Our next question is from the line of Jordan <unk> with Goldman Sachs. Please proceed with your question Hi.

Jordan Alliger: Hi, maybe this is in some ways a follow-up, but I'm just sort of curious, you know, you have a pretty extensive list of things to do over the next six months and then 12 to 24 months. As you sort of come in... You know, knowing what Norfolk had done already before you got there and the gap that's been talked about. How much of this would you say is what you would call basic blocking and tackling versus real sea changes in operational scope? Basically trying to assess your degree of confidence level and achieve and ticking all these things off and being able to hit the margin expectations in the coming years. Thanks.

Jordan: Hi, Yeah, maybe this is in some ways a follow up but I'm just sort of curious now that.

Jordan: You have a pretty extensive list of things to do over the next six months and then 12 months to 24 months.

Jordan: As you sort of come in.

Jordan: You know, knowing what Norfolk, Don already pre you're getting there and the gap that's been talked about how much of this would you say, it's what you would call basic blocking and tackling versus.

Jordan: Real sea changes in operational scope basically trying to assess yeah. Your degree of confidence level in achieving and kicking all these things off and being able to hit the margin expectations in the coming years. Thanks.

John Orr: Well, I'll tell you this. All across Canada, the US, and Mexico, I've been a change agent and an architect of PSR. I haven't had the luxury of looking in the rearview mirror very often. And so I don't spend a lot of time looking at what could have been or what was rather than what the current situation is and how fast we can get to the desired state. The desired state is having of closing the gap for sure.

Speaker Change: Well I'll tell you this all.

Speaker Change: All across Canada, the U S and Mexico had been a change agent and an architect of PSVR I Havent had the luxury of looking in the rearview mirror very often and so I don't spend a lot of time looking at what could have been or what was rather than what the current situation is and how fast can we get to the desired state.

Speaker Change: Desired state is having.

Speaker Change: Having closing the gap for sure.

John Orr: Having an operation that is focused on asset management with speed and accuracy to reduce cycle times, reduce dwell times, and drive out waste. So that's taking an approach where it has a network overview, so there's a very strategic point of view on how do we create speed and accuracy by reducing dwell, increasing over the road performance, looking at long-lead resources like locomotives and crews, and how do we make them as productive as we can, and then create resiliency and elasticity for network response like we've seen in Baltimore.

Speaker Change: Having an operation that is focused on.

Speaker Change: Asset management with speed and accuracy to reduce the cycle times reduce the dwell times and drive out waste.

Speaker Change: So that that's taking on approach where it Hasnt network.

Speaker Change: Overview.

Speaker Change: So there's a a very strategic point of view on how do we create speed accuracy by reducing dwell increasing over the over the road performance looking at our long lead resources like locomotives and crews and how do we make them as productive as we can and then create resiliency and elasticity for <unk>.

Speaker Change: At work response like we've seen in Baltimore, and then really look at our smart investments how do we leverage those things.

John Orr: And then really look at our smart investments, how do we leverage those things, like capitalizing locomotive renewals, refurbishing locomotives that can be pushed off into the future because we're creating our own locomotives by having them more productive. I think this is a natural evolution of some of the linear elements that were started in the past.

Speaker Change: By capitalizing locomotive renewals refurbishing locomotives that are that can be pushed off into the future because we're creating our own locomotives by having a more more productive.

Speaker Change: Productive.

I think this is a natural evolution.

Speaker Change: On some of the linear elements that were started in the past now taking a non multi dimensional point of view on it not focusing on one particular thing, but elevating the entire suite of operating efficiencies at the same time and candid with one another disciplined railroading disciplined service.

Operator: Now, taking a multi-dimensional point of view on it, not focusing on one particular thing but elevating the entire suite of operating efficiencies at the same time, in tandem with one another, disciplined railroading, disciplined service, accurate handling of cars, and reduction of waste and cost is really the plan. And that will show in the form of yard operating plans, and disciplined operations in terminals. Disciplined and progressive ways of moving the trained service plan to meet the commercial needs of today.

Speaker Change: It's accurate handling of cars and reduction of waste and cost.

Speaker Change: Is really the plan and that will that will show in the form of yard operating plans disciplined operations and terminals.

Speaker Change: Disciplined and progressive ways of of moving the train service planned into the meet the commercial needs of today I am highly confident.

Operator: I am highly confident that we'll achieve the targets, and we'll do it in a way that's sustainable, and we'll do it in a way that fosters growth, and we are on the path today. We're well underway. So that increases my confidence.

Speaker Change: Highly confident that we'll achieve the targets and we will do it in a way that's sustainable and we will do it in ways that fosters growth and we are on the path today, we're well underway so that increases my confidence.

Walter Noel Spracklin: Our next question is for the line of Walter Spracklin with RBC Capital. I'm pleased to see you with your question.

Speaker Change: Our next question is from the line of Walter <unk> with RBC capital. Please proceed with your question.

Walter: Yeah, Thanks, very much good morning, everyone.

Walter Noel Spracklin: Yeah, thanks very much. Good morning, everyone.

Walter: I know you you've you've put a lot of time under this so but I do need to come back to it and that is the trying to square up the changes that John is making here are there they are substantial with the lack of any customer disruption.

Alan H. Shaw: I know you've put a lot of time into this, but I do need to come back to it, and that is trying to square up the changes that John is making here, and they are substantial. With the lack of any customer disruption, I mean, it used to be, and maybe I'm dating myself here, but whenever we saw PSR change, it didn't, you know, if customers weren't disrupted, then it wasn't happening. That was kind of the view, and when you take out 200 locomotives, you know, soon to be 500 locomotives, I mean, that kind of has to leave a mark.

Walter: It used to be and maybe I'm dating myself here, but it used to be when I arrived we saw P. O sort of change. It didn't you know if customers Werent disrupted then it wasn't happening eh, what was kind of the view and when you take out 200 locomotives soon to be 500 locomotives I mean that kind of has the how did they leave a market you know we.

Alan H. Shaw: You know, we know there's been lane reductions. I guess feedback from those customers must have been quite negative. So I'm just wondering, are you just refocusing on those other customers, and you're getting good service to them, and they're coming back to you with some good feedback, and perhaps some of the less or lower margin customers are going to be shed a little bit? Just really surprised that we're not hearing more customer blowback from some of these significant and important changes that you're making.

Walter: No Theres been lane reductions I guess feedback from those customers must have been quite negative. So I was just wondering are you just refocusing on those other customers and youre getting good service to them and Theyre coming back to you with some good feedback in and perhaps some of the less or lower margin customers are gonna be shed a little bit just just really surprised that we're not hearing.

Walter: More customer blow back from some of these significant and important changes that you're making.

Alan H. Shaw: Walter, that's our strategy. That's what we committed to doing. You know, we're going to, and we have been implementing PSR in a responsible and sustainable manner. You know, we saw what happened and appeared in 2017.

Speaker Change: Most of our that's our strategy that's what we committed to doing we're going to we're going to implement and we have been implementing <unk> and is in a responsible and sustainable manner. We saw what happened in our peer in 2017.

John Orr: And we're not tearing this thing down to the studs. John knows how to do it without tearing it down to the studs, as the activist COO has said he would have to do. Ed is close to our customers; our customers appreciate and see the improved service. We're focused on safety, and we're focused on a sustainable plan for Norfolk Southern that drives long-term shareholder value. John, do you want to talk about how you're doing this in the right way?

Speaker Change: And we're not turn this thing down to the studs John knows how to do it without tearing it down to the studs as the Actavis Cielo has said he would have to do.

Speaker Change: That is close to our customers our customers appreciate and see the improved service.

Speaker Change: We're focused on safety and we're focused on a sustainable plan for Norfolk, Southern and it drives long term shareholder value. John you want to talk about how youre doing this in the right way.

John Orr: And I think Walter, Walter, by the way, it's nice to hear from you. Then I would say it's what we said at the very onset, that we're taking a balanced approach. I've laid out really challenging and urgent near-term and mid-term targets, and I'm taking an aggressive discipline approach to manage. And you know I've used the George Foreman grill example: you don't set and forget operations; you sweat it out, and you can't you can't drive this alone, so creating a team of capable railroaders focused on the big rocks and small rocks at the same time delivering the fundamentals of safety

John Award: And I think Walter Walter and by the way, it's nice to hear from you.

John Award: I would say, it's what we said at the very onset.

We're taking a balanced approach.

John Award: I've laid out really challenging and urgent near term and mid term targets and I'm, taking an aggressive disciplined approach to manage it.

John Award: And.

John Award: I've used the George Foreman Grill example, you don't set and forget operations you sweat it out and you can't you can't drive this alone so creating.

John Award: A team of capable railroad is focused on the big rocks and small rocks at the same time delivering the fundamental of safety, creating stability across the network and then challenging.

John Orr: Creating stability across the network and then challenging every asset that we have, every standard that we have, and building compliance and building momentum around those things is really important. So yeah, it is sweat equity in a lot of respects, Walter.

John Award: Every every asset that we have every standard that we have and building compliance and building.

John Award: Momentum around those things is really important so yeah. It is sweat equity in a lot of respects Walter.

John Award: And it is is really the key focus areas of yard time in dwell and you know what that does.

John Orr: And it is really the key focus area of yard time and dwell. And you know what that does. When we drive our current dwell down, you know, from the mid 23s to 22, and we'll be taking that down even further. Not only are we handling the cars better in the terminals, but we're getting more cars on trains, getting to the customers sooner. And even the bad order count, you know, taking it down by double digits by almost 50%, means the discipline of handling those cars in the terminal and getting them back into the flow of our core service offerings means the customers are seeing those cars faster than they would otherwise see them. So I would think that they see that as a value and, rather than a negative disruption, a positive indication that we're building momentum and commitment to them while at the same time reducing handling and costs.

John Award: When we drive our current dwell down.

John Award: From mid 20 threes to 'twenty, two and what will be taking that down even further not only are we handling the cars better in.

John Award: The in the terminals, but we're getting more cars on trains getting to the customers sooner and even the bad order count taking it down by double digits by almost 50%.

John Award: It means those the discipline of handling those cars in a terminal and getting them back into the flow of our core service offerings. These are customers are seeing those cars faster than they would have otherwise seen them. So I would think that they see that as a value and rather than a negative disruption are positive.

John Award: Ah indication that were building momentum and commitment to them while at the same time, reducing handling some costs.

Mark George: And just to close the loop, Walter, on the locomotive specifically, remember last year. We actually had to add locomotives back into service. We spent a fair amount of money on materials trying to get locomotives that had been stored back up and running so we could dig out of the tough hole we were in following the East Palestine derailment. It's how we got service really back on the right trajectory, and now we're able to start attacking some of those resiliency costs we've added and removed locomotives and some of the other costs we had to throw at the system. So there's a lot of opportunity here to remove costs that will be non-disruptive to customers. And to summarize...

Speaker Change: And just a closer loop Walter on say the locomotive specifically remember last year, we actually had to add locomotives back into service. We spent a fair amount of money in materials trying to get locomotives that had been stored backup and running so we can dig out of the top hole. We were in following the east Palestine derailment, it's how we.

Speaker Change: Service really back on the right trajectory and now we're able to start attacking some of those resiliency costs, we've added and removed locomotives and some of the other costs, we had to throw in the system. So.

Speaker Change: There's a lot of opportunity here to remove costs that will be non disruptive to the customers and to summarize the service level improvements that dramatic service level of awareness of what the customers are reacting to and that is across our markets and across our customer base.

Alan H. Shaw: The service level improvements, the dramatic service level improvements, are what the customers are reacting to, and that is across our markets and across our customer base.

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

Our next question is from the line of.

Speaker Change: David Vernon with Bernstein. Please proceed with your question.

David Vernon: Hey, good morning, guys. Thanks for taking the question. So, John, you've been on the property for a little over a month.

David Vernon: Hey, good morning, guys. Thanks for taking the question so John you've been at the property a little over a month I'd love to kind of get your perspective on on on kind of what the root causes here that you see as far as kind of what drove the problems is it is it a question of kind of what Norfolk was trying to do or how they were doing it and and kind of any thoughts you have on that.

David Vernon: I'd love to kind of get your perspective on kind of what the root cause is here that you see as far as kind of what drove the problems. Is it a question of what Norfolk was trying to do or how they were doing it? And any thoughts you have on that would be helpful.

Speaker Change: Would be would be helpful. And then as you think about kind of taken 200 locomotives out maybe another 300 locomotives.

Mark George: And then as you think about kind of taking 200 locomotives out, maybe another 300 locomotives, what does that mean for headcount? Because I would assume that, you know, the sequential headcount number was up a little over 500. Obviously, the non-craft trades or the non-craft job action coming out, a couple hundred heads will be down. But what are you thinking about the operating headcount as you start to free up assets and run more fluidly?

Speaker Change: What does that mean for head count because I would assume that you know the the the sequential headcount number was up a little over 500, obviously than a non kraft trades or the non crafts job action coming out a couple of hundred if it has it will be down but what are you thinking about the operating head count as you start to free up assets at around more fluidly.

John Orr: Actually, I'll handle the headcount question before John talks to you a little bit about his assessment of the challenges. You may recall we guided last time where we said overall headcount would likely be flat over the course of the year. We were taking 300 non-agreement people out, but we would likely have to add some agreement folks that would offset it. We actually see now, with John in the room here, a pathway for total headcount to be down around 2% by the time we end the year. So that's the path on headcount, John.

Speaker Change: Actually I'll handle the head count question before John talk to you a little bit about his assessment of the other challenges you may recall, we guided last time, where we said overall head count would likely be flat over the course of the year.

Speaker Change: We were taken 300 non agreement people out.

Speaker Change: But we would likely have to add some agreement folks that would offset it.

Speaker Change: We actually see now with John in the room here a pathway for total head count to be down around 2% by the time, we end the year. So that's the path on head count John Yes, and just to add emphasis to that as we get more productivity out of our yard in locals and more accuracy on.

John Orr: Yeah, and just to add emphasis to that, as we get more productivity out of our yard and locals and more accuracy on our over the road transits and performance, we'll see more people virtually come alive, and we'll be able to have more availability and more crew flexibility. And I have frozen all hiring from operations.

Speaker Change: Our over the road.

Speaker Change: Transit and performance, we'll see more people virtually come alive, and we'll be able to have more availability and more crude flexibility.

Speaker Change: And I have frozen all hiring.

Speaker Change: From operations.

John Orr: There may be one or two critical paths like C&S, where signals and communications are, you know, that's a very specialized skill that we will need to continue to evolve as we bring our OT and IT and that kind of, Unknown Speaker, Unknown Attendee, Unknown Speaker, Unknown Speaker, and building building out discipline around that, creating visibility, accountability, and driving purpose so that we improve these things is part of the challenge that I' That's how we're delivering results short term and mid term. And that's what we're going to continue to do.

Speaker Change: There may be one or two critical pass like a C.

Speaker Change: Ines where signals in communications.

Speaker Change: Yeah, that's a very specialized skill that we will need to continue to evolve as we bring our ot and it.

Speaker Change: And that kind of.

Speaker Change: Perspective into more into our safety plans.

Speaker Change: But I would also say that it gets back to the basics I am not going to really cute.

Speaker Change: Two critical of what I inherited rather I saw a lot of things in flight that I'm able to leverage very quickly on and and at the same time, the basics of railroading the basics of.

Speaker Change: Giving a great service plan at the lowest cost in the safest way possible is is the recipe and building building out our discipline around that creating visibility accountability and driving purpose. So that we improve these things as part of the challenge I have laid out.

Luke Nichols: Thank you. At this time, we've reached the end of our question and answer session. I'll turn the call back over to Luke Nichols for closing comments.

Speaker Change: And that's how we're delivering short term and midterm.

Speaker Change: And that's that's we're going to continue to do.

Luke Nichols: Thanks, Rob. Appreciate everyone's time and joining our call this morning. Recognize there are a few folks that didn't get a chance to ask their questions. Wanted to let you know Investor Relations is here through the rest of the day. Please feel free to reach out to us. We'll look forward to seeing everybody through the quarter.

Speaker Change: Thank you.

Speaker Change: At this time, we've reached the end of our question and answer session I'll turn the call back over to Luke Nichols for closing comments.

Luke Nichols: Thanks, Rob I appreciate everyone's time and joining our call. This morning recognize theres a few folks that didn't get a chance to ask your questions. One of them, but you know investor relations is here through the rest of the day. Please feel free to reach out to US, we'll look forward to seeing everybody through the quarter.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

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