Q2 2024 Union Pacific Corp Earnings Call

Greetings and welcome to the Union Pacific second quarter earnings call. At this time all participants are in listen-only mode. A brief question and answer session will follow the formal presentation.

Operator: At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone is wanting to require operator assistance during today's conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer of Union Pacific. Thank you, Mr. Vena. You may now begin.

Unknown Executive: This time, all participants are in listening mode. A brief question and answer session will follow the form of presentation.

Unknown Executive: If anyone is wondering to require operator assistance during today's conference, please press star zero from your telephone keypad.

If anyone is wanting to require operator assistance during today's conference, please press star zero from your telephone keypad.

Unknown Executive: As a reminder, this conference is being recorded, and the Pfizer today's presentation is available on Union Pacific's website.

As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.

Jim Vena: It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific.

Vincenzo James Vena: It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

Unknown Executive: Thank you, Mr. Vena. You may now begin.

Jim Vena: Thanks, Rob, and good morning, and nice to come to you all from a beautiful morning here in Omaha. And thanks for joining us today to discuss Union Pacific's second quarter results. I'm joined by our Chief Financial Officer, Jennifer Hayman, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer.

Vincenzo James Vena: Thanks, Rob, and good morning, and nice to come to you all from a beautiful morning here in Omaha. And thanks for joining us today to discuss Union Pacific's second quarter results. I'm joined by our Chief Financial Officer, Jennifer Hamann, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer. As we dive into the discussion of the second quarter, you'll hear that operating outdoors these past few months has not been easy, but I'm pleased with how we managed those challenges to drive strong financial results. It provides another proof point that our strategy is the right one to drive And let's discuss second quarter results, starting on slide three. This morning, Union Pacific reported a 2024 second quarter net income of $1.7 billion, or $2.74 per share.

Vincenzo James Vena: Thanks, Rob, and good morning, and nice to come to you all from a beautiful morning here in Omaha.

Vincenzo James Vena: This compares to 2023 second quarter net income of $1.6 billion, or $2.57 per share. Second quarter operating revenue was up 1%, as solid core pricing gains and slightly increased volume were reduced by a negative business mix and lower fuel surcharge revenue. And if you're normalizing for the yearly change in fuel, freight revenue was up 2% versus 2023. Reported expenses year-over-year were down 4%.

Speaker Change: And thanks for joining us today to discuss Union Pacific's second quarter results.

Speaker Change: I'm joined by our Chief Financial Officer, Jennifer Hamann, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer.

Jim Vena: As we dive into the discussion of the second quarter, you'll hear that operating outdoors these past few months has not been easy. But I'm pleased with how we manage those challenges to drive strong financial results. It provides another proof point that our strategy is the right room to drive success.

Vincenzo James Vena: As we dive into the discussion of the second quarter, you'll hear that operating outdoors these past few months has not been easy, but I'm pleased with how we managed those challenges to drive strong financial results. It provides another proof point that our strategy is the right one to drive success.

Jim Vena: And let's discuss second quarter results starting on slide three. This morning, Union Pacific reported 20-24 second quarter net income of $1.7 billion, or $2.74 per share. This compares to 20-23 second quarter net income of $1.6 billion or $2.57 per share. Second quarter, operating revenue was up 1% to solid core pricing gains and slightly increased volume were reduced by a negative business mix and lower fuel surcharge revenue. And if you're normalizing for the yearly change in fuel, rate revenue was up 2% versus 2023. Reported expenses year over year were down 4%. This is very impressive work by the team to offset the high inflationary pressure we've experienced in a flat-ish volume environment, even when you adjust for one-time items in fuel.

Vincenzo James Vena: And let's discuss second quarter results, starting on slide three.

Speaker Change: This morning, Union Pacific reported 2024 second quarter net income of $1.7 billion, or $2.74 per share.

Vincenzo James Vena: This compares the 2023 second quarter net income of $1.6 billion or $2.57 per share. Second quarter operating revenue was up 1%. Solid core pricing gains and slightly increased volume were reduced by a negative business mix and lower fuel surcharge revenue.

Speaker Change: And if you're normalizing for the yearly change in fuel, freight revenue was up 2% versus 2023.

Speaker Change: Reported expenses year over year were down 4%. This is very impressive work by the team to offset the high inflationary pressure we've experienced in a flattish volume environment, even when you adjust for one-time items and fuel.

Jim Vena: Our second quarter operating ratio of 60.0% improved 300 basis points versus last year, and despite some challenges, we still showed sequential improvement. Overall, this quarter was another solid step toward our goal of leading the industry in safety service and operational excellence.

Speaker Change: Our second quarter operating ratio of 60.0% improved 300 basis points versus last year. And despite some challenges, we still showed sequential improvement.

Speaker Change: Overall this quarter was another solid step toward our goal of leading the industry in safety, service, and operational excellence.

Jim Vena: I'll let the team walk you through the quarter in more detail, and then come back for a wrap-up before we go to Q&A.

Speaker Change: I'll let the team walk you through the quarter in more detail and then come back.

Vincenzo James Vena: This is very impressive work by the team to offset the high inflationary pressure we've experienced in a flattish volume environment, even when you adjust for one-time items and fuel. Our second quarter operating ratio of 60.0% improved 300 basis points versus last year, and despite some challenges, we still showed sequential improvement. Overall, this quarter was another solid step toward our goal of leading the industry in safety, service, and operational excellence. I'll let the team walk you through the quarter in more detail and then come back for a wrap-up before we go to Q&A. So we'll start with Jennifer and the second quarter financials. Jennifer?

Jennifer Hayman: So we'll start with Jennifer and the second quarter financials. Jennifer.

Speaker Change: For a wrap-up before we go to Q&A. So we'll start with Jennifer and the second quarter financials. Jennifer

Jennifer Hayman: Thanks, Jim, and good morning, everyone. Let's start on slide five with a walk down of our second quarter income statement. We're operating revenue of $6 billion increased 1% versus last year on slightly positive volumes. As Kenny will highlight, this strong top line performance was supported by solid pricing gains and business wins against the backdrop of what we call demand. Second quarter, freight revenue totaled 5.6 billion, a 1% gain. Digging into the revenue components, strong core pricing gains, partially offset by an unfavorable business mix, added 150 basis points to freight revenue. Double digit growth in international and remote volume was the primary contributor to the negative mix dynamic, and further compounded by an overall decline in our higher average revenue per car industrial business.

Jennifer L. Hamann: Thanks, Jim, and good morning, everyone. Let's start on slide five with a walk-down of our second quarter income statement, where operating revenue of $6 billion increased 1% versus last year on slightly positive volume. As Kenny will highlight, this strong top-line performance was supported by solid pricing. Second quarter freight revenue totaled $5.6 billion, a 1% growth. Digging into the revenue components, strong core pricing gains, partially offset by an unfavorable business, added 150 basis points to freight revenue.

Jennifer L. Hamann: Double-digit growth in international intermodal volume was the primary contributor to the negative mix dynamic, and further compounded by an overall decline in our higher average revenue per car industry. Slightly positive volumes in the quarter added 50 basis points to freight revenue, and lastly, fuel surcharge revenue of $669 million declined 5% as lower fuel prices impacted freight revenue 75 basis points. Excluding the fuel surcharge, freight revenue grew 2% as the team continues to pace revenue growth faster than volume. Wrapping up the top line, other revenue declined 6% as a result of lower intermodal assessorials and less demand for auto parts shipments at our Loop subsidiary.

Jennifer: Thanks, Jim, and good morning, everyone. Let's start on slide 5 with a walkdown of our second quarter income statement, where operating revenue of $6 billion increased 1% versus last year on slightly positive volume.

Jennifer L. Hamann: Switching to expenses, our second quarter operating expense of $3.6 billion decreased $152 million versus 2023 as we drove productivity across most cost categories. We have more details in the appendix, but let me highlight some of the performance drivers. Compensation and benefits expense declined 6% versus last year as we reduced headcount 5% and generated positive productivity. Although our training pipeline is significantly reduced compared to 2023, train service employees increased 1% as we continue to carry more train service employees as a buffer for our operations and to offset the impact of new labor agreements. The remainder of the workforce decreased 9% as we continue to focus on delaying and pushing work down in the organization. And, as you'll recall, last year's expenses included a $67 million one-time ratification.

Vincenzo James Vena: As Kenny will highlight, this strong top-line performance was supported by solid pricing gains and business wins against the backdrop of weak coal demand.

Kenny: Second quarter freight revenue totaled $5.6 billion, a 1% gain. Digging into the revenue components, strong core pricing gains, partially offset by an unfavorable business mix, added 150 basis points to freight revenue.

Kenny: Double-digit growth in international intermodal volume was the primary contributor to the negative mix dynamic and further compounded by an overall decline in our higher average revenue per car industrial business.

Jennifer Hayman: Slightly positive volumes in the quarter added 50 basis points to freight revenue, and lastly, fuel surcharge revenue of $669 million declined 5% as lower fuel prices impacted freight revenue 75 basis points. Dispoints, excluding fields, are charged; freight revenue grew 2%, as the team continues to pace revenue growth faster than volume. Rapping up the top line, other revenue declined 6%, as a result of lower intermodal assets and less demand for auto parts shipments at our loop subsidiary.

Kenny: Slightly positive volumes in the quarter added 50 basis points to freight revenue. And lastly, fuel surcharge revenue of $669 million declined 5% as lower fuel prices impacted freight revenue's 75 basis points.

Kenny: Excluding fuel surcharge, freight revenue grew 2% as the team continues to pace revenue growth faster than volume. Wrapping up the top line, other revenue declined 6% as a result of lower intermodal assessorials and less demand for auto parts shipments at our Loop subsidiary.

Jennifer Hayman: Switching to expenses, second quarter operating expenses of $3.6 billion decreased $152 million versus 2023, as we drove productivity across most cost categories. We have more details in the appendix, but let me highlight some of the performance drivers. Compensation and benefits expense declined 6% versus last year, as we reduced headcount 5% and generated positive productivity. Although our training pipeline is significantly reduced compared to 2023, train service employees increased 1% as we continue to carry more train service employees as a buffer for our operations and to offset the impact of new labor agreements. The remainder of the workforce decreased 9% as we continue to focus on delayaring and pushing work down in the organization.

Kenny: Switching to expenses, second quarter operating expense of $3.6 billion decreased $152 million versus 2023 as we drove productivity across most cost categories.

Kenny: We have more details in the appendix, but let me highlight some of the performance drivers.

Compensation and benefits expense declined 6% versus last year as we reduced headcount 5% and generated positive productivity.

Kenny: Although our training pipeline is significantly reduced compared to 2023, train service employees increased 1% as we continue to carry more train service employees as a buffer for our operations and to offset the impact of new labor agreements.

Kenny: The remainder of the workforce decreased 9% as we continue to focus on delayering and pushing work down in the organization. And as you'll recall, last year's expenses included a $67 million one-time ratification payment.

Jennifer Hayman: And as you'll recall, last year's expenses included a $67 million one-time ratification payment. Following up on our item we highlighted at our first quarter report, last month we completed the transfer of around 350 mechanical employees to Metro and Chicago. Going forward, this transfer will lower both other revenue and our expenses by roughly $15 million a quarter. Excluding last year's one-time labor payment, cost per employee in the second quarter increased 4% as we continue to drive for better overall efficiency. Fuel expense in the quarter declined 6% on a 5% decrease in fuel prices from $2.86 per gallon to $2.73 per gallon.

Jennifer L. Hamann: Following up on an item we highlighted in our first quarter report, last month we completed the transfer of around 350 mechanical employees to Metra in Chicago. Going forward, this transfer will lower both other revenue and our expenses by roughly $15 million a quarter. Including last year's one-time labor payment, cost per employee in the second quarter increased 4 percent as we continue to drive for better overall efficiency. Fuel expense in the quarter declined 6% on a 5% decrease in fuel prices from $2.86 per gallon to $2.73 per gallon.

Kenny: Following up on an item we highlighted at our first quarter report, last month we completed the transfer of around 350 mechanical employees to Metra in Chicago. Going forward, this transfer will lower both other revenue and our expenses by roughly $15 million a quarter.

Kenny: Excluding last year's one-time labor payment, costs per employee in the second quarter increased 4% as we continue to drive for better overall efficiency.

Kenny: Fuel expense in the quarter declined 6% on a 5% decrease in fuel prices from $2.86 per gallon to $2.73 per gallon.

Jennifer Hayman: We overcame a challenging operating environment and less fuel efficient freight mix to improve our fuel consumption rate 1% largely by locomotive productivity. Equipment and other rents declined 12%, reflecting improved cycle times and lower lease expense, partially offset by business mix. Finally, other expense decreased 4% as we recorded a couple of one-time items in the quarter. On the positive side, we added a $46 million gain from an intermodal equipment sale. Conversely, we recognized $23 million of additional environmental expense at a legacy California remediation site. Second quarter operating income of $2.4 billion increased 9% versus last year.

Jennifer L. Hamann: We overcame a challenging operating environment and a less fuel-efficient freight mix to improve our fuel consumption rate by 1%, largely due to locomotive production. Equipment and other rents declined 12%, reflecting improved cycle times and lower lease expense, partially offset by business. Finally, other expense decreased 4% as we recorded a couple of one-time items in the... On the positive side, we added a $46 million gain from an intermodal equipment sale. Conversely, we recognized $23 million of additional environmental expense at a legacy California remediation.

Kenny: We overcame a challenging operating environment and less fuel-efficient freight mix to improve our fuel consumption rate 1%, largely by locomotive productivity. Equipment and other rents declined 12%, reflecting improved cycle times and lower lease expense, partially offset by business mix.

Kenny: Finally, other expense decreased 4% as we recorded a couple one-time items in the quarter.

Kenny: On the positive side, we added a $46 million gain from an intermodal equipment sale. Conversely, we recognized $23 million of additional environmental expense at a legacy California remediation site.

Jennifer L. Hamann: Second quarter operating income of $2.4 billion increased 9% versus last year. Below the line, other income increased 11% as a result of interest received on tax refund claims, while interest expense declined 6% on lower average debt levels. Second quarter net income of $1.7 billion and earnings per share of $2.74 both improved 7% versus 2020. Our quarterly operating ratio of 60% improved 300 basis points year over year. As I just discussed, there were several puts and takes in the quarter.

Kenny: Second quarter operating income of $2.4 billion increased 9% versus last year.

Jennifer Hayman: Below the line, other income increased 11% as a result of interest received on tax refund claims, while interest expense declined 6% on lower average debt levels. Second quarter net income of $1.7 billion and earnings per share of $2.74 both improved 7% versus 2023. Our quarterly operating ratio of 60% improved 300 basis points year over year. As I just discussed, there were several puts and takes in the quarter. Key here is that our core operations drove 160 basis points of OR improvement and 21 cents of EPS growth year over year. This is a great continuation of the momentum we've created these past three quarters.

Kenny: Below the line, other income increased 11% as a result of interest received on tax refund claims, while interest expense declined 6% on lower average debt levels.

Kenny: Second quarter net income of $1.7 billion and earnings per share of $2.74 both improved 7% versus 2023.

Kenny: Our quarterly operating ratio of 60% improved 300 basis points year-over-year.

Jennifer L. Hamann: The key here is that our core operations drove 160 basis points of O.R. improvement and 21 cents of EPS growth year over year. This is a great continuation of the momentum we've created these past three quarters. Turning to shareholder returns on the balance sheet on slide 6, second quarter cash from operations totaled $4 billion, up $175 million versus last year. Growth in operating income and 2023 labor agreement payments, partially offset by higher income tax payments, resulted in increasing cash from operations and our free cash flow improvement of 43% to $853 million. As stated back in April, we restarted share repurchases late in the second quarter.

Speaker Change: As I just discussed, there were several puts and takes in the quarter. Key here is that our core operations drove 160 basis points of O.R. improvement and 21 cents of EPS growth year over year. This is a great continuation of the momentum we've created these past three quarters.

Jennifer Hayman: Turning to shareholder returns in the balance sheet on slide six. Second quarter cash from operations totaled $4 billion, up $175 million versus last year. this year. Growth in operating income and 2023 labor agreement payments partially offset by higher income tax payments resulted in increasing cash from operations and our free cash flow improvement. A 43% to 853 million. As stated back in April, we restarted sharey purchases late in the second quarter. Although we planned to ramp up repurchases through the year, we started slowly with just over $100 million repurchased in June. Combined with our dividend payments, we've returned $1.7 billion to shareholders year to date.

Kenny: Turning to shareholder returns in the balance sheet on slide 6.

Kenny: Second quarter cash from operations totaled $4 billion, up $175 million versus last year.

Kenny: Growth in Operating Income and 2023 Labor Agreement payments, partially offset by higher income tax payments, resulted in increasing cash from operations and our free cash flow improvement of 43% to $853 million.

Kenny: As stated back in April , we restarted share repurchases late in the second quarter. Although we plan to ramp up repurchases through the year, we started slowly with just over $100 million repurchased in June . Combined with our dividend payments, we've returned $1.7 billion to shareholders year-to-date.

Jennifer Hayman: Finally, our adjusted debt to EBITDA ratio finished the quarter at 2.8 times, and we continue to be rated by our three credit rating agencies.

Jennifer L. Hamann: Although we plan to ramp up repurchases through the year, we started slowly with just over $100 million repurchased in June. Combined with our dividend payments, we've returned $1.7 billion to shareholders year-to-date. Finally, our adjusted debt-to-EBITDA ratio finished the quarter at 2.8x, and we continue to be A-rated by our three credit rating agencies.

Kenny: Finally, our adjusted debt-to-EBITDA ratio finished the quarter at 2.8 times, and we continue to be A-rated by our three credit rating agencies.

Jennifer Hayman: Rapping up on slide 7, as we've reached the midway point of 2024, there remains some uncertainty about the second half recovery that many were forecasting. As Kenny will detail, there are definitely markets where we're seeing growth, and much of that growth is being driven by our business development efforts. There also are some challenge markets, particularly coal. Operation, the team is making great progress towards our long-term goals to be the best in safety, service, and operational excellence. This is reflected in the progress in our safety and performance metrics, including our margins. Importantly, we believe the trend is indicative of where we can get to long-term, and each successive quarter is a step on our way to winning.

Jennifer L. Hamann: Wrapping up on slide seven, there also are some challenge markets, particularly coal. However, we are highly confident in our ability to generate price dollars in excess of inflation dollars and still expect freight revenue to pace ahead of volume in 2020. We also remain committed to our long-term capital allocation strategy.

Kenny: Wrapping up on slide 7, as we've reached the midway point of 2024, there remains some uncertainty about the second half recovery that many were forecasting. As Kenny will detail, there are definitely markets where we're seeing growth, and much of that growth is being driven by our business development efforts.

Kenny: There also are some challenge markets, particularly coal.

Kenny: Operationally, the team is making great progress towards our long-term goals to be the best in safety, service, and operational excellence.

Kenny: This is reflected in the progress in our safety and performance metrics, including our margins.

Kenny: Importantly, we believe the trend is indicative of where we can get to long-term, and each successive quarter is a step on our way to winning.

Jennifer Hayman: We are highly confident in our ability to generate price dollars and excessive inflation dollars, and still expect freight revenue to pace ahead of volume in 2024. We also remain committed to our long-term capital allocation strategy. This includes last week's announcement of a 3% increase in our dividend as we drive higher returns to our owners. This increase represents the 18th year in a row of annual dividend increases. With share repurchases, we expect to repurchase around $1.5 billion in 2024 as we maintain our current leverage.

Kenny: We are highly confident in our ability to generate price dollars in excess of inflation dollars and still expect freight revenue to pace ahead of volume in 2024.

Kenny: We also remain committed to our long-term capital allocation strategy. This includes last week's announcement of a 3% increase in our dividend as we drive higher returns to our owners. This increase represents the 18th year in a row of annual dividend increases.

Kenny: With share repurchases, we expect to repurchase around $1.5 billion in 2024 as we maintain our current leverage.

Jennifer Hayman: Before I turn it over to Kenny, I'd summarize our second quarter financial performance as strong, and our confidence in the future stronger, as we continue to unlock the potential of our great franchise. We're excited to execute on our strategy in the second half, and lay out more of our long-term thoughts at our Investor Day in September.

Kenny: Before I turn it over to Kenny, I'd summarize our second quarter financial performance as strong and our confidence in the future stronger as we continue to unlock the potential of our great franchise.

Kenyatta G. Rocker: We're excited to execute on our strategy in the second half and lay out more of our long-term thoughts at our Investor Day in September, especially if you put aside the lower volume from coal. So, let's jump right in and talk about the key drivers in each of our businesses. Starting with our bulk segment, revenue for the quarter was down 2% compared to last year on a 5% decrease in volume and a 3% increase in average revenue per car driven by solid core pricing gains and a positive mix in traffic. Fertilizer volumes increased for the quarter due to strong export demand for Campatex potash and easier comps from a 2023 customer outing.

Kenny: We're excited to execute on our strategy in the second half and lay out more of our long-term thoughts at our Investor Day in September . Kenny.

Kenny Rocker: Thank you, Jennifer, and good morning. As Jennifer mentioned, we had a solid second quarter, especially if you put aside the lower volume from coal. Great revenues total 5.6 billion for the quarter, which was up 2% excluding fuel surcharges due to strong core pricing and a slight increase in volume. Let's jump right in and talk about the key drivers in each of our business groups. Starting with our bulk segment, revenue for the quarter was down 2% compared to last year on a 5% decrease in volume and a 3% increase in average revenue per car, driven by solid core pricing gains and a positive mix in traffic.

Kenny: Thank you, Jennifer, and good morning. As Jennifer mentioned, we had a solid second quarter, especially if you put aside the lower volume from coal.

Kenny: Great Revenues totaled $5.6 billion for the quarter, which was up 2% excluding fuel surcharges due to strong core pricing and a slight increase in volume.

Kenyatta G. Rocker: In addition, grain product business was favorable. Moving to industrial, revenue was up 2% for the quarter on a 3% decrease in volume and a 5% increase in average revenue per car. Petrochemicals volume continued to grow due to improved domestic demand for plastics and strong business development wins in our industrial chemicals markets from customers. However, challenges with high inventories and rainy weather in the South negatively impacted our rock ball business.

Speaker Change: Let's jump right in and talk about the key drivers in each of our business groups.

Speaker Change: Starting with our bulk segment, revenue for the quarter was down 2% compared to last year on a 5% decrease in volume and a 3% increase in average revenue per car driven by solid core pricing gains and a positive mix in traffic.

Kenny Rocker: However, if you exclude coal, bulk revenue for the quarter was up 4% year over year, and volume grew by 6%. Co-volume was down 23% in the quarter due to ongoing secular decline of the market, along with continued challenges from lower natural gas prices and higher inventory levels. Fertilizer, volumes increased for the quarter due to strong export demand for Campotex potash and easier comp from a 2023 customer outage. In addition, grain products business was favourable due to increased demand for renewable diesel, strong demand for ethanol, and new business win. Moving to industrial, revenue was up 2% for the quarter on a 3% decrease in volume and a 5% decrease in volume.

Speaker Change: However, if you exclude coal, bulk revenue for the quarter was up 4% year-over-year and volume grew by 6%.

Speaker Change: Coal volume was down 23% in the quarter due to ongoing secular decline of the market along with continued challenges from lower natural gas prices and higher inventory levels.

Speaker Change: Fertilizer volumes increased for the quarter due to strong export demand for Campatex potash and easier comps from a 2023 customer outage.

Speaker Change: In addition, grain products business was favorable due to increased demand for renewable diesel, strong demand for ethanol, and new business wins.

Speaker Change: Moving to industrial, revenue was up 2% for the quarter on a 3% decrease in volume and a 5% increase in average revenue per car.

Kenny Rocker: 5% increase in average revenue per car, strong core pricing gains, and a positive mix in traffic were partially offset by lower fuel for charges. Our strong business development efforts in petroleum allowed us to capitalize on opportunities. Petrochemicals volume continued to grow due to improved domestic demand and plastics, and strong business development wins and our industrial chemicals markets from customers located along the Gulf Coast. However, challenges with high inventory and rainy weather in the South negatively impacted our rock volume. Premium revenue for the quarter was up 4% on a 6% increase in volume and a 2% decrease in average revenue per car, reflected in negative mix, lower fuel surcharges, and truck market pressure.

Speaker Change: strong core pricing gains, and a positive mix in traffic were partially offset by lower fuel surcharges.

Speaker Change: Our strong business development efforts in petroleum allowed us to capitalize on opportunities.

Speaker Change: Petrochemicals volume continued to grow due to improved domestic demand in plastics and strong business development winds in our industrial chemicals markets from customers located along the Gulf Coast.

Speaker Change: However, challenges with high inventories and rainy weather in the South negatively impacted our rock volumes.

Speaker Change: Premium revenue for the quarter was up 4% on a 6% increase in volume and a 2% decrease in average revenue per car, reflecting negative mix, lower fuel surcharges, and truck market pressure.

Kenny Rocker: Automotive volumes were positive due to business development wins with both Wagon and General Motors, but offset by unplanned decreases in production, impact, and auto parts shipment. Intermodal volumes continued to remain strong due to West Coast import demand and positive domestic growth, despite market conditions, especially within our parcel segment.

Speaker Change: Automotive volumes were positive due to business development wins with Volkswagen and General Motors, but offset by unplanned decreases in production impacting auto parts shipments.

Speaker Change: Intermodal volumes continue to remain strong due to West Coast import demand and positive domestic growth despite market conditions, especially within our parcel segment.

Kenny Rocker: Now, turning to 510, here is our outlook for the balance of 2024 for the key markets we serve. Starting with bulk, coal is expected to remain challenges, and inventory remain high, and natural gas futures stay at levels that may coal less competitive. For grain, as we sit here today, the markets look stable and healthy, although global export sales are off to a slow start. Crop conditions look good, and we'll have a better read over the next several weeks. In addition, we expect grain products to remain positive as we see incremental renewable diesel production coming online in California and continue to capture new business.

Eric J. Gehringer: Now turning to 510, here's our outlook for the balance of 2024 for the key markets we serve. Starting with bulk, coal is expected to remain challenged as inventories remain high and natural gas futures stay at levels that make coal less competitive. But our improved service products, along with our diversified set of private asset owners and IMCs, provide Union Pacific more opportunities when opportunities present themselves. In summary, I'm proud of the commercial team and their focus on filling the volume gap we're seeing from coal.

Speaker Change: Now, turning to slide 10, here's our outlook for the balance of 2024 for the key markets we serve.

Speaker Change: Starting with bulk, coal is expected to remain challenged as inventories remain high and natural gas futures stay at levels that make coal less competitive.

Speaker Change: For grain, as we sit here today, the markets look stable and healthy, although global export sales are off to a slow start.

Speaker Change: Crop conditions look good and we'll have a better read over the next several weeks. In addition, we expect grain products to remain positive as we see incremental renewable diesel production coming online in California and continue to capture new business.

Kenny Rocker: Turning to industrial, our outlook remains the same as we laid out during our last earnings call. We expect our rock market will not match last year's record volume. However, both petroleum and petrochemical markets will remain favorable due to our focus on business development, supported by our investments in the Gulf Coast. And wrapping up with premium, on the automotive side, we expect to see continued strength for imports in the near term. And while we have seen imports drive pockets of increased demand, on the domestic side, the overall market remains soft. But our improved service product, along with our diversified set of private asset owners and IMCs, provide Union Pacific more at bat when opportunities present.

Speaker Change: Turning to industrial, our outlook remains the same as we laid out during our last earnings call. We expect our rock market will not match last year's record volume.

Speaker Change: However, both petroleum and petrochemical markets will remain favorable due to our focus on business development supported by our investments in the Gulf Coast.

Speaker Change: And wrapping up with premium, on the intermodal side, we expect to see continued strength for imports in the near term. And while we have seen imports drive pockets of increased demand, on the domestic side, the overall market remains soft.

Speaker Change: But our improved service products, along with our diversified set of private asset owners and IMCs, provide Union Pacific more at-bat when opportunities present themselves.

Kenny Rocker: himself. And for automotive, we're still expecting your rear growth due to business development when, despite some softening in the market. In summary, I'm proud of the commercial team, and they're focused to fill the volume gap we're seeing from coal. On the price side, we're achieving solid price results to overcome inflation and delivering the consistent and efficient service that we sold to our customers. As we head into the second half of the year, I am confident that our great franchise, along with the diverse product offerings we provide, gives our customers the ability to compete and win in the marketplace.

Speaker Change: And for automotive, we're still expecting year-over-year growth due to business development wins despite some softening in the market.

Speaker Change: In summary, I'm proud of the commercial team and their focus to fill the volume gap we're seeing from coal. On the price side, we're achieving solid price results to overcome inflation and delivering the consistent and efficient service that we sold to our customers.

Eric J. Gehringer: On the price side, we're achieving solid price results to overcome inflation and delivering the consistent and efficient service that we sold to our customers. That being said, versus 2023, service levels and network performance for the second quarter remain strong, demonstrating our recoverability in the wake of major weather disruptions. Starting with our foundation of safety, we continue to drive improvements, building on the momentum of the first quarter. For the second quarter, both derailment and personal injury rates improved year over year.

Speaker Change: As we head into the second half of the year, I am confident that our great franchise, along with the diverse product offerings we provide, gives our customers the ability to compete and win in the marketplace.

Kenny Rocker: Our commercial leaders are actively working with customers and the operating team to convert more over-the-road business to rail that allow us both to win and grow.

Speaker Change: Our commercial leaders are actively working with customers and the operating team to convert more over-the-road business to rail that allows us both to win and grow. And with that, I'll turn it over to Eric to review our operational performance.

Eric Gehringer: And with that, I'll turn it over to Eric to review our operational performance.

Eric Gehringer: Thank you, Kenny, and good morning. Moving to slide 12. As you heard from Jim, Mother Nature delivered many powerful weather events throughout the quarter. As we experienced impactful flooding across both our northern and southern regions.

Eric: Thank you Kenny and good morning. Moving to slide 12. As you heard from Jim, Mother Nature delivered many powerful weather events throughout the quarter as we experienced impactful flooding across both our northern and southern regions.

Eric Gehringer: But we're not here to make excuses. Leveraging our intense focus on operational excellence and detailed contingency plans, the team quickly acted to mitigate the impact by adjusting trip plans and deploying temporary buffer resources to safely restore operations. I'm very proud of our frontline employees who worked tirelessly to repair our infrastructure to minimize the customer impact. There are countless examples highlighting their efforts as they repaired miles of damaged track, restored bridges, and cleared countless trees and debris. That being said, versus 2023, service levels and network performance for the second quarter remain strong, demonstrating our recovery ability in the wake of major weather disruptions.

Eric: But we're not here to make excuses. Leveraging our intense focus on operational excellence and detailed contingency plans, the team quickly acted to mitigate the impact by adjusting trip plans and deploying temporary buffer resources to safely restore operations.

Speaker Change: I'm very proud of our frontline employees who worked tirelessly to repair our infrastructure to minimize the customer impact. There are countless examples highlighting their efforts as they repaired miles of damaged track, restored bridges, and cleared countless trees and debris.

Speaker Change: That being said, versus 2023, service levels and network performance for the second quarter remain strong, demonstrating our recoverability in the wake of major weather disruptions.

Eric Gehringer: Starting with our foundation of safety, we continue to drive improvements, building on the momentum of the first quarter. For the second quarter, both the railman and personal injury rates improved year over year. While I am proud of the team for making this progress, we will not rest until every employee goes home safe to their loved ones every day. Freight car velocity was flattened the second quarter compared to 2023, as improvements in terminal dwell were offset by weather impacted train speeds. The opportunity here is to drive even stronger terminal dwell performance by removing unnecessary car touches across the network.

Speaker Change: Starting with our foundation of safety, we continue to drive improvements, building on the momentum of the first quarter. For the second quarter, both derailment and personal injury rates improved year over year. While I am proud of the team for making this progress, we will not rest until every employee goes home safe to their loved ones every day.

Eric J. Gehringer: While I am proud of the team for making this progress, we will not rest until every employee goes home safe to their loved ones every day. The team remains highly focused on cost control, leveraging technology and other investments to drive productivity throughout our operations. In fact, our second quarter result was a quarterly record, and June marked the first month ever with train lengths over 9,600 feet.

Speaker Change: Freight car velocity was flat in the second quarter compared to 2023, as improvements in terminal dwell were offset by weather-impacted train speeds.

Speaker Change: The opportunity here is to drive even stronger terminal dwell performance by removing unnecessary car touches across the network.

Eric Gehringer: On the service front, intermodal SPI improved four points, as manifest and auto SPI remained flat. Although we worked hard to minimize impact on weather on our service product, we know customers felt the impact, particularly those located in the affected areas.

Speaker Change: On the service front, Intermodal SPI improved four points as Manifest and Auto SPI remained flat. Although we worked hard to minimize impact on weather on our service product, we know customers felt the impact, particularly those located in the affected areas.

Eric Gehringer: Now let's review our key efficiency metrics on slide 13. The team remains highly focused on cost control, leveraging technology and other investments to drive productivity throughout our operation. As I mentioned last quarter, it is imperative to our strategy, as it enables Kenny and the team to compete in the marketplace. Similar to the first quarter, we saw year-over-year improvements across all of our metrics. Locomotive productivity improved 6 percent compared to second quarter 2023, driven by improved network fluidity and asset utilization. Throughout the year, we have been able to efficiently flex our locomotive fleet with units readily available to adjust levels. Workforce productivity, which does include all employees, improved 5% versus 2023.

Speaker Change: Now let's review our key efficiency metrics on slide 13.

Speaker Change: The team remains highly focused on cost control, leveraging technology and other investments to drive productivity throughout our operation. As I mentioned last quarter, it is imperative to our strategy as it enables Kenny and the team to compete in the marketplace.

Kenny: Similar to the first quarter, we saw year-over-year improvements across all of our metrics.

Kenny: Locomotive productivity improved 6% compared to second quarter 2023, driven by improved network fluidity and asset utilization. Throughout the year, we have been able to efficiently flex our locomotive fleet with units readily available to adjust to varying volume levels.

Kenny: Workforce productivity, which does include all employees, improved 5% versus 2023.

Eric Gehringer: While overall employee levels decrease, our active train engine and yard employees increase as we implement new labor agreements. Train length improved 2% compared to second quarter 2023 and 3% sequentially due to increased intermodal volume combined with the usage of safety technologies like precision and train builder. In fact, our second quarter result was a quarterly record in June, marked the first month ever with train length over 9,600 feet.

Kenny: While overall employee levels decreased, our active train, engine, and yard employees increased as we implement new labor agreements.

Speaker Change: Train length improved 2% compared to second quarter 2023, and 3% sequentially due to increased intermodal volume combined with the usage of safety technologies like Precision Train Builder.

Speaker Change: In fact, our second quarter result was a quarterly record, and June marked the first month ever with train length over 9,600 feet.

Eric Gehringer: This is a remarkable achievement by the team if they continue to generate mainline capacity for future growth.

Speaker Change: This is a remarkable achievement by the team as they continue to generate mainline capacity for future growth.

Eric Gehringer: We're happy now. It's important to note, as we continue to implement new technologies throughout our operations, we are also building new processes. These processes powered by automation and real-time analytics open new capabilities for Union Pacific and our customers. I'm looking forward to sharing such examples at our Investor Day in September.

Speaker Change: Wrapping up, it's important to note, as we continue to implement new technology throughout our operation, we are also building new processes.

Eric J. Gehringer: These processes, powered by automation and real-time analytics, open new capabilities for Union Pacific and our customers. I'm looking forward to sharing such examples at our Investor Day in September. So with that, I'll turn it back to Jim. Thank you, Eric.

Speaker Change: These processes, powered by automation and real-time analytics, open new capabilities for Union Pacific and our customers.

Jim Vena: So, with that, I'll turn it back to Jim.

Speaker Change: I'm looking forward to sharing such examples at our Investor Day in September . So with that, I'll turn it back to Jim.

Jim Vena: Thank you, Eric.

Jim Vena: Turn it to the slide 15. Before we get to your questions, I'd like to quickly summarize what you've heard from our team. First, as you heard from Jennifer, despite the challenging environment, we achieved strong financial results in the quarter. We continue to drive efficiency into the network, and the commercial team has done a good job generating price for the value we provide our customers. Can he provide you with an overview of the second quarter volumes and laid out some updated thoughts for the remainder of the year? I think it's worth stating that when you remove coal, our total volume was up 3% in the second quarter.

Vincenzo James Vena: Before we get to your questions, I'd like to quickly summarize what you heard from our team. First, as you heard from Jennifer, despite a challenging environment, we achieved strong financial results in the quarter. We continue to drive efficiency into the network, and the commercial team has done a good job generating prices for the value we provide our customers. Kenny provided you with an overview of the second quarter volumes and laid out some updated thoughts for the remainder of the year. I think it's worth stating that when you remove coal, our total volume was up 3% in the second quarter. You may press star 2 if you'd like to remove your question from the queue.

Jim: Thank you Eric. Turning to slide 15, before we get to your questions, I'd like to quickly summarize what you've heard from our team.

Jim: First, as you heard from Jennifer, despite a challenging environment, we achieved strong financial results in the quarter. We continue to drive efficiency into the network, and the commercial team has done a good job generating price for the value we provide our customers.

Kenny: Kenny provided you with an overview of the second quarter volumes and laid out some updated thoughts for the remainder of the year. I think it's worth stating that when you remove coal, our total volume was up 3% in the second quarter.

Jim Vena: This demonstrates that even in a tough freight environment, we are winning with our customers to bring new business to the railroad. Lastly, Eric walked you through the progress we're making across safety, service, and operational excellence. In the first half of the year, our safety metrics improved, but we still have a way to go. Our service was challenged in the quarter, but I'm pleased with our ability to recover, and we're continuing to do things more efficiently, making good improvements in operational excellence. Look, the quarter presented its challenges, but I'm very pleased with the results we achieved.

Speaker Change: This demonstrates that even in a tough freight environment, we are winning with our customers to bring new business to the railroad. Lastly, Eric walked you through the progress we're making across safety, service, and operational excellence.

Jim: In the first half of the year, our safety metrics improved, but we still have a way to go.

Jim: Our service was challenged in the quarter, but I'm pleased with our ability to recover, and we're continuing to do things more efficiently, making good improvements in operational excellence.

Speaker Change: Look, the quarter presented its challenges, but I'm very pleased with the results we achieved. From the beginning, I said improvement wasn't going to be a straight line. There are just too many variables when you operate an outdoor factory.

Jim Vena: From the beginning, I said improvement wasn't going to be a straight line. There are just too many variables when you operate an outdoor factory, but I expect the trend line will be in the right direction, and we've demonstrated that again this quarter. Over the past 12 months, we've put this company on the right path to redefining what's possible for Union Pacific.

Jim: But I expect the trend line will be in the right direction, and we've demonstrated that again this quarter. Over the past 12 months, we've put this company on the right path to redefining what's possible for Union Pacific, a theme we'll build on at our Investor Day in mid-September.

Jim Vena: A theme we'll build on at our Investor Day in mid-September.

Unknown Executive: With that, now we're ready to take your questions, Rob.

Jim: With that, now we're ready to take your questions, Rob.

Unknown Executive: Thank you.

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

Speaker Change: Thank you. We will now be conducting the 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 is in the question queue.

Jim: You may press star 2 if you'd like to remove your question from the queue.

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

Unknown Executive: Do the number of analysts joining us on the call today. We'll be limiting everyone to one question to accommodate as many as possible.

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

Brandon Oglinski: Thank you, and the first question today is from the line of Brandon Oglinski with Barclays.

Speaker Change: Thank you. And the first question today is from the line of Brandon Oglenski with Barclays. Please proceed with your question.

Vincenzo James Vena: Hey, good morning. Yeah, Brandon, I appreciate the question. And you're right on. I think they announced me last year on the 26th. We agreed that I was going to join this company, and the announcement came up.

Brandon Oglinski: Good morning, Brandon. Hey, good morning. Good morning, and thanks for taking the question.

Speaker Change: Morning, Brandon. Hey, good morning.

Jim Vena: Jim, if I recall, it was almost a year ago that you got appointed CEO, and I think you said publicly, "give me a year; then let's look back and judge how things went." I think you just clearly articulated the coal headwinds in the quarter, but I guess how would you look at the past year in terms of operational improvement, network performance, and then maybe, most importantly, customer growth, which I think you were voting. Brandon, I appreciate the question, and you're right on. I think they announced me last year on the 26th. We agreed that I was going to join this company, and the announcement came up. So guess what, it's a year.

Brandon Robert Oglenski: Good morning, and thanks for taking the question. So Jim, if I recall, it was almost a year ago that you got appointed CEO . And I think you said publicly, give me a year, then let's look back and judge how things went.

Brandon Robert Oglenski: I think you just clearly articulated the coal headwinds in the quarter, but I guess how would you look at the past year in terms of operational improvement, network performance, and then maybe most importantly, customer growth, which I think you were alluding to?

Vincenzo James Vena: So guess what? It's been a year. Now, I actually didn't start work till the 14th of August, but that's okay. A couple of weeks doesn't make a difference.

Jim: Yeah, Brandon, I appreciate the question and you're right on. I think they announced me last year on the 26th, we agreed that I was going to join this company and the announcement came up, so guess what, it's a year. Now, I actually didn't start work until the 14th of August , but that's okay, a couple of weeks doesn't make a difference.

Jim Vena: Now, I actually didn't start work till the 14th of August, but that's okay. A couple of weeks doesn't make a difference.

Jim Vena: Bottom line is, if I look at the quarter-branded, I'm very, very, very happy with how we progressed on this railroad. If you start above the line, and Kenny and the entire team have done a great job of, we knew we had an inflationary pressures with the contracts that were signed, and we knew that we had to do something above the line, and I think we've done a great job, and you can see that where the revenue comes in against our volume growth, and we continue, and we will continue to see that as we go through the year, so I'm very comfortable with that.

Brandon Robert Oglenski: And we knew that we had to do something above the line, and I think we've done a great job. And you can see that where the revenue comes in against our volume growth. And we continue, and we will continue to see that as we go through the year. So I'm very comfortable with that.

Jim Vena: Business development, we have been, I have personally spent a lot of time, Kenny as an entire team spends a lot of time, and the entire leadership group with customers looking for opportunity, and we've spent capital and developed new facilities and expanded facilities across our network to be able to handle more business. But the best part about it is, as our service level is to the point where the first discussion isn't, are you providing the service that we agreed to? It's more of, how do we work together to move ahead? Operationally below the line, very comfortable, to be able to present today the numbers that we are on, car velocity, dwell, locomotive, and things that you all don't see, how fast our crew changes are, how well we're able to, and the number of people that takes to operate the terminals. We see those numbers every day, and I'm very comfortable with where we are.

Brandon Robert Oglenski: Business development, I have personally spent a lot of time, Kanye as an entire team spends a lot of time, and the entire leadership group with customers looking for opportunity, and we've spent capital and developed

Vincenzo James Vena: New facilities and expanded facilities across our network to be able to handle more business. Appreciate the answer, Jim. Thanks.

Brandon Robert Oglenski: New Facilities and Expanded Facilities across our network to be able to handle more business. But the best part about it is our service level.

Brandon Robert Oglenski: It's to the point where the first discussion isn't, are you providing the service that we agreed to? It's more of, how do we work together to move ahead?

Brandon Robert Oglenski: Operationally, below the line, very comfortable to be able to...

Speaker Change: Today, the numbers that we are on car velocity, dwell, locomotive, and things that you all don't see.

Brandon Robert Oglenski: how fast our crew changes are, how well we're able to, and the number of people it takes to operate the terminals.

Jim Vena: And I'm also very happy that we continue to improve our operating ratio, and I don't see that stopping. We'll have; I never give a number for operating ratio because it's a result of everything you do. But to have a 160 basis point improvement this last quarter, year over year operating ratio, and sequentially a small is a greater testament with what we can do with everything that we are impacted with this customer. We are not a team that makes excuses. You won't hear us complain about coal. We just say that coal is a problem, but to be able to, when we were at 20 plus percent drop in our coal volume, to actually increase, goes to show you the strength of our network.

Brandon Robert Oglenski: We see those numbers every day, and I'm very comfortable with where we are. And I'm also very happy that we continue to improve our operating ratio, and I don't see that stopping.

Speaker Change: We'll have, I never give a number for operating ratio because it's a result of everything you do, but to have a 160 basis point improvement this last quarter, year-over-year operating ratio, and sequentially a small, is a great testament with what we can do with everything that we are impacted with this customer.

Jim Vena: We're going to leverage what we're doing in Mexico with our 26 percent ownership of FXC, and we think that's going to lead to more growth as we move ahead, and we're going to leverage this network we have. So Brandon, I'm in a real good place.

Brandon Robert Oglenski: what we're doing in Mexico with our 26% ownership of FXC.

Brandon Robert Oglenski: And we think that's going to lead to more growth as we move ahead, and we're going to leverage this network we have.

Jim Vena: So hopefully, hopefully you guys aren't the toughest markers in the world because sometimes some of you are. But overall, I'm very happy with where we are today, and I look forward to how this next few years, while I'm leading this company, will show everybody what we can do.

Brandon Robert Oglenski: I'm in a real good place. So hopefully you guys aren't the toughest markers in the world, because sometimes some of you are. But overall, I'm very happy with where we are today, and I look forward to how this next few years, while I'm leading this company, and show everybody what we can do.

Brandon Oglinski: Appreciate the answer, Jim. Thanks.

Brandon Robert Oglenski: Appreciate the answer, Jim. Thanks.

Scott Group: Our next question is from the line of Scott Group with Wolf Research. Please excuse your question. Good morning, Scott. Hey, thanks. Good morning. So I know Jennifer Mix can swing on you, positive, negative. Any thoughts on Mix based on your volume outlook in the back half of the year? And then I just want a bigger picture, right? You know, even if I adjust for mix, the yield growth is still relatively muted in the context of higher inflation. And so I know I've asked this before. I keep asking it because I just think it's so critical.

Scott H. Group: Our next question is from the line of Scott Group with Wolf Research. Please proceed with your question, based on your volume outlook for the back half of the year. And then I just want a bigger picture, right? You know, even if I adjust for mix, the yield growth is still relatively muted in the context of higher inflation. And so, I know I've asked this before. I keep asking because I just think it's so critical.

Jim: You're welcome, Brandon.

Speaker Change: Our next question is from the line of Scott Group with Wolf Research. Please proceed with your question.

Scott H. Group: Hey, thanks, good morning. So, I know Jennifer Mix can swing on you, positive, negative. Any thoughts on Mix?

Scott H. Group: Based on your volume outlook in the back half of the year. And then I just want a bigger picture, right?

Speaker Change: Even if I adjust for mix, the yield growth is still relatively muted in the context of

Speaker Change: of Higher Inflation and so I know I've asked this before I keep asking it because I just think it's so critical like

Scott H. Group: Like, when do you guys think we'll truly get back to inflation plus pricing? And I know I don't mean like dollars versus dollars. I mean, margin-accretive inflation plus pricing, because I think that's, in my opinion, the key to having confidence in like sustained margin improvement. So I don't know. Any thoughts?

Scott Group: Like, when do you guys think we truly get back to inflation plus pricing? And I don't mean like dollars versus dollars. I mean like margin accretive inflation plus pricing because I think that's sort of like the, in my opinion, the key to having confidence in like sustained margin improvement. And any thoughts? Thank you.

Speaker Change: When do you guys think we we truly get back to inflation plus pricing? And I know I don't mean like dollars versus dollars I mean like margin accretive inflation plus pricing because I think that's sort of like the

Speaker Change: And in my opinion, the key to like having confidence in like sustained margin improvement. So I don't know. Any thoughts?

Scott Group: Well, so a couple of things there, Scott. On the mix side of things, as we look ahead, you know, a lot of the drivers that are present in our volumes here in the second quarter are going to be present, at least into the third quarter. You know, international and our model is staying strong. You know, coal is weaker. The industrial portion of our portfolio, while we've got great business development opportunities, there's just a little softness there. And so if you assume that that dynamic continues, that's going to continue to have an impact on our mix, probably to the negative side.

Speaker Change: Well, so a couple things there, Scott. On the mix side of things, as we look ahead, you know, a lot of the drivers that were present in our volumes here in the second quarter are going to be present at least into the third quarter. You know, international intermodal is staying strong. You know, coal is weaker. The industrial portion of our portfolio, while we've got great business development opportunities, there's just a little softness there. So if you assume that that dynamic continues.

Speaker Change: That's going to continue to have an impact on our mix.

Scott Group: So, I mean, you guys get our volumes every week; you'll be able to see that engage that, but that's kind of our going in expectation as we look at what's ahead of us, particularly into the third quarter, and we'll see how some of those intermodal trends move into 4Q. In terms of the question relative to price and price accretion, you know, the team is doing, I think, a very good job of driving price in the areas where they can touch it and actively work with the customers. Jim mentioned the service aspect of it. That's critical when you're sitting in front of customers and driving the price.

Speaker Change: Probably to the negative side. So, I mean, you guys get our volumes every week. You'll be able to see that and gauge that. But that's kind of our going in expectation as we look at what's ahead of us, particularly into the third quarter, and we'll see how some of those intermodal trends move into 4Q.

Kenyatta G. Rocker: Thank you. In terms of the question relative to price and price accretion, you know, the team is doing, I think, a very good job of driving price in the areas where they can touch it and actively work with the customers. Jim mentioned the service aspect of it. That's critical when you're sitting in front of customers and deciding the price. And so the thing that I'm very encouraged by is we know we'll get to that point. But I'm not going to give you a date by which we'll get to that point.

Speaker Change: In terms of the question relative to price and price accretion, you know, the team is doing, I think, a very good job of driving price in the areas where they can touch it and actively work with the customers. Jim mentioned the service aspect of it. That's critical when you're sitting in front of customers and driving the price. And so the thing that I'm very encouraged by is we know we'll get to that point. I'm not going to give you a date by which we'll get to that point. But what's encouraging is without that, we're still driving very solid margin improvement.

Scott Group: And so the thing that I'm very encouraged by is we know we'll get to that point. I'm not going to give you a date by which we'll get to that point. But what's encouraging is, without that, we're still driving very solid margin improvement and looking for more going ahead. So that's what I would focus on. And as we continue to get more access to contracts, that's just going to give us more upside and more ability going forward.

Kenyatta G. Rocker: But what's encouraging is without that, we're still driving very solid margin improvement and looking for more going forward. So that's what I would focus on. And as we continue to get more access to contracts, that's just going to give us more upside and more ability. And Kenny, on the delayed projects, is there any expectation for these things to sort of be lifted as we look into 2025, or is this sort of a wait and see? Sounds good.

Speaker Change: and looking for more going ahead. So that's what I would focus on, and as we continue to get more access to contracts, that's just going to give us more upside and more ability going forward.

Jason Seidl: A nice question to the line of Jason side out with TD County. Please just use your question. Thank you, operator. Jim team. Good morning. Nice to see you guys recover from some of the weather and the quarter. You know, I want to focus in a little bit on something, Kenny, that you say you mentioned. There was some weakness on your on your rock business. You know, we've been hearing some of the infrastructure projects that were planned are sort of really not getting off the ground. Is that part of the weakness that's behind that, or what are you looking at the marketplace?

Speaker Change: Thanks for the questions, Scott.

Speaker Change: Our next question is from the line of Jason Seidl with TD Cowen. Please receive your question.

Jason H. Seidl: Thank you, operator. Jim and team, good morning.

Jason H. Seidl: Nice to see you guys recover from some of the weather in the quarter. You know, I want to focus in a little bit on something, Kenny, that you say you mentioned.

Jason H. Seidl: There was some weakness on your rock business, you know, we've been hearing some of the infrastructure projects that were planned are sort of really not getting off the ground. Is that part of the weakness that's behind that or what are you looking at in the marketplace?

Kenny Rocker: Jason, you're right on. We've seen some NLG products down in the golf that have been delayed or slow roll, and a lot of it also is just overall demand. And we haven't had the best weather. Haven't seen that in that second quarter. So yes, it is. I will tell you this though, Jason, Eric's team is doing everything they can to capture the volume that is out there. We're looking at adding every car to every train and to maximize efficiency. So, as the opportunities are there, we're taking advantage of it. So that makes sense.

Kenny: Yeah, Jason, you're right on. We've seen some...

Kenny: and LG Products down in the Gulf that have been delayed.

Speaker Change: or Slow Row, and a lot of it also is just overall demand and we haven't had the best weather.

Speaker Change: I haven't seen that in that second quarter, so yes, it is.

Speaker Change: I will tell you this though, Jason, Eric's team is doing everything they can to capture the volume that is out there. We're looking at adding every car to every train that we can to maximize efficiency. So as the opportunities are there, we're taking advantage of it.

Kenny Rocker: And Kenny, on the delayed projects, is there any expectation for these things to sort of be lifted as we look at 25 or sort of a wait and see? I think it's waiting to see us hard for us to go out and forecast what a lot of the customers will do and how the contractors will play out. You know, our best bet is just to be prepared, which we are. Sounds good.

Speaker Change: That makes sense. And Kenny, on the delayed projects, is there any expectation for these things to sort of be lifted as we look at the 25 or is it sort of a wait-and-see?

Kenny: I think it's wait and see. It's hard for us to go out and forecast what a lot of the customers will do and how the contractors will play out. You know, our best bet is just to be prepared, which we are.

Jason Seidl: Appreciate the time.

Vincenzo James Vena: Appreciate the time. No, I don't see that. I think we've shown that we can improve, and I see more improvement even with a flat. I don't expect us to have our volume be flat, though.

Speaker Change: Sounds good. Appreciate the time.

Unknown Executive: Our next question comes from the line of challenge to felt with Evercore ISI. Let's just see with your question. Thank you.

Speaker Change: Thanks for the question.

Speaker Change: Our next question comes from the line of Jonathan Chappell with Evercore ISI. Please just state your question.

Unknown Executive: Good morning. Jim, do we get to a point in your new tenure here where some of these productivity improvements that you've made start to hit a ceiling without volume? Clearly, what you've been able to do on locomotives and workforce in a flat volume environment, and of course we understand what's happening with coal, is pretty impressive, but do you hit this ceiling without a volume tail at some point? No, no. I don't see that. I think we've shown that we can improve, and I see more improvement even with a flat. I don't expect us to have our volume be flat, though.

Jonathan B. Chappell: Thank you. Good morning.

Jonathan B. Chappell: Jim, do we get to a point in your new tenure here where some of these productivity improvements that you've made start to hit a ceiling without volume? And clearly what you've been able to do on locomotives and workforce in a flat volume environment, and of course we understand what's happening with coal, it's pretty impressive, but do you hit this ceiling without a volume tail end at some point?

Jonathan B. Chappell: No.

Jim: No, I don't see that. I think we've shown that we can improve, and I see more improvement even with a flat. I don't expect us to have our volume be flat, though. That's not the way we're working it.

Jim Vena: That's not the way we're working at this. Everything that we've done is to increase our volume against some pretty big negatives that are structural that we can't control. So is it easier when you have increasing volume? Yes, you know, you had another five cars on a on a on a intermodal train or a manifest train; makes it a lot easier, but I think the technology that we're implementing, the speed that we're going to be able to change our plan and what we're doing moving forward, will help us to be able to, even on a flat volume, be able to improve our efficiency.

Vincenzo James Vena: That's not the way we're working this. Everything that we've done is to increase our volume against some pretty big negatives that are structural that we can't control. So, is it easier when you have an increase in volume?

Jim: Everything that we've done is to increase our volume against some pretty big negatives that are structural that we can't control.

Vincenzo James Vena: Yes. You know, having another five cars on an intermodal train or a manifest train makes it a lot easier. But the technology that we're implementing, the speed that we're going to be able to change our plan, and what we're doing moving forward will help us to be able to, even on a flat volume, improve our efficiency. So, I'm very comfortable with, as we move ahead, there'll be more even on a flat volume. Great. Thanks, Jim. Thank you.

Jim: So is it easier when you have an increase in volume? Yes. You know, you add another five cars on a

Jim: on an intermodal train or a manifest train makes it a lot easier. But the technology that we're implementing, the speed that we're going to be able to change our plan, and what we're doing moving forward will help us to be able to, even on a flat...

Jim: volume, be able to improve our efficiency. So I'm very comfortable with as we move ahead, there'll be more even on the plat.

Jim Vena: So I'm very comfortable with as we move ahead, there'll be more even on a flat.

Unknown Executive: Great.

Stephanie Moore: Thank you. Our next question comes from a line of Stephanie Moore with Jeffries. This is your question. Hi. Good morning. Thank you. You know, I think continue. Good morning. Continuing on the on the prior question, really nice margin and margin performance for the first half of the year. Can you talk a little bit just based on maybe some of the mix headwinds and the cost of initiatives and a lot of the kind of puts and takes here. What that should mean in terms of kind of normal seasonality from margins is a or the year progresses.

Speaker Change: Great. Thanks, Jim. Thank you.

Speaker Change: Our next question comes from the line of Stephanie Moore with Jeffrey. Please proceed with your question.

Stephanie Lynn Benjamin Moore: Hi, good morning. Thank you.

Stephanie Lynn Benjamin Moore: Good morning. Good morning. Continuing on the prior question, really nice margin performance for the first half of the year.

Stephanie Lynn Benjamin Moore: Just based on maybe some of the mixed headwinds and the cost of initiatives and a lot of the kind of puts and takes here, what that should mean in terms of kind of normal seasonality for margins as the OR as the year progresses. Thank you.

Stephanie Moore: Thank you.

Kenny Rocker: Stephanie, listen, I just sort of answered overall on the high level what I see, but I'm going to pass this off to Kenny. Can you talk about margin? How we're looking at pricing? How we move ahead? Yeah. Thanks. Thanks for that, Jim. So, first of all, you all have heard me say this before. When you look at our approach to revenue growth, this volume growth through business development, but it's also our pricing approach, and our commercial team has been very clear to articulate some of the inflation area pressures that are out there. But more importantly, the team has taken risks.

Vincenzo James Vena: Stephanie, listen, I just sort of answered overall at the high level what I see, but I'm going to pass this off to Kenny. Kenny, you talk about margin, how we're looking at pricing, how we move ahead. Yeah, yeah, thanks for that, Jim.

Kenny: Stephanie, listen, I just sort of answered overall on the high level what I see, but I'm going to pass this off to Kenny. Kenny, you talk about margin, how we're looking at pricing, how we move ahead. Yeah, yeah. Thanks for that, Jim. So, first of all, and you all have heard me say this before.

Kenyatta G. Rocker: So first of all, and you all have heard me say this before, when you look at our approach to revenue growth, it's volume growth through business development, but it's also our pricing approach, and our commercial team has been very clear to articulate some of the inflationary pressures that are out there. But more importantly, the team has taken risks. So I guess just to follow up, really nothing from a seasonality standpoint to really call out as we think about performance as the year progresses. It really has a lot to do with volumes.

Kenny: When you look at our approach to revenue growth, it's volume growth through business development, but it's also our pricing approach, and our commercial team has been very

Kenny: clear to articulate.

Kenny: Some of the inflationary pressures that are out there, but more importantly the team has taken risks.

Kenny Rocker: And so we are doing, as these contracts are coming up, everything we can do to maximize price for margin expansion. And so, at every turn, at every contract, those are some with our service improvement, Eric. Those are some really good opportunities for us to maximize our price. So we're doing everything we can do there. So I guess just to follow up, really nothing from a seasonality standpoint to really call out as we think about performance of the year progresses. Yeah.

Kenny: And so we are doing, as these contracts are coming up, everything we can do to maximize price for margin expansion. And so at every turn, at every contract,

Kenny: Those are some, with our service improvement, Eric, those are some really good opportunities for us to maximize our price, so we're doing everything we can do there.

Eric: So I guess just to follow up really nothing from a seasonality standpoint to really call out as we think about performance as the year progresses.

Kenny Rocker: I mean, when you think about seasonality, I'll jump in here. You know, it really has a lot to do with volumes. And if you look at our volume performance, generally speaking, the quarters where we have the strongest volume growth, that's where you tend to get your greatest margin improvement. It goes back to Jim's comments on productivity and that volume leverage piece. That said, we've shown really good sequential improvement in our margins. And it kind of broke that trend as we've really come in and put a big focus on how we can drive greater productivity across the network over the last three quarters.

Speaker Change: When you think about seasonality, I'll jump in here, you know, it really has a lot to do with volumes. And if you look at our volume performance, generally speaking, the quarters where we have the strongest volume growth, that's where you tend to get your greatest margin improvement. It goes back to Jim's comments on productivity and that volume leverage piece.

Kenyatta G. Rocker: If you look at our volume performance, generally speaking, the quarters where we have the strongest volume growth, that's where you tend to get your greatest margin improvement. It goes back to Jim's comments on productivity and that volume leverage piece. That said, we've shown really good sequential improvement in our margins and have kind of broken that trend as we've really come in and put a big focus on how we can drive greater productivity across the network over the last three quarters. And quite frankly, you know, I think that's something that maybe is a little bit underappreciated in terms of how hard it has been for the team to achieve that.

Speaker Change: That said, we've shown really good sequential improvement in our margins and have kind of broke that trend as we've really come in and put a big focus on how we can drive greater productivity across the network over the last three quarters.

Kenny Rocker: And quite frankly, you know, I think that's something that maybe is a little bit underappreciated in terms of how hard it has been for the team to achieve that. Looking forward, it really is going to be about the volumes and the continued emphasis on the productivity and the price. Those are our three levers. And so, as you're thinking sequentially, I'd be comparing volumes sequentially and see how that progresses. That's going to really be the determinant. Thank you.

Speaker Change: And quite frankly, you know, I think that's something that maybe is a little bit underappreciated in terms of how hard it has been for the team to achieve that. Looking forward, it really is going to be about the volumes and the continued emphasis on the productivity and the price. Those are our three levers. And so as you're thinking sequentially, I'd be comparing volumes sequentially and see how that progresses. That's going to really be the determinant.

Brian Patrick Ossenbeck: Looking forward, it really is going to be about volumes and the continued emphasis on productivity and price. Those are our three levers. And so as you're thinking sequentially, I'd be comparing volumes sequentially and see how that progresses. That's going to really be the determinant. Our next question is from the line of Brian Ossenbeck with J.P. Morgan. Now, let me take this first one on international and morality.

Brian Ossenbeck: Our next question is from the line of Brian Ossenbeck with J.P.

Stephanie Lynn Benjamin Moore: Thanks, Stephanie.

Brian Ossenbeck: Morgan. Let's just hear a third question. Morning, Brian. Hey, good morning, Team. Thanks for taking the question. Yeah, maybe a couple for Keny. Can you just talk about the international intermodal as I've been quite strong? There's been some expectation for that to spill over into domestic. Do you have any thoughts on when that might happen and whether that's good, bad, or indifferent for U.P.?

Stephanie Lynn Benjamin Moore: Our next question is from the line of Brian Ossenbeck with J.P. Morgan. Please proceed with your question.

Brian Patrick Ossenbeck: Hey, good morning team. Thanks for taking the questions.

Brian Patrick Ossenbeck: Yeah, maybe a couple for Kenny. Can you just talk about...

Brian Patrick Ossenbeck: The international intermodal has always been quite strong. There's been some expectation for that to spill over into domestic. Do you have any thoughts on when that might happen and whether that's good, bad, or indifferent

Brian Ossenbeck: And then, secondly, I don't know who would want to take this, but just as we get to the investor day in a couple of months, you talk about redefining what's possible. You can help level set expectations, what we're going to hear from you all on the team. When we see, you know, multi-year growth strategy, again, underpinned by some of the end markets, we talk about truckload conversion and quantify that. Maybe just help give us some expectations on what to think about in a couple of months when we see you on Dallas.

Kenny: for UP.

Speaker Change: and then.

Speaker Change: Secondly, I don't know who would want to take this, but just as we get to the investor day in a couple months, you talk about redefining what's possible.

Speaker Change: Meeting help level set expectations what we're going to hear from you from you all on the team. We see you know multi-year growth strategy again underpinned by some of the end markets. We talk about truckload conversion and quantify that. Maybe just help give us some expectations on what to think about in a couple months when we see you all in Dallas.

Kenny Rocker: Let me take this first one on international intermodal. So, first of all, yes, we've seen some very strong growth on the international intermodal side. And yes, we have seen some of that spill over on the domestic intermodal side. And I want to touch on the fact that, you know, our product development, meaning the investment that we've made, efficient investments in places like Inland Empire, helping us to grow here recently. Even though it's a short-term phenomenon because of the labor issues up in Canada, we're not going to just, you know, take that volume in the short term.

Speaker Change: Yeah, let me take this first one on international and immoral.

Kenyatta G. Rocker: So, first of all... product development that's out there. That's the international model. I talked a little bit about the fact that, yeah, we are seeing quite a bit that's being transloaded that's showing up on the domestic side, and our products are helping us grow. So, good morning. So, service, you know, was challenged by the weather in the quarter. But you're showing an ability to recover. Jim, you just noted we should continue to see operating ratio improvement going forward. Should we see that in improved car velocity going forward now that we don't have storms?

Speaker Change: So, first of all...

Speaker Change: Yes, we've seen some very strong growth on the international intermodal side.

Speaker Change: And yes, we have seen some of that spill over on the domestic intermodal side. And I want to touch on the fact that, you know, our product development, meaning the investment.

Speaker Change: that we've made efficient investments in places like Inland Empire, helping us to grow here recently, even though it's a short-term.

Speaker Change: phenomenon because of the labor issues up in Canada. We're not going to just, you know, take that volume in the short term. We're doing everything we can.

Kenny Rocker: We're doing everything we can to get it permanently. We want a piece of business into our twin cities in the intermodal terminal, and that's the way we can take advantage, again, of the product development that's out there.

Speaker Change: to get it permanently. We want a piece of business into our Twin Cities and on...

Speaker Change: Intermodal Terminal, and that's a way we can take advantage, again, of the product development that's out there. So, that's the international and the modal. I talked a little bit about the fact that, yeah, we are seeing quite a bit that's being transloaded that's...

Kenny Rocker: So that's International intermodal. I talked a little bit about the fact that, yeah, we are seeing quite a bit that's being translated that's showing up on the domestic side, and our products are helping us grow. In fact, when we look at our domestic business, you know, year over year in the quarter, it was up, and we feel pretty good about where it started off here in this quarter. So that's some, you know, some real specific feedback for you.

Speaker Change: Showing up on the domestic side and our products are helping us grow. In fact, when we look at our domestic business, you know, year-over-year in the quarter, it was up and we feel pretty good about where it started off here in this quarter. So that's some, you know, some real specific feedback for you.

Kenny Rocker: Okay, and then in terms of your question about the investor day and, you know, what's possible, that really is going to be how we're going to frame things. And that's certainly been Jim's challenge to the team since he came here a little over a year ago: don't look back at what you've done historically. Don't look back and see what you think is the best ever.

Speaker Change: Okay, and then in terms of your question about the Investor Day and you know what's possible

Speaker Change: That really is going to be how we're going to frame things, and that's certainly been Jim's challenge to the team since he came here a little over a year ago.

Jim: Don't look back at what you've done historically. Don't look back and see what you think is the best ever. Look forward and see what you really do think we can achieve together with this great franchise that we have. So I don't want to front-run things too much with you, Brian . We want to make sure folks tune in in September . But we're excited about the message and the opportunity to speak to everybody and share some of our plans.

Kenny Rocker: Look forward and see what you really do think we can achieve together with this great franchise that we have. So I don't want to frontrun things too much with you, Brian.

Kenny Rocker: We want to make sure folks tune in in September, but we're excited about the message and the opportunity to speak to everybody and share some of our plans. Okay, understood. Thank you.

Speaker Change: Okay, understood. Thank you. Thanks, Brian .

Ken Hexter: Our next question is from the line of Ken Hexter with Bank of America. This is easy for your question. Good morning, Ken. So good morning. So service, you know, was challenged by the weather in the quarter. You're showing an ability to recover. Jim, you just noted we should continue to see operating ratio improvement going forward. Should we see that in improved car velocity going forward now, you don't have storms and being the cost benefit. Then I guess I'll ask kind of Stephanie's question a little differently given the hazy economic outlook and can operating ratio improves sequentially.

Speaker Change: Our next question is from the line of Ken Hoexter with Bank of America. Please proceed with your question.

Speaker Change: Good morning, Ken.

Kenneth Scott Hoexter: So, good morning. So, service, you know, was challenged by the weather in the quarter. You're showing an ability to recover. Jim, you just noted we should continue to see operating ratio improvement going forward. Should we see that in improved car velocity going forward now you don't have storms?

Kenyatta G. Rocker: And being the cost benefit, then I guess I'll ask Stephanie's question a little differently. Given the hazy economic outlook, can the operating ratio improve sequentially? Whoa, Ken.

Speaker Change: And being the cost-benefit, then I guess I'll ask kind of Stephanie's question a little differently. Given the hazy economic outlook, can operating ratio improve sequentially?

Jim Vena: Well, can you know that people always want me to start talking about where we I think the end point is on this, and I think we continue to improve. We're going to have quarters that are better than other quarters, but operationally, you should always look at. We give a lot of metrics out there. And if you take a look at the metrics, car velocities, real important, dwell times real important, and of course there's about a hundred others that I look at internally that tell me how we're operating and where we need to focus and how we need to do this.

Ken: Well, Ken, you know the...

Speaker Change: People always want me to start talking about where I think the end point is on this, and I think we continue to improve. We're going to have quarters that are better than other quarters, but operationally, you should always look at, we give a lot of metrics out there.

Speaker Change: And if you take a look at the metrics, car velocity is real important, dwell time is real important, and then of course there's about a hundred others that I look at internally that tell me how we're operating and where we need to focus and how we need to do this.

Jim Vena: So that's one piece, and we are aligned. We've got a great team; they know what the end goal is. So I see us optimizing the railroad and continue to get better at how we operate. But what really helps operating ratio and margins is revenue growth. And we are pushing hard on that piece by both bringing in volume at the right price. And also pricing because of inflation and everything we've had. So when you put those two things together, you know, we might have some quarters where sequentially it doesn't improve as much as people would like because it's never a straight line.

Speaker Change: So that's one piece, and we are aligned. We've got a great team. They know what the end goal is. So I see us optimizing the railroad and continue to get better at how we operate.

Speaker Change: But what really helps operating ratio and margins is revenue growth. And we are pushing hard on that piece by both bringing in volume at the right price and also pricing.

Speaker Change: because of inflation and everything we've had. So when you put those two things together...

Speaker Change: You know, we might have some quarters where sequentially it doesn't improve as much as people would like, because it's never a straight line, but I'm very comfortable.

Jim Vena: But I'm very comfortable.

Jim Vena: I didn't come back to work, you know. I look at it as I had a sabbatical for a couple of years away from Union Pacific, came on, did what we had to do operationally. I'm back here to drive this place to where is what I see as possible, and I'm very comfortable. And after the first year, I'm even more comfortable than I was on August 14th when I walked back in the front door. So it's take a look at those metrics, but take a look at what's happening our volume and translate that on what we did in the second quarter on revenue against where we were with our car load growth.

Speaker Change: I didn't come back to work, you know. I look at it as I had a sabbatical for a couple of years away from Union Pacific, came on, did what we had to do operationally.

Speaker Change: I'm back here to drive this place to where I see it as possible, and I'm very comfortable. And after the first year, I'm even more comfortable than I was on August 14th when I walked back in the front door.

Speaker Change: Ken, take a look at those metrics, but take a look at what's happening in our volume and translate that on what we did in the second quarter on revenue against where we were with our carload growth.

Jim Vena: So hopefully that gives you a better frame of the way I look at it. Thank you.

Vincenzo James Vena: So hopefully that gives you a better understanding of the way I look at it, Ken. Thanks, Jeff. You're welcome.

Speaker Change: So hopefully that gives you a better framing of the way I look at it, Ken.

Tom Latovitz: Our next question is in the line of Tom Latovitz with UBS. Please excuse your question. Yeah, good morning. So wanted to ask just on kind of, you know, I think you talked about some weakness in industrial.

Kenneth Scott Hoexter: Thanks, Jeff.

Kenneth Scott Hoexter: You're welcome.

Speaker Change: Our next question is from the line of Tom Wadowitz with UBS. Please proceed with your question.

Vincenzo James Vena: Yeah, good morning. So I wanted to ask just kind of, you know, I think you talked about some weakness in industrial. How do you think about your markets overall, if you say industrial and consumer? Are things getting kind of, you know, a little bit stronger or a little bit weaker in those two segments? And then, you know, maybe one more for Kenny as well.

Thomas Richard Wadewitz: Yeah, good morning. So I wanted to ask just on kind of

Kenny Rocker: How do you think about your markets overall if you say industrial and consumer are things getting kind of, you know, a little bit stronger or a little bit weaker in those two segments and then, you know, maybe one more for probably for Kenny as well. You mentioned a lot of times business development and new customer wins, which is great. I wonder if you could kind of put some give us a couple of buckets to think about where the opportunity for new business wins is the most significant, right? Are there some industrial segments or which customer segments give you the most opportunity in the future for those customer wins to matter?

Thomas Richard Wadewitz: You know, I think you talked about some weakness in industrial...

Thomas Richard Wadewitz: How do you think about your markets overall if you say industrial and consumer are things getting kind of

Vincenzo James Vena: You mentioned a lot of times business development and new customer wins, which is great. I wondered if you could kind of give us a couple of buckets to think about where the opportunity for new business wins is the most significant, right? Are there some industrial segments or which customer segments give you the most opportunity in the future for those customer wins to matter?

Speaker Change: you know, a little bit stronger or a little bit weaker.

Speaker Change: in those two segments, and then...

Speaker Change: You know maybe one more for probably for Kenny as well. You mentioned a lot of times business development and new customer wins which is great. I wondered if you could kind of

Speaker Change: Give us a couple of buckets to think about where the opportunity for new business wins is the most significant, right? Are there some industrial segments or which customer segments give you the most opportunity in the future for those customer wins to matter? Thank you.

Kenny Rocker: Thank you. Yeah, thank you, Tom. So you've got up to macro economic indicators like industrial productions, not strong; clouds and starts aren't helping us either. And then you know where natural gas prices are. So we don't get the roll over and play dad because coal is not where it needs to be. The commercial team is out there hustling and getting more business.

Vincenzo James Vena: You've got a few macroeconomic indicators like industrial production is not strong, housing starts aren't helping us either, and then you know where natural gas prices are. So we don't get the rollover and play dead because coal is not where it needs to be.

Speaker Change: Yeah, thank you, Tom. So you've got a few macroeconomic indicators like industrial production not strong, housing starts aren't helping us either, and then you know where natural gas prices are.

Speaker Change: So we don't get to roll over and play dead because coal is not where it needs to be. The commercial team is out there hustling and getting more business. Let me talk about some of the areas that I feel good about from a business development perspective.

Vincenzo James Vena: The commercial team is out there hustling and getting more business. Let me talk about some of the areas that I feel good about from a business development perspective. Renewable Diesel.

Kenny Rocker: Let me talk about some of the areas that I feel good about from a business development perspective. Renewable diesel. I'll start with that. That's an emerging market. I've been really excited that the team has been out there. Drone, Origin Point, and Destination Point. It allows us to pitch and catch on the petrochemical side. In the Gulf, we talked about the investment there and the wins that we've been able to get in that petrochemical market, and then on the premium side, I'll talk about it from a couple angles. One is Mexico will continue to be a market over the near-term and long-term, and you've seen that Eric's side is put up some really good products up against it.

Vincenzo James Vena: I'll start with that. That's an emerging market, and I've been really excited that the team has been out there.

Speaker Change: Renewable Diesel. I'll start with that. That's an emerging market. I've been really excited that the team has been out there growing origin points and destination points. It allows us to pitch and catch.

Speaker Change: on the petrochemical side in the Gulf. We talked about the investments there and the wins that we've been able to get in that petrochemical market.

Speaker Change: And then on the premium side, I'll talk about it from a couple angles.

Vincenzo James Vena: One is Mexico will continue to be a market in the near-term and long-term, and you've seen that Eric's side has put up some really good products against it as we talk about that north-south corridor, getting into the Midwest, and products in terms of getting into the southeast, and then, boy, quite a few new products coming out of Houston, going into Phoenix, setting up our ramp and expanding in different areas. So in some cases, we have to create our own markets to make the pie larger. And that's exactly what you're seeing. When you say the premium side, do you mean premium domestic and remote products, or how do you mean that? Both.

Speaker Change: One is Mexico will continue to be a market over those.

Speaker Change: near-term and long-term. And you've seen that Eric's side has put up some really good products up against it as we talk about that north-south corridor getting into the Midwest.

Kenny Rocker: As we talk about that North South Quarter, getting into the Midwest, and products in terms of getting into the Southeast, and then a boy quite a few new products coming out of the Houston, going into Phoenix, setting up our ramp and expanding in different areas. So, in some cases, we have to create our own markets to make the pie larger, and that's exactly what you're seeing. When you say the premium side, you mean premium and domestic and rural products, or how do you mean that? Both, both domestic and our international and remote. Okay, and just back on the kind of economy question, do you think it's getting stronger or weaker, or is that hard to say?

Speaker Change: and products in terms of getting into the southeast, and then, boy, quite a few new products.

Speaker Change: Coming out of Houston, going into Phoenix, setting up our ramp and expanding in different areas. So in some cases, we have to create our own markets to make the pie larger, and that's exactly what you're seeing.

Speaker Change: When you say the premium side, do you mean premium domestic and remotal products, or how do you mean that? Both. Both domestic and our international.

Vincenzo James Vena: Both domestic and our international. Okay, and just back on the kind of economy question, do you think it's getting stronger or weaker? Or is that hard to say?

Speaker Change: Thanks for watching. See you tomorrow.

Speaker Change: Okay, and just back on the kind of economy question, do you think it's getting like stronger or weaker, or is that hard to say?

Kenny Rocker: You know, let's deal very unclear for us. I'm not in a position to forecast where it is. All I'm telling you is that we're going to go out and make our own markets where we can, and we're doing that through the product development that I mentioned and working with customers. Okay, great. Thanks for the time. Thanks, though.

Speaker Change: You know, it's still very unclear for us. I'm not in a position to forecast where it is. All I'm telling you is that we're going to go out and make our own markets where we can, and we're doing that through the product development that I mentioned and working with customers.

Vincenzo James Vena: Okay, great. Thanks for the time. The next question is from the line of Chris Wetherbee with Wells Fargo. Good morning, Chris.

Speaker Change: Okay, great. Thanks for the time.

Kenny Rocker: It's been a line of Chris Weatherbeat with Wells Fargo. Let's just see what's your question. Morning Chris. Hey, morning. Thanks for taking the question. You know, maybe Kenny coming back on the pricing side. Because I'm just kind of curious as you're seeing the market from a volume perspective. Ex-Coal, look a little bit more supportive here in 24. Operational things are moving well. As you're having these incremental contract renewals, is it reasonable to say that the rate of increase is beginning to maybe pick up a little bit? I guess I just was curious, kind of perspective when you're thinking in the old days when we used to get sort of same store sales type of numbers.

Speaker Change: The next question is from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question.

Christian F. Wetherbee: Hey morning. Thanks for taking the question. Yeah, maybe Kenny, coming back on the pricing side, I guess I'm just kind of curious, as you can see, every contract is unique. Every customer is unique. Every discussion is unique.

Speaker Change: Good morning, Chris.

Christian F. Wetherbee: Hey morning, thanks for taking the question. You know, maybe Kenny, coming back on the pricing side, I guess I'm just kind of curious as you're seeing

Christian F. Wetherbee: The market from a volume perspective, XCOL, look a little bit more supportive here in 24 operationally, things are moving well. As you're having these incremental contract renewals, is it reasonable to say that the rate of increase is beginning to maybe pick up a little bit? I guess I just was curious kind of perspective when you're thinking in the old days when we used to get sort of same-store sales type of numbers, how you think about that? So I'm just kind of curious if we are actually starting to see any uptick there.

Kenny Rocker: How do you think about that? So I just kind of curious if we are actually starting to see any uptake there.

Kenny Rocker: You know, the short answer is just the long answer is that every contract is unique, every customer is unique, and every discussion is unique. We're mixing that with what's happening on the service side; a strong service product is helping us. We've always been very price-disciplined as a company. What you're seeing is that now we're able to take a little bit more risk as we're talking to our customer because of the inflationary pressures that are out there. Okay. That's very helpful. Appreciate it. Thank you.

Speaker Change: You know, the short answer is yes, the long answer is that, uh...

Speaker Change: Every contract is unique. Every customer is unique. Every discussion is unique. We're mixing that with what's happening on the service side. A stronger service product is helping us. We've always been very price disciplined as a company. What you're seeing is that now we're able to take a little bit more risk.

Kenyatta G. Rocker: We're mixing that with what's happening on the service side. A stronger service product is helping us. We've always been very price-disciplined as a company. What you're seeing is that now we're able to take a little bit more risk. The next question is from the line of Walter Spracklin with RBC.

Speaker Change: As we're talking to our customers because of the inflationary pressures that are out there.

Speaker Change: Okay, that's very helpful. I appreciate it. Thank you.

Jim Vena: The next question is from the line of Walters Racklin with RBC. Please see you through your question. Thanks very much, Albert. So Jim, good morning. You mentioned before your sabbatical there, you were able to achieve an operating ratio as low, I think, a one quarter is 55.1%. And there's been a lot of talk about how this time is different. And that might not be an achievable number. So, not asking you a target, just rather asking you, are there factors that are really limiting you that weren't there before? Either cyclical, volume, or structural, like the work rules.

Speaker Change: The next question is from the line of Walter Spracklin with RBC. Please proceed with your question.

Walter Noel Spracklin: Please proceed with your question. Thanks very much, Albert. So, Jim, you know, yep, good morning. You mentioned before your sabbatical there that you were able to achieve an operating ratio as low as 55.1%. I think one quarter is 55.1%.

Walter Noel Spracklin: Thanks very much, Albert. So Jim, you know, yep, good morning. You mentioned before your sabbatical there, you were able to achieve an operating ratio as low, I think one quarter is 55.1 percent,

Walter Noel Spracklin: And there's been a lot of talk about how this time is different and that might not be an achievable number. So, not asking you a target, just rather asking you, are things different? Are there factors that are really limiting you that weren't there before, either cyclical like volume or structural like work rules?

Speaker Change: and there's been a lot of talk about how this time is different.

Walter Noel Spracklin: And that might not be an achievable number, so not asking you a target, just rather asking you, are there factors that are really limiting you that weren't there before, either cyclical, like volume, or structural, like the work rules?

Vincenzo James Vena: I'm trying to get an apples-to-apples comparison of what, you know, kind of what the new 55 is. Not asking that, but more asking you are there those factors and are they meaningful enough to kind of put in a permanent impairment on that, on an objective or any, you know, comparing it to any prior level of operating ratio achievement. Yeah, Walter, I like the question because that's exactly the way we need to look at it. We know what we've done before, and I could go back to when I was at Canadian National and the numbers that were delivered back in 2013 to 2016. So I know the game and the play and how you have to get there to be able to deliver. Are there some things that are structurally different?

Jim Vena: It's trying to get it. Apple's apples compare of what, you know, kind of what is the new 55? Not asking of that, but more asking you, are there those factors? And are they meaningful enough to kind of put in a permanent impairment on that, on an objective or any comparing it to any prior level of operating ratio achievement?

Speaker Change: It's trying to get an apples to apples compare.

Speaker Change: of Watt.

Speaker Change: You know, kind of what is the new 55? Not asking that, but more asking you, are there those factors?

Speaker Change: And are they meaningful enough to kind of put a permanent impairment on an objective or comparing it to any prior level of operating ratio achievement?

Jim Vena: Yeah, well I like the question because that's exactly the way we need to look at it. We know what we've done before, and I could go back to when I was at the Canadian National and numbers that were delivered back in 2013 to 2016. So I know the game of Ha and the play and how you have to get there to be able to deliver. Is there some things that are structurally different? Yes, the collective agreements are an impact to our cost, and we'll follow for a while with us. Now we've done a great job of mitigating some of it, but it's pretty tough to mitigate it all.

Speaker Change: Yeah, Walter, I like the question because that's exactly the way we need to look at it is...

Speaker Change: We know what we've done before and I could go back to when I was at Canadian National and numbers that were delivered back in 2013 to 2016 so

Speaker Change: I know the game and the play and how you have to get there to be able to deliver. Is there some things that are structurally different? Yes, the collective agreements.

Vincenzo James Vena: Yes. The collective agreements have an impact on our costs and will follow us for a while. We've done a great job of mitigating some of it, but it's pretty tough to mitigate it all. So that's a negative that's going to be with us for a while. So we'll probably carry a few more people than we normally would have if the railroad had not signed some of the last collective agreements. But I look at it this way.

Speaker Change: are a impact to our costs and will follow for a while with us.

Speaker Change: Now, we've done a great job of mitigating some of it, but it's pretty tough to mitigate it all. So that's a negative that's going to be with us for a while. So we'll probably carry a few more people than we normally would have if the railroad had not signed some of the last collective agreements.

Jim Vena: So that's a negative that's going to be with us for a while, so we'll probably carry a few more people than we normally would if the railroad had not signed some of the last collective agreements. But I look at it this way. We, I see a clear picture as we move ahead that we can mitigate a lot of that and have in the railroad that's very efficient. We're going to use the network we have to optimize our cost structure. We are implementing work patterns and how we operate that will help us. So that's, I don't think we'll be able to mitigate all of that, but you can also mitigate it by bringing more business on and also leveraging our access to Mexico, leveraging our access to customers.

Vincenzo James Vena: I see a clear picture as we move ahead that we can mitigate a lot of that and have a railroad that's very efficient. I say, hang on, watch us go. This is not a short-term solution. I said it the very first time I was on a call.

Speaker Change: But I look at it this way, I see a clear picture as we move ahead that we can mitigate a lot of that and have a railroad that's very efficient. We're going to use the network we have to optimize our cost structure. We are implementing...

Speaker Change: work patterns and how we operate that will help us. So that's, I don't think we'll be able to mitigate all of that.

Kenny: But you can also mitigate it by bringing more business on and also leveraging our access to Mexico, leveraging our access to customers. Kenny's a little reserved sometimes and Jennifer, but I'll tell you.

Jim Vena: Kenny's a little reserved sometimes in Jennifer, but I'll tell you we have a railroad that the opportunity is there. And when we have discussions, we don't talk about OGs. You know, we have some problems with this. We look at what are we going to do? Phoenix, we opened it up because we think there's a market there. Okay, Manyapolis, we opened it up. Frits are a model terminal we expanded. We spent money in the Gulf and working with customers that want to be with us. So we do both of those. I say, hang on, watch us go.

Speaker Change: We have a railroad that the opportunity is there. And when we have discussions, we don't talk about, oh, geez, you know, we have some problems with this. We look at what are we going to do.

Speaker Change: Phoenix. We opened it up because we think there's a market there. Okay. Minneapolis, we opened it up. Fritz Intermodal Terminal, we expanded. We spent money in the Gulf and working with customers that want to be with us. So we do both of those.

Jim Vena: This is not a short term. I said it the very first time I was on a call. This is not a short-term fix when you have that kind of inflationary pressure. But I'm very happy that this quarter we were able to deliver another 160 basis points of improvement in our OR with everything that we've done. And we're going to have some good quarters, some bad quarters, but I'm telling you, in the long run, stay tuned, Walter.

Speaker Change: I say hang on, watch us go. This is not a short term. I said it the very first time I was on a call. This is not a short term fix when you have that kind of inflationary pressure. But I'm very happy that this quarter we were able to deliver another 160...

Vincenzo James Vena: This is not a short-term fix when you have that kind of inflationary pressure. But I'm very happy that this quarter we were able to deliver another 160 basis points of improvement in our OR with everything that we've done. And we're gonna have some good quarters, some bad quarters, but I'm telling you, in the long run. Stay tuned, Walter, and listen, Walter. As soon as you're probably in Canada, I know there are a lot of people that I know from CN and others impacted by the fire in my hometown, and I wish everybody the best. I appreciate it.

Speaker Change: Basis Points of Improvement and our OR with everything that we've done. And we're going to have some good quarters, some bad quarters, but I'm telling you, in the long run.

Walter Spracklin: And listen, Walter, if seen as you're probably in Canada, I know there's a lot of people that I know from CNN and others impacted with the fire in my hometown, and I wish everybody the best. I appreciate it. Okay, thanks for the color.

Speaker Change: Stay tuned, Walter. And listen, Walter, as soon as you're probably in Canada, I know there's a lot of people that I know from CN and others impacted with the fire in my hometown, and I wish everybody the best.

Vincenzo James Vena: Okay, thanks for the caller, Tim. Our next question is from the line of Ben Nolan with Stifel. Please proceed with your question. Yeah, thanks.

Speaker Change: Appreciate it. Okay, thanks for the caller, Tim.

Eric Gehringer: Let's see if there's a question. Thanks. I was interested to see that the average train link, I think he said, was the high set it's ever been. It was curious if, as you think about that going forward, maybe there were some puts and takes, like more international and remote. Well, I assume it's helpful to that, but maybe Cole is detrimental. Do you think there's more room to go there? Can we continue to see the train links improved? And then, obviously, it's beneficial to everything across the board, but OR in particular.

Speaker Change: Our next question is from the line of Ben Nolan with Stiefel. Pleased to see you with your question.

Benjamin Joel Nolan: I was interested to see that the average train length, I think you said, was the highest that it's ever been. I was curious if, as you think about that going forward, maybe there are some puts and takes, like more international intermodal, which I assume is helpful to that, but maybe coal is detrimental. Do you think there's more room to go there?

Benjamin Joel Nolan: Yeah, thanks. I was interested to see that the average train length, I think you'd said, was the highest that it's ever been. It was curious if, as you think about that going forward, maybe there were some puts and takes, like more international intermodal, I assume is helpful to that, but maybe coal is detrimental. Do you think there's more room to go there? Can we continue to see the train lengths improve, and then obviously that is beneficial to everything across the board, but OR in particular?

Vincenzo James Vena: Can we continue to see train lengths improve? And then obviously, that is beneficial to everything across the board, but OR in particular. Let me pass this over to Eric, and I can't give you the answer because Eric knows it's a different number than mine, but I've got a goal out there, but Eric, it's all yours.

Eric Gehringer: Let me pass it over to Eric, and I can't give you the answer because Eric knows it's a different number than that. I've got a goal out there, but Eric, it's all yours. Ben, to be very clear, the answer to your question is yes, we can continue to grow it. Now, let's make sure we're on the same page: 2% improvement in the quarter, 3% sequential improvement to your comment. Best quarter we've ever had in June was the highest month in the history of Union Pacific at 9,600 feet. We want to give a lot of credit to our teams. That's hard work to do that.

Eric: Well, let me pass it over to Eric, and I can't give you the answer because Eric knows it's a different number, but I've got a goal out there, but Eric, it's all yours. Ben, to be very clear, the answer to your question is yes, we can continue to grow it.

Eric J. Gehringer: Ben, to be very clear, the answer to your question is yes, we can continue to grow it. Now, let's make sure we're all on the same page. 2% improvement in the quarter, 3% sequential improvement. To your comment, the best quarter we've ever had in June was the highest month in the history of Union Pacific at 9,600 feet. And we want to give a lot of credit to our team. That's hard work to do that.

Eric: Now let's make sure we're all on the same page. 2% improvement in the quarter, 3% sequential improvement. To your comment, best quarter we've ever had in June was the highest month in the history of Union Pacific at 9,600 feet. And we want to give a lot of credit to our team. That's hard work to do that.

Eric Gehringer: Now, when we have conversations about training, we also got to remind ourselves that since 2019, our main 9D rail mits are down 42% while our training has been up 20%. Percent, that's because we continue to invest in technology and science, and that's really going to be the continued foundation of how we keep building this out. Yes, to your point, mixed makes a difference, but what makes more of a difference is getting more volume on the railroad, like we're seeing within a model. That's been a tailwind for us, but also using our precision train build their software as well as other things that continue to identify opportunities for us to do it.

Eric J. Gehringer: Now, when we have conversations about train length, we also have to remind ourselves that since 2019, our mainline derailments are down 42% while our train length has been up 20%. That's because we continue to invest in technology and science. And that's really going to be the continued foundation of how we keep building this out. Yes, to your point, mix makes a difference.

Eric: Now, when we have conversations about train link, we also got to remind ourselves that since 2019 our mainline derailments are down 42% while our train link has been up 20%.

Eric: That's because we continue to invest in technology and science. And that's really going to be the continued foundation of how we keep building this out. Yes, to your point, mix makes a difference.

Eric J. Gehringer: But what makes more of a difference is getting more volume on the railroad, like we're seeing with Intermodal, that's been a tailwind for us, but also using our Precision Train Builder software, as well as other things that continue to identify opportunities for us. And then, day-to-day, just fundamentally how we run the railroad, and we've talked about this before, we still see opportunities to run combo trains, largely on the bulk side So, yes, there's more opportunity, but the team's up against that.

Eric: But what makes more of a difference is getting more volume on the railroad like we're seeing with Intermodal. That's been a tailwind for us, but also using our Precision Train Builder software, as well as other things that continue to identify opportunities for us to do it.

Eric Gehringer: And then on a day-to-day, just fundamentally how we run the railroad, and we've talked about this before, we still see opportunities to combo trains largely on the bulk site. So yes, there's more opportunity that teams up against that. I'm looking forward to their continued gains.

Eric: And then on a day-to-day, just fundamentally how we run the railroad, and we've talked about this before, we still see opportunities to combo trains, largely on the bulk side. So, yes, there's more opportunity. The team's up against that. I'm looking forward to their continued gains.

Eric J. Gehringer: I'm looking forward to their continued... Hi. Just a couple of demand-related questions and follow-ups. I think in the first quarter you mentioned the commodity outlook was muted. Now it's uncertain. Are you feeling better, or even though it's uncertain, are you feeling better than you did a quarter ago? And then, specifically on coal, obviously there's been a lot of carload pressure, but can you give some sense as to the trajectory as we move through the back half of the year in terms of year-over-year pressures? Thanks. And again, Cole is a...

Unknown Executive: All right, appreciate, thank you.

Jordan Alliger: Our next question comes to the line of Jordan Alliger with Goldman Sachs. I just a couple of the main related questions follow-up. I think in the first quarter you mentioned the commodity outlook was muted; now it's uncertain.

Speaker Change: Alright, I appreciate it. Thank you.

Speaker Change: Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please receive your questions.

Jordan Robert Alliger: Hi, just a couple demand-related questions, follow-ups. I think in the first quarter you had mentioned the commodity outlook was muted. Now it's uncertain.

Jordan Alliger: So I guess, first part of the question is, and some commodities moved to the positive bucket, like international intermodal and grain, and some just sort of wondering, are you feeling better, or even though it's uncertain, are you feeling better than you did a quarter ago? And then specifically on coal, obviously there's been a lot of carload pressure, but can you give some census to the trajectory, as we move through the back after the year, in terms of year or year, pressures, thanks. Yeah, I'll start with coal first, and then work my way back. And again, coal is a natural gas prices are all over the place.

Speaker Change: First part of the question is, and some commodities have moved to the positive bucket, like international, intermodal, and grain, so I'm just sort of wondering...

Speaker Change: Are you feeling better? Or even though it's uncertain, are you feeling better than you did a quarter ago? And then, specifically on coal, obviously there's been a lot of...

Speaker Change: Car Load Pressure, but can you give some sense as to the trajectory as we move through the back half of the year in terms of year-over-year pressures? Thanks.

Speaker Change: Yeah, I'll start with Cole first and then work my way back in.

Eric J. Gehringer: The natural gas prices are all over the place. If you look at April, they were the lowest on record for a few years, and as we move throughout the quarter, by June, they have bounced back up. It's very difficult to go out and forecast based on that.

Cole: And again, Cole is a...

Kenny Rocker: If you look at April, they were the lowest on record for a few years, and as we moved throughout the quarter by June, the bounce back up. It's very difficult to go out and forecast based on that. We talked about preparedness. We're talking with Eric Dean Daily to make sure we can capture the demand that's out there. I've been very encouraged that our commercial team is talking to each coal customer, each coal receiver, one by one to see when they can add in, so we're doing everything we can to influence the demand there.

Speaker Change: Natural gas prices are all over the place. If you look at April , they were the lowest on record for a few years. And as we moved throughout the quarter, by June , they had bounced back up. It's very difficult to go out and forecast based on that.

Speaker Change: We talked about preparedness. We're talking with Eric's team daily to make sure we can capture the demand that's out there. I've been very encouraged that our commercial team is talking to each.

Eric J. Gehringer: [inaudible] Coal customer, each coal receiver. So, overall demand, let's just, you know, talk about a few things won on the international remodeled side. You know, that's been a strength for us. I think that'll stay with us at least for the quarter. I can't.

Speaker Change: co-customers, co-receiver, one-by-one to see when they can add in a set, but we're doing everything we can to influence the demand there.

Kenny Rocker: So overall demand, let's just talk about a few things. One on the international and a modified, that's been a strength for us. I think that'll stay with us, at least for the court. I can't see out further than that. I talked about a little bit earlier. The positives were seen from that on the domestic side and the products that we have up against it to go out there and grow.

Speaker Change: So, overall demand, let's just, you know, talk about a few things.

Speaker Change: One on the international remodeled side, you know, that's been a strength for us. I think that will stay with us at least for the quarter. I can't see out further than that. I talked about a little bit earlier.

Speaker Change: The positives we're seeing from that on the domestic side and the products that we have up against it to go out there and grow.

Kenny Rocker: Green, you had a question about Green. You know, hey, look, the prop looks great right now, as it stands today. The demand looks what I call stable. We'll see what happens on the export market, but while we are waiting for the export market, our commercial team is engaging. Those domestic, you know, receivers, and Mexico is also an area from a business development perspective that we want. So we can't just wait around for some of these markets to help us out. We're doing something about it and making something happen.

Speaker Change: Green, you had a question about green?

Speaker Change #105: You know, hey, look, the crop looks great right now as it stands today. The demand looks what I call stable. We'll see what happens on the export market, but while we are waiting for the export market, our commercial team is engaging those domestic markets.

Speaker Change: You know, receivers. And Mexico is also an area from a business development perspective that we want, so we can't just wait around for some of these markets to help us out. We're doing something about it and making something happen.

Kenny Rocker: Automotive, same thing. We talked about the wins. What I hadn't talked about is that we've had some products where Eric has helped us out. Well, we've had land bridge opportunity. So again, very specific actions up against the service and the product to really help overcome some of these other, you know, macroeconomic challenges on the housing and industrial side. Thank you.

Speaker Change: Automotive, same thing.

Speaker Change: We talked about the wins. What I hadn't talked about is that we've had some products where Eric has helped us out, where we've had land bridge opportunities, so again, very specific actions up against the service and the product to really help overcome

Speaker Change: Some of these other macroeconomic challenges on the housing and industrial side.

Eric J. Gehringer: Okay, thank you. Thank you. Thank you for the questions.

Speaker Change: Okay, thank you.

Bascome Majors: Our next question is from the line of Bascome Majors with Susquehanna. I'm pleased to see you with your question. Good morning, Jim.

Speaker Change: Thank you. Thanks for the question.

Speaker Change #102: Our next question is from the line of Bascome Majors with Susquehanna. Pleased to see you with your question.

Vincenzo James Vena: Jim and Jennifer, you both talked about having to get past some of the inflationary pressures, and I know you mentioned contracts referring to the labor agreement. I know in the past, you know, this time last year, you were talking about some of the purchase services pressure as well. Can you help us understand kind of where you're tracking when you blend your sense of inflation and overall labor with both the contractual rates and some of the work rule adjustments and purchase service? Like, where is that today?

Bascome: Morning, Bascom.

Bascom: Good morning, Jim.

Bascome Majors: Jim and Jennifer, you both talked about having to get past some of the inflationary pressures and I know you mentioned contracts referring to the labor agreement. I know in the past, you know, this time last year you were talking about some of the purchase services pressure as well. Can you help us understand kind of where you're tracking when you blend

Vincenzo James Vena: How does that compare to last year? And what's the steady state as you look at two, three years to understand what we're really pricing against the marketplace today? Yeah, I mean, it's too soon to say, Bascom, at this point, but boy, my hope is that we're talking about a number that's less than 5% next year as we move in. You know, it seems like all of those indicators are moving in the right direction, but we'll look at that. But I think, to your point, though, when I look back historically, we used to talk about an inflation rate that was around 2%.

Speaker Change #101: Your sense of inflation and overall labor with both the contractual rates and some of the work rule adjustments.

Speaker Change #101: and Purchase Service, like where is that today? How does that compare to last year? And what's the steady state as you look at two, three years to understand what we're really pricing against the marketplace today? Thank you.

Speaker Change #101: Yeah, thanks for the question, Bascom. So, you know, coming into the year, we said that we thought our full-year inflation would be around 5% or so.

Speaker Change #101: I think we're probably tracking pretty close to that, you know, we're seeing some wins in some of the purchase service categories.

Speaker Change #101: Seeing, you know, a little bit greater acceptance in the marketplace, a few more people coming in to bid. So that's encouraging and certainly that's an opportunity for us to get a little bit better pricing on that purchase services side of the world. Same with materials to a certain extent, obviously that plays more into our CapEx spend than it does the OE, but both are very important to us, right? We're looking to control costs at every turn.

Speaker Change #101: You know, comp and benefits certainly is a big piece of our expenses. That inflation, I would say, is still probably running around that 5% level that we talked to coming into the year. I think, as you all know, we've got a 4.5% wage increase that became effective.

Speaker Change #101: It's the last one in this round of negotiations.

Speaker Change #101: became effective July 1 for our craft professionals.

Speaker Change #101: You know, I don't see a lot changing there, it's just some moving pieces and parts and we're trying to find areas where we can try to mitigate that.

Speaker Change #101: either through our productivity, through our purchasing, and how we're just running the railroad in general. And obviously, that's the task that we have up against Kenny and his team is, these are the inflationary pressures that we're facing, this is what's going into the cost structure, and we need to go out there, have those tough conversations, and the team is doing that, and I feel very confident about that.

Speaker Change #104: To that point, if we get into next year, it sounds like it's probably a safer expectation to think still closer to that 5% range than maybe the 2.5-3% we saw for a long time.

Bascom: Yeah, I mean it's too soon to say Bascom at this point, but boy, my hope is that we're talking about a number that's less than 5% next year.

Speaker Change #104: As we move in, it seems like all of those indicators are moving in the right direction, but we'll look at that. I think to your point, though, when I look back historically, we used to talk about an inflation rate that was around 2%. I don't think we're going to get back to those levels, but certainly we're going to work to push it down below 5%.

Vincenzo James Vena: I don't think we're going to get back to those levels, but certainly we're going to work to push it down below 5%. Those things are trending in the right direction, but how much of a drop we're going to see next year, you know, we'll see. But I'd rather have that view than where we were a year ago. Thank you both.

Ravi Shanker: Our next question is from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question. Hi, good morning. This is Christine McGarvey on behalf of Ravi Shanker.

Speaker Change #104: Thanks for the question.

Kenyatta G. Rocker: Thanks for the question. I wanted to circle back to the business development conversation and maybe ask the question in a slightly different way. Just curious if you guys have seen any notable changes in terms of the makeup of the pipeline or maybe even more particularly customer behavior. Just as we think about pipeline conversion, is there anything out there with macro or political developments that's kind of leaving shippers with some decision paralysis that wears off in the coming months and that can start to see conversion accelerate? I would just be curious on that angle how you guys are thinking about things.

Kenyatta G. Rocker: Acro, or political developments that's kind of leaving shippers with some decision paralysis that wears off in the coming months and that could, you know, start to see conversion accelerate. We'll just be curious on that angle how you guys are thinking about things.

Kenyatta G. Rocker: Yeah, so the pipeline is strong. It's a robust pipeline. We feel good about the pipeline, both near-term and long-term. The conversion rates haven't changed. We keep an eye on that. I know where it is there.

Speaker Change: Yeah, so the pipeline is strong. It's a robust pipeline. We feel good about the pipeline, both near-term and long-term.

Kenyatta G. Rocker: and over the next couple years.

Speaker Change: The conversion rates haven't changed. We keep an eye on that. I know where it is there.

Kenyatta G. Rocker: You know, what we saw here recently is the realization rates, meaning if a customer said, hey, it's going to be 100 cars, it wasn't as high as 100 cars. And so you would expect as the markets improve that realization rate to also go up. Again, we're looking at the same macroeconomic indicators. Hey, if Powell can start...

Kenyatta G. Rocker: You know, what we saw here recently.

Kenyatta G. Rocker: is the realization rate, meaning if a customer said, hey, it's going to be 100 cars, it wasn't as high as 100 cars. And so you would expect, as the markets improve, that realization rate to also go up.

Speaker Change #104: Again, we're looking at the same macroeconomic indicators. Hey, if Powell can start...

Kenyatta G. Rocker: .. you know what? That moves a lot of things. That's cement. That's PVC. That's roofing. That's the carpet that goes in there. That's glass.

Kenyatta G. Rocker: We started to move. You know what? That moves a lot of things. That's cement. That's PVC. That's roofing. That's the carpet that goes in there. That's glass. That's the soda ash we move. We play a role in all those products, and so we'll see where that happens, but the theme here is that...

Kenyatta G. Rocker: That's the sodash we move. We play a role in all those products. And so we'll see where that happens. But the theme here is that...

Kenyatta G. Rocker: The markets are going to do what the markets are going to do. We are going out and creating our own markets, again, through product development and business development, and doing it as efficiently as possible.

Kenyatta G. Rocker: The markets are going to do what the markets are going to do. We are going out and creating our own markets again through product development and business development and doing it as efficiently as possible as we can.

Speaker Change: Thanks for the question. Appreciate it.

Daniel Robert Imbro: Our next question is in the line of Daniel Embro with Stevens. Please proceed with your question. Morning, Daniel. Yeah. Hey, good morning, everybody.

Speaker Change #104: Our next question is from the line of Daniel Embro with Stevens. Please proceed with your question.

Vincenzo James Vena: Thanks for taking our questions. Maybe one from a capital efficiency standpoint. So Jim, how do you feel about the assets you guys have today? I think you mentioned in the prepared remarks that you can flex the fleet up and down. Utilization can probably always go up, but obviously, there's longer-term savings. So how do you balance the need to refresh some of the fleet?

Speaker Change: Yep. Hey, good morning, everybody. Thanks for taking our questions.

Vincenzo James Vena: Maybe one from a capital efficiency standpoint. So, Jim, how do you feel about the assets you guys have today? I think you all mentioned in the prepared remarks you could flex the fleet up and down. Utilization could probably always go up, but obviously there's longer-term savings.

Speaker Change: So how do you balance the need to refresh some of the fleet? How do you think about capital spending in this environment just potentially ahead of more volume growth as we look forward from here?

Vincenzo James Vena: How do you think about capital spending in this environment, just potentially ahead of more volume growth as we look forward from here? Yeah, I think we built our capital plan. We always build it from the bottom up to see what we need to do.

Vincenzo James Vena: Yeah, I think we built our capital plan. We always build it from bottom up to see what we need to do. And we're very comfortable with the $3.4 billion that we have this year. And we don't see any substantial difference in our capital plan moving forward.

Vincenzo James Vena: And we're very comfortable with the $3.4 billion that we have this year, and we don't see any substantial difference in our capital plan moving forward. Now, do we really have the capability? You know, you heard us talk about buying back a billion and a half dollars of shares. You've heard us talk about the cash that we're producing. So if we need to, if there's something out there that we really need to spend money on, we'll do that. But as far as the railroad, the assets, the plant, that's fixed. We don't mess around with that.

Vincenzo James Vena: Do we do have the capability? You know, you heard us talk about buying back...

Vincenzo James Vena: a billion and a half dollars of shares.

Vincenzo James Vena: You've heard us on the cash that we're producing, so if we need to, if there's something out there that really we need to spend money on, we'll do that. But as far as the railroad...

Vincenzo James Vena: What we need to spend, we spend. And then we have also built into that $3.4 development and what we can do to drive more business to our railroad. So I'm very comfortable. That's the way you should think about it.

Vincenzo James Vena: the assets, the plant.

Vincenzo James Vena: That's fixed. We don't fool around with that. What we need to spend, we spend. And then we have also built into that 3.4 was development and what we can do to drive more business to our railroad. So I'm very comfortable. That's the way you should think about it. I don't see a big change as we move ahead.

Vincenzo James Vena: I don't see a big change as we move ahead. Jennifer, anything else you wanted to add? No, you hit it just right.

Speaker Change: Jennifer, anything else you wanted to add? Nope, you hit it just right. Okay, thank you. So share repurchases would be the expected use of excess free cash flow if cash flow came in stronger? Jim, is that the right way to interpret that comment?

Vincenzo James Vena: Okay. Thank you. So share repurchases would be the expected use of excess free cash flow if cash flow came in stronger. Jim, is that the right way to interpret that comment? We saw that we gave the 3% increase here last week, and then the excess cash is going to shareholders. So yeah, if you look historically at what we've put into our share repurchase program, it's been greater than $1.5 billion. Some of that has been using balance sheet capacity. We don't intend to add any leverage this year.

Jim: Yeah, I mean, so I'll jump in here. I mean, the priorities for our cash spending we've been, I think, very clear on. First dollar goes back into the business, then we prioritize our dividend, which, again, just...

Vincenzo James Vena: You saw that we gave the 3% increase here last week, and then the excess cash is going to shares. So yeah, if you look historically at what we've put into our share purchase program, it's been greater than the $1.5 billion. Some of that has been using balance sheet capacity. We don't intend to add any leverage this year. We feel good about our leverage levels, but we're going to try to drive more cash, and if that's available, we would put it to shares.

Vincenzo James Vena: We feel good about our leverage levels, but we're going to try to drive more cash, and if that's available, we would put it to work. Great. Thanks so much.

Vincenzo James Vena: Best of luck. Thank you. Our last question is from the line of David Vernon with Bernstein. Please proceed with your question.

David Scott Vernon: Great. Thanks so much. Best of luck. Thanks for the question.

Speaker Change: Thank you. Our last question is from the line of David Vernon with Bernstein. Please proceed with your question.

David Scott Vernon: Hey, guys. Thanks for taking the question. So, Kenny, a quick one for you on intermodal pricing for domestic. Obviously, the truck markets remain weak.

David Scott Vernon: Hey guys, thanks for taking the question. So Kenny, a quick one for you on intermodal pricing for domestic. Obviously the truck markets remain weak. I'm just wondering if sequentially you're seeing anything, you know, month to month of those rates sort of firming or, you know, how that direction looks into the back half of the year. And then bigger picture question for you, Jim, on, you know, the STB wanting to sort of convene a council to discuss railroad growth. I'd love to get your thoughts on kind of, you know, why you think that the regulators, you know, pulling this thing together and maybe some early views of what you guys think you might have to say at that.

Kenyatta G. Rocker: I'm just wondering if, sequentially, you're seeing anything, you know, month to month of those rates sort of firming or, you know, how that direction looks in the back half of the year. And then a bigger picture question for you, Jim, on the STB wanting to sort of convene a council to discuss railroad growth. I'd love to get your thoughts on kind of, you know, why you think the regulators are pulling this thing together and maybe some early views of what you guys think you might have to say at that.

Kenyatta G. Rocker: So look, we've been 18 months now, a little bit over 18 months, standing at the bottom, and I'm not going to sit here today and try to forecast when it's going to move up. I'm highlighting the 18 months because it's been quite a time here.

Speaker Change: You know, David, Jim, I'll take the first one. So, look, we've been 18 months now, a little bit over 18 months, where domestic intermodal pricing has either been going down or just...

Kenyatta G. Rocker: Staying at the bottom.

Kenyatta G. Rocker: I'm not going to sit here today and try to forecast when it's going to move up.

Kenyatta G. Rocker: I'm highlighting the 18 months because it's been quite a time here.

Vincenzo James Vena: So we'll see what happens. Here's the key thing I want you to focus on is that, as I mentioned here recently, we've been able to see some year-over-year growth on both domestic and remodeled. We've got a group of private asset providers that give us a lot of at-bats, a lot of options. And we've been really, as a company, doubling down on our product development so that when things change, and they will change, but I'm not going to forecast that, we'll be prepared. Listen, I appreciate the question on the STB.

Vincenzo James Vena: And so we'll see what happens.

Vincenzo James Vena: Here is the key thing I want you to focus on.

Vincenzo James Vena: As I mentioned here recently, we've been able to see some year-over-year growth on domestic intermodal. We've got a group of private asset providers that give us a lot of at-bats, a lot of options.

Vincenzo James Vena: We've been really, as a company, doubling down on our product development so that when things change, and they will change, but I'm not going to forecast it, we'll be prepared.

Vincenzo James Vena: I think we have the exact same goal as the STB on growth. We want to grow our business, and I think we've done a pretty good job of it. If you actually listen carefully to what we've said, we've been able to grow our business even with some markets that are giving us some huge headwinds, and that's a pretty good quarter. And if you watch the carloads that we've had so far this month, I'm pretty happy with where we're headed. We're going to have ups and downs, but we are working hard on that.

Vincenzo James Vena: Listen, I appreciate the question on the STB. I think we have the exact same goal as the STB on growth. We want to grow our business, and I think we've done a... if you actually...

Vincenzo James Vena: Listen carefully to what we've said. We've been able to grow our business even with some markets that are giving us some huge headwinds. And that's a pretty good quarter. And if you watch the carloads so far this month, I'm pretty happy with where we're headed. We're going to have up and down, but we are working hard on that.

Vincenzo James Vena: So I think it's a great hearing. I'm looking forward to it. Unfortunately, I can't make it personally because we are headed to Dallas, and I'm looking forward to those couple of days, and that sort of is right in between when we need to be in Dallas, just before it. But guess who's going?

Vincenzo James Vena: So, I think it's a great hearing. I'm looking forward to it. I can't make it personally because of...

Vincenzo James Vena: We are headed to Dallas, and I'm looking forward to those couple of days, and that sort of is right in between when we need to be in Dallas, just before it.

Vincenzo James Vena: And Kenny is going there. He's going to represent us well, and I'm looking forward to introducing everybody to Union Pacific, what we're doing, and how we're going to leverage this great franchise to be able to grow our business, even with all the challenges that we have. So I'm excited to hear what all the other railroads have to say, and I'm sure we're all in the same place. We all want to begin. Price Smart and also be able to move the products that are available to us.

Vincenzo James Vena: But guess who's going? And Kenny is going there. He's going to represent us well. And I'm looking forward to presenting to everybody to see.

Vincenzo James Vena: Who Union Pacific is, what we're doing, and how we're going to leverage this great franchise to be able to grow our business, even with all the challenges that we have. So I'm excited to hear what all the other railroads have to say, and I'm sure we're all in the same place. We all want to be...

Kenny: PriceSmart and also be able to move the products that are available to us. So I'm looking forward to the hearing. And, Kenny, I'm sure you're going to represent us real well. I know. I'm ready. You betcha. Thank you very much for the question.

Vincenzo James Vena: So, I'm looking forward to the hearing. And Kenny, I'm sure you're going to represent us real well. I'm ready.

Kenyatta G. Rocker: You betcha. Thank you very much for the question. Thank you. This concludes the question and answer session. I'll now turn the call back over to Jim Vena for closing comments. Well, listen, thanks.

Unknown Executive: This concludes the question and answer session.

Jim Vena: I'll now turn the call back over to Jim Venner for closing comments. Well, listen, thanks. Thanks, everybody, for listening in this morning. We are very excited with what we've been able to deliver as a team for our shareholders and what we've been able to do safely through the communities that we operate for our employees. And we're very excited that we've been able to take the head on challenges that were presented and be able to deliver a quarter that showed improvements both underneath on how we operate and how we operate even safer, and the metrics that we're moving ahead.

Speaker Change: Thank you. This concludes the question and answer session. I'll now turn the call back over to Jim Vena for closing comments.

Vincenzo James Vena: Thanks, everybody, for listening in this morning. We are very excited about what we've been able to deliver as a team for our shareholders and what we've been able to do, safety through the communities that we operate for our employees. And we're very excited that we've been able to take the head-on challenges that were presented and be able to deliver a quarter that showed improvements both underneath on how we operate and how we operate even safer and the metrics that we're moving ahead.

Vincenzo James Vena: Well listen, thanks everybody for listening in this morning. We are very excited with what we've been able to deliver as a team for our shareholders.

Vincenzo James Vena: for

Vincenzo James Vena: and what we've been able to do, safety through the communities that we operate for our employees.

Vincenzo James Vena: and we're very excited that we've been able to...

Vincenzo James Vena: take the head-on challenges that were presented.

Vincenzo James Vena: and be able to deliver a quarter that showed improvements both underneath on how we operate.

Vincenzo James Vena: So I'm very comfortable where we are. I like our future. I think we've got a great railroad, and I truly am looking forward to Dallas. I think it's a great spot to go and have our Investor Day. And at Investor Day, we'll take you through with a little more substance about what we foresee in the future over the next two or three years and what we see in the next year that Union Pacific can deliver.

Vincenzo James Vena: and how we operate even safer and the metrics that we're moving ahead. So, I'm very comfortable where we are. I like our future. I think we've got a great railroad and I truly am looking forward to Dallas. I think it's a great spot to go and have our Investor Day. And at the Investor Day, we'll take you through...

Jim Vena: So I'm very comfortable where we are. I like our future. I think we got a great railroad. And I truly am looking forward to Dallas. I think it's a great spot to go and have our Investor Day.

Jim Vena: And at the investor day, we'll take you through with a little more substance about what we foresee in the future over the next two or three years and what we see in the next year that Union Pacific can deliver. And I'm looking forward to seeing all of you that can make it in Dallas. A wonderful location, great spot for us, an important place for us. So thank you very much, everybody, for listening in.

Vincenzo James Vena: with a little more substance about what we foresee in the future over the next two or three years and what we see in the next year that Union Pacific can deliver. And I'm looking forward to seeing all of you that can make it in Dallas, a wonderful location, great spot for us, an important place for us. So thank you very much, everybody, for listening in.

Vincenzo James Vena: And I'm looking forward to seeing all of you that can make it to Dallas. A wonderful location, a great spot for us, an important place for us. So thank you very much, everybody, for listening in. This will conclude today's conference. Thank you for your participation. You may now disconnect your lines and have a wonderful day.

Unknown Executive: This will conclude today's conference. Thanks for your participation. You may now disconnect your lines and have a wonderful day.

Vincenzo James Vena: https://www.kenyatta.com

Vincenzo James Vena: This will conclude today's conference. Thank you for your participation. You may now disconnect your lines and have a wonderful day.