Union Pacific Corporation

Greetings and welcome to the Union Pacific's second quarter 2019 conference call. At this time all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone today should require operator assistance during the 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. Lance Ritz, chairman, president, and CEO for Union Pacific. Mr. Fritz, you may begin.

Good morning everybody and welcome to Union Pacific's second quarter earnings conference call. With me today in Omaha are Kenny Rocker, executive vice president of marketing and sales, Jim Venna, our chief operating officer, and Rob Knight, our chief financial officer. This morning Union Pacific is reporting record 2019 second quarter net income of 1.6 billion dollars or two dollars and 22 cents a share. This represents an increase of 4 percent of net income and 12 percent in earnings per share compared to 2018. Our quarterly operating ratio came in at an all-time best mark of 59.6 percent, a 3.4 percentage point improvement compared to the second quarter of 2018. This is the first time Union Pacific has ever recorded a sub-60 operating ratio for a full quarter. And while that's a remarkable achievement, it's magnified when you consider the challenges we faced from significant flooding that adversely impacted volumes and added incremental operating costs during the quarter. That's a testament to the tireless dedication of the men and women of Union Pacific. Working with our customers and the communities that we serve, the team safely restored our rail operations while continuing to drive productivity through our G55 and zero and unified plan 2020 efforts. As a result, our operations have returned to normal, enabling us to focus on providing a safe, reliable, and efficient service product for our customers. Unified plan 2020 transformation at Union Pacific is full steam ahead and I continue to be encouraged by the great opportunities we see for our customers and for our shareholders. With that, I'll turn it over to Kenny to provide some details on our results.

Thank you Lance and good morning. For the second quarter, our volume was down 4 percent as gains in our industrial business group were more than offset by decline in premium and energy. However, we generated positive net core pricing of 2.75 in the quarter as we continue to price our service product to the value it represents in the marketplace while ensuring it generates an appropriate return. Rate revenue is down 2 percent driven by the decrease in volume, partially offset by a 3 percent improvement in average revenue per car. Let's take a closer look at the performance of each business group. Starting off with ag products, revenue for the quarter was up 4 percent on flat volume and a 4 percent improvement in average revenue per car. Grain car loads were down 7 percent driven by continued reduction in export grain shipments. This was partially offset by strength in export wheat and domestic corn. Volume for grain products was down 1 percent as sustained demand for biofuels and related products was more than offset by challenging environment for exports. Fertilizer and sulfur car loads were up 12 percent due to strength in export potash, diesel exhaust fluid, and sulfur. Moving on the energy, revenue was down 13 percent as volume declined 9 percent coupled with a 4 percent decrease in average revenue per car. Sand car loads were down 50 percent largely due to the impact of local sand within the Permian Basin. Coal and coal volume was down 7 percent driven by ongoing headwinds of contract changes and retirements. Flooding in May and June also negatively impacted shipments. In addition, coal exports were lower due to softer market conditions. However, on a positive note, favorable crude oil price spreads drove an increase in crude oil shipments, which was a primary driver for the 30 percent increase in petroleum, LPG, and renewable car loads for the quarter. Industrial revenue was up 4 percent on a 2 percent increase in volume and a 2 percent improvement in average revenue per car during the quarter. Construction car loads increased 4 percent primarily driven by strong market demand in the south for shipments. Plastics volumes increased 6 percent due to higher production. Forest products volume decreased 10 percent driven by reduced paper shipments as a result of high container bore inventories and decreased lumber shipments associated with lower housing starts. Turning to premium, revenue for the quarter was down 2 percent with a 5 percent decrease in volume while average revenue per car improved by 4 percent. Domestic intermodal volume declined 11 percent during the quarter as a softer market coupled with weather-related service issues led to lower volume. Industrial intermodal volume was up 1 percent in the quarter as volume returned back to seasonal levels following a tariff pull ahead in the previous two quarters. And finally, finished vehicle shipments were up 1 percent as second quarter U.S. auto sales were down approximately 1 percent from 2018. Light truck and SUV sales were stronger and able to offset declining car demand. Looking ahead for the remainder of 2019, BRAG products we anticipate continued strength in biofuel shipments due to the increased market demand for renewable fuels to offset the headwinds in the ethanol market pace associated with exports. We also expect stronger beer shipments along with long-term penetration growth across multiple segments of our food and refrigerated business. Furthermore, we expect uncertainty to persist in the grain market due to reduced U.S. crop production and foreign tariffs. For energy, we expect favorable crude oil price spreads to drive positive results for petroleum products. While -over-year comps for sand ease in the second half of the year, local sand supply will continue to impact volume. We also expect coal to experience continued headwinds throughout 2019, and weather conditions will always be a key factor for coal demand. For industrial, we anticipate an increase in plastic shipments driven largely by plant expansions coming online later this year coupled with continued strength in the construction market in Texas. However, we are watching the forest products market as housing starts are forecasted to be down -over-year in the second half. And lastly, for premium, the U.S. light vehicle sales forecast for 2019 is 16.8 million units, down about 2% from 2018. However, consumer preference for SUVs over sedans will continue to help offset the declining car demand. Domestic intermodal volume is expected to be impacted by truck competition in the second half of 2019, which may limit opportunities for the road truck conversions. But longer-term fundamentals still provide a bullish outlook for -the-road conversions. In addition, uncertainty in trade and the economy could create a tough fourth quarter comp due to the pull-aheads we saw in late 2018 for international intermodal shipments. And so, before I turn it over to Jim for his operational update, I want to share that I continue to be encouraged how we work collaboratively with the operating team. Jim and I have been making difficult decisions to improve the overall supply chain and aligning ourselves with our customers to find the best way to serve and grow with them. In the end, this builds up a solid platform for a more reliable service product for our customers. And now, I'll turn it over to Jim.

Okay. Good morning, everyone, and thanks, Kenny. As you've already heard this morning, our network was once again challenged by significant prolonged flooding in our Mid-America corridor. We responded by rerouting traffic and deploying additional people and equipment to quickly restore operations. And I am pleased to report that with the weather behind us, including Hurricane Barry, our network has returned to normal operations. I'd be remiss not to say how proud I am of our employees who responded to the challenge, working efficiently and without injury to restore operations in the face of some pretty adverse conditions while delivering an all-time best quarterly operating ratio of 59.6%. This truly was a remarkable achievement. It all starts for us with safety. Safety remains job one at Union Pacific, and our commitment is relentless. We have opportunities to improve our rail equipment incidents, and we're working as a team to learn and improve each and day. I'd now like to update you on our six key performance indicators. Despite the weather, most of our metrics improved year over year. This is a direct result of our relentless focus on improving network efficiency and service reliability as part of Unified Plan 2020. Continued improvement in asset utilization and fewer car classifications led to a 14% improvement in freight car terminal dwell and a 4% improvement in freight car velocity compared to the second quarter of 2018. Train speed for the second quarter decreased 6% to 23.1 miles per hour as flooding impacted fluidity. Train speeds also are affected by the 30 plus percent increase in daily work events being performed as part of Unified Plan 2020. While these work events are helping us increase train size and drive asset utilization, the team is still working to execute these work events even more efficiently and drive faster train speeds. Turn into slide 12. Continuing our trend from the first quarter, locomotive productivity improved 19% versus last year as efforts to use the fleet more efficiently enabled us to park units. As of June 30, we had somewhere around 2150 locomotives stored. Driven by an 8% decrease in our workforce levels, productivity increased 4% year over year. In addition to improving productivity, delivering a great service product is of equal importance to the team. Car tripline compliance was basically year over year as the benefits from increased freight car velocity and lower dwell were offset by the impact of weather on our network. We expect our service product to improve going forward. In fact, we're already seeing improvements in July. Slide 13, we continue to push forward with Unified Plan 2020 and the slide highlights some of the recent network changes. From a terminal rationalization standpoint, we stopped humping cars at our provisional yard in Chicago and tail yard operations in Salem, Illinois at our 36th street yard in Denver, east yard in San Antonio. Proviso in particular was a very old and inefficient hump yard, still using retarder operators to manually flow cars into the bull tracks. By moving this work to outlying yards, including one of our most efficient in North Platte, we are not only saving labor dollars but avoiding capital as well. In addition, we have made a number of changes in the Kansas City complex to improve service and increase efficiency. We've largely consolidated traffic out of Armordale facility, while cars previously handled in Des Moines, Iowa are now switched in Kansas City. And our plan to simplify intermodal operations in Chicago is well underway. We idled our Global 3 facility in the Canal Street container depot will follow shortly. Going forward, we will continue to look for ways to reduce car touches on our network, which will undoubtedly lead to additional terminal opportunities. And we are making excellent progress with our train life initiatives, as illustrated by the graph on the right. By putting more product on fewer trains, we increased train life 10% since January of this year, and I expect to see continued improvement as the year progresses. To wrap up, while a number of bold steps have been taken and the results are evident, there are a lot of opportunities ahead of us to further improve safety, asset utilization, and network efficiency. Once again, our network showed tremendous resiliency in the face of significant weather during the quarter, as we have returned to normal operations. As we move forward, running a safe, reliable, and efficient railroad for both our customers and our shareholders is our number one priority. And with that, Rob, over to you. Thanks, Jim, and

good morning. Today we're reporting second quarter earnings per share of $2.22 and 3.4 points of -over-year growth. We have increased our operating average to 59.6%. This represents an all-time best quarterly operating ratio for Union Pacific and is a testament to the great work we are doing with G55 and zero and unified plan 2020. Our quarterly results were, however, affected by some one-timers, so before I jump into the details, let me give you some technicolor. Like the first quarter, significant weather events impacted volumes and added operating expenses. These weather challenges resulted in a .6 point negative impact to our operating ratio and seven cents earnings per share compared to the second quarter of 2018, and I'll detail that more in a minute. We also recognized a $32 million payroll tax refund along with $3 million of associated interest income. This was part of the $78 million refund that we outlined in the 8K that we filed in March. The refund had a .6 point favorable impact on the operating ratio and four cents EPS tailwind in the quarter compared to last year. The combined impact of lower fuel price and our fuel surcharge lag had a favorable impact for the quarter of .6 points on the operating ratio and four cents of EPS compared to 18. The good news is that despite the weather challenges and lower volumes, we drove core operating margin improvement of almost three points or 23 cents of EPS compared to the second quarter of last year. To give you a little more detail on the weather impact, we attribute about two points of the four-point second quarter volume decline to flooding or roughly $75 million. We also incurred around $19 million of weather-related costs in the quarter, primarily in the compensation and benefits and purchase services and materials cost categories. With all of our routes returned we do not expect any weather-related costs to carry over into the third quarter. Now let's recap our second quarter results. Operating revenue was $5.6 billion in the quarter, down 1% versus last year. The primary driver was the 4% decrease in volume. Operating expense totaled $3.3 billion down 7% from 2018. Operating income totaled $2.3 billion, an 8% increase from last year. Below the line, other income was $57 million, an increase of $15 million compared to last year. Interest expense of $259 million was up 28% compared to the previous year, and this reflects the impact of higher total debt balance, partially offset by a lower effective interest rate. Income tax expense increased 14% to $488 million. Our effective tax rate for the second quarter was 23.7%. For the full year, we expect our annual effective tax rate to be in the -23% range. Net income totaled $1.6 billion, up 4% versus last year, while the outstanding share balance decreased 7% as a result of our continued share repurchase activity. As I noted earlier, these results combined to produce second quarter earnings per share of $2.22 and an all-time best quarter. Our quarterly operating ratio of 59.6%. Rate revenue of $5.2 billion was down 2% versus last year. Fuel surcharge revenue totaled $399 million, down $13 million when compared to 2018. Business mix was essentially flat for the second quarter, driven by decreased sand volumes and less intramodal shipments. Core price was .75% in the second quarter. Slide 19 provides a summary of our operating expenses for the quarter. Compensation and benefits expense decreased 8% to $1.1 billion versus 2018. The decrease was primarily driven by a reduction in total force levels, which were down 8% or about 3,500 FTEs in the second quarter versus last year. Productivity initiatives, along with lower volumes, resulted in a 5% decrease in our TE&Y workforce, while our management, engineering, and mechanical workforces together declined 11%. Fuel expense totaled $560 million, down 13% compared to 2018, due to lower diesel fuel prices and fewer gallons consumed. Average diesel fuel prices decreased 4% versus last year to $2.21 per gallon, and our consumption rate improved 5% through the combination of lower volumes and more efficient operations. Purchase services and material expense was down 9% compared to the second quarter of 2018, at $573 million. The primary drivers of the decrease in the quarter were reduced mechanical repair costs and less contract services and materials, partially offset by weather and derailment-related expenses. Turning to slide 20, depreciation expense was $551 million, up 1% compared to 2018. For the full year of 2019, we estimate that depreciation expense will be up 1% to 2%. Moving to equipment and other rents, this expense totaled $260 million in the quarter, which is down 2% when compared to 2018. Other expense came in flat versus last year at $247 million. For the full year of 2019, we expect other expense to be up around 5% compared to 2018. Productivity savings yielded from our G55 and Zero initiatives and Unified Plan 2020 totaled approximately $195 million in the quarter, which was partially offset by additional costs associated with weather and derailments. As a result, net productivity for the second quarter was $170 million. It has been a tough first half of the year, but as we exit the quarter, the positive momentum from our productivity initiatives gives us confidence that we will still deliver at least $500 million of net productivity in 2019. Looking at our cash flow, cash from operations to the first half totaled $3.9 billion down slightly compared to last year. Free cash flow before dividends totaled $2.3 billion, resulting in a free cash flow conversion rate equal to 77% of net income for the first half of 2019. Taking a look at adjusted debt levels, the all-in adjusted debt balance totaled $27.7 billion at the end of the second quarter, up $2.5 billion since year end 2018. We finished the second quarter with an adjusted debt to EBITDA ratio of 2.5 times. As we have previously mentioned, our target for debt to EBITDA is up to 2.7 times. Dividend payments for the first half totaled more than $1.2 billion, up $123 million from 2018. This includes the effect of 10% dividend increases in both the third quarter of 2018 and the first quarter of this year. We repurchased a total of 21.9 million shares during the first half of 2019, including 3.7 million shares in the second quarter at a cost of $639 million. Between dividend payments and share repurchases, we returned $5.4 billion to our shareholders in the first half of this year. Looking out to the remainder of 2019, although we expect second half volumes to improve sequentially from the first half, that improvement will not be enough to increase volume growth. In fact, our best thinking at this point is that volume for the second half will be down around 2% or so versus 2018. And as Kenny mentioned earlier, our pricing strategy is unchanged as we continue to price our service product to the value that it represents in the marketplace while ensuring that it generates an appropriate return. We remain confident that the inflation costs in 2019. As it relates to our workforce, strong productivity initiatives and to a lesser degree lower volumes have resulted in a 6% year to date reduction. Looking out to the balance of 2019, we expect the combination of operating efficiency and lower business levels should result in full year force levels to be down around 10% versus 2018. Importantly, we are still confident in our ability to achieve a sub61% operating ratio in 2019 on a full year basis, which implies that our second half operating ratio will be better than the first half. Furthermore, we still expect to be below 60% by 2020. We have to play the hand that we are dealt when it comes to volumes, but rest assured, our commitment to achieving our financial targets is unwavering and has never been stronger. So with that, I'll turn it back over to Lance. Thank you, Rob.

As discussed today, we delivered record second quarter financial results driven by exceptional operating performance. For the remainder of 2019, we look forward to building on the momentum from unified plan 2020 and providing a consistent reliable service product for our customers. As always, we're committed to operating a safe railroad for both our employees and the communities we serve, and we remain focused on driving increased shareholder returns by appropriately investing capital on the railroad and returning excess cash to our shareholders through both dividends and share repurchases. With that, let's open up the line for your questions.

Thank you. 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 will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Due to the number of analysts joining us on the call today, we'll be limiting everyone to one primary question and one follow-up question to accommodate as many participants as possible. Our first question is from the line of Ken Hexter with Bank of America Merrill Lynch. Please reduce your questions.

Hey, good morning and great job on the execution on your UP 2020. Just maybe a Jim or Kenny, your thoughts on the lane closures as you shift yards and the impact on volumes as you move into the second half. Is this more an economic call, Rob, on the volumes or is this more lane closures and shifting target on volumes?

Hey, good morning Ken. This is Kenny. First of all, it's a very minimal impact and a lot of those volumes that were impacted, again, were the lower profitable business. The commercial team did a really good job of being proactive and working with customers and make sure that we had solutions in place. So we feel, again, this is very minimal and we feel good about the decision to make those calls.

I think the only thing I would add, Kenny, is what we're trying to do, Ken, is we're not trying to do what we're doing. We think we build a better product for our customers. We build a better service in Chicago and other places where we're looking at the flow of traffic. It doesn't make sense for us to have six locations that we touch rail cars or try to move them around. We consolidate it into the minimal spots. We put them in the best place to win and we grow with the customers that are with us to be able to go from LA. We want to build the best service going across our network. We're close. When we fix these touch points that we have, we end up with the best service that we can provide and we grow with our customers.

Rob, just as a follow-up, given your move to keep the sub-61 OR and a better OR in the second half, which seems reasonable just given the pace you're at, I just want to understand the cadence of your employee cuts. Is this something you see accelerating just given the steps Jim has taken on reducing locomotives? Is it spread out on different parts? I guess is it T&E focused or is it kind of more widespread?

I would say it's widespread, Ken. Yes, year to date, as I called out in my remarks, we're down about six and we expect the year average to end up around 10. That does imply improvement and it is widespread. It's really driven largely by the success of the unified plan 2020. We hope, at least, that we'll have a flood-free zone to be operating in starting today.

Great. Appreciate the time,

guys. Our next question is from the line of Justin Longwood-Stevens.

Please

receive with

your questions. Thanks. Good morning and congrats on the quarter. Maybe to focus on productivity, you reiterated the guidance for over $500 million in productivity for this year. Given you're maintaining the OR outlook despite the weakness in volumes and weather, it seems like the expected productivity in 2019 is moving higher. Can you just give us a sense for the incremental productivity gains you expect to achieve this year versus your original expectation and maybe give us some sense for how you're thinking about the second half relative to the $170 million of net productivity in the second quarter? Just curious if you expect that number to continue trending higher sequentially.

Rob, you want to take that? Yeah, Justin, I would say that really what it proves out in my mind, and you've heard me say this many, many times, is that we're not going to use the lack of volume as an excuse not to make aggressive achievements on our productivity. I think with Jim and his team and the implementation of Unified Plenty 2020, I feel stronger about that than I ever have, frankly. So, yeah, we're sticking with our $500 million at least of productivity net number. That does imply that the second half is stronger than the first half because the first half was burdened with the inefficiency cost related to the flooding and other weather events. So the net pace will pick up in the back half, and that is our expectation. And it's across the board, but it really is largely driven by the success of the Unified Plenty 2020.

And just thinking about that sequential change, do you think third and fourth quarter can look better than what you posted in the second quarter from a net productivity perspective?

I mean, in total, yes. We're going to stay away from giving quarterly guidance on that. But I would say in total, if you look at second half versus first half, again, largely because of the overhang of the flood impact costs in the first half, yes, we expect the net number to be stronger in the second half.

Okay. And then I guess finally, thinking about productivity into 2020, you maintain the guidance for a sub-60OR next year. Can you talk about what that assumes for productivity, even if it's just from a high level? Does that assume that the productivity dollars next year are higher than what we're going to see in 2019?

Hey, Justin, we haven't yet put together our game plan for 2020. But you're right, we're holding firm on our guidance for overall OR, and I'll let Rob speak to the details of that.

Yeah, Justin, I would say, Lance is right, we don't have the final numbers on that. But I would tell you that the levers that we pull will be the same levers they always are, and that is volume, which we haven't finalized our outlook in terms of volume, quality, reliable service that we're confident we are improving that product, which enables us to continue to get appropriate price in the marketplace. And we're in the still early innings, by my definition, of the unified plan 2020. So clearly, there is more productivity that dollars that we will be going after to achieve that sub-60 next year.

Okay, great. I'll leave it at that. Thanks for the time. Thank you.

The next question comes from the line of Scott Group with Wolf Research. Pleasure to see you with your question.

Hey, morning, guys. Thanks. So, Rob, I just want to just quickly clarify that the 10% headcount, that's an average or year end? I'm not sure.

That's an average of 10% reduction year over year.

Okay. Kenny, on the pricing side, so with the moving pieces here of the volume environment, maybe, I don't know if anything's changing with BNSF, just directionally, is the pricing environment getting any tougher as you see it? And then I know mix is sort of an impossible one to forecast, but such a dramatic change from minus four in the first to flat in the second, any directional at all sort of color or idea on how we should think about second half?

Yeah, you asked a number of questions there. I'll take a few here. First of all, we're focused on our pricing strategy. We've got a number of competitive forces out there beyond just the competitor in the west. There's barge and there's truck. I'm really proud of our commercial team and their ability to just stay very focused on pricing to the service product that we have and the value we present. I'll tell you that I'm also looking forward to getting this weather behind us because I expect that our service product, as it improves, it's going to give us an ability to compete in the marketplace. So I like our chances as our service product improves to stick with our pricing strategy and price to the market.

Scott, I'll address your mix question. You know we don't guide the mix because it's very hard to figure out as we just demonstrated Q1 to Q2 and there's mix within mix as Rob says all the time. So bottom line is when you look backwards, what happened between Q1 and Q2 was about a large drop in intermodal that aided mix and as you look forward, we'll just have to see what the markets present to us.

Okay, thanks. And Rob, if I can just ask you one more quick one. So the other railway revenue was sort of flat year over year down a little sequentially. Any thoughts on how to think about that in the back half?

Yeah, nothing I would call out that's going to change the pace of that at this point.

Thank you guys. Appreciate the time.

Yep, thank you.

Next question is from the line of Chris Weatherby with Citi. Pleased to see with your questions.

Hey, thanks. Good morning. I wanted to ask about the headcount and so some significant improvement on headcount and sort of labor productivity. I was wondering if maybe you could help us sort of understand if there's a piece of that that's sort of reaction to weaker than expected volume and sort of what's the piece of it that's sort of more of the sustainable run rate. Presumably at some point as we move into 2020, I'm guessing you guys are assuming sort of a better more stable potentially growth volume environment. So imagine you wouldn't cut heads beyond what you think you can kind of manage that. But if you could give us some sense of, you know, what you're doing that's kind of catch up because the volume environment's been softer and really what's kind of core to the bigger picture plan.

Yeah, Chris, you've got it just right. When volumes get softer, we know how to adjust our resources to match what volume represents. I would have to say the lion share of what you saw was about unified plan 2020 and productivity. And you can see that kind of across the board. We had to adjust the amount of resources we put at locomotives as we parked, you know, about a quarter of the locomotive fleet, if not more. And you can see that directly related to the headcount, to the manpower that we have attached to maintaining locomotives. The same is true on the TNY workforce. We've taken a lot of work out of the network and it's being reflected now in our manpower. And we've got, there are more of those adjustments to be made as the network continues to stabilize and as we continue to find opportunity.

Okay, that's very helpful. I appreciate that. And maybe, you know, just a broad question on us, Kenny, about sort of the demand environment. So clearly, you know, softness and volume, you know, some of it might be some lane dynamics, although it sounds like it's relatively minimal on your network. When you think about sort of what you're hearing from the customer environments, or why has it been so sluggish over the course of maybe the last four, five, six weeks?

Yeah, so I tell you, we are seeing some softness in the truck environment. Clearly, trade is impacting some of our ag business. And we'll continue to look at other pieces of the business in the second half. I tell you, at the same time, I am feeling bullish about our franchise. We've got a lot of upside with our petrol chem business, our industrial chem and plastics, our construction products. And I'm feeling really good about our crude oil business. So we'll see what happens in the second half. And like I said, as our service improves, I like our chances to compete in the marketplace. All right, that's

helpful. Thanks for the time. I appreciate it.

The next question is from the line of Brian Ossendick with JPMorgan. Pleased to see you with your questions.

Hey, good morning. Thanks for taking my questions. I just want to go back to price for a second. Yeah, I don't think you really showed too much leverage to the tighter truck market in 2018. We know you calculate it differently. So, you know, this two and three quarters price still on the core side. Is that really, you know, some sort of lag basis from what we saw in the truck market and things are getting repriced and showing up now? And so I guess the corollary would be if you think the truck market is going to soften a little bit more, can you maintain that level of core price or something pretty close to it through the rest of this year and into 2020?

Hey, Brian, this is Lance. I'll let Kenny or Rob speak to more of the detail. But you know and you mentioned we calculate our price on a holistic basis. That is, the absolute dollars yielded during the period divided by all revenue. So in the second quarter, 2.75 percent, you know, that's pretty solid performance in a relatively soft truck market. And there is an impact in terms of what moves as to what gets counted as yield, right? I mean, you could take a price action last year on a book of business and if it doesn't move this year, you get no credit for it. That's how we calculate our price. So there's a price volume impact in there that is very hard to tease out. You

know, the only thing I'll add is that we'll see what happens in the second half. It doesn't change our pricing philosophy or our approach to be disciplined here. Maybe it means a couple, few more opportunities. But regardless, the opportunities that we're presented, we're going to be very disciplined about what business we accept and compete for.

Okay. Thank you for that. And then Kenny, one more for you to follow up on coal. You know, we've seen a lot of headlines there recently. A couple of bankruptcies, a big push for large-scale consolidation. So just wanted to get your thoughts been challenging for a while, but this seems like it's another step change. Just want to get your thoughts on how you adjust that from the commercial side, both in the short term and long term. Do you need to change how you price? Maybe more to natural gas, try to push more exports. And then Jim, if I could get you to comment on the operating side, I think the network did a really good job adjusting for the fallout fraction, but this is clearly a bigger chunk of the business that's probably got a longer and potential tail downward from some of these secular challenges.

Yeah, so we've been living in the coal environment for some time, so this is not a surprise or anything new to us. It doesn't change our approach to ensuring that we compete and win the business at the appropriate return for us. We're going to stay committed to that. I will say that as you hear about some of these bankruptcies or closures, it doesn't take away from the fact that another producer or shipper up in that area might be able to move that volume. So you've got to keep that in mind as you're thinking about that.

So Brian, the only thing I'd add is this. Real world, as long as I have in the gray hair I have, markets go up, markets go down, pieces of the business go up and down. If you're a good operator, good company, you know how to react to it. We've reacted by making sure that we don't get ahead. We plan properly with our assets. We make them as efficiently as possible. We're making the coal trains specifically more efficient so that we can have a better return on the product that we're moving, and that's what it's all about. We have to react fast, and in other places where we see increase in business, we have to put assets in there to do that in a smart way. So it's as simple as that, Brian.

Hey, Brian, one last thing to note, and that is thinking about this market holistically long term, we've talked about this, that coal has been challenged in kind of a secular decline. You see that in coal unit closures. You see it in investment in alternative sources of energy, and we've got a game plan for that in the long term, and over time we also care deeply about making sure that there are good, healthy, capitalized coal producers to serve the market. They exist today, and I know they're working hard to make sure that their future is solid, and we just support them as they do that.

All right, thanks for the thoughts.

Our next question is from the line of Amit Malhotra with Deutsche Bank. Please receive your question.

Thanks, operator. Good morning, everybody. Jim, I was just hoping you could talk about the additional and maybe structural cost opportunity. For example, where's the active locomotive fleet today? Where do you think it could go? What's the target for car velocity against the 200 miles per day you're achieving today? Opportunity for system-wide train length. Anything else that just gives us a sense of what you think the further opportunity is on the structural cost side relative to the significant improvements you guys have made today?

Thanks. Appreciate it. Amit, listen, you just well listed it. I think there's opportunity in car velocity. There's opportunity on the locomotives. There's opportunity on terminals. There's opportunity on how we handle our trains, how many touch points we have on cars. So I think, like Rob said in prepared notes, we're early in this. We've got a long runway to go and many innings left to be able to deliver.

Okay, I wasn't going to ask you what inning you're in, but thanks for adding that anyways.

I knew as soon as I said that somebody was going to ask me what inning. But you

kind of teed up my follow-up question with respect to how all that translates to the OR. Given your early innings into all this, I would just expect your OR targets at this point when you've got six months of very strong operating performance in a tough environment to be frankly more ambitious. Because there is another rail out there that has much lower revenue per car load, but significantly better OR. It obviously takes time, so this is not a critique by anyways. But I just wanted to get your updated thoughts on what the structural profitability potential is for the business based on both your longer tenure at the company and then also what other industry peers are being able to achieve.

Thanks.

Hey Rob, would you take that for us?

Yeah, I'll make a comment on that and Jim if he wants to contribute obviously Ken. I mean I would say, you've heard me say this, I have never felt better about our ability to achieve the targets we've set because of what you're outlining and because of what Jim and the team are doing with Unified Plan 2020. And that is we're going to get to as sub as we can 61 this year and then as sub as sub as we can next year of 60 and ultimately to that 55. So everything you're asking about, we agree that there are opportunities in there and that's when you add it all up, that's what's going to drive us to that 55. And I get the criticism, I'll wear it that we haven't put a date out there yet on 55. But our philosophy and our goal and our drive here at Union Pacific is to get to that sub as we can 60 first and then you know not stop there by any means but continue to drive towards that 55.

The other thing I'll add is I like to just deliver the number and then we'll talk about it. Like we delivered a 59.6, I like that number and there's opportunity there and we'll continue to deliver. I'll let Rob worry about how we phrase the number. Okay and

just to be clear it wasn't a criticism, I think we all respect and appreciate how hard it is to deliver the results you achieved. But I just wanted to I guess ask the question because I had to but I appreciate it. Thank you.

I got the whole question, I understood a bit.

Our next question is from the line of Alice and Landry with Credit Suisse. Please continue with your question.

Thanks, good morning. Maybe if I could ask that OR question in a slightly different way. You know Jim as you just said you're at a sub 60 already. I realize that's just a one quarter number but it was you know a difficult quarter. You have a lot of momentum going forward. So I wanted to get your thoughts on the feasibility of getting to that sub 60 by 2019. Specifically what would need to go right for that to happen? Would volumes have to come in better than the down 2%? You know any help framing that scenario would be great.

You know I think the best way to operate in ratio number is it's a result of a lot of hard work. Okay so I'm very comfortable with what we've been able to do. I've been here six months and four days and the whole team we've worked hard at train length, car productivity, freight, how fast we move the cars, the locomotive engineers, how well they're handling for fuel conservation. You know we're making sure that the mechanical people, how many people we need, how well they're inspecting the cars. It's a full story and this whole company is engaged in making it the best, most efficient railroad in North America. That's what we want. I'm not sure the timeline exactly because I'm not sure what's going to happen. You know we had a hurricane last week hit, a small one, not a category three or four or five but we had a hurricane affect us so I can't tell you Allison. I wish I could but what I'm comfortable with is we have the right team. People are out there from the everybody in the company knows what we're trying to do, give a better product to our customers, grow our business and have the most efficient railroad in North America. That's what it's all about. Simple as that.

Okay I appreciate that. Lance I think maybe a month ago or so in the media you had said that you guys were taking share from BN as a result of the success so far with the unified plan. Could you put some numbers around that in terms of volumes or share gain and maybe give us a sense of which end markets that you're seeing these share gains? Thank you.

Allison thanks for the question. If you look at the first half I would say our growth is moderately better than our primary competitors. That can come from a lot of different angles. It could have to do with how their network's operating versus ours. I would say one touch point for sure is our franchise is different and we think better. We think it's the best franchise in the industry. What we would anticipate and expect as we look forward is unified plan 2020 creates a more consistent reliable service product for our customers. We're a more efficient service provider. That should set us up to win in the marketplace and to have our customers win in their marketplace and I anticipate regardless of the economy that we face that gives us the best opportunity in that economy to win and grow. I'm not sure exactly what that looks like. I'm not sure what that looks like in comparison to the BN or anyone else but that's what we're trying to achieve.

Okay thank you.

The next question comes from the line of Tom Wadowitz with UBS. Please just see with your questions.

Yeah good morning. Jim I've got a couple for you. I wanted to see you know appreciate the detail and the framework on what you're doing with yards and terminals. I wanted to see if you could take a step back and just give us a sense of kind of you know what you started with and where you're at today and then maybe give us a comment on you know broad brush what you might get to. So just kind of hump yards in January and maybe what you're at today and intermodal terminal you know how many you had how many you're at today just to kind of frame it and then I guess you know it's just a sense of you know how far do you have to go. Can you go from you know year 12 went to 10. Can you go to five or six or you know how we might think of how you might frame that and how we might think about it on yard rationalization.

Okay so when I look at the hump yards I don't look at them because they're I've mentioned this before and people have heard me say this countless times. They're very efficient when they handle a lot of cars and we need to have them there. If you can figure out a way and not put a car through a hump yard and save 24 hours on the car that's what it's all about any yard. So that's what that's the way we're looking at it. Right now we have one hump yard complex left in our northern region. Our northern region is a pretty non-mechanized switching yard. We classify it as a major yard but it doesn't have all the mechanization in California, Northern California, in Roseville but that's it. That's what we have. So it's pretty hard to cut. I think North Platte's going to be there for a long time. We're asking it to work harder though. We're putting more rail cars in there and the cars they have they have to do them efficiently and we move them out. They are setting records today on how fast they're able to switch cars and get them through that complex and I expect that to improve substantially. We've got some smart people out there that are able to do that. So that's the way I look at it. You know I'm not sure what the heck we had. I'd be guessing on the number. I don't keep it that way. We have complexes that we need. Houston's a growth area. We expect that hump to be efficient and stay there. So it's all about being able to move the cars quicker. On the intermoto if I could be real quick, Kenny and I are aligned. In fact we have a plan of where we're moving and we'll do that and we'll be able to get the cars out there again, giving a better product to the customer, able to handle their containers in and out and trailers faster so that they have a better market and we can grow and we can compete against trucks, take some of that traffic off of the highway and compete against our other railroads that we compete against head to head and see if we can win and I think we will. So that's where we are. That's the best I can describe,

Tom. Okay so it sounds like you've done a lot already with hump rationalization or at least in the north so we shouldn't necessarily expect a lot more of that going forward but the intermoto terminals you still have room to go. Maybe on a different element of the operation, the train length expansion of I think you show about 10 percent June versus January is a pretty impressive number, 7,700 feet on average. How much runway is there on that? Are you constrained at this point from a siding perspective or could that number continue to rise at a bit further?

All I can tell you is is we're not constrained. We'll invest in places where we're constrained. We did that on the route coming out of LA going towards El Paso, closing some gaps so we announced that three months ago. We're just about completed with that. It'll help us. There's a little bit of investment, I guess little against the 3.2 billion that we have but we'll continue to invest to do that. Yes, train size will grow. No advance or bud. It'll grow across the whole network.

Okay great. Thanks for the time.

Thank you. The next question is from the line of Walter Spracklin with RBC Capital Markets. Please receive your questions.

Thanks very much. I guess the first one here is for Rob. I know you mentioned, coming back to the OR here, I know you mentioned that you haven't put in your plans for 2020 but you effectively got guidance for 100 basis point improvement given the guidance you have for 2019 and 2020. I guess we're all looking at you possibly getting to your 2020 target by 2019 and obviously keeping 60 in place for 2020 because that's your guidance wouldn't be the right thing. I guess what I'm asking is if we're starting with 100 basis point improvement as our base assumption in 2020 versus 2019, as you get your numbers together what factors will you be using to determine whether that's too, you know, is that too low or too high and perhaps I don't know if Jim chimes in but the track, the success you've been having so far to date, correct me if I'm wrong, but it could amplify that 100 basis point improvement in 2020.

Yeah, Walter. First of all, I would say we are not guiding to just one point of improvement. Again, kind of back to my commentary of we're going to get a sub-61 this year as we can and then as sub as we can on the 60. So yes, I get that the 61 to 60 is one point but we're going to try and do as best we can to achieve as much success beyond that one point as we can. That's the sub comment. But when we get to that point, our read of what the economy is and what do we think volume is going to be and as we continue to drive, as you've heard me say many times, as we continue to drive and improve our service reliability, it gives us confidence to continue to be aggressive and achieve core pricing gains, which is going to be a lever. And then the balance of the ability to squeeze out and make margin improvement is going to be wrapped up in our unified plan 2020 of which I mean, I don't think you can hear more confidence from the team here in terms of our ability to continue to drive efficient operations and drive productivity dollars, which will fall to the margin.

Okay, that makes sense. My second question is more kind of high level, Jim. You've seen precision schedule railroading implemented a couple times, either directly or from a distance, and each time it's led to a fairly significant service disruption, which once gotten through, it becomes a weapon and a tool to improve service. But there's always that initial phase of service disruption. I'm hearing from Lance and perhaps, Lance, I mean, you're looking to do it this time without having that service disruption. What is going to happen? I mean, 10% workforce reduction. These kinds of things lead me to believe that the customers going to be affected. Can you help me get comfort that the customer is not going to be affected with this time in terms of this movement to PSR?

So it's Walter, the history, you're correct. So let's not rewrite history. That's the way there was a lot of noise. I was involved with some of it and there's some noise. What we're doing here is we're trying to keep the noise down as much as possible, being real smart about how we do it. Listen, I had a plan the first day I showed up. We wanted to park 500 locomotives. I didn't park 500 locomotives first day. I said, let's work through this in a systematic way. We make it more efficient. We look at the touch points. We see where we are. You know, I had a plan with Proviso from when I used to work at another company, CN, okay? In Chicago, I went to visit a Proviso. I didn't like that yard when I was on the other side. So it was going to happen, but we did it at the right time, right place, and that's what it's all about, Walter. We're trying to do this in a systematic manner instead of blowing it up and seeing what you can put together after all the pieces. So hopefully we keep the noise as much, but Kenny knows there's going to be some noise, and we talked about it, but I'll tell you what I give Kenny and the whole team a lot of credit. We're being proactive. We're getting out in front of it. We tell the customer what we're doing. We tell them what, you know, when we made the changes and assesorials, we told them. We gave them a chance to change their processes instead of just putting them in place. We're doing that specifically to try to keep the event. We understand how important the customer is to us. That's what drives our whole business model. That's the way we're doing it, Walter.

Awesome. Makes a lot of sense. Thanks very much,

guys. The next question comes from the line of Jordan Alger with Goldman Sachs. Pleased to see you with your question.

Yeah, hi, morning. Yeah, I just had a quick follow-up to the extent you can answer on what you're doing in the intermodal complex in Chicago to improve the throughput and speed. Any sense that you could put on the timing of it, you know, a little more specifically? Just curious because obviously the, you know, intermodal volumes of likely domestically have been on the softer side. I'm just wondering, once that gets into place, this is the second part of the question, is that when you could really start to more aggressively market the product, would that be the plan? So that's why I'm curious about the timing of the whole complex improvement.

Yeah, so Jordan, I'll start and then I'll turn it over to Kenny and Jim to fill in more detail. So I think what you're referring to is really two different things that are occurring in Chicago. One, Jim mentioned earlier, and that is consolidating and specializing our intermodal ramps. You know, so G3 focused on international intermodal, G2 focused on domestic intermodal, and Yard Center focused on some specialty niches. That work is underway. G4 is, excuse me, I'm sorry, G4 focused on international. G3 has already been consolidated or is in the process into G4. G2 is in the process of being invested and also growing. So that's kind of an operational focus, and that's a clear benefit to our customers. It simplifies the drayage equation and it provides a more consistent, reliable service product. Second thing that's happened in Chicago is we've rationalized service lanes and interchange with our interchange partners, both CSX and ENS at a high level, and that's providing a more effective service product that's an interline service product. So the interchange happens more reliably, quicker, and you don't dwell boxes around ramps as long as you used to. So I'll let Kenny and Jim talk to, you know, how that impacts our customer base, what it looks like going forward.

Yeah, and the only other thing I'll add is that we have proactively worked with our customers to get the dwell down on our intermodal ramps at the destination. I mentioned this earlier, about 15 hours, so all those three things, the reduced complexity, the interline changes, and the dwell has improved. But I'll tell you, we have worked with our customers. They're starting to see the benefits. We're looking at the service metrics and they are turning around. We have one of our group of our larger customers in and we've been talking to them and they've expressed a very positive tone with us, so we feel very encouraged moving forward.

Last thing I would add is this. We want to look at our product, especially intermodal. We're so excited about this. We're going to be able to move containers out of the port terminal, which is international, and how fast we can get it consistently to the customer so that they can use it. I think we build that model end to end. We're able to compete against everybody on the west coast and on the south coast to see what we can do to increase the business because of the model we have, the facilities we have, we turn them quick. So I'm real excited. I think we are going to build a model that is as good or better than anybody else in the marketplace.

Thank

you. The next question comes from the line of David Herndon with Alliance Fernstein. Pleased to see you with your question.

Hey, good morning guys. Kenny, could you give us a little bit more color on the down 2% volume? Should we be sort of expecting the same variation across the product groups or is there any sort of traffic categories or the trends by traffic category?

I mentioned the themes earlier. We're going to just look at the trucking market here and see what happens. There still seems to be a lot of capacity out there. We can't control the foreign trade policy and we'll look at that. We talked about the comp getting better in our SIN network, we expect that to deteriorate a little bit more. But again, having said all that, the fact that our service will be improving, I like our chances to compete with truck more. The fact that we've reduced a lot of complexity out of our supply chain gives us an opportunity to compete more and we'll see what happens. But I like our chances.

Okay, so it's a little bit weaker in premium and energy continuing to be the weakest segment? That's correct. Yeah, that's right. Hey Rob, just as a follow-up, I know you guys, we talk a lot about margins and stuff like that, but if we look at the back half of the year, I think consensus is expecting 11% EBIT growth. Given the 2% down volume, obviously productivity is a little bit better in the back half of the year. Are you comfortable with an expectation of a 10% growth in the EBIT line just based on what you know right now in the down volume? It's really tough from the outside in to get the incrementals, obviously with the PSR thing happening at the same time, it's really confusing. I'm just trying to help our clients understand what that trajectory and earnings growth should be as opposed to just looking at the OR.

I get it, David, and I'll disappoint you in that we aren't going to give earnings guidance as we don't. We're going to do as good as we can and I think you've heard us talk about the confidence that we have in driving margin improvement and how that turns out in hopefully as successful as we can. I'm going to stay away from giving any earnings guidance.

All right, thank you.

Our next question is from the line of Ravi Shankar with Morgan Stanley. Please receive your question.

Thanks, morning, everyone. Just looking at the headcount cuts in the back half of the year, can you just help understand if this was always part of the PSR plan or are you being more opportunistic given a softer volume environment to make more cuts here while you can?

I'll start with that. The short answer, Ravi, is we've always anticipated that labor would be a fairly large portion of our productivity savings for the year, which we've highlighted as plus 500 million net. That's always been part of the expectation. If we do less work, we size the workforce for that less work.

But yes, Ravi, I would add to that. That's the driver. That's the key driver is our confidence of the unified plan 2020. But given the fact that we have eyes on as best as we can at this point of the volume numbers that we gave for the back half, we take that into consideration as well.

Understood. Just to follow up, the Canadian rails have been really bullish on the international intermodal opportunity for the last couple of years and then going forward. Some of that insinuates some share shift from the US ports to the Canadian ports. Can you just talk about what you guys are seeing on the international intermodal side? Do you see that as a secular shift in the industry?

Yeah, we have seen over the last few years a little bit of share shift versus the West Coast. I'll tell you that if you look at the weather issues that we face and coming out of a couple quarters of pent up demand, we still feel pretty good about the fact that our international intermodal volume was up 1%. As we get back to a more stable economy, we still feel good about our opportunity to compete and grow that international intermodal business. Very good. Thank you.

Next question is from the line of Ben Harford with Robert W. Baird. Please proceed with your questions.

Hey, thanks for the time here. Kenny, just wanted to follow up on the back half volume outlook. Just to clarify in terms of how you guys are thinking about the cadence through the back half of the year, do you expect it to return to a more normal seasonal volume cadence through year end and maybe in that same vein? What are you hearing as it relates to IMO 2020 plans from shippers, particularly on the international intermodal side? Any plans to pull forward ahead of that and how do you think about the impacts there from a petrochem product perspective? Thanks.

Yeah, so a couple questions there. First, I'll just say that the themes and some of the challenges will be what they are. We'll see what happens with the domestic trucking market. We'll see what happens with trade. We still feel very good, again, about construction business that we have, the crude oil that we have, and the plastics business. We expect that to continue to grow. Everything that Jim is doing on the operating side, again, allows us to compete. It allows us to get out the rail-centric business that we lost during the floods. It allows us to increase a lot of the truck-centric business moving forward. So we feel positive about that. In terms of IMO 2020, we spent a lot of time with our international intermodal customers and we don't see anything significantly changing. We don't see anything from a pull-ahead perspective changing. We don't see anything changing from a supply chain perspective, meaning that they might preference the western port over an eastern port. So we haven't seen that. We've been talking to our customers all along the whole time and right now you shouldn't expect anything structural from what we're hearing.

Okay, thanks. And a quick follow-up, Jim, could you just provide a little bit of perspective on the changes in Chicago, the reduction in ramps? It sounds like there's more to come as it relates to intermodal from a service standpoint, but when you think about that change, how pleased have you been? Do you expect any further changes around the Chicago area to be able to accomplish what you're alluding to on the intermodal side?

Listen, pretty straightforward. We've announced the changes that we're going to make there. I think the changes set us up to have a great product within Chicago service, that whole area, and be able to stretch ourselves from Chicago to other markets. So we're not changing anything. The timeline's good. People are on board. Candy's done a good job of explaining it to the customers. So you'll see us make the change as we move forward. Some of the changes will take us a little bit longer, five, six months to get them in place to be able to do that, or up to a year, but we've got the plan there as we do in other places.

Thank you.

You're welcome.

The next question comes from the line of Bascom majors with Susquehanna. Please proceed with your question.

Hey, Jim, we're seeing a lot of your efficiency metrics really start to move higher, particularly on the locomotive productivity and train link departments, but the customer facing metric of on-time performance versus your trip plan actually fell year over year, remains in a low 60% range, and what's probably pretty cost-critical in workforce productivity feels like it's lagging a bit as well. In your prepared remarks, you said car trip compliance had improved in July. Could you expand on that and speak to a sequential pace of progress here with the weather behind you? And on both customer facing and the workforce productivity front, when might we start to see more -step-like improvement and what's going to drive that? Thank you.

Son of a gun, you're tough, Bascom. You owe me that, but I love the question. I appreciate it. So if we take a look at workforce, it's we adjust for the work that we have to do, and we've made some quick adjustments, and I think we've done a good job of being smart about how we do it, and you'll continue to see that. Rob's given the numbers of where we expect to be. I'm not going to add anything. I don't need to add anything there. And as far as the productivity metrics in general, all of them, we think there's opportunity on them, and we will continue to be productive in everyone. We are touching. So if you start with the car, how fast it moves for the customer. And the weather had a big impact on us. So what we did was we didn't adjust the number. The number came in the way the number came in. We got hit for the weather, and we parked cars. We didn't make it to the customer. But now that we're out of that, we've seen a substantial, it's at least 10% higher our improvement, and we'll continue to do that. We know we have to deliver a great product for our customers to be able to grow this and have in the long term an efficient railroad and a great product for our customers. That's what it's all about, Bascom. That's what we're trying to do.

Rob Hey, Bascom. So the moving parts on that service product, it's a mixed bag in the second quarter. Freight car velocity is a direct impact on customer experience, right? They're getting their cars more frequently from origin. Embedded in that is terminal dwell. That's a direct impact. First OS launching on times of direct impact. That car trip plan compliance, that's a very specific holistic number that says from the time the car was tendered to us, did we do exactly that plan that day? And, you know, things like flooding made us use alternative routes and switch in different places. So, you know, once we get a network that's smooth and steady and normal, we see the kind of that Jim's talking about, which is a pretty quick snap back. It's a lagging indicator, but it is an indicator, and we expect that to go like the other service indicators are going. It just might take a little longer.

Jim I can tell you just real quickly, we're sitting down with customers each week, and we're seeing it improve, and so I want to give Jim and Lesh and the team a pat on the back. We didn't talk about first mile, last mile, which we're also seeing a pretty significant jump in also, and that's a very tangible metric to customers. So, we're expecting that to get better as we move along.

It's great to hear about the substantial progress with the flooding behind you here. Rob, are we going to get an update from you guys on the long-term outlook next spring or summer, like you normally do in the last year of a long-term plan? Any guidance on when that might happen? Thanks.

No, stay tuned. We'll always update. As we said earlier in the call here, we'll be putting together our 2020 plans more firmly as between now and then, and stay tuned.

Thank

you.

Our next question is from the line of Sherrilyn Radburn with TD Securities. Please proceed with your question.

Thanks very much, and good morning. It's been a long call, so I'll just stick to one question, and that is, you sound fairly confident that we're starting to move through the overhang associated with inventory pulled forward in advance of tariffs. So, I just wonder if you could elaborate on what you're hearing from customers or seeing in your carloads that informs that confidence?

Yeah, I'll take that out. First of all, what we're hearing, one thing that's good is that we are hearing that we're going to get normal peak season volume here, so that lets us know that a lot of the noise that we saw with the pull ahead is over. Again, we know what the domestic market is like. The only outlier that's out there from a trade perspective that probably impacts us is really just on the ag side. We talked about the soybean market, so it really becomes a timing issue, and we'll see what happens.

That's helpful. Thank you.

Thank you. Thank

you. At this time, I'll turn the floor back to Mr. Lance Ritz for closing comments.

All right, thanks, Rob, and thank you all for your questions. To wrap it up, I want to again acknowledge the tenacity and the determination of Union Pacific's workforce. Hats off to them for producing great financial results in a pretty challenging quarter. With that, we look forward to talking to you again in October.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.