Union Pacific Corporation (NYSE:UNP) Q1 2024 Earnings Call Transcript

Union Pacific Corporation (NYSE:UNP) Q1 2024 Earnings Call Transcript April 25, 2024

Union Pacific Corporation beats earnings expectations. Reported EPS is $2.69, expectations were $2.5. Union Pacific Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Union Pacific First Quarter 2024 Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today’s presentation are available on Union Pacific’s website. It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

Jim Vena: Thanks, Rob, and good morning to everyone. Beautiful day in Omaha, 6 degrees, a little bit of rain. It is absolutely perfect for railroading. So why don’t we get started? And thank you for joining us today to discuss Union Pacific’s first quarter results. I’m joined in Omaha by our Chief Financial Officer, Jennifer Haymann; our Executive Vice President of Marketing and Sales, Kenny Rocker; and our Executive Vice President of Operations, Eric Gehringer. As you’ll hear from the team, we continue to execute our multiyear strategy to establish Union Pacific as the industry leader in safety service and operational excellence. We, again, took positive steps towards that goal in the first quarter. While challenges outside our control persists, we are establishing a foundation for long-term success.

Now let’s discuss first quarter results starting on Slide 3. This morning, Union Pacific reported 2024 first quarter net income of $1.6 billion or $2.69 per share. This compares to 2023 first quarter net income of $1.6 billion or $2.67 per share. We’re pleased to be able to report earnings growth in a tough environment, especially since last year’s results included a $0.14 per share real estate gain. First quarter operating revenue was flat as solid core pricing gains and a positive business mix were offset by lower fuel surcharge revenue and reduced volumes. Normalizing for the impact from fuel surcharge, freight revenue was up 4% versus last year. Expenses year-over-year were down 3%, driven by lower fuel prices and productivity gains. This was partially offset by inflation, increased transportation workforce levels to compensate for new labor agreements and higher depreciation.

Our first quarter operating ratio of 60.7% improved 140 basis points versus last year. This also represents a 20 basis point improvement sequentially from the fourth quarter, which further demonstrates the strong work by the team. Look, it’s a great start to the year. I’m pleased with how the Union Pacific team is coming together on lots possible for our company. But there’s a lot of work to do. I’ll let the team walk you through the quarter in more detail, and I’ll come back and wrap it up before we go to question and answer. So, with that, Jennifer, why don’t you go through the first quarter financials.

Jennifer Hamann: All right. Thanks, Jim, and good morning. I’ll begin with a walk down of our first quarter income statement on Slide 5, where operating revenue of $6 billion was flat versus last year on a 1% volume decline that was significantly driven by a 20% reduction in coal shipments. In fact, excluding coal, volumes would have been up close to 2% year-over-year even in this tough freight environment. Looking then at the revenue components further, total freight revenue of $5.6 billion declined 1%. The single largest driver of the year-over-year decrease was a 25% reduction in fuel surcharge revenue to $665 million as lower fuel prices negatively impacted freight revenue 375 basis points. Solid core pricing gains and a favorable business mix combined to add 350 basis points to freight revenue.

Reduced coal and rock shipment as well as increased soda ash and petroleum carloads drove the positive mix dynamic. Excluding fuel surcharge, freight revenue grew 4%, a solid start to the year and a demonstration of the great diversity of the UP franchise. Wrapping up the top line. Other revenue increased 4%, driven by increased accessorial revenue that included a one-time contract settlement of $25 million. Switching to expenses, operating expense of $3.7 billion decreased 3% as we generated solid productivity against lower demand. Digging deeper into a few of the expense lines, compensation and benefits expense was up 4% versus last year. First quarter workforce levels decreased 2% as reductions in non-transportation employees more than offset a 4% increase in our active TE&Y workforce.

Although our training pipeline is significantly reduced, we continue to carry additional train services employees as a buffer for our operations and to offset the impact of newly available sick pay benefits and work best agreements. While talking about workforce levels, I do want to mention one quick housekeeping item. As some of you might be aware, we are in the process of transferring operating responsibility for certain passenger lines in Chicago to Metro. As part of that, in June, we will be transferring around 350 mechanical employees to Metro. On a quarterly basis, this will lower both revenue and expense by roughly $15 million. Cost per employee in the first quarter increased 5%, reflecting wage inflation and additional costs associated with new labor agreements.

Fuel expense in the quarter declined 14% on a 13% decrease in fuel prices from $3.22 per gallon to $2.81 per gallon. We also improved our fuel consumption rate by 1% as locomotive productivity more than offset a less fuel-efficient business mix given the decline in coal shipments. Purchased services and materials expense decreased 6% versus last year as we maintained a smaller active locomotive fleet, and our logistics subsidiary incurred less trade expense. In addition, a little less than half of the year-over-year variance related to resolution of a contract dispute. Finally, equipment and other rents declined 8%, reflecting a more fluid network seen through improved cycle times and lower lease expenses. By controlling the controllables in our cost structure, first quarter operating income of $2.4 billion increased 3% versus last year.

Below the line, Jim noted last year’s real estate transaction and other income and our interest expense declined 4% on lower average debt levels. First quarter net income of $1.6 billion and earnings per share of $2.69 both improved 1% versus 2023. And our quarterly operating ratio of 60.7% improved 140 basis points year-over-year, which includes a 60 basis point headwind from lower fuel prices. Turning to shareholder returns on the balance sheet on Slide 6. First quarter cash from operations totaled $2.1 billion, up roughly $280 million versus last year. Growth in operating income as well as the impact from 2023 labor agreement payments are reflected in that increase. In addition, free cash flow and our cash flow conversion rate, both showed nice improvements.

As planned, we paid down $1.3 billion of debt maturities in March. That resulted in our adjusted debt-to-EBITDA ratio declining to 2.9x at the end of the quarter, and we continue to be A-rated by our 3 credit rating agencies, also during the quarter, we paid dividends totaling $795 million. Wrapping things up on Slide 7. As you’ll hear from Kenny, our overall outlook on the freight environment hasn’t changed a lot since January. Yes, there have been some pluses and minuses from our original outlook. But in totality, we still see the same economic uncertainty. What I am certain of, however, is that our service product is meeting and will continue to meet the demand in the marketplace. And when volumes strengthen, we will be ready to provide our customers with the service they need to grow with us.

In addition, as evidenced by our first quarter results, we will continue to generate productivity that improves our network efficiency. Also demonstrated by those first quarter results is our commitment to generating pricing dollars in excess of inflation dollars. If you set fuel aside, our price commitment as well as expectations for positive mix in 2024 should allow us to pace freight revenue ahead of volume. And finally, with capital allocation, we plan to restart share repurchases in the second quarter, a further demonstration of the confidence we have in our strategy and the momentum that is building. The actions we’re taking to improve safety, service and operational excellence are reflected in our financials, and continuing on with this strategy will drive shareholder value in 2024 and into the future.

Let me turn it over to Kenny now to provide an update on the business environment.

Kenny Rocker: Thank you, Jennifer, and good morning. As Jennifer mentioned, freight revenues totaled $5.6 billion for the quarter, which was down 1% as core pricing was offset by lower fuel surcharges and a 1% drop in volume. Let’s jump right in and talk about key drivers in each of our business groups. Starting with bulk, revenue for the quarter was down 4% compared to last year on a 5% decrease in volume and a 1% increase in average revenue per car. Solid core pricing gains across most bulk segments were largely offset by low natural gas prices that unfavorably impacted our coal index contract and lower fuel surcharges. As stated, coal continued to face difficult market conditions in the first quarter as warmer temperatures overall led to record low natural gas prices and caused significant declines in demand.

Grain and grain products volume was up for the quarter with increased shipments of corn to Mexico as well as more shipments from Canadian origins. Lastly, despite strong truck competition, food and refrigerated shipments increased as a result of new business for dry goods, solid demand and network service improvement. Moving to Industrial. Revenue was up 4% for the quarter, driven by a 1% increase in volume. Strong core pricing gains and a positive mix and traffic were partially offset by lower fuel surcharges. Our strong business development petroleum allowed us to capitalize on those of opportunity along with new domestic contract wins. Demand improved for our petrochem business in both export and domestic markets. However, challenges with high inventories and weather negatively impacted our rock volumes.

Premium revenue for the quarter was down 3% on a 1% increase in volume and a 4% average revenue per car, reflecting lower fuel surcharges and truck market pressures. Automotive volumes were positive due to business development wins with Volkswagen and General Motors, along with continued strength from dealer inventory replenishment. Intermodal volumes were positive in the quarter, driven by strong international West Coast demand, which was partially offset by the international contract loss I mentioned in January and soft market conditions in domestic intermodal, Turning to Slide 10. Here is our 2024 outlook as we see it today for the key markets we serve. Starting with bulk, we anticipate continued challenges in coal as inventories are projected to be at record levels and natural gas futures remain depressed.

We are hopefully watching grain, particularly as it relates to new crop conditions and fourth quarter export demand. we expect domestic grain demand to be stable. Lastly, we are optimistic about grain products as we continue to see growth in biofuel feedstocks. Additionally, we recently won incremental grain products business out of Iowa that started moving earlier this year by demonstrating our consistent service product and developing competitive solutions, to support our customers’ business. Turning to Industrial. The rock market will be challenged to exceed last year’s record volume. However, we expect petroleum and petrochem markets to remain favorable due to our focus on business development, supported by our investments in the Gulf Coast and operational excellence.

And finally, for Premium on the intermodal side, we expect to see consistent strong West Coast imports in the near term, but it’s still too early to predict what will happen in the back half of the year. On the domestic intermodal side, we continue to see market softness but expect our strong service product and diversified set of IMC and private asset partners will set us up well when demand returns. For automotive, we will see continued strength due to our business development wins and improved OEM production. In summary, coal and domestic intermodal will put pressure on our volumes there. The team has taken action. As you saw in the first quarter, excluding fuel, we were able to grow revenue even as we face lower volumes overall. I am confident that with our improved service product, we will continue to win new business and take trucks off the road.

On the price side, we are having deliberate conversations with customers on price increases to overcome inflationary pressures. And those conversations are backed up by an efficient service product that Eric’s team has given to our customers so that they can compete and win. We have a great franchise. Along with being the premier cross-border rail provider to and from Mexico that positions us well to serve markets in both the U.S. and Mexico. Our legacy service and the new service offerings we’ve added allows us to win in the marketplace, and we see strong opportunities in front of us to grow with our customers. And with that, I’ll turn it over to Eric to review our operational performance.

Eric Gehringer: Thank you, Kenny, and good morning. Moving to Slide 12. We exited 2023 with strong operational momentum across the board. And while weather quickly presented its challenges, the team rose to the task. The speed with which our service product recovered is a testament to our strategy and the resiliency of our network. We continue to see meaningful year-over-year improvements in our metrics. This is a direct result of our steadfast focus on providing industry-leading safety, service and operational excellence. Starting with freight car velocity. Improvements in terminal dwell and overall network fluidity led to a 4% improvement compared to first quarter 2023. Sequentially, freight car velocity declined 6%, primarily due to shifts in product mix between our bulk, manifest and intermodal services.

Particularly, we are seeing an impact from declines in intermodal and bulk shipments, which generally contribute higher average daily car miles. Key is that our service product remains consistent, and we are delivering what we sold to our customers. We want our customers to win. And if they win, we win. To further deliver on the service we sold to our customers, we recently introduced a new measure Service Performance Index, or SPI. As the name implies, it’s a combined metric that reflects the actual service provided, and we believe is a better measure than trip plan compliance alone. For those customers with specific transit commitments, we measure against that. And for the many customers who rely on our historical performance to inform their rail transportation planning decision, SPI provides a measure that aligns with this practice.

For the first quarter, both intermodal and manifest and auto SPI saw a sizable 14- and 7-point year-over-year improvement, respectively. The team also delivered safety performance in the quarter, both on derailment and personal injury fronts. As we continue to emphasize the culture of safety, we’re also investing in technology and process, ensuring our employees have the tools they need to operate safely and efficiently. Our goal is clear. We want to lead the industry and drive tangible change, so everyone goes home safely each day. Now let’s review our key efficiency metrics on Slide 13. While maintaining focus on enhancing safety and service, it is equally crucial that we do so in a cost-effective manner, enabling Kenny and the team to compete in a broader range of markets.

In alignment with this objective, we saw year-over-year improvement across all of our first quarter metrics, indicating that the efficiency of our railroad is on the right track. Locomotive productivity improved 10% compared to first quarter 2023 and as the team continues to run an efficient operation and a transportation plan that requires fewer locomotives to satisfy the demands of the business. In fact, we have reduced our active fleet by about 500 locomotives compared to last year. Workforce productivity, which includes all employees, improved 1% as average daily car miles declined slightly and employees decreased 2% compared to 2023. While overall workforce counts declined, our train, engine and yard employees increased 4% as we continue to support our training pipeline, scheduled work agreements and provide the capacity buffer necessary to navigate an ever-changing environment.

Train length improved 1% compared to first quarter 2023. After a particularly challenging January due to winter weather, we quickly adjusted set train length records in both February and March. Notably, manifest train length increased by around 300 feet. While train length increased for nearly all train categories year-over-year, declines in intermodal shipments, which generally move on longer trains, moderated sequential performance. Although we are encouraged by these results, there are ample opportunities ahead for us to further improve asset utilization and the efficiency of our network. For instance, we are leveraging technology to automate terminal functions and engineering renewal activities, increasing energy management utilization to improve fuel consumption and developing car plan optimizers to reduce car touches.

While these are just a few of key initiatives, running a safe, reliable and efficient railroad for all our stakeholders is vital. And as we move forward, we will continue pushing the envelope in our pursuit of industry-leading safety, service and operational excellence. So, with that, I’ll turn it back to Jim.

Jim Vena: Thank you, Eric. Turning now to 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 and Kenny, our volume outlook in some markets continues to be challenged. We are mitigating those challenges by driving efficiency in the network, which is driving stronger financial returns, and this provides confidence to start repurchasing shares in the second quarter. Kenny provided you with an overview of the first quarter volumes and laid out some updated thoughts for the year. Coal is going to be a headwind. It is what it is. we need to outperform what our markets give us naturally to offset that impact. And if we provide the service we sold to our customers, I’m confident they’ll grow with us.

It’s also imperative that we generate pricing for the value we’re providing to our customers. Lastly, Eric walked you through the progress we’re making across safety, service and operational excellence. When I look at how we’re performing, I see improvement across the board. The network is operating fluidly and efficiently, allowing us to meet the demand in the market. And that drove the financial success, as you saw here in the first quarter. There’s certainly more to do, but we’re on the right path. At the end of the day, we’re demonstrating continuous improvement, getting a little better each day. In the long run, our focus on being the best across the spectrum will generate sustainable long-term value for the years ahead. One final item for you all.

Save the date. We are planning an Investor Day on September 18 and 19 in Dallas, Texas. More details to follow, but we’re excited to lay out more of our vision to demonstrate what’s possible for this great company of ours. And with that, Rob, we’re ready to take on some of the questions.

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Q&A Session

Operator: [Operator Instructions]. And our first question comes from the line of David Vernon with Bernstein. Please proceed with your question.

David Vernon: So, it seems like the operations are working pretty well, Jim. I’d like you to maybe talk about kind of what you’re doing with Kenny and his team to start focusing on growth that’s maybe different or hasn’t been done at UNP in the past. We know there’s been a couple of the joint services with the CN and the Falcon and stuff like that. But internally in terms of focusing the team on more business development efforts. Can you just kind of talk to us a little bit about what kind of changes you’re making or what kind of initiatives you’re emphasizing to start driving a little bit more growth on the network?

Jim Vena: You bet. David, thanks for the question. And I’ll just summarize real quick what we’re doing. And then, Kenny, maybe you want to get into a little bit more of the specifics, okay? So, if we look at what we’re doing on the railroad side, and that’s very important in how we’re going to be able to grow and grow with our customers is our customers — some customers we have expect speed and resiliency in the model. In others, it is — speed is less of a concern. It is consistency in the model. So, if you take a look at what we’re doing, we are building the fundamental blocks that we are able to provide a service like no one else. We can go from and we’re out there selling it. So, in the high-speed market to market, we have a service that operates very speak, 2,000 miles in less than two days that makes us competitive against other modes of transportation.

If we look at the consistency, we want our customers to win. And the best way for us to grow is with the customers that we have, whether it’s the automobile business that we handle, whether it’s the export business that we handle, whether it’s in the Gulf whether it’s our access into Mexico and our interchanges with the other railroads and how we can originate and we all win together. So, we’re doing all of that. I’m spending — Eric might say, I’m not — he wishes I would spend more time on some other things. So, I still look at the operation. It’s still there. I think there’s a lot more that needs to be delivered. And when you do an analysis and the way I like to do a regression analysis on what the operation is like, I’m comfortable, but there’s more to do.

And the pressure is on to be more consistent and faster and be able to deliver a better service product. We do that, we win. But I’ve also spent a lot of time with Kenny and his team and myself personally, meeting with customers, understanding what they need to win, our present customers and future customers. And I think we continue down this path with consistent service. And the value that we can provide to customers for them to grow is such that they want to partner with UP, and we want to partner with them because we want our customers to win, and I really like where we are. And if we can keep this consistency, David, going, which I’m very confident we can, then I think, Kenny, I hate to tell you, it should be pretty easy for you to grow the business in a way you go.

Kenny Rocker: Right? So, look, David, you hit it on the head. What are we doing differently? And I just want to talk to you about some of the product development that Eric and I and our teams are doing together. You look at the Phoenix ramp. We’re excited about it. We’re seeing that volume come in there and grow sequentially. It just gives our customers and BCOs more optionality. Port of Houston is one. We put that service back on. We’ve been excited about the growth that we’ve seen come out of there, and we’ll continue to add on to the destinations that are there. We started off with five. Now we’re at 11. You look at Inland Empire, we just added on a new product there. Now we’re going to 20 cities, east of Chicago with the CSX and the NS on the unit train side because we are seeing the cycle times improve, we’re naturally getting more volume.

So, we like that piece. On the finished vehicle side, you talk about product development. business that’s coming off of the water that’s getting land brash that we’re moving back east. Look at the lower cost that we have really opens up new markets for us. at great margins. So, we’re on offense. I mean we’re pushing every lever we can to get business onto our network. We got a beautiful franchise as Jim mentioned, and we’re taking advantage of it.

David Vernon: All right. If I could maybe squeak one quick follow-up. How is the FXE performing with the extra volume? I know you sound in the border, there’s been a lot of shifts over onto that. And then are you thinking about sort of expanding capacity over the Eagle Pass gateway to accommodate future growth out of Mexico?

Jim Vena: David, real quick, I’ve spent a lot of time, I think I’ve made like eight or nine trips down to Mexico already in the eight months I’ve been here, working very closely with FXE with our ownership position in them. We know where the points of concern are. FXE has done a good job of identifying what they have to do, and I think they run a good service product. They’re going to continue with the same goal as we have to strive and we’re working together on it. In fact, couple of weeks, I’m going to write a train head end of a freight train down on the FXE to take a look at their railroad even more. The border, we have processes in place to make it easier for our crews to not stop right at the border and get trains across, which just makes sense, just like between Canada and the U.S. and international falls.

So, we are in the process of cleaning up those items that limit the speed and the efficiency for our customers to get across the border. So, I’m very happy to see where we are and we’re trying to work as one railroad. I don’t like to give other railroads my excess locomotives, and you can understand why I don’t have to explain it. But we have provided FXE some locomotives to make sure that they can move the traffic that’s out there. And they’ve seen a large growth. Their number is — I’ll let them give you the exact number, but the — we see growth in Mexico, both northbound and southbound, and that’s a market we want to use those six touchpoints when we get into Mexico and optimize it for Union Pacific.

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

Justin Long: So, it was good to see the OR improve a little bit sequentially despite the typical seasonality that you see in in the outlook, you talked about profitability gaining momentum. But can you help us translate that into how you’re expecting the OR to trend over the balance of the year? It seems like we’re tracking towards the sub-60 the rest of 2024, but is there anything on the horizon that could prevent that from happening?

Jennifer Hamann: Thanks, Justin. We are not providing OR guidance, but — so I’m not going to comment on your number. But I think the way that you’re describing it in terms of what we expect from ourselves is to continue to make improvement. You heard Jim talk about the fact that made good gains, but there’s more to do. And that’s really our focus is to continue to do that quarter-over-quarter to make gains. Obviously, we’re doing that in an environment that we can’t totally control. We control a lot of things, especially about our service product and our cost structure and how we go into the market and how Kenny and his team are pricing, but we are doing that against an economic backdrop that’s a little uncertain. We don’t know what’s going to happen with interest rates yet. So those are the things that do have an impact on us, including fuel prices. So just stay tuned. We feel really good about the setup and are very confident about our ability to perform.

Operator: Our next question is from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Amit Mehrotra: Congrats on the strong results. Eric, obviously, you and the team have done a phenomenal job with the operations and the metrics. We’ve kind of been stuck in this 155,000-ish seven-day carload number. curious to get your confidence and perspective on how much more you can handle when Kenny gives you that to handle how you feel comfortable about moving 5,000, 10,000 more carloads per week. If you can talk about that? And then just Jennifer related to that just a question that was just asked, the weather gets better from 1Q to 2Q, you move more industrial carloads. It’s a pretty meaningful advantage as you move from 1Q to 2Q. If you can just talk about any — and fuel, I think fuel noise moderates a little bit. If you can just talk about anything that I’m missing there as we think about from 1Q to 2Q that might be on the negative side of the ledger.

Eric Gehringer: Good. I’ll start with the meat. Thank you very much for that question. Now I want to be really clear right off the bat. We have the capacity to be able to handle more than 155,000 carloads. What brings us tremendous confidence is when you think about the critical resource that we have, we clearly have enough custody, we clearly have enough mainline capacity. More specifically, we’ve talked about in the past and continue to maintain a buffer in our crew base. We have couple of hundred extra crews based across the system that are available as to your point, when that volume comes on, we have the crews. Locomotives, in my prepared comments, I said that over the last 12 months, we’ve been able to store 500 locomotives largely because of the increased fluidity in the system.

Those are available to us. As Kenny brings more volume to the railroad. We don’t have to wait a week. We don’t have to wait 30 days. They’re parked across the system available to us. And then, of course, on the car side, we have cars not only spaced across the system that we call out the ready cars, but we actually have been working with customers in which we’re storing cars right at their facility. So, the moment they’re ready to give us that load, we’re ready to pick it up. Now when you think about capacity, the final thing you have to think about is the work that we do on train lengths. We talk often about driving volume variable approach to how we operate the railroad. Train length is one of the ways we do it. At a 300-foot improvement in our manifest quarter versus same quarter last year, that’s a huge lift.

That’s a massive accomplishment by the team, building train length in the manifest network is one of the hardest things we do. What that tells you is if we’re really good at the hardest things we do as the intermodal volume starts to come back, we don’t have to add train pairs on. We can take some of the latent capacity we have in our existing train peers and utilize it. So, we’re ready.

Jim Vena: So, Amit, the only thing I would add is — and you know I’ve never given guidance on operating ratio because it’s a result of how you operate the railroad, and that’s really important. But ex fuel, $60.1 million last quarter with where the volumes were, what we did with price and what we did with efficiency on the railroad, that’s a pretty good number. It’s okay in the way I look at the world. Some people would say it’s excellent. I go, it’s pretty good. So I see moving us forward, and unless we get surprised, Kenny does his job properly, and we are able to return the proper price because of the great service and the product that we’re delivering, and we continue to operate the railroad efficiently and numbers underneath the numbers that people don’t see every day that I look at, make me very comfortable that we have a clear view of how we become more productive down at the ground level in this railroad, driving decision-making closer to the people that need to make the decision and not trying to do it here in Oman in the headquarters.

So, Amit, I’m not going to give a number, but I’m comfortable with where we’re headed in the long term for Union Pacific.

Operator: Our next question is from the line of Jon Chappell with Evercore ISI. Please proceed with your question.

Jon Chappell: Jim, I was going to ask just kind of where you left off. In January, you kind of admitted somewhat modestly that it would be difficult to improve the margin without a volume tailwind. And here you are with 200 basis points of core improvement with volumes down year-over-year. So, what was the I guess, change in the last couple of months. Eric touched on a lot of things, but how are you able to make such a huge improvement in such a short period of time? And what’s your comfort in the sustainability of that when you actually do get a volume tailwind in the network?

Jim Vena: Well, let’s start with the end of the question. I love volume, and I love revenue. So, at the end of the day, that’s really important to us to be able to drive it forward. And what we’ve done is we worked hard. It looks easy sometimes to operate a railroad and especially as complicated as the Union Pacific network is because it is complicated. It’s not a linear railroad. It’s very, very spread out and the way it operates. But I think we’re focusing the people at the right level. We’re doing the right things when it comes on the expense side and headcount and everything that’s involved in it, making sure that we don’t impact service. And I think we did a great job of it, and I can see us improve in every one of those.

So, Kenny is going to deliver. Eric is going to deliver and the rest of us are going to make sure that we do everything we can possible to make sure that this company moves ahead because if we can have better margins, it opens up markets to us even more markets than what we have today. So that is the end game, and you basically have asked me what our strategy is, and I’m looking forward to delivering it in the next couple of years.

Operator: Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.

Ken Hoexter: Congrats for the team on some great results in a tough volume environment. But I wanted to dig into maybe flipping Amit’s question a little bit on the other side. you’ve been focused on these operations for eight months now. I want to understand the more room to run, right? So, you’re getting service to where you want, but — maybe is there a continued ability to pull out locomotives and cars as you continue to get more efficient? Maybe just give kind of some examples of — Eric talked about increasing train life. Isn’t there ability to go further before the volumes come online, but just PSR typically is you focus on improving the service and then you get the ability to pull out the equipment and employees as you move forward. So maybe just talk about the opportunity to keep doing that.

Jim Vena: Yes. Listen, great question. I’m going to get Eric to talk about how we seize and what’s moving forward in Kenya, but let me just summarize the way I like to look at things is you always try to optimize the network operationally and look for ways to be able to drive efficiencies in the network. But the base plan always is what did we sell to customers, what did we tell the customers we’re going to deliver and make sure that that’s the base plan. And from that, you build it up. So, we see improvements not only in train length. We had a few more cars on every train. That’s very efficient in the network. It allows us to have better capacity. But we also look at how we handle the terminals, touch points in the cars how can we forward the cars without touching them for a longer distance.

And the next piece for us is how fast we can react to our train plan so that it takes us way too long right now and to be able to adjust our train plan so that we still provide the service that we sold. So, we have tools in place and we’re developing them even further that allow us to change our plan in a much shorter period of time in a few days or a week versus weeks so that we can optimize the railroad even more. So very excited about that, and I see that as being a positive step. Eric? Kenny, anything to add?