Jim Vena: Why don’t we start with the contract is real simple. The contract was lost early in 2023, and the business has actually lost starting January 1 correct, Ken?
Kenny Rocker: That’s true. We’ll still see the bulk of it still showing up in 2024.
Jim Vena: So that’s the challenge. It’s a 2024 issue. And it was early in 2023 that we lost that business.
Jennifer Hamann: Yes. And if I can, in terms of your margin questions, again, not going to give you any specifics there. We have three levers, as you know, that we use to attack and generate profitability. It’s volume, price and productivity. You’ve heard us talk about the fact in my prepared comments that price were all positive in excess of inflation dollars is not going to be accretive to margins here in 2024. We are unsure about the volume picture. There’s a lot of puts and takes, as you heard, and we know we’ve got some headwinds from a contract loss in coal. And so the lever that we are most confident about and have ultimate control over is the productivity side. And so you’re right, we have shown in periods of declining volumes in the past that we can through productivity and price generate margin improvement.
But we’re not giving you a guidance on what – any kind of magnitude of volume changes. So I don’t want to try to get into that game of linking x amount of volume with x amount of productivity and margin. The thing that you will see from us in our results, regardless of what happens with volume is that we’re performing better. We’re running better. We’re running more efficiently and driving productivity. And whether that results in positive or negative in the financial picture is going to be a function of some of that volume and how that plays out through the quarter and through the year. First quarter, in particular, is going to be a bit of a challenge for us. Volume, yes, and the weather, you heard us talk about that. But a couple of other things just to remind everyone of in terms of a year-over-year comparison.
Last year, we had about $100 million, a little over $100 million real estate transaction that was in our earnings. And we also had a very strong fuel benefit in the first quarter of last year and helped our margins by, I think, almost 2 points and about $0.25. So I just want to remind everybody of those kind of year-over-year comparison pressures.
Ken Hoexter: Appreciate the multiple part answers to my one question. Thank you.
Operator: Our next question comes from the line of Justin Long with Stephens. Please proceed with your question.
Justin Long: Thanks. And maybe taking a shot at asking that question a little bit differently, Jim, you’ve now been at the company for roughly a couple of quarters. Do you have any updated thoughts on the size of the total productivity opportunity going forward? And roughly how much of that is dependent on volume growth. If we want to make our own assumption that volumes are flattish this year, hypothetically, is that a scenario where you can still see meaningful margin expansion year-over-year?
Jim Vena: Listen, I think it was a well-framed question. I like it because it gets to the crux of who we are at Union Pacific and what the vision is and what our goals and objectives are. I’m very clear on it. I think we are going to have quarters just like the first quarter, but maybe we don’t see as much of a sequential improvement as we would like because of the pressures of what we had in January so far with weather, and I’m not sure what’s going to happen. I’ve been around for way too long to forecast what’s going to happen when winter is on and when we come through spring and everything that can happen then. But fundamentally, I see us as having a best operating ratio in the industry. And that’s what we’re driving towards, and we’ll get there.
And I see it in the future, and the future is not so far that it’s cloudy. I see it clearly in what we have to do. So for me, that’s really important. And I don’t care whether we – whether the business and the business in the marketplace gives us business or not. But I’ll tell you, I’m pretty clear, okay? We have a great railroad. We operate very efficiently. We should win with the customers, and I expect Kenny and his team to deliver. This is not – people want to talk about we lost the business. We need to go replace that and we need to bring it on and we need to do that in the short term, not the long term, without going after making an adjustment on price to go get the business. We have that capability, and we can deliver value to the customer.
That’s how I think. and I did not come back here. I could have sat at home in Scottsdale or being somewhere doing some exciting hiking or mountaineering, but I decided to come back because I think we could win, and we have the railroad and the network to do that. So the pressure is on this team. The pressure is on Eric to make sure and his entire team to deliver, recover fast like we did with this last winter impact that we had. I expect Kenny to deliver. And I expect Jennifer and the entire team to look for every opportunity, how we monetize what we have as a railroad and win. So I love the question. Perfect. So hopefully, I answered it for you.
Justin Long: You did. Thanks, Jim.
Jim Vena: You’re welcome.
Operator: The next question is from the line of Ben Nolan with Stifel. Please proceed with your question.
Ben Nolan: Yeah, thanks. Good quarter and by the way, Jennifer, I do like that last slide is helpful. The – my question relates to Mexico. Obviously, that’s an initiative that you guys really tried to accelerate last year. And then around the end of the year, there were the border closures. Just thinking through how you expect that business to trend moving forward? And if you’re seeing a lot of these reshoring things? Or are some of these interruptions causing any second guessing of that at all?
Jim Vena: So Kenny talk about the business and how we see it? And then if you don’t mind, I’m going to answer the piece on the border, okay?
Kenny Rocker: Sure. Yes. I mean, Ben, the near shoring, Israel [ph]. We’ve seen the billions that have gone in, in all of 2023. These are – a number of them are highly industrial and rail centric, which we find encouraging. I talked about the service product that we have, and we’re not waiting around for the near shoring to happen. We’ve seen some wins with us having the fastest product coming out of Mexico, especially in time-sensitive products like auto parts, again, a daily service. We’re reaching into the Midwest. We’re reaching into different parts of Canada. And so we’re encouraged by that. We’re bullish about that. We are talking to customers about that. We’re putting as much as we can on the network. And you also saw us create a service product into the Southeast, which we have gained some traction on. So again, coming out of Mexico, it’s a great franchise for us. We’ve got six borders that we can get in and out of Mexico. So great product and great franchise.
