CSX Corp (CSX) 2011 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the CSX Corporation's first quarter 2011 earnings call. As a reminder, today's call is being recorded.

(Operator Instructions).

For opening remarks and introductions, I would like to turn the call over to Mr. David Baggs, Assistant Vice President, Investor Relations for CSX Corporation. Sir, you may begin.

Thank you, Lori, and good morning again, everyone, and welcome to CSX Corporation's first quarter earning presentation.

The presentation material that we'll be reviewing this morning, along with our quarterly financial report and our safety and service measures are available on our website at CSX.com under the investor section. In addition, following the presentation, a webcast and podcast replay will be available on the website.

Here representing CSX this morning are Michael Ward, the Company's Chairman, President, and Chief Executive Officer, Clarence Gooden, Chief Sales and Marketing Officer, David Brown, Chief Operating Officer, and Oscar Munoz, Chief Financial Officer.

Now before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the Company contain forward-looking statements. You are encouraged to review the Company's disclosure in the accompanying presentation on slide 2. This disclosure identifies forward-looking statements and risks and uncertainties that could cause actual performance to differ materially, from the results anticipated by these statements.

In addition, let me also remind everyone, that at the end of the presentation, we will conduct a question and answer session with the research analysts. With 32 analysts covering CSX now, I would ask as a courtesy to everyone to please limit your inquiries to one primary and one follow-up question.

And with that, let me turn the presentation over to CSX Corporation's Chairman, President, and Chief Executive Officer, Michael Ward. Michael?

Well, thank you, David, and good morning, everyone.

Last evening, CSX was pleased to report another quarter of record financial results. First quarter earnings per share, $1.06, up 36% from the same period last year. With a positive economic backdrop, CSX grew volume above both GDP and IDP in the quarter. And this was the primary driver in the strong revenue growth that the Company achieved.

Revenue also increased from continued core pricing above rail inflation, and the effect of higher fuel prices in our fuel recovery program. Our expectations for a continuing expanding economy held true in the first quarter, and we expect the positive trend to continue going forward.

At the same time, the industry faced severe challenges as a result of tough winter weather. Here at CSX, operations showed good resiliency, with service levels holding up well in most areas of our network.

That said, certain areas of the network were affected, and we have been taking steps to address those areas, which David will discuss later. Also in operations, we were very encouraged that the team delivered an all-time record performance and personal injury safety, and strong improvement in FRA train accidents.

From a financial perspective, it was also an excellent quarter, with operating income up 22% to $773 million, and with the operating ratio improving 210 basis points to 72.5%.

Going forward, we continue to expect to achieve another record year for the shareholders, with a high 60%s operating ratio. This keeps us on the path to achieve our 65% operating ratio target by no later than 2015.

With that, let me turn it over to Clarence to discuss our top line results. Clarence?

Thank you, Michael, and good morning, everyone. With the economy in its second year of expansion, positive trends continue to support profitable growth across all the businesses that we serve.

The manufacturing sector continued to expand as reflected in a reading of 61.2, with the latest Institute for Supply Management's index. Recall that a score above 50 indicates expansion. This is the 20th consecutive month of expansion.

At the same time, inventory still remain below target levels. The March ISM report on customer inventories registered an index score of 39.5, a score below 50 indicates respondents believe that their customers' inventories are too low.

As we continue to see increasing demand for rail service, we will remain focused on capturing the value of rail transportation, and we continue to be committed to delivering an even safer and more reliable service product for our customers.

Now let's turn to the next slide, and review the results. CSX revenue increased 13%, to a record $2.8 billion. As you can see on the chart, volume increases drove $173 million of year-over-year revenue growth.

Also, the combined effect of rate and mix accounted for $86 million of the increase, reflecting yield gains across most markets as we continue to sell the compelling value of rail transportation.

Finally, as you look further to the right, the impact of higher fuel costs increased our fuel reimbursement $60 million in the quarter.

Let's turn to the next slide, and take a closer look at the volume growth. Looking to the bottom of this chart, you can see the total volume increased 7% versus the same period last year. This overall rate of growth exceeded that of the overall economy, with broad-based strength across all major markets.

As you can see on the chart, intermodal is the fastest growing market. And this market is becoming a larger part of CSX's business portfolio, accounting for 35% of the total volume in the quarter.

Now, turning to slide 8, revenue per unit increased by 5%, driven by price, mix, and increased fuel recovery. Same-store sales pricing increased 7%. Recall that same-store sales are defined as shipments with the same customer, commodity, and car type, and the same origin and destination. These shipments represent approximately 75% of the CSX traffic base. In addition, fuel recovery increased revenue per unit.

Finally, partially offsetting these two favorable drivers was the effect of mix changes, reflecting the strong growth in the intermodal business, and the continued impact of termination of a purchase transportation agreement in 2010.

Overall, increased yields reflect the substantial value of rail transportation. As such, we continue to expect core price increases to exceed rail inflation on a sustainable basis.

And now, let's look at each of the major markets we serve, starting with coal. Coal revenue improved 19%, driven by 3% volume growth, and an increase in revenue per unit. The increase in revenue per unit reflects an improvement in yield, higher fuel recovery, and positive mix.

On the domestic side, utility demand weakened, as electrical generation declined in the eastern United States, most significantly in the southeast. Natural gas prices remained at low levels, leading to continued displacement of coal at some utilities. Utility stockpiles declined year-over-year, yet they remain at or slightly above normal levels.

Export coal grew year-over-year, as demand was strong for US coal shipments to Europe, Asia, and South America. For the first quarter, CSX shipped almost 11 million tons of coal to the export market. Looking at the full-year, we expect to ship about 40 million tons to the export coal market, driven by improving global demand, and evolving supply constraints outside of the United States. Though domestic utility volumes will remain soft, overall, coal volumes are expected to continue to grow.

Now, turning to our intermodal results. Intermodal revenue increased 4% on record first quarter volumes. International volume grew 24% due to stronger US economy, and due to new international customers gained as a result of expanded service and network offerings. Domestic volumes were up slightly, and continued to improve as container capacity in the overall truck market tightens.

Turning to the revenue per unit, while intermodal had higher fuel reimbursement and increased price in both sectors, this was more than offset by mix, and the impact of the termination of our prior purchase transportation agreement. The impact of this event has now cycled a full-year of reporting.

Looking forward, we continued to see strong demand to convert domestic freight off of the highway, driven by tighter over-the-road truck capacity.

Additionally, the pace of international imports remains strong, and we continue to see demand in new markets.

Finally, we are making strategic investments in the intermodal business, including the National Gateway Initiative, and the northwest Ohio intermodal facility, which began operations during the quarter. These investments will sustain long-term intermodal growth, while producing benefits across all of CSX's train networks.

Turning to the next slide, let's look at the merchandise markets. The merchandise markets show revenue growth across all 3 sectors. Within the agricultural sector, revenue growth was driven by improved fertilizer volumes, as farmers increased application to improve yield. Feed shipments were lower year-over-year, primarily due to a surge in exports last year, due to the drought in South America.

Within the industrial sector, all 3 markets had significant revenue growth. Automotive shipments increased on growth in North American light vehicle production. Increased vehicle production also led to greater shipments of both sheet steel, and chemical products. Overall industrial growth also led to the increased consumption of scrap steel and chemicals.

Finally, within the housing and construction sector, forest products volumes grew despite the weakness in construction-related markets. Growth in this sector was primarily driven by increased shipments of pulp board and paper, used in packaging of consumer products, and increased mineral and waste shipments.

Turning to the next slide, let's look at the overall merchandise summary across these sectors. Overall merchandise revenue increased 12%, driven by 7% increase in volume, and 5% higher revenue per unit. Volume growth was led by 20% growth year-over-year in automotive, as well as 12% growth in emerging markets, 10% growth in forest products, and 9% growth in metals. Revenue per unit increased, due to higher yields and increased fuel recovery.

Looking forward, we expect continued growth in the automotive demand, despite the supply chain impacts from the disaster in Japan. We also expect growth to continue across the metals and chemical markets, as a result of increased auto demand and the growing economy.

Finally, while we anticipate continued weakness in the housing market, we do expect continued growth in the pulp board, mineral, and waste shipments, and other lines of business.

Now, let me wrap up on the next slide. Looking ahead, discussions with our customers and key leading indicators suggest economic growth will continue throughout 2011 and beyond.

With this as a backdrop, CSX volume growth in 2011 is expected to exceed both Gross Domestic Product and industrial production. As such, the volume outlook is favorable across all 3 major markets, merchandise, intermodal, and coal.

Overall core pricing gains are expected to exceed rail inflation with increases across all markets, which enables continued investment in rolling stock and infrastructure to support long-term growth. Given what we are accomplishing, we remain confident that CSX stands out as a compelling value for customers, especially as they seek transportation providers that also offer environmental solutions.

Thank you. And now let me turn the presentation over to David to review our operating results.

Thank you, Clarence, and good morning, everyone.

CSX employees are mutually accountable for delivering world-class safety, productivity, reliability, and customer service results. We once again delivered record safety results, and continue to achieve productivity gains. System reliability and service overall, were resilient in the first quarter.

The coal and intermodal networks remain fluid and consistent. However, the merchandise network did not operate at levels we aspired to offer our customers, and we have taken specific actions to address this network, which I will describe shortly.

Let's review the results, starting with safety on slide 16. This slide shows first quarter FRA personal injury and train accident rates over the last 4 years.

In the first quarter, the personal injury rate improved 5%, versus the prior year to 0.78. This quarterly personal injury rate is an all-time low, and reflects CSX's unwavering focus as a leader in one of the nation's safest industries. As you know, industry results are also outstanding, and the safety success in railroading is remarkable across the board.

Looking at train accidents, the first quarter frequency rate improved 24% to 2.57, significantly lower than in previous years. Again, reflecting CSX's strong momentum in safety. These excellent results were achieved through a sustained commitment by all employees, and keep us on the path towards the ultimate goal of 0 injuries and 0 train accidents.

Now let's look at productivity results on slide 17. Slide 17 shows the strong improvement in the operating ratio over the last 4 years, ending with this first quarter's record of 72.5%. Despite the challenging operating environment we experienced in the first quarter, CSX continued to achieve solid productivity gains.

Examples include the continued automation in terminals, and are focused on continuing to increase train length, particularly in the coal network. These gains were partially offset by year-over-year increases in overtime, as well as additional hiring and training costs associated with ensuring that resources are available to handle volume growth.

Let's review operating performance on slide 18. Overall, the system was resilient during the quarter, which is reflected in the operating measures.

On the left side of the chart, on-time originations were down slightly versus 2010 levels, while arrivals were more significantly impacted. On the right side of the chart, overall train velocity fell 2%, and dwell increased 3%, both contributing to the reduction in on-time performance.

As you will see in the next few slides, these results were largely driven by performance on CSX's merchandise network.

Turning to the next slide, let me discuss how each of CSX's three core networks ran in the quarter, beginning with coal.

On the left side of the slide, you can see CSX's extensive network of coal production regions and receiving facilities. The coal network operated well, as reflected in the key measures highlighted at the top of the slide.

During the first quarter, coal train velocity improved 1% to 16.6 miles per hour. In addition, train length increased to 105 cars per train, equating to an additional 800,000 tons of coal moved with the same level of resources.

These velocity and productivity improvements resulted in CSX delivering nearly 11 million tons to export facilities. This is a 47% increase, an all-time quarterly export record.

To continue to support this business, CSX is also acquiring additional high capacity coal cars throughout 2011. This reflects our strong belief that export coal represents a long-term growth opportunity for CSX.

Moving to slide 20, let's take a look at the intermodal network. On the map, you can see CSX's intermodal network of 39 terminals, including the state-of-the art northwest Ohio intermodal terminal, which began operations in February.

While velocity of the overall network declined versus 2010, availability of the intermodal expedited service product remained at historic high levels. We also added new direct train service between Chicago and Atlanta.

Winter weather did have some effect on terminal operations, but this was limited to only a few locations, particularly in New Jersey. Increased fluidity in existing terminals, and the opening of the northwest Ohio terminal will drive improvement going forward.

Turning to the next slide, let's look at the merchandise network.

Here you can see CSX's merchandise network, which essentially utilizes all lanes and over 250 switching yards. CSX's 36 largest yards are indicated on the map. This network was particularly impacted by weather in the first quarter, as velocity declined 4%, and terminal dwell increased 3%.

Despite these challenges, the merchandise network was able to handle the increased traffic, as volume increased 7% year-over-year. Going forward, we are committed to improving these operations, and have taken several actions to increase performance.

Let's move to the next slide, and discuss these actions in more detail.

Additional resources are being deployed to restore levels to previous high levels. First, locomotives have been taken out of storage and returned to service. These extra units will provide increased recoverability and flexibility.

Second, furloughed train and engine employees have been recalled in select locations. Additionally, remaining furloughed employees have been offered temporary relocation to other areas. Lastly, we are building on our 2011 hiring plan, ensuring CSX remains ahead of attrition, and also positioning the Company for growth as customer demand continues to build.

These actions, along with the strong focus on execution, will enhance overall performance. And I am confident, it will show improvement going forward.

Now let's wrap up on the next slide. Looking forward, CSX will build on its strong safety performance, as it pursues its ultimate goal of 0 injuries and accidents. Productivity efforts continue and we will manage all resource levels closely as volume grows, ensuring we have the proper level in place to handle changes in volume.

Specific actions to improve overall operations are under way, and I am confident that network fluidity and efficiency will improve to levels our customers have come to expect from us.

Finally, our focus on service and providing a superior transportation solution will enable continued car load growth. We are committed to meeting the expectations of CSX's customers. CSX employees are mutually accountable for providing a high level of service, safely, reliably and efficiently, which delivers value to both customers and shareholders.

Now let me turn the presentation over to Oscar to review the financials.

Thank you, David.

Okay. Let me begin with a quick overview of the quarter's results, starting at the top of slide 25. As Clarence discussed earlier, revenue improved 13% to over $2.8 billion on profitable volume growth, strong core pricing, and the impact of higher fuel recovery. Now this revenue growth, coupled with continued strong cost management delivered in the face of significantly higher fuel prices, yielded a 22% increase in operating income for a first quarter record of $773 million.

If you look below the line, interest expense and other income combined, were both in line with last year. Income taxes were $243 million in the quarter for an effective tax rate of 38.1%, which is in line with our guidance.

All in, CSX finished with a record first quarter EPS of $1.06, an improvement of 36% versus last year.

Now if we turn to the next slide, I want to review the drivers of the increase in operating income. And I think this chart provides a simple, and a clear picture of these record first quarter results.

When I look at it, what I find most compelling, is that that first revenue bar which shows $173 million of volume-related revenue growth, this was supported by the outside expense bar of just $58 million of volume and other related expenses, very nice operating leverage there. Moving inwards, the strong pricing you see on the revenue side, was well in excess of the net inflation you see depicted on the expense side, and of course, consistent with our guidance. To round out the chart, the two interior bars illustrate the net fuel impact headwind for CSX in the quarter.

So all in, CSX delivered a $141 million increase in operating income for a record first quarter operating ratio of 72.5%.

Also, I draw your attention to, as noted in the footnote, if you exclude the impact of fuel price, which as you know causes an increase in both fuel expense and fuel surcharge revenue, CSX's first quarter operating ratio would have been 70.6% in the quarter.

Now said more broadly, and as a general rule of thumb, for every $10.00 of fuel price movement, it will have a 0.5% impact on the operating ratio for CSX.

Now, let's turn to slide 27 for a broad summary of expenses. As you can see, while total expense was up 10% versus last year, this was driven primarily by the impact of higher fuel prices. If you exclude fuel, total expense was up 4%, with a corresponding 7% increase in volume.

I'll talk about the top three expenses in more detail in the next few slides, but let me briefly speak to the last two expense items on the chart.

Depreciation was up 7% to $243 million, due to an increase in the asset base, and again, in line with the guidance we gave you earlier. Equipment rents declined 3%, as increased volumes was more than offset by improved utilization.

On the next slide, let's look at the more significant expense items in detail. Labor expense increased to $765 million, or $36 million from last year. The impact for CSX of wage and healthcare inflation in this quarter was $23 million.

Volume and other costs accounted for $13 million of the increase, driven primarily by the increase in headcount. Speaking of headcount in this quarter, we are only up 1% sequentially, slightly lower than what we had told you in the previous quarter.

Going forward, based on the hiring David discussed earlier, we expect full-year average headcount to increase about 3% year-over-year, and that supports the volume growth expected this year, and the installation of various positive train control equipment.

Let's turn to slide 29. MS&O expenses increased 2%, or $11 million versus last year. Looking at the payable to the right, the largest driver relates to purchased transportation costs, which were favorable by $37 million.

Just as a reminder, as it relates to the termination of prior intermodal transportation agreements, and result in a quarterly reduction in revenue, as well as a corresponding reduction in operating expense. This quarter, thank God, is the last time you will see this level of impact now, and we have fully cycled this event.

Secondly, we saw a $22 million increase in volume-related and other expenses, based on the 7% volume growth, versus the first quarter of 2010. And additionally, we are cycling $17 million of prior year insurance and legal recoveries. And then finally, we did see a $9 million increase resulting from the normal impacts of inflation in this quarter.

Moving to the next slide, total fuel increased $119 million, or 42% versus last year. If you look at the chart on the left, CSX's average cost per gallon for locomotive fuel climbed to $2.86, an increase of 36%. This increase in fuel price accounted for $96 million of higher expense, as seen in the table on the right.

Higher volume and slightly lower fuel efficiency accounted for $15 million of incremental expense. And to round out the table, non-locomotive fuel increased by an additional $8 million.

Now if we turn to the next slide, let's review the impact of the lag in fuel. As we've mentioned in previous quarters, the lag in our fuel surcharge program produces a favorable earnings impact in times of falling fuel prices, and a headwind in periods of rising prices.

As prices continue to increase during the quarter, a $35 million headwind resulted from the lag effect of our fuel recovery program. Now, given the recent trend of rising fuel prices and looking at the forward curve, we expect fuel lag to be a headwind of about $15 million to $20 million in the second quarter.

Now, let me turn to the next slide, as I wrap up. We continue to see growth in nearly all markets. The underlying fundamentals of the business remain positive, and they are evident in the results delivered this quarter.

This profitable growth drove margins expansion and record results. We feel that the economy will continue to expand in 2011, and CSX expects to grow above both GDP and IDP, while producing core pricing gains in excess of rail inflation. In addition, export coal is expected now to be about 40 million tons for the year.

Given the foundation of growth, core pricing, and productivity, we remain on track towards achieving a high 60%s operating ratio for the full-year 2011. And this positions our Company well to deliver on the operating ratio target of 65% no later than 2015.

We remain committed to investing $2 billion of capital in this year, focused on our core infrastructure and rolling stock, as well as the strategic projects aimed at positioning us well for future growth.

And finally, we do remain committed to a balanced deployment of cash, by investing in the business, delivering dividends, and share buybacks and creating value for shareholders.

So with that, let me turn the presentation back to our Chairman.

Thank you, Oscar. Over the past 5 years, you, our shareholders, have seen significant gain in the value of your investment. That value has been created by CSX employees who are relentlessly focused on generating competitive advantage in the near and long-term.

Doing both means that we have to anticipate future transportation needs today, and make the right investments to meet them over time. The key is to make those investments from a position of strength, from a Company that's healthy, setting high standards, and performing well. That is CSX.

As the government strives for solution to the nation's fiscal challenges, CSX is creating real economic stimulus from within. Our efforts ensure that business moves efficiently, air is cleaner, highways less congested, the need for imported oil is reduced, jobs are produced, and real value is created for American businesses, communities, and shareholders.

Your Company stands to benefit, not only because of the major cost and environmental benefits, but because of the investments in the quality, flexibility, and capacity of America's ever more important transportation infrastructure.

With that, we'll turn it over for your questions.

We will now be conducting a question and answer session. Our first question comes from Tom Wadewitz with JPMorgan.

Good morning, Tom.

Good morning, Michael. Good morning, everyone. Let's see -- the -- a lot of good things going on in the quarter once again.

Wanted to ask you a little bit about the price trend. Your same-store pricing seems to be stepping up versus the pace last year, which I think was kind of in more of the 5.5, 6.5 range last year. Can you give us a sense of what's driving that, and whether you would expect some further acceleration? Or whether the level in first quarter, that 7%, is kind of a run rate, we should expect going forward?

Tom, this is Clarence. One, thank you for your comments there, that was kind of you to say. To answer your question directly, our pricing has been broad-based. It's been across all lines of our businesses, both in our merchandise side, as well as in our coal, intermodal side of our business. As we've told you before, we expect that we will exceed rail inflation this year going forward, and that's pretty much where we want to stay.

I guess, it's on the export coal, is that --? That would effect in second quarter, that wouldn't yet be in the numbers, is that fair?

I'm not sure I understand the question. Ask me again.

Okay. So you -- your export coal pricing typically goes up in April 1, right? And your coal yields were strong in first quarter. Was there any change that you would have seen, a bump-up in your coal yields earlier than normal? Or would we expect that impact from higher export prices really to be a second quarter effect?

I think you'll see our export coal prices stay strong throughout the year.

Didn't you take a tariff increase?

We took a tariff increase, but the tariff covers a relatively small portion of our overall portfolio, and that's why I made that point.

Okay. That's fair. And if I can -- one follow-up for Oscar. Are there any costs that we should be considering that kind of step up through the year? Or I mean, I guess you talked about headcount, and a little bit of training and so forth. I guess from the resource comments that Dave Brown had, where you're adding some resource to run the merchandise network a little better, are there costs that kind of come out of that, that will step up a bit? Or is that kind of not much different from run rate we saw in first quarter?

Tom, yes, there will be a general step up because of the hiring and the training costs. But in addition to that, I think our continued productivity will more than offset it, so no, no significant increases other than what you would expect normally.

Thank you, Tom.

Okay, great. Thanks.

Our next question is from Scott Flower with Macquarie Securities.

Good morning, Scott.

Good morning, Michael. Just a couple of questions. One, I guess maybe more for Clarence. Is there any sense that the coal stockpiles going forward in terms of what you consider normal might be changing? Without naming customer names, there have been major southeastern utilities who have sort of said, they'll never expect to burn as much coal as they did in 2007.

And so I guess, I'm just wondering with that kind of a statement whether -- are stockpiles something that might be changing where a lower level might be more normal, and therefore the spread to what's normal is actually greater than we might think?

Well, Scott, this is Clarence. I'm not sure that anybody knows what normal is anymore. I guess there's new normals. In directly relation to our stockpiles, our stockpiles at our southern utilities have declined from what they were the last quarter, but they are still higher than what has been the traditional norm.

And in the north, our utilities have stayed pretty much constant with what they were the last quarter. And having said that, our utility stockpiles in the north have tended to be closer to what has been a traditional norm.

What happened, just on that specific thing, how many days are we talking about roughly, in terms of inventory?

In the north, it's running around -- let me think about that a minute -- about 56% in the north, and around 81 days in the south.

Okay, and then just one very quick follow-up. How do you see the thermal market into Northern Europe? How strong do you think that will be? Obviously API-2 has been fairly solid. How do you see the thermal markets, both short-term and longer term perhaps into Europe, which has not been a traditional market, at least over the last so many years?

Well, as you know, the thermal market into Europe has improved in the last three months. The API-2 index about a week ago was up to $129, and that's significantly up from where it has been previously.

Having said that, we got some -- we've seen some slight pickup in thermal coal going to Europe. Going forward longer term, I would be hesitant to venture a guess, given what the German utilities' position have been recently on nuclear power, and given the other factors that's influencing that in Northern Europe right now. It's a little too soon to speculate on that.

Great. Thank you all.

Thank you, Scott.

Our next question is from Bill Greene with Morgan Stanley.

Good morning, Bill. Bill?

One moment, please.

Hello?

Just one moment, please. (Technical difficulties) We are experiencing some technical difficulties. Our next question is from William Greene with Morgan Stanley. Sir, please go ahead.

Okay. Can you guys hear me?

Yes, we can hear you.

Okay, great. Clarence, I had one question for you, and when you look at your volume commentary, I think the consensus is sort of for the mid single digits. So just to clarify, even though we've got a tougher comp on the number of weeks in the year, you still think you can exceed sort of this kind of 5%-ish number on volume?

Bill, yes, I believe that we can. I think we'll exceed both the GDP and the IDP numbers. And as you're aware, GDP is -- Global Insights has it about 2.8. The Fed has it around 3 to 3.5 going forward. And IDP is somewhere in the neighborhood of -- Global Insights has it at 5.5.

Okay, great. Thank you. And then just a follow-up on the export coal questions. So if we look at the export coal market, Clarence, can you remind us how big that's been? What was the -- if you think back, in all the past, how big was the biggest year ever? Are we exceeding those levels, or we still have room to go on that?

Then along those lines, I think you moved to quarterly pricing in export coal. Will that make your pricing more volatile? Will we see sort of up and down in that range? Or is it just going to be kind of gradual, but on a quarterly basis step ups? How do you think about pricing in that market, too? Thanks.

Okay. First is, is that last year, 2010, was our record year in export coal, at about 30 million tons. And the first -- at the end of the fourth quarter, the start of the first quarter, we gave you guidance if you'll recall, in the 35 million to 40 million ton category. We're now saying that we're going to be at about 40 million tons in our export market going forward. So, that will be our largest single year that we've had in export coal.

Going to quarterly volumes, your question is if I understood it correctly, was does that add volatility in the market? And the short answer would be, yes, it does add volatility by going to quarterly prices. However, the reason that we went to quarterly prices is, we expect that volatility to be at a up position for the remainder of this year. Very positive in pricing, for the rest of the year.

Okay. Thanks for the time.

Thank you, Bill.

Our next question is from Ed Wolfe with Wolfe Research.

Good morning, Ed.

Thanks, hey, good morning. Clarence, just a little clarity on -- if I look at the reported yields, they went down from fourth quarter from seven, and change to five and change, despite fuel being a bigger piece. And I know there's a lag, but it was still up relative to fourth quarter. You talked about the mix of intermodal.

Can you talk -- and the contract, but it feels like there's more than just that in the mix. Can you talk about what else drove the big change in mix?

Ed, the major part of that was the mix changes, intermodal has become a larger part of our portfolio. There was some noise around the fringe on some of the mixes in other markets, but it was mainly driven by the intermodal mix.

Okay, because if I look at intermodal growth relative to car loadings, it -- the gap wasn't as wide in first quarter, as it was in fourth quarter year-over-year. It feels like there's something else. But I guess it's starting to compound, is that thought process?

Ed, it's Oscar. I think if you look at the first quarter overall volume growth, half of it was intermodal this quarter. And I think that's probably the larger mix impact that you're seeing, versus what it was last quarter.

Okay. Shifting gears, Dave's slide on slide 22, where he talked about some of the actions that you're undertaking to improve the merchandise service, the hiring, the locos, can you talk a little bit about when you started that process, and where you are in that process?

And as we go forward, is it kind of evenly done, or do you do a big move to bring that on? And then, you absorb that for a while, and you see where you go? Or are you going to constantly be hiring, as we go forward? How do you think about, as the recovery continues bringing these things back on?

Yes. Thanks for the question, Ed. And what we've done, is we have progressively brought in the resources, so it's not really big chunks. It's like over time, we bring back our locomotives. We brought 180 back into our active locomotive fleet. We, at the same time, are calling back our furloughed employees as needed, and have done that over the period of the last couple months, especially the last several weeks.

And then, the hiring is based on an annual plan that basically keeps it flat throughout the year. So, we're hiring at a strong level, a sufficient level, and doing on a consistent basis across the year.

So sounds like second quarter, there's a little bit more, and then it levels out in third and fourth, in terms of hiring and bringing locos in? Is that a fairway to think about it?

Some -- in the remaining of the second quarter, we will be continuing to bring on more of our locomotive resources, and that will level out. Hiring is consistent across the entire year, week by week.

Okay, thanks for the time. I appreciate it.

Thank you, Ed.

Our next question is from Ken Hoexter with Merrill Lynch.

Good morning, Ken.

Great, good morning. Just following up on Dave, kind of surprised that the kind of fall here in the on-time performance and the velocity. And it looks like it's the worst in years, going back to almost the launching of the ONE Plan, just when does congestion impact your ability to charge for it? I guess, is there a point of taking on too much volume, or culling too much cost that degrades service? I just -- I want to know if we should be getting concerned on that level of costs creeping up, because performance is slipping a bit?

Well, Ken, we have seen some decline in our measurements, as you saw. And I mentioned the three networks, and we have sustained a consistent level of performance in our intermodal network. I showed you how our coal network has remained very fluid, and it really is a merchandise network issue.

We found ourselves doing quite well through January and most of February, and as we had winter impacts in late February. Storms rolling across our system in succession in early March, we did see a drag on our merchandise operation, both increases in dwell time and some drag on our velocity.

So, the recovery initiatives that I talked about are the things that we're doing and are ongoing. And we're very confident in our ability to recover back to our high level of service in all three networks. And at the same time, we know that takes time, and we expect to be working on that across the second quarter.

We have -- when we look at the overall sort of definition of significant loss of fluidity, and our assessment of that the measurements would be 240,000 cars online consistently there or above, which we're significantly below that.

If we see sustained dwell above 30 hours, that's where we believe that we really are seeing congestion, that is at a rate that would be less fluid. And our velocity at 18 miles an hour, consistently below 18 would be a severe issue, as far as our measurements are concerned. So we're certainly in the range of fluid operations in all three of those measures. And you'll see those improve through the second quarter.

Yes, Ken, this is Michael. You had mentioned that -- the cost elements of it. Quite frankly, with some of those challenges we had in the merchandise network towards the second half of the quarter, we still had a very good cost profile, as Oscar pointed out, was 7% more car loads. And we were only up in 4% in cost, excluding the impact of fuel. So I think we've still did it in a very cost effective manner.

And if I could just punctuate that, Kenny, with one last statement. As you know, we both, Michael and I recommitted to the high 60s guidance for 2011. And I think that commitment is -- obviously includes the service improvements we expect in the ongoing business volumes that Clarence discussed. So we're confident.

It's actually very helpful. But Dave, I think putting those numbers down puts it into great perspective, into how much room there still is to go.

So Oscar, let me follow up with that, because looking at those targets -- and I just want to -- I would imagine that the more you get closer to that 7% pricing, it just raises a lot of issues, especially with the STB's planned hearings coming up in June.

But when you think about your returns, there's still only about 11.5%. What level do you, or even Michael, do you believe you need to get to earn your proper returns on replacement costs? Just as you get to even that 65 target, do you -- does that get you to those levels where you think they are closer to replacement? Or do you still have to go beyond that to earn the levels you believe are needed to keep that reinvestment going?

You raise the obvious and important point, is that we still aren't at that level of return. I won't suggest any specific number on this call, but certainly we're below it. And our charge has been to sort of meet and exceed that cost of capital, as we make those investments and as the investments to support the great business growth, and the great support we give to the American economy. I think it's important that we continue to make those. And so, let me just stop there.

All right. Thank you. Appreciate the time.

All right, Ken. Thank you.

Our next question is from Chris Wetherbee with Citigroup.

Good morning, Chris.

Good morning, Michael. Maybe a little bit on pricing here. If can we talk about intermodal. Now that we are lapping the negative comps as we move forward into 2Q and beyond, how do you think about the pricing environment in this segment? And particularly, how do you think about the strength we've seen in the TL market, as it implies to taking some of that business off the road?

Chris, this is Clarence. We feel very positive about it. If you think about our -- what our true number was in core pricing on our intermodal product, it was up on a year-over-year basis, in line pretty much with what you've seen throughout the industry. We think that's going to stay in place going forward.

When you look at what is happening in both the truckload capacity, for example, as measured by the Morgan Stanley index, what we are seeing happening in fuel costs, and the efficiency of our intermodal product being three to four times that of truck.

It looks to us, every indicator we see, that the pricing environment for our intermodal products going forward is going to be positive, and continue to be positive.

And then maybe, just to backstop that, Oscar, from your perspective, do you think about the growth in this business, and even in the export coal business, how do you think about CapEx? You're staying at $2 billion for the year. Is there any incremental areas, where there maybe some puts or takes on CapEx as you move through the year, assuming we continue to see this good growth out of these two business segments?

Well, I think in our -- as we talk about our balanced deployment of capital, certainly our first priority is the reinvestment for business, and particularly for business growth. So in the instance, that we saw the right requirements in the out years, out quarters, we would certainly let you know ahead of time.

Okay. And then one final follow-up, maybe for you Oscar, on the buyback. It looks like you did about $300 million in the buyback in the first quarter. I think that about closes you out. Just curious, if there's any update on extensions or reauthorizations going forward?

Not at this time.

Okay. Fair enough. Thanks very much.

It did finish the program, Chris, the $3 billion program.

Okay, that's helpful. Thank you, guys. Appreciate it.

Our next question is from Chris Ceraso with Credit Suisse.

Good morning, Chris.

Thanks, good morning. I had a question on intermodal yields. I understand the year-over-year impact from the change in the underlying agreement. But if I look at the yields on a sequential basis, I would have thought that with rising fuel and where truck prices are, that you might have seen more yield growth sequentially. Was there some mix impact within the intermodal category, or something else that restrained the yield growth there?

The largest mix impact within the -- within that segment itself, was the large growth that we saw in our international traffic.

That was up 24%, right.

24%, which as you know, Chris, carries a slightly lower revenue per unit, because it's in private equipment.

Okay. That makes sense. And on the comp and benefit growth, if I look at it on a per head basis, was a lot slower than normal, i.e. better. Is this a function of more junior workers coming back in from furlough, or is there something else going on there? And then, what's the expected growth rate from here?

Chris, it's Oscar. Yes, in the quarter, we did have a slight bit of that, with junior employees, and we had some slightly lower comp. 2010 was a recovery year from the 2009 recession, so we had pretty high comp numbers.

So, I think as you look forward, I think it's a story of two halves. The first half, you'll see sort of the inflationary rate that you saw this quarter. The second half will probably increase by $10 million a quarter or so. And that's just the normal midyear accrual for the future labor contracts that we normally do.

Okay. And then just lastly, Oscar, on your -- the high 60s target, as well as your expected surcharge lag effect in Q2, what does that assume, either in terms of diesel price or a crude price?

At the forward curve.

Just the forward curve, okay, thank you.

That's the best information we have, as you know.

Appreciate it.

Thank you.

Our next question is from Justin Yagerman with Deutsche Bank.

Good morning, Justin.

Hey, good morning, guys. I wanted to ask a question on the met coal side and get a sense. Is it possible to break down the volumes by month? And then, within that question, talk to any -- you did 11 million in the quarter, annualized that would be [44 million] of capacity. Were you bumping up against capacity, when you were moving that this quarter? Or could we potentially expect a higher number next quarter, as the weighting is probably likely first half-weighted for a lot of these met coal shipments?

Justin, this is Clarence. I can't give you a met coal number by month. I can tell you that in general, our market for met coal is between --- is in the 69%, 70% of our export coal is metallurgical coal. The other 30% to 31% is in the thermal coal.

I can tell you that our coal business on the export was very good, from a fluidity standpoint. In the first quarter, the 11 million tons that you alluded to. We think that we have additional capacity in our port facilities, as well as our rail infrastructure to handle more.

Having said that, I want to stay and guide us with you, that we're going to ship about 40 million tons as best we can tell right now for the year going forward. And as the year progresses, we'll know more.

Clarence, do you have a sense of distribution across the year for that? I mean, is it going to be a first half weighted 40 million, or should we expect, I mean kind of 9 to 11 million next quarter, and kind of evenly throughout?

Now our best guess for this year 2011, is pretty straight line across.

Okay. That's helpful. And I guess with this discussion of costs coming on, and thinking about incremental margins. As we move through the year, is it fair to assume that with fuel still high, that incremental margins likely dip as we move through the middle of the year, but recover as you get some of that efficiency gain from the labor and the equipment costs that are coming on in the fourth quarter here?

So, when I look at my model at least, the progression seems to be kind of a degradation for the next two quarters, and then a recovery in the fourth quarter. Is that a fair way to think about how you guys are modeling costs for this year?

I think, Justin, yes, if you don't adjust for fuel. But I think it's important as you measure an operating efficiency of a Company, although that's a very real expense, when you adjust for that, incremental margins stay very strong. But as you outline on an out year -- out quarter basis, as fuel moves up and down, it will have that effect on margin.

Okay. And conceptually, when you guys are doing that planning, what kind of network capacity are you planning around, in terms of the ability to handle surges in volumes, or what have you?

We still a have relatively good amount of capacity left in the system across all the networks. If you think of our peak volumes, as probably as recently as 2006 and back to 2004, we're still well below them on an overall volume basis. So we're not putting a lot of constraints on our capacity.

And David, is constantly adjusting that train plan to make sure we can meet those demands. But right now, we'd guess we have 10% to 15% capacity in our merchandise network, maybe 15% to 20% in the intermodal, and he's constantly changing that as we see it moving.

So, we think we can meet the demand, that we expect to come. Thank you, Justin.

Thanks a lot, guys.

Our next question is from Scott Malat with Goldman Sachs.

Good morning, Scott.

Good morning, thanks. Just wanted to -- you talked a little bit about the longer trains, the new intermodal terminal. Can you talk a bit more on where we are overall, in the $130 million to $140 million of productivity enhancements that you're targeting in 2011? Where we are today, the different initiatives that are incorporated in that?

Certainly, this is David. Thank you, Scott. We are very confident in our achieving that level of productivity that we already stated we would achieve.

We, of course, started that early in the first quarter. We're working through various initiatives. We were challenged somewhat in the first quarter, but have our initiatives under way to accomplish. I've talked about yard automation, train length. There's a long pipeline of multi-year initiatives, really, that we've implement -- or continue to implement through our cost processes, through our service processes. And therefore, are very confident in achieving that result.

Okay. Thanks. The other follow-up I just had on margins, was just the last time you reported intermodal operating margins broken out in 2009, you were at 86.5 operating ratio. I'm not expecting you to give us some hard numbers here, but I just -- if you could help us think about where the incremental margins for this business has been versus the rest of the business, and help us think through that, that would be great. Thanks.

Again, the normal practice of making and running a much more efficient network, the double stack clearances, a lot of the network investments we've made in terminals and fluidity, I think those are all part and parcel to improving the margins on that great growing business.

So from a qualitative standpoint, can we think the incremental margins are in line or above the rest of the business? Or is that kind of never appropriate in the intermodal business -- I don't --?

We have talked about this in times past, about the incremental margin being on par with our average margins in our core business. So, yes, when you have 15% to 20% capacity, those extra cars going in back of a train create quite a nice bit of margin improvement. So, incrementally, they are very, very healthy.

Okay, thanks. That's helpful.

Thank you, Scott.

Our next question's from Gary Chase with Barclays Capital.

Good morning, Gary.

Good morning, everybody. I wanted to see if you could maybe shed a little bit more light on what you think the root cause of some of the difficulty that you experienced in the merchandise was?

Was it more volume than you anticipated? Was it volume in the wrong pockets of the network? I know you mentioned storm impact, which is pretty clear, but were there any other aspects of this that caught you by surprise, and have led to the planned additional resources?

Sure, Gary, this is David. Yes, just to give a little more detail on that, it really is -- it began with weather. And again, we weathered the storms very well in January and February. We did see a succession of storms across our network, particularly in early March, and essentially, were not able to recover between those.

So, we found ourselves somewhat constrained because of the lower velocity and increase in dwell. And it's not network-wide in merchandise. It's really impacts regionally in the deep south area, and somewhat in the Midwest, and all of our routes that are tributary to the western gateways.

So, there is impact around gateway fluidity. That has collateral impacts into our network. We've obviously encountered this before; we know how to deal with it. We know that it takes resources and time, and a lot of focus to bring the operation back to the high level that it's expected to be at.

And that's what we're doing right now, and we see those improvements on a daily basis, and we continue to make that our focus. It is solely really a function of a catalyst of weather, and then the impact of just going through the recovery process.

So is it safe to say then, that the weather impact made you realize you didn't have the surge capacity you needed there? Or that later for the volume levels you're anticipating later in the year, that you weren't appropriately resourced?

No, I don't think that at all. I think, you know, we have the surge capacity, that Michael talked about. We always are looking at our ONE Plan, and building into that, through incremental train start additions. We've done it in intermodal, we've done it in automotive, we've done it even in merchandise.

So we added trains into our network that make it more efficient, and maintain that level of surge capacity. The bottom line is it takes more resources to run a slower railroad with higher dwell time, than it takes to run it at the higher level of velocity and improved dwell. And we know that, so we know we have to concentrate resources into it, to return to those levels.

And then we'll maintain our efficiency at the resource levels required to sustain the higher velocity, lower dwell, with a better service product, and maintaining the surge capacity that Michael talked about.

Okay. Thanks, guys.

Thank you.

Our next question is from Cherilyn Radbourne with TD Newcrest.

Hello, Cherilyn, and welcome.

Thanks very much. Good morning. Question on intermodal. I've seen some fairly optimistic forecasts from a volume perspective, as it relates to the peak season. So, wondering if you could just comment on what you're expecting there.

And also, to what extent you see container supply and the withdrawal of ocean carriers from the chassis supply business as potential constraints on the peak this year?

What was the last part of your question there? Ocean container?

Container supply.

The chassis supply.

Chassis supply. Okay. Number one, on domestic box capacity, we don't foresee any of the repeat issues of 2010, as we move into the fall peak of 2011.

In regard to the ocean chassis situation, if you follow that to some degree of detail, the ocean carrier fleets themselves are moving away from privately-held chassis fleets into OCEMA-managed chassis fleets. That is a process that is still in a lot of flux. It remains to be seen how that's going to end up, but we don't anticipate that on CSX of having any adverse impact to our intermodal operations.

Third, what are we planning for, for the fall peak? Assuming all of the economic assumptions that we have in place, and that the country has in place in fact materialize, assuming that there's no disasters or things beyond our control, we expect to have an absolutely, robust fall peak, and look forward to handling it.

Thank you. That's it for me this morning.

Thank you.

Our next question is from Jon Langenfeld with Robert Baird.

Good morning, Jon.

Good morning. On the modal side, can you talk about your specific container capacity, what it looks like, you're going into the peak season, 2011 versus 2010?

This is Clarence, again, Jon. What I can tell you, without giving you specific numbers is, is that we expect and will have a significantly larger container fleet available in our UMAX program, along with our partner Union Pacific as we proceed throughout the year. The reason I don't want to give you specific number, is we consider that confidential market information, but the numbers will be up significantly.

And then you're a little bit different than the others on intermodal side. You have some more transactional capacity that's available throughout the year, whereas I think many others have more contractual capacity tied in. So, as you think about your availability to capacity, how much of that -- or how do you think about that trending relative to previous years, in terms of the boxes available for spot market pricing opportunities?

Well, by having just in general a larger fleet, it makes more containers available on that spot market. Obviously, we would like to tie up as many as we can under longer term commitments, but the fact is that the spot market is just that. It's where we have available capacity. We try to utilize it to the maximum efficiency we can. And when we don't have available capacity in those markets, obviously, we simply just don't play in it.

Great. And then the last question, just on the volume in the intermodal. Now as you anniversary this comparison, as you shifted off the UP legacy contract, does that volume number -- we're seeing double-digit volume growth year-over-year -- does that change now because we're changing that comparable, to apples to apples?

No, the comparable impacts the revenue per unit, as opposed to either the profitability or the sheer volume that's in that business. So we expect our volumes in intermodal to stay very strong throughout this year.

Thank you.

Thank you.

Our next question is from Jason Seidl with Dahlman Rose.

Good morning, Jason.

Good morning, gentlemen. I'll start on export coal here. Clarence, you said about 40 million for the year. Can you give us a sense of the breakdown between met and thermal?

Yes, Jason. The met coal runs at around 69%, 70%. The thermal coal is running, it obviously, the remainder of 30% to 31%.

All right, perfect. Also, if we continue to see increased tightness in the truck market, I would assume that you guys pick up even some more share on your intermodal side. At what point, should we expect you guys to be increasing some CapEx beyond the $2 billion to accommodate that business?

Well, I think that would be premature for me to say that, other than to tell you, that we have at CSX in our intermodal network expansion plans, both the announced projects that you've seen in 2011. And we obviously have a comprehensive plan over the next two or three years, to expand and invest in our intermodal network. But having said that, as Michael pointed out, and David earlier, we have about 15% or plus capacity within that intermodal network, as it exists today. So we could handle a lot of surge, and a lot of growth in that in the foreseeable future.

Okay. That's great. Great color, and one more for Oscar. Oscar, end of the quarter shares outstanding, what was the count?

Oh, 370-ish -- I'm sorry, I don't have the exact number.

You can get it to me offline. That's fine, Oscar.

371.6.

Did you hear that, 371.6?

That was the average, or that was in the quarter?

That was -- it looks like the quarter average.

All right. If you can give me the end of the quarter offline, that would be great.

All right.

Guys, I appreciate the time, as always.

Thank you.

Our next question is from Walter Spracklin with RBC Capital Markets.

Good morning, Walter.

Good morning. Thanks very much, guys. Just two quick ones here for you. First one, on the op resourcing that you're talking about in your merchandise side. I noted that your competitor had a nice rebound in volumes this quarter. Was there any -- did you have any discussions with your customers? Were any of them disappointed with some of the service levels? Could you might have seen some of that share move-over to your competitor? Or was this -- was your competitor also hurt by the same weather factors, and net-net, not an impact there?

Walter, this is Clarence. We thought it rained and snowed on the entire eastern United States. So, we thought everybody had issues, in regard to that, including our customers, including our competition, whether it was rail, whether it was highway-based, or whether it was water-based, barge-based. So, most of our customers were -- I don't know if sympathetic is the right word or empathetic is the right word, but clearly understood the issues that we had. I think what they expect going forward, as we do, as David has outlined, we rebound, we get back to the service levels they are accustomed to. And I think it's a very positive story for us.

Okay, no, that makes sense. Second question here, Oscar, you gave us some good sensitivities for every $10 move in WTI, I think you said 50 basis points on OR, just net of everything, just by not doing anything. Now, your low 70, or I guess your high 60s and 65 ration hasn't changed, but we've seen a pretty big move in oil prices since then. And given that sensitivity, are you implying then, that you're going to be able to get more opportunities than you had originally thought? Or do you expect oil prices to come down, because it sounds like you're using a forward curve? Those are indicating higher. So, I just want to understand, why we haven't seen a change in your targets, when we've seen such a big increase in WTI?

I think we -- there's two assumptions, right? They're our business outlook and the forward curve. And I think our business outlook is, as you've heard today, remains very robust, and that allows us to restate that guidance as we have.

So, better than expected operating results, based on the improved, the improved top line?

(Multiple speakers). -- on the business outlook, yes.

Okay, got it. That's all my questions. Thanks very much, guys.

Thank you.

Our next question is from Jeff Kauffman with Sterne Agee.

Good morning, Jeff.

Hi, it's actually Kanchana Pinnapureddy in for Jeff Kauffman. I just had one quick question for you guys. Could you talk a little bit about what's going on with central appalachian production? Are these more shorter term issues, or are these more longer term structural issues?

Well, Kanchana, I think Central Appalachian production has got all the long-term issues that you and I, and others have talked about, read about, and speculated over the last few years. Having said that, in the near term here for this year, our Central Appalachian production is very strong. Our producers are producing quite well. I'm not aware of any mining issues that we have other than the normal onesie, twosie stuff that crops up from day to day. So, we expect our central app coal origins to be very strong and robust, both in our domestic and in our international markets.

Got it. That was it. Thank you.

Thank you.

Our next question is from Matt Troy with Susquehanna.

Good morning, Matt.

Good morning. Thanks for taking the questions. I'll keep it to two exactly. First question would be, you've certainly have trounced your competitor in the east, with respect to export coal volumes. I think you've, when all is said and done, you'll be 3 to 4 times the tonnage they did. And we know why, I think the structural ground load out issue. But I was curious on the bigger piece, the domestic side, everyone is impacted by stockpiles and natural gas. But if you look at the AR reported numbers, Norfolk Southern is running up about 11% in total coal volumes. You guys are up in the low single digits. Given the very strong performance for you with export coal, just wondering was there's something else on the domestic side that was hampering you near term, so those volumes don't look closer to your eastern competitor?

Matt, this is Clarence. We had really three issues that sort of impacted us, in my view more than perhaps our competitors. One is our Florida utility base was down, both due to our burn and dispatch in the Florida area. Generation in the southeast in particular, electrical generation was down 1.1%. And the main driver behind that , as we understand it is, is that on a year-over-year basis, we had a milder winter versus 2010. As you know, most of the heat here in the south is done with electric heat pumps. And a second factor influencing that was lower natural gas prices, which impacted the sources of dispatch, or what electricity was used.

The second factor involved a bridge outage up in West Virginia at a fairly large coal-producing mine for us, and we're working on getting that problem solved as we speak. And then there was a shift in dispatch by some of the -- of one particular major utility of ours in the southeast from a CSX source plant to an NS source plant, which was simply a balancing of what the utility stockpiles were. Going forward, we think that our utility coal will continue to grow, and do quite well

All right, Clarence. I very much appreciate that color. My second question would be for Oscar. I know you guys perform your accruals in the second and fourth quarter. And certainly in the last two years, you've received some very nice reversals, given your very noticeable improvement, both operationally and from a safety perspective. Can you give us a sense of run rate? I mean, should we expect something like that again to occur in the second quarter, at a higher or lower level than what we've seen? I think it was $80 million in the fourth quarter, net 40 year-over-year. Just a sense directionally, should we expect something, and is it going to be higher or lower?

I think as you noted, the more important part is that personal injuries do continue to be a record low levels, which is I think the biggest accomplishment that we like to talk about. Now, given that, I think we would expect more modest reductions to these reserves, as we look forward into this year.

Okay. Those are my two questions, thank you.

Thank you.

Our next question is from Donald Broughton with Avondale Partners.

Good morning, Donald.

Good morning, Michael. You should give Clarence a raise. He and his team did a great job on pricing. Even when I strip out the increase in rates, attributable to fuel here.

Donald, did he put you up to that? (Laughter).

The check's in the mail, he says, and some Bud Light. But, no, seriously, I am worried though, about your operating metrics. When I look at them, terminal dwell, train speeds, they got worse throughout the quarter. You've highlighted manifest trains as a problem, but when I look at the intermodal train speeds, and they fell from 29.6 at the beginning of the quarter, to 27.4 in the week you just reported. Multilevel goes from, what, 24.6 at the beginning of the quarter to 20.4 in the week just reported. Coal is down from 18.1 to 15.6. Grains, unit trains are down from 19.3 to 16.8. It looks and feels from the outside looking in, like a system-wide problem. Why shouldn't I be more angst about a steep ramp-up in hiring and training costs to address this?

This is David. When we look at where we have seen -- I mentioned the regional sort of impact areas, and certainly, because we're using the same routes for all of those -- all that traffic, it has impacted our intermodal velocity. Marginally, those are still not bad velocity numbers. They are just not at the high levels we've been at, and where we know we can be. And so, we always focus on velocity as a key part of our productivity, and just efficiency overall. And we are working hard to restore that. We showed you things like our premium service, maintained at a high level. We certainly are meeting our demands, for as far as moving coal, moving export coal. And there's some velocity impacts around just moving that coal to the export terminals, and handling it there.

So, it's not all related to the merchandise network issues. But it is one overall system, and the influences in the merchandise area have some marginal impact on the rest of our traffic flows. Again, not at levels that we identified or defined for you, as what we would consider not fluid. And we are -- we're doing what it takes to solve it, and on a consistent basis. And you'll see those measurements will improve as we go through the second quarter, back to where you've seen them in the past.

So, I should expect in coming weeks for train speeds to improve, dwell times to come back down?

I think you should, absolutely.

All right. Well, we'll watch closely. Good luck, at managing it, certainly the volume side, the demand's there. So, good luck in having success in handling.

Thank you.

Our final question will come from John Mims with BB&T Capital Markets.

Good morning, John.

Hi, good morning. Thanks, guys. It's been a long call, and most of my questions have been answered. So, just one quick little housekeeping thing. When you talked about bringing locomotives out of storage, and bringing back furloughed employees, did you give -- or can you give the counts for those? I mean, how many locomotives are still in storage? How many employees do you still have on furlough?

Sure. In terms of our locomotive fleet, we have about 60 locomotives that are readily available in storage, with sort of a very short time period of preparing them for service. Got about 30 more that may take a little longer. If we need to bring those out, we can. And just again, taking a little longer to bring them back up to a high level of maintenance. And then we've got about 200 more locomotives that are what we consider stored and not serviceable, which means they would have to go through some major work, in order to bring those out. So a pretty good number, when you look at our overall fleet, a pretty good number of locomotives still in reserve.

And as far as our furloughed employee situation goes, it's fairly minimal. There's about 200 employees in our conductor ranks that are in furlough right now, about 400 of all crafts. So, there's a base to draw from. We have both -- we recall employees as needed, and we also offer some relocation or temporary transfer opportunities, a lot of our employees take advantage of, when they are furloughed, in order to get work. So, again, we have a pretty good amount of those resources still out there. And as we hire throughout the year, covering our attrition and hiring for additional business, it's all part of our plan. And it's going on a very consistent basis.

Was the 200 conductors, included in that 400 all crafts, or is it or 600 total?

That is included. So it's 400 in total. 200 of those are conductors.

Okay. That's all I need. Thanks a lot. Great quarter. Thank you.

Thank you. And thanks to everyone for joining the call today. We'll talk to you next quarter.

This concludes today's teleconference. Thank you for your participation in today's call. You may disconnect your lines.