Norfolk Southern Corp (NSC) 2024 Q3 法說會逐字稿

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No? No, no, no, yes. No, no. And that in. Yes, you're welcome. Thanks. Thank you. Thanks. No. No, no. The Tax Act in January. Good morning, ladies and gentlemen, and welcome to Norfolk Southern Third Quarter 2024 earnings conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, October 22nd, 2024. I would now like to turn the conference over to Luke Nichols. Please go ahead. Good morning, everyone. Please note that during today's call, we'll make certain forward looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full disclosure of those risks and uncertainties. We view, as most important, our presentation slides are available at Norfolk, Southern.com in the investor section, along with our reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to Slide 3. It's now my pleasure to introduce Norfolk Southern's President and Chief Executive Officer, Mark George. Good morning, everyone, and thanks for joining us. Here. With me today are John Orr, Chief Operating Officer at Elkins, our Chief Marketing Officer, and Jason Zambia, our recently appointed Chief Financial Officer. I've had the privilege of working closely with Jason during my five-year tenure at Norfolk Southern, and he brings incredible talent, experience and leadership to our executive team. Over the last few weeks, it's been energizing to connect with labor leaders, regulators, customers and my fellow railroaders cross the Norfolk Southern network. We have a strong franchise with a diversified markets, high-quality customers and partners, as well as skilled employees who are committed to successfully executing on our strategy and delivering for our shareholders, customers, colleagues and communities. Speaking of colleagues and communities, I want to thank our amazing team of railroaders who planned for and respond to evaluate late to the devastation of Hurricane Helene caused across our network. It was their fast and effective actions that resulted in us being able to recover and serve our communities within days. There's a lot more work to do, but we've made enormous progress is the tremendous skill and dedication of our railroaders that have enabled us to deliver third quarter results that are among the best in Company history. Together, we drove productivity, grew volumes and delivered notable sequential and year-over-year margin improvement while overcoming a challenging landscape, we achieved 3% higher revenue compared to the prior year, and adjusted earnings per share was 23% higher than the third quarter last year. Importantly, we delivered 570 basis points of adjusted OR improvement, bringing that ratio down to 63.4%, continuing to close the margin gap with peers. You'll hear today from John about the incredible work of the operations team that is driving significant and sustainable improvements as well as resilience and overcoming multiple weather challenges and an East Coast port disruption. Their commitment to excellence is helping us build a stronger, more efficient network. We also accelerated volumes in the quarter. Ed will provide greater detail on the components, the drivers and outlook for our markets. And finally, Jason will provide color to a number of notable achievements in terms of productivity as well as line sales and project rationalization. I'll turn it over now to John to start with an overview of our operational progress. Jump. Thank you, Mark, and good morning, everyone. In Q. three, our team drove system wide improvements that are demonstrating how our focus on safety is protecting our people and our organization, while serving as a foundation for sustainable service and productivity improvements. I am delighted to share our transformation agenda. Proof points. We are guiding value is safety overall. I'm very encouraged with our progress on safety. While our FRA personal injury rate has increased serious injuries and total accidents have declined significantly, 40% and 20%, respectively. Our blueprint for commitment starts with our people. They are value creators through our new thoroughbred Academy. We are investing in the work environment and core railway skills. In the quarter, over top300 level, operations leaders completed the first of a multiyear curriculum that builds organizational trust and drives business performance. And over the next three months, 23 hundred frontline and operating officers who will participate and safety curriculums. Turning to service with safety. As our guiding value service performance is our North Star team is designing out handlings and extending train schedules, which is producing gains and speed and consistency. Q. three car velocity was 30 10% higher year over year, driven by a 9% increase in train speed and progressive reductions in terminal dwell. The productivity improvements driving service are also allowing us to accelerate cost reduction and create a more competitive platform for growth. Our flywheel of cost takeout initiatives has been robust. Year to date, we've reduced over 130 crew starts per day with an 8% reduction in cost per start, including a 20% reduction in overtime and the elimination of centers. On the intermodal front, the new intermodal reservation system is helping us develop a unique value proposition in the industry by adding terminal visibility, accountability and rigor. Locomotive productivity in the quarter improved 18% year over year, allowing us to reduce our fleet and capital requirements for both rolling stock and engines. We've stored over 500 locomotives and have moved 8,000 plus cars offline since March. This has allowed us to challenge previous capital spending assumptions through our new precision energy management program. We've optimized HPT. standards, extended train schedules and are relaying more power from train to train keeping assets and productive revenue service longer. As a result, fuel efficiencies are at record levels. Our strategy is both targeted and broad tactical and strategic ranging across structural improvements in consumption, procurement, materials management, purchase service optimization, crew cost efficiencies and productive enhancements. And we've just scratched the surface in installing a few of the initiatives that are within our pipeline that are helping us close the competitive gap and track confidently to our cost reduction commitments. As we move to the next slide, I wanted to take a moment to state how proud I am of our response to hurricanes Helene and Milton, especially to our engineering teams. They proactively protected our employees, communities and assets. Our recovery demonstrates the grid and capability of our team responders cleared over 15,000 trees, managed over 1,000 locations with power outages, repair and multiple lawsuits and scour locations and supported local responders, including two instances where they lead life-saving civilian rescue use. This resilience highlights our preparedness and ability to recover swiftly from natural disasters. None of this is possible without an inspired and committed team. We are enriching a strong culture by blending external talent with legacy leaders in a field first management team that is accelerating solutions and deepening ownership and accountability. Our new labor agreements enable us to innovate across our entire workforce. So what you see is that we have established a new baseline and standards heading into Q4. These are providing next level perspectives of our assets, their utilization and the service quality they unlock working as a field center team. We are building a safer, more efficient and more resilient operation. Success breeds success. Thank you and alternative to add. Well, thank you, John, and good morning to everyone on the call. I'll start on Slide 10 with review of our commercial results for the third quarter, where you'll see that the work we're putting into creating a fluid network and dependable service delivered year-over-year revenue and volume growth. Overall revenue of 3.05 billion was 3% higher than the third quarter in the prior year, and volume moved up 7% year over year, with all three segments contributing gains for the quarter, while RPU fell 4% as our price gains were outpaced by lower fuel surcharge revenue, lower coal prices and unfavorable impacts from intermodal mix. You've heard me discuss all these factors in previous quarters. The merchandise segment produced year-over-year volume growth led by our grain markets and segments of our chemicals business. And as was able to deliver this growth backed by a service product that our customers can count on every day. And you've heard me talk all year long about our focus on our merchandise business and the increased value to our customers is evident as this marks the 37th out of the prior 38 quarters or merchandise RPU less fuel, grew year over year. Now of hurricane Helene impacted certain segments of our merchandise business in the Southeast, but we expect volumes to gradually recover as our affected customers operations normalize over time. Intermodal revenue grew 4% year over year this quarter as volume growth of 9% was offset by a 5% decline in RPU. Diagnose truck prices continue to pressure. Domestic intermodal rates and unfavorable mix trends continue with strong gains in international and domestic out pacing our premium market volumes in intermodal, the ILA. strike negatively impacted our international volumes, but we expect the majority of this volume will be recovered in the months ahead. Finishing up here with Coal revenue declined 2% for the third quarter. Our year-over-year volumes finished up 11%. Decline in export prices and unfavorable mix within the portfolio pushed down RPU by 11%. Coal business saw headwinds from easing export prices and challenged utility segment factors to include low natural gas prices, high stockpiles and reduced demand and coal-burning regions. Turning to the next slide, let's talk through our outlook for the remainder of the year. Overall, we expect our markets to experienced tempered growth, albeit with some discrete headwinds from market trajectory and mix impacts on certain sectors. It's very important to note that the impact of fuel price normalization from the 2022 historic highs will remain the single largest revenue headwind that we face. And this has been true all year long. We expect our merchandise business to see continued, but to date, growth supported by easing the interest rates and ongoing infrastructure projects. Although sector-specific headwinds in various sectors in our automotive and metals markets will pose challenges. Intermodal will see strong demand driven by our dependable service process, backed by new bid awards and import export demand. Despite the interruptions caused by the ILA. strike that ended on October third, we are prepared to handle international shipments that were delayed during that interruption. Our outlook for coal is really a mixed bag as seaborne pricing for Medco is trending downward. On the other hand, we're seeing positive momentum in the thermal export markets. And finally, in the wake of the destruction caused by Hurricane Harvey, and we stand ready to support our customers and handle the goods and products needed to help the affected regions rebuild. And as always, I will end with a word of thanks to our customers for their partnership and their support. With that, I'll welcome Jason's AMP to the call today, talk about our financial results. Thank you. Thanks, Ed. I'll start with a reconciliation of our GAAP results on slide 13, and I want to call three items here in the quarter. First, the impacts from the eastern Ohio incident are itemized as I have been for the last several quarters. I highlight that our insurance recoveries outpace the incremental costs of the incident for the second quarter in a row that brings the total cumulative amount of insurance recoveries to over 650 million. The other two items. As a result of specific actions, we executed to further our strategic objectives, including an unrelenting focus on productivity and asset utilization. As we previewed last quarter, we completed two significant line sales, an example of us continuing to simplify the network and generate cash flows. These two sales resulted in 380 million of gains and generated almost 400 million of cash. Additionally, under the leadership of our new CIO. Neill bought, who has a relentless focus on technology, delivery and ROI generation, we rationalize certain IT projects that were not generating the desired benefits that coupled with the discontinuance of our chip count road rail, our assets combined to total 60 million and restructuring costs adjusting for these items are for the quarter was 63.4 and EPS totaled $3.25, a 650 basis point improvement in our adjusted OR since the first quarter, all while providing a safe, reliable, resilient service product, generating productivity and growing the business. Looking at these adjusted results compared to last year and last quarter on Slide 14, you'll note that the year over year revenue was up 80 million due to strong volume growth, partially offset by ARPU pressures. Operating expenses were down $118 million due primarily to fuel prices and product. Maybe I'll combine these drove 570 basis points of OR improvement. From a sequential perspective, revenue is relatively flat. However, we have continued to build off the strong momentum from our productivity and cost reduction initiatives with expenses down 47,000,170 basis point improvement in OR drilling into the sequential variances. Starting with revenue on Slide 15, you'll note that the strength in coal and intermodal volumes drove an overall 3% volume increase over last quarter. Unfavorable mix. Pricing pressures, particularly within the export coal market and lower fuel surcharge revenues drove RPU lower, leading to overall revenue that was essentially flat with the second quarter. Slide 16 breaks down the $47 million sequential improvement in expenses. The transformative actions delivered by John and his team are benefiting our P & L, and you'll see that through record fuel efficiency, strong labor productivity with T and E count down 3% on 3% more volume and decreases in rents due to better network fluidity service are also taking hold all more than offsetting the wage inflation headwind that we called out last quarter. These strong third quarter results and our operational momentum position us well to achieve our second half and full year targets. We do expect a sequential uptick in our as we move into the fourth quarter from normal seasonality, including headwinds that we are expecting on the top line, but also due to additional cleanup costs from Hurricane Harvey and its aftermath. Going forward, we are confident in our ability to continue to improve margins that will generate shareholder value. And the 400 million in cash generated from the line sales, along with our goal of reducing CapEx as we move into 2025 will help with much needed balance sheet repair. Mark, I'll hand it back to you. Thanks, Jason. We are proud of our results in the quarter. Let me summarize some of what you just heard. First, we drove improvements in safety in the quarter despite volume increases and the significant weather events. Second, we leveraged attrition in the quarter while handling robust volume growth, resulting in productivity gains while not compromising So service. Third, we delivered strong operational resiliency, recovering service quickly following numerous disruptive weather events with a lean being the most severe. Fourth, we executed upon major line sales that we signaled last quarter, providing meaningful cash proceeds that will help us accelerate balance sheet repair. Finally, we delivered strong financial results in the third quarter, even with the volume pressures in the last eight days of September. And we are on track for a second half and full year or commitments even if the full year revenue falls a little short of our guidance, which is to be up roughly 1%. So with that, let's open it up to questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt to indicate that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. one moment for your first question. Chris Wetherbee, wells for. Hi, good morning. Go ahead. Yes, thanks. Good morning. Maybe we can start with the sort of the short term where you left off. Just wanted to get a sense of maybe how you think about the progress that you've made and how you can carry that into the fourth quarter. I know you talked about hitting the second half guide specifically around the operating ratio, like at it, maybe a little bit drill down a little bit deeper on maybe how that impacts in the fourth quarter. Thanks. Chris. Mark? Yes, we've got a really great momentum right now on the cost side. I know John can talk about that in a second. I think right now, we feel really good about those things that we can control. As we talked about in Lugano, we were getting a little bit concerned about the auto and steel markets, and that's starting to really play out the way we the way we previewed. So that's that's definitely going to be something we keep our eye on. But generally speaking, intermodal is we expect to peak season. Intermodal should be good. Obviously, the port disruptions, we don't know exactly when and how the volumes will manifest here in the fourth quarter. But but generally, we feel really, really good about the way we go in the fourth quarter. I want to talk a little bit about the momentum we've got on the cost side and then add a little bit more on the other revenues. I think, Chris, some great question, and I would say I'm really pleased the way we exited the Q. three on safety. We finished Q3 at a 2.05 and we're into the quarter at 1.57. And as you know, in a precision railway environment, when when things are working in the rhythm they're supposed to. And first and foremost, from a safety perspective, you get a lot of momentum. And we're seeing that in the terminals in our terminal dwell is continuing to improve. And that's that's being achieved not only through the terminal itself, but how we're looking at reduction handled wings and accelerating cars through terminals by extending schedules of train. So the work complexity is coming down. All the capability is increasing. And that's that's playing out in fuel that's playing out in a lot of purchase and services that taxi reductions, et cetera. And now we're able to negotiate and structurally changed some of our vendor agreements that that put more discipline around those things as a result of how we're improving. So I would say those are those are some of the cost. And then the products are also as we use our resources better, be able to create more opportunities for us to sell into spot markets and increase even our permits. So it any color on the secured debt in the fourth quarter? We certainly expect to see continued growth in the intermodal product, both on the international side, but also on the domestic side. We see strong demand out there, and we've confirmed that with some of our key partners that we talk to the original date that they're seeing the same thing. So we're looking for a robust fourth quarter from intermodal. The only headwind there's going to be premium, and those are pretty well known headwinds in terms of the challenges of that particular market facing. On the coal side, we see a lot of demand on export thermal, but let's be clear, seaborne prices for met. Our continue to be a drag and there's a lot of stockpile of build on the domestic side. So there'll be some headwinds, some puts and takes marks. Are you talking about Autema, assuming automotive and steel? We keep an eye on those, but we feel very good about our ability to capture every single opportunity that we're able to get in front of. Thank you. Do you think that gets into the 64, 65 range for the fourth quarter, though, when you think about the operating ratio? Yes. So we really had a great quarter. We're confident in meeting the 64 to 65 operating guidance for the second half of the year. With that we talked about earlier as we move into the fourth quarter, we are expecting a sequential uptick in the in the OR. and just a couple of things to remember. First, we called out the fuel recoveries this quarter, Tom, we don't expect that to recur in the fourth to that same magnitude, but that's those recoveries, really great outcome of running a tight railroad and the disciplined processes that John's put into place. So that's a great outcome there. Second, I'd say we're expecting a more normal seasonality. Historically, that's been around 100 basis points of some headwind as you move from third to fourth quarter. And a lot of that's due to the revenue headwinds that Ed talked about. I'd also call out we're able to close on about 20 million of land sales in both the second and third quarters. And as we've talked about, those are difficult to predict so that that could provide some sequential had. And then finally, as we called out, we're also going to have to deal with some additional costs from some hurricane cleanup. So that just on the expense side, that's around 20 million. But offsetting all that, just on the good side, we've got a lot of operational momentum and really doing a great job here on the productivity front. So that's what gives us confidence to reaffirm that second half guidance. Okay. Thank you. Your next question comes from Brian Ossenbeck, JPMorgan. Please go ahead. Hey, good morning. Thanks for taking the question. So maybe for Mark and Jason, can you just talk about the capital intensity of the business going forward? Locomotives, offline cars going offline at increasing rates as well into storage. How do you see that going forward are wrestling with some other IT projects as well? So are you able to see a little bit lower capital intensity over the next couple of years? And has at times your expectation to be back in the market buying back shares? Yes, great question, Brian, on your really nailed the strategy here. I think with John taking more than 500 locomotives offline, that allows us to really start to deploy capital elsewhere and actually constrained our capital to a large degree. And we brought in and Neil to run the this the IT organization. And we've been reprioritizing and really reevaluating all the projects we have in the pipeline. And we're going to flow focus on a more concentrated portfolio of projects that are going to yield high returns on the fastest possible projects that we can work on to generate high returns. So we fully expect that CapEx next year will come down. And obviously with the line sales we have this year and the cash buildup that we we expect to have toward the end of the year, we fully expect to be back in the market repurchasing shares to some modest level next year. Thanks for the question. Markets like the disparity in old. As far as locomotives are concerned, we're looking at pushing back as far as we can, our capital commitments to locomotives and your rate, converting that resilience railroading and the disciplined approach to resources that allows us to redo all of those things and really look for capital investments that create value either in a niche area like RB. three for the Warrior coal that we've got or other things that add might bring online and help us to really achieve a faster, more precise service delivery against the new a new one this call. But we're taking a really hard look at our the IT. projects that we've got working closely with Aneel, meaner and her team looking at the resource consumption are really driving that ability. So just as most of both OpEx and capital that we're attacking here. Okay. Thank you. All this next question. Your next question comes from Ken Hoexter, Bank of America. Please go ahead. Hey, great, Todd. Good morning and Mark and Jason, congrats on the new jobs on adding Scott, I guess thanks, guys. So as volumes are starting off, it looks like out about 1.5% in carloads. I think you said you can rebound or are you talking about getting to positive growth? Is there a level you would you would think we should throw out there in terms of catching up? And then in terms of pricing with with coal benchmark pricing down and I guess looking at where we are today at just over 200, could we see or would you expect pricing to be down double digits or not, not quite that fund? I'll start with the last question first. I think we're going to see coal prices continue to drift lower, I think double digit. But you will see we're taking a very conservative approach to it here. And then on the question was low overall volumes in the fourth quarter, we've seen a really nice catch up after the disruption from the from the port strike in from Helene in the areas that have recovered already. And we feel very confident. And I think this is one thing that it's hard to get across on a call, but we see feel very confident in our ability to recapture volume no matter where it comes from, whether it's continued West Coast imports or more east coast flowing through in the wake of the strike. So you put that together with what I would call some opportunistic spot moves that we've been able to pick up there. Third quarter that may continue in the fourth on the merchandise side with the network is really doing right now. And John and his team are working really closely with us is we're really manufacturing a lot of capacity that we can deploy to be very agile. So you think about the rapid increase run-up in West Coast imports for the year before the strike. And now we're much more fluid on the East Coast coming through. So I fully expect that whatever the market presents, we're going to be able to handle. Thank you. Question, please . Your next question comes from Scott Group, Wolfe Research. Please go ahead. Hey, thanks. Good morning. Have So John, some strong labor productivity with volume up seven, headcount down three. What's the runway here is, is this an incremental opportunity as we look out to next year or some point? Does this get tougher? Scott, you I'm glad you recognize the work that are all of our team is doing, including aircraft labor. They are really embracing our management and leadership style, and that's reflected in some of the CVAs there that we've got two days against. I would say that the labor productivity we're just getting started on having a disciplined approach to our operations where we're looking at not just the headcount, but how we help people are deployed. And our train structures, designing out handlings, designing out of train stops and elongating schedules allows us to increase the product productivity of not only are people, but also the resources like locomotives. And so I think these things out there, they're starting to really get traction and they'll continue to get traction. I really think that so you can't underestimate the power of leadership in the power of the team and you see all of our engagement with labor as being very own collaborative. And there are major stakeholder in our PSR. two auto application. Last last month, we had over 65 labor leaders, including precedence of national that at Nashville governing bodies coming to Atlanta and talking about issues and and really understanding what we're doing and embracing our philosophy on railroading and look, they had some really challenging questions. They had some different differentiating different points of view, but we were able to work through those things and come out with a really cohesive perspective on what we need to go forward. So I would say that I don't want to put the burden on any particular group shoulders to bear. I think as a team, we're bearing a lot of the discipline of change and the commitment to change, and that's reflected in that women and men who work for us. And as I've said, railroading is a tough, a tough business. It's a three, 65, 24 seven. And when we're creating the environment where people feel they are contributing in the field fulfilled and what they do and who could be more fulfilled and contributing to the U.S. economy the way we do. So I think the story is just starting to be written. Thanks a lot less question. Next question comes from Tom Wadewitz, UBS. Jason, I also wanted to say congratulations on the new roles, and John really looks like you're having a great effect on the railroad. So congratulations on that as well. I wanted to see if I could ask you a bit about 2025. I know that's kind of probably tough given the lack of visibility in end markets and everything and pricing. But how do you think about the frame for 25 if you don't see improvement in some of the markets, right? It seems like industrial markets aren't getting better, maybe getting a little worse than you highlight automotive and metals. So is there enough productivity that you improve the margin in two 25, obviously, high level? Is that reasonable given John's commentary and momentum? Or if you don't see the volume growth and some pickup in markets, is that kind of tough to do? Just wanted to see if you could offer any kind of high-level thoughts on how that those two kind of market forces, idiosyncratic network improvement, how to think about those two together? Thank you. Thank you, Tom. Great question. Let's bifurcate and just say that for the things we can control, which is cost on, we've got a path ITO, you will you will recall that we had committed to 200 million of cost reduction this year. We are on track to hit that number. We committed to another one, 50 next year. So regardless of the economic environment, we committed to another one, 50 million next year in 2025. We're going to beat that. And John and I have spent a lot of time talking about this. I think there's a real opportunity to fast forward. So cost reduction from 2026 into 2025. So we feel really, really confident there of we can't control the top line and the economic environment, Tom, except to say that there is share recapture opportunity out there. So even if you have a softer market, we still have some idiosyncratic opportunities to recapture some share to help mitigate any pressure that might be there. So obviously, there's a limit to how much you can get in any given year. But given the product that John and his team are putting out there for service on, we feel really, really good about the traction and momentum we have with our customer base. John, you want to talk anymore about both either confidence in our cost reduction next year? I would say the conference for me comes in or the team and I look to my own experience through 100 came back in the early two thousands and and how Hunter encourages us to find the small wins and 1,000 small wins by an army of people who are believing lean continuous improvement at up to a lot. And as as we work through our investment in people and the almost 28 hundred engagements that we're doing through the year balance of the year, we're educating people on the specifics of PSR to Dato and how to really contribute to it. We're promoting the culture of change and really removing the mud as 100 would say. And we're providing people the ability then to to apply what we're teaching them on their jobs day-to-day. And that's that's really funding organic improvements. And then we've got our strategy. We're unlocking the value of the network, and that's the beauty of starting with two terminals like Chattanooga and Conway and really understand how they work. And now we're able to force multiply those learnings and engage real asset facility. And now we're thinking rethinking how we use our assets. And and we see that in some of them are pool distributions and asset management and the refinements. A great example is how we're moving the cars on out of Detroit instead of stopping them in Toledo, moving them over to Bellevue and then go into Elkhart. We're able to you repurpose a secondary or and go right from Detroit to Alkar, removing assignments, removing car days reducing or power locomotive fleet to requirements. And those those ideas are coming from the field up. And so it's really taking hold as a long answer to say, the story is just unfolding here. And as we as we invest in people as we engage in clear clearing of the organizational model and the case for change is still there. There's a lot to be fixed here. And I think we're reflecting at a time when we put those targets out, there were targets now we're filling in that outline with real specific actions will realizing that we were maybe a little modest in the than the targets that we saw in front of us because the actions now tallied a little bit more or as we're putting together a 2025 number. So it feels good, no, of you have any thoughts on the oh five outlook, absolute and in Brazil work going on with 25 looks like there's clearly a lot of lot of moving parts out there, but let's be clear about this. We're not similar hand, Rod, just waiting around to see what's going to happen. My team as well as John's are working together right now to build a service product that does one day and that's produced service. You can count on delivered, but people you can trust every single day. And on top of that, we're working to build what I would consider to be a unique value proposition because of the technology that we're deploying at the customer level to make it very easy to do business with. That's a that's a process change with ROSA, some technology augmentation, but I think it's going to be a real differentiator in 2025. We look forward to the response from our customers on both counts. Thanks, Tom. Next question. Next question comes from Brandon Oglenski, Barclays. Please go ahead. Hey, good morning and thanks for taking the question. So Mark, congrats on the top seat here. But I guess a two-part question from me. First, structurally at Norfolk, you know, is there any way you are looking at this organizationally that you'd like to see the front at the company? And then maybe following up from that discussion on 25 OR, there was a lot of back and forth on guidance earlier this year with the proxy contest. So I think you guys had committed to 100 to 150 basis points of annual improvement for the next few years. But then also said maybe a sub 60 and three to four years at volume contributed. Is that still the right framework, especially within the context of the answer that last question? Yes, I think starting with your second one Palm, absolutely, we're still on track for that. And you remember the components there were two components of cost reduction there on the 1 to one 50 was really based on kind of a more modest top line outlook because of a middling 2% to 3% type of top line or additional top line recovery that would get us to the sub 60 in by the three to four year time window. So we stand by those on those guidance indicators. Now with regard to some structurally leaving different, I think what I would tell you is we are on track where we've got some great momentum. You know, the strategy at its core is exactly what we're going to stick to. And this really gets to about execution right now. We have a really sound operating team that is executing upon the strategy to create network fluidity that will allow for a really great service product. And as we always said, with that great service product, it will enable growth. You sort of new started to see that play out last quarter. And now again, this quarter, we've got some idiosyncratic opportunities to grow and add and his team have been capturing on it. So that worked and we told you that productivity is going to the third leg of that strategy on. And honestly, you also saw that play out in the third quarter. We had fallen out of balance with the strategy on productivity. We told you we're going to get back in balance and we're well on our way to doing that. With 500, 70 basis points of OR improvement, thanks to a sprinkling of some some volume here in this quarter. It was a real accelerant on, but even the sequential improvement is very encouraging. So execution is what's key. And Jonathan, I talk about that a lot. And I kind of touched on it a little bit at Lugano. I really embrace and operational excellence mindset coming from my background and industrial products. And I believe strongly that any good operation needs a quality type system. You can call it six sigma, even call it a sleek. We used to go into my old company, which is achieving competitive excellence, either the way you've got to have really solid standard processes that are based on best practices. You've got to get those systematize so that everybody follows it. When you have breakdowns in the process, you do relentless root cause analysis to identify where the problems are and then fix the standard processes. These. So you can mistake proved going forward. That's this virtuous cycle that we have to get ourselves into in the beauty is when an operator, like John and John's team, what you hear about, there's a real resemblance to what I'm describing. In fact, when John talks about the war rooms, what do you think the war rooms are? Those are relentless recalls analysis. Every time they have an issue, the war room gets to work on it. They figure out what the root causes, they fix it. So we are in lockstep on driving that culture. And I'm really, really excited about that. And then I think the other thing is obviously your culturally I want to come continue to advance first, our safety culture, but also a real two way communication. John touched upon that a couple of minutes ago as well. But a two way communication where information flows of not just down a lot of the best ideas that come inside this railroad are from the people who run the ground, whether that's in the marketing organization with what's happening with our customer base, whether that's in the operations team, like John just described, we have to create an environment where people are comfortable to speak up. It's not just process stuff. It's not just ideas for improvement, but it's also concerns that they might have. So we're going to be really working on creating a and fostering a better culture for two way communication. And then I would say finally, and I have been having a lot of conversations about really working on lot closer with our customer base to figure out exactly how we can serve them better to accelerate the share gains in the share recapture opportunities that are out there. So that's that's where I'd say the focus will be structurally going forward. Thanks a lot for the question. Brendan appreciated. Next. Next question is from Jonathan Chappell, Evercore. Please go ahead. Thank you. Ed, on your market outlook, there's a lot more red and yellow than there is green, and we've talked about some of the headwinds there. Maybe some more incremental. You've also mentioned in some of these prior answers spot market wins. So can you just maybe put a little bit more quantitative where you're winning or how much that is if we looked at a map or that's 1% to 2% industrial production growth, what's the realistic volume growth on the Norfolk Southern network as you're winning more than maybe the economy is giving you? Yes, I would point it does bring the other point to our ag markets where from the third quarter we were able to take advantage of some market dislocations as well as some some what I would hold true spot opportunities that frankly, in prior quarters we could never have addressed because we couldn't generate the additional capacity to do that nor the operational agility to really respond in a way that the market could take advantage of. But this last quarter, we have, I would say, very successfully executed a number of those moves, whether it's soybeans, whether it's corn, whether it's green, that has helped offset some of the weakness that we've seen in some of the other industrial markets where we're fulfilling all the capacity needs that our customers have. But there is simply don't have that much need right now. And I would point toward the deceleration in some of our auto markets. There's some idiosyncratic on phenomenon going on there with regard to whether it's quality holds or specific plant outages. But you think about intermodal and look at the on look at the very solid growth, both on the domestic and international side in the US, the ability that our network has had do not only absorb that growth, but also produce those spot wins that I'm talking about here, which really are, again, opportunities that we would not have been able to take advantage of in prior quarters. I would I would attribute part of our ongoing agility improvement to our reservation system on the intermodal side, and we're in the early innings of that. But I really think that over time and John may want to comment on it. But over time, the feedback we're getting from our customers is going to help them know that they've got a ride on a train on civic day, which allows them to plan and their customers plan and allows us to make some very important operational decisions that help us be not only more efficient, more reliable for our customers. Yes, I would agree. And while it's early days in the reservation system, I'm really I'm really confident that as we work through this, our customers are going to enjoy the discipline and that brings to our terminals because they've been a part of its development. And what I'm excited about is that opportunity to add 100, 200, 300, 500, 1,000 feet to our intermodal trains or is this existing trains as we create the discipline smoothing out our network through the rest of the year and into next year? And then being able to really project what our true capacity is as far as that growth because I think we're just on the cusp of really hitting our stroke on long trains and and bringing on new business at very low incremental costs. Thanks, Joe. Next question, please. Your next question comes from Jeff Kauffman, Vertical Research Partners. Please go ahead. Good morning, everybody, and thank you for squeezing me in. Congratulations also to market. Jason, I just want to go a different direction. I know there's some things you probably can't talk about with the labor agreements. But John, can you talk about what is going to make a difference for what you're trying to achieve? And these these labor agreements that were rich fairly often Pay at Pump out for ratification, say, may want not want to discuss some things, but just had talked about the importance for you to hit your targets with the new labor deals. Thank you for that question. And it is a really good question. And coming from both the craft and from organized labor in the early days of my career, I really appreciate having clarity on the future as far as the payment structures and the discipline around what my CBA looks like. So I think first first that that extend that confidence to our workforce and predictability and how they can budget their own households and their own work schedules is really important. And that cascades then into our being able to model from a from a pricing and from there predictability with our customers first and third, the I think it's very complementary to what we're trying to achieve and PSR to Dato. And that's a really disciplined service, safety, safety and really delivering value for our customers. And that discretionary effort that we're getting from our our running trades crews and are operating our operating employees is really allowing us to optimize the value of our network build, build a team, a team that's inclusive of every one of the 20,000 people who work here and contribute to the value that we're creating and that leadership in developing skills and key capabilities is just going to help us to enhance a great product already. And I think as well, then that allows us to really create a new blueprint and unlock the unlock the bigger rocks that we need to do that. We moved the network further along. So it's a win-win. And I know from my experience, there's no there's nothing you can put a price tag on that discretionary effort. Thanks a lot. Just next question. Your next question is from Jordan Alliger of Goldman Sachs. Please go ahead. Yes. Morning. Just want to talk about network resiliency, if I could. You know, had some pretty strong volumes in the third quarter. So I'm just sort of curious, Tom, what's working well on resiliency? What still needs to improve? Really just to get a sense how what needs to be done to ensure the network can run fluidly form the foreseeable future. So you could do the things you're talking about like taking share off the highway, et cetera. Thank you. But what I would say, again, I will get back to we're trying to do things better in every area of the business. And in order to do that, we have to bring up our efforts and Rocket release to a completely new level. But I would say the six things that we focus on the network Health, our asset efficiencies in our customer-facing metrics are the guiding or the guiding metrics that we're going to use to drive that. And as we continue to improve those things under the hood, there are going to be a lot of some of junior out inefficiencies and engineer and optimization, things like the rest revision system. They're just going to unlock so much discipline around our terminals in intermodal as our growth and to have better discipline around that just gives us such an advantage as the market comes, comes roaring back in the US economy. And as trucks tighten up, we'll be able to really leverage from a pricing perspective. And I think Ed talked about that numerous times, Jordan, I think with John has done decongest in the terminals and networks, it goes a long way to improving resiliency. I mean laying down 500 locomotives over 8,000 cars since Q1. You create a lot more fluidity in the network. And when you have a little bumps in the road, you have less congestion to hold you back from recovery. So that I think is key and critical. And you saw it play out here in the third quarter following the storms. I would tell you a year ago, some of the events that we saw in the quarter, probably I would have set us back three months, okay? But we were back within a week and now we're actually at record network speeds and load well. So it's really remarkable. And I do actually just want to refute the notion that resiliency is about retaining costs. In fact, we've achieved resilient see this quarter while lowering costs. So it's a good news story. We seem to have a good model in place here. Thanks for the question, Jordan. Your next question comes from Ravi Shanker, Morgan Stanley. Please go ahead. That's what everyone. Thanks for the color on 25 from the productivity actions. But with after dropped through to the bottom line, how much pricing do you need to conquer agenda inflation for next year? We've we bake you, Ravi, by the way, we've had a very successful year so far in terms of being able to price to the value of our service in that value is increasing of the year as the year goes on. And we're very confident that we're going to finish up the year and a strong position going into 25. We continue to believe that we're going to outpace inflation in all of our major markets now of commodity prices like seaborne coal probably be a headwind. We'll see how that evolves 25. But when you think about our core product and the value, the service they were offering is increasing and our customers are saving money at the same time. So it's a powerful combination. You have to think of a Ravi, the elements when you talk about pricing, you can't talk about it as one topic, right, merchandise, who has just said, we feel really good, really strong on service, helps us a good backdrop there as those inflation. So the model is intact. I think intermodal is going to be somewhat dependent on what happens with spot pricing. Clearly we seem to have found the bottom. The question is when does it start coming off the floor here? And yes, we have other commodity groups that follow indices that we don't control, obviously in seaborne met being to be in a big one. So I think for those areas like and particularly the merchandise in 2025 models intact, we feel really good. Thank you. Appreciate the question. Was trying to get another couple of them. Your next question comes from David Vernon, Bernstein. Please go ahead. Hey, good morning, guys, and congrats to the to the new rules on. So maybe just kind of building off that question around on the seaborne market in 2025, I had you've been around business a long time on what do you think about the US's role in terms of the export markets? If we see a lower price correction? Are you worried just it, could you kind of maybe shape the price headwind that might might might manifest and on a selling, your markets are north of that into next year? And then on kind of help us understand whether you're worried about also sort of like overall aggregate volume demand on the export markets for 2025? I'm a little bit reticent to get a lot into 25 because we're still building our build in our view of that of that particular dimension. But I'll tell, you know, the U.S. has remained remarkably competitive over time. I think we're going to continue to do that, particularly not when I think about export thermals, we're in a very good spot in terms of demand. I expect that to generally continue. And you know, China is going to determine a lot about what happens with export met demand. There's a tremendous amount of geopolitical uncertainty that's driving a lot of commodity prices driving a lot of energy prices, but we've got a weather eye on it. And we are fully prepared and capable of delivering the tonnage that our customers around the globe on need. Thank you. Next question, please. Those. Your next question comes from Ben Nolan, Stifel. I appreciate you guys, but man on I was just going to ask you talked a little bit on the intermodal side. It feels like maybe it's bottoming and specifically around an appreciating that the trucking market still remains challenged. Are you starting to see green shoots on the premium intermodal at all? Or is that not yet there place where we are on the premium side deal where there's there's still a lot of headwinds out there on emanating from the highway? Generally, we are seeing I mean, you got it. Yes, look at it from a fairly substantial difference. But we are seeing a drug utilization head up. And I think we're close to the 10-year average. No, I think we're going to trend above it. You look at the total number of motor carriers are out there. It's declining slowly. But both those things, along with feedback that we're getting from our key partners like J.B. Hunt and Hub Group are telling us that there were reaching a point where I fully expect that pricing is going to eventually inflect. I do. We're around the bottom now and filled at least somewhat confident knocking on the table here that that's true on premiums, a different story. We'll see how that evolves. What we are focused on is making sure that we're delivering exactly the product that that particular segment needs. Okay. Thank you. That brings us to the end of look, I want to thank everyone for your questions and we look forward to talking to you all throughout the quarter. Have a great day.