聯合太平洋集團 (UNP) 2019 Q2 法說會逐字稿

Greetings, and welcome to the Union Pacific Second Quarter 2019 Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded and the slides for today's presentation are available on Union Pacific's website.

It is now my pleasure to introduce your host, Mr. Lance Fritz, Chairman, President and CEO for Union Pacific.

Mr. Fritz, you may begin.

Good morning, everybody, and welcome to Union Pacific's second quarter earnings conference call.

With me today in Omaha are Kenny Rocker, Executive Vice President of Marketing and Sales; Jim Vena, our Chief Operating Officer; and Rob Knight, our Chief Financial Officer.

This morning, Union Pacific is reporting record 2019 second quarter net income of $1.6 billion or $2.22 a share.

This represents an increase of 4% of net income and 12% in earnings per share compared to 2018.

Our quarterly operating ratio came in at an all-time best mark of 59.6%, a 3.4 percentage point improvement compared to the second quarter of 2018.

This is the first time Union Pacific has ever recorded a sub-60% operating ratio for a full quarter.

And while that's a remarkable achievement, it's magnified when you consider the challenges we faced from significant flooding that adversely impacted volumes and added incremental operating costs during the quarter.

That's a testament to the tireless dedication of the men and women of Union Pacific.

Working with our customers and the communities that we serve, the team safely restored our rail operations while continuing to drive productivity through our G55 + 0 and Unified Plan 2020 efforts.

As a result, our operations have returned to normal, enabling us to focus on providing a safe, reliable and efficient service product for our customers.

The Unified Plan 2020 transformation at Union Pacific is full steam ahead, and I continue to be encouraged by the great opportunities we see for our customers and for our shareholders.

With that, I'll turn it over to Kenny to provide some details on our results.

Thank you, Lance, and good morning.

For the second quarter, our volume was down 4% as gains in our Industrial business group were more than offset by declines in Premium and Energy.

However, we generate a positive net core pricing of 2.75% in the quarter as we continue to price our service product to the value it represents in the marketplace while ensuring it generates an appropriate return.

Freight revenue was down 2% driven by the decrease in volume partially offset by a 3% improvement in average revenue per car.

Let's take a closer look at the performance of each business group.

Starting off with ag products.

Revenue for the quarter was up 4% on flat volume and a 4% improvement in average revenue per car.

Grain carloads were down 7% driven by continued reduction in export grain shipments.

This was partially offset by strength in export wheat and domestic corn.

Volume for grain products was down 1% as sustained demand for biofuels and related products was more than offset by challenging environment for exports.

Fertilizer and sulfur carloads were up 12% due to strength in export potash, diesel exhaust fluid and sulfur.

Moving on to Energy.

Revenue was down 13% as volume declined 9% coupled with a 4% decrease in average revenue per car.

Sand carloads were down 50% largely due to the impact of local sand within the Permian Basin.

Coal and coke volume was down 7% driven by ongoing headwinds of contract changes and retirements.

Flooding in May and June also negatively impacted shipment.

In addition, coal exports were lower due to softer market conditions.

However, on a positive note, favorable crude oil price spreads drove an increase in crude oil shipment, which was a primary driver for the 30% increase in petroleum, LPG and renewable carloads for the quarter.

Industrial revenue was up 4% on a 2% increase in volume and a 2% improvement in average revenue per car during the quarter.

Construction carloads increased 4% primarily driven by strong market demand in the south for rock shipment.

Plastics volumes increased 6% due to higher production.

Forest products volume decreased 10% driven by reduced paper shipment as a result of high containerboard inventory and decreased lumber shipment associated with lower housing starts.

Turning to Premium.

Revenue for the quarter was down 2% with a 5% decrease in volume while average revenue per car improved by 4%.

Domestic intermodal volume declined 11% during the quarter as a softer market coupled with weather-related service issue led to lower volume.

Industrial intermodal volume was up 1% in the quarter as volume returned back to seasonal levels following a tariff pull ahead in the previous 2 quarters.

And finally, finished vehicle shipments were up 1% as second quarter U.S. auto sales were down approximately 1% from 2018.

Light truck and SUV sales were stronger and able to offset declining car demand.

Looking ahead for the remainder of 2019.

For ag products, we anticipate continued strength in biofuel shipment due to the increased market demand for renewable fuels to help offset the headwinds in the ethanol marketplace associated with exports.

We also expect stronger beer shipments, along with long-term penetration growth across multiple segments of our food and refrigerated business.

Furthermore, we expect uncertainty to persist in the grain market due to reduced U.S. crop production and foreign tariffs.

For Energy, we expect favorable crude oil price spreads to drive positive results for petroleum products.

While year-over-year comps for sand ease in the second half of the year, local sand supply will continue to impact volume.

We also expect coal to experience continued headwinds throughout 2019, and weather condition will always be a key factor for coal demand.

For Industrial, we anticipate an increase in plastic shipments driven largely by plant expansions coming online later this year, coupled with continued strength in the construction market in Texas.

However, we are watching the forest products market as housing starts are forecasted to be down year-over-year in the second half.

And lastly, for Premium, the U.S. light vehicle sales forecast for 2019 is 16.8 million units, down about 2% from 2018.

However, consumer preference for SUVs over sedans will continue to help offset the declining car demand.

Domestic intermodal volume is expected to be impacted by truck competition in the second half of 2019, which may limit opportunities for over-the-road truck conversions, but longer term fundamentals still provide a bullish outlook for over-the-road conversions.

In addition, uncertainty in trade and the economy could create a tough fourth quarter comp due to the pull ahead we saw in late 2018 for international intermodal shipment.

And so before I turn it over to Jim for his operational update, I want to share that I continue to be encouraged how we work collaboratively with the operating team.

Jim and I have been making difficult decisions to improve the overall supply chain and aligning our sales with our customers to find the best way to serve and grow with them.

In the end, this builds us a solid platform for more reliable service product for our customers.

And now I'll turn it over to Jim.

Okay.

Good morning, everyone, and thanks, Kenny.

As you've already heard this morning, our network was once again challenged by significant prolonged flooding in our Mid-America Corridor.

We responded by rerouting traffic and deploying additional people and equipment to quickly restore operations.

And I am pleased to report that with the weather behind us, including Hurricane Barry, our network has returned to normal operations.

I'd be remiss not to say how proud I am of our employees who responded to the challenge, working efficiently and without injury to restore operations in the face of some pretty adverse conditions while delivering an all-time best quarterly operating ratio of 59.6%.

This truly was a remarkable achievement.

It all starts, for us, with safety.

Safety remains job 1 at Union Pacific and our commitment is relentless.

We have opportunities to improve our rail equipment incidents, and we're working as a team to learn and improve each and every day.

Turning to Slide 11.

I'd now like to update you on our 6 key performance indicators.

Despite the weather, most of our metrics improved year-over-year.

This is a direct result of our relentless focus on improving network efficiency and service reliability as part of Unified Plan 2020.

Continued improvement in asset utilization and fewer car classifications led to a 14% improvement in freight car terminal dwell and a 4% improvement in freight car velocity compared to the second quarter of 2018.

Train speed for the second quarter decreased 6% to 23.1 miles per hour as flooding impacted fluidity.

Train speeds also were affected by the 30-plus percent increase in daily work events being performed as part of Unified Plan 2020.

While these work events are helping us increase train size and drive asset utilization, the team is still working to execute these work events even more efficiently and drive faster train speeds.

Turning to Slide 12.

Continuing our trend from the first quarter, locomotive productivity improved 19% versus last year as efforts to use the fleet more efficiently enabled us to park units.

As of June 30, we had somewhere around 2,150 locomotives stored.

Driven by an 8% decrease in our workforce levels, productivity increased 4% year-over-year.

In addition to improving productivity, delivering a great service product is of equal importance to the team.

Car trip plan compliance was basically flat year-over-year as the benefit from increased freight car velocity and lower dwell were offset by the impact of weather on our network.

We expect our service product to improve going forward.

In fact, we're already seeing improvements in July.

Slide 13.

We continue to push forward with Unified Plan 2020, and the slide highlights some of the recent network changes.

From a terminal rationalization standpoint, we stopped humping cars at our Proviso yard in Chicago and curtailed yard operations in Salem, Illinois; at our 36th St.

Yard in Denver, East Yard in San Antonio.

Proviso in particular was a very old and inefficient hump yard still using retarder operators to manually flow cars into the [bolt tracks].

By moving this work to outlying yards, including one of our most efficient in North Platte, we are not only saving labor dollars but avoiding capital as well.

In addition, we have made a number of changes in the Kansas City complex to improve service and increase efficiency.

We've largely consolidated traffic out of Armourdale facility while cars previously handled in Des Moines, Iowa are now switched in Kansas City.

And our plan to simplify intermodal operations in Chicago is well underway.

We idled our Global 3 facility, and the Canal Street Container Depot will follow shortly.

Going forward, we will continue to look for ways to reduce car touches on our network, which will undoubtedly lead to additional terminal rationalization opportunities.

And we are making excellent progress with our train length initiatives as illustrated by the graph on the right.

By putting more product on fewer trains, we increased train length 10% since January of this year, and I expect to see continued improvement as the year progresses.

To wrap up, while a number of bold steps have been taken and the results are evident, there are a lot of opportunities ahead of us to further improve safety, asset utilization and network efficiency.

Once again, our network showed tremendous resiliency in the face of significant weather during the quarter as we have returned to normal operations.

As we move forward, running a safe, reliable and efficient railroad for both our customers and our shareholders is our #1 priority.

And with that, Rob, over to you.

Thanks, Jim, and good morning.

Today, we're reporting second quarter earnings per share of $2.22 and 3.4 points of year-over-year improvement in our operating ratio to 59.6%.

This represents an all-time best quarterly operating ratio for Union Pacific and is a testament to the great work we are doing with G55 + 0 and Unified Plan 2020.

Our quarterly results were, however, affected by some onetimers, so before I jump into the details, let me give you some technicolor.

Like the first quarter, significant weather events impacted volumes and added operating expenses.

These weather challenges resulted in a 0.6 point negative impact to our operating ratio and $0.07 earnings per share compared to the second quarter of 2018.

And I'll detail that more in a minute.

We also recognized a $32 million payroll tax refund, along with $3 million of associated interest income.

This was part of the $78 million refund that we outlined in the 8-K that we filed in March.

The refund had a 0.6 point favorable impact on the operating ratio and $0.04 EPS tailwind in the quarter compared to last year.

The combined impact of lower fuel price and our fuel surcharge lag had a favorable impact for the quarter of 0.6 points on the operating ratio and $0.04 of EPS compared to '18.

The good news is that despite the weather challenges and lower volumes, we drove core operating margin improvement of almost 3 points or $0.23 of EPS compared to the second quarter last year.

To give you a little more detail on the weather impact, we attribute about 2 points of the 4 points second quarter volume decline to flooding or roughly $75 million.

We also incurred around $19 million of weather-related costs in the quarter, primarily in the compensation and benefits and purchased services and materials cost categories.

With all of our routes returned to service, we do not expect any weather-related cost to carry over into the third quarter.

And now let's recap our second quarter results.

Operating revenue was $5.6 billion in the quarter, down 1% versus last year.

The primary driver was the 4% decrease in volume.

Operating expense totaled $3.3 billion, down 7% from 2018.

Operating income totaled $2.3 billion, an 8% increase from last year.

Below the line, other income was $57 million, an increase of $15 million compared to last year.

Interest expense of $259 million was up 28% compared to the previous year, and this reflects the impact of higher total debt balance partially offset by a lower effective interest rate.

Income tax expense increased 14% to $488 million.

Our effective tax rate for the second quarter was 23.7%.

For the full year, we expect our annual effective tax rate to be in the mid-23% range.

Net income totaled $1.6 billion, up 4% versus last year, while the outstanding share balance decreased 7% as a result of our continued share repurchase activity.

As we noted earlier, these results combined to produce second quarter earnings per share of $2.22 and an all-time best quarterly operating ratio of 59.6%.

Freight revenue of $5.2 billion was down 2% versus last year.

Fuel surcharge revenue totaled $399 million, down $13 million when compared to 2018.

Business mix was essentially flat for the second quarter driven by decreased sand volumes and significantly less intermodal shipments.

Core price was 2.75% in the second quarter.

Slide 19 provides a summary of our operating expenses for the quarter.

Compensation and benefits expense decreased 8% to $1.1 billion versus 2018.

The decrease was primarily driven by a reduction in total force levels, which were down 8% or about 3,500 FTEs in the second quarter versus last year.

Productivity initiatives, along with lower volumes, resulted in a 5% decrease in our TE&Y workforce while our management, engineering and mechanical workforces together declined 11%.

Fuel expense totaled $560 million, down 13% compared to 2018 due to lower diesel fuel prices and fewer gallons consumed.

Average diesel fuel prices decreased 4% versus last year to $2.21 per gallon, and our consumption rate improved 5% through the combination of lower volumes and more efficient operations.

Purchased services and material expense was down 9% compared to the second quarter of '18 at $573 million.

The primary drivers of the decrease in the quarter were reduced mechanical repair costs and less contract services and materials partially offset by weather and derailment-related expenses.

Turning to Slide 20.

Depreciation expense was $551 million, up 1% compared to 2018.

For the full year 2019, we estimate that depreciation expense will be up 1% to 2%.

Moving to equipment and other rents.

This expense totaled $260 million in the quarter, which is down 2% when compared to 2018.

Other expense came in flat versus last year at $247 million.

For the full year 2019, we expect other expense to be up around 5% compared to 2018.

Productivity savings yielded from our G55 + 0 initiatives and Unified Plan 2020 totaled approximately $195 million in the quarter, which was partially offset by additional costs associated with weather and derailments.

As a result, net productivity for the second quarter was $170 million.

It has been a tough first half of the year, but as we exit the quarter, the positive momentum from our productivity initiatives gives us confidence that we will still deliver at least $500 million of net productivity in 2019.

Looking at our cash flow.

Cash from operations through the first half totaled $3.9 billion, down slightly compared to last year.

Free cash flow before dividends totaled $2.3 billion, resulting in a free cash flow conversion rate equal to 77% of net income for the first half of 2019.

Taking a look at adjusted debt levels.

The all-in adjusted debt balance totaled $27.7 billion at the end of the second quarter, up $2.5 billion since year-end '18.

We finished the second quarter with an adjusted debt-to-EBITDA ratio of 2.5x.

As we have previously mentioned, our target for debt-to-EBITDA is up to 2.7x.

Dividend payments for the first half totaled more than $1.2 billion, up $123 million from 2018.

This includes the effect of 10% dividend increases in both the third quarter of 2018 and the first quarter of this year.

We repurchased a total of 21.9 million shares during the first half of 2019, including 3.7 million shares in the second quarter at a cost of $639 million.

Between dividend payments and share repurchases, we returned $5.4 billion to our shareholders in the first half of this year.

Looking out to the remainder of 2019.

Although we expect second half volumes to improve sequentially from the first half, that improvement will not be enough to produce year-over-year volume growth.

In fact, our best thinking at this point is that volume for the second half will be down around 2% or so versus 2018.

And as Kenny mentioned earlier, our pricing strategy is unchanged as we continue to price our service product to the value that it represents in the marketplace while ensuring that it generates an appropriate return.

We remain confident that the dollars we yield from our pricing initiatives will again well exceed our rail inflation cost in 2019.

As it relates to our workforce, strong productivity initiatives and, to a lesser degree, lower volumes have resulted in a 6% year-to-date reduction.

Looking out to the balance of 2019, we expect the combination of operating efficiency and lower business levels should result in full year force levels to be down around 10% versus 2018.

Importantly, we are still confident in our ability to achieve a sub-61% operating ratio in 2019 on a full year basis, which implies that our second half operating ratio will be better than the first half.

Furthermore, we still expect to be below 60% by 2020.

We have to play the hand that we are dealt when it comes to volumes, but rest assured our commitment to achieving our financial targets is unwavering and has never been stronger.

So with that, I'll turn it back over to Lance.

Thank you, Rob.

As discussed today, we delivered record second quarter financial results driven by exceptional operating performance.

For the remainder of 2019, we look forward to building on the momentum from Unified Plan 2020 and providing a consistent, reliable service product for our customers.

As always, we're committed to operating a safe railroad for both our employees and the communities we serve, and we remain focused on driving increased shareholder returns by appropriately investing capital on the railroad and returning excess cash to our shareholders through both dividends and share repurchases.

With that, let's open up the line for your questions.

(Operator Instructions) Our first question is from the line of Ken Hoexter with Bank of America Merrill Lynch.

Great job on the execution on your UP 2020.

Just maybe Jim or Kenny, your thoughts on the lane closures as you shift yards and the impact on volumes as you move into the second half.

Is this more an economic call, Rob, on the volumes?

Or is this more lane closures and shifting target on volumes?

Ken, this is Kenny.

First of all, it's a very minimal impact, and a lot of those volumes that were impacted, again, were the lower profitable business.

The commercial team did a really good job of being proactive in working with customers to make sure that we have solutions in place.

So we feel -- again, it's very minimal, and we feel good about the decision to make those calls.

One thing I would add, Kenny, is -- what we're trying to do, Ken, is -- we're not trying to do it, we're doing it.

We think we build a better product for our customers.

We build a better service in Chicago and other places where we're looking at the flow of traffic.

It doesn't make sense for us to have 6 locations that we touch railcars and try to move them around.

We consolidated into the minimal spots.

We put them in the best place to win, and we grow with the customers that are with us to be able to go from L.A. We want to build the best service going across our network.

We're close.

When we fix these touch points that we have, we end up with the best service that we can provide, and we grow with our customers.

And Rob, just as a follow-up, given your move to keep the sub-61% OR and a better OR in the second half, which seems reasonable just given the pace you're at, just want to understand the kind of cadence of your employee cuts.

Is this something you see accelerating just given the steps Jim is taking on reducing locomotives?

Is it spread out on different parts?

I guess is it T&E focused or is it kind of more widespread?

I would say it's widespread, Ken.

And yes, year-to-date, as I called out in my remarks, we're down about 6%, and we expect the year average to end up around 10%.

So that does imply improvement.

And it is widespread, and it's really driven largely by the success of the Unified Plan 2020.

And we hope at least that we'll have a free -- flood-free zone to be operating in starting today.

Our next question is from the line of Justin Long with Stephens.

Congrats on the quarter.

So maybe to focus on productivity.

You reiterated the guidance for over $500 million in productivity for this year, but given you're maintaining the OR outlook despite the weakness in volumes and weather, it seems like the expected productivity in 2019 is moving higher.

Can you just give us a sense for the incremental productivity gains you expect to achieve this year versus your provisional expectation?

And maybe give us some sense for how you're thinking about the second half relative to the $170 million of net productivity in the second quarter.

Just curious, do you expect that number to continue trending higher sequentially?

Rob, do you want to take that?

Yes.

Justin, I would just say that really what it proves out in my mind, and you've heard me say this many, many times, is that we're not going to use the lack of volume as an excuse not to make aggressive achievements on our productivity.

And I think with Jim and his team and the implementation of Unified Plan 2020, I feel stronger about that than I ever have, frankly.

And so yes, we are still -- we're sticking with our $500 million, at least, productivity net number.

And that does imply that the second half is stronger than the first half because the first half was burdened with the inefficiency cost related to the flooding and other weather events.

So the net pace will pick up in the back half, and that is our expectation.

And it's across the board, but it really is largely driven by the success of the Unified Plan 2020.

And just thinking about that sequential change.

Do you think third and fourth quarter can look better than what you posted in the second quarter from a net productivity perspective?

I mean in total, yes -- we're going to stay away from giving quarterly guidance on that.

But I would say in total, if you look at second half versus first half, again, largely because of the overhang of the flood impact cost in the first half, yes, we expect the net number to be stronger in the second half.

Okay.

And then, I guess finally, thinking about productivity into 2020, you maintained the guidance for a sub-60% OR next year.

Can you talk about what that assumes for productivity even if it's just from a high level?

Does that assume that the productivity dollars next year are higher than what we're going to see in 2019?

Justin, we haven't yet put together our game plan for 2020, but you're right, we're holding firm on our guidance for overall OR.

And I'll let Rob speak to the details of that.

Yes.

Justin, I would say -- Lance is right.

We don't have the final numbers on that.

But I would tell you that the levers that we pull will be the same levers they always are, and that is volume, which we haven't finalized our outlook in terms of volume; quality reliable service that we're confident we are improving that product, which enables us to continue to get appropriate price in the marketplace.

And we're in the sort of still early innings, by my definition, of the Unified Plan 2020.

So clearly, there is more productivity dollars that we will be going after to achieve that sub-60% next year.

The next question comes from the line of Scott Group with Wolfe Research.

So Rob, I just want to just quickly clarify.

The 10% head count, that's an average or year-end?

I'm not sure.

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

Okay.

Kenny, on the pricing side, so with the moving pieces here, the volume environment may be -- I don't know if anything's changed with BNSF, just directionally, is the pricing environment getting any tougher as you see it?

And then, I know mix is sort of an impossible one to forecast, but such a dramatic change from minus 4% in the first to flat in the second.

Any directional at all sort of color or idea on how we should think about second half?

Yes.

You asked a number of questions there.

I'll take a few here.

First of all, we're focused on our pricing strategy.

We've got a number of competitive forces out there beyond just the competitor in the West.

There's barge and there's trucks.

I'm really proud of our commercial team and their ability to just stay very focused on pricing to the service product that we have and the value we present.

I'll tell you that I'm also looking forward to getting this weather behind us because I expect that our service product as it improves is going to give us an ability to compete in the marketplace.

So I like our chances, as our service product improves, to stick with our pricing strategy and price to the market.

Scott, I'll address your mix question.

You know we don't guide the mix because it's very hard to figure out as we just demonstrated Q1 to Q2, and there's mix within mix, as Rob says all the time.

So bottom line is when you look backwards, what happened between Q1 and Q2 was about a large drop in intermodal that aided mix.

And as you look forward, we'll just have to see what the markets present to us.

Okay.

And Rob, if I can just ask you one more quick one.

So the other railway revenue was sort of flattish year-over-year, down a little sequentially.

Any thoughts on how to think about that in the back half?

Yes.

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

Next question is from the line of Chris Wetherbee with Citi.

I wanted to ask you about the head count.

And so some significant improvement on head count and certainly for productivity.

I was wondering if maybe you could help us sort of understand if there's a piece of that, that's sort of reaction to weaker-than-expected volume and sort of what piece of it that's sort of more of a sustainable run rate.

And presumably, at some point as we move into 2020, I'm guessing you guys are assuming sort of a better, more stable potentially growth volume environment.

So I would imagine you wouldn't cut heads beyond what you think you can kind of manage that, but if you could give us some sense of what you're doing that's going to catch up because the volume environment's been soft.

Or really what's kind of core to the bigger-picture plan?

Yes.

Chris, you've got it just right.

When volumes get softer, we know how to adjust our resources to match what volume represents.

But I would have to say the lion's share of what you saw was about Unified Plan 2020 and productivity.

And you can see that kind of across the board.

We had to adjust the amount of resources we put at locomotives as we parked about 1/4 of the locomotive fleet, if not more.

And you can see that directly related to the head count, the manpower that we have attached to maintaining locomotives.

The same is true on maintaining cars.

The same is true on the TE&Y workforce.

We've taken a lot of work out of the network, and it's being reflected now on our manpower.

And we've got -- there are more of those adjustments to be made as the network continues to stabilize and as we continue to find opportunity.

Okay.

That's very helpful.

I appreciate that.

And maybe just a broad question, Kenny, about sort of the demand environment.

So clearly, softness in volume.

Some of it might be some lane dynamics, although it sounds like it's relatively minimal on your network.

When you think about sort of what you're hearing from the customer environments, why has it been so sluggish over the course of maybe the last 4, 5, 6 weeks?

Yes.

So I'd tell you we are seeing some softness in the truck environment.

Clearly, trade is impacting some of our ag business, and we'll continue to look at other pieces of the business in the second half.

I'd tell you, at the same time, I am feeling bullish about our franchise.

We've got a lot of upside with our petrochem business, our industrial chem and plastics, our construction product.

And I'm feeling really good about our crude oil business.

So we'll see what happens in the second half.

And like I said as our service improves, I like our chances to compete in the marketplace.

The next question is from the line of Brian Ossenbeck with JPMorgan.

I just want to go back to price for a second.

I don't think you really showed too much leverage to the tighter truck market in 2018 when you calculate it differently.

So there's a 2.75% price still on the core side.

Is that really sort of a lag basis from what we saw in the truck market and things are getting repriced and showing up now?

I guess the formulary would be if you think the truck market is going to soften a little bit more, can you maintain that level of core price or something pretty close to it through the rest of this year and into 2020?

Brian, this is Lance.

I'll let Kenny or Rob speak to more of the detail.

But you know and you mentioned we calculate our price on a holistic basis, that is the absolute dollars yielded during the period divided by all revenue.

So in the second quarter, 2.75%, that's pretty solid performance in a relatively soft truck market, and there is an impact in terms of what moves as to what gets counted as yield, right?

I mean you could take a price action last year on a book of business, and if it doesn't move this year, you get no credit for it.

That's how we calculate our price.

So there's a price/volume impact in there that is very hard to tease out.

The only thing I'll add is that we'll see what happens in the second half.

It doesn't change our pricing philosophy or our approach to be disciplined here.

Maybe it means a couple few more opportunities.

But regardless, the opportunities that were presented, we're going to be very disciplined about what business we accept and compete for.

Okay.

And then, Kenny, one more for you to follow up on coal.

We've seen a lot of headlines there recently, a couple of bankruptcies, a big push for large-scale consolidations.

So I just wanted to get your thoughts.

It's been challenging for a while, but this seems like it's another step change.

Just want to get your thoughts on how you adjust for that for the commercial side, both in the short term and long term.

Do you need to change how you price, maybe more to natural gas, try to push more exports?

And then, Jim, if I could get you to comment on the operating side.

I think the network did a really good job adjusting for the fallout in frac sand, but this is clearly a bigger chunk of the business.

It's probably got a longer and potential tail downward than some of the secular challenges.

So we've been living in a coal environment for some time, so this is not a surprise or anything new to us.

It doesn't change our approach to ensuring that we compete and win the business at the appropriate return for us.

We're going to stay committed to that.

I will say that as you hear about some of these bankruptcies or closures, it doesn't take away from the fact that another producer or shipper up in that area might be able to move that volume.

So you got to keep that in mind as you're thinking about that.

So Brian, the only thing I'd add is this is railroad, and as long as I have and the gray hair I have, markets go up, markets go down, pieces of the business go up and down.

If you're a good operator, good company, you know how to react to it.

We've reacted by making sure that we don't get ahead.

We plan properly with our assets.

We make them as efficiently as possible.

We're making the coal train specifically more efficient, so that we can have a better return on the product that we're moving and that's what's it's all about.

We have to react fast.

And in other places where we see increasing business, we have to put assets in there to do that in a smart way.

So it's as simple as that, Brian.

Brian, one last -- this is Lance.

One last thing to note and that is, thinking about this market holistically long term, we've talked about this, that coal has been challenged in kind of a secular decline.

You see that in coal unit closures.

You see it in investment, in alternative sources of energy.

And we'll -- we've got a game plan for that in the long term at -- and over time, we also care deeply about making sure that there are good, healthy, capitalized coal producers to serve the market.

They exist today and I know they're working hard to make sure that their future is solid, and we just support them as they do that.

Our next question is from the line of Amit Mehrotra with Deutsche Bank.

Jim, I was just hoping you could talk about the additional and maybe structural cost opportunity.

For example, where is the active locomotive fleet today?

Where do you think you could go?

What's the target for car velocity against the 200 miles per day you're doing -- you're achieving today, opportunity for system-wide train length?

Anything else that just gives us a sense of where you think the further opportunity is on the structural cost side relative to the improvements -- the significant improvements you guys have made to date?

Appreciate it.

Listen, you just [don't list it].

I think there's opportunity in car velocity, there's opportunity in the locomotives, opportunity on terminals, there's opportunity on how we handle our trains, how we -- how many touch points we have on cars.

So I think, like Rob said in prepared notes, we're early in this.

We've got lots of long runway to go and many innings left to be able to deliver, Amit.

Okay.

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

I do.

As soon as I've said that, somebody was going to ask me what is it, okay?

Appreciate it.

Thank you.

But you kind of teed up my follow-up question with respect to how all that translates to the OR.

And given your early innings into all this, I would just expect your OR targets at this point, when you've got 6 months of very strong operating performance in a tough environment, to be frankly more ambitious because there's another rail out there that has much lower revenue per carload but significantly better OR.

It obviously takes time.

So this is not a critique by any ways, but I just wanted to get your updated thoughts on what the structural profitability potential is for the business based on both your longer tenure at the company and then also what other industry peers are being able to achieve.

Rob, would you take that for us?

Yes.

I'll make a comment on that.

And Jim, if you wish to contribute, obviously you can.

I mean I would say, you've heard me say this, I have never felt better about our ability to achieve the targets we've set because of what you're outlining and because of what Jim and the team were doing with Unified Plan 2020, and that is we're going to get through as sub as we can, 61% this year and then as sub as we can next year of 60% and ultimately to that 55%.

So everything you're asking about, we agree that there are opportunities in there.

And that's -- when you add it all up, that's what's going to drive us to that 55%.

And I get the criticism, I'll wear it that we haven't put a date out there yet on 55%.

But our philosophy and our goal and our drive here at Union Pacific is to get to that sub as we can 60% first and then not stop there, by any means, but continue to drive towards that 55%.

The only thing I'll add is I like to just deliver the number and then we'll talk about it, like we delivered a 59.6%.

I like that number, and there's opportunity there.

And we'll continue to deliver.

I'll let Rob worry about how we appraise the number, okay?

And just to be clear, it wasn't a criticism.

I think we all respect and appreciate how hard it is to deliver the results you achieved.

But I just wanted to, I guess, ask the question because I had to, but I appreciate it.

I got the whole question.

I understood a bit.

Our next question is from the line of Allison Landry with Crédit Suisse.

Maybe if I could ask that OR question in a slightly different way.

Jim, as you just said, you're at a sub-60% already.

I realize that's just a one quarter number, but it was a difficult quarter.

You have a lot of momentum going forward.

So I wanted to get your thoughts on the feasibility of getting to that sub-60% by 2019.

And specifically, what would need to go right for that to happen?

Would volumes have to come in better than the down 2%?

Any help framing that scenario would be great.

I think the best way to frame the operating ratio number is it's a result of a lot of hard work, okay?

So I'm very comfortable with what we've been able to do.

I've been here 6 months and 4 days.

And the whole team, we've worked hard at train length, car productivity, freight, how fast we move the cars, the locomotive engineers, how well they're handling for fuel conservation.

We're making sure that the mechanical people, how many people we need, how well they're inspecting the cars.

It's a full story.

And it's -- this whole company is engaged in making it the best, most efficient railroad in North America.

That's what we want.

I'm not sure the time line exactly because I'm not sure what's going to happen.

We had a hurricane last week hit, a small one, not a Category 3 or 4 or 5, but we had a hurricane that affected us.

So I can't tell you, Allison.

I wish I could.

But what I'm comfortable with is we have the right team.

People are out there from the -- everybody in the company knows what we're trying to do, give a better product to our customers, grow our business and have the most efficient railroad in North America.

That's what's it's all about, simple as that.

Okay.

I appreciate that.

Lance, I think maybe a month ago or so in the media, you had said that you guys were taking share from BN as a result of the success of our -- the United -- the Unified Plan.

Could you put some maybe numbers around that in terms of volumes or share gain?

And maybe give us a sense of which end markets that you're seeing these share gains.

Allison, thanks for the question.

Yes.

If you look at the first half, I would say our growth is moderately better than our primary competitors.

That can come from a lot of different angles.

It could have to do with how their network is operating versus ours.

I would say one touch point for sure is our franchise is different.

And we think better, we think it's the best franchise in the industry.

What we would anticipate and expect as we look forward is Unified Plan 2020 creates a more consistent, reliable service product for our customers.

We're a more efficient service provider.

That should set us up to win in the marketplace and to have our customers win in their marketplace.

And I anticipate, regardless of the economy that we face, that gives us the best opportunity in that economy to win and grow.

I don't -- I'm not sure exactly what that looks like.

I'm not sure what that looks like in comparison to BN or anyone else, but that's what we're trying to achieve.

The next question comes from the line of Tom Wadewitz with UBS.

Jim, I've got a couple for you.

I wanted to see -- I appreciate the detail and the framework on what you're doing with yards and terminals.

I wanted to see if you could take a step back and just give us a sense of kind of what you started with and where you're at today and then maybe give us a comment on broad-brush, what you might get to.

So just kind of hump yards in January and maybe what you're at today.

And intermodal terminal, how many you had, how many you're at today, just to kind of frame it.

And then I guess just a sense of how far do you have to go.

Can you go from your 12, went to 10?

Can you go to 5 or 6?

Or how we might think -- how you might frame that and how we might think about it on yard rationalization?

Okay.

So when I look at the hump yards, I don't look at them because they're -- I've mentioned this before and people have heard me say this countless times, they're very efficient when they handle a lot of cars and we need to have them there.

If you can figure out a way not put a car through a hump yard and save 24 hours on the car, that's what it's all about, any yard.

So that's what -- that's the way we're looking at it.

Right now, we have one hump yard complex left in our Northern region.

Our Northern region is a pretty big piece of railroad and it's at North Platte.

That's it.

And we have a nonmechanized switching yard.

We classify it as a major yard, but it doesn't have all the mechanization in California -- Northern California in Rolesville.

But that's it, that's what we have.

So it's pretty hard to cut.

I think North Platte is going to be there for a long time.

We're asking it to work harder though.

We're putting more railcars in there.

And the cars they have, they have to do them efficiently and we move them out.

They are setting records today on how fast they're able to switch cars and get them through that complex.

And I expect that to improve substantially.

We've got some smart people out that are able to do that.

So that's the way I look at it.

I'm not sure what the heck we had.

I'd be guessing on the number.

I don't keep it that way.

We have complexes that we need.

Houston is a growth area.

We expect that hump to be efficient and stay there.

So it's all about being able to move the cars quicker.

On the intermodal, if I could be real quick, Kenny and I are aligned.

In fact, we have a plan of where we're moving and we'll do that.

We'll announce it as we come ahead when we need to.

It's all about, again, giving a better product to the customer, able to handle their containers in and out and trailers faster, so that they have a better market.

And we can grow and we can compete against trucks, take some of that traffic off of the highway and compete against the other railroad that we compete against head to head and see if we can win.

And I think we will.

So that's where we are.

That's the best I can describe, Tom.

Okay.

So it sounds like you've done a lot already with hump rationalization or at least in the North, so we shouldn't necessarily expect a lot more of that going forward.

But the intermodal terminals, you still have room to go.

Maybe on a different element of the operation, the train length expansion of -- I think you show about 10%, June versus January.

It's a pretty impressive number, 7,700 feet on average.

How much runway is there on that?

Are you constrained at this point from a siding perspective?

Or could that number continue to rise a bit further?

All I can tell you is we're not constrained.

We'll invest in places where we're constrained.

We did that on the route coming out of L.A. going towards El Paso, closing some gap.

So we announced that 3 months ago.

We're just about completed with that.

It will help us.

There's a little bit of investment, I guess, little against the $3.2 billion that we have, but we'll continue to invest to do that.

Yes, train size will grow, no if, ands or buts.

It'll grow across the whole network.

The next question is from the line of Walter Spracklin with RBC Capital Markets.

I guess the first one here is for Rob.

I mean I know you mentioned this -- coming back to the OR here, I know you mentioned that you haven't put in your plans for 2020, but you effectively got a guidance for 100-basis-point improvement given the guidance you have for 2019 and 2020.

I guess we're all looking at you possibly getting to your 2020 target by 2019.

And obviously keeping 60% in place for 2020 because that's your guidance, it wouldn't be the right thing.

So I guess what I'm asking is if we're starting with a 100-basis-point improvement as our base assumption in 2020 versus 2019, as you get your numbers together, what factors will you be using to determine whether that's to -- is that too low or too high?

And perhaps, I know Jim, try to chime in, but the track -- the success you've been having so far today, correct me if I'm wrong, but it could amplify that 100-basis-point improvement in 2020.

Yes, Walter.

First of all, I would say we are not guiding to just 1 point of improvement.

Again, kind of back to my commentary of we're going to get a sub-61% this year as we can and then as sub as we can on the 60%.

So yes, I get that the 61% to 60% is 1 point, but we're going to try and do as best we can to achieve as much success beyond that 1 point as we can.

That's the sub comment.

But the factors, it all kind of starts with our read of -- as we look to 2020, when we get to that point, our read of what the economy is and what do we think volume is going to be.

And as we continue to drive it, as you've heard me say many times, as we continue to drive and improve our service reliability, that gives us confidence to continue to be aggressive and achieve core pricing gains, which is going to be a lever.

And then the balance of the ability to squeeze out and make margin improvement is going to be wrapped up in our Unified Plan 2020 of which -- I mean I don't think you can hear more confidence from the team here in terms of our ability to continue to drive efficient operations and drive productivity dollars, which will fall to the margin.

Okay.

That makes sense.

My second question is more kind of high level, Jim.

You've seen precision schedule railroading implemented a couple of times, either directly or from a distance.

And each time, it's led to a fairly significant service disruption, which, once gotten through, it becomes a weapon and a tool to improve service, but there's always that initial phase of service disruption.

I'm hearing from Lance, and perhaps Lance chime in, you're looking to do it this time without having that service disruption.

What is going to happen?

I mean 10% workforce reduction, these kind of things lead me to believe that the customer is going to be affected.

Can you help me get comfort that the comfort -- that the customer is not going to be affected with this time in terms of this movement to PSR?

So it's a -- Walter, the history, you're correct.

So let's not rewrite history.

It's -- that's the way -- there was a lot of noise.

I was involved with some of it and there was some noise.

What we're doing here is we're trying to keep the noise down as much as possible, being real smart about how we do it.

Listen, I had a plan the first day I showed up.

We wanted to park 500 locomotives.

I didn't park 500 locomotives per state.

I said let's work through this in a systematic way.

We make it more efficient.

We look at the touch points.

We see where we are.

I had a plan with Proviso from when I used to work at another company, CN, okay?

In Chicago, I went to visit Proviso.

I didn't like that yard when I was on the other side.

So it was going to happen, but we did it at the right time, right place and that's what it's all about, Walter.

We're trying to do this in a systematic manner instead of blowing it up and seeing what you can put together after all the pieces.

So hopefully, we keep the noise as much.

But Kenny knows there's going to be some noise, and we talked about it.

But I'll tell you what I give Kenny and the whole team a lot of credit.

We're being proactive.

We're getting out in front of it.

We tell the customer what we're doing.

We tell them what -- when we made the changes in accessorials, we told them.

We gave them a chance to change their processes instead of just putting them in place.

We're doing that specifically to try to keep them in.

We understand how important the customer is to us.

That's what drives our whole business model.

So that's the way we're doing it, Walter.

The next question comes from the line of Jordan Alliger with Goldman Sachs.

Yes.

I just had a quick follow-up to the extent you can answer on the -- what you're doing in the intermodal complex in Chicago to improve the throughput and speed.

Any sense that you could put on the timing of it a little more specifically?

Just curious because obviously the intermodal volumes of likely domestically have been on the softer side.

I'm just wondering, once that gets into place, this is the second part of the question, is that when you could really start to more aggressively market the product?

Would that be the plan?

So that's why I'm curious about the timing of the whole complex improvement.

Yes.

So Jordan, I'll start and then I'll turn it over to Kenny and Jim to fill in more detail.

So I think what you're referring to is really 2 different things that are occurring in Chicago: one, Jim mentioned earlier, and that is consolidating and specializing our intermodal ramps.

So G3 focused on international intermodal, G2 focused on domestic intermodal and Yard Center focused on some specialty niches.

That work is under way.

G4 is -- or excuse me, I'm sorry, G4 focused on international.

G3 has already been consolidated or is in the process into G4.

G2 is in the process of being invested and also growing.

So that's kind of an operational focus, and that's a clear benefit to our customers.

It simplifies the drayage equation and it provides a more consistent, reliable service product.

Second thing that's happened in Chicago is we've rationalized service lanes in interchange with our interchange partners, both CSX and the NS at a high level, and that's providing a more effective service product that's an interline service product.

So the interchange happens more reliably, quicker.

And you don't dwell boxes around ramps as long as you used to.

So I'll let Kenny and Jim talk to how that impacts our customer base, what it looks like going forward.

Yes.

And the only other thing I'll add is that we have proactively worked with our customers to get the dwell down on our intermodal ramps at the destination.

I mentioned this earlier about 15 hours.

So all those 3 things, reduced complexity, the interline changes and the dwell has improved.

But I'll tell you, we have worked with our customers.

They're starting to see the benefit.

We're looking at the service metrics and they are turning around.

We have one of our group of our larger customers in and we've been talking to them.

And they've expressed a very positive tone with us.

So we feel very encouraged moving forward.

Last thing I would add is this.

We want to look at our product, especially intermodal.

We're talking intermodal end to end.

So it's all about when the ship arrives at the port, how well we're able to move the containers out of the port terminal that's international and how fast we can get it consistently to the customer so that they can use it.

I think we build that model end to end.

We're able to compete against everybody on the West Coast and on the South Coast to see what we can do to increase the business because of the model we have, the facilities we have, we turn them quick.

So I'm real excited.

I think we are going to build a model that is as good or better than anybody out there in the marketplace.

The next question comes from the line of David Vernon with AllianceBernstein.

Kenny, could you give us a little bit more color on the down 2% volume?

Should we sort of expecting the same variation across the product groups?

Or is there any sort of additional insight you can give us into which traffic categories are going to -- the trends by traffic category?

I mentioned the things earlier.

We're going to just look at the trucking market here and see what happens.

There still seems to be a lot of capacity out there.

We can't control the foreign trade policy, and we'll look at that.

We talked about the comps getting better in our sand network, but we expect that to deteriorate a little bit more.

But again, having said all that, the fact that our service will be improving, I like our chances to compete with truck more.

The fact that we've reduced a lot of complexity out of our supply chain gives us an opportunity to compete more.

And we'll see what happens, but I like our chances.

Okay.

So now -- so it's a little bit weaker in Premium and Energy continuing to kind of be the weakest segment.

That's correct.

Yes, that's right.

Rob, just as a follow-up.

I know you guys, we talked a lot about margins and stuff like that, but if we look at the -- sort of the back half of the year, I think consensus is expecting 11% EBIT growth.

Given the 2% down volume, obviously, productivity is a little bit better in the back half of the year.

Does -- are you comfortable with an expectation of sort of like a 10% growth in EBIT line just based on what you know right now with the down volume?

It's really tough from the outside in to get the incremental and decremental, right?

And obviously, with the PSR thing happening at the same time, it's really confusing.

I'm just trying to help our clients understand kind of what that trajectory and earnings growth should be as opposed to just looking at the OR.

No.

I get it, David, and I'll disappoint you in that we aren't going to give earnings guidance as we don't.

So I mean we're going to do as good as we can.

And I think that you've heard us talk about the confidence that we have in driving margin improvement and how that turns out in terms of the earnings.

We'll be as aggressive and hopefully as successful as we can.

But I'm going to stay away from giving any earnings guidance.

Our next question is from the line of Ravi Shanker with Morgan Stanley.

Looking at the kind of head count cuts in the back half of the year, can you just help us understand if this was kind of always part of the PSR plan?

Or are you being more opportunistic giving -- given a softer volume environment, you've kind of made more cuts here while you can?

Yes.

I'll start with that.

The short answer, Ravi, is we've always anticipated that labor would be a fairly large portion of our productivity savings for the year, which we've highlighted as plus $500 million net.

So that's always been part of the expectation.

If we do less work, we size the workforce for that less work.

But yes, Ravi, I would add to that, that's the driver, that's -- the key driver is our confidence of the Unified Plan 2020.

But given the fact that we have eyes on as best as we can at this point of the volume numbers that we gave for the back half, that we take that into consideration as well.

Understood.

And just to follow up.

The Canadian rails have been really bullish on the international intermodal opportunity the last couple of years and then going forward.

Some of that kind of insinuates kind of some share shift from the U.S. ports, the Canadian ports.

Can you just talk about what you guys are seeing on the international intermodal side?

And kind of do you see that as a secular shift in the industry?

Kenny, can you take that?

Yes.

We have seen over the last few years a little bit of share shift versus the West Coast.

I'll tell you that if you look at the weather issues that we faced, coming out of couple of quarters of pent-up demand, we still feel pretty good about the fact that our international Intermodal volume was up versus -- up 1%.

As we get back to a more stable economy, again, we still feel good about our opportunity to compete and grow that international intermodal business.

The next question is from the line of Ben Hartford with Robert W. Baird.

Kenny, just wanted to follow up on the back half volume outlook.

Just to clarify in terms of how you guys are thinking about the cadence through the back half of the year.

Do you expect it to return to a more normal seasonal volume cadence through year-end?

And maybe in that same vein, what are you hearing as it relates to IMO 2020 plans from shippers, particularly in the international Intermodal side?

Any plans to pull forward ahead of that?

And how do you think about the impacts there from a petro-chem product perspective?

Yes.

So a couple of questions there.

First, I'll just say that the things and some of the challenges will be what they are.

We'll see what happens with the domestic trucking market.

We'll see what happens with trade.

We still feel very good, again, about the construction business that we have, the crude oil that we have.

And the plastics business, we expect that to continue to grow.

Everything that Jim is doing on the operating side, again, allows us to compete.

It allows us to get after rail-centric business that we lost during the floods.

It allows us to increase a lot of the truck-centric business moving forward.

So we feel positive about that.

In terms of IMO 2020, we spent a lot of time with our international intermodal customers and we don't see anything significantly changing.

We don't see anything from a pull ahead perspective changing.

We don't see anything changing from a supply chain perspective, meaning that they might preference the Western port over an Eastern port.

So we haven't seen that.

We've been talking to our customers all -- along the whole time.

And right now, you shouldn't expect anything structural from what we're hearing.

Okay.

And a quick follow-up.

Jim, could you just provide a little bit of perspective on the changes in Chicago, the reduction in ramps?

It sounds like there's more to come as it relates to intermodal from a service standpoint.

But when you think about that change, how pleased have you been?

Do you expect any further changes around the Chicago area to be able to accomplish what you're alluding to on the intermodal side?

Listen, pretty straightforward.

We've announced the changes that we're going to make there.

I think the changes sets us up to have a great product within Chicago service, that whole area, and be able to stretch ourselves from Chicago to other markets.

So we're not changing anything.

The time line is good.

People are on board.

Kenny has done a good job of explaining it to the customers.

So you'll see us make the change as we move forward.

Some of the changes will take us a little bit longer, 5, 6 months to get them in place to be able to do that or up to a year, but we've got the plan there as we do in other places.

The next question comes from the line of Bascome Majors with Susquehanna.

Jim, we're seeing a lot of your efficiency metrics really start to move higher, particularly on the locomotive productivity in train linked departments.

But the customer-facing metric of on-time performance versus your trip plan actually fell year-over-year, remains in the low 60% range.

And what's probably pretty cost critical in workforce productivity feels like it's lagging a bit as well.

In your prepared remarks, you said car trip compliance had improved in July.

Could you expand on that and speak to a sequential place of progress here with the weather behind you?

And on both customer facing and the workforce productivity front, when might we start to see more stair step-like improvement?

And what's going to drive that?

Son of a gun.

You're tough, Bascome, okay?

You hold me that, but I love the question.

I appreciate it.

So if we take a look at workforce, it's -- we adjust for the work that we have to do, and we've made some quick adjustments.

And I think we've done a good job of being smart about how we do it, and you'll continue to see that.

Rob has given the numbers of where we expect to be.

I'm not going to add anything.

I don't need to add anything there.

And as far as the productivity metrics in general, all of them, we think there's opportunity on them, and we will continue to be productive in every one.

We are touching.

So if you start with a car, how fast it moves for the customer, and the weather had a big impact on us.

So what we did was we didn't adjust the number.

The number came in the way the number came in.

We got hit for the weather and we parked cars.

We didn't make it to the customer.

But now that we're out of that, we've seen it's substantial.

It's at least 10% higher our improvement and we'll continue to do that.

We know we have to deliver a great product for our customers to be able to grow this and have been in the long term an efficient railroad and a great product for our customers.

That's what it's all about, Bascome.

That's what we're trying to do.

Bascome, so the moving parts on that service product, it's a mixed bag in the second quarter.

Freight car velocity is a direct impact on customer experience, right?

They're getting their cars more frequently from origin.

Embedded in that is terminal dwell.

That's a direct impact.

First, [OS] launching on time has a direct impact.

That car trip plan compliance, that's a very specific, holistic number that says from the time the car was tendered to us that we do exactly that plan that day.

And things like flooding made us use alternative routes and switch in different places.

So once we get a network that's smooth and steady and normal, we see the kind of thing that Jim is talking about, which is a pretty quick snap back.

It's a lagging indicator, but it is an indicator.

And we expect that to go like the other service indicators are going.

It just might take a little longer.

I can tell you just real quickly.

We're sitting down with customers each week.

And we're seeing an improvement.

So I want to give Jim and [Lance] and the team a pat on the back.

We didn't talk about first mile, last mile, which we're also seeing a pretty significant jump in also and that's a very tangible metric to customers.

So I -- we're expecting that to get better as we move along.

It's great to hear about the substantial progress with the flooding behind you here.

Rob, any -- are we going to get an update from you guys on the long-term outlook next spring or summer like you normally do in the last year of a long-term plan?

Any guidance on when that might happen?

No.

Stay tuned.

We'll always update.

As we said earlier on the call here, we'll be putting together our 2020 plans more firmly as -- between now and then, and stay tuned.

Our next question is from the line of Cherilyn Radbourne with TD Securities.

It's been a long call, so I'll just stick to one question and that is you sound fairly confident that we're starting to move through the overhang associated with inventory pull forward in advance of tariffs.

So I just wonder if you could elaborate on what you're hearing from customers or seeing in your carloads that informs that confidence.

Yes, I'll take that.

First of all, what we're hearing one thing that's good is that we are hearing that we're going to get a normal peak season volume here.

So that lets us know that a lot of the noise that we saw with the pull ahead is over.

Again, we know what the domestic market is like.

The only outlier that's out there from a trade perspective that probably impacts us is really just on the ag side, and we talked about the soybean market.

So it really becomes a timing issue, and we'll see what happens.

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

All right.

Thanks, Rob, and thank you all for your questions.

To wrap it up, I want to again acknowledge the tenacity and the determination of Union Pacific's workforce.

Hats off to them for producing great financial results in a pretty challenging quarter.

And with that, we look forward to talking to you again in October.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.