Union Pacific Stock

Good news. I found Mr. Jim Vena...

Pardon me?

I said I found you, you're working the room, that's pretty amazing. Great. So let's keep the transport content going. Very happy to welcome back to Laguna, Union Pacific Railroad CEO, Jim Vena. Welcome back, sir; and CFO, Jennifer Hamann. Thanks so much. Tons going on. I know we have some slides out and there are QR codes on your desks for you to access the slides. But Jim, I don't know if you want to start with some opening comments and maybe walk through what's in.

Yes. Ravi, listen, thank you very much, and good morning, and I had a chance to say hi and good morning to a number of you. I would have rather done that than this, okay? And we could talk personally, but that's okay. Ravi, thanks for inviting me. What a wonderful place. I had the team, Diana and Jennifer, I hope for run walk this morning, and I got them to drop down and give me 10 pushups, and I was down there with them. I don't think they'll ever do it with me again. So we went down to the beach, went for a walk, Diana was saying, that's a pretty good pace. And then I said, let's drop down and do 10 and we did 10 and then coming back up, we ran up a piece of the hill and let's drop down and do 5. So that's it, Ravi. You better move the conference. They will come with me, okay?

I'm glad I did not run into you at 6:30 a.m. today.

That was our morning. That's how we're off to a start at UT.

I love it. That's the way we shift to you, okay? Push the hack out of yourself and see what the heck you could do to win. I'm not here to be second place. And I made sure I beat the girls up to the top. And I would have tripped one of them I thought one of them was going to beat me. So listen, Ravi, cautionary information, typical, okay. We don't want to make forward-looking statements that if you need some more detail, please give us a call. Go online, and there's a whole boiler plate now that's a breaking big page long. Go read it and figure out because we don't want to do anything wrong, right, Jennifer?

Absolutely.

Okay. Let's talk a little bit about where our -- how we're doing in this quarter. Carloads are up around 5% this quarter. And it's a mix, which is nice. It's not just intermodal and what's happening with fuel prices and everything else. Actually, our industrial month-to-date, and I'm giving you a number that is not public, but it will be public now it's 5.2%. So it's nice to see a cross-section of business how we're moving it. And bottom line, I could sit here and talk about the metrics completely, but I'm sure all of you guys know what I look at and what's it real important. Overall, the metrics in -- at the start of this quarter we're a little lower than last year because of incidents and things that we had happened impacting the railroad. Fundamentally, it wasn't what we're doing, and it's recovered nicely.

So we're in the mid-230s again in car velocity, that dwell under 20 hours. So we're handling the increase in business without degrading our service product or degrading how we move. So I'm very happy with that. And listen, we keep on talking operating ratio and some people misunderstand me when I talk about operating ratio. Absolutely, you want to have the best operating ratio that your railroad can deliver because of revenue, the type of revenue and the cost structure that you have. And I think we figured out a pretty good model to get to be the best in the industry. And I think something like 300 or 400 basis points better than our next competitor. And we like that.

It gives us a different starting place when we're looking at how we bring business on. And that's real important to us. We don't lose sight of that. And we'll continue to do everything we can to be able to keep it at the right place. And I've said this a thousand times. If you concentrate on a number, then you miss business or you make decisions that are bad for the long term. I'm not the CEO of -- they didn't hire me as the CEO of operating ratio. They hired me as the CEO of Union Pacific, and that's what I do, okay? Now we're going to be the best. We want to stay at the top. We want to win, and it's all about how much business we can bring on that's fundamentally strong business for our company. And I like where we are.

Jennifer, any more sort of details?

No. I mean, I think you've hit really some of the high points, particularly around the volume side. Only thing I'll add is when you look at what's really the driver of the growth, great to see that industrial business, and that's been pretty broad-based across many of the segments within industrial. You've got bulk that's down about 1%. That's pretty similar to what we saw in the second quarter where the low natural gas prices continue to impact the coal demand, but we're seeing very strong demand on the grain side of the world. We look for that to continue. We're getting into the harvest season in the Midwest, and it looks to be a pretty decent harvest in our served territory again. So that's good, and that should give us some sustainability on the grain side.

And then just going back to the intermodal piece, that really is the biggest driver of our growth here in the quarter. And so that does have a mix impact that we just need to remind folks of because that domestic intermodal piece, good business. We love the business, and we're probably looking at what's going to be our fifth consecutive quarter of records in terms of looking at it year-over-year. So even before the cycle started to change, our service product and the way that we were going after and winning and developing business in that market has been shining through, but that will have a little bit of an impact on the mix.

Jim's comments on the operations are spot on. We're handling it well. Our strategy with the surge resources is definitely helping us. And so that's definitely to our benefit, and we see strong core results with that. The only, I'll say, fly in the ointment is fuel, and I'm sure everybody is talking to you about fuel, Ravi. Back in July, we thought we were maybe going to get a little bit of a reprieved. And since then, it's ticked up pretty substantially. So we're probably going to average, I'd say, around $4.25 or so for the quarter, in the third quarter. But I have to say right now, we're paying closer to $5.20, $5.30 a gallon. So it's come up pretty substantially. And obviously, that has some short-term impact on our operating ratio. But again, the core business, the core fundamentals of what we do, safety, service, operating excellence, we're hitting on all cylinders there.

Yes. And Ravi, I could go on further and fill this whole 27 minutes...

They aren't here to listen to me. They're here to...

But you know what, I'll leave it to you. I like where we are and the way to go. All yours, looking forward to the question.

Great. Perfect. So maybe let's start with some of the macro and demand picture, and we'll come to M&A, obviously, in a second. But actually, Jennifer, maybe we can just piggyback off your fuel comments here. How do we think about that OR walk 2Q, 3Q to 4Q based on what you laid out, both in terms of the fuel lag that you guys have on the recovery side, but also potentially any tailwinds you might be seeing on incremental truck conversion as a result of that?

Yes. So on the last part of your question, it certainly is benefiting us from just highlighting that stark difference in terms of the fuel efficiency between truck and rail. And we believe that is starting to drive some conversions to the network over and above what maybe some of the cyclical changes are driving. So I do think that's a plus for us. In terms of the OR impact, I think we had about a 120 basis point impact to our OR in the second quarter with fuel prices coming up to where they're at now, probably fair to say that it's going to be that big of an impact or bigger. But again, that's why I point back to the core. Core is very strong and continuing to see improvement.

Got it. So...

Ravi, real quick. Fundamentally, at a higher fuel price, not as hot -- is never good for the economy in the long run. And that's what you have to worry about, and that's what you have to be prepared for, and that's what we have to do. Now we haven't seen it so far. It's truly amazing with the products that we're moving other than some specific areas that you know are going to be reactive quicker that we've seen a slowdown. So it's interesting. It helps us bring more business and we sure don't want to damage the -- and have the economy damaged by having high fuel prices and slowing some things down. But so far, we haven't seen that.

Understood. But going back to Jennifer's comments of the core being really strong here. Obviously, you're seeing mid-single-digit volume growth. You raised the guidance last quarter. Is it fair to say that we are now out of the freight recession and kind of we have visibility of what's coming forward? Or to Jim's point, kind of is that still kind of a little bit of a risk?

I mean it feels good right now. I mean I think our customers are pretty bullish right now. When you look at order books, when you look at inventories, I think those point to some sustainability here in the demand. And so we feel good about that other than watching, is there the possibility for some demand destruction with the high fuel.

Right. And just on domestic intermodal itself, obviously, the base theme of the conference has been the capacity tightness on the trucking side. Has that resonated with your customers? And is that driving like a long-term pipeline of volumes coming your way? Or does it feel like shippers are being a little more opportunistic just given how much -- I mean, how suddenly it kind of crept upon them.

Bottom line is it's a little bit of both. Okay? Like let's get serious here is if they thought that they could have a better product and move it quicker or some other way, they go -- they'd leave us real quick, a certain percentage that just came on, okay? That's like -- but the best way for us to keep them high service products, to show them that we can deliver it. And the final receiver of the product, the true decision-maker is real important, the shipper or the receiver, not the trucking company. Okay?

Got it. And just on the international intermodal side, obviously, there's a lot of talk on the price gap now between the East and the West. How does that kind of benefit you guys? And kind of what is the -- again, is that -- does it also seem transitory? Or do you think there's more structural gains to be had there?

I think we'll see. I mean it seems like there's different headwinds and tailwinds that tend to make that freight shift back and forth between the 2 coasts. And I think that shows kind of going back to Jim's point about the optionality of these firms, they're going to look for their best option, best transit time, best overall price to delivery. But right now, I do think with some of the low water levels in the Panama Canal, some of the other things that are going on in the world, we are seeing a little benefit. Our international intermodal volumes are up a little bit here in the quarter. So that's a positive for us.

You can sit there if you're in my job or Jennifer's job and worry about things that you don't control or you do look at things that you can control. So the customers that are buying internationally and when they look at their supply chain, if it's better for them to go to the East, they're going to go to the East. If it's better for them to go to the Gulf, it's go to the Gulf. If it's better for them to go. So our job to partner with -- I'm here in the West Coast with Long Beach, and we have a great relationship and L.A., who is supportive of our merger because they see the benefit, then we work, and that's why we're doing the things we're doing to be faster, more consistent so that when people make decisions, it's a cost thing. It's a cost and service thing, right?

Listen, I have -- I get different service when I go to McDonald's. And no, I didn't take my wife. Some people remember me saying that they're going to take my wife right for our anniversary to McDonald's. I did take her to a nice steakhouse in Omaha. But bottom line is I go there for speed, quality, and that's what I get. But when I go to one of those $80 steakhouses could you believe it, for a steak, $80. But at the end of the day, I expect something different. And if it's not there, I'm going to go back and get an $8 Big Mac, okay?

I kind of think...

So I'm not real worried about the East Coast, West Coast, but that's why we want to merge. We're going to give people more optionality with a single line that will take you across the country, looking forward to it.

Yes. I'll come to the merger in just a second. But speaking about $80 steaks and pricing here, obviously, what's happening in the truck market kind of gives you a pretty nice opportunity for intermodal pricing as well. You guys said that you think it will be a bigger opportunity kind of next bid season for you guys. Can you just talk about how you see that rolling through mechanically kind of cadence over the next few quarters?

Jennifer, why don't you take them through the sort of the 3 different models that we have, right? Some of it is priced in on long-term contracts, so where you go.

Yes. So I think the part you were just referring to, Ravi, is some of those longer-term contracts, which we put some flexibility into the pricing, which has served us well because at the time we won some of those contracts, you started to see the market tail off. So what you're seeing now certainly is the volume come from those contracts, but the pricing will lag and it will trail a little bit. Then you also have the business that moves on more of a spot basis. That bid season is in more the spring time of the year. And so since spring of '26, prices have continued to run up. So assuming they stay at these levels or continue to go higher, we would expect a stronger bid season. So again, you're going to get the benefit of that more in the back half of 2027.

And then the third piece that Jim is talking about is we have our own boxes. So that's the nice thing about our intermodal franchise is we can hit the market in a number of different places. And so with our boxes, we actually have them fully unstacked out and running for the first time since about 2008 or excuse me, 2018. went back too far, dropped a decade. So -- but 2018, so that's a long time. And we've actually gone out and opportunistically picked up a few extra boxes, and we've put some surcharges on there as well to reflect the strong demand that we have for that part of our product. So we're hitting on all of those cylinders, and it's being supported by the service products. So that's where we feel good.

Got it. You said the S word. So just given what's happening to fuel, is there an opportunity to maybe use surcharges and accessorials to maybe get kind of pricing a little bit quicker, especially given how extraordinary what's happening with fuel is?

I mean our fuel surcharges are programmatic. They're set up either through contracts with our customers or through our tariffs. And so they've been in that same situation for a very, very long time. They're just kind of set it and forget it. What I was referring to was some of the peak season surcharges that are lane specific, market specific in intermodal to address some of the capacity.

Got it. And on peak itself, we've heard from a few trucking companies so far that they're looking forward to a very, very robust peak. Do you guys have a sense of what that's looking like just yet? Or is it a little too soon?

I don't know. We think that volume is not going to go up a whole bunch in those segments that are usually driven by peak. But I'm hoping that everybody else is right and not our experts.

Got it.

They're at pretty decent levels right now. I mean that's the nice point.

Yes, it's not negative, but I don't see another substantial double-digit increase.

Got it. I think a big message from you guys for the last kind of 2, 3 years during the downturn has been, hey, we have the capacity for when the volumes do come back. You have seen a pretty nice improvement in volumes already kind of off the bottom here in the last couple of years. So where are you now on excess capacity on the service levels that you can maintain? At what point do you think you'll have to bring some resources back, probably the quality...

Ravi, it's pretty simple, okay? What we did was starting in 2019 is we looked at the railroad in a completely different manner of what was possible. We invested hundreds of millions of dollars in making our railroad to be able to be handle trains of different lengths in different corridors. And as we publicly have said lots is we operate with more business than we did in 2019 with 24% less trains. Some people think that's a number you can just slap on the wall and it was easy. That wasn't easy. But that's capacity that we have excess.

So if we're going to run 7 new lanes in the merger, my god, we don't get back to where we were even in 2019. So let alone the business that we have now. So we're very comfortable with that piece. And the other 2 areas that you always have to be careful with is locomotives. The reason is you just can't get them if you need them in a short period of time. Otherwise, we wouldn't -- the buffer would be 0. We just go down to the corner place and buy a locomotive, but nobody has them just sitting there for us and people. So I'm very comfortable that capacity-wise, a few little pinch point areas that we'll continue to invest in.

On the intermodal side, Jennifer, we spent, I think, something like $1.2 billion in the last 8 or 9 years to increase our capacity, the number of lifts we put in there on purpose to be able to handle these changes that we think that we can draw to our railroad as we move ahead. So that's what we've done is try to touch every piece of our business to give us ourselves the capacity to not run up against it. And you'll see that if you run up against it, you just slow down. The railroad slows down, which is not good.

Got it. Just a follow-up on that topic, very close to your heart. You mentioned it several times already today, which is service levels. How comfortable are you with kind of where you are with service? What technology investments do you have to make to kind of push that to a new level? And kind of are you confident that will sustain even when these volumes come back?

Listen, let's just tag team this. We've invested on technology from gate technology, a technology so truckers can come in seamlessly. They don't even have to stop. They slow down to come in and out of our terminals. We have -- the way we switch box cars at their terminals, we've invested in technology that allows them to do more. So we're handling switch number of cars per hour, probably 20% better than we were before. We continue to invest. We have taken all of our main systems and replaced them with the latest in the last 3 or 4 years, whether it's the dispatch system, whether it's our fundamental net control.

The best part about net control was it was a little scary thing, and I hope that Lance had done it when he was the CEO, but he sort of left that for me and kept it building. And they came to see me and said, we're going to shut down our main system that runs everything off of it, payroll cards, everything. And I said to them, well, what's our backup? If that doesn't work or we have a glitch, what do we do? It says, you can't do anything because you can't meld the 2. We're talking about hundreds of thousands of railcar movements and everything else. And we did it over a weekend. And I give Rahul and his entire team accolades. So we're ready to do what we have to do moving forward. So I'm very comfortable where we are.

Jennifer, anything to add? Or did I cover it?

You covered a lot of it. I mean -- but we are continuing to develop both within our terminal systems, our terminal command center that's going to help prompt decisions originally to some of the managers in terms of how do they want to bring the trains into the yard, how do they want to set up the switch plans to make sure that the cars are making the next connection. But ultimately, you look forward instead of just prompting the terminal manager, it's going to go ahead and make those decisions and send those instructions to the crew automatically. So there's a lot ahead of us there that we can do to continue to get more productive and safer.

The most exciting thing that we are working on, and we're pretty close, is a dynamic operating plan. It takes us a long time to change the operating plan against what happens with the business because you have so many things you have to worry about, assets, people, commitments, service plans, everything else. But I'm telling you, we are very close. I'd like it so that the day after tomorrow, we can have a new plan that fulfills what we have to do, but able to be able to run assets better and cheaper size of trains and everything else, and we're getting there. I'm not happy with Rahul on this one, and hopefully, he's listening in. Like I expected them to give it to me 6 months ago, and he thinks it's difficult. I don't know. It's pretty simple from where I sit. He just needs to get going on it.

She's speaking for a run early in the morning.

No, he's too fast. He just -- he's a marathon. My God, he would -- like I would have to trip them to be for sure. He is fast. Fast.

Never mind. I have a few more questions on financials and some thematic topics. So I'll come back to that in the end. Maybe let's talk about the merger now. First of all, congratulations, the STB. Obviously, has removed the proceedings from [Indiscernible], resumed consideration of the merger on merits, accepted the applications. How do you view this latest milestone? How should investors think of it? And give us a sense of what do you think the time line and the next steps are from here?

Well, listen, we are very, very happy to cross that threshold because once the STB on May 28 accepted the merger application, then the clock starts. So this next piece is the merits and the parties that have an issue with what we're doing, get to put in, but they have to put in their detail. They have to tell the STB and make it public what it is that they can't just speak. It's like some railroads are out there saying that we end up with 50% of the business. That's just a lie. It just is a lie. Burlington Northern Santa Fe owned by Berkshire, a big company. They have more gross ton miles than us. So we're #2 on gross ton miles. Yes, our revenue is more. You'll have to ask them why. That's up to them, not up to me, okay?

And our operating metrics are better, everything else. But bottom line, that's where we are. And CSX and Norfolk Southern are about the same. So if you put #2 and #3 or #2 and #4 together, you don't get the 50%. And somebody forgot that there's 2 Canadian railroads that actually operate in the U.S. So you add them in their Canadian National and Canadian Pacific, and we end up at 40%. So the reason I'm telling you the story is they can't go about telling the STB that we get to 50 without proving their math. And I don't know what math people are taking, but it's just wrong. I even heard it yesterday when at Iana, like kind of a gun.

So the good part about it is I love where we are without being too snarky. I apologize if I woke up a little snarky this morning. But bottom line is I like where we are in the process. It's taken us way too long to get here. But if anybody has worked with government regulators, it takes them a while to get through the right place you want them. But I'm going to look at it from their side. I think they're being very, very cautious in making sure that they do the right thing as they go through the process. I think the Chair and both the members -- all 3 members, sorry, are smart, and they'll make the right decision because they see the benefit for America and the benefit for the shippers and benefit for America to win against worldwide competition.

So I love it where we are. And we have a timeline now called May 28 next year. And then they get 30 days to give us a decision. Now again, this is Jim Vena. I'm hoping they make the decision in 2 days. So on the 1st of June, we have an answer, but I bet any money they don't take 2 days. We shall see.

Jennifer, anything you want to add on that?

No.

I think I covered it all.

I think you covered it.

But Jim, you guys have not been sitting still waiting for them at the same time. You've offered a number of concessions already, kind of we obviously have this agreement with Canadian National. Can you just talk about the thought process there, kind of why you did that? And kind of what benefits do you think it will give you to the process?

Well, listen, you can go study history all you want all the way back on mergers and anything else. And you need to deal with concentration of railroad against customers. And that's what we had. When the merger gets consummated, we would end up with 3 rail tracks between our 2 that we have today, plus we would take over the Norfolk Southern one. So we needed to do something with that. You can't have that. So either we make a deal with somebody, and I give Canadian National and Tracy and the whole team there a lot of credit. They could see the value of what they do. They're going to be able to move intermodal from Canada into there if they want to Kansas City.

And I think it's wonderful. It's competition, and they might take a little business away from us. Now they better be good or we're going to try to keep it, right? But at the end of the day, I love that. And with that, we started talking about the terminal issues, whether it's the TRRA, and the STB came back twice and asked us on the TRRA, even though we said, listen, we don't want to control it. And what people miss there's terminal railroads and cooperation agreements within terminals across the U.S. And they are all run with one thing when the railroads own them. It's a nonprofit. It's not there to make money. It's there to switch a railcar for the cheapest price going. And that's how we manage it all of us.

But we fixed TRRA with this, and we fixed the Kansas City. So it's good for CN. It expands their reach. So we have to fix that. If you look at our network now, it's a bolt-on. So would I make a deal with another railroad? Absolutely. But it would have to be a win-win for Union Pacific and for them and that they could see what the benefit is. The idea to give up tracks of your railroad for no reason at all, just goes against the fundamental principle of how business should work. But on top of that, this is what it would do.

If you allow -- if we allowed ex railroad to run on our railroad for 800 miles, we would charge them a per car mile charge that actually would make it more expensive for them to get to that destination. I've thought about just bought a green, because guess what? We would just reset the price higher for us, okay? That doesn't make a particle of sense in business. In business, it should be who can get the best and what the market allows you to do. So that's why I'm going to have a hard time making a deal with anybody else. But if it's there, one piece of the deal that's really interesting, Ravi, is we gave Canadian National access from Canada to Mexico through Memphis. Man, I can hardly wait. We win by them growing Canadian business to Mexico. Got to love the competition. We just added to Canada against Canadian Pacific. Love it. I didn't get a phone call thanking me about that was a great deal for you, Jim, and bad for CN.

We shall see how this plays out. Jim, can you give us the latest insight into the conversations you're having with various stakeholders here, folks who called you in support of the deal, folks who called you with concerns, kind of what's the latest update on that?

You bet -- so we have over 2,000 groups or individuals that are positive on the merger, letters of support. We have over 500 customers. And just a couple of days ago, the Governor from South Carolina, okay, sent a letter in. And we have letters continuing to come in. So the support is that -- and it's the most support that anybody has had on the merger. So we're very happy. And it's across state lines all over the place. And we have some detractors that have said that they put in. And -- but at the end of the day, the positive is much stronger than the negative because they see the benefit of being able to operate through.

So we're continuing -- I wrote a letter to the top 50 customers, CEOs, myself and said, listen, if there's anything that you want to talk to me that you don't understand, this is my personal phone number. This is me, give me a call, and a couple of them have. And we've actually had great conversations, and we'll probably get a couple of letters of support from them. And some of the rest of them, I haven't heard from them, and that means they must support me.

Got it...

I got it. It's not quite. But at the end of the day, communicate with our customers because that's real important. It's hard to communicate against associations. They don't pay anything. So it's pretty hard to have a proper discussion. And plus, I can't tell them exactly what we're doing with some of our customers because they're an association. So I like it. Other stakeholders, son of a gun, I'm telling you that there's one thing I really screwed up on, I did not know I was going to have to make so many trips to different government offices somewhere in this country over this, but I've done lots of myself, Jennifer and the entire team to make sure the story is straight.

And they get it. As soon as you tell them, how do you like an airline industry that never went across the country. And how do you like an interstate system where when 80 gets to the Mississippi River, you have to -- there's no road bridge across. You have to barge it across the cars over to the other side so you can get to the other part of the country. They get it as soon as you tell them that. So I love it. communication.

Good analogy there. Any questions in the room? [Indiscernible] first.

Okay. I love it.

Right up here.

There is a question. Okay. I thought I was going to get off the stage 2 minutes of 47...

No sir, we're not letting you off.

Mine is actually on autonomous trucking. I was wondering what your view is on it more broadly. Do you see it as a competitive risk or opportunity for railroads? And as autonomous trucks increasingly become a reality, and if it does come to pass, how can rails close the gap on the value offered to customers?

It's been a big topic of the conversation.

Listen, this is something that we should always think about in the business that we're in, and I do think about it lots. If you stand still, someone else is going to beat you. You got to look at what's coming up and you got to look forward. okay? We're not into defragmenting okay, or fragmenting our railroad network to have 48 railroads like we had back in the second World War, Class 1s. We want to move ahead because our competitors are moving ahead. And that's a real -- that is one of the reasons we've looked at this merger, and we think it's so important for the country is the competition is going to get better, and we need to be able to get better and have a chance to win.

I've actually written in an autonomous truck. And I'm telling you, the technology is there on the road system. I do everything I can. I know for an old guy, 68 years old, and people might say, by the time you get to 68-year-old grizzled and you only look at things a certain way. If there's technology out there, I got my IT guy going to get me a flip phone from Apple because I want to see what that technology does, plus I think it's cool. But at the end of the day, I ride Waymo.

I ride Teslas that are autonomous. I go trucks. I don't pool around Aurora. I've been in there a few years ago. And I'm telling you the technology is there, okay? They're driving right now with somebody in the seat, but hang on, okay? So we need to be able to be smart enough to move ahead. And if we stay the same, we just lose business because they are going to be competitively more efficient than us and they stretch that mileage of how far they can haul. And if people want more trucks on the road, then I guess, don't let us do the things that we need to do as a rail industry to move ahead. That's what's really important.

You referenced the transaction in relation to that. Do you think that's going to be part of the debate kind of, hey, autonomous trucks are coming, it will help the rails compete better? Or how do you think that will relate to the transaction?

Well, listen, I know the 5 key areas that the STB needs to look at. But public interest is the very first thing. And it's pretty hard for them not to look at everything that's coming up. And if you want a railroad that seamlessly can operate between the East Coast and the West Coast without handing off and being -- even in intermodal 8 to 24 hours faster and less complication, less handling, safer because every time you touch something, it costs you something, something could happen.

Do you want to have a railroad system that allows you to compete against that truck? Or do you want not to listen, that's why this merger is going to get approved. There's no question. It's good for the country. It is good for the customer. Single-line railroad costs less, rates are less on a single-line railroad haul today than anybody that has a multiple railroad touch. So that means that we can offer better. Now I'm not here telling people expect a 5% rate cut because my job is to represent my company. But if we -- market-wise, everything else, we could do that and still be able to do what we have to. So it is -- Ravi, it truly is a great deal for America.

Great. And that's a great spot to wrap it up. Jim, always fun, always insightful. Thank you so much for being here.

Ravi, thank you very much. Thanks, everyone.

All right. Good afternoon, everyone, and thank you for joining us. My name is David Vernon. I'm the Bernstein analyst covering transports, railroads, airlines, all things freight and passenger related. We are thrilled to be hosting Union Pacific today for a bit of a fireside chat. We'll catch up on the state of the railroad and also talk about the sort of next steps in the UP Norfolk Southern merger. CEO, Jim Vena, CFO, Jennifer Hamann, are here joining us. They're going to kick us off with some prepared remarks. To the extent that you want to have some questions, work them into the chat, you can do that either through the Pigeonhole link that you should have had e-mailed to you when you're registered or you can try to hit me on Bloomberg, and I'll try to keep track of kind of where we are so that we can get as much client input into the conversation as we can.

With that, thank you both for joining us. I'm going to hand it over to you, and you can kick us off with some prepared remarks.

Well, David, thank you very much, and great day here. I look outside and the weather is just perfect for September 1 for railroading anyways. That's the way I look at it. I don't really look at it on whether it's beach weather or holiday weather. It's how good is it for railroading and I like it, just about perfect through the whole network. We're looking at a big storm coming up in the Gulf that might affect us a little bit. But overall, we're ready to go. So railroad is real good.

And of course, I have Jennifer Hamann here with me, Chief Financial Officer. And listen, I'm going to go through slides real quick and then open up for questions. So Jennifer is going to have a few comments right after me. So of course, a big long list of boiler plate got longer after the merger than it was before, but we'll be making some forward-looking statements. So if you have any questions, please refer to the UP website and SEC filings for additional information. If we look at the first slide we have up, let's recap the past month or so since we talked at our earnings.

In late July, we announced our agreements with Canadian National and provided the supplemental information the STB requested. A few weeks ago, on August 18, the STB published a procedural schedule. Certainly, we wanted the process to move faster, but we'll take the win. They published a schedule confirmed that the 12-month statutory clock started when they accepted our application on May 28, 2026. And last week, we filed our comments that our merger easily meets the prima facie standard.

We are confident our merger satisfies the STB's requirements and is overwhelmingly in the public interest. It removes 2.1 million annual truckloads off the road, reducing highway congestion and improving driver safety, delivers $3.5 billion in annual shipper savings and improves rail safety because of the touch points that it removes. Our merger enhances rail competition by adding seamless coast-to-coast rail service, which is faster and more reliable. It provides for new intermodal and manifest service products, providing more options for our customers and single-line shipments have generally lower prices than interline shipments.

And I don't have to explain it too much -- anybody who knows a little bit about business and a couple of companies with a margin. There's a big difference in one company with margin. And beyond that, we've offered additional enhancements. We've expanded the committed gateway pricing and included both unit trains. We added protection to preserve Class 1 rail options for 3:2 and 2:1 shippers. New service level protections in case unexpected issues arise, stronger oversight and accountability for customers with additional access to a new rate relief process.

We improved connectivity options with Canadian National, Canada to and from Mexico and UP's access to the route around Chicago and the EJ&E. So what's next? Let's move to Slide 4 and the time line. We're in the merits review, which is a great place to be as the conversation will be focused on data and facts, not what people think. I never like what people think. I like people to give me the facts, and then we'll make the best decision from facts and figures.

Those who want to participate in the process must submit their notice to participate by the end of the week and competing railroads and stakeholders will need to submit their comments. I think there's some change a little bit from the September 9 that the STB put out, but we're okay. It gives them some time to do that. And if they have asked, they need to be back up with support by November 18. So some detail about what they're looking at and what the issue is. Our opponents are also still talking about what ifs of subsequent mergers. We expect the STB will evaluate our merger on its merits, and we'll do the same for another application.

At this point in time, there is no other merger. There's only one merger of Class Is, and we are in the middle of it. When and if that happens, because at this point, everyone want has said the participating parties that they are not interested in a merger. But if they became interested in a merger, and we've done a good job in our application to talk about that and take people through, then the STB needs to look at the new place in time and what's happening at that point, not try to protect it at this point where they have complete control over any process that happens for any subsequent merger.

With that, I'll pass it over to Jennifer.

Yes. Just a couple of things, a couple of kind of, I'll say, housekeeping-ish items. So when we made our filing in late July, we did have a few tweaks to some of the things. But even with all the puts and takes as we have continued to run through the numbers -- a number of times, we keep coming back to basically the same place. So we're very confident in our net revenue synergy target of $1.8 billion annually and our cost synergy target of $1 billion annually.

And then with that, we fully expect that we should be back in the mode of buying back shares in year 2. And remember, we are counting it from the day of the close of the merger. So within 2 years of the merger close, we'll be back buying shares. Our leverage targets will be back. We're going to stay solidly, strongly investment-grade rated. We expect to generate cash of roughly $11.8 billion to just shy of $12 billion by year 3. And when you think about deal closing, that's really looking at sometime in Q3, maybe as late as Q4 of 2027 based on the schedule that you see here on the slide and what the STB has put out.

We feel like having the time line is great for all parties involved. It's able to allow us to firm up our integration planning. And as Jim mentioned, we're very anxious to get into the merits phase of this discussion because we strongly believe in the benefits of the merger financials are very compelling, and we're in the process of putting together a very robust integration plan. So all of those things are coming together.

Certainly, we've met all the deadlines that the STB has given us to this point. I know they did just, I think, last night or what you were referring to, Jim, they did push back the date of people to say that they were intending to participate, which shows on their September 4. They did just move that back to September 30, but no other deadlines changed, in particular, the September 9 date is still intact in terms of when participants need to make their request of what they're going to be looking for through the merger. So we're just anxious to get going -- been into this a year, and we're ready to go.

With that, David, we're ready for your questions.

Well, thank you very much for the introduction. So, I want to start maybe on process. What do you take away from the fact that this whole upfront process of getting the application approved has taken longer? I know you're on the -- back on the time line that you would have expected, but it did take a little bit longer. There was some back and forth. What do you take away from that? And maybe what should investors take away from that? I get asked a lot like it's taken so long just to get here. Does that tell you anything in the process? Or is there a message in there that we should be reading?

I don't think there's a message. I think it's the way the STB does things. And if you take a look at the STB and the Chair knows that the STB sometimes has taken a long time to make certain decisions on certain things. We have some things outstanding even today on other topics that we've been waiting for a long time. The nice part about this process is -- once the application gets accepted, which it was, there's a black and white statute that says that the STB needs to be finished with the gathering of information within 1 year.

So that's not something that can be easily changed when the statute tells you exactly what it is. So what did we learn? We learned that we were probably right when we started this, and we did say to the STB, we said, listen, let's make this a 2-way discussion about what you need for information. And we asked them specifically. And I'm not trying to piss off the STB or anything else, and they had their reasons for it and maybe it's because of other parties.

But at the end of it, we said, if you need information, you ask us and we'll give it to you. There's no big secrets other than sometimes some of the information was having to do with how we move markets and how we operate the railroad and why we are Union Pacific. But at the end of the day, what we learned was we probably should have pushed them harder to say, listen, open up, so tell us what you want, and we'll give it to you. We went to the Board. We went -- David, on the TRRA, a small railroad that is run as a nonprofit company by all of us with single votes in there. And it will give you an idea, the opposition has done everything they can to slow it down. When we call the meeting, we didn't. The TRRA management called a Board meeting to handle the issue of getting over 50% for the combined merger railroad. None of them showed up. So we had the quorum to be able to vote, but that's not the way we do business.

So we went through it and we had to answer it twice for the STB. But I think we've done a good job now, and they've accepted the merger. They've told us that they have the information they need. They'll go through the merit stage, and we'll deal with it moving forward. So that's what I learned was sometimes it takes a while. And we knew it was going to take a while. We never thought that the STB would move quick for us. But now they're on a time clock.

And second one on process, and we'll switch to synergies. But as you think about the approach going forward, does anything look different from here? I think one of the criticisms that I've heard in industry circles is the filings were maybe bare minimum as opposed to being more expansive and making the affirmative case. Are we -- should we be expecting you to kind of change your approach to the process, the team's approach to the process now that we're actually in the merits discussion?

Well, David, I disagree with it being thin. There's thousands of pages we put in. We use data from every Class I railroad, full data that no one else ever has to drive to our conclusions about what's happening. So we have not been thin. Whoever is asking you that, you should tell them that maybe don't use AI to summarize, go through the 8,000 pages and see what's in there.

Okay. I'm just thinking about whether or not there's going to be a little bit of any kind of change in your approach to the Q&A process, right? Like as far as kind of being more expansive in your responses or being more minimal in terms of scope...

I think we've done -- we've been as open as possible, even this session today is we're open to anybody asking us questions and we give the answers that people want. And we feel -- and if the STB needs some more information from us or they want us to look at something different, we've told them right from the start, we'll do that, and we'll go through that process. So I'm very comfortable. Jennifer?

Yes. No, I think we've been very thorough with our filings. I think to Jim's earlier point, had we had maybe some more direct feedback from the STB at the beginning of the process, we could have -- would have been more expansive to start. That wasn't how we read what was required. They came back and asked for more and no problem, we provided it.

So fundamentally, David, I know maybe I'm answering another question here. Let's think about what we're doing. This is a -- this is an end-to-end merger with a small piece that we knew we had to take care of, which we have with the Canadian National Railway access between St. Louis and Kansas City. The rest of it is actually what we're delivering is better opportunity for customers in the United States of America to receive their product in a faster, more efficient, less touch point, and much more competitive.

And it drives all our competitors, starting with the biggest competitor, we have trucks, and other railroads to compete and decide how they're going to compete against that product. So we see this as truly a beneficial -- and that's why you get so much noise sometimes from some of the parties. I'm not sure what else they want when I go to sleep and when I get up. And I told people that I go to sleep at midnight and I get up at 6:00 in the morning.

There's certainly going to be some in the market that you're not going to be able to present enough for to get them behind it. But -- so maybe turning to that benefit number, that $1.8 billion of net revenue EBITDA, $1 billion of cost. That's all based on a 2022 baseline, right? You basically ran the numbers 2023 baseline. But we're obviously in a very different world now. Truck rates have corrected pretty significantly from where we were. The cost basis have changed. How do we think about -- or how should we think about the value of that benefit, the value of those synergy targets when you mark them to market for the changes that have happened in the end markets?

Go ahead.

I mean, certainly, David, we had to have a base year that we started from, to your point, 2023, when you look at it either on a volume standpoint or even on some of the pricing standpoints relative to truck pricing, there's been some uplift on both sides. So that would be to the positive relative to how the numbers could roll forward. But we also don't know what the economic climate is going to be once the merger gets approved to 2027 and forecasting out in the future -- there's always a little bit of a fool's errand.

But I think the bottom line is we feel very confident in the business that's available to us to win by putting together 2 strong railroads, provide that single-line service and really create new markets for our customers. And so that's what gave us the $1.8 billion of net revenue synergies. And then on the cost side, no one is standing still. Union Pacific, we've committed to having the best operating ratio of all the Class 1s. We're in that position here still today. And the only way we're able to do that is we're growing our top line. We're doing it productively, and we're continuing to improve on the cost front. So no one is standing still, and we won't stand still once we get the green light to put the 2 companies together, and we'll go attack the synergies and the operational efficiencies that we see ahead of us.

The other thing is, David, the amount of share that we have on the intermodal side and even on the -- closer to the Mississippi, what we call that area on both sides of the Mississippi, that doesn't change. That happens when the merger is finalized. The longer length of haul that allows it. So we see even more opportunity. If there's more pressure on fuel and prices for trucks and availability of drivers and everything else, sure, we've all seen an improvement in products. You can see our carloads and our carloads are running substantially higher than last year.

But I don't think that takes away any of the synergy. The benefits are being able to give somebody in Indiana access to the Western U.S. for that cross. We can't do that as easily today. They have to touch the railcar multiple times. We won't have to do that. We give sand movers, and there's a lot of them in the U.S., not just one place in Arizona that's going to Burlington Northern Santa Fe. We can easily give them better products to move and compete.

And the other thing, David, is when you're faster and cleaner, a lot of the products we move are worldwide competitive, whether it's soybeans, whether it's sand, whether it's products that come out of the Gulf area, products that are produced in the Eastern U.S., the lumber is there is competitiveness from other countries and other producers. And what we're going to be able to offer them is a much more efficient. So it's nice that we're all in a different place today, and it's nice to see all the railroads with carloads up. But at the end of the day, that opportunity when the merger happens is still there to just build above what we have.

And some of the discussion, particularly among some of your competitors is that the transaction is maybe not as necessary to unlock some of these benefits. In your filings, you talk about double marginalization, capital investments that wouldn't occur without the merger. As an operator, as a guy who's been around the industry for a long time, as you think about aligning the interest between 2 railroads when they're negotiating a Rule 11 interchange versus a through rate versus a single line, like why is that alignment of interest through ownership so essential to being able to kind of make the better decisions for customers? And can you talk also about how that differs a little bit between intermodal and carload because intermodal, it seems like that's easier to align through partnership in some ways than carload.

Yes. Listen, I think it's a basic crux of what we do as railroaders. So as railroaders, today, we make it work as good as we can, and we get into partnership understanding of deals, but -- and those are necessary. We interchange a lot of traffic to other railroads, short lines. And those things, especially with the short lines are not going to change. We see more business for them coming on as we move ahead. But partnerships have a different view of the world at certain times, and I've seen it so many times in my career that I could list them off. But why don't I give you one that's very recent.

For the longest time, Norfolk Southern was able to operate 11,000-foot trains on the Meridian Speedway. And I think everybody knows the investment Norfolk Southern made on there with Kansas City Southern back a number of years to be able to get that access. All of a sudden, there's a partnership. There's not one railroad looking at it with one team of what's good for the customer and good for everybody. Canadian Pacific, Kansas City decided that they were going to limit the size of the trains going through that corridor.

A railroad that was one railroad would never do that. You would not affect your customers in that manner. I could go through and give you a whole bunch more. That's the difference between and when you make decisions on capital, where you spend capital, what the investment looks like, what your customer needs and what the competition is like, you're better off having one team that leads the entire railroad versus multiple partners that have sometimes their own view.

I could go on, David, if you want, I could fill the hour. Locomotive use, son of a gun, we fight about locomotive use. We hand off locomotives to each other. And sometimes one railroad is a little tight for locomotives and they keep your locomotives. In fact, today, I could give you some specifics, I won't. We have a buffer and people are using our locomotives, and we want them back, okay, because they're tight for locomotives. So those are the kind of things that just don't work in the real business world. People get narrow and look at themselves and not what's possible.

Jennifer, anything to add?

No. But just to David's question about is there a difference between intermodal and carload. And I really don't know that there is that much of a difference. I mean you have those friction points that Jim just enumerated in either class of freight. The carload piece is the one that we tend to talk about more in terms of that watershed market and where you have that friction. And when you have it over a shorter length of haul, that's maybe the one difference I would say on the carload side is it's actually magnified in terms of how big of a difference that can make for a customer to be able to choose whether they're going to ship by freight, their freight by rail or by truck.

But people miss this intermodal, they think, oh it's easy with intermodal, you're driving an intermodal train to another railroad and one of the interchanges where we do that and they pick it up right away. Now that's not quite how it happens. The average time sometimes for our intermodal trains, both ways just because of crewing, slotting, everything else because you don't control it, sometimes it doesn't come exactly when you want it. So you have something else going on, work programs, everything else, that train can get impacted. And it's substantially longer the interchange time versus when we change crews, okay, in Tucson, if that brick and crew is not on in less than 10 minutes and pulling again to leave, we are not happy. That's the difference, 10 minutes versus a few hours.

And you start adding that up through the time, makes a difference on making the spot time at 7:00 in the morning that the customers want. So even with intermodal, it's not as clean. And carload, you know, we don't build blocks for CSX, and we sure the heck don't build blocks for Burlington Northern Santa Fe because those agreements never last, but we will be building blocks to go to destination at our hump yards and our handling, and we'll take out 24 to 36 to 48 hours on those touch points on the railcars. I'm excited to do that.

All right. So if we...

That's why I'm sticking around, David, because that's the best part. The rest of it is like the real -- the operating piece is the piece I'm looking forward to son of a gun. Hopefully, people realize I've done a few things at Canadian National and UP that worked pretty good for us. So I can hardly wait.

It's a much bigger train set. So when you think about -- so let's say we accept the premise that we're going to take a bunch of handlings out. We're going to lower cost. The trains are going to run faster. The locomotives are going to be smoother. The crews are going to show up on time. That drives a lot of efficiency for you as the railroad. How does the savings from that efficiency in this transaction get to a customer, right? And some of it's going to be potentially directly through maybe you have a better -- more efficient routing that you can price lower than the interchange routing.

Some of it could be indirectly through faster cycle times. Just reading through a lot of the customer responses and there's -- we'll talk a little bit about that later, but there is some arguments around this is all well and good, but how -- what does it mean divided by me. So how do you think about the benefits of the transaction, creating those efficiencies and then actually getting into the shippers where it matters, whether it's their car fleet or whether it's their rates or their service level, what is that?

We're going to tag team on this one here because both of us love this question. So let's start with the fundamental. If you're in business like we are, we are in business. That's what it is. What's the best thing you can do is grow your business and move more products, makes your fixed costs less percentage of your total expenditures. It makes -- you fill up the network, you're able to move products and you're able to grow the business. That's the American way. That's what it's all about is we don't want to be stagnant. We want to grow.

So -- if you do that, when you build a network that's more efficient, guess what, David? We will use price. We will adjust to what the market -- we will open up new avenues for our customers that are shipping with us today to be able to open up new markets for them. Now we're going to have to work with them. So if you have some room because you can be much more efficient, we will do that. It's pretty hard to come out right now and say, listen, every movement is going to be 1% less cost, we'll pass it directly on because it's the market that drives it sometimes.

Sometimes we have to take haircuts that are bigger than that to be able to move into the market. So that's what people -- that's what the customers need to hear clearly is on the railroad side, we're going to open markets for them. We're going to give them every opportunity to win. We're going to get them to win against the competitors that want to bring imports into this country. Even with the tariffs, steel and lumber, and everything else that happens that moves into this country that we can move.

And then for the customer themselves, Jennifer, all their asset costs, everything else?

Oh yes. I mean asset costs, obviously, are a significant piece for our customers when you think about the freight cars, infrastructure, just getting more turns per car lets them lower that cost base. When you think about the greater usage that they'll be able to have across their network in terms of access to more customers, certainly, that's a benefit to them, lets them grow their top line at the same time that we're growing our top line. Certainly, one of the numbers that's in the application that you've heard us talk about is the $3.5 billion in savings.

And that's just a straight calculation, David. For the people that are moving from truckload today and moving on to the rail tomorrow. That's just that cost differential from truck to rail. And quite frankly, that number is probably understated today when you think about where fuel prices are, where truck pricing has grown to. So those are immediate savings just from that change in mode of transportation from truck to rail.

And David, these are not small customers that we have. This is not mom-and-pop everywhere. I think some of our biggest customers are huge multinational, international companies that know how to negotiate. And they do a really good job with us already. And I'm absolutely sure some of them will say, you're saving, I want to get to this place that I can't do today, and let's work together to get a new pricing structure that gets me access and you get more business. That's a win-win, and we'll be doing that for sure.

And really, that's the model that we've been following ever since we have become more efficient as a railroad, and we've gone out and won new customers, brought them on to the railroad. And what's enabled us to win in those marketplaces is what Jim just described at the start, we've become more productive. We're able to compete for more business. It opens up that aperture.

Okay. And since we're on the reconciliation of customer value here, I'm going to jump forward a little bit. But when we think about some of the arguments that were put forward by a number of the shippers associations, right, these are the chemicals guys, the guys that are not really modally competitive in a lot of ways. One of the things that stood out to me in reading those filings without AI and with AI and was the idea that there's nothing really in it for them.

They're taking a lot of risk because you're going to convert a bunch of highway traffic that maybe screws up their service. If volumes are going to grow, how do you put forward some sort of compelling case that there's some actually benefits to more rail-centric shippers from your ability to convert more highway traffic? Like how does this become a portfolio win for all the customers of the rail industry as opposed to a one-sided win for UPS?

Well, any time you make a big change in the United States of America, whether it was when Alaska was purchased, there's all these naysayers that look at things, oh my God, what's going to happen? I don't think anybody would give Russia back and take today's $7 million that the U.S. paid for it because there's some benefit there. It's the same with the Louisiana purchase. There was a lot of people that thought that there was no way, and I could go to more recent, but let's jump to the railroad.

I have a problem dealing with associations. Not that I don't think they are valid and they have a point of concern, but they don't always, always and Chuck Grassley wrote a pretty good article that talks about sometimes associations are not aligned completely with the people that they represent. So I've always had that thought. This is not new for me.

So I want to deal with the customers that pay the bill because there is nothing like sitting down with a customer, whether it's a grain customer in Nebraska or it's others and say -- and they want to move product to this location or a new location, and we figure out how to price it, how to use the new network and make them more competitive to win. That's where it is.

And that's why I have a hard time with what -- it's not factual what they're saying. There is true benefits for the shippers and the consumers with a seamless railroad that goes further and longer. And in fact, one of our competitors sold that hard when they went through their own merger. It was all about how it was better and seamless and it was going to work. Now they don't agree anymore, but I don't know what happened there.

But the STB agreed when they approved that merger because they said right in the front summer that the merger will enhance rail competition through single-line service.

Yes. So we'll work through that. And remember, we do have 2,000 people that have written positive and 500 are customers. So we think that, that's a pretty good show of people that see the benefits for themselves and be able to grow and have a better availability to move into different markets and expand.

Is it somehow as simple as if you're growing the network and you're developing positive contribution from an additional set of traffic that your ability to accommodate more services for the rail-centric guys grows with that? I mean, I don't know -- it would seem like if you guys are doing better in intermodal, then maybe you don't have to be as aggressive on chemicals. Like I don't know, like do you think about it from a portfolio like that or no?

Well, listen, we price today by what the market allows us to price. Any business should do that. You don't price on a flip a coin and decide what it is. And there is a lot of protection for -- when it comes to pricing that's built into the -- all the regulations for railroads. So we won't have to get into that detail. David, you know about it. It's -- we're very regulated on that. But at the end of the day, what it comes down to is there's different products with different requirements.

Some products need just in time and some auto parts, you can't fool around with them. So there's different pricing for different types of products, and we don't want to change that. We think that there are some people that say, listen, it's very important for us. It's still cheaper than truck. We'll move the product by rail. And of course, the market allows us to price at a different point of view.

The good part about the merger is we're going to be able to have more of that just-in-time capability because of the handoffs and everything else that happens. So if you're moving -- if you're going to be moving auto parts and we move them into the facilities in the East or finished products West, we'll be able to handle them seamlessly without having the touch points and the delay that they have. So that's the way we look at it.

Jennifer, anything to add?

Well, the only thing I'd add is it's really more on the top-line growth piece for the customer in terms of being able to open more markets for them. With us being able to offer faster single-line service to a broader portfolio. I mean just think about somebody who's in the middle of the country that today, maybe they're on the UP lines, they tend to ship to the West Coast ports just because of interchanging to an East Coast railroad to go out through an East Coast port, some of those markets that would maybe be available to their goods in Europe they're not able to go after efficiently because they don't have that service available. They'll have that available to them tomorrow and vice versa. So that's the piece that I think is -- will be developed over time as we put the merger together. But I think that's an exciting opportunity for many of our customers.

Okay. And let's talk a little bit now about some of the steps we need to kind of go through to get there. I mean, with the committed gateway pricing program, I think you guys have described that as thousands of haulage agreements that give BNSF and CSX sort of access into the network. I'm trying to kind of balance that with the read that says also says from your own modeling that says 60% of eligible carloads probably don't get much of a rate benefit. Like how do we think about committed gateway pricing and how it kind of feeds into that idea of being a price-competitive alternative versus just being a rate ceiling for your future single-line service?

Let's start with the base fundamental of where we are today and what the merger, and then we'll get into committed gateway because it's really important to take 2 steps. First thing is, today, we interchange with other carriers. And customers have the right to get through rates or they can get Rule 11 rates to a gateway, and they can dictate the gateway. And we'll tell them that, listen, there's a better price if you go here because we can handle it in a much more efficient manner than we would if we went to a different gateway.

Railroads sometimes optimize their length of haul to be able to get the most on their railroad. When you have a merged railroad, you all of a sudden have changed that paradigm. You haul for the least amount of miles to have it to go the fastest and the least cost that allows you to play in the market and return benefit to the customer on faster transit time, their asset use, plus talk about how we can open up more markets and use that flexibility that we've gained. So that's not going to change. We committed that every gateway is open.

And whether you're a shipper from Arizona that is closed on BNSF, you can still decide whether you want to go with CSX or the new UP. It's up to you. And it's up to BN on how they price, and it's how CSX prices. If they want to come to the UP, we want that business. We are not going to say that's growth for us, and we would not want to lose that business. So we'll price it in the right way. Now they're worried about -- some people are worried about what it does with competitors.

And competitors, they're out there today. You have to compete in this world. This is -- we are not a socialist country, communist country where we want to maintain an inefficient system that hurts in the long run. So if you have a competitor that's better than you out of Texas, they're going to take you out. That's the way the world works. And I feel for them. But I know that if BNSF could figure out a way to take UP out of a lot of markets, they would do that.

They're probably sitting right now in Texas, figuring out how they can get another intermodal train that runs on their railroad instead of ours. Welcome to the world, okay? That's what makes this country special. What we've done with CGP for the products that we think are truly necessary and need that level of competition, they don't have to come and ask us. They get the rate and they can offer it to the customer, and we will -- we understand what that rate is going to be, and we have to move it as fast as we can. That is another step above and beyond the way we've already committed to having open access at every gateway that people want to go.

And the reason I say this, and I'm so animated about this is people are missing the point. If you want to close gateways, it's like going to the Southeast in the U.S., the very south, southeast of the U.S. from the West. if you force yourself to go through Atlanta and back down versus going across with CSX, you're going to lose the business eventually. You might get it for a year or 2, you use price for your advantage, but that's not the way to win. The way to win is say, let's get the best deal going with CSX. Let's grow the business. Let's price this right together and we move it. And that's what CGP does is it's an add-on on everything that we're doing today and what the new network will be like. I love it. I think it's -- and they won't have to phone us. They want a rate, they have it.

And it can be up to a 3-year rate, too.

Yes.

So one of the points that came up quite a bit during the commentary was it's not a durable program. It only lasts for a couple of years. So as you think about kind of think -- trying to kind of get to the finish line, what can you move? Where are you willing to move? Like how do you think about the -- because you're going to get a host of asks coming your way, I'm imagining by November 18. You guys have said before that there was a big synergy, there was a concession holdback, then there maybe isn't a concession holdback. Like how do we think about like that value of that concession holdback and what you can do to maybe limit the headwind for that?

Well listen, we don't want to damage what the value of this transaction is about. And we also don't want to damage ourselves and truly our customers by having things that slow down products right? So at the end of the day, I think we were reasonable about it. And at this point, what we've offered is a fairly long list of competitive options for customers, the 3:2, 2:1, the single line, all those things, and we'll see. But -- and we'll see if we need to move on the CGP, and we'll see going through the process.

At this point, we don't see why. We really don't. We think that we've done a -- we have a compelling case of what the benefits are. And remember, under the key criteria that the STB has to follow in the public interest, right? And all those things. So we think we've done it. If we feel that the best way at the end and we have to move a little bit on something, then we'll move a little bit on something. But this is a negotiation. What I found so far is, and I'll give you an example, I didn't ask anybody about guaranteeing a job for every unionized person that we have on either Norfolk Southern or Union Pacific on day 1 when we take over the merger closed and we close it.

But I walked into one of the very senior union leaders, very, very, very senior union leaders. And he said to me, well, you gave that one up already. So that's nothing. What else am I going to get? So David, you have to be careful sometimes when you're negotiating. They're smart people that we're competing against.

All right. So maybe speaking about negotiations, we can switch into the CN agreements, right? Obviously, that looked like a cheaper way to buy peace than mandating concessions to the Board. But is it right to read that about the trading of the routes and the terminal interest, which kind of net out to maybe less of an overall concession? Or does that -- do those CN agreements start to eat into some of the synergy headroom that you might have when you're thinking about concessions where you might want to say, okay, maybe it's getting a little bit too expensive to get this deal done.

Well, let's start with -- like I started at the very start is -- we knew that we had some concentration happening because of the additional line that we were going to take over from Norfolk Southern between St. Louis and Kansas City. So we -- right from the very start, we knew we needed to fix that, and that's what we've done. We've given Canadian National access to Kansas City and when the deal goes through, and we think that was important for us to do. We also fixed the whole question on the TRRA and other things. So we think that that's a reasonable deal.

And it's good for both of us. It really is. It's good for Canadian National. They're able to move further west in the U.S., and they're going to be able to sell Kansas City in a different way than they did before. And for us, the benefit is that we open up and clear up that peace. It would have never happened if it wasn't for the merger. We would never have given up anything on R2, and no other railroad would, okay?

On the part of the agreement that is going to start right away is it was -- it's a win-win for both of us. Products coming out of Canada now we will be able to sell as a single line into Mexico. So the competition is against Canadian Pacific, Kansas City coming out of Canada. And we think that makes everything even more competitive. And the win for us was to get that route around Chicago.

Listen, I used to work at Canadian National, and that route around Chicago is a real benefit, and you can move away from a whole bunch of interaction with other things that happen within the city of Chicago. So it's a good win-win for both of us. And I'm going to love to see that competition between Canadian National and Canadian Pacific coming out of Canada to get into Mexico. So it should be really interesting to watch. I think the consumer wins on now and there.

So when you think about that separate agreement that you've done that is implementing before the trackage rights in Kansas City, do you feel like you're going to get credit for that in terms of the pro-competitive impacts of the merger because it's not merger contingent? Or do you think that, that's something that the Board won't consider when they're trying to think about the enhanced competition arguments around the transaction?

I don't know. I don't know if we get credit sometimes. Maybe credit. Sometimes I wonder who the teacher market is, okay? But at the end of the day, yes, it is a benefit. And it's a benefit for both of us. So I give Tracy and Canadian National and the team that they had there when we went through that. It was great to deal with them. And that came up because of the whole merger discussion and everything that we were having.

So listen, at the end of the day, who knows if anybody gives us credit for it. I'm absolutely sure that I will not get credit, and we won't get credit from some of our competitors, even though I'm going to love watching it to tell you the truth. I really am, okay? We're going to move that train from Memphis into -- until they build it up, they can run it themselves into Eagle Pass and so pretty quick use our network. It should be fun.

And benefits to FXE where we have a 26% interest.

All right. So has the work you did with CN set a reference point for what additional deals could look like with other railroads? I mean, are there -- I mean, is it possible to get peace with any of the other players that are out there even at a concept level? I mean it seems like CP has been pretty clear that they're not interested in anything short of this thing getting blocked.

But when you think about negotiating some sort of bilateral agreements with some of these other parties, could that be a cheaper way to get this thing done than Board-imposed conditions potentially? Or is that something you're still working to contemplate or working on? Or any comment there would be great.

We think that the STB, when they look at everything and all the benefits that we put out and what their mandate is and what the statutes are and what they're required to do, and we knew this before we started that they're going to make the right decision. And the right decision is not going to be so impactful that we will not want to make close this deal. We really do. That's from the very start. This is not an overlap.

This was a huge overlap in the Western U.S., we would have never tried it. It just would not pass muster if you would have had 20,000 miles of overlap that happened. It would change the whole fabric. This is not what we have. And are we open to talk to the rest of them? Absolutely. And we've had some discussions with others. At the end of the day, some things come to fruition quicker than others and the Canadian National deal came to fruition quicker.

But of course, we're open to have discussions with people because I think I would rather sometimes negotiate and get the parties to agree from the railroad side, what a solution would look like, versus have somebody that does not operate a railroad every day and how you come to a solution. But at the end of the day, you need 2 parties. And so far, David, I don't know of a party that really wants to sit down and talk to us. Our Western -- Berkshire, our Western competitor, big company, lots of money, son of a gun.

They could just do whatever they want with the billions that they have, hundreds of billions of dollars. They could do a lot of things, and it's up to them. But so far, they don't want to talk to us for sure because they see the pressure that they're going to get on pricing. That's what their big concern is. It's not that we're limiting any access. And CSX is CSX at the end of the day. And Canadian Pacific, son of a gun -- he's been pretty adamant that he's against it. He thinks we don't know how to run a railroad, or that we couldn't get a little more business to still operate it.

All right. When we think about some of the operating plans, you've been very clear that this is an end-to-end merger about driving velocity and driving better utilization, all that kind of stuff. But when I read through the operating plan, it does look like part of your plan is to move some of that Meridian Speedway traffic via Kansas City and Louisville, which would, based on my limited geography, be a little bit longer. How -- why lengthen the haul if this is about taking friction out of the system?

Well, you have to look at the whole supply chain end-to-end and see what is the best route. If the Meridian Speedway is the best route and that gives the customer the best optionality on price and all-in end-to-end supply chain benefit, then we'll use it. We have the capability, we would gain the capability to do that. No problem. But what we looked at and especially for products coming out of Northern California, we have a pretty good railroad that is twin or double track all the way across the northern part of our original overland route.

And we can move things over there very fast. We have a lot of big high-speed, 70-mile hour railroad out there. So when we looked at everything, and for me, this is not -- I come back to the key foundation of who I am. This is not about forcing the wrong route for the traffic. It's about how end-to-end from start to finish. That's why I concentrate on car velocity that you can do it better and faster. And the stuff that we've identified that we want to go through Memphis, or we go through a different gateway, is because that is a better option, even if it's a few extra miles for us.

And listen, we look at number of locomotives it takes a fuel burn. Sometimes that extra miles is a lot cheaper than using something else that looks like it's -- we can reopen the Tennessee Pass for some traffic, but you'd have to go over 11,000 feet versus going over the Moffat Tunnel. There's a big difference sometimes on mileage versus the true benefit of supply chain. Sorry for the long answer. You get me on this operate stuff and I love it.

Well, the other thing is with the train length restrictions and some of the other operating restrictions that CPKC has put in, that makes the Memphis Gateway look a lot more favorable.

Yes. And one of the things that's been put to me around by some of the industry shippers that are a little bit more concerned about what happens after a CGP, right? If you come in with a more efficient single-line routing and they can get a rate over that longer routing, but the other railroad on the other end isn't competitive anymore, then they lose an option on that second order. And I think when I read through a lot of the filings, even like CSX was talking about being worried about getting short-hauled, right?

So as you think about those arguments, how do you think about those arguments in terms of what's good for the shipper versus what's good for the railroads? Because it seems like some of them are more railroad arguments than they are shipper arguments. I'm just wondering if you have any thoughts on that tension between 2 companies trying to maximize their individual length of haul versus one company trying to maximize its asset utilization.

Well, sometimes, I don't understand it. When we speak to customers and shippers directly and talk about how we move traffic and how we want to grow their business and be able to win with them, that just doesn't sound like what some people are saying actually happens. It's not -- the railroad benefit is for us to have a single-line haul is that we don't have to hand off. It only takes one CFO to run the company.

It takes only one CEO. It takes -- you change the whole paradigm of what your fixed costs are and be able to drive that. It's not that we want to change how traffic flows. We want to grow and grow what our customers are able to. And we want people to relocate or locate on our railroad to be able to move their products. So that's the way I see it. Jennifer, am I missing anything?

No, I don't think so. And I would just add to that. We have said that we're going to keep the gateways open. And so by doing that, that kind of puts the short-haul question a little bit in a gray area for me because if you're not changing the gateway, I'm not sure what you're changing about...

And let's talk about something that some of the other railroads are saying. They're going, "My God, you're going to have this -- what they're worried about or concerned is we are going to have a much more efficient system, not everywhere because the railroads aren't like the highway system and road system that go everywhere. But on some things, we're going to have the advantage. And they will still have the advantage in others. You know what BN, CSX move will have an advantage in some areas, whether we like it or not, just because of geography.

So at the end of it, if the Board wants to protect a railroad that we could haul the product cheaper end-to-end because that's what it comes down to. It's not just short-haul. It's less expensive, and we can pass on some of those savings on assets plus price, everything to customers. If they want to protect the railroad, then all you're doing is making the fricking system more inefficient. You're adding costs to the end consumer of those products that move. It doesn't make a particle of sense like I joke around about it, but I'm serious.

We're not a socialist. The best should win. The best should not subsidize the other ones to see how they can gain something because they don't want to be as efficient. And maybe they could be as efficient as us. Maybe they can make deals that say, we're going to move trains at 70-miles-an-hour across the entire network from Miami, and we'll invest some of the Berkshire billions to get it all the way to Seattle. Good for them. That's the way it should be.

Okay. Maybe turning to the endgame before we start to close it out here. You've argued before the second combination right now is unlikely, but you've also said, I think, before that a 2-transcon structure would be acceptable if it was conditioned. Does the answer on from -- do you think the answer on whether there is another Transcon railroad, does that change kind of how the STB should be thinking about conditioning this merger? Because it is -- there's always this conversation, right? It would be easier if there were 2 mergers instead of just one and blah, blah, blah. But like how do you think about the conditions the Board might be thinking about in a 1-merger world versus a 2-merger world?

I find it very interesting that the STB, they have a mandate of what they have to look at, and that's one of the things they have to examine, and we put it in our application, okay? But at the end of the day, this is how business should work. You have a regulator. They have one merger. So this is going to be approved. I'm very positive. So once it gets approved, something else could happen. If nothing happens, then no one goes to the STB and we move ahead with an efficient Union Pacific new railroad competing against the other -- we'll still have Burlington Northern Santa Fe in the West. We'll still have CSX in the East. We still have the Canadians coming down. We still have all the short lines through Iowa that compete against us and everything else. We still have that.

We still have ships and barges and international movements. We have all of that. If somebody else after this is done or while we're going through it, decides that they want to merge, then the STB should be looking at that point under the same rules that they have today with us. And if it changes because they're worried about concentration, that's where they should worry about it. They shouldn't worry about it and say, just in case it happens, the STB has the right to not approve any other merger. I've always said because I've been -- I've lived in Canada for a number of years, and I think that actually the consumer in Canada has been -- has an advantage by having 2 seamless railroads to go across and compete head-to-head real hard across the whole country.

And they've been able to grow their business and come into the U.S., one of them going all the way to Mexico City and the other one all the way to the Gulf, okay, New Orleans and into the Mobile and into the Gulf that I think it's a benefit. But I'm not the STB. I'm just Jim Vena. I'm a simple guy from Omaha trying to lead this railroad, okay? That's it. That's all I do. So bottom line is I have no idea why the STB should be worried about that, other than they were mandated to look at it and they should look at it.

But if they feel that after the first merger, there should not be a second merger, they should just tell people right upfront when they apply. Guess what? We don't like it and don't let it happen. I'm not here to worry about how Berkshire ends up in the long run. They're fine. And I'm not really here to worry about what CSX is going to do in the long run for their shareholders, okay? That's up to them, not up to Union Pacific and our team.

All right. So your optimism on the deal and your conviction and it seems very, very clear and apparent. But I'm going to ask you to close here on 2 sort of questions, same question a different way. If you had to name the single opposition argument that you take the most seriously, not the ones you view as legally weak, but the ones that would give you a pause if it actually landed with the Board, what would it be? And second, maybe on the closing side, what is the single strongest argument for why this deal should happen?

Jennifer?

So in terms of your first question, David, in all honesty, we have not heard something that is posed to us that would say we think that's a real threat. Again, you've had a lot of misinformation out there. You've had a lot of opinions put out there. You've had virtually no facts put out there other than the facts that Union Pacific had put out. And we feel very comfortable with our facts and the analysis that we've done and all the work that we have done to look at this backwards, forwards, every shipper that could be impacted, how they could be impacted, look at the projections about the growth that we see.

Every time we think of it as a Rubik's cube -- we keep putting it back together, it keeps coming together the same way. And that's in a way that says this is absolutely in the public benefit when you think about taking trucks off the highway, when you think about the safety aspect, when you think about the savings for consumers, and you think about what we can do going forward in terms of the single-line service and the value that we're going to create for our customers. And so we're extremely confident. That's why you heard us at the beginning talk about the fact we're glad to be through kind of, I'll say, the initial application phase as well as the supplemental information. And we're ready to go forward with the merits and the facts because we absolutely believe that they're on our side, and we've got a winning argument.

The one thing that we never talk about, but that's real important to us, is this truly is good for America; having a disjointed fragmented railroad system is not good. And we have sat down with people and talked about how we can make sure that the United States of America has a base foundation railroad that can move products across not just products that people use every day, but also security and safety for the country. And we're going to be able to provide that. We're going to be able to provide the movement of anything that the United States needs to move for protection and everything else it does in a faster, more seamless manner.

So that's also a real benefit that we don't really talk about it very much because we're not the experts of that, but we think that we give them a railroad and a process that's able to move anything that they have to move with us. And it's pretty cool. We moved the Artemis one of the boosters all the way from Utah down to -- with our partners with NS and FXE, Florida East Coast all the way down to close to where they have blasted off, and they're going to blast off next to go towards the moon. So that's who we are. That's what we're trying to do, make it seamless.

Awesome. Well, this was a great conversation. Great for you guys to spend some time with us. I really appreciate you guys making the time. We're at the end of the hour here. So I'm going to keep you on schedule and let you get back to the rest of the day. For investors that have joined, thank you so much for joining us. Thanks for the interest. Feel free to reach out to any follow-up questions. And again, thank you so much to the team and for your time.

David, thank you very much. Thanks for taking the time.

Thank you all.

Thank you for accessing Union Pacific Corporation's 2026 Second Quarter Earnings Conference Call held at 8:45 a.m. Eastern Time on July 23, 2026, in Omaha, Nebraska.

This presentation and the accompanying materials include statements that contain estimates, projections or expectations regarding the company's financial results and operations and future economic conditions.

These statements are forward-looking statements as defined by the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The materials accompanying this presentation include more detailed information regarding forward-looking information and these risks and uncertainties. In addition, please refer to the company's website and SEC filings for additional information about our risk factors.

Greetings, and welcome to the Union Pacific Second Quarter 2026 Earnings 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. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena, you may begin.

Thank you, Rob. Really appreciate it. Listen, a pretty special day here today. Great day to be putting our results out for the second quarter. And it's my wife's birthday. So it's a double win. And she would have complained big time if this quarter wasn't good. So let me just highlight how it is moving forward. She might have been mean to me today. So why don't we get started? Here with me today in Omaha is our Chief Financial Officer, Jennifer Hamann; our Executive Vice President of Marketing and Sales, Kenny Rocker; and our Executive Vice President of Operations, Eric Gehringer. Good day railroad out there. Weather is good, little storm coming in, but nothing we can't handle, right, Eric?

Yes.

Perfect. Now let's review the highlights on Slide 4. This morning, we reported record financial results driven by strong execution and 2% volume growth. Net income totaled $2 billion, and earnings per share after we adjust for merger costs grew to $3.41. There was a lot of ins and outs as we compare our performance against last year. Fuel was a big driver of both surcharge revenue and expense this year, and we had some one-timers we called out last year. But what's really important is when we remove all of that, we see solid core improvement in our results with growth in revenue and operating income, and we were about 10 basis points better on our operating ratio. Now the team will walk you through the quarter in more detail, and then I'll come back and wrap it up before we go to Q&A.

I'm very excited this morning on the Q&A, looking for some great smart questions from our smart analysts and owners. We'll start with Jennifer and the second quarter financials. Jennifer?

All right. Thanks, Jim, and good morning, everyone. Let's begin with our second quarter income statement on Slide 6, where operating revenue of $6.9 billion increased 12% versus last year, and freight revenue also grew 12% to $6.5 billion. Breaking down the drivers of freight revenue, volume growth added 225 basis points. Fuel surcharge revenue added 750 basis points and increased roughly $460 million, reflecting the impact of higher year-over-year fuel prices and volume.

Solid core pricing, combined with business mix to drive 175 basis points of freight revenue improvement. Importantly, our quarterly pricing dollars continue to exceed inflation dollars as we compete and win business at levels that reflect the value of our rail service. I also want to call out that second quarter business mix was a slight headwind in the quarter as growth in domestic intermodal outpaced expectations and offset the mix benefit of less international intermodal traffic.

Wrapping up the top line, other revenue increased 11% to $346 million as higher volume drove increases in both subsidiary and accessorial revenue. Turning to expense. Our appendix slides provide more detail as total operating expenses increased 13% to $4.1 billion, primarily from higher diesel fuel prices. Compensation and benefits expense improved 1% against last year's reported results, which included the final brakeperson buyout agreement of $55 million. Excluding that agreement, second quarter cost per employee increased 7%, driven by higher wage and benefit costs.

A key driver to offsetting wage inflation is workforce productivity, and we have delivered 8 consecutive quarters of record results. Although we're confident we'll continue that productivity trend, we now expect full year compensation per employee to increase around 6%. Fuel expense grew 63% on a 60% increase in average fuel price and 2% higher gross ton miles.

Year-over-year, our price per gallon grew from $2.42 to $3.86 and added 120 basis points to our operating ratio. Purchased services and material expense increased 10% due to merger-related costs as well as higher intermodal and subsidiary expenses. Despite increased volume, fewer operating equipment leases and record second quarter cycle times drove a 7% reduction in equipment and other rents and other expense grew 13% on higher casualty costs.

Income tax expense increased 29%, reflecting last year's onetime $115 million deferred state tax benefit and higher pretax income this year, partially offset by some good news in 2026 from state taxes.

Put it all together, we had a record quarter with reported earnings per share of $3.36. Adjusted for merger costs, our earnings per share totaled $3.41 and operating ratio was 59.2%. Turning to cash and returns and the balance sheet on Slide 7. Our strong financial results carried forward into cash from operations of $5.5 billion, up 21% versus last year. Free cash flow totaled $1.8 billion after we reinvested in our network and returned an industry-leading dividend to our shareholders. We also paid down $1.5 billion of long-term debt in the first half of the year, resulting in an adjusted debt-to-EBITDA ratio of 2.5x.

Turning to our outlook on Slide 8. We have delivered a very strong first half 2026 as we execute on our strategy and deliver improvement in safety, service and operational excellence, leading to carload growth. From that focused approach, we have generated reported earnings per share growth of 6% year-to-date, in line with our January outlook. Looking to the remainder of the year, we are raising our 2026 outlook to reported EPS growth in the high single-digit range as we continue to efficiently move increased volume on our network. We also expect to continue delivering operating ratio improvement and maintain our position of industry leadership even against ongoing margin pressure from fuel. Fuel prices remain volatile, and our recent purchases have been over $4 a gallon.

Overall, a strong first half of 2026, coupled with an improved outlook, highlight our ability to grow volumes, deliver for customers and manage costs, a strategy that delivers value for all of our stakeholders.

With that, I'll turn it over to Kenny.

Thank you, Jennifer, and good morning. We had a very strong second quarter as freight revenue grew 12% to $6.5 billion. And if you exclude fuel surcharge, grew 4% to $5.5 billion, both were best ever records. Let's walk through the key drivers on Slide 10. Starting with our Bulk segment, revenue was up 7% compared to last year on a 1% decline in volume. Grain & Grain products had double-digit volume growth in the second quarter, driven by strong export demand, facility expansions and growth in renewable fuels and associated feedstocks. That resulted in record second quarter volume and revenue. Meanwhile, coal volume was challenged by weaker natural gas prices, mild weather across our served locations and customer downtime. These factors adversely impacted overall demand.

Shifting to Industrial. Revenue was up 8% on a 3% increase in volume. When you exclude fuel surcharge, strong core pricing gains delivered record freight revenue and average revenue per car. Petrochemicals growth was driven by improved demand and new business. In Metals & Minerals, volumes rose to -- on higher domestic steel production and business development wins, more than offsetting the ongoing weakness in the export soda ash market. Premium revenue for the quarter increased 21% on a 4% increase in volume and a 16% increase in average revenue per car, reflecting higher fuel surcharge, core pricing and improved business mix.

Domestic Intermodal delivered its fourth consecutive record quarter in both volume and revenue. It's evident our outstanding service set the foundation to grow the business, and that's exactly what we're doing. In the second quarter, private asset, rail asset and parcel volumes were all up double digits, benefiting from constrained truck capacity and share gains. Our buffer resources allowed us to respond quickly to increased customer demand. International Intermodal volume was down 14% versus last year. However, we saw improvement as we close out the quarter, driven by stronger West Coast import volumes.

In automotive, results were positive despite market softness due to strong business development results. Looking ahead on Slide 11. Grain & Grain products is positioned for further second half growth driven by strong export demand, ongoing business development and new facility openings. I'm excited about AGP's new export facility that opens next week in Grays Harbor, Washington. We also see continued upside from growing renewable fuels and feedstock markets supported by greater policy certainty.

In Coal, elevated inventories and lower natural gas prices will make for a challenging second half. We will continue to watch this market closely, but Eric and his team have proven they can quickly flex to handle shifts in volume. Business wins are also helping to offset some of the market-driven declines.

Moving to industrial. We still see a soft housing market, but we remain firmly focused on winning new business and outperforming industrial production. We expect continued strength in metals, growth from industrial development efforts and increased petrochemicals from customer wins like the start-up of CPChem that I mentioned last quarter. And wrapping up with premium, we expect domestic intermodal to continue to perform very well, supported by over-the-road conversions and our service product. International Intermodal will fully lap last year's tariff volatility in August, and we expect volume to be positive in the second half. And for automotive, we expect new business to offset market weakness. So while we're proud of the record second quarter, the team is focused on capturing the opportunities ahead.

Our approach does not change, price for the service we provide, invest for growth and keep winning new business. And with that, I'll turn it over to Eric.

Thank you, Kenny, and good morning. We delivered record second quarter operating performance, ran a fluid network and improved safety, all while handling 2% more volume. It all starts with safety, and both employee and derailment rates improved versus their respective 3-year rolling averages, highlighting the team's dedication to critical safety rule compliance and human factor prevention initiatives.

Moving to Slide 13. We provided exceptional service as freight car velocity increased 5% to 231 miles per day and set a second quarter record. Train speed increased 3% and terminal dwell improved 7% as we tied our first quarter record of 19.7 hours, our third straight quarter below 20 hours. Both the intermodal and manifest service performance indices finished at 95%, demonstrating our ability to execute on the fundamentals and effectively utilize our buffer of resources.

This enabled the team to support double-digit Domestic Intermodal growth at very high service levels. And remember, this bar only gets harder for us as it resets based on monthly best, which we achieved in 2025. Opportunities remain to improve, and we are committed to providing consistent reliable service while growing with our customers.

Moving to Slide 14. Our key efficiency metrics reflect our commitment to operational excellence as we delivered record workforce productivity, record train length and record fuel consumption. The team is relentlessly focused on identifying opportunities to further enhance service, productivity and efficiency across the network by first, executing on the fundamentals, then implementing new technologies and finally, investing prudently back into the railroad.

Locomotive productivity of 142, improved 1% as the average active fleet decreased 1% against 2% higher gross ton miles. We successfully onboarded incremental volume by leveraging existing train starts, demonstrating strong asset utilization and efficiency. Our fuel consumption rate improved 1% as we continue to benefit from fuel conservation initiatives and locomotive technology and modernization investments. Workforce productivity increased 5% on 2% higher volume. Our active train engine and yard workforce decreased 2%, demonstrating our discipline and remaining more than volume variable.

Finally, train length grew 2% versus last year, driven by continued optimization of the transportation plan and reduced train starts. Closing the quarter, we delivered on the fundamentals while growing volumes and effectively serving our customers. We have the capacity to grow while continuing to improve safety and service. As Kenny's outlook has improved, we've been agile and reexamined our base resources and buffer, aligning both to support growth. We are also continuing to make strategic capacity investments, including the Houston Complex, Pacific Northwest siding extensions and Sunset double-track projects. The operating team is demonstrating daily that we are ready to grow with our customers while delivering the service we sold them.

With that, I'll turn it back over to Jim.

Thank you, Eric, Kenny, Jennifer. Why don't we turn to Slide 16. Before we get to your questions, I'd like to quickly summarize what you've heard and provide an update on our merger with Norfolk Southern. As the team walked through, we had a very strong second quarter as volumes, pricing and operational efficiency drove record financial results. The network continues to be very fluid and our buffer of resources is supporting broad-based growth. Looking ahead, we are prepared to meet increased customer demand with best-in-class safety, service and operational excellence. For our 2026 outlook, we are raising to full year reported EPS growth in the high single-digit range.

As to the status of our merger with Norfolk Southern, first, we met a very important milestone when the Surface Transportation Board accepted our application is complete on May 28. And on Monday, we will meet another important milestone when we complete the supplemental information asked from the Board. As you see when you read it, we've carefully answered each of the Board's questions. We also -- we've also taken the opportunity to further improve the competitive nature of our merger through an expansion of committed gateway pricing among several other voluntary commitments.

This is in addition to the merger benefits of seamless single-line service, better reliability, lower costs and greater competition against trucks and other railroads. Also yesterday, we announced that we reached a merger settlement agreement with the railroad I used to work for Canadian National.

I said from day 1 that our merger will create a stronger railroad industry that delivers better service for customers. Our agreement with CN, Canadian National, reinforces those commitments. Our merger is unprecedented and deserves a careful review. We've done our homework. Now versus almost 1 year ago when we first announced our plans to merge, we have even more conviction that our transaction is in the public interest and will deliver benefits for our stakeholders, especially our customers.

The case for our transcontinental railroad is clear, and we're ready to go. With that, Rob, we're ready to take questions.

[Operator Instructions]

And the first question is from the line of Ken Hoexter with Bank of America.

I guess a 2-parter. One, a little confusion on the $0.14 fuel gain. Is that just all upside from fuel and the pricing? Maybe if, Jen, you could just delve into that a little bit. And then if you can expand on the commercial agreement with CN, the access to the EJ&E, maybe talk about what that gives you and what you're giving up on the network down south.

Jennifer, why don't you?

Yes, Ken, on the fuel piece, we're just calling out the fact that it did have the 120 basis point headwind to our operating ratio mathematically. But then when you look at the difference between expense and surcharge, the benefit there was the $0.14.

Okay. And on the Canadian National announcement yesterday, it was in 2 parts. The one part was something that we knew that we wanted to make sure, and we said it right from the start and when we looked at with the merger that we needed to do something. And we've told the Surface Transportation Board twice that we never wanted to take control and get over 50%.

In fact, we called meetings at the TRRA and the other railroads didn't show up. But at the end of the day, the nice part about the deal is that clears that up as far as ownership of the Kansas City Terminal and TRRA. It also allows Canadian National to come over between St. Louis, just east of St. Louis to Kansas City and give optionality to the customers in those area because we would have ended up with the 2 rail lines that we use in directional, and we would have had another one.

So we thought it was prudent for us not to be too concentrated. Again, that was the only part of the company where we have a significant overlap, and that was a pretty small area when you take a look at the entire railroad. So with Canadian National, we've got an MoU that takes care of that. And then we also talked about -- and it goes with our commitment to keep every gateway open.

And Canadian National says, listen, can we figure out a way to get into Mexico to be able to move traffic and use -- we could still use Chicago if we wanted to, but we want to be clear that we could use a priority location that they find better to be able to have access into Mexico, and we worked out a deal.

And for that, we said, listen, we want better access through Chicago, east-west. And sometimes people look at things in the short term instead of long term and they don't understand. Listen, I've worked in Chicago and I worked at Canadian National, where it took us longer to get a train from the north side of Chicago to the south side of Chicago, where our terminal was than it did to run it from Prince Rupert to the northern part of Chicago.

So any time a railroad can figure out a way to be able to run much more seamless east-west to make interchange connections or run through trains, that's what we've done. It's a win-win. It's a win for Union Pacific, and it's also a great position for Canadian National. I think it's a deal that is going to help both of us be able to increase traffic from both of us because of what we're able to take off the roads and move more of it on the rail. So Ken, maybe you didn't want that much detail, but I just gave it to you, okay?

Our next question is from the line of Chris Wetherbee with Wells Fargo.

So maybe sticking on that topic, I guess I just wanted to kind of see if you could expand a little bit on how you think this plays out both from like a revenue synergy perspective. I think there's initially an initial thought in the initial merger agreement, there was some concessions baked in several hundred million dollars of potential concession. So maybe thinking about this agreement that you've constructed and how it may influence some of the revenue synergies and concession numbers?

And then maybe bigger picture, is this the first of what could be multiple of these types of arrangements? I guess how do you feel about the receptivity of the rest of the rail industry? This is a big move coming from potential opposition to agreement to get on board with the deal? Just want to get a sense of how you see the landscape right now.

Yes. Listen, Chris, I won't get into too much detail, some other discussions we've had. But I'll tell you that if people are reasonable, we are more than willing to come. And this one is a reasonable expansion for Canadian National, and it's great for Union Pacific.

As far as the impact, listen, we knew we were going to have to do that. We see this as for both of us, a growth story, not a limiting factor on business. So this will not impact what we're doing. Remember, we're still going to have to have them operate on our railroad to get to Mexico. So it's not like -- and what it does is it makes them much more competitive against the Canadian Pacific, Kansas City.

So they're able to originate out of Canada and compete head on and sell a direct link. And we see that as them being able to grow more business and not be less and then we should be able to get more revenue on trackage or whatever else that we do in how we finalize the deal. So it's a real positive, Chris.

Yes. And I would just say a big part of it, which is addressing the 3-to-2, 2-to-1 as well as access into Kansas City was all part of what we knew we were probably going to have to do something to address that. So all part of our thinking.

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

And I know, Jim, as you mentioned, you worked a lot on the EJ&E certainly when we first met and some of the looparounds and efficiencies you get and as you translate into the transcon solution is quite compelling. Curious whether -- when you were talking to CN, does this open the avenue now for more cooperation with CN? Or is this something, okay, we've addressed this now with CN, let's move on to any of the other railroads.

Just curious whether you're seeing this as, okay, that's one player we've addressed and now we move on? Or is there avenue for further opportunities with CN that might have come up in the conversations?

So listen, let's start with fundamentally, we would have never been able to get to this kind of deal with Canadian National if it wasn't because of going through the merger, okay? So that's the problem with people, anybody thinking that it's easy to make a deal with another railroad or another company is, Walter, pretty tough, okay? So it was the merger that drove this, and it was something that helped us and helped Canadian National. It truly is a win-win.

I'm not sure what the next step is, okay? I really don't. What I'd like to make -- and the problem we have is because we do not have a whole bunch of overlap. We've basically dealt with 2-to-1 and 3-to-2 customers even. There isn't a lot else that we need to give up. Like what is it that you give? You give access to somebody around Nashville. Well, we'd like access to a different part to Florida, further south in Jacksonville.

So at the end of the day, it's going to be difficult, but we're always open to have discussions. We really are. And if something happens, and I love our relationship with Canadian National, but I'll tell you, they don't give me any deference because I know their railroad. I'll be honest. They're tough negotiators. Son of a gun, okay? I was hoping I didn't have to give them that much access into Mexico.

But at the end of the day, they're tough negotiators, they're smart, but I like that. That's what you want, Walter, is to be able to move the deal forward together. And if there's other things that we can figure out how to do, we'll do that. We really will. But I don't see a whole bunch of things that are sitting on the platter.

And Walter, because I think you've met my wife, you know I would never take her out for a burger, okay? Sometimes I like having a joke, like the chance of me having a marriage for 43 years like I have or 44 years and take her out for a burger for a birthday, that would not work out good, okay?

Because McDonald's is not on the menu. I got it.

We're in Omaha. It should be like a nice steak from Omaha. I'm telling you nice way I go from a farm out in Iowa or Nebraska, I'm looking forward to it tonight.

The next question is from the line of Jonathan Chappell with Evercore ISI.

Jennifer, shifting gears away from the merger for a second. You raised the EPS guide versus 3 months ago while also raising the outlook for your most important cost line item with the cost per employee. So can you help us kind of solve then for where the majority of the upside is coming from? Is that volumes running better than expected? Is it surcharge tailwind benefiting you more than you thought in 2H, more productivity and other line items? How do we kind of rectify those 2 changes?

Yes. I mean I think you kind of answered your own question there a little bit, Jonathan. It really is a number of different things. Certainly, when you hear Kenny talk and look at his outlook in terms of how the business is performing and what we see the opportunity for the second half of the year, it's stronger than what we thought it was coming into the year, which is great news, and we feel very bullish about that.

And then you see how Eric and his team are handling that increased volume, doing it very efficiently, in a very cost-efficient manner and giving a great service product to support our customers as they're growing their business. So it's all of those things, and we feel great about it. It's a great setup for the first half and looking forward to a strong second half.

The next question is from the line of David Vernon with Bernstein.

So I'm going to try to squeeze 2 into here because you guys are quick on the next question. The first question is really around the outlook for the second half. Kenny, you sound pretty positive about everything except coal, which sounds like a throwback to last decade.

I wanted to ask if you're seeing any sort of broadening of industrial demand outside of anything related to sort of data center construction, anything that you're seeing in the economic tea leaves that would tell you that we are starting to see some broader industrial recovery kind of building up?

And then the second question would be around the Falcon service, right? How does this agreement sort of change that? Or is CN going to be running some of its own trains? Like how does -- or is that totally separate from what you guys announced today?

Yes. So the first question, we look at car orders, and we're at 100% fulfilling those. And those are up slightly. And so yes, if you look at it broadly, if you look at the car orders, and I'm talking across the board, there is some slight uptick that's there.

You're also seeing that in the momentum that we talked about on the industrial side, that's largely a lot of our carload business where we've had record average revenue per car and candidly, record revenue that's there. So that's encouraging to us as we move and turn into the second half. And then there are some things that we're doing to make our lot -- life a lot better. So you look at Grain & Grain products, we've got a few more facilities that are coming online, some that are exports, some that are domestic.

Automotive is -- it's not a great overall macro area, but we won new business to go out and compete in that area. So a little bit of a macro bump on the industrial side, but also we're balancing that and supplementing that by winning new business. I think the second question was around the Falcon.

Our Falcon product with CN is going well. The service product is strong. Eric, you've really helped us on the CN there. So as we look at Mexico, again, and you can see the numbers in Mexico, we've done well in Mexico, and we see that occurring as we go through.

Kenny, sorry for interrupting or Eric, you guys should talk about -- we've talked about open gateways and the Falcon was through Chicago, but we have no problem with making sure that the other railroads come to our network and move the way the customers want it to move.

So when we think about the Falcon, it is independent of this. And to Jim's point, our commitment as part of the merger, which has remained unchanged and will remain unchanged, is full access to all the active interchange points. And when some people think about that, they underestimate when I say interchange points, they think of places like Chicago and New Orleans, which are obviously incredibly important to us and all the other railroads.

But just remember that every single day, there's 260 interchange points across the Union Pacific network as we sit here today. So we're really committing to that. 260 open interchanges just like they were yesterday, just like they were a month ago, and that's going to remain that because to Jim's point, our partnerships with all of the railroads are incredibly important when you consider 40% of our volume every day is interchanged to another railroad or received by us from another railroad.

Our next question is from the line of Stephanie Moore with Jefferies.

I guess I wanted to maybe ask a bigger picture question here for whoever on the team would like it. But I wanted to ask a little bit about just maybe the reindustrialization theme that we're seeing across the U.S. and maybe that means a bit more domestic manufacturing and maybe less imports coming on to the West Coast. So can you maybe frame how you think the network is positioned to handle what could be a pretty big medium-term theme here over the next 5, 10 years?

So Kenny, why don't you talk about what you see with all the construction, different products, hot markets, cooler markets real quick. And then Eric talk about the railroad and how it is.

Yes. Stephanie, you're really asking about what we call our industrial development area where we're either expanding at a plant or locating a new customer on our network, and that pipeline has remained strong. And we've seen a lot of new customers come on to our network. I talked about AGP, which is a grain customer. But then we've also seen it with Hyundai Steel that's bringing on new production here in the U.S. into the Gulf.

That pipeline is strong, and we see it show up in other areas. Someone talked a little bit earlier about the data centers, but we're seeing really good strength, really good pipeline. We're converting that at a great rate. We're seeing a robust number of RFIs, meaning our opportunity to compete in that area.

And so we're bullish and we're excited about that. We've been able to convert on that.

And then, Stephanie, as far as the railroad's ability to handle it, we are and we remain poised to be able to handle that growth. You saw that a couple of examples here recently. You go back to last year with a 33% increase in International Intermodal, and we handled it. We handled it well.

Then you look at what's happened in the Domestic Intermodal market, which credit to Kenny and his team, they've done a great job bringing that growth to our railroad. And you've seen us handle that exceptionally well, especially when you see 5% increases on car velocity in a period of the year where historically, no matter how many years you go back, we actually would degrade by about 15 to 20 miles per day.

But 50 days into the summer, we haven't had any degradation, and we don't plan to have any degradation. Now that really tells you that the fundamentals of the railroad are strong. Every single metric I gave this quarter, last quarter, the quarter before that indicate that we're not only strong, but we continue to make more progress.

Now on the capacity side, to be able to handle that, and you used examples like the West Coast and Mexico, think about what we've been doing, and this is not a new thing. We've always invested in our capital, invested that into the railroad prudently. So whether you're thinking about the more than $125 million we've invested in our Houston Complex, whether you think about our continued work to finish double tracking the Sunset Route from Yuma all the way to Tucson so that we're actually double track all the way to El Paso.

And even on the bulk side and the manifest side, when you think about our siding construction projects and siding extension projects up in the Pacific Northwest and across Iowa, we are poised. We'll continue to be poised and we'll continue to maintain a buffer so that when unexpected growth comes because of all of Kenny's team's hard work, we can bring it on to the railroad with an immediate yes to our customer.

Yes. And just one last thing to add there, Stephanie. So you've heard us talk about our pipeline of industrial projects where you're -- and Kenny mentioned the RFIs. We've got about 200 of those in the pipeline today. It's a very strong pipeline. So we feel very bullish about our opportunity to continue to grow there.

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

Congratulations on this deal with CN. That seems like a really nice step forward for you in terms of making the case with STB. I wanted to ask you just for a little more kind of understanding on how you would view that deal. So -- can you give us any kind of framing of say, 3-to-2, 2-to-1 customers when you consider the customers on St. Louis to Kansas City or in St. Louis area that CN is getting access to.

How large is that group? Is that like 5 customer facilities? Is that like 50? Is there any way to kind of frame that? And then I guess the other component would just be their access to your line on Memphis to Eagle Pass. Would you expect CN to compete with you on business to and from Mexico? Or is that like, hey, this is going to really enable them to compete with CP on business that's more like, call it, Eastern Canada to Mexico. Just want to see if you could give us a little bit more perspective on kind of the -- how meaningful that is and how you think it affects the competition?

Okay. The new deal is Canada to Mexico. So it's not competitive with us. It's good for both of us. It allows them to sell it. Second is as far as the number of 3-to-2, and 2-to-1, it's in the application, Tom. It's absolutely a small number. Less than -- out of the thousands of customers we have, we're talking about a couple of handfuls if that. Jennifer, what's the exact number? I don't want to put the wrong number.

I think the...

Because it's been fricking moving...

Yes, the 2-to-1 is 3 or 4 and 3-to-2, I think, is low 30s.

Right. So that's it. So out of all our customers. And we said that we would fix the 2-to-1s, and we have a remedy even for the 3-to-2s, which truly is -- let's get serious. If somebody has 2 plus [indiscernible] they should be competitive. But we want to make sure that there's no question about leaving every optionality that people have.

Tom, I'll take exception to one thing on yours. It's pretty straightforward. This merger doesn't need a lot of help, okay? And I've been pretty adamant about this. And what people are missing is when you give customers a seamless single-point railroad that can move things a larger -- a longer distance, that is automatically makes the thing less expensive for the customer and more competitive against any other product that's out there.

So people want to make noise about whether we need to help this. I think the CN deal, the Canadian National deal, is great for both of us with EJ&E and Mexico and then within the piece, but we're talking a small number of customers.

This is a growth deal. We see taking trucks off the road to go across the U.S. faster and take things that are right now going through cities and less fuel efficient, more greenhouse gas impacting roads that, of course, everybody knows trucks do not pay their full share of the construction and capital costs on the interstate system while we pay for all ours, but we want to put them on our railroad.

So this is truly more compelling today than we looked at it than ever before. And you can see because it only touches -- think about that, less than 10 customers go 2-to-1. This is truly an end-to-end that wins. We think we have a strong case. People -- they can write stories that aren't factual, can say whatever they want. The facts are pretty clear. So you got me going a little bit this morning.

Jim, do you think you'll get a shipper agreement as well? Are you optimistic on that?

Sorry, you broke up on one piece. What did he say?

No, I'm just -- I'm saying like -- yes, you got this agreement with CN. Do you think it'll announce some kind of big shipper agreements as well or maybe not after a while?

Listen, we talk to our customers all day, and we have set a number of customers that -- and how do we move ahead? How do we make sure that they understand how it is and how they can win in the marketplace. So yes, we're not going to announce them because they're private deals. But at the end of the day, absolutely, we've been talking to a lot of customers.

I sent the letter to our top 50 customers saying, if you have any questions about the business that we're doing together, and I sent it to their CEOs, here's my phone number, give me a call, text me, and we'll get the teams together to go through detail so you understand what the benefits are.

I had a meeting on Monday with one of the big shippers here in the Midwest, and they're not going to come out and he told me black and white. He says, "Listen, I'm not going to come out to support it because other people have not worry about what they might say and do if I do."

But at the end of the day, he says, I see the advantage. If we're moving pulse products from the Southeast U.S. to the West, which they are, they would -- they see the seamless. So customers, absolutely. And thanks for the question. It got me to fill in all the gaps of what I haven't been able to say yet this morning. So I appreciate it.

Next question is from the line of Brian Ossenbeck with JPMorgan.

Maybe just one real quick for Jennifer and then a couple for Jim. Jennifer, the comp per head up 6%. I mean, typically, you have good visibility on that to start the year. It continues to move up a bit. Just wanted to see what the driver was for that.

And then, Jim, you mentioned or hinted that there'll be some, I guess, improvements expanding of the CGP and a couple of other, I guess, voluntary enhancements, if you want to call them that, that we'll see on Monday. I wanted to see if you could get a little bit more granular on that, give us a little bit of a preview of what to expect.

And then, of course, the STB had a couple of decisions out yesterday. One that was interesting, just the trackage rights, the reciprocal switching with UP going back to Lake Charles. Is that anything that you think sets the precedent as you start to work towards the merits -- the review of the transaction on the merits?

So real quick on the STB. Listen, I think they were very prudent when they came out with the decisions. And basically, they just said that there are certain things that were in place that just makes sense. And you can't just automatically ask for access for nothing on somebody else's property. It would be like somebody setting up a coffee shop and go into Starbucks and saying, I want to set up a coffee shop in Starbucks because I drove by the fricking place. That doesn't make a particle of sense, and that's what the STB said. So we're very happy. Now are we happy with every decision? No. They want us to put out detailed information on employees. And you think about, we're going -- we've given it to every law firm that covers every person that might want to comment on this deal.

So at the end of the day, are we happy with that one? I'm not because it impacts people's lives. And I always worry about that and how it impacts our employees. But overall, I think it's a clear win for Union Pacific that our position was correct in how things were done with the 3 cases. So on that, that's where I am with it. Jennifer?

Yes. On the comp per employee piece, Brian, it really is wage inflation and benefits. So really, the part that's been a little bit hotter than we were expecting coming into the year is on the health and welfare side. You're right, the wage inflation is known. Just as a reminder, we had the 4% for the first half of the year and effective July 1, we now have 3.75% increase in terms of the unionized wages. So good healthy increases there, and that's where we're just running a little bit hot.

So per employee, we're up, but how is the productivity -- remind everybody?

Yes, absolutely. So when you think about some of the numbers that I reported in my prepared comments, they start to give you some perspective, but I have the benefit to be able to peel that back and see at the ground level exactly what's happening. And so to Jennifer's point, while we are running hot on that, we've seen continued progress on the productivity side. You don't grow train length to almost 9,900 feet by chance. If you think about it, not that long ago, we were at 7,500 feet.

So our 2% gain is on a very large gain over the last 5 years, and we don't see a stop to that. I often get asked, can you make it to 10,000 feet? We got the team here at Union Pacific that takes challenges like that very seriously and looks for safe opportunities for us to be able to do that.

Now when you look down even deeper into our terminals and you look at line of road with our wage increases, right, our challenge that we take on every year, we focus on every quarter, every week is to offset as much wage inflation as possible. And you can see how we've done that. You can see that when you're increasing car velocity and you're running at 231 miles per day, you're dropping your recrew rate to 4.5%. We did that in the quarter. That's 2 whole points better than it was last year.

And I can go on and on, terminal dwell being down 7%, run through dwell down being -- down 8%. It's all those things that our team and the operating department with the support of the rest of the company do every single day, and I could not be more proud of them, mostly because they're perpetually dissatisfied, always looking for more opportunities. And we're going to offset as much inflation as we possibly can, and our track record demonstrates we do that quite well.

You know what, you had a third question in there -- sorry, a subpart. What was the third subpart?

Yes, I think just to give us all a preview of what to expect on the supplementals because it sounds like there might be a couple of additional things you went above and beyond the initial list.

I was hoping you forgot that piece, okay, when I asked you. But bottom line is, listen, there's a whole bunch of detail in there. What the expansion does is we actually -- we went out and talked to our customers and the feedback we received was, would you guys examine and we went in detail with a lot of them to say, listen, it will help us being able to -- just because -- and I've always talked about distances is your enemy if you try to route things the wrong way. So the bottom line is when we went through that, we see it in the application, we've expanded it because of what our customers gave us a feedback.

Again, we don't see that as a negative because the more you can open up some of those things to make sure the optionality is there, we get more business out of it. And it's about growth -- so Eric, I thought Eric was going to give you a real quick, yes, our productivity was again great, but he decided to show you the whole fricking railroad. I love it. He's starting to sound more like me, okay? Pretty soon, Eric, I don't even have to come on these calls. It'll between you and Kenny and Jennifer, you guys have got it. But -- so that's where we are. You'll have to wait until Monday, okay? I can't let the whole cat out of the bag.

The next question is from the line of Jason Seidl with TD Cowen.

Congrats on a good quarter here. I wanted to focus on 2 different things. One, I guess I'm going to talk to Eric a little bit about operations. Guys doing a great job out there. How much ability do you have to take on additional freight without sort of adding much in the way of headcount or other expenses, particularly on the intermodal side for both the near term and also sort of the longer term as you look at some of your forecasts that are out there for the deal? And then I guess, for Kenny, how should we think about pricing on intermodal as it flows through your network for the remainder of the year in '27?

All right. So let me start. So you asked the question in the context of the merger. When we put in our application, we said that there would be an incremental increase in our Union employees to be able to handle the revenue synergies that Kenny and the team have identified with the help of Norfolk Southern.

But don't be surprised by the fact that when we look at that, we didn't start in that place. You start from the place of we know our transportation plan and we know our network and Norfolk Southern knows their transportation plan and their network. And you look first for where do you have latent capacity within your existing train starts.

Now you've seen our history over the last 4 to 5 years, we've done an exceptional job of being able to utilize latent capacity. So you always want to look there first. From there, we then overlay the new volume that's coming on to the railroad, and we have to add some train starts. Now we've been clear with that, and it's in the application that those train starts involve trains that are going to go from L.A., generally speaking, from L.A. to Chicago, I'm afraid...

I'm not, but I want to make sure...

We will sort of give them a high level -- I don't want the other railroads to listen to him though.

Yes, I know. I know. Jason, he's afraid I'm giving away the secret recipe. But the secret is here. That sauce is our people. And we will make sure that we have the appropriate number of people to make sure we run the railroad, but also do it in a volume variable way.

And that last part is important is you're not going to see people grow at the same level...

Exactly.

Listen, Eric, I love it. But son of a gun, I thought you were -- pretty soon you were going to say how we start people and what our terminal type is and how we got that down...

I'm not giving that statement.

Eric, you can just e-mail that all to me, that's fine.

So I'd tell you, Jason, we're coming from a position of strong momentum. You heard me talk about the fourth consecutive quarter of record volume. So we already have that momentum. And Eric just talked about it, he's given us a strong service product that we sell.

And because we're moving boxes faster, we're talking to customers about price when you're doing that. And BCOs want to align with us because of that. So as we're able to quote these new rates, as the private asset folks are able to quote new rates, the IMCs. We are getting a little bit more price uplift as we move throughout the year. Obviously, the biggest opportunity for us will be as we enter into the next bid season, but we're pulling more containers out of the storage. Our private asset folks are doing the same thing. And on these spot moves, it's a small percentage of our business, but we are getting some of that price uplift now. But the big apple is once we get into the next bid season.

Thank you very much. Good question. If maybe the rest of the people are on, I want to answer everybody's question, but we're going to try to be real fast because I do not want to overlap with Norfolk Southern, who's coming on here at the top of the hour. So if we could ask a question, you might not get as long an answer. Ask me any and the team any, yes or no, we'll be quick where we go.

The next question is from the line of Ari Rosa with Citigroup.

I'll give you a yes or no question. Just was there any discussion with the STB prior to reaching the agreement with CN? And to the extent you can give any color around kind of how it came together, whether it was you approaching CN or the other way around, it would be appreciated.

The answer is no with the STB. And I don't know who made the first call, probably it was me.

The next question is from the line of Brandon Oglenski with Barclays.

Sorry, I haven't been on the full call here. So maybe I'm being redundant with my question, too, so you can just tell me to shut up. But in the world where truck availability and spot rates are so volatile, up like 50% in the last 6 or 9 months, I mean, doesn't this just embolden the case for transcontinental rail mergers? And I mean, congratulations on the deal with CN. Do you need to do more like that as well just to win over more hearts and minds here? And maybe that's where it is. Like is this going to close, Jim?

This is going to -- the merger is going to close. It's just too compelling for the country. It would be a mistake for this deal not to close. We would be harming. Canada goes across the entire country, and there's a reason why they haven't applied to the Canadian equivalent to the STB to split their railroad up there, both of them because it doesn't make a particle of a sense that hurts customers, hurts the country.

So this deal will close, and it will close with limited impact just because it's an end-to-end. So -- and yes, as far as I'm concerned, it's -- if there's something else with other people, we'll move ahead. Anything else I missed?

Our next question is from the line of Jordan Alliger with Goldman Sachs.

I know there's a lot of moving parts on the yield front between fuel and mix and core price. But is there a way you could maybe give some thoughts at least on how you're thinking about revenue per carload, whether it be the third quarter or the second half, taking into context core price mix and the fuel impact volatile as it may be?

So let me start and then Kenny, real quick, talk about ex fuel, the way we look at it, too, and just give an idea because we don't always split everything up particularly. Put it this way, if you remove all the noise, we actually had a 58% operating ratio, okay? So that tells you fundamentally who we are and what we're doing.

We don't -- we like to -- we absolutely report the way we're supposed to report. But if you remove the noise from those things that are -- because fuel was an impact of 120 basis points. So you take that away from our reported, we're at 58%. So the railroad is good. Kenny, second piece?

Yes. We do look at revenue ex fuel. And let me just leave with the fact that on the service end, Eric, on our carload business is the SPI is oscillated between 95 and 100 depending on where it is, and we price according to that.

Most times, it shows up in average revenue per car. I talked a little bit about that depending on the mix. But we're going to -- with the service that we're providing, the investments that we're making with the market where it is and the truck prices where they are, we're going to make sure that we're pricing to that value proposition.

Yes. Just one quick comment on mix, though, Jordan. So as you heard me say, it was a little bit of a headwind for us in the second quarter. That surprised us a little bit just because of how strong domestic intermodal came on in the back half of the quarter. As we look then to the second half, with domestic intermodal likely staying very strong and maybe some upside on the international side, we'll probably see a little bit more pressure on that mix side, but it's a great business. We're handling it well, and we look forward to the contribution that provides us.

Listen, thank you very much, and we love the way July is running so far, and you guys can all see the carloads.

The next question is from the line of Bascome Majors with Stephens.

As you look forward and get to the point on Monday where you release the next set of things the STB has asked for, where do you think we land on in the procedural schedule where we get to the point where you see the more formalized list of demands for some of the competitors that oppose the merger and ultimately, those -- the hearings where we discuss that live with the regulator. And just does the agreement that you've reached with the CN change the tone of that in any way that you think is meaningful or impactful for those of us watching?

Well, I think the deal with CN clears up some of those things that we said that we needed to clear up. So that's real helpful. And it expands competitiveness coming out of Canada to Mexico, and then it expands our capability to go through Chicago faster. So I love it, not a problem there at all. As far as -- what was the other part of the question?

Timing on hearings.

The timing. My Chief Legal Officer and everybody that we've hired, some of the best law firms say the statute is pretty black and white when you accept the application, they have a year.

So I just follow the law, right? Like if I get caught speeding out there, when I get pulled over, the police officer says to me, you know why I pulled you over, I go, yes, I was going 70 in a 55 zone. And he goes, son of a gun, you're telling me the truth. Yes, usually gets me off of the ticket. So I like to be honest and upfront. The statute is pretty black and white. It's clear. So we would expect the clock to have started when they accepted the application. The next step is people get the comment.

So we're looking forward to that. Looking forward to finally people putting their facts in and telling us factually what it is, not some high level, whether Union Pacific has the capability to operate the system across the country and worried about this and that. So I'm looking forward to it to tell you the truth, and let's hurry up and get this thing done. We're not going to get it done for my birthday on August 17, but I love it. Let's move ahead. Good question. Thank you very much.

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

This is Madison on for Ravi.

Madison, I like having you on, Okay? I can't remember the last time I talked to Ravi, I knew you were going to be on.

I like talking to you guys, too. I think we're just wondering how does fuel impact seasonality on numbers in third quarter and fourth quarter and how we should be thinking about kind of like the opportunity on OR?

Yes. So in terms of fuel, I mean, it likely will continue to pressure OR. As I mentioned, we're paying a little bit north of $4 a gallon right now. Even with that, though, we're still very confident that we're going to make margin improvement. We feel like when we look at what we see ahead for ourselves in terms of volume opportunity, in terms of our continued gains from productivity and efficiency, we should be able to overcome the headwinds from the fuel.

Who knows exactly how it's going to play out. So that's why we just need to be nimble, need to try to become more fuel efficient to the extent that we can. Obviously, we're already more fuel efficient than truck, and that's a benefit to us, more fuel efficient, more emissions friendly. But we'll wait and see how that plays out overall.

We always worry about is what happens with our customers.

Yes, no, true. That's a good point, Jim. I should mention that. The issue with fuel can be what that does to overall price inflation and the consumer. And if that stays high enough long enough that it starts to reduce demand overall.

No, we haven't seen it so far.

No, we have not.

But that's always a worry, and that's why I'd rather have fuel prices come down and not gather that extra revenue from fuel because we're better off having the consumer strong. So Kenny, they've been pretty strong right now?

They have.

That's a yes or no.

That's strong yes.

I love it. Good question, thank you very much.

Our next question is from the line of Jeff Kauffman with Citizens Bank.

Congratulations. Just terrific news. I have a question for Kenny. Kenny, the volume environment feels pretty good. Some of this, as you mentioned, is customers can't find truck capacity because of the driver shortage. I think some of this is customers may be diverting because of the pricing and the fuel surcharge situation. One of these is a little stickier with longer-term potential. One of these is a little more temporary. Can you talk about what you feel is just shorter-term customers scrambling to the rails? And then beyond intermodal, which is kind of the obvious conversion, what other rail commodities do you think are seeing a benefit from whatever is going on in the trucking industry that's creating the shortage of capacity?

Yes. So one part that you did not mention is the fact that we are winning business, and we are winning over-the-road business, and that's not necessarily tied to one or the other. That's just the strong service product that we have. But yes, as you look at the overall domestic intermodal network, what's helping us out is the fact that we have different levers and optionality for our customers. We've got our rail box, which we've deployed for a couple of years now, I've been talking about the number of private asset folks that we have that give our BCOs optionality.

So with that strong service product, that's how we're going out and winning the business and setting aside where fuel is. And yes, to your point, there are other markets that are very strong for us. You look at what's happening in our petrochemicals market, that's been a strong uptick for us. We talked about some wins there, but that market is also strong, and we're moving a lot export. And we've invested in the Gulf for storage and transit network to support that.

Same thing with our grain network. We've invested and put in new facilities on the grain network. And Eric and his team has shown us that we can flex to different markets. Last year, it was Mexico. This year, it's been the Gulf, whether it's the PNW, the Gulf of Mexico, we're able to flex in those markets, wins in automotive. So as you look at the overall landscape, coal is still the wildcard, and I got out of the business of trying to figure out how to forecast coal a while ago. But I'm very bullish on where we sit from a demand and our ability to win new business.

The next question is from the line of Harrison Bauer with Susquehanna.

Jumping off Kenny's point on some of the rail assets that you're deploying. Can you walk through maybe the thought process decision and the opportunity that you have in some of your assets? Are private assets constrained right now? And then maybe how does this allow you to accrue more economics, whether through peak season surcharges or into next bid season?

I love the way you asked that. I think you always need to price on what the market provides that you could still move the product and win. So that's the way we look at it. If we can price higher because of it, which we have, then we're going to do that. As far as the assets, sure, we went from having a whole bunch of our container stored to just about all of them out. But what we're doing is we're trying to drive more productivity by being able to get the turns on them quicker so we can get more turns on there, and we see some of that.

So that's what it's all about. And we've always liked to have a buffer. Now we chewed up a big piece of the buffer, and we're sitting in a place where I think there's still more growth, and we're not going to limit it. But of course, we're going to price and be smart about how we price so we can continue to move. Kenny, anything you want to add or?

No. And I said this a little bit earlier. The private asset folks, they have ample capacity [indiscernible] new business. That's a positive for us. And you've seen some of the surcharges that we put in place for a small amount of customers, we'll do that if we have to.

Yes, people on our railroad have capacity, right? They have extra assets. Good question. Thank you very much. Last one. We're going to do it and get it done.

And last one is from Richa Harnain with Deutsche Bank.

Honored to be the last question. So I just wanted to clarify, maybe piggybacking off that last point and maybe like drilling down more into the intermodal commercial strategy. I'm curious how you're partnering with other IMCs.

And I know you just said your private assets have capacity, but are other IMCs you work with private assets struggling with drayage drivers where that's a concern that's been popping up over the last couple of months? And how the strategy has changed and is influencing your ability to address the strong demand. We've also been hearing transcon intermodal trends are pretty competitive. It sounds like you're doing a good job, getting price. Just curious if you can square all of that.

Okay. So listen, I think it's a 2-parter. One thing about this team here is operations and marketing work close every day to figure out exactly the question that you're asking. How do we do this and how do we make things more efficient so we can get the asset turns quicker so that we can use less assets and use that 20-plus percent capacity buffer we have on our railroad to be able to run it faster.

And don't kid yourself, Jennifer is in there like a dirty shirt, pushing these guys around to make sure that they're spending money the right way and the capital. So I'm going to let the team talk about this. It's the last question, but you guys don't go on for 10 fricking minutes because we need to let NS on, okay? So where you go whatever you want...

Let me make this clear because that's a great question. We're very judicious about how we supplement our capital and our containers out to the IMCs. We're crystal clear on the ones that have higher dwell versus the ones that have lower dwell, and we're not afraid to have difficult conversations with them about it. So if you're sitting on our box a long time, that's a problem, and we're going to address it with you.

You don't want to say anything, Eric?

I think Kenny did a great job explaining that how we think about it...

Bottom line is who we are, and this is culturally, and it's not just Eric and I, okay? Eric is a real smart guy, okay? He's well educated, but I'm telling you he's a railroader. Probably 5 or 6 years ago, I would have said he was an engineer or an engineering department. Now he's a railroader. And what we do and what he's led the team and the people, the culture that we've developed from the frontline people, they're not afraid to make a mistake. We want them to push.

We want them to look at what's possible, and we want to make sure we move ahead. That's who we are. And when we do that, because you can't operate a railroad that's spread out across the entire country and think you're going to make every decision from Omaha, you have to make it locally. So I love where we are. We're clear on what we have to do. If we need to speed up something, we react quick. We decide how we're going to do that. We measure the heck out of it and we move ahead. So listen, that's where we are. Jennifer, anything before we tie it up?

Yes. The only thing I'll say is I think you slipped something in there at the end of your question about transcontinental pricing, transcontinental margins. Again, we have surcharges out earlier than normal on our private -- on our assets. We see very strong demand, and we're providing a great service product. So we are competing in a market that is strengthening, and we're not putting discounts into that marketplace.

Well, listen, that was the last question. So why don't we just tie it up real quick. We're going to look forward to having another discussion here in a few months. And we don't look backwards, okay? It's done. So we're delivering for this next quarter and seeing what we can do to get this merger approved quicker than slower because we think it's a benefit.

We want to move ahead and return for our shareholders a high return like we talked about where the EPS is going to be high single digit. So I'm excited about what -- where we are, what we're doing and blessed to have a team that makes my life easy. I get up in the morning and sometimes I wonder what I'm going to do. Everyone, have a great day. Thank you very much.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.

All right. Great. Good afternoon, everybody. I'm Ken Hoexter, BofA's air freight and surface transportation and shipping analyst. We're happy to moderate today's session with Union Pacific at the New York Stock Exchange's London Conference at BofA's London headquarters here. From the company, we have CEO, Jim Vena, Chief Financial Officer, Jen Hamann; and also in attendance in the audience is Diana Prauner from Investor Relations. I'm going to moderate today's session. So with that, we have about 45 minutes. So let's just jump in. Jim and Jen, let me turn it over to you. I know you have a few slides to get started with us here, and then I'll jump in with some questions.

Well, listen, thank you very much, Ken. I'd love to just frame exactly where we are a little bit and then let's open it up for questions. So I'm not going to spend a lot of time, and I'm going to pass it over to Jennifer, who's here with me today.

I love having her with me. And of course, we're going to make some forward-looking statements. So please refer to the UP website and SEC filings for any additional. And why don't I -- you know what, usually I speak too much. So I'm going to pass it over to Jennifer right now and let her start with where we are.

I'll give a quick summary of where we're at quarter-to-date, year-to-date. And it's a great new story too because as we started out the year, we continue to be very strong in terms of both our operational performance, the service that we're providing to our customers, supporting what I would say is decent customer demand. Our volumes are up 2%.

With that, though, we're keeping our freight car velocities up. It's over 230 miles a day and our terminal dwell is staying under kind of that key mark of 20 hours. We've been consistently in that 19, kind of, an hour mark. And that's really a great paradigm for us to be continuing to prove to our customers where we're growing volumes and at the same time, improving our service product.

Digging into volumes a little bit more. As I mentioned, volume up 2% for the quarter. If you look at that across our 3 business teams, premium's up 3%. So strong growth in our domestic product, very positive built on by -- and supported by our service product. International Intermodal does continue to be off year-over-year. What you're seeing happen here in the second quarter, if you remember what happened second quarter of 2025, is when some of the tariff announcements first came out, and we kind of had a bathtub of that where pretty strong volumes in April, pretty sharp drop in May. And then the last part of June, as we move into July, we saw the volumes come back up again.

So we're entering into a period where we're going to have a little bit of a tougher comp, get through July, and then we should be a bit more normalized. Finished vehicles are also for us here quarter-to-date, about 2%, which is another positive in that premium column.

Industrial, up 3%. I consider industrial kind of a heart and soul of the UP franchise, continue to have strong business development efforts there. Industrial chems and plastics up 4%. Metals & Minerals were up 3% versus last year, continuing to see good demand in the South from a construction standpoint.

And then if you look at bulk down 1%, that's actually something that's switched on us here in the second quarter, where you've got coal down about 14% on a year-over-year basis. And it had been up double digits the last several quarters. Part of that is we are now lapping where we have won some business starting in the second quarter of 2025. Also, we're in that cooling season where a -- little bit of a shoulder season. We've had some plans down for maintenance and lower natural gas prices.

So let's put a little bit of pressure on the coal business, although as we were talking earlier, Ken, we are starting to see some more sets come into service. So we're going to look for that to pick up as we move into the peak cooling seasons of 2026. But then grain and grain products have been up solidly about 12% quarter-to-date. So nice diversity there in our product mix in the growth in our business that we really do like to see.

A couple of other things I'll say quick before I turn it over to Jim, is if you think about fuel, when we started the quarter, we were paying about $4 a gallon for diesel. That increased some in May. Now within the last couple of weeks, it started to come down a little bit, but right now, we're thinking we're probably going to average about $3.90 a gallon for the second quarter, maybe give or take a $0.05 there. But prices -- the spot prices have come down. So that's helpful and we'll see how that plays out into the rest of the year.

Of course, we're much more fuel efficient than trucks. So that's still a net positive for us. And then the last thing I'll mention before I turn it over to Jim is kind of a modeling item is we're expecting about $35 million in merger costs for the second quarter. That's a little bit higher than what we had been thinking of. But with all the work that we've been doing in terms of the STB filing and refiling and providing more information, that's putting a little pressure on some of those costs. Jim?

Great to pass it off to me with a negative, I thought you give me a positive at the end. This is a positive really -- there's a couple of positives that are really important for us to think about where we are at time and place today. Okay, the first one is the team led by Eric Gehringer, the team led by Kenny, our Chief Marketing Officer and the entire team at UP. They're focused in driving the railroad and not losing sight that every day, we have to have a safe railroad. We have to operate at the highest level, and we have to make sure that the service that we sold to our customers at a high level, and you can see that in the slide before.

So that's the foundation of who we are and we can't lose that. And even with the length of time we've been in this process already, the focus is right on. The rest of it, on Slide 4, if you take a look at it, huge milestone is when the STB accepted the merger application.

Yes, they've asked for more information. But at the end of the day, the 12-month procedural clock started, it's pretty clear that we've gone to the next step and we'll provide the information. We always knew that the STB was going to be asking for more information as we went through this process, and we told them that we'd be more than willing to give them the information.

There's no big secrets. We see exactly what the benefits are. So how are we going to give the information at this time. We think instead of waiting right till the end until July 27, we will probably do it in 2 batches, piece in early July. Some of the things as soon as we complete them, we'll give them that information. And then the next batch will be closer to the end of July. But hopefully, it's before our quarterly release that we do so we can have a discussion about what we have to give them. So overall, very comfortable with where we are and what we've done this point. And it's great that we see what -- how the process is going to go out.

Now let's talk about exactly some of the things that are in the application and for some of you that maybe have missed it. We're talking about removing over 2 million truckloads off of the road, huge benefit for America. We are absolutely sure that we deliver $3.5 billion of savings and those are savings because of touch points and how we operate the railroad. So those things are clear foundation that we have identified when we've gone through with the experts we've hired and what we've done to analyze what's possible and what's better for America. And we know we'll improve safety. Any time you remove touch points on cars where people have to touch something, you actually -- if you remove that, you end up with a safer network without doing very much other than that.

So we'll continue to invest for safety, both from a technology standpoint, on training and people, but really important that when you remove touch points, okay, you do end up with a safer railroad. So let's just real quick, Ken, and I know you probably have some questions, so I won't get into it complete in depth, but real high level.

And does our merger enhance growth competition? Absolutely. A seamless railroad that operates from -- through the country and one end of the country to the other on the extreme automatically makes that product better on service because you remove a touch point. And on top of that, it makes it seamless and faster. The customer gains and that they can actually save on the cost of equipment, cost of inventory, cost of doing business with multiple railroads, number of people in the back shop.

And listen, that is enhancement of competition. And the rest in the industry have to -- when they wake up, they'll have to decide how they're going to compete against that new service that is better for all the customers and shippers in the U.S.

And I hate to tell you, and that's why they're complaining so much is there's only one way to do that. If you can't match service and you can't match the number of what you're doing, the only thing you can do is drop price. And that's what they're worried about. Otherwise, they wouldn't be complaining. So at the end of the day, we think that with all the pages, over 7,000 pages that we put in, over 2,000 letters of support across the spectrum of customers, starting with customers, with customers that are actually single point customers for us that don't have an option at origin plus regulators I guess -- sorry, not regulators, politicians, I wish some of the regulators would give us a letter, but they didn't. So overall, very comfortable where we are. We love it, Ken. And for me, personally, it takes too long. But at the end of the day, we knew the process was going to be the process, and this is where we are. We're quite happy.

So I mean, you just answered the first question I had, right, which is kind of talk about the latest thoughts on the merger. I don't know if there's anything you want to round out in terms of the latest thoughts, but I'll go run it to the second, which is given your application got approved to begin the process, but then the process was put in abeyance by the STB as they wait for more info when you just talked about maybe the 2 batches, it seemed like they were going at the crux of your argument. Is it in the public interest? And does it increase the state of competition? You threw out a couple of things there. Is that -- what does that signal in terms of the STB coming out with those specific requests? What does that signal to you in terms of the process?

Well, Ken, anybody who's looked at how STB goes through the big decisions and we've had some decisions that have taken them a long time to make, and we've had some decisions that are better. And we have a chair there that said he's going to go through and make sure he looks at things factually, we're very comfortable. They want some information we give it to them. And are they listening to some of our competitors, sure. And should they, of course, from my side, I would say, it's always hard to look why would you listen to a competitor, but I understand the competitor could have a different viewpoint. But the process has started now and the process needs to go through.

And at the end of the day, then they have to decide whether there's anything that they need to add or look at any concessions or how we move ahead. So this needs to get done. Is this good under the rules of the STB on whether it's good for the public interest. I think it's good for the public interest when you remove a couple of million trucks off of the road. I think it's good for the public interest when you have people in Chicago and you can take out hundreds of trucks running to go from one railroad to the next.

I think it's good in the public interest to be able to make the movement of goods within the U.S. much more competitive against the world so that you can move seamlessly from the east, the lumber from the east to the west or from copper from the west to the east or steel from the east side of the Mississippi to West.

Is it good for the country to say that we're going to give options to people today that don't use railroad because in a 500- or 800-mile haul, they have to go from 1 railroad, hand it off to another one to go somewhere else. And Ken, I'm absolutely sure. I know you're from New York. It's pretty simple for people that aren't railroaders. I'm absolutely sure you took a connection flight. You went to Amsterdam first. You changed carriers and you came to London. Absolutely not.

You came direct -- it probably cost you less money and especially the money that you get paid because of the money that you saved all that time wasted at the airport. So that's what we're talking about. It's very simple, it is excellent for our customers. And competitive-wise -- and I know I'm going for a long time, but competitive-wise, we've seen already when we announced the merger, people started to look at how they could work together to be able to enhance the movement of their goods. And that's what they've done.

The problem with a non-merger, those things usually break apart. As soon as somebody starts having a problem with assets or people or what their network pressure is, they break off those deals and go away because they're not -- there's no penalty to them.

So listen, I'm very excited. I'm telling you, the more I see what we're doing and Jennifer and I and Diana are aligned, okay? Not -- and listen, Jennifer would tell me if I was wrong, and Diana would, for sure, okay, tell me, Diana, you're missing this, the story, we're not telling it right. This is much more compelling now than it even was when we started this merger.

Jen, Jim started off with something interesting. He started off with the fact of the $3.5 billion synergy. Maybe from what you've laid out, maybe you could readdress the target time frame? Has anything changed from your original agreement in terms of the synergies? Or how we should think about them? How do you think about the time frame in terms of getting back to your target, whether it's operating ratio target or ROI targets post merger? What's the kind of time frame on those?

Okay. We got several questions.

Absolutely. I am used to squeezing them all into one question.

You can give more time if you can space them out.

What he told us we have 4 questions but each with 15 parts. You want me to write it down?

You may need to remind me on a couple, but I'll see how I can do here. So the $3.5 billion, that's not a synergy target. That's what we believe is going to be annual savings to our customers, to the shipping public when you just look at the differential in price between truck and rail. So that's that 2 million trucks coming off the highway, moving to rail and it's a very simple calculation. And quite frankly, it's probably understated when you think about the emissions and the safety and all those things.

Truck prices [indiscernible].

Oh, yes, yes, exactly. And think about fuel surcharges where those have gone. So that's the $3.5 billion. So then you look at our synergy targets that we have. They have changed, I would say, a little bit over the time period from when we first announced the merger to making the revised application, but not a whole lot. I mean we have continued to refine the analysis and each time that we do that, we basically come back to the same place. So on the revenue side, you're talking about $1.8 billion net EBITDA synergies on the top line. So that's that -- again, that's the truckload conversions, that's also growth that we're seeing in the manifest auto world, some of the watershed traffic. So that's on the top line.

When you think about the cost piece, we're looking at about $1 billion of cost synergies, and that's really across the board. Certainly, it's being able to be more efficient with how we're doing our train handling, it's being more efficient from a purchasing standpoint. It's been more efficient from a back-office standpoint.

All of those things that bring costs into our network, we believe that we can go through and be more efficient. Technology will be a big enabler of that. So then you think about the capital that it will take us to unlock this. We said it's about $2 billion. About half of that is what I'll say, is infrastructure capital. So I think sidings, yard improvements, those types of things.

The other half will be the technology that we'll need to do to be able to integrate our networks. We also do think that there's going to be about -- I think it's $133 million of capital synergies that we'll be able to unlock through this. So those are all the net benefits that we expect to unlock from the transaction in terms of where we think it's going to take us to take the debt back down after we make the payment for the Norfolk Southern, we still think it's going to be in year 2, towards the end of year 2 is when we believe we'll be able to have gotten our leverage back into a place where we're back in the market repurchasing shares.

And so it's just shy of $12 billion of kind of annual free cash flow that we're going to be kicking off as we get through it. And we've talked about this, too, in terms of a 3-year implementation time period. So in the first 3 years, this is where we expect to get to by the end of year 3.

It's interesting because now we talked about the time frame. And Jim, you were talking in your opening comments about the time frame, I think we were talking on the slide about that. Given the abeyance, you still see this clock is starting based on the set. Do you want to expand on that a little bit because I thought that was a really interest income.

Well, this again -- there is a statute for the STB that was given to them by Congress, and it's pretty clear. It says that once you accept it's 12 months. That's what we would expect them to...

So just once the application, which has been accepted officially. So despite them saying we're putting in the bank to collect more information, your view is that 12-month clock has now started based on that 829.

That's correct. For them to gather all the evidence that you need to then take the time and there's a specific amount of time for them to get the decision and that's 90 days.

And it's after the 12 months. So that's a 15-month process, it can't be paused by this desire for abeyance on their part.

Well, listen, I don't know, I follow the law. So that's what the statute says and that's what we're going to do. Otherwise, Ken, then we don't have to follow the statute either that talks about public interest. If we have to do the things that are in the statute that we think that the STB wants then I would expect the STB to follow the statute when it comes to the length of time.

Jen, just on -- throughout the CapEx commitments, you did recently changed some of the CapEx commitments. I think some of them were adjusted downward right, a little bit, little tweaks. Was there anything that got changed? Was it sidings or just say, as you thought about the merger, what you're going to need.

I'll answer that. Bottom line is people get all excited about that, we don't look at capital on an annual basis. And you can tweak it up and down and you think if this is the way the business looks like, this is what we're going to do. It was a small tweak down, but don't take that into it. We're going to have the capability just like Union Pacific does today that if we have to invest more in our railroad, capital for our plant or capital for growth, we'll do that. And that's what we look at first. The end of the day, we will never ever stop investing in our railroad to keep it safe and operate at a high level.

That's not what we're going to do. We're investing in rebuild locomotives, modernization locomotives, and we'll continue to do that again. So that was just a tweak as you go through and look at exactly what the flow of the business that we see and I'm sure there's going to be a small change again as we get closer to the merger acceptance.

Yes. And a little bit of a change in the mix of business, more intermodal, a little bit less manifest so that changed in that.

So let's talk about some of the commentary out there from the marketplace, right? And I guess this is coming from the other railroads. So it's not necessarily -- I don't know if you think this impacts the process, right? We've heard your Western peers say the document is still unclear, undeveloped, merger deficiency remain. It reduces competition, one of the Canadians said he has a right to freeze it and submit a credible case, inadequate market share.

I mean so many of these commentaries kind of go at the crux of the concept of competition and increasing. What's your view in Toronto? What do you think the end game? Is this just trying to get more things out of this? Do you think it's delaying the process, but it sounds like you just said the process is now on a clock. So what's the takeaways from the contract?

Well, listen, I think history will tell you that it's pretty black and white that a competitor has a view that's internal for their benefit and not for the process or the company that's doing something that might impact them. So said better, easier, real simple. I'm a businessman. I'm a capitalist. And a competitor of mine was doing something stupid. I won't say a word. I would let them do that because I'm going to win in the marketplace and get more business or increase my price better. So the Canadians, no, ifs, ands, or buts and both railroads in the U.S. and one is much more vocal than the other. They look at this and what they're worried about is, is they're going holy cow, how do we compete against the railroad that's going to go across the country, and they're real worried about that.

And of course, without that, they throw out that 7,000 pages isn't enough. Well, I don't know, I just finished reading War and Peace again. I guess we need to add a whole bunch more pages. It doesn't make a particle of sense. And we were very clear with the STB. If you need more information, then ask us and we'll give it to you because we want them to go through.

We know this is a compelling case. So that's what I think about the competitors. The customers, we have some associations and other groups that are saying, listen, we're against this. And we think once they go through and truly understand what we're doing, the customers that pay the bill that actually pay the freight will see the benefit and how it improves their capability to compete.

People miss this that are not in the railroad business, you can have a single point of origin on Burlington Northern Santa Fe. But just because you have a single point of origin and if that product is soybeans, there's a single point of origin and others on Union Pacific, and we are competing against the world in moving that product, not just that single point and we actually want that single point to succeed and be able to move the traffic. So when people look at everything, and let's take this merger -- that's what I love about having 45 minutes, Ken. I'm going to fill a lot of it, is we will continue to have a strong competitor in the West.

We are competing against Berkshire owned BNSF. Last time I looked, they're $1 trillion company valuation with $400 billion in the bank. They can just about do whatever they want. And remember, they're a neighbor of ours in Omaha. So they have the capability to do a lot if they want to. But every day, the customer is going to see BNSF there and UP competing for the business at origin and destination.

In the East, we're going to have the UP and CSX. And I give Steve Angel, a lot of credit. I see some of the things he's doing. He's doing a wonderful job of preparing that company for what comes next. And make it as efficient as possible to compete. So that doesn't change.

That foundation is already there. And on top of that, because we're going to be faster, more seamless, how Burlington Northern Santa Fe has to play the game that's going to become better, how CSX has to become better or offer better price and for sure, the Canadians that both come basically down a few states in the middle are going to have to compete better.

I've always -- I got to have a little bit of fun. I love it that in Canada, it's okay for them to have 2 railroads to go across the entire country. And I can -- maybe you can remind me because you talk to them all the time. They haven't sent me a Christmas gift this year or a Christmas card or anything else. I don't know why. We used to give cards for each other, but I did send it to them. But bottom line is, are they talking about splitting in Winnipeg because they need more competition in Canada or they have a hard time managing it, I don't think so. Jennifer, anything you want to add or that was a mouthful.

I don't.

I think I want to go to Winnipeg and see the judge play. All right. So that's great wrapping up on the merger. I think that's a good run through the process, the time frame where you are your thoughts on kind of how the process is going. So let's jump to operations, right, how things are going. Jen, you mentioned volumes hitting at -- or I'll say volumes seem to be hitting at or near multiyear highs on a weekly basis, right? You're trending almost 170,000 carloads now on a regular basis, which I think not too long ago, you were down in the 150s, right? So you're now kind of running back at that premium full level. Talk about your view of -- on the market -- let's just start with the market backdrop -- broaden it a bit, right? How do you think the market is? Is this just a truck pricing is going through the roof, given capacity is coming out. That's the transition? Or when you started your opening comments, it was kind of really broad based on how do you think the backdrop is here?

Yes. I think that's an important point, Ken, is it is pretty broad-based, and that up 2% is with coal down 14%, which had been kind of one of the stabilizers in our volumes the last year or so. So I think that's a very positive commentary. It's also obviously supported by a very strong service product that we have and the strong business development efforts that Kenny and his team have put in not just to renew business with our customers, win new business with our customers, but also get them to put more facilities on our lines.

We continue to have more customers either to go through plant expansions or decide to put facilities on our lines that we can then serve or as Jim mentioned, we're not afraid to build into places either. So customers see that we're wanting their business and that we're willing to support their business, and that's a very strong positive. I think we'll see how we get through the summer months. But the fact that, that industrial business is up 3%, I take is a strong positive.

You've seen the ISM index improve some and some people are saying, well, is that just a short-term kind of restocking? Or is that actual demand? I think our sense is that you're starting to see some actual demand pickup there. And if we can see fuel prices come down and some of that pressure from an inflationary standpoint come out of the marketplace, I think that would be a further positive.

Yes. What about the -- also, I think, Jennifer, this is -- we have areas that are really growing in the U.S. that we serve in the western part, like whether it's in Texas and what's happening San Antonio towards the border, what's happening in Dallas, even in Houston and some of the products around there. Phoenix, there's still a lot of building going on in the Phoenix, lot of homes being built, multiple homes. So when we look at everything in the country, Denver, I can keep on going, Ken.

So for us, sometimes the high-level number tells you at this. And then when you look in the area that Union Pacific today serves, we see some real strength. And the good part is the number of products that we move. Son of a ***, we do coal, but we also -- people are aware and running shoes with the swoosh, we're probably moving them, right? If you're -- there's actually some Apple products that work -- that come on us. I got to be careful. Anybody who's a crook has just heard me say that. There's things that we move that are part of the general economy.

You brought up San Antonio, I just had to say. That's the only reaction I have to San Antonio.

Like you are such a New York [indiscernible]. Like if it's a New York team, that's it. That's all there is to it. I love it. Good for you. I said the judge [indiscernible] that was for a split in the railroad.

So service levels seem to be running at or near multiyear highs, right? You're blending this volumes and the service levels. What's the driving factor? What's the biggest bottleneck to then improving further?

Let me answer that?

It's really hard. And it's -- when you're running in the high 90s, which we are 97, 98, 99, we've hit 100, and that's measured against the service we sold to our customers. You don't want it to get higher. It's impossible to get to 101. That means we gave them the car the day before. That's not the win. You want to be able to do it against what we agreed. And what's been able to do that is to have a buffer on the railroad on how many -- what capacity we have.

And Ken, you've heard me say this before and Jennifer has already said it, we're running more business today than we did in 2019 when I came to Union Pacific, and we're running 24% less trains. And that capacity, we didn't take it out. So what we did was we were able to move it more efficiently on less trains.

And that just beats capacity for not just the number of people on engineering. You can give them better track time so that they can do more ties when they do capital programs, and we can keep on going through. All those things are real important. So you fundamentally have that and we've spent $1 billion in our terminals to make them more efficient, plus the way the culture is and how things get done, and we're able to expand and have that buffer in the rail yards so that we can recover when weather events.

Like I don't know if you guys know this, but we had a heck of a lot of rain and problems North of Texas in the Oklahoma area the last few days. And hopefully, you don't hear anything about it because that's the best thing. But at the end of the day, that's the way we look at it. Real important for us, but I'm happy with where we are.

So what's the most important? I think, Jen, you might have started with car miles per day. Is that the most important that you look at, Jim? Is it -- we used to -- we were taught to look at velocity and dwell, I guess those are public metrics that we go on. What do you look at as CEO as to say, yes, we're running both rounds.

Yes. Again, the reason I like car velocity is it gives you a measure of how fast you're moving railcars from when the customer releases the car or you place the car back at another customer or a receiver. Anything else is a subset that you can optimize, okay?

Somebody says train speed. Well, UP for a while there was not stopping trains to pick up railcars. They put a local on to go pick up 10 cars because they didn't want to impact their train speed. It didn't make a lot of sense to me. So we stopped for those 10 cars, right, because they can move them quicker and get them. So -- but every morning I get up, and I used to -- I go to bed at midnight and one of these days, it will change. But so far in my age, I still go to bed at midnight, get up to 06:00 in the morning.

And when I get up in the morning, I look at revenue first, okay? What did we do? Where's the trend line? And then if I need to break it down, it's really easy. One click and I got the breakdown of 58 commodities and where it's coming, what the last 7 were last month, quarter-to-date, all that. I love that. So revenue is really important to us. Then I go to car velocity, and I'm telling you, and it's what's top of my list, and they're pissing me off with how well we're using our locomotives because I think we should have more of them ready to go than in the fleet. So Eric knows I've been all over them on that.

So I look to make sure that we're headed at the right place. So it's a real easy scorecard. I don't know about everybody else on this call, but people want to tell you that when I give the UP, they told me they had scorecards that had green and orange and yellow and pink and watermelon and Guava and red and I said not quite that many. I exaggerate a little bit. But there was like 4 different colors. And I said, isn't it the way it should be? It's either green that you're delivering or red. That's what we do now. So it's real simple. Scorecard comes up. It's in color, simple guy like me from Omaha, I can read it real quick that way. And then it gives me some fun to be able to dig in first thing in the morning.

So I just learned you got 58 different commodities, and we only get 20. So sounds like you've got some learning to give us. I guess next one -- I'm going to blend 2 together here. So what kind of as customer sentiment seems to be picking up, I was going to get into Kenny and team in discussions for how that turns into a new rail business. But let's just blend that in with truck pricing now really breaking out of, kind of, historic bands on pricing, right? We're on a spot basis, right? We're taking out 2, 3 years of morass of excess capacity and seeing spot rates up at $2.20 per mile, right? So well above kind of the $1.65, we were at it for a decade.

So what does that mean for intermodal business? What does it mean for the railroads to win business? I think we went maybe a few years where the rails were losing business to truck. And now it seems like we've got a stretch going here of winning back. What's your thoughts on that?

Well, we don't like to get too excited over a short period of time, but I like the trend line. And I like what it does for us, both on a revenue side and volume side. And that's the way we look at it and opportunity and we need to work hard as an industry and I said Union Pacific to keep that business. And it doesn't matter if there's a change a little bit in how that number is. And the best way to do that, Ken, is have real high service.

If you could show customers that we can deliver, and it doesn't matter if it tightens up the spread. We'll take advantage of this as much as we can. And the nice part is we have the buffer of railroad to be able to do that. So we don't slow the place down too much, so I'm real happy where we are. That's the way I look at it. Jennifer?

Yes. I mean I think it's really going to be a chance for us to showcase the service product that we have, the capacity that we've added into our intermodal network. Since we won a couple of big contracts in 2022 and 2023 when the volumes are starting to go down, and we really haven't seen the benefit. I don't think fully of those contract wins. Now you see that business in intermodal.

[ Domestic ] intermodal.

Yes. Domestic.

Domestic intermodal. Okay. Truck companies with trucking legacy. All right. So that's great for intermodal on the domestic side, your latest thoughts on pricing here, right? So pricing, you've targeted price above inflation. We've heard lots of different things about how you position it in terms of on an absolute basis, on a dollar basis, how are things going now again, especially with truck pricing rising, your service levels or doing well? What's your thoughts on the pricing dynamic?

You have to price against where the market is. Like absolutely, our key goal is to increase price because inflation is happening to us, right? So you need to move ahead and bring more business in or do that. But at the end of the day, Ken, it's what does the market allow you to do? And the better we are at providing the customer a product that allows them to win in the marketplace, grow with us and make them more efficient so they save you have a different discussion on price. Kenny's job and his entire team is to know the market, price it properly. Now do I tell them? I'm joking, but I'm not joking.

But the amount of money that we're being paid on movement of some of those commodities that we have, we don't take very much, and we should be able to improve that as long as the service is at a high level. That's how we think. Sometimes you're going to have to drop price because this is a worldwide economy that we're fighting. This is not just America. The Canadians want to move more lumber into the U.S. The Brazilians want to move more soybeans into Mexico.

So it is complicated. And synthetic soda ash coming out of China is competing against soda ash exports that we have in Wyoming. So at the end of the day, it's complicated. But I think we've done a good job, and you can see that in our results to price in a real smart way so that we can beat with inflation is driving towards us.

I shouldn't -- the only thing I shouldn't take away is sometimes we have to drop price.

Listen, if anybody tells you that they're not, once in a while, okay, they want to walk away from a market then they're not doing their homework.

But back to the core, it is still to beat inflation, but inflation is now picking up a bit. We're up to 4%. Are we -- are we at that, I guess, historically 3.5%, 4.5%. Are we at that level, above that level?

No. We said coming into this year that we'd be able to yield price dollars on an absolute basis that exceed our inflation dollars, and we will.

Okay. And you will despite what's going on in the backdrop of inflation.

Yes. I mean fuel is not part of our inflation number because we have the surcharge, and that's separate.

That's just the timing pass-through of it when it goes through yes, and that's still a 2-month average?

It is, although when you look at the portfolio that we have that's in intermodal now, which is almost half of our business, those are on some more timely. So we probably don't have quite as much of a lag as we once stand.

Okay. I want to switch from domestic intermodal. You kind of talked about the wins and scaling of domestic -- international intermodal and that's about half the intermodal business, right?

We've not really ever sized that, I don't think.

Okay. You didn't get it in your case. Are we seeing -- so we're talking about international? Are we seeing an early peak season build at this point based on what you're hearing from the West Coast ports or...

No. No, we're not.

Nothing. So just still steady as she goes from your outlook.

And remember, there was a lot of movement of products because of the whole tariff discussion last year.

Last year?

Last year and then more discussion about after some of the court hearings and everything else. So when you go through everything, no, we don't see -- there's no pull ahead at this point.

Okay. All right. So Jen, I thought you gave a good rundown on kind of pull down grain up. What else was it? Auto, surprisingly kind of strong right now, intermodal up well ahead of, I think, our targets as well. Any impact on mix that you want to highlight based on this or highlight -- don't forget, I know you just talked about forest products, they're down, they're profitable. Is there anything you'd highlight in that mix?

No. I mean, coal is a little bit on the lower side of the mix calculation, international, intermodal. You've heard us say that that's our lowest average revenue per car business, and that's down. So those would both be positives that their volumes are down relative to mix. Grain and grain products is a positive. Industrial kind of overall, although you've got a little short haul rock in there, is generally positive. So as we're looking at mix for the quarter, it's probably going to be on the positive side of the ledger.

Okay. Talk about employees. Jim, you're at 28,600 down about 5% year-over-year, down 500 sequentially. You don't need to be too specific, but thoughts on where do you go from here? If the industry is stabilizing the backdrop, do you need to -- do we see efficiency gains? Is it steady as she goes from here? Have you done kind of what you need to do on the employee basis? Maybe just thoughts on scalability.

Well, one thing we have not done is we have not gone through a furlough or removal or dismissal of employees. We've taken the action through people using attrition and deciding whether we need to fill the jobs or not. And we think that's really important with where we are. A few years ago, I would have given you a different answer. We needed to accelerate that, but I like where we are right now, and we're going to continue to do that. And what we found is as more technology comes into the system, we're better off and we can make decisions in a different way that is going to be able to use less people.

And I'll give you an example is, it took us a long time to develop it, but the price that used to go out, everybody always thinks the trains, but we spend a lot of capital on renewal on our railroad, and we do millions of ties every year. But we just have to go out and put them on the ground piece by piece. It was my first job on the railroad was throwing them out of a gondola car and at least we mechanized it now, you could go use it. But now we've even taken the next step where we load them in a railcar and it spits them out exactly where you want them automatically.

So there isn't anybody handling them, and you can do it faster, better. That saves you on the number of people in the trains, the number of whether you have to run a train or not and whether you need to have people manage it. So we continue to see that benefit, use of technology to be able to do it better. I'll be honest, when I looked at it first time 5 years ago, I said son of a ***, I think this is a waste of capital. I wasn't sure the hardest thing was going to be, how do you load these ties into those slots to be able to get it, but I give our engineers credit.

We're a pretty interesting company. We have some pretty smart engineers. You know that we built the first chairlift in the world at Sun Valley, Idaho, Union Pacific. You did not know that. Just give me a little tidbit. So go take a look at it.

It was an engineer in Omaha. So UP was trying to get more people to ride the rails and they develop Sun Valley, Idaho and some engineer there said, boy, those rope poles and those things flattered at those getting people up to ski are crazy. So we actually developed a chair that moved on and it was the very first one. So we have people that are pretty smart that we hire.

Good backdrop, right. So I want to talk about the operating ratio a bit here. I know we're running towards the end of our time. So you did a sub-60 last year at 59.3. Do you have an incremental target in your head of as you go forward, I guess, stand alone before we talk about merger, is it 100, 150 that you like to see productivity gains per year.

Ken, I've known you for a number of years. You've asked me that question of 500x and the answer is always the same. I don't guide on operating ratio. When you guide on operating ratio, you gave the wrong signal of the people that are out there trying to make the decisions in the company to do the right thing.

Operating ratio is a result of everything you do on revenue, the price increase and the efficiency you have in the railroad. Do I -- our goal is to be the leader. I think we've done a pretty good job, I think the nearest -- the last was 300 or 400. 400, right? That's where we'd like to keep them. But at the end of the day, it's tough every day to keep that operating ratio. It goes up a little bit, it goes up a little bit, but I like it when it stabilizes and it's driven by what we're doing.

Well, now you know I'm going to follow that up with Jen. So your volumes are trending above target. He just said volumes. Your price is kind of above inflation. If we look at the last 5 years, 1Q to 2Q sequential improvement has been about 150 basis points. So you posted a 59.9% in the first quarter. Can we see relative outperformance? Or I guess it's not a specific numbers question, but it's like are there other things we should take into consideration, whether it's incentive comp or fuel or anything else that we should be aware of?

Fuel is the only thing I'd add to you. I mean, you know what fuel can do to our operating ratio, it certainly pushes it up and that's something that we're absolutely going to see an impact in the second quarter. But from a core operations standpoint, we are going to improve.

Yes. Okay. Fuel effects?

Fuel price.

All right. I'm going to wrap up one for each of you. Jen, generating a lot of free cash flow in the interim deal, right? So what are your thoughts of -- is it just using the cash to pay down debt? Is there anything you do with that while the deal seems to be getting extended. Jim gave a good reason why it's not going to get extended. But I would say, even versus his birthday target it's gone out a little bit, right?

Yes, it's gone on a little bit. But so yes, we're going to continue to prioritize paying down debt as it comes due, and then we're doing all we can to maximize the yield that we have on that excess cash in the interim.

Jim, at the end of your tenure, how do you measure success for UP, whether it ...

Did you just say at the end of my tenure?

Well, I'm going to give you hang on whether it's the next 3 to 5 years, it could be 5 years, 10 years, I'm not going to pinpoint you upon...

Do you ask every person that comes with grey hair?

I don't know when the mountain is backing you again. I don't when you need to go?

I'm ready to go. Go ahead. It's a good question.

How do you measure success when you look back?

You know what always what you need to do, basically, I could go on for an hour about a whole bunch of specifics. You have to leave the place better than you got it. And if you can do that and hand it off and it's your job, and it's my job to have the right leaders ready to go. It's my job to make sure that the Board has a couple of people internal ready to go so that we don't have to go.

I think it's a mistake on a company that's successful operationally, and we're in good shape that we need to go outside. So success for me will be the day I announce my retirement, unless they let me stay as the assistant CEO, okay? I just worry about operations and not do anything like this, but I don't think they will.

But so bottom line is the day I walk out of that place in Omaha is when we announce the person, everybody is going to say, son of a ***, this person is going to do better than Jim Vena and he's going to take it to the next step. That's the win. And I'm ready for it. I really am.

All right. Wonderful. So if I try and wrap up just kind of what we've kind of run through here. Merger on the timeline, right, just given that the STB has statutory deadlines of the 12 months and 90 days despite the advance. You're going to submit your responses in 2 tranches, maybe one in early July, maybe one by the deadline. I think it's probably 27th, right? And then you've got good mix so far, our volumes up 2% quarter-to-date trending ahead of our target about 200 basis points. Coal is down, but you've got good grain, good autos, pricing still target ahead of inflation. Margins looking good, just watch fuel. Anything else you'd want us to make sure we walk away from today in terms of how things are trending and service -- I'm sorry, is the service is really hitting really good levels.

And safety. We're continuing to improve our safety record as well.

So listen, you've been doing this for a long time. So the story is pretty good, right?

I mean again, I started with the volume sitting multiyear highs. When you get that and your service levels are doing well, the benefit of...

And you can see the benefit of single-line railroad, right? Because if not, I'll buy you personally a first-class ticket, but you're going through Kuala Lumpur to get back to New York.

I think you've made it crystal clear about the benefits of the TransCon and not only why it's good for you, but why it is good for [indiscernible].

Yes. I love it. Listen, Ken, nice seeing you again.

Thank you so much. Thank you.

Good afternoon, everyone. We'll get started with our keynote address. It's -- it really is with great pleasure that I'm going to introduce today our keynote speaker, Mr. Jim Vena. As all of you know, he's the Chief Executive Officer of Union Pacific Railroad. I'll do a quick intro. For those of you who are not familiar with Jim, he's been a railroader for more than four decades, lots of -- wealth of information and experience.

The vast majority of that was at Canadian National Railroad. He rose in the ranks, became COO there. Then he moved over to Union Pacific first as COO and then now as CEO. And I might have glossed over a few things in the meantime there, but...

I don't blame you. I don't blame you, Walter.

But 15 to 20 years I've known Jim. And I got to say he's not only a skilled railroader, but he's a phenomenal leader. He's -- and when we were looking and deliberating to try to find the keynote speaker for this event, we wanted to find someone that could speak to major forces of change.

And one that wouldn't just be railroad focused that could extend across multiple sectors. And I think we found that -- we also wanted somebody that wasn't going to be too theoretical or conceptual. We wanted someone that could give hands-on experience on affecting these changes. And entirely from a practical standpoint, I think we found it with Jim. I mean, he's lived and breathed some of the changes that we're going to talk about here. He could speak to them from experience, and I'm very, very delighted to have him on that.

Now what are the two courses of change that we're going to talk about here today. They are the notion of transformational change and consolidation. Those are two aspects that really have profound effects on a company, on the sector, and I think they're great topics for conversation here today.

No one better to speak about this than the leader who has been the key architect of precision scheduled railroading. For those of you in the railroad industry, you would have -- you'll be very familiar with that. But for those that aren't, it is a major -- it is swept over the railroad sector and over this past decade or two, and he's really been at the forefront of that.

The second thing is consolidation. Consolidation has been a major force of change within many sectors. And now Jim is leading the charge on perhaps one of the biggest -- the biggest railroad combination of all time within -- with Norfolk Southern.

So to drill into the dynamics of those two concepts, we're going to do the same format as we've been doing for this conference, and that's a fireside chat format. But before we dive into that, Jim, I think you have a few prepared comments to make.

You bet you. So -- before...

Start with this slide.

Before we started with the merger, this was like one paragraph. And now because of the merger, the lawyers got a hold of it. And basically, what it says is, I'm going to be making some forward-looking points, hopefully, nothing that's brand new, but Walter always seems to be able to get something out of me.

And if I do appreciate it, just go on our website, take a look at the what we've had or call Diana, who's here in the room with me and our team will fill you in if you want some more detail on what I say. So it's as simple as that. And hopefully, you all read it. So I thought we'd start with where we are as a company.

And that's really important for us in that we need to be at the right place. And if you take a look at fundamentally, we are -- I think this morning, we are something like $157 billion company. The reason we're $157 billion company is because we deliver on value to our shareholders with the revenue that we get. And that's really important for us to make sure that we understand that. And what is it that we are -- that we need to deliver we have to be safe.

We have to operate a safe railroad. We were the safest railroad in North America last year for employees coming to work and going home the same and not be injured. So that's a real good check mark. On the incident or accident side, we improved by double-digit improvement again year-over-year. We're not the best, and we want to be the best.

But guess what, our partner that we want to merge with was the best. You bring those two railroads together, you're able to learn and do things that actually win. Service in the railroad industry, anybody that follows it close will tell you that we give more information out than a lot of companies that were required to by statute. So we give train speed, we give different things.

All those have nothing to do with service. All those are numbers that give you a guide on how well maybe some operational metrics are what we call service is what we sold the customer, and that's really important. It's what we agreed to and what we're going to do. So we've ended up last year at the highest service level we've ever had both for intermodal and our merchandise business and our bulk business.

But on top of that, customers see it and we see customers looking at how we're being able to perform and rewarding us with some awards. Toyota just came out and we won 4 of the 5 awards they gave out for service and quality in the railroad industry. We won 4 of the 5. Now some people would be happy with that, but that's only 80%. So I said the Kenny and Eric get going, we need to, this year, get that last one. But at the end of the day, pretty happy with that.

And what's operational excellence. People talk about PSR, people talk about whatever. It's actually using the assets you have in a real smart way because we are asset intensive. We need to replace ties. We need to place rails. We need to make sure the locomotives run and the railcars and we want to use them as good as anybody. And our metrics will show you that we are consistently the last few years, the best at operational excellence.

Some people precipitated down to OR, which is margin -- us railroaders, I don't know why we try to screw that up. It's actually margin. So our OR is under 60, and that's a good place to be. We don't drive the railroad for that OR number, because what I don't want is the marketing people to worry about saying, I can't bring this business in because I might get the OR to go from 59.9 to 60, and we wouldn't be happy. I hate to tell you, if you could grow the business by $500 million, I'll take that 59.9 to 60. And then we'll work hard to figure out how to make it efficient. So that's who we are. This we didn't put the other rail peers on there. But for investors, you can see where we are.

In the first quarter, we beat our nearest competitor when it came to OR by over 400 basis points, which gives us a big gap, and it helps us in the way we price, it helps us the way we look at business, and it helps us on what we can bring in by being very efficient. And for our shareholders, highest return on invested capital. So pretty happy. If we can go to the next one, please. How are we doing this?

This one slide is just one snippet because it's what you do across the entire company operationally. But since 2019, when I joined UP, you know what you guys are all real serious. Why don't we have a little bit of fun. I wasn't coming back to work. I was real happy. I retired after 40 years of Canadian National, great company. Love the company still today. I spent a lot of time nights, days, I was an engineer on the ground, okay, a conductor switching boxcars, I was in the engineering department throwing ties out.

I never did like conductors too much because they worked us hard that time, but I got over it. It took me 20 years. At the end of the day, that's who I am. I grew up in the railroad from the ground up by accident. I never thought I was going to be a railroader.

So I'm retired, went to Mount Everest base camp a few times, north side, through Tibet, south side through Nepal, did [indiscernible] around it, went to Italy and France, went around the whole thing, down in South America, Grand Canyon down and up because people told me that you should never hike the Grand Canyon from the top to the bottom and back up in one day. So guess what Vena says. I think I can do it, 16 miles, over 5,000 feet of elevation gain. I did it in 7 hours, and I was at home by 6:00 having pasta and some beer, okay?

So love it. That's what I was doing, and I was enjoying myself. I came to Union Pacific in 2019 because of the challenge it is the biggest railroad in North America. We own more track miles owned than anybody else, 26,000 versus 21,000 and get the highest revenue. But at the end of the day, it was let's see what we could do with this at this railroad that's not optimized and what can we do to drive it to another place.

And this slide gives you a real good indication of that. We took a railroad. If you were operating the business that we're operating today, like we operated it back in 2019, we'd have 20 or percent more trains running we do today. So we did not take the system and take it down and remove assets and track.

What we did was, it's given us that buffer that we can grow and we can recover quicker. Now we've done that with train length. And today, we operate 24% less trains than we would have if we had the same model, and our speed is faster. Our customers are seeing less touch points in the cars, less time in the terminals and they get the destination quicker because our car velocity has gone from under -- in the 100s numbers to over 200.

And that moves the railcar from origin to destination. I can keep on going like I'd love to. Maybe when I retire I'll get on the speaking circuit, like a lot of these ex-CEOs talking about what they were doing back in 2014.

And and they were running a s***** railroad and they want to tell us now how the -- how to run this railroad, and we're running it better than they ever have. And I just say that out loud Walter?

Yes. You did. Yes.

I knew I'd get a little reaction from some of you. But it's amazing how people are experts after they retire. Jim Vena will not go on the speaking circuit. A day I retire okay? I'll leave with my two boxes out of my office. I will take the company playing home.

But at that point, you won't see me again. You want to come and see me. Come and see me in Scottsdale, Arizona in the winter time. The summer time come to Jasper, Alberta will go hiking, okay? Or in Sorrento, British Columbia on the lake there, that's just an absolutely gorgeous place. That's where I'll be with my grandkids, my kids, my family, my friends, you will not get me out here Walter to speak about the fricking railroads, okay?

Unless somebody says some bad things about me, then I'll come out of retirement for the day. So that's who we are. And I think it's a great picture of what we do. And we carry a buffer of locomotives and a buffer of people and a buffer of resources, because the recoverability makes a big difference in service. If it takes you a month to recover from a weather event, and guess what? That's bad for the customer and they look for options. Let's talk about the railroads for a minute.

Canadian National, we used to go through the yellowhead pass to get to Vancouver. Yellowhead pass the highest is just over 3,000 feet. It's not even 4,000 feet. Yes, we get some winter there. It's cold, we get some snow. But I'm telling you, this fricking UP when they built the railroad, who the heck put those mountains on the way to the West Coast of California.

We come out with like 6, 7 locomotives while CN can come out with 2 or 3, big difference in the railroad and big difference on it. Somebody decided that you put these mountains in a place where in our mainline coming out of the northern part of California, we get 500 to 800 inches of snow over the donor pass every winter. So it's sort of fun. I love it. But that's why I came back to work, and I like where we are, and I like what we're doing.

We probably want to hear a little bit about the merger. We thought this through very carefully. And in Canada, there's two railroads that go across the country. They go Canadian Pacific goes from St. John all the way to Vancouver and Canadian National goes from Halifax all the way to Vancouver and Prince Rupert.

They serve customers across the entire country. And I'm telling you, as an [indiscernible]. They do a good job on what they charge and as good as anybody to move the products. In the United States, there has not been a transcontinental railroad that will go from ocean East Coast to the West Coast. And I think we limit the capability of customers, shippers, suppliers to win in the marketplace because you're competing against more than just your local customer, you're competing against the world, whether it's in soybeans from Brazil coming into Mexico, whether it's steel from other places, whether it's copper, whether it's grain products, whether it's ethanol.

So at the end of the day, that's what we're building. The merger, when we put the first application in was, we thought, gave a good story and gave the metrics and everything that the STB, the regulator needed to go through. They gave us three key areas that we had to update when they didn't accept it, and they're also a couple of small ones. So in this application, we've answered those three questions. One was we've done a full asset view and full waybill view of the movement of traffic within the U.S. And that was before we did a sampling. And the reason we did the sampling and instead of the full was we just didn't have the information from all the railroads that would allow us to do the full waybill analysis.

But we received all the information and we've got it in there. It really didn't change the flows, the competitiveness. If I step back, we answered the questions pretty clear. And we were absolutely sure this was great for America. And here you are, you're listening to a person that was born in Italy.

People ask me the question sometimes are you Canadian, I love Canada. I love growing up in Canada. I wouldn't give -- I wouldn't change a thing that my parents came over with 2 suitcases and moved to Jasper, Alberta 37 years old, okay? I wouldn't change anything. I love the place. But I need an American railroad.

And my job is to lead an American railroad not to lead something else, okay? And my job is to make sure that we do the best for Union Pacific, its shareholders, its customers and what we can do in the nation in America to move it. We don't operate into Canada. We can affect what happens in Canada a little bit with the railroads, but that's it. So bottom line is, when we looked at the merger, we thought it was real good for the entire country. And that's why we put it forward. And I know Walter is going to have a whole bunch of questions.

The other two areas that people wanted to see was we have the small railroad, the number of railroads in the U.S. and even in Canada on. And it's a switching rail in St. Louis, that is operated as at the least cost because we don't want to make profit out of it, it's handling the interchange of traffic between the parties. So some of the railroads said that we needed to have more information, even though we said we don't want to ever own 50% of it, but that wasn't good enough.

So in this application, we bumped that up and said exactly what the process would be and how we'd get to the solution. And then the last one was the release of our document that gives you the red line at what point ourselves or Norfolk Southern could walk away from the deal. And that's normal when you're doing an $85 billion deal. You want to have some rules of the game. As simple as that. What does this do? It's a seamless operation. Think about it for a minute. I'm sure you've had some of the Canadian railroads up on stage, Walter.

And I bet you, not one of them came in here and said, "You know what, we're going to stop we think that the business is not quite as good, the railroads in Canada." We should stop in Winnipeg and sell the Eastern portion of our networks so that two other railroads could own them and will just interchange in Winnipeg. What you do is you limit the movement of goods. You don't do it at the same price. It's what we're going to offer faster service across the U.S. at less cost -- and the reason it's less cost is, and it's in our application, single-line railroad moves are substantially priced less than if you have multiple parties that need to make a profit on every piece of their movement.

And in fact, the reason we can do it cheaper and offer a different price is every time you set a railcar off to another railroad, someone has to switch that railcar. Somebody has to handle it before it gets to destination. And then the other railroad has to have the expense of picking up the railcar, switching it, putting it on a train and moving it. Those two steps are removed, and you can go seamlessly from Denver to Indiana. You can go from Michigan on the West Coast easier.

So that's what we're selling makes a whole bunch of sense, and those are the facts about where we are. At the end of it, how big are we going to be, because if I was a regulator, I would worry about it. Is it going to be that Union Pacific has 80% of the market. In actual fact, we're going to be less than 40% or around 40%. And on a gross ton basis, we're actually going to be the same size as Berkshire owned BNSF.

Is there going to be competition out there? CSX is still going to be there to compete against us. They are not -- and they're a strong, big railroad, well-run smart CEO over there, and he's doing everything he can to make them as efficient as possible to compete. In the West, we have Berkshire owned and Berkshire, let's get serious. This is not little BN. This is over $1 trillion company, Berkshire that owns assets in the oil and gas, owns an insurance everywhere else and has $400 billion in cash in the bank.

So they can do what they want to do. And if anybody thinks they're going to be an easy competitor, any customer that has Burlington Northern as our competitor today, we'll have it tomorrow. In the entire merger because it's bolt-on, there's only 5 customer locations that we have found that will go from 2 to 1. Maybe there's one more somewhere that we missed with one railcar that they ship a year and we'll fix that. So any customer that's going to go from 2 to 1 access, we'll open it up and put another railroad and have access to that customer.

Final point is on inter-switching reciprocal switching. In Canada, there's reciprocal switching. Anybody that's a certain distance from an interchange can get access to a customer. I'm all for that. I'm not afraid of doing that, and I've been very public about it, and I have been public for 10 years even before we talked about, okay, mergers, this merger.

Because I think if a customer has not provided the right level of service, then you should be able to have an option to go to somebody else. The only thing I ask is that the rules are simple that everybody understands what they are, and we don't pay a whole bunch of lawyers to fight about what the rules are. Lawyers hate that, right? They want the rules to be muddied up so that you spend all your time hiring these expensive law firms -- and listen, we did -- we have a few law firms right now that are helping us, and they're expensive.

I should have been a lawyer. It would have been -- no, I'm good. I love the railroad. The bottom line is that's who we are, that's what we're trying to do. We know the merger is good. And let me just say this, final point on the merger, and then we'll open it up for questions, Walter. I've taken a lot of time, I apologize.

But in business, stop and think about it for a minute. If you're a competitor in your market, in your business, was doing things that were illogical that were not good and their product was not going to be good. Would you complain. That have to be an idiot to complain. In fact, you should be sending them a card telling them how smart they are and how tough their competition is.

The reason we have the -- some of the other railroads complaining so hard is -- we're going to provide a level of service when you move products, okay, across the country at such a high level, because we get rid of touch points that they have to compete against that. So if you can't compete, and some of them are already trying to compete by having agreements with other railroads.

But those -- the problem with those in our history, they never stay for a long time because people get internal and look at themselves, and they have to do it on price. That's what they're worried about. They're going to have to drop their price in what they charge if they want to compete against the new Union Pacific.

While we do not have to because we get the advantage of the efficiency we get and not touch on railcars. I'm excited about this. I think it's -- personally, I think it's a slam dunk. I don't know why it's going to take the STB this long to get it approved. So with that, Walter, I'm good. I want Jennifer to come up here because she's probably better at this.

Yes. Yes, I mean you've touched on the two elements of change that we're looking to focus on, one being the transformational change of precision scheduled railroading brought into your industry. And really where I want to go is what is it? How does it work? And is there more -- are we going to see more either at UP in general, but in a combined entity as well, and then we can talk a bit about consolidation.

But perhaps you were one of the original architects of it, the late great Hunter Harrison, kind of created it, this notion of precision scheduled railroading. If you get in your own words, just describe what that is, how difficult it is to implement. It really is almost a cultural and full on operational change in an organization. How difficult was that to manage the first go and the second go around?

Well, listen, let's back up a little bit and maybe because we have some time to tell a little bit of history. You learn from great people and you learn from people in the business world, and I'm sure all of you have done that. You've met some people that you don't learn too much from, and you're glad that they're not working, you're not working for them. But there is some people that are real key. I was blessed having Paul Tellier as a CEO when he came in from government and did a spectacular job and made Canadian National into a publicly traded company before it was a Crown Corporation. And he did -- and his view of the world was you need to move fast.

You can't have too much bureaucracy, truly amazing from a guy that came from the government, but he did a spectacular job. Hunter Harrison comes on, and he was the first CEO I have ever worked for that could come out in the field and actually look at the operation to see how well you're doing.

He come out with a blank piece of paper and started asking you questions about how you were doing. And he really pushed you to think about what's possible, what can you actually do and how can you get better and that assets you needed to -- he had a few says, you have to sweat the assets and you don't build the church for Easter Sunday.

That point, I disagree with them on, okay? But at the end of the day, you learn. And that's how this whole efficiency of how you have to make sure you look inside the company and how you can do that. For the longest time, the railroads just didn't spend enough time to look at how they were operating. So he truly was -- he taught me a lot. And what -- and then I had -- I was blessed to have Claude [ Mongeau ] that was balanced in very strategic, very view of what -- and had a much more customer-centric view that you need to have.

Hunter would have cut to the last locomotive, while Claude was we need to look at what the customer is doing and how the relationship is. So I've taken all that. And when I went to Union Pacific and even at Canadian National, listen, we had some ORs at Canadian National that were in the 53s and change. That's a pretty good number. We've never been able to replicate that. I'm hoping to, but it's not like on the top of the list of things I want to do.

But at the end of it, what you need to do is it's first changing the culture of the people and what they look at and what they spend their time. This is First thing you need to teach the operating people is your #1 job is to make the railroad deliver on what the customer -- what we sold our customer and make sure that they get the product when what you promised.

Second is you need to spend all your time on how well the operation works and break it down piece by piece. And that end have the best measures so that you can see that and react quick if things aren't going the right way. When you put those things in place, you're able to drop your dwell time on how long it takes you to move a car through a terminal by 40%. You're able to move trains -- railcars faster by 25%. You're able to touch cars less so that you do that. And that's what it's about. But it's not just the operation. If everybody thinks it's just the trains, you need to have that culture through the engineering department on the miles of rail you have to inspect, the amount of ties you put in, how you can do it faster and better and you spend money on technology.

We've been able to spend money on technology that allow us to manage but also give us answers on the results. Nowadays, everybody talks about AI, and it's great. It really is. It gives you some information quick, especially generative and what you can get out of it. But at the end of the day, we've been trying to do that without the whole AI is look at the information that we get and come to a better solution.

And then you have to be top to bottom in the company aligned. You can't have a CEO that's a PR person or worried about how his cufflinks look or worried about what -- where he's going to go stay, where he's going to fly to, you need a CEO that puts his boots on the ground and goes out. I spend time on the ground. And I'm absolutely sure if you interviewed any of the frontline people at Union Pacific, they love it when I show up. No, they don't. The heat on them, make sure that the focus is on what we have to do. So I tried to give it on a high level, and hopefully, I answered that question.

Absolutely. And really, the next question, I often -- and you mentioned Paul Tellier, you mentioned Hunter Harrison. The Pig that Flew is a book that I recommend if anyone is interested in the Paul Tellier story, it's a really good synopsis of that. And then the Railroader is another good book that gives the authorized biography of Hunter Harrison. I thought it was a pretty interesting one.

But when PSR is "done" and you've got the efficiency that you want, my question is, are you there on Union Pacific right now? Because so often, I hear many managers say we're going to pivot to growth now and the growth doesn't seem to come in the way that we were kind of told. Where are you in that journey of PSR? And is there still more operating synergy and opportunity to have in -- at Union Pacific? Or are you going to wait it out until Norfolk Southern comes on and then open it all up again to operational improvement? Is there more left to go?

Walter, there's -- my view of the world of how to operate a railroad is you need to be very efficient, but you also have to grow your business. The best thing you can do is grow the business. Top line growth is and carload growth is the way it is. And we've done a good job at Union Pacific growing our business and at the same time as we want to get more efficient. I'm not into driving the efficiency to the point where it affects us on being able to grow our business. And we're starting to see that. Customers see on our domestic moves on autos, on auto parts, on aggregate, I can go through the whole list. You know what people sometimes think that they -- it's -- what we move is a railcar, but we actually move every week 30 billion pounds just at Union Pacific of products that are used every day by our customers.

Now I made that number big by multiplying out because we always like talking big. We're real routers, right? So we talk tons. But you multiply it out, and it's even bigger than that this week. We're running at about 168,000 railcars versus last year at 162,000. So nice growth. We're moving. Multiply the 163 times about 9 year 100 tons per car, multiplied times 2,000 tons. That's how you have the 30 billion. That's -- there's a lot of product we move. That's how we win is to grow that, Walter.

Let's move over to consolidation now. There's two aspects of consolidation, I think that brings significant merit to the railroad industry. And the first one is just the fact that you've shrunk your competitive base and 40 years in the industry, you can give us a sense of what it was like in the dark days and what consolidation did from the sector. And then we'll go into the more specific of Norfolk Southern. But in 1980, there were 39 Class I railroads.

Right now, there are 6, two in each region. Barriers to entry, obviously, are very high. Can you talk a bit about how consolidation affected your ability to do business, your ability to service the customer, deal with your competitors the whole gamut. And like I said before, I know in 2004, the railroad industry saw its renaissance. It wasn't like that before. And just talk a little bit about how consolidation played a role in that.

Well, listen, you just can't compete with customers if you're handing it off 8x to go across the U.S. like it used to, right? You handle it with Union Pacific and the C&W then the MoPac, then you go the North Western and then the Western and then the Southern and then you go deliver it. Every one of those steps cuts you 24 to 48 hours by the time you went across a truck is going to beat you in make 4 other trips. So the consolidation was important.

Is the consolidation control so much of the market that you say, listen, there's a problem with that. Railroads handle about 11% of the total freight traffic in the U.S. So you start there at 11%, and we actually have limited ourselves by not having an end-to-end movement from one part of the country to the other and the serving Walter as simple as that. I have -- I'm a collector of a few things: cars, vehicles. And also, I have a number of old railroad advertisement panels that they used to use before social media.

And I have one from World War II that talks about the 47 railroads that are all combined for the war effort. Canadian National is on there, the Central Vermont is on there, Union Pacific, C&W. So if I ever need a lesson on what happened there, I just go to that baby that's in my office and my home in Scottsdale and I take a look at it.

Yes. And now let's move now to Norfolk Southern -- we learn back in school that oftentimes acquisitions fail more often than they work. But it seems that in some sectors, they do tend to work very well. I used to cover the waste sector and certainly, the consolidation that there has been working very well. Railroads, it's worked very well.

What makes it and what concerns do you have when you look at an acquisition of a railroad with size of Norfolk Southern, never this size before. What do you worry about? And maybe you talk a little bit about system integration and so on when you touch on that answer?

Walter, I think I think we have been planning for how we will move ahead once the merger gets approved, it's not going to be easy. I'm not trying to say that it's easy, but we are very comfortable that we have the right process in place of how we would handle it. You deal with different cultures, people in the eastern part of the U.S. and at Norfolk Southern have a little bit different culture. -- like let's get serious. People from New Orleans are different than people from Omaha, right? Just culturally, weather-wise, everything else and the same thing from South Carolina to California.

So at the end of the day, we need to make sure that we do this in a very systematic step process, not be too hurried and do it in the right way. I have done it before, not at this scale, okay? I was the Senior Vice President when we brought on the EJ&E. I was in Western Canada when we brought in the BC Rail. So there is things that you need to do smart. The first step that we're going to take is guarantee a job for every unionized employee so that when they come to work, they know, anybody the very first day that we buy the company, we've guaranteed a job for life for every unionized employee.

We use attrition, okay? If we slow down and look at productivity, it runs about 7%. So it's pretty easy to sort of adjust things in the right way. So the very first thing we're going to do is not try to do the technical piece with the computer systems and everything else together. We can operate the railroad and get the operating plan in place and be able to provide a service for the customers. And we can do that pretty seamlessly by putting the two sort of operating plans together into one. Then we'll stop there, and we're going to have a customer advisory board and probably around 40 people or 45 people, we've analyzed that type of people that we want, and they're going to be shippers and movers of product with us so that we can do a check and balance to see if we're in the right place before we do that.

And we'll do their technical sort of net control, the base operating system into that railroad at the right time when we think we're ready. We did it at Union Pacific 2 Januaries ago, and that system is actually [indiscernible] you, we built it, and it is an upgrade on the key foundation program that operates our railroad. All the design, all the payments, everything, the car records all come from that.

And also, we have to do that because you could not go backwards, once you shut the other system down, you lose some time. And the worst thing you could do it takes you a long time to recover all those records if you lost them. And we were able to do that seamlessly. Nobody even heard about it. We did it over a weekend. We had a lot of people working on it, and we'll do the same thing with everything at Norfolk Southern.

I'm not saying it's going to be easy, but we are absolutely sure that we can do this and do this right so that we don't get the same and times have changed. People talk about -- it's amazing, okay? People talk about the 1990s, there was a problem with railroad mergers. In 1990, did any of you have cell phones. Did any of you be able to get information the way we get it today. Can you ask AI take a picture yourself and say, is this the ugliest haircut you've ever had, and it gives you an answer, okay?

So at the end of the day, times have changed, and we have better information, better information flow better ways to react. So I'm very comfortable that we'll be systematic, and we put it in place Walter in a great way.

Let's move on to the regulator decision and the topic of concessions. You've had the the $750 million number out there, how magical is that? Maybe if you could talk a little bit about what hands are in the air right now, what you would be willing and where do you see it logical to give up concessions and where you'd be a little more.

Well, this is truly a bolt-on bolt-on. So what it is, is we are combining in places where we meet today. So it's pretty hard to come up with any concessions. What would we give away, right? So at the end of that, we came up with the $750 million because we -- when we looked at it, originally when we put the application in and real early that we thought there would be some loss in business while we were waiting for the merger to have to get approved.

But when we've looked at it again, we really -- other than a little bit of overlap, we don't see a lot of area where we have to make some adjustments. The TRA, that terminal, we're going to give up some. That's not financial hit for us. So it's a real low number. It's nowhere near $750 million. That was where we started. And that's why when we put the application in and we've been pretty clear on it, that we think the concessions are 0.

Now will we sit down and talk to people, you're better off to be -- to have your neighbor, except that it's a good thing that we're doing. But what I'm not going to do. I'm not going to tell my neighbor, he can park on my driveway. Okay? I don't know if any of you in this room would do that, but we have two driveways and they want to come over to my driveway because I bought the house next door. That's not going to happen. Now if you want my driveway, I'll charge you monthly $500 a month to park your vehicle in my driveway, but you're not getting it for free. So Walter, let's get serious here. Let me add a lot of overlap. People would love it to get something for free. I'm not into giving anybody anything for free.

What do you -- just to wrap up here, how do you look at in the future when you go 10 years from now and Union Pacific has done its deal with Norfolk Southern -- how does it look? And -- has there been other deals? Do you think that this trail blaze is now a way to open the door to other deals so that we get more consolidation in the sector? .

I think five years down the road, American customer and shippers on the railroad are going to say son of a gun, why didn't they do that five years before? Because it worked, makes sense, we can compete better. On the railroad of the industry, absolutely when they figure -- they know it already that they say, holy cow, what are we going to do? Walter, let's get serious. CSX wanted to merge with us. It's out there. I would say it publicly.

So it isn't like they didn't see the value of a merger. So they would love to merge. The only problem they have is at this point, Berkshire has said, no, -- and so far, none of the Canadians have stepped up to see what they could do. Up to them, I'm not worried about what they do. I think there will be some more consolidation. I think we provide better service to customers.

I think the customers see a win, whether there's 6 railroads, 5 railroads or whatever that number is. It's a win-win. And I'll be happy. I'll be smoking my cigar, having a good Irish 27-year-old redbreast whiskey, watching my grandkids or great grandkids enjoying themselves. And I'll tell you, I won't even be thinking of all of you on the railroad. Okay. So thank you very much Walter.

No, thank you very much for your time, Jim. I appreciate it. Thank you.

Thank you.

All right, morning, everyone. We're going to get going with our next session. We are now at the transport portion of the conference, starting with Union Pacific. I'm really happy to have Jim Vena, CEO; and Jennifer Hamann, CFO, back at our conference. Thank you guys for being here. Jim and Jennifer have a quick couple of opening comments and some slides to show, and then we will get right into questions. So I'll pass it off to you. Thank you, Jim. Thank you, Jennifer.

Perfect. Listen, I'm looking forward to the questions. So let me see if I can get this done in 1 minute. Okay. So real quick, morning. We already ran into each other, Scott. So wonderful. Of course, Jennifer is here with me and if we really run into trouble, Diana's here with us, okay? They always get me to tell you that we're going to make some forward-looking statements. If you have any -- you need any more clarification of something that Jennifer says wrong then just make sure that you give us a call, okay? And if we go to Slide 3, and this is real important about the base of where we are, you can see our strong execution continues to deliver industry-leading across safety, service and operational excellence.

And we enter 2026 in a real strong and the first quarter is very similar to what we did in 2025. So real happy. We led in the industry in return on invested capital [ NOR ] and did the same thing in the first quarter. And in fact, our nearest competitor is about 400 basis points behind us. So that's a good place for us to be where we can provide service to our customers, provide our investors a view of what we can do and how we move ahead. So we're real happy with that. And we're delivering that at a real high service level. In fact, to the point where Kenny and his team no longer have to worry about the first question being how our service is they go out there and sell the business. And that's a good place to be as a company. A lot of hard work by a lot of people out in the field. And Jennifer, over to you.

I had you closer to 2 minutes than one, by the way.

I apologize. I'm telling you, I'm getting slow.

I'll make up time here. So just a quick business update for you. So right now, quarter-to-date, our volumes are up about 1%, and that is certainly supported by the strong service product that Jim referred to. But it also gives you a picture of the great diversity of the UP franchise. When you look at how we've broken out in terms of how business is shaping up for us today. So right now, up 1%, as I mentioned, but that's with bulk flat so that's a little bit different than the first quarter. You still have grain and grain products that are up, call it, 10%, 11%. But our coal volumes are actually down year-over-year here in the first quarter, down about 14%.

And that's really driven by a couple of things. Certainly, we've lapped on a year-over-year basis, the contract win that we had last year with LCRA, but then you see kind of the normal shoulder season, a little bit milder spring weather. You've had a few plant outages, the normal seasonal maintenance that's going on and then lower natural gas prices impacting us on the coal side right now. We expect that to come back some as we get into the summer months, but that's the dynamic we have here in the second quarter. Industrial, really the heart and soul of the UP franchise, up 4% that's a great service, that's great business development, about 6% growth in Industrial Chemicals and Plastics, low natural gas prices, stronger export demand. You also have metals and minerals up about 5%, strong construction business in the southern part of our network.

And then on the premium side, down 1%, that's a bit of a mixed bag. You've got international intermodal, which everyone knows the story there, the comparison year-over-year. We're actually hitting kind of the low point of that comparison. We're going to start seeing it get a little bit tougher here as we build through June and July, and then we'll look a little bit softer through the rest of 2026 in terms of that comparison. But then you've got continued strength on the domestic side. So as you heard Kenny talk about it, our first quarter earnings, 3 consecutive quarters of record domestic growth, having another very strong domestic quarter here in the second quarter and the finished vehicles are up.

So a little bit of strength on the finished vehicle side as well. Last thing I'll just mention is fuel. So need to talk about fuel a little bit. It continues to have an impact, you saw a strong rise in fuel prices going from March to April. April prices, we were paying around $4 a gallon. It's actually gone up some in May, closer to $4.25 a gallon. So that is a little bit of a headwind for us that we're facing, certainly.

Perfect. Why don't we go to the next slide? You're a little slow this morning Diana, okay? And didn't you guys love it. I was directing people to empty seats. There's a couple more over here. If you guys want to sit down, but otherwise, you can stand up. Bottom line is on the merger front, just a quick update is as we put the application in, it's going through the process. Now what did we do in the application. There are some key areas what the STB asked us to do when we put the original application in and they gave us the feedback and said that we needed to work out some, one was to take a look at the -- how the traffic moved and competitive review which we've done. In fact, before we were using the sampling of waybills and sampling the information. And this time, because we were able to receive all the information from the other railroads, we actually ran it as a complete using all waybill data.

And really, it didn't change very much. It was a little tweak on a few things. But overall, the sampling did a pretty good job of setting it up. So we answered that question. There was a question about the release in that 5.8 document, which talked about where, at what point we at Union Pacific had the right to walk away from the deal, if it truly became non additive to our business. And that's what this is all about is would it add to our business. Now of course, we didn't put the highest number in there, and we negotiated at the right place so that we can then start talking about options if we had to. So we've put that out there. And then there was some smaller things like the TRRA, which is a not-for-profit switching railroad in St. Louis that a number of us own and with the merger, we would have ended up owning over 50%.

It also has the liability and the problem that it has bridges that go across the Mississippi. So we actually -- they wanted us to answer a little clearer, and we were black and white about it. I thought we were black and white in the first, but there was a lot of feedback from other railroads that said that we weren't black enough -- black and white enough. So this time, we're pretty black and white. We're willing -- we will make sure that we will not get to 50% ownership.

So either turn back shares or turn them into nonvoting shares, whatever we need to do. But you guys will find this real interesting, and it sort of tells you about our competition. Our competition are the people, other railroads that rolled in that they weren't comfortable with that. So when we put it in, as soon as we received the feedback, we actually called the special meeting of the Board for the TRRA and asked all the railroads to come in so that we could talk about how we could dispose of our shares or the NS shares if we close -- when we close on the deal. I hate to tell you, nobody showed up even though they were supposed to. So at the end of the day, we've answered it in the application, but it goes to show you what we're up against trying to be reasonable to get to a place where the STB can actually look at the merger and look at the benefits.

The benefits haven't changed. And in fact, we're much more confident with the benefits now. It is good for America. It is going to allow us to offer our customers a seamless movement over the railroad from one end of the country to the other. And that is not a small thing. That enhances the capability of our customers to compete against the world and other countries and other companies, and it also enhances their capability to be able to move things in a seamless, faster manner across the United States of America. So for us, we see even better movement of products through. We haven't backed off. We think it was real important for us to tell our unionized employees that they have a job for life. And of course, listen, any time you're going through something like this, we expected at some unions, we're going to be positive about it.

And our largest union, Smart-TD actually came out real fast and said, "Let's make a deal that talks about maybe what the mechanism and how it works." But the guarantee of a job was there already. In fact, the way it works at our railroad, the Brotherhood of Locomotive Engineer and Trainmen, who are part of the Teamsters is one of the parties that has not come on board to support this. But in actual fact, their employees are already protected. If you're -- because I'm a locomotive engineer, I'll tell you how it works, if you're a locomotive engineer, you came from the conductors ranks, meaning that you were covered by smart-TD so if somebody -- if we had to sort of adjust headcount in any place with the BLET, they actually would flow back to be a conductor and would be covered under the Smart-TD so we don't really need a deal.

So the majority, over 80% of our employees are covered with deals that we have with the unions. So the last thing is competition and how we can enhance it. There's no ifs, ands or buts that we're going to have a better product against trucks in the long-haul market. And we also are going to have a better product in the shorter market that is underserved today. So we're very confident that we've shown and even more confident than when we put the first application in that we'll get this accepted, and we'll go to the next step, which is, let's go make our case and analyze it and see what happens next. So I think I tried to cover everything off, Scott, so we could talk about our first quarter and where we are, but it's all back to you.

All right. Fantastic. Thank you, Jim. Thank you, Jennifer. So I'll start on some merger questions, then we'll get into the business. So you talked -- you gave us a bunch there, Jim. So we are -- we'll get the decision from the Board next week if the application is complete. So just 2 questions. We've -- you've obviously talked about what enhancements you made to the application. Anything from some of the comments from the other rails, since you submitted that give you any pause for concern? And then I'm sure you love hypotheticals. But hypothetically, if once again, the merger is not complete, where do we go from there?

So why do we start with the comments that have gone in? We answered the comments pretty straightforward, and it truly is a game of lawyers now. Everybody has hired a whole bunch of lawyers and firms from across the country and a lot of them are here in New York, and they go through and they tell you what they feel. Fundamentally, we answered the questions that the STB asked us to. We didn't -- on purpose, we didn't try to add another 1,000 items in there or more detail on some of the things. And that's what people miss, if someone tells you that this is the area you need to look at because we didn't accept at the first time for these 3 plus they issue a number of small little things, then that's what we went and answered.

So at the end of the day, we're absolutely sure that the STB should take that we've answered those questions, we've given them the answers that they wanted. We've provided in the application, and we expect it next week to be accepted. Will the STB come and ask us for more information, absolutely. As we go through this process, I'm absolutely sure that the STB will say, Union Pacific, can you do this? Can you take a look at this for us? Can you give us this flow? Do we make sure that maybe they need to understand the piece of it? Remember, it's not the other railroads that are going to make the decision. They are our competitor. They are -- in most things in this world A third party would not listen to a competitor. I think a competitor is going to look internal to their view in what they want, not what's the benefit of what Union Pacific is doing.

And you can see that when I gave the example with the TRRA that they wanted us to answer the question and when we asked -- called the special meeting of the Board at the TRRA, Berkshire-owned Burlington Northern Santa Fe didn't show up. And I could go on the rest of the railroad. You guys know who owns it. And it's a not-for-profit railroad. So the STB, they're smart, okay? From everything I've seen with Patrick and Michelle and Karen and the new person that's close to joining. At the end of the day, they're going to look at the facts of what we're presenting. And we're pretty clear on what the facts are that it's a gain. So I'm telling you, I would be really surprised, okay? That the STB would -- at this point, when we've answered their questions. I don't know, it'd be like going up to a teacher that said, you need to answer question 1, 2 and 3 for me and you go answer question 1, 2 and 3 and then they come up with question #4. Nobody would be happy. Your parents would go in and yell and scream at the teacher.

All right. So you feel confident about the application being deemed complete. We were at our conference a year ago, sort of dancing around the idea of M&A, like we've been talking about this for a year. We haven't even gotten to the part of the process where we actually talk about the merits of the merger itself. So that starts in theory starting next week and that, give or take, is a year, right? So maybe let's spend a minute or 2 there. So at its simplest form, right, you need to demonstrate 2 things: that it's in the public interest, and that enhances competition. I think everything you've talked about with trucks and everything, I think you've made it laid out, others can disagree, but I think you've laid out a case for why it's in the public interest. I think you've laid out a case for why it enhances competition with truck, right? Where I think there's probably more debate is does this enhance rail-to-rail competition and so I guess 2 questions. One, how does it enhance rail-to-rail competition?

And two, do you have a sense from the Board, are they looking at competition? Or are they looking at competition, meaning are they looking globally at competition globally truck? Or are they going to look at just intermodal rail to rail? What do they care more about?

Let's start at a high level. Any agency in the United States of America, okay, federal or state, their primary goal should be how you move business forward, how do you provide better service to people, how to move better competition, how to do things that are better. Nobody would ever get an agency to slice and just say, let's just look at it from one front, okay? And in this, it would be remiss if the only thing the STB looked at was rail only. Really, nobody wants trucks off of the highway. Really, nobody wants to compete against the soybean producers in Brazil. Really, nobody wants to make sure that the competition is out there to move products in a much more seamless, faster method. Nobody in the U.S. should worry that the Canadians and good for them, okay? People will ask me, aren't you Canadian, I lead a U.S. company.

It doesn't matter whether I lived in Canada. I hate to tell you, when you take the responsibility and it's the stupidest question I ever get, aren't you Canadian? It's like don't you feel something about -- don't you feel something about? No, we're in competition. And the Canadian government is spending $5 billion to expand intermodal facilities, ports in Quebec and in the West Coast, in those products, the size of the expansion is not to move that product in Canada, it's to move it with jobs in Canada to come into the U.S. So should any agency look at the entire picture of what happens? Absolutely. And listen, some of the rules that were written go back to when the railroads were absolute, there was no highway -- interstate highway system. They go back so far that people talked about the power of the railroad. We are low double-digit movement of goods in the United States of America.

Even though every week at Union Pacific, we move 30 billion pounds. I tried to make that number big, so I multiplied it out, okay, to make it pounds. But we move 30 billion, but we're still a fraction of what is moved by truck. So I'm not trying to be political on that. It just makes sense. It would be remiss. Now on the rail-to-rail competition, what have you seen since we announced the merger, it's amazing, all these things that are going to -- that we're already in the chute, right, cooperation and everything else. It's amazing how many things were in the chute, just waiting for us to announce the merger before they put trains on that would run from Mexico to the East or from the West Coast to the East Coast a little more seamless. But what we're going to deliver that enhances what's the word enhance mean?

And I know there's people in this room that have written that I've read, they can't -- they seem to not understand what the word enhanced is, go in the dictionary, enhanced is to make it better. So what we're going to be able to offer is seamless at a less cost and less price for our customers. That enhances their capability to expand their markets. And why? You remove a touch point when we hand off the car to another railroad and that expense of picking up the railcar, that's expensive. That goes away. We're able to offer it. The rates you'll see it in our application, single-line rates are substantially less because of that. So our customers should be able to have better rates because we set our rates not by some dark board in a room, we set it with what the market and what the capability of the market that we can move and understand the market we're moving that product.

So we're going to enhance in speed, that's better. We're going to enhance in touch points, that's better. If you remove touch points, you actually become a safer railroad. The less you have to touch a railcar switching it with a human and everything else. At Union Pacific, we have -- last year, we were the safest railroad in regards to people coming home and -- coming to work and going home the same as they were before, but our accident ratio dropped substantially, and it's online. People want to go find it. FRA has it. We have it. Go ahead and take a look at that. And one of the pieces we've done is invest in technology, but also it's removing touch points on cars. Any time you can stop touching the car 2 or 3 times the railcar to get from Houston to Minneapolis and you can do it seamlessly better and that's what we're going to offer. So what's enhanced, Scott? I don't know about you guys.

You guys must not think that being able to fly across the country for people that don't know the railroad industry real well, okay? For those of you that want to fly across the country, I guess you're okay with having only regional airlines because it can't be an enhancement to be able to fly from New York to L.A., you'd love to stop in Chicago, get off, buy a new ticket, make sure your luggage makes the connection, make sure that if you change terminal, you're okay. And of course, the other airline is going to wait for you when the first one was late. So mamma mia like what are we talking about? How much more enhancement can there be.

Well, CGP and open gateways.

Certainly, part of what you're saying, it sounds like is this is in the public interest, which should be the most important thing.

And enhanced like -- let's get serious here, okay. So we both serve customers in the Houston area, okay? And if you want to move when the combined Norfolk Southern, we're going to give you a seamless move all the way to Philadelphia. The other guy has to hand it off. I don't know. Last time I looked, that's an enhancement from what we're doing today. They're going to need less railcars, less inventory to move it. Scott, I guess you can see I'm a little -- I find it funny that people can't figure out that, that is an enhanced product. And what are the competitors going to do? You're all businessmen in here. You're all smart. If you can't compete in service because you can't move it as fast and you can't compete, okay, in touch points, what's your only option. You have to compete on price now. So you have to lower your price to be able to compete against the new Union Pacific. That's what they're all worried about. Otherwise, they wouldn't be speaking up.

You're assuming application deemed complete.

You agree with me on that last point?

I understand exactly what you're trying to say. Do you have any sense, expedite time line from here, not? Is this 12 months, 15 months? What -- any quick thought on that?

The first time line that we received from the STB would say that once they accept, it will be close to a year, okay? I get to that point. But we knew it was going to take a long time Scott, if anybody -- of course, I went out there and pushed hard to say, I'd like to have it for my birthday, which is on August 17 this year. Yes, you could dream, okay, for what you want but when you don't control it, it's like when I put my taxes on that are about this thick with the IRS. Sometimes they surprise you.

You offered competitive gateway pricing, guaranteed union jobs, but some would say you didn't offer specific concessions around reciprocal switching terminal access, whatever that may be.

We have been very clear on reciprocal switch. And I can't believe that people don't get this. And we said we are all for reciprocal switching. If we don't deliver for our customers, they should have an option. So somebody who doesn't have an option that today is a single origin person somewhere on our network that we would be more than willing to open it up. All I ask is that everybody does that. So it's not just Union Pacific. And why? If you have the highest level of service in the industry, you're the fastest real good safety metrics, right, and the lowest OR that allows you to make sure that you price in a smart way. I hate to tell you, I think we win.

So absolutely, I've given that. And the only problem I've had is I'm willing to sign it. If you have the rest of the CEOs in there, get them to sign a piece of paper, I'll sign it at the bottom. Open reciprocal switching for anybody, okay, as long as it's the same. And the rules have got to be...

He is right outside.

Well, there's a whole bunch more than one person from Canada. Okay, there's a -- you have to do it so that it's not so complicated that you -- that the lawyers have to deal with it. I like the system that they have in Canada. It works. It sets what the rates are. Everybody knows it and let's go. Let's go compete.

Do you sense there's any potential for that with any of the other rails.

I don't have the right to do that.

But that's what the Board has proposed and we filed comments in support of what the Board proposed.

So, we're good with that.

Jennifer, just a couple of numbers questions on the application, if I can.

Let's go back to the concessions because we -- I sort of jumped on one and you're trying to move on to another question, Scott. Okay, bottom line on concessions. This is an end-to-end merger. This is not a duplication. If it was a duplication, of course, we'd have to give access to a whole bunch of different properties and everything else. And we do understand that we're going to have 3 lines between St. Louis and Kansas City and we're going to have to do something there. And we'll work through the process and we're talking to a number of people to be able to get that done.

But those things are complicated. It takes a while to get them done. But the rest of it, yes, how do you handle the Belt Railroad? Pretty easy. We're 16% owners, and we don't really care. It's a not-for-profit railroad. We don't use it a lot, and we want to use it less because we want to handle it ourselves. So all those little things where we touch but what is it that we want to give up? There's only 5 customers and maybe somebody will find the sixth or a seventh somewhere but any customer, but we're talking about a real low number out of the thousands of customers we have that are going to go from 2 to 1.

And we said, anybody that goes from 2 to 1 customer location, not even just customer that we'll open it up for another railroad to get in. So plus committed gateway plus we said that we are going to keep every gateway open. What else am I supposed to give like -- listen, if I was one of the other railroads, I'd love to get access to Denver, but I'm willing to trade that for access to Toronto anytime they want, but I'm not going to give it away. And we'll walk away. Scott, let's get serious here. This deal has to be better for the company for Union Pacific. Has to be able to grow the business and has to be better for our investors. If it isn't, we're pretty good as a stand-alone company, and I'm not worried about walking away from it, okay?

Quickly, if you can, like how do you think about what that comment you just made, relative to the $750 million in the...

Well, we had to start somewhere. When you're starting the process, you think about how the negotiation went, okay? You're moving through -- anybody who's done an $85 billion deal, I've never done it before. So it's a big deal. I think it was the biggest deal last year in the U.S., okay? So you identify a whole bunch of things pretty quick because you want to get to the point because otherwise, the rumors start going out and you get a whole bunch of noise. And when we originally looked at it, we said, worst-case scenario, what's it look like. And some people internally at UP said it could be that much. And some of it was lost in business, right? It was going to be some business that moved over to CSX that it was originally at Norfolk Southern. But when we actually went through it, when we put the application in the first time, we just couldn't come up to that number anymore. And that's why we said the concession number is way lower. Is it 0? No, it's not, but it's not $750 million.

Jennifer, quickly if we can. The revenue synergies from -- the EBITDA synergies from revenue originally was $2 billion, now it's $1.8 billion and then we went from 900 union jobs to 1,200, but the cost synergies stayed at $1 billion. So just quick thoughts on those 2 things.

Yes. So I mean on the revenue piece, it's mix of business. So once we had the full waybill file and we're able to do the very complete analysis, which is unique, no other railroad has done that in a merger application. So there was no sampling. It's a complete analysis of all the waybill files for the railroads. We saw that more of the business was going to be coming off the truck. More of it was going to be intermodal and that's just a mix shift in terms of the revenue EBITDA. So that's pretty easy to understand. With that growth in traffic, you need a few more train and engine people to do that. So that's the difference in people. The reason the synergies on the cost side didn't change is although you see a little growth on the labor cost, as we've continued to look at this, we continue to get more bullish about what the opportunities are. And so there was more opportunities on the transportation side in terms of how we were going to flow traffic and run the network that we saw additional savings. And those 2 just happen to net each other out to be still in that $1 billion range.

And then just also quickly, Jennifer, the -- from your update on Q2, just how is mix trending? And then your comments about fuel being a little bit higher. Any sort of near-term thoughts about how to think about operating ratio in that light.

Well, on that last part, I mean, fuel does pressure the operating ratio. And so we're certainly seeing that with fuel. Like I said, we're paying about $4.20 a gallon here. We do have a little bit of a lag in our surcharge mechanisms, and so that will flow through. But just the way the math works, it pressures the margins. On the mix piece, coal being down in the quarter, more growth on the domestic side, more short-haul rock business, that's going to probably pressure mix a little bit, but still feel positive overall.

Helps on the EPS side, hurts a little bit on the margin side, right?

And then I know we're going over. Just, Jim, one just last question I just wanted to ask you, you made a comment when Ken meets with customers, he doesn't have to talk about service anymore. Service has been really good, right? Volumes have been good, right? Productivity trends have been really good. To me, like the one missing piece in the story has been price that it's been fine. But like it's not -- it doesn't feel like it maybe what it used to be, right? When do you think we get back there? Can we get back there? When do you think we get back there?

Well, if you take a look at the mix of traffic that we have, some of it is by tariff. Some of it is by contracts. Some of them it is by multiyear contracts. So it takes a while for those things to come together. Also, there's been an impact. We have some contracts that are tied to what the costs are with some domestic trucking and everything else. So all those things make it a lot harder. I like where we are, though. You need to have the railroad on the fundamental right place so that you don't go in and have to worry about trying to explain why your service isn't delivering what you sold the customer. So I think I see positivity. Now the best thing that can happen is the economy in the U.S. continues to grow, continues to be able to have more capability.

The worst thing that could happen is if we see a downturn, and that's not what we're seeing. So for all the products that we move and you name it, we touch it, okay? Whether it's auto parts and autos, even autos have bumped up a little bit for us. You can see that in the carloads. You can see the domestic business running. So the consumer is still out there selling (sic) [ spending ]. That will help us on price and how we move ahead because I'm with you. We have a lot of discussions and a lot of deep dives with Kenny and the marketing team to say, let's get serious. We don't think we're in the right place with price against what the level of service and what the customers have gained. And what have they gained with Union Pacific.

If you can increase your car velocity by 15% or where we were. In 2019, when I showed up, we were in the 100 numbers, and now we're in the 200 numbers. So you just were able to tell every customer that they have to have less railcars because we're going to get them from origin to destination quicker. We've removed touch points. We're safer. All those things add up to go. So for us, it's pretty simple is as price is not -- Scott, and I agree with you. We need to do a better job and Kenny needs to do a better job to do that.

But let me finish off with this real quick point. Where is Union Pacific today? Union Pacific has a 25% less trains operating with more business than we had in 2019. We did not rip up track, we did not rip up capacity. In fact, we spent billions of dollars in our terminals to make them more efficient so that they can handle railcars in a quicker manner, and that's why you see the dwell being where it is at Union Pacific. So we're armed for any growth that comes to us. There's some pockets where, of course, we're going to invest to make it even more efficient, and we have that capability. So I'm pretty excited. Am I a little bit over on the next speaker?

You're a little over, so you're off the hook on the aren't you a Canadian question.

Go ahead, ask. Okay. Thank you very much, Scott. Thank you, everybody.

Thank you, Jen. Thank you, Vena.

Greetings, and welcome to the Union Pacific's First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, and slides for today's presentation are available on Union Pacific's website.

It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin.

Well, good morning, everyone. Thanks for joining us. It's a wonderful morning here in Omaha a railroad and a little bit of rain coming down, but nothing that wouldn't stop men and women of Union Pacific from going out there and delivering. So really excited to be here and excited to review our first quarter and then take your questions.

So of course, I'm joined here by the regular crew. We have the Chief Financial Officer with me, Jennifer Hamann. Got Eric. Eric railroad looks pretty good this morning. So excellent job our Executive Vice President of Operations. And of course, Executive Vice President of Marketing and Sales, Kenny Rocker.

Now why don't we just go through the highlights real quick before I turn it over to Jennifer. If we go over to Slide 4, 2026 started strong as we delivered record first quarter results. Again, we showed who we are executing on new opportunities and raising the bar on what's possible for ourselves and the industry. And it's really important that we see that strength reflected in our bottom line as we reported first quarter records in operating income and net income.

For the quarter, reported net income of $1.7 billion grew 5%, earnings per share of $2.87 increased 6%, and we've improved our operating ratio. Excluding merger costs, our adjusted net income was up 7%, EPS of $2.93 increased 9%, and our operating ratio improved 80 basis points to 59.9%. These are strong results that reflect what's possible when the team consistently executes at a high level.

Now I'll let the team walk you through the quarter in more detail and then come back and wrap it up before we go to Q&A. Jennifer? Why don't we do the first quarter financials, please?

All right. Thank you, Jim, and good morning, everyone. Let me begin with the walk down of our first quarter income statement on Slide 6, where our operating revenue of $6.2 billion increased 3% versus last year as freight revenue of $5.9 billion grew 4% on 1% lower volume. Digging into the drivers, lower volume reduced freight revenue 75 basis points. Fuel surcharge revenue of $608 million increased $43 million reflecting the impact of higher year-over-year fuel prices and a 100 basis points to freight revenue.

Core pricing combined with business mix to drive 325 basis points to freight revenue improvement. As we committed, our quarterly pricing dollars exceeded inflation dollars. Specifically, coal pricing remained positive but at a lower rate than last year for business index to natural gas prices. And as we noted in January, we continue to see impacts from the competitive and global environment in select agricultural markets. Fortunately, we are well positioned to compete as our strong operating performance and productivity initiatives enable us to continue to win new business at good margins.

Our first quarter business mix was positive, although not as favorable as we might have expected, due to the higher volume in our lower average revenue per car businesses, such as coal and rock combined with lower volume on some of the higher arc businesses, such as food and refrigerated and forest products. Upping up the top line, other revenue declined 4% to $324 million, driven by lower subsidiary revenue as we have now lapped the metro transfer completed in the first quarter of 2025.

Turning to expenses. Our appendix slides provide more detail, but let me discuss the key drivers as total operating expense increased 3% to $3.8 billion. Compensation and benefits expense increased 1% as we almost entirely offset the impact of inflation with record first quarter workforce productivity that enabled a 5% smaller workforce.

First quarter cost per employee increased 6.5%, driven by higher wages and benefits, along with increased incentive compensation. We continue to expect full year compensation per employee to increase between 4% and 5%, as we work to offset cost inflation with process and technology improvements. Fuel expense grew 7% on a 7% increase in average fuel price from $2.51 to $2.69 per gallon. Purchase services and materials expense increased 7% as a result of merger-related costs, while equipment and other rents declined 9% with record first quarter cycle times.

Reported first quarter 2026 net income totaled $1.7 billion and was a first quarter record with earnings per share of $2.87. Adjusted for the merger costs, our earnings per share totaled $2.93 and operating ratio came in at 59.9%. Overall, we delivered strong quarterly results to start the year, and we are confident in the ability to continue delivering for all of our stakeholders by successfully executing on the fundamentals of our business.

Turning then to cash returns on the balance sheet on Slide 7. First quarter cash from operations totaled $2.4 billion, up 10% versus last year, and we generated free cash flow of $630 million after making significant investments in the network and returning an industry-leading dividend to our shareholders. Net debt decreased $1.2 billion as we repaid our long-term debt. We ended the quarter with an adjusted debt-to-EBITDA ratio of 2.5x, while we continue to be A rated by our 3 credit rating agencies.

Looking ahead, we are affirming our 2026 outlook. This includes our expectations for reported earnings per share of mid-single-digit growth and operating ratio improvement. Our original diesel fuel estimate of $2.35 per gallon established in January is now much harder to predict as we have seen quite a bit of volatility recently. And all the fuel prices seem to be coming down for the month of April, we will likely average over $4 per gallon. Beyond 2026, we remain committed to attaining our 3-year CAGR target of high single-digit to low double-digit EPS growth throughout 2027.

I'll now turn it over to Kenny to provide an update on the business demand. Kenny?

Thank you, Jennifer, and good morning. In the first quarter, freight revenue grew 4%. And if you exclude the impact from fuel surcharge, freight revenue increased 3%, both first quarter records. Core pricing gains, higher fuel surcharge revenue and favorable business mix more than offset the 1% lower volume in the quarter.

Let's walk through the key drivers. Starting with our bulk segment, revenue for the quarter was up 10% compared to last year, driven by a 12% increase in volume. Strength in coal was driven by sustained utility demand and favorable natural gas pricing supported by strong service execution as well as new business with LCRA, which started in April of last year. In grain, first quarter delivered record volume driven by strong export demand, including a rebound in shipments to China and continued expansion into Mexico, such as Bartlett's new facility in Monterrey. Grain products continue to benefit from business development tied to renewable fuels and associated feedstocks.

Turning to Industrial. Revenue was up 5% for the quarter on a 4% increase in volume, delivering a record first quarter and outperforming the market. Strong core pricing, both best ever quarterly average revenue per car. We continue to see strength in demand for construction projects driven by new LNG terminals and data centers, coupled with our intense focus on business development. Petrochemicals also performed well this quarter, reflecting new business wins and improved demand.

Premium revenue for the quarter declined 5% on a 9% decrease in volume and a 4% increase in average revenue per car, reflecting business mix and higher fuel surcharges. As expected, lower West Coast imports and customer shifts had a drag on international intermodal volumes, which declined 28% versus last year. But on a positive, domestic Intermodal delivered its third consecutive record quarter driven by outstanding service and continued commercial momentum. Softening vehicle sales pressured automotive volumes, though having one incremental volume with BMW offset some of the market softness.

Looking ahead on Slide 11, we remain optimistic about coal's potential despite current natural gas pricing, we expect full year coal results to be positive. In grain, improving export demand to China, along with continued momentum into Mexico, positions the business well to support growth. For grain products, we expect continued strength driven by business development and expanding renewable fuels and feedstock markets with a clear renewable fuels policy, providing more stable demand.

Moving to Industrial, despite a soft housing environment and tepid end market fundamentals, we remain firmly focused on out farming industrial production. We expect the strong volume and construction and petrochemicals to continue based on our customer wins. A great example is the Golden Triangle Polymers Company joint venture with CPChem, where we are encouraged by the upcoming start-up of this new world scale facility in the third quarter.

Wrapping up with premium. International intermodal volumes will remain subdued, although we lapped some of the shifts we experienced last year as we moved through the quarter. Domestic intermodal continues to perform well, supported by over-the-road conversions enabled by our strong service product and diverse market reach. While softer vehicle sales are expected to pressure automotive volumes, we expect business development wins will offset some of the impact. Our first quarter results reflect the team's relentless focus on revenue growth, which is achieved through pricing to the service we provide, investing for growth and driving business development.

And with that, I'll turn it over to you, Eric.

Thank you, Kenny, and good morning. Moving to Slide 13. Our first quarter operating results highlight our focus on safety, service and operational excellence. Last year, we led the industry in employee safety. We carried that momentum into the first quarter as we improved both employee safety and derailments versus their respective 3-year rolling averages.

We set first quarter records in all 6 of our key performance and efficiency metrics on Slides 13 and 14. Freight car velocity increased 9% to 235 miles per day. This performance was driven by best-ever terminal dwell of 19.7 hours, 11% better than last year and our second quarter below 20 hours. Every day, we continue to challenge ourselves to find new and innovative opportunities to reduce car touches, leverage existing technology in our terminals and implement new technologies. For service, both intermodal and manifest SPI finished at 98%, a 4 and 5-point improvement, respectively. These results compare to our best service lines, which were achieved in 2025 as we continue to raise the bar for success. We also demonstrated that maintaining a buffer of resources is critical to recovering from weather and incidents as customers trust us to provide consistent, reliable service.

Moving to Slide 14. Locomotive productivity improved 6% and was a best ever quarter. Notably, our average active locomotive decreased 4% with higher gross ton miles, highlighting efficiency gains from our combined efforts related to locomotive dwell, train length and capital investments that increased locomotive pulling power. Workforce productivity, which includes all employees, increased 7%. Our active train engine and yard workforce decreased 4% on a 1% reduction in car load levels, demonstrating our discipline as we remain more than volume variable.

Looking ahead, we continue to hire for attrition and to support our service. Train length grew 3% compared to last year. Proprietary technologies such as physics train builder combined with mainline investments and solid execution of the fundamentals enable us to safely grow train length. In closing, we had a very successful first quarter. We operated safely, efficiently managed our resources and consistently served our customers. As we progress throughout the year, we will remain nimble and continue to build on our strong momentum.

With that, I'll turn it back over to Jim.

Thank you very much, Eric. Fantastic results. If we're going to turn to Slide 16, before we get to your questions, I'd like to quickly summarize what you've heard so far. We had a strong first quarter and start to the year. Our network is running well and we are delivering on commitments to our customers. When you put it all together, we are doing what we said we would, the industry in safety, service and operational excellence, and that further translates in affirming our long-term guidance of high single digit to low double digit CAGR through 2027 with best-in-class operating ratio and return on invested capital.

Before we turn to your questions, just a quick merger update. We are 100% on track with filing a revised application on April 30. We are confident the additional information we are providing meets the STB's expectations and we look forward to moving toward approval and the real exciting part of operating in America's fist Continental Railroad.

With that, we're now ready to take your questions. Rob?

[Operator Instructions] And the first question is from the line of Scott Group of Wolfe Research.

So Jim, I wanted to ask on the merger. We were supposed to be 6 months or whatever into this process. And I guess we're about to restart the clock. Does the fact that we are taking this long. Does this give you any more or less confidence in the -- and your ability to sort of to get this approved. And I don't know, just maybe confirming we're -- yes, so that's the -- I guess that's the crux of the question. .

Listen, Scott, great question, and I appreciate it. It's a good way to start off. I thought for sure, you'd start with Jim and the team, a pretty good quarter, but I think top of mind for a lot of people is the merger. So let's talk about merger. We were not we were disappointed but we were not surprised with looking at historical events of how the process works to put the railroads together that we were going to get some things that we foresaw in what we thought was going to happen, didn't happen on the time line we like.

But we knew that this was not going to be a process that's going to happen as quick as I would like okay, to be done I was hoping it was going to be done for my birthday this year. So we're going to miss that date in August. But at the end of it, when we look at the fundamentals, we look at the facts of what this combination will deliver for both the country and being able to expedite, take trucks off of the highway, be able to move products in a much more seamless open up new markets for customers be able to provide service to some underserved markets that today, optionally, they end up going with trucks instead of going by rail, we are more convicted now than we ever have been when you take a look at what's in the merger application and all the detail that we're putting forward.

So at this point, we are much more convicted. I'd be concerned leading this company if we have lost our way in how we operate and what we do every day because of the merger. And as you can see, we've been very clear. Our time is spent on operating the railroad every day, finding ways to grow our business, finding new markets, finding new customers, adding to the customers we have. And you can see that even with all the economic uncertainty with everything that's going on in the world and with tariffs that we had to go through and our customers did, we delivered again a quarter that moves us ahead.

So because of that, let's turn to the merger itself and what's in the -- what we are going to put forward in the application and why it's such a compelling case, a much more compelling case now. The experts that we've hired are clearly going to show where their opportunity is. We know that on a service level, a seamless railroad is able to move products at less cost. Therefore, even the pricing is going to be beneficial for our customers because of our less cost. And we're going to be able to serve our customers with a product that allows them to save on their own costs internally, whether it's railcar inventory and be able to move to their end product and end user faster.

For our employees, we were real clear and we've been clear right from the start that our employees, our unionized employees. They should be part of the win of a new railroad that goes across the country, and we've guaranteed a job for everyone. And that commitment is are on glad, and we're very happy to make that with agreements or without agreements, even though we have a number of agreements.

So service is going to be better. We provide more opportunity. We take trucks off of the highway and our employees are guaranteed jobs. I think we're more convicted now that this is good for the country and good for Union Pacific. And financially, it is good for our shareholders. We see a lot of growth opportunity there, lower cost movements, much more fluidity. So I'm more convicted today than I was when we put the application in the first time, Scott.

Our next question is from the line of Chris Wetherbee with Wells Fargo.

I hope everyone is doing well. I guess maybe to sort of think about the guidance. So that was helpful on the merger, and I think it gives us a good sense of how you're thinking about it. As you think about the outlook for this year, particularly the operating ratio improvement, obviously, a good first quarter, but fuel is going to be a headwind here of fuel surcharges will be a headwind from an operating ratio perspective. So I guess if you could maybe give us a little bit of color, are there incremental productivity sort of opportunities that are becoming more apparent to you as you guys have been operating so far through the year. Can you just sort of talk a little bit about that because I do think that there's a headwind there, but maybe there's been some incremental positive offsets?

Jennifer, why don't you talk about the fuel and everything that we're doing on that piece?

Yes, sure. Thanks for the question, Chris. So you're right, fuel will definitely be a headwind, particularly here in the second quarter with -- again, I mentioned on the call, in the prepared remarks, we're paying a little north of $4 a gallon right now here in April. So that will certainly pressure margins, particularly here in the second quarter. But we have a lot of opportunities to drive efficiency in our railroad. We have opportunities and Kenny and his team are driving in terms of business development. With that great service product, we are also being very consistent in terms of pricing for the value of that service. And when you put all those things together, we are still confident for the full year that we will be able to improve our operating ratio. And we reiterated that to make sure that everyone understood if we have that confidence and we have line of sight to be able to do that. Fuel, again, pressure here in second quarter, and we feel good about the rest of the year, though.

Our next question comes from the line of Jonathan Chappell with Evercore.

Jim and team, a pretty good quarter. So my question is really for Kenny or Eric, whoever wants to answer it. We look at the numbers that Eric's team is putting up on slides 13 and 14, and then we understand there's obviously a lot of macro headwinds that you're facing across different end markets. Is there an estimate for spare capacity or maybe another way to ask it is what kind of volume growth can the current system handle without needing to add extra resources if some of those macro headwinds turn to talents?

Yes, Jonathan, thank you for that question. And certainly, a topic that we review on a consistent basis. We've always said from the railroads perspective, you have 5 critical resources, mainline capacity, terminal capacity, crews, locomotives and cars, and you're obviously hitting on one of those 5. Now as we look at the railroad today, we have latent capacity. Now we've driven that through a couple of different ways.

Number one, and I reported this morning on top of all the improvements we've made train length, we did it again, 3% improvement best quarter ever, that train length is generating lane capacity. After a number of other reasons why we do train length, that's right up there at the very top for being able to generate that capacity. In addition to that, we still invest between $500 million and $700 million a year in capacity projects. And you've heard us talk about those in the past. They're citing extensions, they're citing constructions. They're the expansion of terminals. So the Union Pacific is positioned and will remain positioned with that capacity to bring growth that Kenny and the team are working on every single day to bring this railroad.

The only thing I'll add, Eric, is 2 tangible ways to see that capacity really bearing fruit. One is on the equipment side, where we're able to go in and insert more equipment into a facility and/or spot at 100% of their order fulfillment, which allows us to go out and capture more business. But then more importantly, on the capacity -- and I've talked about this before, is the ability to shift in different lanes or geographic areas. So maybe we're going from the Gulf to the Southeast or from the Midwest shift down to the Gulf of Mexico. That's the kind of capacity benefits that we seem to really take advantage of.

And that's a really good example, too, when we think about the grain this year. So last year, you recall when we were talking about volume opportunities. Kenny and I were talking about the shift of grain into Mexico. But we've seen some of that shift back to the Pacific Northwest as China has become more open to receiving American commodities, and we didn't have to go in and build 5 more sidings. We went in with the capacity we had and took advantage of it and very successfully delivering on it.

And nor was that clearly forecasted. So we had to be agile.

So Jonathan, if I can just add what the team already said was is we build the railroad, both capacity-wise and with asset-wise with a buffer. But what's really important for us is today, with the business level that we have, and I looked at in detail every morning, we're operating with over 100 locomotives on the mainline less just because of our speed and what we've been able to improve. So we parked them. So they give us a nice buffer of locomotives and assets.

On the people side, we figured out both by technology, by investments by how we operate the yards, by how fluid we try to stay, we've been able to get more cars switched per employee real important. And we see line of sight to be better at that. On the capacity of the railroad to add 10% more business, let me say this. We've invested hundreds of millions of dollars, especially in our terminals to make them more resilient and able to recover faster and have a higher level of capacity, both by the speed that we're moving the railcars through and the way we're handling them and touching them less, moving less touches.

The overall network, and this is key of who we are and what we do. So if you turn the clock back, and I hate to look back too far, but in 2019, if we were operating this railroad the way we were in early 2019, we would have 25% more trains out there running this morning than we are today. So we did not remove capacity. So this railroad is operating at the higher volume. But let's say, it's not less volume. It's higher volume than we were in 2019, and we're operating 24% less trains to be able to move that volume.

The touches are faster, less touches, the way we operate our terminals is faster. So I'm very comfortable that we have the capacity to add a lot of business without the huge incremental costs that normally would have to, both capital and operating cost because what happens is if you're running up against your capacity, it costs you more operating dollars to be able to try to operate it through because you cause congestion. So I'm very comfortable. We do not sleep until we're comfortable that the railroad is running with the system it has.

Now Eric will tell you that we're not done. You go back again to when I came back and joined the company again after my sabbatical, some people were asking me the question, what's left. And I think you could see what was left. There was lots of opportunity, and we see lots of opportunity as we move ahead over the next few years. So thanks for the question, Jonathan.

Next question comes from the line of Jason Seidl with TD Cowen.

Obviously, a good quarter, and it's nice to see the railroad operating so strongly. This is probably on Kenny's side. I wanted to sort of dive deeper into your commentary on business development. One of your fellow railroads yesterday, talked about their success. They're seeing new projects grow in excess of 15%, and we're talking about adding maybe 1% to 2% in terms of car loading growth for next year. Could you give us some more color on UP's efforts right now, and where do you think that could go and add your car loadings into the future?

Yes. I won't give any guidance on the volume, but we are very bullish, optimistic about the new pieces of business that are coming online. I think you're talking about the industrial development aspect of it. We feel good about the numbers we closed for the quarter. We closed about 20 new construction projects in the first quarter. We feel good about where we're headed in second quarter. And I tell you, we got a strong pipeline that's out there of construction projects that are coming on.

Most of those are on the carload side. And you've heard me say in the past that we've really taken a focus on adding new customers, both at the origin and the destination and expanding that capacity. So we're pretty excited about where we are.

The next question comes from the line of Ken Hoexter with Bank of America.

Great job on the expenses, and I thought that was an impressive stat on the -- stats some. I don't think we've heard before. But looking at the way the stock is trading, I want to return to the M&A seems to suggest the market is building in maybe larger concessions that might be somewhat destructive to market value. Just again, given where you're trading and the peer,does that make sense? Is there anything in the detailed request for deal terms or discussions parties are having through the process on where you'll come out on concessions? And then, Jen, any reason you switch the language to reported outlook from adjusted in you're calling out merger costs or does that mean your long-term target still includes some merger cost. I just want to understand a clarification there.

Yes. Let me hit that last one. Ken, actually, we added that as a clarification from last time because we didn't have reported and that generated a lot of questions. And so we wanted to be clear that when we talk about the EPS growth that of our reported. So that includes the headwind to your point, that we do have from the merger cost that we didn't originally anticipate as well as the fact that we're not buying back shares right now. So it is on reported. Jim?.

Okay. Reported. Jennifer thought she was helping, and I love it, Ken, that you caught the change in words, so that was perfect. Listen, as far as the stock and conviction on that, the market is the market, okay? I can't control the market I wish I could, but I can't. But I'll tell you, fundamentally, as a business, we see growth in opportunity with customers, whether we're building in on some customers. And those will be new products that we add or the amount of investment that our customers are making in different parts of the country to grow their business and be able to export and the move within the U.S. economy. So we're real comfortable with that.

On the merger, Ken, and concessions. This is truly an end-to-end merger with a small little piece of overlap that we'll take care of as we go through in the application and say how we're going to handle that to make sure that no customer. In fact, the number of customers that are going to go from 2 to 1 is like a handful out of all the thousands of customers we have. So it's a very small piece in the hand. It's pretty hard to come up with concessions that make sense.

Now some of our competitors are out there very, very loudly talking about what this business is. And let's put the framework of where we are today and what our competition is. CSX reported yesterday, great results. I was impressed. They did a great job, okay? And they are going to compete hard and they will still be a competitor in the eastern part of our network. They will compete every day against everything we try to do as a seamless railroad. And they'll do that through price, they'll do that through innovation, They'll do that through being able to be more efficient. And that's what they need to do to compete against us. But if anybody thinks they're not going to compete, and you could see what they've done to try to compete already just with the announcement that we had on the merger and what they've done.

In the West, people get this wrong. We are not competing against Burlington Northern Santa Fe. They're owned by Berkshire that this morning is over a $1 trillion company. Berkshire has the monetary capability with $300-plus billion in cash plus they have the capability to invest in the railroad and they're going to be a strong competitor for us after. So if you take a look at the 2 biggest pieces of competition that we have in the U.S., we're very comfortable that they will compete hard against us, but we are going to be able to provide a level of service with less touches that speed up products moving across the U.S., that's why it's so compelling.

So Ken, I'm not sure, and I don't see a big change in the amount of concessions. Are we talking to people? Yes, we are. We're talking to customers. We're talking to to competitors across the spectrum to see that we could come up with something reasonable, but we're not prepared to really give concessions to the level that basically just opens up our railroad for no reason at all other than they want to gain something through this process. That's not the way America works. America works and that if it's truly detrimental to customers, the real world combination, then you need to do something about it. But when you speed up things, give more opportunity, it's pretty hard for us to see any major concessions that we have to give.

The next question comes from the line of Brandon Oglenski with Barclays.

Maybe I'll follow up on that because I think your more skeptical competitors and maybe even some investors would say yes. But this combination at a very high level is going to drive more than 40% market share to your network relative to now much smaller competitors and regional competitors. And how do you push back on that criticism of a transaction of this size?

Well, I think what you have to look at is the entire market that's out there. People want to look at the railroads and say, combined Union Pacific and the folks Southern is going to have a combined 38% or 39% actually is the number of GTMs, but we're not going to be that much bigger than our Western competitor at that level with gross tons that were both going to be moving.

As far as the local market. Listen, I think short lines do a great job and an excellent job of handling that first mile, last mile and ICS strengthening them, we'll be able to drive more business to them with this combination. So they're not going to lose in the long run. There's always some that are going to be affected because of if we don't stop cars or hand them off somewhere, we can take them to a longer route or a different route that will help. But at the end of the day, listen, the 40% or actually the 39% number when you take a look at the entire market, railroads are in the low double digit. Capture of the true mark that moves by land or by water here in the United States of America. So that opportunity is huge for all of us to be able to swing that a little bit. And I think that's a better way to take a look at it, Brandon.

Your next question comes from the line of Stephanie Moore with Jefferies.

I think I'm going to ask maybe a different question theme here. But Jim, I wanted to get your opinion in terms of how you think about just the value of Union Pacific's physical network at a time where look, investors are increasingly focused on AI-driven disruption. So what do you think the market is missing about just the intrinsic value of the network, especially post deal? And then also maybe talk a little bit about what you're doing in this world of just a lot more technology opportunities, AI-enabled efficiencies and what you're already doing in the yards and operations to drive better results?

Great. Thanks for the question. Listen, Eric, why don't you start about how we're using information AI technology to operate the railroad and what we see coming down the pike?

Absolutely. So our conversations inside UP when we talk about AI or equivalent tools, really focused first on making sure that we're not doing it just to do it. We're instead focused on what is the actual thing we're trying to solve and what's the associated value, whether that's removing car touches, dropping dollars to the bottom line, improving our service. And I think it's important that you all hear us say that because you see in other cases where that's not it. They treated as a hobby. We're not in the business of hobbies here. We're in the business of delivering value.

Now if you think about how we're using that, some of the ones that are most important because they're foundations to our service and their foundations to our productivity, which allows us to grow. It's how we think about using AI inside of our dispatching center. We have an automated movement planner is a program that we call that's informed by AI, and it's continually evolving. Automated movement planner really focuses on driving an even more consistent and reliable service by providing support to our dispatchers in real time and looking out 12 hours in advance to lay out their railroad.

If you just even look at 200 miles of railroad, there's a lot that happens in not just the movement of trains, we have to have people go out and maintain the track and then we also have variability events, unfortunately, some days. And we have to plan for that, and AI has been a great resource for us to do that.

Now when we think about inside our terminals, we've talked in the past about technologies like Mobile NX that allow us to automate part of that. There's some AI components to that, and there's certainly value in that. Even more valuable is the tools that we've provided like terminal command center to our teams that are actually on the ground operating those terminals. That provides them an even higher level of intelligence and being able to not only forecast what's coming at them, but for what they have in their yard, how do they see problems right? If you're going to go out and you're switching a bunch of cars and now you've got a trim, but you accidentally have the wrong car in one of those cuts, okay? Well, that's a big hit to the productivity and thus impacts our [indiscernible] product. We can see that ahead of time. Well, then we can plan that even 2 hours ahead that says, "Well, I'm going to be in that track. Let me grab that car then. So even in the case of mistakes, which we work tirelessly to avoid, you can even be more efficient in how you're able to address those, if you can see that risk ahead of time, and that AI tool allows us to do it.

And I'd say in total for the whole company, I mean, there's at least 8 or 10 really major projects that we're using. I've given you 2 examples, but they really represent how we're using it to, one, improve our service product and to, drive efficiency.

The nice part about technology and how fast it's changing with AI. And what it really drives for us is we always talk about the big things, trains, assets, big locomotive weigh in 434,000 pounds and how we move it. But fundamentally, across the company, whether it's how we're going to be able to communicate with customers, how we're -- the number of people you need to be able to communicate with customers and how you get information better. We're working hard on that using AI tools and information tools to be able to do that.

Even in the finance department, how do we get better being able to get information out. So it's across the board that we're doing that. Stay tuned. We're going to be implementing and have the capability to implement our locomotives to make them even more autonomous than they are today so that they can operate to give us more fuel conservation. Those tools are driven by technology in the background that allows the locomotives to operate in a smarter, much more fuel-efficient manner. And we're getting pretty close to be able to roll that out, not yet today. Eric will get real excited if I start to announce things a little bit ahead of them.

But those are the things. Big things, how fast we can change with the different flow of business. I talked about at the very start this morning about a railroad being a little bit of rain coming down in Omaha. It's rather cool in Green River this morning. It's below freezing. So we got a whole bunch of snow up at the top of the Danner Pass. We have rather breaking warm weather in other parts of the railroad. The nice part about it is we get a little bit of everything. So how you react to the weather and how you react to be able to change the network and be able to change the way we operate every railcar in a faster manner, we use tools to be able to get to the point where we're going to be able to react much quicker. We're talking about trying to get to the point where we can do that in days instead of weeks the way it takes us right now. The way we manifest and use employees to make sure that we optimize the entire system.

So it does touch a lot. We're a simple old business with big hardware. But at the end of the day, we've got a whole team and Rahul who leads that for us and is doing a spectacular job for us to look at opportunities to embed the latest in information, manipulation and get us an answer quicker and be able to be able to automate as much of this railroad as we can. So good question. Love it. Hopefully, I answered your question.

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

Brian, how many pounds do you have in your back now lots.

We're up to 65 and climbing. So just trying to keep up.

Impressive, Brian.

Maybe I'll put a copy of the next merger document in there as well. .

That's more than 60 pounds. You'll need a trailer behind you.

I just might. Well, in terms of -- just 2 quick follow-ups on Jim question on integration technology, kind of dovetailing that last discussion. So are you still assuming first half of '27 approval, and it doesn't sound like it, but I just wanted to confirm that you're not really expecting to address some of these concerns from your peers, just so addressing what the STB has asked for and the new application out next week. And then just would love to hear more about maybe from Eric and you, Jim, about clear concern about integration based on prior issues that the industry had quite a long time ago. Clearly, things have changed some of that you just mentioned with technology. So what can you give us in terms of new ways, new processes, new new abilities to really get ahead of what's been a huge concern in the industry, but we would assume it should go a little bit better this time around. So I know you can leave you so much on that part right now, but would love to hear how you're planning for that this time around with some new tools?

Brian, you are on it this morning. There were 5 questions in there. I love it. But let's start with the timing. Yes, we're working off of the timing that we know of that the STB has put out. So it will be second quarter next year, we would expect to be able to be at the place where they approve it, then we can move ahead. So that's the timing. Now it's not finalized. We're hoping that they can speed it up and get it -- get through the process. I think they should be able to. Again, it's Jim Vena. The way I do things, we make decisions pretty quick. But I understand they want to look at it. They want to do a thorough examination and we're ready for it because we're operating the railroad the way it should be operating, and it's not affecting what we're doing for the Union Pacific stand-alone today.

I'm going to pass it over to Eric here in a minute on integration. Our competitors, what we're doing with the application is we are answering, and given the information that the STB asked for, they were very specific on the information that they required from us, and we're answering those questions, whether it's the EPRA, whether it's market share and the amount of business that we built in. So we've done that. And we're absolutely sure that we've answered the questions that -- and how we're going to handle it.

We've decided to release 5.8 really at the end of the day, I never thought that our competitors should know exactly what that document held. But when we looked at it, listen, at the end of the day, it's not going to make a big difference. So that's going to come out. So we will answer the 3 key points plus the other point that they, in general, wanted some more information. So that's what we're answering.

As far as our competitors, you're a smart guy, Brian, and everybody on this call are smart people. Competitors are always looking to get an advantage that they can't get or they don't want to spend the money to be able to get. If a railroad wants to build in, which we are building into customers, they have every right to do that. They have every right to go through their own merger, small and large, which they have. So at the end of the day, if we built this transaction against satisfying what the other railroads, absolutely Canadian Pacific would love to get access to the West Coast of the U.S.

Well, I'd love to get the Toronto. If they want to give up Toronto in markets in Eastern Canada and into the Canadian Prairies, I would love to do that, too. But it would be pretty hard for me to ask for that. So it's really some of the stuff that they've asked for is not fundamentally about competition. It's about trying to gain for their own railroad. And we're not going to answer that. We don't need to answer that, but we're more than willing to sit down and talk. Like I would be more than willing to trade Toronto for access to Denver as somebody who wants it tomorrow.

So anybody who's listened in that wants to do that, give me a call, and I'm ready to do that. I'll run the Toronto, you can run the Denver, okay, and we'll match that up. So some of the stuff that they're saying is just not fact-based and I find it hard to believe. If you step back, though, let's talk about competition. I was just in Canada, visiting my family went out to one of the ports and terminals in Vancouver, and we talked through with one of the largest world operators of terminals, and you know what Canada is spending money to compete against the U.S. ports. In Prince Rupert, there's a plan to expand and double. In Vancouver, there's a plan to expand and double. At Contrecœur, there's a plan to expand and double the capacity for imports. That's who we're competing against.

We sometimes have a narrow view of what competition is without looking at really what's happening in the marketplace. Our intermodal product, our international and domestic product is in competition with product. The size of the investment that's being made by the Canadian government, they expand the ports in Canada, the Canadian economy that cannot and does not need that much. It's purely to compete against U.S. ports and U.S. movement of goods in the U.S. That's the real competition and sometimes we're too narrow the way we look at it. Eric, on integration?

Perfect. So Brian, on the integration side, you're right. You certainly want to learn from the learnings of past mergers. Now we got to be a little careful there, right? You hear some people go back and reference challenges from mergers 30 years ago. And to your point, right in your question, you said it, a lot has changed in 30 years. But let's hit the most important 3 items when you look back in time and then think about how we already are planning to do it differently. So one of the things that certainly caused challenges in the past was technology. When you had 2 railroads merging together with 2 different transportation systems. It wasn't the technology itself that caused the problem. It was the pace at which the integration occurred.

In other words, there was an intentional thought and change management around what is the pace you cut that over. Well, we've got a huge advantage, right? We, Union Pacific, have already demonstrated a very strong ability to change over systems, including our full transportation system called NetControl, just a little less than 2 years ago very successfully not a blip, no customer was impacted. It was seamless, it was very effective. So we've got that experience.

In addition, when you move past the technology and you think about timing, you've seen in the past with some mergers where a KPI right out of the gate is the pace of implementation. Now look, we're not in the business of going slow. We're in the business of understanding exactly what we have to on day 1, day 90, day 180. And I'll tell you on day 1, you're not going to see a lot of difference, right? We will operate these 2 railroads, largely independently, at least for the first few months. And then we'll thoughtfully because of all the planning that we're doing, implant 1 action, once that action is implemented, we'll make sure that it worked effectively and then we'll move to the next. And then I save the most important one for last.

If you look at past mergers, often, the premium railroad was buying a railroad that was operating very poorly. That's not the case here. The Norfolk Southern is a good railroad. They're good in how they think about their infrastructure, they're good in how they think about technology. Together, we're going to be even stronger, but we're not buying some railroad that's been in disarray for a decade. We're buying a really good railroad, combining it with another really good railroad. And obviously, as Jim has pointed out today, the net outcome is a positive for all of our stakeholders. So that work is all underway. It's being done very intentionally, and we're going to be the most comprehensive integration of any 2 railroads that this country has ever seen.

Brian, I appreciate the question. Thank you very much.

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

I just like to go back to the Kenny slide, I guess that's Slide 11. And when I compare that outlook slide to the same slide, the quarter before. It looks like you've added 3 new positives. You've had construction as being a plus, you deleted forestry as a negative and you improved auto from negative to neutral. So 3 positive inflections there. And then we're hearing from trucking peers that it sounds like the freight recession might be overall together. So my question is that and your Q1 results and volume are pretty good. Your railroads were operating well. If the volume is indeed looking better compared to where it was in the fourth quarter, why wouldn't your EPS guide be up as well. And I don't think your team would have an issue getting operating leverage, but it doesn't -- that logic kind of implies you are. So just love to get some clarity there on those topics.

Walter, I love the question. I'm going to pass it over to Kenny because I'll tell you, you must have been listening in because we have had that same discussion. So I can hardly wait to hear his answer. Go ahead, Kenny.

Yes. So first of all, you heard my comments, lumber is still challenged. It's just a smaller volume that we're talking about there. And yes, we're looking at autos. And I'll tell you, we highlighted the fact that we have won some incremental pieces of volume. The SAAR for lumber is still negative, call it, 3%. The SAAR for auto is still negative, call it, 2% or 3%. So we're winning our way here to get to a point that we can fill a little bit better about those markets.

There was a second question, I believe you had more on the intermodal side. And you're right, we've seen the jump up in the fuel here. Now that happened here pretty weekly, call it, mid-March. And -- we'd like to see that sustain a little bit more from a timing perspective. We'd like to see the sustained tightening of the truck market. We're looking at the prices, just like everyone else. And as we progress throughout the year, if those sustain, then you're right, we should see a little bit more uplift on the volume there. So it all begins with the service product. Eric and his team have done a fabulous job, and you're seeing us win. And again, our size is -- our goal is to increase the size of the pie here with over the road, and we're accomplishing that.

So Walter, no advance or but you gave the same answer to me as he gave to you this morning. But the next thing I said to them was pretty clear is if you have a railroad running at a high level of service and you're delivering for customers and the economy is still it's not been as impacted as some people would say because of all the ins and outs that are out there at this point, that it's his job and our job and his job and his team specifically to go sell that service level that we have, look for opportunity to grow the business. And I like it, though, he's got more positive than negatives on there.

So I'm real comfortable with that. So Walter, I know fellow Canadian, okay, spent -- you spend your time in Canada, and I go back every so often I'm not sure what the heck is going on with the Canadian teams at hockey, but most of you are probably in bed, but I stayed up to watch the oilers last night and they lost. So tough times. Hopefully, your team is winning.

Our next question comes from the line of David Vernon with Bernstein.

So Jim or Kenny, I'm wondering how you guys are thinking about this -- tackling this issue of proving that this merger enhances competition. You've been out in the market for a couple of months now with this concept of commute gateway pricing. I'm just wondering how or what kind of feedback have you gotten from customers Obviously, we've heard the other railworks, but how are you thinking about that idea and its ability to kind of help meet this fairly ambiguous notion of how the merger enhances competition?

Well, let me start. We're not ambiguous. I think how do we have competition and how do we enhance competition pretty straightforward. We're going to be able to move products across the country faster than anybody with less touch points. If people want to compete against that, okay, they're going to have to either be able to enhance their service and be able to move it with less touch points with whichever way they can do that or they're going to have to do it in price. That's what they're worried about is some lanes that are only going to be able to do it with price. We're going to enhance competition to be able to have products that move right now that are consumed mostly in the East, it's going to be able to move across the country in a much more seamless manner. They open up more markets for it. It enhances the capability to sell in markets and move the way products are supposed to move.

We're going to enhance so that we can compete better against the -- like I mentioned with the intermodal, but I could do that with the carload business, I could do that with soybeans. We're going to be able to move their product in a faster, much more efficient manner that allows them to open up markets. Again, our competitors, whether it's trucks because a large piece of the growth that we see is intermodal is we're going to be able to remove and give our customers optionality to look at do they want to go intermodal with the railroads or do they want to go by truck.

The committed gateway gives the railroads both the Western and the Eastern Railroad, the optionality to have a set price that they can offer to go out to customers and those products that we've identified. We've said that we're going to keep every gateway open. If somebody wants to get to the Southeast through the CSX at New Orleans, they can have that. It is the faster road in some markets. Why would we ever limit that capability. So the base is the base, and we are enhancing the movement. Kenny, why don't you talk about the conversation with the customers or...

Jennifer, if you point -- I'm going to see you trying to jump in first. So let me just kind of remind everyone, 520 customers that have signed a letter of support 700 commercial partners signed a letter of support, 2,000 in total that signed a letter of support. And I'll tell you, Jim and I have spent a lot of time together going out and seeing customers. Here's what's undisputed. The customers see the value on the transit improvement. They see the benefits of an interchange going away, they are excited about the fact that their supply chains. I'm talking those that invest in equipment and those that use our system equipment that, that will become more valuable to them and will increase the cycle times there.

The things that as we move throughout the journey, we do know they want to see what we're going to be filing. They want to see this process as we go through it with the STB and other stakeholders, but we are staying close to them throughout this whole journey. Let me double down real quick on something that Jim said, though, that's how we're able to win the day. Now I didn't mention this in Jim's last comments about domestic intermodal book, we've got 3 consecutive quarters where we have really put together a record quarter.

And we've done that, Eric, through first service which is what you need, and you'll see that with single line service from this merger. And then a lower cost structure allows us to open up new markets. The margins look a lot better for new pieces of business. Customers see that, customers appreciate that and that excites the customer base.

And the only thing I was going to add to what you have said is with committed gateway pricing, we're actually extending the benefit of the merger to customers that would otherwise not be impacted. And so that absolutely enhances competition. .

Yes. Good point there, Jennifer. Listen, great question. Thank you very much. Go ahead.

Our next question is from the line of Tom Wadewitz with UBS.

I wanted to ask you about just how you think about the key things you need to execute on? You said kind of if you're looking at like maybe 2Q '27 for approval. So you got some runway ahead, you want to execute well, and your service is strong, your rail network operation is very good, which I think would be supportive of the case you can make it all work, right? How do you think about volume growth? Is that also important for you to deliver volume growth as you continue to build your case that you can handle what's a heavy lift of integrating 2 large railroads.

So I think that's just like -- is that an important piece, too? And then I guess related to that, how do you think about volume versus price? I mean you are more -- you've got efficient operation, low cost structure. Do you intentionally like say, "Hey, we just want to do a little more volume think you may be intermodal and grain markets where I think there's been some question about price versus volume.

Listen, we want to increase volume, no way answer, but that's a goal. So don't have to expose or talk about that for too long. We want to increase revenue. So we do that by having more business, being able to move more products on our railroad, drive more business to our railroad, but also be very diligent on price and making sure that we price in the right way to increase revenue. And you could see that again this quarter. We've done a great job of it in the last few quarters of where we are on revenue. So that is key.

And remember, I separate what we're doing for the merger versus what we're doing for the railroad today. The railroad today's job is, is to run at a real high level, and I give Eric and the entire operating team a lot of credit. I look at it and I'm an old operating guy, okay, I spent a lot of time in this 48 years I've been railroading to be able to look at railroads and what we can do. And I'm very impressed, and I see more runway there to be able to make ourselves more efficient and be able to move the products. And that way then can go sell or sell our customers on what we can do better.

So for us, absolutely, we need to increase revenue, which we've done, and we have good line of sight on it, and we have to price at the right level for the service that we're providing, for the value we're providing. And I think there's a lot of runway left in there that we can show what we're delivering for our customers with better speed, better flexibility, better timing that they can win in the marketplace and we can grow together. There are certain markets we react and we have to react. We've had to react on the movement of some grain products, okay, just because of where the market is. We've done it with soda ash. So it is a -- if it was easy, my mother would be here running the railroad. So it's not easy. But our key goal is increase volume and increase revenue drive it to the bottom line, high level of service for our customers and operate as efficiently as possible. I think that's a good summary of the way we are, Jennifer.

That's an excellent summary. And even with some of the high truck competition we've seen in the last couple of years that have compressed it. Truck pricing is still a more expensive option than rail. And so what we're doing to be more efficient and get into new markets and offer new services to our customers just positions us very well to grow going forward. .

Kenny, anything you want to add or you're good? .

No, I think you covered it all. Okay. .

I was trying to pass it over to you. Next question.

Next question is from the line of Richa Harnain with Deutsche Bank.

So I wanted to ask about headcount. I think you made this comment record on few workforce productivity, and this is indeed the lowest quarter or headcount levels we've ever seen. And that's as growing top line. So maybe you can just update us, is this the new normal? Or could it be better? I think Jim, you made a comment that you have line of sight to be better than that, and Eric is holding us to that. So maybe talk about that and drilling to effectively how this is possible, how are you achieving these productivity initiatives? What are you doing differently? And as you think about maybe the pending merger with NS, do you think these productivity gains are transferable? Or do you think there's something unique about the U&P network, allowing you to achieve these levels of productivity more easily than maybe alternative networks.

I'm going to pass it over to Eric here in just 1 second because he has the largest amount of employees. Of course, we look at everything that we're doing on our management and how we operate the railroad from a management side, and we've done a good job of being able to be more efficient and through attrition and be able to size it the right way, and we see more benefit on there.

As far as the combination, absolutely, I don't have to talk about it a lot. That's -- we do see substantial improvement in how productive we can be when the 2 railroads are combined. You only need 1 Chief Marketing Officer, and you only need 1 CEO. So some of those things are real easy. So I'm just joking, cannot worry about it. But at the end of the day, yes, we see a lot of that. And Eric, on the day-to-day operating the railroad, what do you see moving forward?

Yes. And Jim got it exactly right, that they absolutely are transferable. So 7% improved workforce productivity. When you think about how we did that, like -- and then you think about tomorrow and a week from now, a month from now, it's the same thing. Really, one of the greatest strengths of Union Pacific, yes, it's all the initiatives that we execute successfully, but it's more our mindset right? Because when you have a mindset that says productivity drives growth, and then you can drive alignment within the whole company of why do we work every day to be productive. And we have that. We do that exceptionally well. And then you combine that with operating kind of mindset of perpetual dissatisfaction. And you can look at it every single day, like it doesn't matter. I can look at any scorecard and the team can look at any scorecard and they can have lots of conversations just like I do, and you see things.

Now sometimes those things are big and they take a while because maybe you have to make a bunch of changes, but when you look at our productivity over the last handful of years, a lot of them have come just straight from the fundamentals. Why is one terminal at 19 hours of dwell but another terminal is at 15 hours a dwell. We can't 19 be 15. And so we go and we grind on that. And we grind and we grind until we can get that terminal as good as the other one.

Now that's what I mean by fundamentals, and it expands across our entire network. You layer on top of that the technology that Jim had mentioned and Jennifer mentioned and I mentioned in a previous question that was asked, well, now you got a multiplying factor right? Now you're actually getting even more out of those initiatives. And that's what we do. I could not be more proud of what the team has accomplished in productivity because, again, we do it to position Kenny and the team in the best possible position to win in the marketplace. And there is no finish line to that.

Thanks for the question.

The next question is from the line of Ari Rosa with Citigroup.

Nice quarter here. I actually wanted to stay on the headcount point because it is truly impressive what your -- the efficiency gains that you're able to achieve here. But Jim, you've made this commitment to the unions that all the union jobs are going to be protected. I'm wondering, given the kind of productivity gains that you're seeing, is there any dimension in you worry that, that could slow down actually some of that that progress? Or how are you thinking about that commitment against -- weighed against the very impressive productivity gains that you're achieving? And then just kind of broadening out, is there anything that you think you would be doing differently in terms of how you're operating the railroad currently if the merger process were not going on?

Let me answer that last question. No. we operate the railroad the best we can today and always look for improvements. So we're not changing. And I'm telling you, I've sort of tried to tell everybody this real clear and people will tell you at Union Pacific. There's people that are dealing with the merger, dealing with the applications, dealing with how we look at putting it together when it gets approved because it's going to get approved. It's such a compelling case. But bottom line is most of the people at Union Pacific, their job is to operate the railroad. If anybody thinks I'm going to let people get lost and travel into some place to go talk about the merger, okay? That's not going to happen. We're talking -- we're railroading the Union Pacific, the way we are today, okay, now ifs and or buts.

So I'm very comfortable that we're doing the right thing. The commitment with the unions. I thought about this, I didn't wake up one morning have my cup of coffee sitting out in the balcony looking at 6:00 in the morning at the metrics and said, maybe I should just protect every employee. When we make these big decisions like that, we looked at attrition numbers, normal attrition numbers for both railroads. We've looked at how fast we think that we can put this together and get the -- optimize it so that the service is not impacted for the customers on both railroads, and we're very comfortable that the commitment that we gave will not limit our capability to move ahead and be productive, but it also guarantees people a job. We're very comfortable with that with just the attrition numbers.

And remember, this is a story. We see the opportunity to grow the business in intermodal, for example, there's areas in the country where we just don't move intermodal, it gets trucked that we know we can give the optionality. And if our service stays high, we can win more business and bring it on the railroad. So I'm very comfortable with the attrition numbers plus what we do for growing the business, that, that commitment is strong. It's set in stone, but we're very comfortable when we made that commitment that it was made with a thoughtful process. So I don't see any issue with that commitment at all impacting us as we move ahead.

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

It's actually Madison on for Ravi. Just one more to kind of end the call. Just wondering, given your current network utilization and service levels and kind of current levels of inflation, was wondering what does operating leverage and incremental margins look like in the up cycle?

Well, listen, we love upcycle. Jennifer would scold me if I got into too much detail. But it's -- Madison, that's exactly the way we're thinking about it is there are so many things that are going on that are sort of holding back all the railroads, truck pricing, all those things that would be helpful. So higher natural gas, we love it. Now anybody who heats a pool like I do in Phoenix, Arizona, I don't like it. But at the end of the day, for the railroad, I like it.

So I think we're in a good place. We operate in a good manner and Madison, I see us up cycle would be very beneficial. And if everything in the world settled down and we had the economy growing, would really help us because we grow with America and the businesses in America. So -- thank you very much for the question.

Thank you, Mr. Vena. There are no additional questions at this time. I'd like to turn it to you for closing comments.

Well, listen, thank you very much. I know there's lots going on. There's lots of many companies reported, and I'd like to thank you all for joining us this morning. As far as our shareholders, our owners, you can be rest assured that we look at this railroad every day to make sure we operate in the best way possible move ahead. I'm very comfortable that we're doing that, have the right team. I joke around with Kenny about only needing 1 Chief Marketing Officer. But at the end of the day, him and his team are doing a good job I can't be prouder of Eric and the team, the way they're leading and Jennifer and her whole team that keeps our feet to the fire and making sure that we're doing the right things.

So with that, looking forward to putting the application in on the 30th, getting it accepted and moving ahead with this transaction that will just build on the results of Union Pacific and make us a stronger railroad and a strong competitor to move the products that Americans use every day. Thank you very much. Appreciate everybody joining us.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time, and have a wonderful day.

All right. Everybody can take your seats, please. We're going to go ahead and get started with our next presentation. So Union Pacific, Jim Vena, CEO, Jennifer Hamann, CFO. Thanks very much for being here. I know, again, DC is probably your second home here for the most part. But I appreciate you coming over making time for us as well.

You say it was my second home? It's actually Scottsdale, Arizona. That's where I'd like to be this morning. I think it's 85 degrees there today. It would be a beautiful day. My grandkids are there. So that's my second home. But go ahead. Sorry for interrupting.

No problem. Well, we do have a couple of slides here, right? So I don't know, Jennifer, you want to kick us off here and get things rolling?

Jim is in control. Okay. Obviously, you got a little cautionary information.

So it is funny is as we had the boiler plate was maybe just a couple of lines or a couple of small paragraphs. And after we get into the merger, I'm just about afraid to read it. Every time I read this thing, it basically says don't believe anything I say, or go talk to somebody else to verify it. But bottom line is that's online, go through it. We always talk about things that we're looking forward. So if there's any question to make sure you get a hold of us. And that really only a couple of slides.

I'd like to talk about, and let's just talk about it real quick. One is, is to change up, if you've heard me speak before, a little bit about where we are as a railroad right now. Safety is really important for us, and we ended up the year as the safest railroad in Class 1 railroad when it came to people coming to work and going home. And these are FRA stats, not our own stats. So that's a great place to be. And our partner in this, our merger partner, Norfolk Southern was the safest when it came to derailments and the incidents. So we love that combination of how do we learn from each other when this thing comes together and how do we continue to be the best. Now the railroad industry is way better than we were. So this is not a slide on anybody because I think the whole industry is -- had a 2025 that was the best year ever. But at the end of the day, we know that we have to move and get better. So service is real good. Sorry, safety is in the right place headed the right way.

When it comes to service, we think -- and we've got to be careful because we measure ourselves and we get feedback from customers that we had the highest level of service at Union Pacific has ever had. But on top of that, we think it was the best service in the industry as far as delivering what we sold to our customers. Now I just want to talk about, and this is really important is people ask us what's the railroad like? What kind of capacity do you have? And what have you done? So this is a clear, nice, easy representation that since 2019, we have with the more traffic, we grew last year at 113,000 carloads. But with more traffic, we actually operate 24% less trains. So we've been able to remove the number of trains starts and number of trains operating by basically 1/4 and be able to operate the same amount of business or more. That's who we are at Union Pacific. That capacity was built for that additional 24% in trains.

Our terminals were built for a certain amount of capacity. So we've done the same thing in the terminals. We've taken places like Inglewood in Houston from 2,200 cars capability to over 3,000 cars capability. We don't operate 3,000 cars over that, but it gives us that buffer that we want. And I wanted to -- this is a great representation to think about as we bring in the 2 million loads that we've talked about that we see as an opportunity out there, we'll be able to put them on the railroad without spending or worried about whether we have the capacity. And anybody who's heard me speak, knows we keep 500 locomotives ready to go. We wouldn't go out and buy 500 locomotives to have them ready to go, but we have them because we have over 1,000 of them excess because of the efficiency we put in the system. So we're in a good place.

Jennifer, next slide. And listen, I've talked a little bit, but this slide clearly shows the key measures that we use on to judge ourselves against ourselves and against the industry because you're always competing against the industry. Freight car velocity, very happy where we are. That sped up cars. Our customers have win when you -- freight car velocity increases, they need less cars to be able to handle the same amount of product. They need less inventory to be able to do that. And when we merge, we'll take it up to another level by removing touch points that we have. You can see where our service performance index is. That is a -- instead of precipitation down, that is an amalgamation of all everything that we have with individual customers. It's not a high-level number where we're measuring train speed or we're measuring something else and claiming that we do real well. Customers don't care what train speed is. What they care about is did you move that railcar from origin to destination? Did you show up in the window you told them and did you deliver it in the time frame that you said undamaged?

So I'm going to stop there. Great workforce productivity, great train length, locomotive productivity. And that translates to something that precipitates out and that's our operating ratio. And those operating ratios without naming any of the other railroads are absolutely, we took off some of the noise property sales, different things that actually don't tie in to how we're operating. So I think we're in a good place. And Jennifer can talk a little bit about the quarter where we are so far, and then we'll take some questions, Brian.

Yes. So from the first quarter standpoint, really a good start to the quarter, both operationally and from a volume standpoint. If you look at the volumes on the right-hand side. So right now, through the first 10 weeks on the AAR car loadings were basically flat. And if you go from the bottom up, you think about the premium piece for us, that's intermodal and it's automotive. International Intermodal, we knew we had a very tough comparison year-over-year, that's down. We're actually seeing growth though in the domestic side, and that's really supported by that strong service product that Jim talked about just a minute ago.

On the finished vehicle side, that demand is still a little bit weak, down about 7%, both on the finished vehicles and parts side to start the year. Industrial, up 4%. That's a great new story for us. It's the -- in many ways, the heart and sold the UP franchise, great business development, continued strong growth in that Texas Gulf Coast region. Industrial chems, plastics, that's up about 7%. You are still seeing some weakness, though, when you think about the residential housing construction, forest products, I think, is down about 6% quarter-to-date. So little bit of a mixed bag, but still up 4% positive. On the bulk side, plus 14%, continued great story there, both on the grain and the coal side. Both loadings for those products are up about 17% quarter-to-date. So great demand there. And again, with the railroad operating as well as it is fluid, we're picking up every carload that our customers have available to us and delivering that to them in a very efficient manner.

Mix for the quarter is probably a little bit positive, pretty similar to what we saw in the fourth quarter. Probably can't sit here and not mention fuel because I know that's been something that all the roads have been talking about. Fuel prices, certainly, we came into the year, we were thinking about $2.35 a gallon. Right now, we're probably looking at a number that's probably closer to $270 a gallon for the quarter, which is up about $0.20 or so from where we finished 2025. But I will say we've seen some spot prices as high as $390. So a lot of volatility there in terms of pricing. And as you all know, we have a couple of month lag there in terms of our fuel surcharge mechanism. So it's going to impact the expense side some in the first quarter. But that's where the work that we do to be more fuel efficient.

We had a record consumption rate in 2025, continuing to do things to widen that gap between rails and trucks in terms of the fuel efficiency is a great new story for us. And when you have the rising fuel prices like you see right now, that difference becomes just that much more important. So about $30 million in merger costs for the quarter is what we're looking at. But again, a good start to the year. We feel good about it. We think continuing on the momentum that we had coming out of 2025, feel very positive about the winning combination that we have right now.

Brian, if I can take like 30 more seconds. So you need to have a railroad that's operating at the right place at the right level with safety service and operational excellence, and that's what we have. And that's the only way you can go into moving ahead in what we see. Also, this is who we are at Union Pacific leading ROIC. Can we afford this deal? Our shareholders voted 99.52%. And they're very sophisticated. They understand whether we have that capability to be able to move this forward, and that's real important for us.

But on top of that is the way we think. We don't think about, okay, just doing because that would be the easy way out. As an industry and specifically, the reason I'm at Union Pacific and the reason what we try to do is we look at what's possible. And this merger changes the paradigm of the level of service we can provide customers. It changes the speed of moving products and it makes American industry more competitive against world competitors and allows us to win in the marketplace. That's what it's all about. So we're real excited. And we'll go through the process, okay? It's long, way longer than I would like, of course, but we knew it when we got into it, that it was going to be a long process. So Brian, all yours, okay? Unless you just want me to keep on going because I could fill the next 24 minutes, okay? And I'd love questions from the people that -- in the audience here, please.

Sure. Well, we can try to fit all that in here. But just to go back to the current quarter, the operations. I mean clearly, the network is running very well and has been for a while. But is there -- you talked about fuel Jennifer, I mean it's going to come and go, but can you quantify like what the lag impact here is in this quarter? And there's also been significant weather. Obviously, winter comes every year, but some others have also called out that impact specifically here in the first quarter.

Yes. So from a winter standpoint, I would say we haven't seen anything unusual. We had Winter Storm Fern. we recovered from that and I think 4 or 5 days. Again, it's the resiliency that's in our network. We've gotten hit a little bit here over the last week mostly from winds, I would say, is probably a bigger impact than snow.

100-mile wind, an hour winds. Tough through the prairies.

Yes. You've got to stop those double-stack intermodal trains when you've got those kind of winds going on. But again, I don't see any significant cost certainly nothing that we would expect to call out for the quarter in terms of anything there. On the fuel side, like I said, it's up about $0.20 from where we had it in the fourth quarter. So that's how I would look at that.

The lag says we'll recover it but there's, it's a timing thing, and it is what it is, right? It's going to impact us this quarter for sure when you get that kind of change. And what's the effect of the storms and the wind and everything? Our car velocity this morning is about 228. And if you go back a couple of slides, that we don't have to. Last year, we were running around 214, 215. So even with everything out there that we've had, the network's resilient. It's not back up to the 230 , 240 where we'd like to be this time of the year with the traffic mix we have, but I like it. Eric and the whole operating team have done a heck of a job.

Just think about that, you said we're down to 228. I mean it used to be up to 228. It's how the paradigm has changed for us.

We look at what's possible.

But in terms of the demand side?

We spend too much time together...

In terms of the demand side, though, I mean you've seen a couple of good PMIs. Obviously, we have the conflict in the Middle East has certainly created a lot more uncertainty, but truck market is tighter. Some of the end markets, Jennifer you highlighted, are getting a little bit better. So how are you feeling about demand and sort of with this level of service even excluding the merger, you are able to continue to deliver on truckload conversion?

.

So far, what we've seen is you would -- if you look at it without digging into the whole economy, you would say, boy, it's going to be a benefit, and that's what we're hoping. But you always have a concern that is going to affect the consumer. Is higher prices for fuel? Is at higher prices for travel? Is it higher prices and now that change the consumer? If it's a short-term blip, which we think it is, this should fix itself pretty soon, not fix itself, but it will come down to a much normal number of where the supply and demand curve was.

We're pretty comfortable with it. So we don't see a huge benefit coming from it because we don't think it will last forever, but we also don't think we're going to damage the economy. But then again, I'm not no expert. That's what all the experts that tell us the information where we are. Jennifer, anything to add?

No. I mean, again, I think the key for us is the service product and being in close communication with our customers so we understand what their needs are. And I think that's where you've seen us grow our business over the last couple of years, really outperforming the markets, and that's what we'll look to do again in 2026, and we'll just see what those markets are.

So inflation has been one of the main themes coming out of the first quarter. There's always inflation, but it seems like it's maybe a little bit hotter than some of us would have expected. Is -- can UP and I guess the industry overall get -- I mean, certainly still inflation plus pricing. But in the past, it's been easier to get margin accretive price instead of dollar accretive. And I know there's difference in terms of just say it's just the math, but I think it still does matter to a lot of folks in the room. If you're able to get to that level where it's just margin accretive and you don't have to think about the dollars. Is that something that you can get with better service? Is that something that's really mix dependent?

Yes. I mean mix does play a role. But from a service standpoint, when you're able to go in and talk to a customer and the first part of your conversation isn't about service issues. Instead, your first part of your conversation is about how are you looking to grow? How can I help you? How can I support you. It's much easier to have that price conversation. And I think Kenny and team do a really good job communicating to our customers the value of the UP service product and the value that we're providing to them as a trusted transportation provider.

So that's a strong positive. The little bit of a headwind that we have from a pricing standpoint here in 2026 is really primarily related to we got a pretty good sized uplift last year from coal. While natural gas prices have stayed fairly steady, you just won't see that same uplift. So it's not going to be a detractor from our price in 2026. We just won't have that benefit. But otherwise, we feel very good about the markets that we're pricing into. It's still competitive. I mean that's -- it's a competitive sport that we play in. So you have to take into consideration those competitive factors. But with the service product that we have, that's a strong tailwind.

Absolutely, you need to price. Absolutely, you need to bring in new business, which we did last year. Absolutely, you need to be able to figure out a way to have more free cash so that you -- at the end of the day, you need to be very capital and look at how we spend capital. And this year, it's $3.3 billion, a little drop from last year because we advanced some things into last year. Because we look at capital over a multiyear process, not just 1 year. So I like where we are. I like where we are on the margin, and we do a lot of work operationally to become more efficient with less assets, less inputs to be able to drive this business.

So that we can win in that marketplace and give our marketing and salespeople that advantage of good service, but also have that room to play with to build new markets and to invest in the company. That's the way we look at it. Listen, we're just simple people from Omaha okay. We're not that complicated. It's all about how much cash I can put to the bottom line, Brian. People can look at everything else. When somebody tells me you got the $4 billion of cash, I sort of like that number.

So in terms of, I guess, the next 1.5 months, maybe you can just talk about the application. You're still on track for, I guess, at the end of next month. And what should we expect to see, I guess, differently as you address some of the comments both from the STB, obviously, but also from -- I mean there's obviously a ton of stakeholders, but you can address some of those? Or are those things you'd rather play out during the merger review process?

I think -- remember, the process is controlled by the STB and the 3 members plus all the people that work at the STB. They wrote us 15 pages with some pretty clear instructions on the 3 key areas that they wanted to see more information on, and that's what we're going to answer. I think through this process, it's normal for them as we're going through it, they ask for some more information, and I'm good with that. And I said that to them day 1 when we put the first application in was, listen, tell us what you want.

There's no big secret. And in fact, we told them, we'll be public about it, if you want, and let every other stakeholder understand that we're going through the process to build the information. Because we're giving the information to the STB for them to look at our information and others on what they're doing. So there's no big secret about it. We know how good this merger is for the country. This is not a surprise. Son of a gun, some people say, can it be 2 million loads? There's other people that have told us it's way higher. So at the end of the day, we're very comfortable on what we're going to be able to provide for service. So we're putting the product in and answering the questions for the STB that they gave us. If we put too much more in, you have to worry that all the people that are against it, and especially our competitors that are worried about competing against us is the new railroad.

Because like we were talking about just before and I won't use the example I gave you, Brian, there isn't a business in the world that would complain about what a competitor is doing if they actually we're dumb and we're doing things that were going to harm their business. You would let them do that because you would win in the marketplace. The reason people are worried about us is we -- they know we're going to have a better service product. They truly understand that we're going to be able to give a lower cost supply chain benefit to our customers that move across the Mississippi, which also tie into the rest of the business they do with us. And the only way they can compete if they can't compete at the same level on service because of the touch points, they're going to have to compete on price. And that means them lowering their price to be able to compete against us at the price and service that we offer.

So I'm looking forward to the hearings. I really am. I wish they'd speed it up, like I said a thousand times, but it is what it is. We knew it when we started, it was going to take us a while. But what I love is where the railroad is right now. It's coming along pretty good. And I think I'm blessed. I've got a heck of a team. Jennifer is here with me, fantastic. Eric Gehringer, I don't know, he's a rocket scientist from school, but he does a pretty good job as an operating person. In fact, I think a lot of days, he thinks he's way better than me. I'm not sure about that, and every so often, I have to teach him a lesson, but a very smart guy and Kenny Rocker. So I love the team we have. I love where we are, and I love the how we're moving ahead with it. And we'll put the application in into April, a lot of work, 5,000 pages, maybe now 6,000 pages plus the 500, the 200 letters of support, 500 from customers. So I'm looking forward to moving ahead through this process.

So one thing you did do with the application was raise the synergy target for truckload conversion is it's clearly been a topic in the industry for quite some time, and obviously, right now. But as we've seen with CPKC, with their merger, like they're actually pretty far behind plan for their cross-border opportunity in truckload. So what's different about this merger and this application and this opportunity that gives you that level of confidence to hit that target?

Listen, you know what, I don't know what CPKC is doing. I really don't. But the way I look at it is this way, is they sold the number to their shareholders when they were going through the merger. And I guess you're telling me that they haven't made the numbers, okay? That's their problem, not mine. I understand where I am and where we are, where we are is as we were competing head-to-head going into Mexico, and we outgrew them. And that's real important for us, okay? So I like where Union Pacific and FXE and some of the business that we also give to Canadian Pacific to go across the border. We like it where we are.

Now we sell our network and there's a big difference, Brian. And if you take a look at the network that Union Pacific has versus Canadian National or Canadian Pacific. So if you're selling truck and you're selling intermodal, there's a big difference when you have Seattle, Sacramento, Roseville, Reno, Las Vegas, Los Angeles, Bakersfield, I could just keep on going across the west and the size of the population that we handle plus in the East, think about how big those communities are from Pittsburgh and Pennsylvania and Norfolk right? Atlanta, Jacksonville, I could keep on going. So that's why there's a -- when we've built it up, we built it up using our network and what the capability is to move.

We are not a strictly north-south railroad. I'm not passing judgment. And I'm absolutely sure, Keith is a real smart guy. I missed them this morning. I was a little late getting the cup of coffee and doing some calls, but I'm sure he probably said, Listen, I'm sure Ven has got it all planned, and we're going to -- they're going to beat the $2 million. Is that what you said?

We're going to check the transcript, I don't it's that --

No, it's not that clear? I knew he wouldn't say that.

Well, he did say if you were able to do it, he'd be the first to recognize that. So there's a lot to figure out here, of course. The process is just...

It's an -- it's amazing how people know so much about other people's railroad, right? A pretty smart shareholders thought we have an idea of what we were doing when they voted at 99.52% to approve this thing. But first of all, we have the financial resources to be able to handle it. And we have a plan that allows the shareholders to win. Shareholders are pretty smart. I think JPMorgan might be one of the shareholders that voted.

In terms of the plan, when you think about going through this process, and I think most of us would agree that there's going to be concessions of some sort. Where do you and the Board kind of draw. Is there a red line? I mean it's going to be a long process we have to go through and see it. But like at what point do you say, okay, this is just impairing the core value of the network, you just showed us here operating at very good levels, has been for a while, like -- is there a red line you have? And at what point during this process, do you think that could be evident that you might have to make that call?

Listen, it's a -- if you take a look at the transaction, it's truly a bolt-on, and the fact is that we only have 3 customer locations that are going from 2 to 1. And if you had an overlap, you'd have to worry, it would be a different story of what you would have to give up or give some open -- some access. So it's a bolt-on. In the application, we've already said the committed gateway. And of course, we can move on the length of time it's in place and the commodities involved, but this is a process, Brian, right? You can't -- you know the way it works. I went up to one leader, one union leader, and I said, we're guaranteeing jobs for every unionized employee, the day we merged the 2 companies.

And that union leader without naming them, you know what he said to me. He said, "Well, that's good. You gave that already. I want more". So you need to go through the process and get there. But committed gateway, dispute resolution I've already said that if people don't have service at the level and they don't have an option, we're more than willing to open it up to a competitor. And we're all -- and I'm all open to reciprocal switching. Always have been. It has to be for all of us, though, not just Union Pacific, but anybody who wants reciprocal switching, I'm all game for it. As long as you don't damage the product, hurt everybody else that we're trying to move.

So those are big things like stop and think about what I just said, reciprocal switching? Absolutely. Why? We think we can win. We have a high level of service, we can go win against the rest of them. A committed gateway? That's huge. Railroads don't usually like doing that. People sort of discounted that don't understand how you railroad. Railroads have always maximized their length of haul to try to make sure they make the most amount of money and it doesn't matter whether it's the best route when you're going to another railroad. By giving both every touch point to be open and every gateway open, if a customer says, the best option to get to the Southeast of the U.S. from the southern part of our network is to go CSX, they can have it. That's a big deal instead of us saying, "You have to go through Atlanta". And then we'll give it to you in Atlanta before you could go east. Think about that.

Those are huge ways and we're changing the way the railroad industry is going to move ahead. People discount them as small. They are not small. Absolutely, it changes, and it makes us all have to compete at a higher level. Jennifer, anything I missed there?

No. I mean just going back to the red line, I mean, to your point, Brian, we have -- and we laid this out in our 2024 Investor Day, we see a very strong potential for just the core UP franchise. And we've been fulfilling on that commitment, and we're very optimistic about continuing to do that. So we're not going to do anything that would lessen that opportunity. And so that's really how we look at it in totality is this needs to be incremental for our business. We absolutely believe it is, and we think we can deliver great value. But if something comes back, that would destroy that, that's where we walk away.

In the merger because of the way we look at the business by having each gateway open still and having been on top of that committed gateway, let's talk about our competitors for a minute. The deal is done. We merge. We still have CSX as a strong competitor in the East. There's still -- every customer is going to have the same access to the new Union Pacific and CSX. And CSX is doing everything they can to make themselves as efficient as possible to be able to compete at a higher level. And you got to love it. They're doing great things.

And out West, listen, we're not competing against Burlington Northern Santa Fe. We're competing against Berkshire. That's who owns them. Last time I looked, they're worth $1.1 trillion. If anybody thinks that they are an easy competitor then you're missing the understanding of who they really are, $1.1 trillion company with $370 billion of cash on their balance sheet. They can compete against anybody at a strong level. So this is not big UP against poor BNSF. This is UP against Berkshire competing in the West, and this is UP competing against a strong company, CSX in the East. Remember that this is not as simple as some people think. Burlington Northern Santa Fe could buy anything they want in the rail industry and still have cash left over from their parent company. So those are facts not -- those are facts, not fiction.

One of the other stakeholders we should talk about just real briefly is the -- all the communities, all the environmental studies, like I think that's been quite a challenge for the last even small mergers being delayed. This one is obviously much bigger and more complex. I assume that the work is already being started, but just -- so we cover all the bases, like is that something that we should be focused on? Clearly, that's a whole another set of stakeholders.

We are focused on that. But fundamentally, what the regulations ask us to do is take a look at what additional traffic would do and what the impact is to the communities and how we do that. What it doesn't get us to do because it's not part of the regulation is actually talked that if we can move trucks off of the interstate system, we're 70% more greenhouse gas efficient. Environmentally, there's no danger but the railroad is the way to operate. We're much more for the amount of fuel that we burn for every container or every shipment that we move. So it is better for the country.

But we do understand, and we have worked through what the impact would be if we shift some traffic from different lanes and how we would do that, Brian. But it's very small, the amount of true change. Because listen, we're talking about 2 million loads, that's 36,000 containers a week. We double stack them. We put 500, 600 per train, okay? If you divide that by the 7 days, you really don't end up with that many more trains a day above beyond what we have, okay? So it's -- we are looking at that in depth, but it's not the big wholesale change like some people have made this number out to be.

Well, I just go back to your first chart, Jim, where it shows how we have already reduced trains on our network because of how we're operating. And so if you compare the future state versus where we used to be, we don't think we'll even be back to necessarily that level of trains on our network to start. So that's the other part of that question

I hope you're right that they go back to 2019. Nobody is going to look that for back. They'll only look at what we're doing yesterday, right? But I hear you. So yes, we've dropped 25% in the number of trains and impact to communities. Just because of the way we operate.

So I would love in the last couple of minutes here, Jim, to hear in the process, what have you learned about Norfolk's network, people and culture that maybe didn't fully appreciate or have a better understanding of since you began this merger, talks and now working on the integration and the planning?

Well, listen, they're railroaders. They really are, okay? And that is the highest regard I can give somebody if we're in -- our industry is you're a railroader. They want to do better. They want to move things. They want to provide great service to customers. They want to be safe and they truly are railroaders across that whole company. Culturally, we are different. There's no [events] or buts the people from -- and think about it people from California are going to be different than South Carolina. And people from Atlanta are different culturally a little bit, not that much than what we are in Omaha.

But at the end of the day, I think the fundamentals of who we are and what we do are real strong. I actually went for a train ride between Chicago and Elkhart. I didn't go on a business car. I didn't go by vehicle. I didn't go by high rail. I put myself on the head end of a train with 2 unionized people, locomotive engineer and conductor. They were surprised that I actually knew what the switches are, the generator field and the engine run and how you isolate, I guess they haven't figured out that I used to be a locomotive engineer. But at the end of the day, you know what I figured out? They're proud of their company. They're proud of what they're doing. They love that we guarantee them a job and they love that they can help America grow by having a better railroad and this combination, they see that.

And that was from unionized people. So that's who they are. The time I spent in Atlanta with their management team, there's some strong people in there, and we're going to work hard to integrate this company together and get the best people to run this company and move it forward.

Well, right on time, consistent with your strategy and your plan. So thank you for keeping us on time Jim and Jennifer, and we really appreciate you being here today.

Listen thanks for the invitation. I appreciate it. Thanks for listening to me everyone.

Good morning, everyone. Welcome to day 2 of Barclays 43rd Annual Industrial Select Conference. I'm Brandon Oglenski, Airline and Transport analyst, and very excited to have up next Union Pacific. We're joined by Jim Vena, CEO; Jennifer Hamann, CFO; and Kenny Rocker, Head of Marketing and Sales.

So very excited to talk about a lot of developments here on the M&A front and on your business. But for those that have done this already, let's just queue up question number one for the audience real quick. Do you currently own UNP? Yes, overweight, market weight, 3 underweight or 4, no.

Can I get the names for underweight?

Okay. That's [indiscernible] favorably. Question number two, please. And your -- what's your general bias towards Union Pacific right now, positive, negative or neutral?

Okay. And then question number three, please. In your opinion, through-cycle EPS for Union Pacific will be above peers, in line with peers or below peers. And thanks, everyone, for participating. We do publish these at the end of the conference.

All right, Jim, maybe somewhat of a favorite audience here.

Yes. I thought maybe one of the UP people in the crowd with a button there would have tried to skew it. But thank God you did, [ Diana ].

Well, thank you for coming to Miami, especially during a busy time for you guys. I think yesterday, you made a filing with the STB effectively saying that the refiling of the application for the merger with Norfolk Southern would be end by April 30. I think some expectations have been that, that would be March. So can you talk to maybe the slight delay here?

Well, listen, thanks very much for inviting us and having us here, and thanks for everybody that's showing up in the room and online. Maybe just before I answer that, I just have to talk about, in general, how we feel today versus where we were 6 months ago and where we were last July. What we're proposing in this merger, we even have more conviction now on what the benefits are, benefits for the country, having an end-to-end railroad that operates seamlessly, very important, enhances competition because anytime you can move things seamlessly across the country, people that have to compete against you, have to compete against you on that level of service or they have to compete against you on some other way. So if they can even match the service.

And remember, in our industry, we're moving products and we're moving a lot of product in one railcar. So it's important that -- and customers use that as inventory and they also bring it closer to themselves for final inventory and how they're going to use that product. So if we can move it quicker, they get the benefit of carrying less inventory and all of you know how to figure out the inventory costs. And on top of that, they have less cost for transportation because they don't have to own as many railcars to move that business that they're moving. So we're going to offer that.

And we know by the millions of cars that we interchange yearly with other railroads, what happens. And we are even more sure and convicted that we can gain 24 to 48 hours on those cars by removing the touch points, switching earlier the way we handle them from origin to destination. So if you're one of our competitors, you need to compete against service, which you're going to have a hard time doing because you still have to -- you're not set up to go across the country.

And second is you have to compete somehow. And I think the customer wins. The customer is going to see them trying to compete against us to take into account those other things using price. And that's really the reason the railroads are so adamant against it is that they want to talk about competition. And I don't blame them. They're smart people at the other railroads, but they have to do something. And what that's something is, is to see what they can get the STB to be able to put in place so that they can try to close that gap.

But that's not the STB's job is to close that gap for them financially. It's their job to make sure that the competition is out there. So Brandon, I'm telling you we're very comfortable on that. Now the process of application and then approval and going through all the steps, listen, some of the regulations date back to the early 1900s when railroads actually were the predominant way to move products across the United States of America. You had water and you had railroads. But a lot of places, the rivers don't line up, okay, with where people were populated in the country. If you go across our network, we've -- some of the cities that are there today were established by Union Pacific as they built out and the other railroads in the western part of the U.S. So bottom line is there's a process. We knew it.

I think if today, somebody was writing the regulations, they'd be different. But it is what it is, and it is a process. So we went through the process first to put the application in, and that was important for us to cover off all those key areas that the STB is responsible for. Is it in public interest? Does it enhance competition? Is it good for employees, the environmental? And we put that all in that application, and we made sure we did that. And because it was a bolt-on with a very small piece and a very -- of overlap in a very small piece of 2:1 customers, we dealt with that.

So they said that we needed to give them some more information. Last week, through the liaison, they told us that the way they wanted to see that information was different than we thought 3 weeks ago when -- after they had sent it back to us to put more information in. So -- and we were -- by regulation, we had to give them an answer on the 17th, whether we were going to reapply and what -- when they could expect the application. So we put out yesterday that it's the end of April. That's what it's -- that's all it is, is just going through the process.

Now I'm hoping we're working hard and the contractors we've hired, the economists, right, the traffic studies, people that are doing this separately from us because they've got some expertise on that. They need some time to do that. And that's where we are, Brandon. I don't know if you to have any comments on where the -- you guys are good. I'm going to bring them in as much as I can, Brandon, if you don't mind.

Sure. And on process, so assuming that you did file by April 30, what's the next steps?

Well, it's laid out in general, what happens is they give any constituent time to be able to look and formally respond to the application. And I'm sure they've been working at it because it's not substantive change of what we're doing to it. So they're going to have a few extra months. And hopefully, the STB looks at that and says they don't need the 90 days for that and give them 45 days because they've already been looking at that application for a while. But that happens, then there could be hearings, then there could be back and forth before we get to the end.

Yes. Listen, it's different than the way I do business. I made a decision on some stuff that we're buying for our company. And I think it took me 20 minutes last night with Jennifer, and we pounded it out and we're done. So I like to do things in 20 minutes, and some things take a little bit longer. But we knew it. Brandon, this is not a surprise. If it was a surprise, then people out in the audience and online should think, holy cow, that Union Pacific leadership doesn't understand. We understand. And -- but we also want to try to speed it up. It is what it is.

Does this push back the idea that the deal could close mid next year or early next year?

Yes, I think we're still there. We really are. It's a great deal for America. If this was not a compelling story for customers, for our employees, and everybody has heard me say this, but I'll say it again. When you go through mergers, people talk about New York dock protection. What we've offered is black and white a job for life at the new Union Pacific for every unionized employee. That's a big deal, right? So when we look at that, environmentally, we might operate a few more trains, but -- through some of the communities, but we're taking trucks off the highway and trucks within the city. That is huge.

Remember, we're 70% more greenhouse gas efficient than a truck. So when we start -- when we look at the whole scheme from one end to the other and also United States service and defense, we move a lot of products for the Army and other parts of the defense. And being able to do that in a seamless manner from one end to the other, I got it. We probably don't have to worry about it. But I'll tell you, we're ready to move things in a real fast expedited fashion from the east to the west or from the west to the east, from the north to the south and do whatever we have to. And a seamless railroad just does it better, one bill, one contact, one way to look at it. So the STB gets it. They're smart.

They're very smart people, but they want to go through the process, and they don't want to get sued by the other railroads that they gave -- that they did something that was not by regulation. So we're good with it. Well, I don't have bad dreams about it, Brandon, going, oh my God, what's going on? It's expected.

Jim, this all sounds wonderful, but one of your former colleagues will be on stage here tomorrow, and I suspect the conversation is going to go in a very different direction. And I think a lot of it is going to be focused around the idea that M&A...

You can name them.

Mr. Creel.

Mr. Creel. Yes. I know Keith, good friends. I think we're going to bet on the hockey ladies and the men at some point. But I think he doesn't want to go up as high as I do on the ladies.

Well, I think he's going to push the idea that M&A needs to enhance rail-to-rail competition. Do you agree with that?

Well, listen, Keith is a real smart guy. I've known him for a long time, and I give him accolades on what he's been able to do. When he was putting together Canadian Pacific and Kansas City Southern, he talked about single line, seamless, better competition, and that was the story. So what we're doing now, you replace Canadian Pacific by Union Pacific and you replace Norfolk Southern from Kansas City. And what we're talking about is a seamless that enhances the movement and it gives customers better optionality. So he has to say something. The rest of the industry has to say something.

And the reason they have to say something is this. If you're in business, anybody who's a leader of a company will tell you that if you're a competitor and direct competitor for a small piece of the business, remember, us railroads make up about 13% of the total movement of goods in the U.S. So we're not the majority like we used to be in 1890. Second is Union Pacific today runs 27% on a GTM basis of the traffic that's on the railroads. Our biggest competitor on the West is Burlington Northern, and they're at 39%. When we get this deal done on a GTM, which is really the amount of goods you move, we're going to be the same size. So I don't know how we end up hurting that.

And if you're one of the competitors, what you're worried about is this. Like I said a minute ago, if you're in an industry, you would only complain if you think what the other company is doing, which is Union Pacific, is driving [indiscernible] than you can deliver. Otherwise, why would you complain? You would let that company do it. So all the noise we're getting from the railroads is they're worried about competing and they know the only way they're going to be able to move traffic when you -- as I opened on the service piece is they have to do it with price. That's what they're worried about.

Canadian National is worried about what happens to some of their automobile. We're going to be more competitive into Michigan and Ohio and the Southeast, right? CSX is worried about seamlessly, can we attack some of their and go after some of the business that they have in the box car business, in the merchandise business that they have. But the application -- so that's what's going to said. And hopefully, you asked that question. So, you said when you went through the Canadian Pacific Kansas City that it was such end-to-end as the way to go and all this. And we have about the same amount of overlap as they had in their deal. And that you need to ask them about how about Canada. Last time I looked, I haven't seen anybody in the 2 railroads in Canada announcement come up that they need to split the railroads in 2 because -- in 4. So they have 4 railroads in Canada, and they shouldn't operate across the country. So if you ask them those questions, go ahead. I'll be listening in to see if you do.

I'm sure it will be a nice exchange. Can you maybe talk to the revenue synergies, or Jennifer? Because I think when you guys did file the application, they actually came up and you guys took away what you thought were going to be concessions. Can you speak to that change you made?

Maybe I'll just talk to the concessions piece first, and then Kenny can talk to the revenue synergies. So you're right. When we first made the announcement about the merger application, we discounted out about $750 million in concessions that we thought might be necessary in terms of getting the deal done. As we then spent time over the next several months really studying where the traffic is going to come from, where the origins and destinations are and really the enhanced service product going back to the competition piece that we're going to be offering and how we can enhance it otherwise.

As we look at that, we don't think those concessions are necessary. Again, it's largely end-to-end. 75% of the business that we're expecting to grow is coming off the highway. It's not coming from another road, coming off the highway. And we offered competitive gateway pricing, which not only helps address some of the customers that might be impacted by the merger, it actually extends that benefit out further to customers that would have seen no change in their business with the merger, but for us offering this, and now they have the ability for either BNSF or CSX to offer a through rate for them. So when we did all that and looked at that, we're like, we don't need those concessions. We don't think they're necessary to make our point and to drive better enhanced competition.

So before I hit on these revenue synergies, I want to add a different perspective to what Jim mentioned about the merger. From a customer perspective, the customer wins also. So when Jim first came back in August of 2023, the first week on the job as we were competing with Canadian Pacific, we looked at our service product, and that's the first thing that we added to, to make sure it was stronger. In that sense, the customer won. We also are in competitive situations where, to Jim's point, you do have to price. In that sense, the customer wins. So let's make it clear, the customer will win in this merger.

Now with these revenue synergies, yes, we laid it out. Jennifer did a good job. You're talking about 2 million trucks that are going to come off the highway. The thing that we're excited about is this both carload and the intermodal side. We don't talk about that carload piece. We've got 6 lanes that we've laid out that are going to attack the watershed markets. A lot of that's moving on water. A lot of that is moving on trucks. And then on the intermodal side, we've got some lanes that we really think are going to be exciting from SoCal into the Northeast, from the Texas, Mexico area into the Southeast. Jim and I were with a pretty large intermodal customer last week, and they did a good job of saying, "Hey, we think you're thinking about it right. We think it could be a little bit undersized, and we think there are some other lanes that the merger will open up.

And I guess, can you just expand for the audience because maybe not everyone understands how rail interchange works today and why it can be so inefficient for a shipper to go east to west and kind of that arbitrary border near the Mississippi River?

Yes. So a few things, and we don't talk about it a lot. A lot of the business -- I'll just give an example when we talk about Chicago, a lot of that business stops in Chicago and then is rubber tired to another railroad inside Chicago. And then the more egregious thing is that it stops in Chicago and then it's trucked into Toledo, Detroit, other places in Ohio. And so how do you -- the customer wants the solution where [ steel ] will and where it goes in the end. They don't want to have to negotiate that and go through and have that other logistics lag there.

I think some of your competitors would push back and say, "Hey, look, we could get these benefits just by working better together, and we've seen announcements with your peers launching new services.

Yes, they're going to -- that's great. That's called competition and enhanced competition. I think they're making our case is I hope they do. I hope they look at ways to be able to improve it. The history will tell you, though, that those things don't last. Railroads start looking internally about their assets and how they handle it. And today, I could tell you that we have disagreements on locomotives, fuel, and we pass locomotives back and forth, but people will say, well, I don't know if we should -- you didn't give us 3,000 gallons. It was 2,850 gallons. So we don't want to pay that and you go back and forth trying to settle it. And oh, we get 24 free hours or it wasn't our fault. It was a customer fault.

Bottom line is when you have a seamless railroad, all that goes away. It's how you move it. And everybody misses -- everybody loves the intermodal. I also love merchandise. And if you're originating somewhere in the western part of the U.S. and going east is we handle it what's the best for Union Pacific. We've tried to make deals with other railroads to see if you can move traffic in a much more seamless, but you're talking about capital, what a railroad has to do, and they're not willing -- nobody is willing to do that, especially if you don't have a long-term commercial deal to do that. And it's just never happened.

We're going to be able to -- at that hump yard that we have in Houston, we're going to build blocks for Philadelphia. We're going to build blocks for Pittsburgh. So you don't handle the cars on the other side. That's just fact. Like I like talking fact, not fiction or what's going to happen. Like my kids -- well, my kids are 40, but when they were younger, they would talk about, geez, maybe I get to go to Mars, okay? Well, I'm okay with that. That's a dream, right? We've been to the moon. I'd rather think I know how to get to the moon than to worry about that. And that's what the analogy is for this is they can talk, but I can't see -- I've never seen the result last for a long time.

With Canadian Pacific, before they purchased Kansas City Southern, we delivered an 11,000-plus foot train, okay, to go across the Norfolk Southern over the Meridian Speedway. For some reason, now that -- that was a deal that was there for years. This is not a 3-month deal. Now we have to split the train in 2 pieces and give them max 8,500 feet. I think that's a pretty prime example of railroads for whatever reason, it was okay on the railroad before, but not okay a few months after you take the ownership of a company. That's what happens.

Sorry for the long answer, but I like to talk facts, Brandon. Not something that I'm making up because it comes back to the key point. If they truly thought the other railroads, and they're smart. They -- when you take a look at it, if you're one of the other railroads, you look at this deal and you say, how is it going to impact us? What is it that it's going to do to us? If they thought that what it was going to do to them was we wouldn't be able to technologically put the companies together, which we did with NetControl, okay, in our company. And that's our base fundamental, and it was a nonevent, and we think we can do that pretty -- use the same template, not day 1, do that at Norfolk Southern, and implement the best systems that both companies have across each other.

At the end of the day, if they can't argue, they come up with things like, I wonder if they can handle the technological change. The fact is, we've done it internally, and we've upgraded all our main systems. Second is, how is the competition? What does it do to us? Brandon, what are they going to say? If you have to compete on price and you might have to take a price cut to compete against the new Union Pacific and you can't grow your business the way we can on the watershed and what because we go long haul, what's Canadian Pacific and Canadian National going to do? They want to try to do everything they can to affect this transaction. The STB is too smart for that. They know you should never listen to a competitor as the key input on when you're looking at what's happening. It's just common knowledge.

Well, I appreciate that. Can we queue up question #4? And if there's any questions from the audience as well, just raise your hand, we'll get you a mic. In your opinion, what should UNP do with excess cash? Bolt-on M&A, larger M&A, share repurchases, dividends, debt paydown?

Give it back to the shareholders. That's our -- that's the way we look at it. We need to return money to our shareholders. Shareholders are real important.

After the [indiscernible].

Yes, after capital and everything else, I got it. But did I hurt that question by sort of...

Question #5, please. In your opinion, what multiple of 2026 earnings should Union Pacific trade? You can go ahead and vote, please.

We don't get the vote, can...

[indiscernible] 6.

Okay. And then question #6, please. What do you see as the most significant share price headwind facing UNP? Core growth, margin performance, capital deployment or execution and strategy?

And while we're waiting for the results of this, Jennifer, I did want to ask about the business. It looks like, I think last week, volumes looked pretty good for your network. I think you guys have been talking about a pretty decent operations. I don't know, can you give us an update on how the year is trending thus far?

Yes, sure. So we were impacted a little bit in January with some weather that hit the southern part of our region. we rebounded. And in fact, that was right around the time of our earnings release, and you heard us talk about the fact that we looked for a quick rebound. We've done that. The network is running. We're back at, call it, 230, 240 car miles per day. Our dwell times are sub-20 again. And with that, you've seen the carloads come back because we're, again, back in a position where we're putting the cars up against the customers. We're moving them on demand.

And you've actually seen us -- I think right now, our carloads are down 2% overall in the quarter, but we're up year-over-year in the month of February, and that's really largely because a lot of that bulk business, we're seeing strong demand on the grain side, strong demand on the coal side and even some of the petrochem markets, plastics in particular, and domestic intermodal is still good for us. So you've got the biggest headwinds out there in terms of the international intermodal, which is the year-over-year comp that we knew was there. And then some of the industrial markets, autos is weaker, although starting to look a little bit better, forest products with housing. But net-net, when you've got a well-running network, you're going to get every carload that's available, and we've rebounded from that January weather and running very, very well.

And Kenny, are you guys getting incremental wins on the network this year?

Yes. I mean you have to set aside the market because the market can change on you at any time. So we talked about the coal. We had a win around spring time this time last year that we're enjoying on top of that. Same thing with the grain business. Grain is up. The markets are stable, but they're not hot, but they're up because we are winning. We are winning in moving product out of the Gulf, moving into Mexico. Same thing with the petrochem business. Petrochem business is not like it's on fire. You have to go out there and win, and we've done that, and we feel good about winning more. And then we talked about domestic intermodal. And the thing about domestic intermodal we like is that it's been pure over-the-road truck wins, not against share or another railroad. So we've been able to open up the pie with a great service product.

And our customers are expanding, right? We can see them in the aggregate moves and we...

We see that on the aggregate side. We see that in mature markets like the grain business where we've added literally more destinations and more origins. Later today, Jim is going to get a contract for a customer that just signed on a new grain facility in Iowa for us that we expect to get us some really good growth.