Greetings. Welcome to the Union Pacific Corporation's First Quarter 2025 Earnings Call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. A reminder, this conference call is being recorded and slides for today's presentation are available on Union Pacific Corporation's website. At this time, it is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific Corporation. Mr. Vena, you may now begin.

Good morning, Rob, and thank you. Good morning, and thank you for joining us today to discuss Union Pacific Corporation's first quarter results. I'm joined in Omaha by our Chief Financial Officer, Jennifer Hamann, Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer. As you'll hear from the team, we had a solid start to the year. Our reported operating ratio was 60.7%, flat compared to last year, even with a 90 basis point headwind from fuel and leap year. We delivered record first quarter operating performance. Further, we had the strongest carload growth of the Class 1s as we work closely with our customers to meet their needs in an uncertain environment. Now let's discuss first quarter results starting on Slide three. This morning, Union Pacific Corporation reported 2025 first quarter earnings per share of $2.70, which reflects a $0.19 or 7% headwind from fuel and leap year. Our reported 2025 first quarter net income of $1.6 billion was essentially flat versus last year. Reported first quarter 2025 operating income was flat as 7% volume growth, robust core pricing gains, and strong productivity were offset by business mix, fuel, and the leap year. Freight revenue grew 1% versus last year, and if you exclude the impact from fuel surcharge, freight revenue increased 4%, both first quarter records. Looking to the rest of 2025, we will continue to execute our strategy at service and operational excellence. Building on the strong foundation with our record first quarter operating performance, we are positioned to deliver. 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. With that, Jennifer, first quarter financials.

I'll begin with the walk down of our first quarter income statement on Slide five. Our operating revenue of $6 billion matched last year's level even with lower quarterly fuel surcharge revenue, a reduction in other revenue, and the leap year comparison. Freight revenue of $5.7 billion increased 1% despite the roughly $70 million impact of having one less day in the quarter. Digging into the freight revenue drivers further, our strong volume growth in the quarter added 650 basis points to freight revenue. Fuel surcharge revenue of $565 million declined $100 million as the impact of lower year-over-year fuel prices more than offset the higher volume, reducing freight revenue by 275 basis points. Core pricing was very strong and reached the highest quarterly level in the past ten years. Further, pricing dollars net of inflation were accretive to our operating ratio. Despite these robust results, quarterly business mix combined with pricing for a 250 basis point drag on freight revenue. In addition to volume growth in our lower average revenue per car business lines such as intermodal and coal, we have the additional dynamics of lower volumes in our higher arc businesses like petroleum, soda ash, and finished vehicles. Wrapping up the top line, other revenue declined 19% to $336 million. Included in the year-over-year change are several items including some that we have such as last year's intermodal equipment sale and the Metro transfer. Quarterly results were also challenged by reduced auto parts and lower assetorial revenue. And finally, you'll recall that first quarter 2024 included a one-time favorable contract settlement of $25 million. Switching to expenses, operating expense of $3.7 billion equaled last year, as solid productivity gains and lower fuel costs offset volume-related costs, inflation, and depreciation. Digging deeper into a few of the expense lines, compensation and benefits expense improved 1% versus last year as reduced workforce levels were partially offset by wage inflation. Record quarterly workforce productivity enabled us to limit first quarter cost per employee to only a 2% increase. First quarter fuel expense declined 8% on an 11% decrease in fuel price from $2.81 to $2.51 per gallon. We also improved our fuel consumption rate by 1% during the quarter as we continue to leverage optimization tools such as energy management systems on our locomotive fleet, enhancing train handling while reducing consumption. Purchase services and materials expense increased 3% versus last year, driven by inflation, volume-related costs, and a favorable 2024 item, partially offset by lower costs at a subsidiary. Equipment and other rents increased 12%, driven by increased car hire for automotive racks, inflation, and demand in intermodal and other traffic that utilizes foreign freight cars. Finally, other expense increased 1%, as higher costs associated with destroyed equipment were partially offset by lower bad debt expense and environmental remediation costs. First quarter operating income of $2.4 billion was consistent with last year. Below the line on lower average debt levels partially offset by a slightly higher effective interest rate, quarter 2025 net income totaled $1.6 billion and earnings per share came in at $2.70, both essentially flat versus 2024 despite the $0.19 EPS impact from fuel and leap year. Similarly, fuel and leap year had a 90 basis point unfavorable impact on our reported quarterly operating ratio of 60.7%. All in, the UP team produced a good quarterly performance and start to 2025. Before I go on, a couple housekeeping items I want to mention. First is that we now estimate our other revenue will total about $325 million per quarter reflecting our expectations for lower assetorial and subsidiary revenue. And a reminder that in the second quarter of 2024, our results included a $46 million benefit in other expense from the sale of intermodal equipment and we have now lapped that transaction. Turning to shareholder returns and the balance sheet on Slide six. First quarter cash from operations totaled $2.2 billion, up 4% versus last year. In February, we initiated an accelerated share repurchase program for $1.5 billion, and through the quarter, we made open market purchases of an additional $220 million as we more recently took advantage of very attractive share prices. That cash return plus our industry-leading dividend payout enabled us to return $2.5 billion to our shareholders in the first quarter. In the quarter, our net debt increased $1.7 billion as we issued $2 billion of long-term debt and paid maturities totaling $350 million. This resulted in our adjusted debt to EBITDA ratio of 2.8 times at the end of the quarter, as we continue to be A-rated by our three credit rating agencies. Turning to the remainder of 2025, on Slide seven, as we look to the next three quarters, it is likely going to be a bumpy ride. In preparation, we've worked through scenario planning and will remain agile. Importantly, we will continue executing our strategy and are maintaining the three-year targets set at our Investor Day last September. In particular, 2025 EPS growth will be consistent with attaining our three-year EPS CAGR view of high single to low double-digit growth. Similarly, our views on accretive pricing, industry-leading operating ratio, and ROIC as well as capital deployment plans still hold. Obviously, there's uncertainty in the marketplace. But the year is off to a good start and we are delivering value for our shareholders. In fact, April volumes and service metrics were quite strong heading into the Easter weekend. Our focus on safety, service, and operational excellence prepares us for whatever lies ahead and we're confident in our ability to perform.

Thank you, Jennifer, and good morning. Freight revenues totaled $5.7 billion for the quarter, which was up 4% excluding fuel surcharges due to increased volumes. Despite unfavorable mix, we saw strong core pricing gains, which, as Jennifer mentioned, was the highest absolute quarterly level over the past ten years. This is a testament to our deliberate focus on maximizing price. Let's jump right in and talk about the key drivers for each of these business groups. Starting with our bulk segment, revenue for the quarter was up 1% compared to last year, on a 2% increase in volume and a 1% decrease in average revenue per car as business mix and lower fuel surcharge revenues were more than offset by core pricing gains and volume. Post off strong customer demand due to favorable natural gas pricing. Grain products volume was up for the quarter driven by increased demand for feedstock. Locating new customers on our railroad ensures long-term ratable demand, and the newest facilities located in Nebraska and Kansas are now running at full capacity. Lastly, primarily driven by consumer preference. Turning to Industrial, revenue was down 1% for the quarter on a 1% decrease in volume. Strong core pricing gains were offset by business mix, lower fuel surcharges, and volume. Petroleum shipments decreased during the quarter due to business shift while soda ash was impacted by weaker global demand. This was partially offset by increased rock shipments driven by strong customer demand coupled with favorable weather conditions compared to last year. Premium revenue for the quarter was up 5% on a 13% increase in volume and a 7% decrease in average revenue per car reflecting the mix impact of increased intermodal shipments and lower fuel surcharges. Intermodal volumes remain strong based on international West Coast import demand. Additional positive domestic intermodal growth was Automotive volumes due to reduced OEM production. Turning to Slide ten, here is our 2025 outlook as we see it today for the key markets we serve. We've had a solid start to the second quarter with AAR car loadings currently up just over 7% compared to last year. Now starting with bulk, continued challenges for food and beverage are expected primarily based on weakness in the U.S. Beer market. We anticipate coal volumes to remain strong in the near term. However, there is always volatility in natural gas prices. So we'll remain agile as we move into the second half of the year. Lastly, we expect grain exports into Mexico to remain strong. For grain products, our intense focus on business development results is expected to mitigate market uncertainties in renewable fuels and associated feedstock. Moving to industrial, we anticipate petroleum volume to remain challenged due to business shift and our commitment to balance the volume at the right margin. Our industrial chemicals and plastics markets will remain favorable based on customer plant expansions and our ability to win incremental volume in the market. For example, we are excited to support Dial's expansion later this year at their Poly seven facility in Freeport, Texas. And wrapping up, with premium, while tariff uncertainty remains a concern for automotive, we are closely aligned with our customers providing guidance and solutions every step of the way. On the intermodal side, we anticipate a slowdown in international intermodal as we move through the second quarter. And we expect decreased volume in the second half of the year due to the higher comparisons as customers diversify back to East Coast and Canadian ports. However, we remain optimistic about growth driven by over-the-road conversions because of our strong service product and multiple channels to win. We are keeping a watchful eye on the market and potential tariff changes that could further impact overall consumer spending. While we navigate the trade policies and face difficult comparisons in the latter half of the year, our team has proactively taken action and hustling to overcome these obstacles. Specifically, earlier this month, we began moving volumes with Lower Colorado River Authority and will continue to ramp up throughout the month. The team's focus on business development is yielding positive results. As we see incremental volume from new and across multiple segments like grain products and petrochemicals. In fact, we actively maintain an open pipeline of 200 construction projects so business development through growth and expansion is always a priority. The team is also setting the stage for future growth. Undi Steel Corporation recently joined the Union Pacific Railroad Network announcing their first-ever US steel mill in Louisiana. Construction won't be complete for a few years, but this is a positive result of our current business development efforts. With our strong service product, I am confident that we will continue to win new business and take trucks off the road. And as I stated last quarter, our commercial team is crystal clear on acceptable pricing levels based on the service we sold. Which is driving strong core pricing gains. I'm proud of the team's ability to deliver a 4% increase in freight revenue excluding fuel. The team is focused, and I'm very comfortable with our current position. And with that, I'll turn it over to Eric to review our operational performance.

Thank you, Kenny, and good morning. Moving to Slide twelve. In the first quarter, we continued to see meaningful improvements across nearly all of our metrics. This is a testament to our strategy, our steadfast focus on providing industry-leading safety, service, and operational excellence. Starting with safety, which is the foundation of everything we do, both personal injury and derailment rates continue to improve versus their three-year rolling average. In fact, we achieved a first-quarter personal injury rate that tied a quarterly record dating back to 2016. Our number one priority remains returning all employees home safely each and every day. Freight car velocity, the best measure of fluidity on the railroad, improved 6% to 215 miles per day, a first-quarter record. The primary driver was further reductions in terminal dwell, which improved 6% year over year and also set a new first-quarter record. We are turning our customers' assets faster. A win-win. As we support their growth initiatives while simultaneously generating future growth capacity within our terminals. On the service front, manifest SPI was 93%, a six-point improvement. While intermodal SPI at 94% was essentially flat. Our buffer of resources coupled with improved fluidity I mentioned earlier continues to translate into a very high level of service for our customers. And customers are seeing the benefit, rewarding Union Pacific Corporation with new business. As Kenny mentioned, we have successfully onboarded our new coal customer while also adding incremental growth coal sets beyond what we had originally planned coming into the year. On the intermodal front, we continue to handle historically high international intermodal volumes. All while delivering a service we sold our customers. Let's review our key efficiency metrics on Slide thirteen. Throughout the quarter, the team was effective in our approach to asset management, leveraging our buffer of resources to inject assets only as we needed them. That approach paid off. As you see improved efficiency metrics across the board. Locomotive productivity improved 1% compared to first quarter 2024. Notably, our active locomotive fleet only increased 3% against the backdrop of a 7% volume growth and normal winter weather challenges we historically experienced this time of the year. While the increased fluidity of our network enabled the performance, we also see the continued benefits from our work on locomotive dwell. Workforce productivity, which includes all employees, improved nine. More specifically, our active train engine and yard workforce decreased 1%. Demonstrating excellent operating leverage against the 7% volume growth. We will continue to support our training pipeline and provide the capacity buffer necessary to navigate an ever-changing environment. Train length in the quarter grew 2% compared to first quarter 2024. Further, we delivered improved train length sequentially despite lower intermodal volumes, which generally provide greater density to drive gains in train lengths. We will continue to leverage proprietary technologies like Precision Train Builder to safely grow train length while generating mainline capacity for current and future growth. Wrapping up, I'm very proud of the team and the results we delivered. We efficiently leveraged our resources to handle volume growth in a service-focused manner. As we progress throughout the year, we will remain agile and in constant communication with our customers as they analyze their supply chain options. I'm very confident in our ability to control what we can control, whether it be our service product, buffer of resources, asset utilization, etc. We are prepared and as we move forward, I'm certain you will see our resiliency on display.

Just taking a sip of coffee. You were way too fast closing that off, Eric. I thought you still had a couple of lines. Thank you very much. And why don't we turn to Slide fifteen? Before we get to your questions, I'd like to quickly summarize what you've heard from our team. First, as you heard from Jennifer and Kenny, we are still a lot of unknowns related to volumes and the economy. But what I do know is that we are driving efficiency throughout our network and pricing for the strong value we provide our customers. Eric walked you through the records we're setting across safety service and operational excellence. Network is fluid and we are meeting the demands of all our customers. We are in a good position and we will be agile and responsive as we move forward. We remain committed to the long-term guidance that we laid out at our Investor Day last September, and we are confident we will be the industry leader as we drive value for our shareholders. We have the right strategy, right team, and the right focus on the fundamentals, all supporting our ability to unlock the franchise. With that, we are now ready to take your questions. Rob?

Thank you, Mr. Vena. We'll now be conducting our question and answer session. You may press star two if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Due to the number of analysts joining us on the call today, limiting everyone to one question to accommodate as many participants as possible. Thank you. And our first question will be coming from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question.

Good morning, guys. I wanted to talk a little bit about 2025 guidance. So, obviously, uncertainty is building here with concerns about maybe some slowing activity particularly on the West Coast. You guys have talked about sort of growth this year consistent with the long-term targets, and I think that could take a couple of different meanings. So I was curious if you wanted to maybe put a little bit of a finer point on what the potential outcomes could be either from an earnings perspective, maybe an operating ratio perspective. Just wanted to see if you can put some framework around what 2025 might look like just given the uncertainty that's out there.

Well, Chris, that's a great question and a great way to start off. At this point, there are a lot of things tariffs, economy, what the consumer does, what interest rates are going to happen, what’s going to happen with the tax package or the packages that Congress is looking at doing. All those things are up in the air. What we look at at this point in time, we're very comfortable that we're standing by our guidance that we provided last year. Now, is it a little muddier at this point than it was when we gave it last year? Absolutely. But at this point, what we're seeing, and that's why Jennifer mentioned our carloads are pretty strong so far in April, and the mix is pretty strong. So we like what we see, and we just don't want to get lost in this fluid situation, so we'd be remiss if we started discussing what's going to happen as we move through the rest of the year. For us though, what we look at is very key foundationally. Fundamentally, we have a railroad that is operating very efficiently. Eric took you through the details of how we’re performing, and I think we've shown over the last few quarters and especially this first quarter what's possible with this railroad. If you come in with a fundamental railroad that’s operating well, you can build from that. The reaction is based on all these variables that I've mentioned. At the end of the day, I'm comfortable that we need to react, we will react. But at this point, I think it’s so fluid. I woke up this morning as I normally do. I went to bed last night at midnight after watching that bad hockey game where my team lost badly, and I woke up this morning to check the news. At this point, it’s a day-to-day, week-to-week reaction to what's happening out in the marketplace. So that's why, Chris, we're sticking to our three-year guidance. I think if everything comes to a normal, much more stable situation, we will deliver that, and I'm confident we have the opportunity to do so. Anything you want to add?

No. I mean, I think you hit all the right points, Jim. We are looking at it a number of different ways both in terms of what we think is going to happen on the demand side. But obviously, Eric and his team have to be prepared in terms of if demand does fall, what are the levers that we can pull? So when we look at that in totality, we feel comfortable that we've got the right strategy. We're well positioned. And obviously, we want to take advantage of carloads when they're there. I think we've done a really good job of that today.

Thank you very much. Appreciate it.

Our next question comes from the line of Tom Wadewitz with UBS. Please proceed with your question.

I guess this is a question along the same theme; when we think about your framework for this year. You know, volumes are strong in April, but, you know, there are a number of segments that might be pre-shipping or fall off. So I guess if you say in that, you know, kind of three-year guide, call it high single-digit earnings growth at the low end, is there a revenue growth or a volume growth assumption that you say, hey, we kind of need to be in this range in order to achieve that? And I guess I don't know if that's the low single digits of revenue growth. And then I guess just from a year-over-year perspective, if you're flat in earnings in one Q, but you do know, full-year high single-digit, what's the lever that accelerates? Is it just easier comps? Is it kind of volume accelerates? Just you know, I guess, a couple more things that's how we understand the frame.

Well, Tom, it's an interesting question. There's a lot of puts and takes. If you take a look at our first quarter, the headline you would say it was a flat year. But if you look at it underneath, with the impact of fuel, we had a pretty good first quarter, especially considering the usual expense sides with a lot of things that come in. Fundamentally, we're good. We like the business mix that we have. We like the way the quarter has started off. I am absolutely not sure what's going to happen. And if anybody tells you at any point that they know what's going to happen over the next few weeks, let alone for the rest of the year completely, I think we'd be remiss to start changing our guidance. You know, the easy thing would have been to come in this morning and just say, listen. There's so much noise so we're pulling our guidance. But we have a job to do, and our job is to react to whatever's thrown at us. At Union Pacific Corporation, we've been doing that for a long time, and you know, I do have a few gray hairs from experience. So I've seen the ups and downs. I've never bet against the United States economy or the country in general. At the end of the day, I think we end up in a good place, whether that's in a few weeks or in six months, but fundamentally, if we operate the way we are, Kenny and the team are building long-term partnerships with customers. I'm very comfortable, Tom, and we are not going to come off of our strategy. Our high single-digit, low double-digit goals are absolutely driven by how we price, our volume, efficiency, and everything that's in the mix that we can control. We've shown over the last few quarters how we measure success.

I guess, any thoughts on like, threshold revenue growth or volume to get there?

Tom, in the first few weeks of April, we're seeing a little bit of impact with everything that's going on. At the end of the day, it’s been strong for us. Our industrial, our bulk, even the intermodal, is pretty strong. I like to see bulk and industrial where it is. It’s a different margin business. I really can’t tell you what it will look like in the next couple of weeks. At the end, I think we’ll see a reasonable position for the United States, and this won’t impact consumers in their spending behaviors. Haven't seen that at this point, but that would be a concern. For now, we haven’t seen anything that would suggest a change.

Thank you. Our next question is from the line of Fadi Chamoun with BMO Capital Markets. Please proceed with your question.

Yes. Good morning. So quick question on the pricing. You mentioned the strongest in ten years for Q1. How much of that is reflecting maybe the lag impact from the inflation we saw in the last couple of years, and how much is driven by the better service performance of the network in the last year? If you can give some color about what's underlying this strong pricing and how sustainable that is?

Yeah, Fadi. Thanks for that question. I'll start it off and then kick it over to Kenny. I do think it's important to recall back to our Investor Day where we laid out our vision that we were going to have accretive pricing going forward. In that, we talked about the fact that we had some catch-up to do and that we had the opportunity to address more of our long-term contracts. That was part of what gave us the confidence to assert that our pricing was going to be accretive. Certainly, Eric’s service product has helped support that, and the team has been proactive in having those conversations. This outcome is consistent with what we were seeing and what we expected to see back in September. We just believe there's more of that coming forward. So that's where you're seeing that confidence.

So you look at it as Jennifer mentioned last year, we were price accretive. We're starting off price accretive today. It’s really the mindset we have as a commercial team. Eric's team is providing us with a strong service product. We also have quite a few that are entering into the network. That gives us the ability to effectively price based on the service we provide. And we are quite committed to that. And so that's what you're seeing. You're seeing the results of that play out.

Thank you.

Next question is from the line of Brandon Oglenski with Barclays. Please proceed with your question.

Hi, good morning. Thanks for taking the question. Kenny, I know everything is volatile right now, but obviously we have pretty sizable tariffs on Chinese goods here. I mean, I think our treasury secretary is calling a de facto embargo on trade with China. We can see that there will be some higher blank sailings into, like, LA, Long Beach, which has been a pretty big source of volume for you guys. So I guess maybe a two-part question. a, have you heard from your international customers or any of your customers about plans for dealing with these very large tariffs? And then maybe just quickly for Eric, how would you deal with potentially a big air pocket and demand on certain parts of your network even if you're seeing growth domestically?

Yes, Brandon. Thanks for the question. First, it starts with staying in close contact with our customers. I've been talking to customers this week. It's all about the agility. We've shown improvement in that area in the quarter. We were able to handle that business. You're asking a specific question about China and yes, we do see and Jim used the term normal patterns. We expect that as we move throughout the quarter, to see a little bit more softness and have some tougher comparisons. The best thing we can do during that time is just make sure we have all the products we have with the right ramp up and the service product and stay close to our customers because we've been seeing these supply chain patterns change at the drop of a hat.

And Brandon, related to how we continue to maintain volume variability. For us, we're very prompt about being able to adjust our resources. When we think about what are we physically doing, what does it look like on the railroad? It's really your five critical resources, with emphasis mostly on three of them. You adjust the amount of locomotives you have, the amount of cars you have, and you adjust the amount of crews that you have. Now you do that within our transportation plan. Over the last year, we've improved on that approach. We have a tool called adaptive planning that's taken our playbooks and made us faster at how we can make those decisions. What used to take multiple days or weeks now can be done in a matter of hours or, at most, a couple of days. So we have the ability to adjust. You’ve seen us demonstrate that many times over our history, and that’s exactly what we’ll do.

Thank you.

Our next question is from the line of Scott Group with Wolfe Research.

Good morning, Scott. So if I take a step back, we have the best pricing in ten years and volumes up seven, and headcount's down three, you would think it would've been a perfect storm of record margin improvement given those three things, yet margins are flat. Is this just mix and fuel? What does this look like going forward, especially as volume slows, but maybe now the mix turns positive? Hopefully, the fuel headwind isn't the same magnitude. Should we start to see a lot more margin improvement given these pricing trends as we get through maybe some of this mix headwind?

You know, it's an interesting way to look at it. Yes, you could say that if we have less revenue, but the mix is better, we end up with better margins. That’s a win, but I’d rather have more revenue and drive to ensure that the margin is where it needs to be. We like all the business that we have. And the reason we are Union Pacific Corporation is because of the top hundred customers that we have that we move everything that people use every day in manufacturing or at the end. So Scott, yes, you could say that if intermodal came down due to what's happening at the West Coast or the imports, that would help us with margins. But remember, we don't give all our specifics on purpose. If someone told me I could be a 55 operating ratio railroad and have my revenue go down, I’d rather be a 57 operating ratio railroad with our revenue going up. So that’s the way I look at it. Jennifer, anything else you want to add?

Yeah. I should add on the mix part; obviously, mix and price together, and a mix of record price at being down 250 basis points gives you an indication of the impact of mix for the quarter. We also provided what the impact was on the operating ratio and EPS from fuel. So as we look ahead, the mix should moderate. I don’t know when it will turn positive, but it probably should turn positive as we move into the back half of the year. We’ll see how the second quarter plays out. There’s just a lot of variables impacting how that’s going to play. However, it should improve nevertheless. You look at fuel and we see that moderating through the year as well. If we get to the end of the year, and fuel prices stay where they are, I think it will be a non-event for us overall for the year. So I think you're looking at it right. The only thing I would say is don’t underestimate the mix impact on our margins in the first quarter. Thanks, Scott.

The next question is from the line of Ken Hoexter with Bank of America. Please proceed with your question.

Good morning, Ken. Great. So, Jen, maybe just taking that another step, assuming that you don't give specific guidance, but if I think about maybe just historical averages, right? If you could talk about what level of improvement you’ve historically seen from the first quarter to the second quarter. I think it’s been about a hundred basis points. So to get to the EPS target you’re talking about, do we have to see outsized seasonal performance, given the LEAP day and fuel impacts you were talking about?

Maybe I'll start with that. Thanks. Ken, I love the question. You were trying to ask because you thought for sure Jennifer would say I don’t provide any guidance. But yes, historically, we will see that improvement. At this point, we see it already with three weeks in the book that looks like we’ll have that change that typically happens from first to second quarter and maybe even a little better because of how well we're operating. But it’s still too early in the quarter to say anything specific about what it looks like.

Yes. Historically, the first quarter is when you typically have your worst margins for the year. Then it typically improves in the second and third quarter because you’ve got your beginning of the year costs out of the way. You see your volume improve. You’re away from the winter weather. So you have that kind of mud behind you, if you will, in the first quarter, propelling you in the second and third quarters as you see volume growth. Obviously, as we’re talking today, volume will be the wildcard. But we're not going to use that as an excuse to not improve. In fact, we believe we will improve. That's the team’s objective, and we're absolutely committed to it.

Wonderful. Jim, you mentioned your team lost a bet. Was that the Oilers-Canadiens or are you really an Ottawa fan?

Well, listen. I'm an Edmonton Oilers fan. That was ugly. My dad's a Montreal Canadiens fan. He didn’t like that. So there wasn't a lot of positivity. I went to bed last night after midnight, going, what the heck was that?

Thank you. Our next question comes from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question.

So, Kenny, just in recognizing the volatility with policies, there seems to be something on section 301 related to Chinese shipping, and now they're talking about removing the harbor maintenance tax benefit from Canadian ports. I wanted to see what your initial thoughts are on that since we’ve seen two iterations of that with the U.S. trade policies in the past, and we saw significant impacts on U.S. export grain, particularly soybeans. Is that something we should be considering here?

Yes. Thanks for that, Brian. First of all, we’ve discussed with quite a few customers. They need more clarity and certainty. Candidly, we’ve seen the tariffs come on and come off. We need more clarity and certainty before we can commit to making any significant changes in ports or traffic flows. Our commercial team is actively discussing options for businesses coming to the U.S. based on our strong network and service. But bottom line, we have to ensure these changes are stable. When it comes to exports, during Trump's earlier administration, we did see traffic flows change. Currently, we’re successfully moving grain to new areas like the Gulf and Mexico. So yes, traffic flows may shift, but we still maintain an agile network. There’s fundamental growth in renewable fuels and the efforts we’re making in business development. We believe there’s a good emerging market presence.

Thank you very much. Thank you, Kenny.

Our next question is from the line of Jonathan Chappell with Evercore ISI. Please proceed with your question.

Eric, I have a question for you. We’ve touched on this a little bit, but I don't think we know what the outcome is going to be. With blank sailings and the comments around exports leaving China, how will you manage resources for volatility in the intermodal cycle? Do you keep a level of resiliency in case things are short-lived, and just focus on service while being prepared for the upturn? Or do you have to become a little more drastic in your resource decisions in the short term?

That’s a great question, Jonathan, and a timely one. Let's be clear: we always maintain a buffer of resources. We keep our railcars, locomotives, and crews necessary to deliver the service product we promised our customers. When we see increases in international intermodal, we make adjustments to our transportation plan. You might think that just means adding more trains to the system, but that’s not our approach. We first look to fill any latent capacity on existing trains, then we consider combining certain trains to generate more capacity, and lastly, as a last resort, we add new trains. If we experience any reduction, we simply reverse that process. We look for trains added to the system that no longer support running due to lower volume, then from there, we check for possible combinations, striving to remain efficient and flexible. We use technology to inform our decisions to deliver our service product and do it as efficiently as possible.

Thank you very much. Great insights.

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

Good morning, everyone. This is Joe Hafling on for Stephanie. Eric, thanks for walking through that. That was very helpful. I think it answered a lot of those questions. I wanted to talk about something a little different. Under the surface, all the productivity initiatives you guys have been embarking on, if we think about 2025, what major projects do you have under your belt that we should be looking forward to? And maybe, just an obligatory, how we should think about headcount throughout the year?

Sure. Regarding productivity initiatives, while technology is critical, the biggest driver is still the fundamental operation of the railroad. You saw that in first quarter where we handled 7% higher volume while operating expenses were down 2% excluding fuel. Record train length and workforce productivity speak to our ongoing efforts. We have dozens of initiatives at different phases, focused on improving our technology. Jennifer mentioned fuel conservation with energy management systems and our engineering team’s work on material distribution automation. As for headcount, we assess our plan every month, considering completion rates and marketplace conditions. We’re committed to ensuring resource variability.

Eric, your points are good. We implemented net control and a new dispatch system that allows us to dispatch at a higher level and react to changes in real-time. Our network dynamics are complex, particularly in the LA basin, where we manage intermodal containers going across our vast network, including the eastern part of the country. The goal is to leverage the technology for better operational efficiency and faster decision-making. While we are hiring, there's always caution, especially considering field employees like locomotive engineers and conductors. We adjust hiring based on market conditions but keep hiring aggressive to ensure we maintain capability.

It was all very thoughtful. Thank you.

Thanks for the question. Our next question is from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.

Good morning, everyone. Thanks for taking the time today. This is Andre on for Jordan. My question is somewhat conceptual, trying to frame the downside risk to the freight market that might be left out there. Most of transportation has already been in a freight recession for three years now. How much additional absolute downside risk is there left to volumes or yields if, in a worst-case scenario, we fall into a consumer-led GDP recession? Would a downturn be less pronounced in freight versus historical GDP slowdowns given the already extended slowdown in freight that occurred post-COVID? Or would that be fair to say, you know, for some of your non-consumer-facing businesses?

Yeah. So I'll take a stab at that one. I mean, I do think you're making good points in terms of particularly in transportation, which we've mentioned has been in a down mode for a couple of years. We've been bouncing along the bottom, but we've made tremendous strides to improve our service. We've solidified our partnerships, and we believe that positions us well to capture the business available. Our franchise is diverse, that broad scope helps insulate us from trouble in specific markets. Last year, our volumes were up 3%, even while coal was down 20%. The good news is we're agile; we’ll be ready for whatever happens in the market.

Thanks. Appreciate the thoughts.

Thank you. The next question is from the line of Daniel Imbro with Stephens. Please proceed with your question.

Good morning, hey, good morning guys. Thanks for taking the question. Kenny, I want to follow up on intermodal, maybe volume and revenue per carload outlook. I think you mentioned there are some international headwinds coming with the potential for more domestic strength from truckload conversions. How did those domestic conversions trend through the first quarter as the truck market began to soften? Related to that, with favorable mix of more domestic versus international, but maybe a softer truck pricing environment, how are you expecting to see intermodal revenue per carload? Through the back half of the year just as the split takes?

Yes, so let me start by updating you on where we are through bid season, a little more than a third through. We’re encouraged by our bid performance and the wins we’ve achieved. We’re excited about the channels we've created, including private customers and our own private box. We’ve seen strong wins across those areas. The domestic market has gone well, and a strong service product helps in that regard. We've secured significant loads with customers on over-the-road partnerships too. Pricing mechanisms are in place with customers that allow us to compete with the truck market. During tough conditions, this structure allows us to stay competitive and win business. If the market improves, we expect positive movement on revenue per car.

Yeah, the only thing I’ll add there is if you think about it, we discussed mix within mix. Within intermodal, different segments have different mixes. We shared in September that international intermodal represents our lowest average revenue per car. So if you see less international in favor of more domestic, that will positively affect our mix.

Next question is from the line of Ariel Rosa with Citigroup. Please proceed with your question.

Yes. Hey, good morning. I just wanted to ask a clarifying question. When you talk about EPS growth consistent with attaining the three-year CAGR on EPS, just help me understand. That is not specifically a target for 2025 to be up high single digits? Just wanted to clarify that point. Additionally, we have seen some strength in coal in Q2 to date. Can you help understand what's underlying that strength and if you think it can be sustainable?

Sorry. I wish I could come here and tell you that what we see is a high single digit, low double digit for sure this year. There's just too many variables that we can't control right now. But we're very comfortable with the way the railroad is operating, and we're confident in our guidance.

Just on coal, the main driver of that business has been natural gas pricing. We’ve seen strength in coal fueled by strong demand and customer engagements. Year-over-year, we’ve managed to achieve over 25% growth in coal segments.

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

Hey, good morning. Thanks for letting me in here. I wanted to ask maybe Kenny or Jennifer to help us understand how much the pricing has improved sequentially or relative to last year and what specifically has driven it. Are we beginning to see the benefits of a better service product, or is this simply about pricing initiatives at the operating level, such as in coal? Additionally, how sustainable do you think this level of pricing can be throughout the rest of the year?

I’ll start, and if you want to jump in, Jennifer. Consistent with service performance, we’ve made the determination based on what we’re offering and how we've been performing. Strong service allows us to lead in pricing. Customers appreciate that and into the service performance. And now I'll share, we will always have a focus on acceptable pricing levels. So historically speaking, this sets us on a strong trajectory.

Yes, and it’s crucial to note that while the truck segment is the only part currently not supporting our pricing, if there’s any hint of improvement in the truck sector, it could present even more positive news for us.

Thank you.

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.