Greetings, and welcome to Union Pacific's Second Quarter 2025 Earnings Call. 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 now begin your presentation.

Thanks, Rob, and thanks, everyone, for joining us this morning. Another beautiful day in Omaha. A little bit of thunderstorms last night, but the skies are clear this morning, and it's a wonderful day to be railroading. So good morning, everyone, and thank you for joining us today for Union Pacific's Second Quarter 2025 Earnings Call. I'm joined in Omaha by 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. As you'll hear from the team this morning, we are delivering on our strategy, and our results demonstrate our commitment to leading the industry as we set new standards for safety, service, and operational excellence. Now if we turn over to Slide 3. This morning, Union Pacific reported 2025 second quarter earnings per share of $3.15. We had two unusual and offsetting items in the second quarter: a deferred tax benefit and a labor expense for a crew ratification agreement, both of which Jennifer will discuss in more detail. Excluding those items, our adjusted earnings per share is $3.03, up 12% versus last year's adjusted results. Volume growth, core pricing gains, and productivity improvements drove solid results in the quarter. Our adjusted second quarter operating ratio was 58.1%, improving 230 basis points versus last year's adjusted results. Freight revenue, excluding fuel surcharge, grew 6% in the second quarter, setting best-ever quarterly and year-to-date records in 2025. In addition, we set quarterly records in both quarters for workforce productivity, with the second quarter ranking as the best ever. Importantly, we efficiently handled the first half volume growth while also improving our safety and service performance. I'm very comfortable with where we are and pleased with the level of execution I see across the company. Next, 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. With that, Jennifer, second quarter results.

All right. Thank you, Jim, and good morning, everyone. I'll start with a walk down of our second quarter income statement on Slide 5, with operating revenue of $6.2 billion, improved 2% versus last year, while freight revenue of $5.8 billion set a second quarter record and increased 4%. Breaking down the drivers of freight revenue, volume growth in the quarter added 375 basis points. Fuel surcharge revenue of $569 million declined $100 million or 225 basis points as lower year-over-year fuel prices reduced our freight revenues. Price combined with mix for a 200 basis point benefit to freight revenue versus last year as strong core pricing dollars more than offset the continued business mix impact. We are disciplined in our pricing, supported by a strong service product, and for the third consecutive quarter, yielded price dollars net of inflation that were accretive to our operating ratio. Wrapping up the top line, other revenue declined 16% to $311 million. Included in the year-over-year change are the items that we've discussed previously, last year's intermodal equipment sale and the metro transfer. Also impacting other revenue in the quarter were lower accessorial and subsidiary revenues. Switching to expenses. Our appendix slides provide some more detail, but I'll walk through the highlights as operating expense increased only 1% to $3.6 billion against a 4% increase in quarterly volume. Looking closer at the expense lines, compensation and benefits increased 5%, driven by the brakeperson buyout agreement of $55 million. This is the third and final brakeperson agreement, further enabling more efficient car handling. When you adjust for the brakeperson agreement, quarterly compensation and benefits expense increased 1%, while our cost per employee increased 3.5%. These results demonstrate how a 3% lower workforce level and strong productivity almost entirely offset the impact of wage inflation. We would expect a similar level of increase in compensation per employee for the full year as we continue to leverage process improvements and technology to offset wage increases. Additionally, in the quarter, we transferred close to 250 employees to Metro, completing the majority of the transfers we began in the second quarter of 2024. Fuel expense declined 8% on an 11% decrease in fuel prices from $2.73 to $2.42 per gallon. Our fuel consumption rate improved 2% and set a second quarter record. Ongoing benefits from our fuel and locomotive initiatives, coupled with running a more fuel-efficient business mix, drove the improvement. Equipment and other rents increased 5%, driven by lower equity income and our business mix. Finally, other expenses improved 5% versus last year. Lower casualty, including environmental costs, more than offset last year's $46 million gain from the intermodal equipment sales. Our reported operating income grew to $2.5 billion, a second quarter record. Income tax expense improved 14% as the state tax legislation change provided a one-time deferred tax benefit of $115 million, more than offsetting the tax increase from higher income. Our reported net income totaled $1.9 billion, and earnings per share was $3.15. Excluding those unusual items in the quarter, adjusted earnings per share was $3.03. Our adjusted operating ratio came in at 58.1%, reflecting the 90 basis point impact of the brakeperson agreement. Overall, a very strong quarterly performance by the team executing on all elements of our strategy and demonstrating what's possible from the Union Pacific franchise. Turning to shareholder returns on the balance sheet on Slide 6. Our second quarter cash from operations totaled $4.5 billion, up more than $500 million versus last year. Through the second quarter, we've returned $4.3 billion to our shareholders through a combination of share repurchases and dividends. And in keeping with our Investor Day commitments, we announced a 3% dividend increase last week. This marks the 19th consecutive year of annual increases. Our adjusted debt-to-EBITDA ratio finished the quarter at 2.8x, and we remain A-rated by our three credit rating agencies. Looking out to the remainder of 2025 on Slide 7, we expect third quarter other revenue to be in line with our second quarter results due to continued softness in the autos market and lower accessorials. Additionally, other income will look more like first quarter results as a result of lower expected real estate gains. For volume, everyone recalls the benefit that we experienced in the second half of 2024 from the surging international intermodal flows through the West Coast ports. Month-to-date in July, we are seeing the impact of the tariff pause as reflected in the current volume surge. Similar to last year, we're seamlessly handling this volume, although we do expect volume to moderate to the point of sequential declines through the quarter. On the flip side, our diverse franchise is providing numerous growth opportunities, which Kenny will discuss a bit later. Operationally, we plan to stay the course and keep driving improvement, working safely, controlling our costs, providing good service, and seeking out pricing opportunities that reflect the value of that service product. Our second quarter results support our conviction in the three-year targets introduced last September. Specific to 2025, EPS growth will be consistent with attaining our three-year EPS CAGR view of high single to low double-digit growth. Further, we reaffirm our view on accretive pricing, industry-leading operating ratio, and ROIC. Of course, our capital deployment strategy is unchanged. The team is confident, energized, and ready to deliver value for our stakeholders. With that, I'm going to turn it over to Kenny to provide more details on the business.

Thank you, Jennifer, and good morning. We delivered a solid second quarter. Freight revenues totaled $5.8 billion, which was up 6% excluding fuel surcharges, driven by strong core pricing gains and increased volume. Confident in the strength of our service product, the team remains bullish on our pricing strategy, and this approach continues to deliver positive results. 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 10% compared to last year, with an 11% increase in volume, while lower fuel surcharge and business mix resulted in a slight decrease in average revenue per car. Strength in coal was driven by strong customer demand due to favorable natural gas pricing and the start of Lower Colorado River Authority shipments. Softer domestic grain demand was more than offset by strength in export shipments to the Gulf and Mexico, resulting in double-digit growth. Grain products volume was also up for the quarter, which continues to be driven by new soybean crushed production in Nebraska and Kansas. Turning to Industrial. Revenue was up 4% for the quarter on a 3% increase in volume and a 2% increase in average revenue per carload. Strong core pricing gains were partially offset by business mix and lower fuel surcharges. Rock shipments remained solid this quarter, driven by strong customer demand and favorable weather conditions compared to last year. And increased shipments of industrial chemicals were partially offset by continued softness in our forest products market. Premium revenue for the quarter was down 4% on a 1% increase in volume and a 4% decrease in average revenue per car, reflecting the mix impact of increased international intermodal shipments and lower fuel surcharges. Intermodal volumes continued to show year-over-year growth as our business development efforts offset market uncertainty and slower consumer spending. Turning to Slide 10. Despite the challenging market outlook, our hustle mindset and continued focus on business development gives us the edge to outperform. Starting with Bulk, we expect coal volumes to significantly exceed last year's levels, driven by current forecast for natural gas prices through the remainder of 2025 and the new volume with LCRA. Grain had a strong first half of the year, and while we are still a couple of months from fall harvest, the 2025 crop looks favorable, and we are working to finalize customer demand. We're evaluating competitive risk to the fourth quarter exports. As it relates to grain products, our intense business development focus will offset policy-related uncertainty in renewable fuels and associated feedstocks. Moving to Industrial. Our strong investments in our Gulf Coast franchise continue to help us win in the petrochemical market. For example, we are proud to serve out new expansions in Freeport, Texas, which began operations last month. We anticipate stable performance in the metals and minerals markets. Tariff activity continues to impact metals shipments, but this is balanced by continued strength in construction, specifically in the South. With our exceptional service, we're well positioned to capture that demand. Additionally, we anticipate petroleum volume to remain challenged due to business shifts and our commitment to balance volume at the right margins. Wrapping up with Premium, as Jennifer indicated, strong comparisons and port shifts will challenge international and domestic intermodal volumes. We saw an uptick in automotive volumes at the end of the second quarter, and we recently converted new auto parts volume originating from Mexico. That said, softer vehicle sales are a concern. While we remain mindful of external pressures, including potential tariff implications that could influence consumer behavior, we're focused on the shift within our control, and I am confident we'll win in the marketplace. That confidence is reinforced by the investments we're making to expand our capabilities and our footprint. Just last week, we opened our new Kansas City intermodal terminal, our fourth new intermodal terminal in the past few years. Since 2020, we've invested over $1.4 billion to support growth and expansion in our intermodal business. But our focus extends beyond Premium. The industrial development team is actively driving carload growth, managing nearly 400 projects that are opening new doors for us. So as we move into the second half of the year, I'm encouraged by our dynamic service and the adaptability of our team. What truly sets us apart is our relentless ability to rise to any challenge, from unexpected international intermodal volume to surges in coal; we've proven we will deliver. Our commercial and operations teams are working together to unlock growth in unexpected areas. We don't wait for opportunity; we create them, turning momentum into impact and driving results that matter. And with that, I'll turn it over to Eric to review our operational performance.

Thank you, Kenny, and good morning. The team delivered another strong operating performance in the second quarter, demonstrating exceptional results behind our strategy of safety, service, and operational excellence. Our agility was once again on full display as we effectively handled a 30% surge in coal and renewable shipments, all while providing the service we sold to our customers. Ultimately, it's another proof of statement highlighting our robust and reliable service product, which is imperative as we strive to grow with our existing customers and unlock new markets. Moving to key performance metrics on Slide 12. Safety remains our top priority at Union Pacific, and our goal is to be the safest railroad in North America. Importantly, we are making continued progress towards that goal with improvements in both personal injury and derailment rates versus their 3-year rolling average. We won't stop until each and every employee goes home safe every day. Freight car velocity, the best measure of fluidity on the railroad, improved 10% to 221 miles per day. Driving the performance was both reduced terminal dwell as well as increased train speed, which improved 7% and 3%, respectively. We continue to leverage new technology to enhance terminal processes and adjust transportation plans, eliminating touch points while simultaneously improving cycle times. Importantly, we are turning our customers' assets faster, enabling growth through efficiency. Also key is how that translates into our service for our customers. And in the second quarter, both intermodal and manifest service performance improved year-over-year to 99% and 97%, respectively. Our buffer of resources, coupled with further improvements in line of road variability, terminal run-through dwell, and first-mile last-mile performance, is generating a very high level of service for our customers. It's great work by the team as we deliver on our service commitments. Now let's review our key efficiency metrics on Slide 13. As I mentioned before, fluidity is king, and the results on this slide are a byproduct of the exceptional results throughout the quarter. It's the team pushing the limits of what's possible to drive continuous improvements across our railroad. Locomotive productivity improved 5% versus last year, a second quarter record, as we efficiently handle the heavier business mix while also improving dwell times across the network. Workforce productivity, which includes all employees, improved 9% and marked an all-time quarterly record. Similar to the first quarter, our active train engine and yard workforce decreased 1%, again demonstrating excellent operating leverage against the 4% volume growth. We are confident there is more opportunity in front of us as we leverage technology to make our workforce safer and more efficient. Train length in the quarter grew both sequentially and year-over-year. In fact, the second quarter set an all-time record at nearly 9,700 feet. It continues to be an ongoing source of productivity as we look to reduce crew starts, improve asset utilization, and build capacity on our network. Wrapping up, we have tremendous operational momentum, momentum that is enabling growth across our railroad. Our footprint is unparalleled and built to handle that growth. It's on us to execute in an efficient, service-focused manner. We will continue to work hand-in-hand with Kenny's team, remaining agile with our customers to quickly adapt to changes in demand and traffic flows. Jim?

Eric, thank you very much and the entire team. But before we get to your questions, I'd like to quickly summarize what you've heard from all of us. First, as you heard from Jennifer, the team is delivering on our strategy. We're generating carload growth and pricing by delivering the service we sold to our customers while driving continued productivity into the network. We are controlling what we can control. We produced quarterly records in freight revenue and operating income and a best-ever record in freight revenue excluding fuel. And I'm confident our 58.1% adjusted operating ratio will be industry-leading. Kenny summarized second quarter volume and revenue drivers and discussed his thoughts for the second half of 2025. Unknowns remain, but we are focused on outperforming our markets and pricing to the value we're providing our customers. The second quarter surge in coal and our ability to seamlessly handle it demonstrates the value our buffer of resources provides as we compete and win business. Next, Eric reviewed our strong operating results. Safety metrics continue to show great improvement as we strive to lead the industry and bring our employees home safe. Operationally, the network is running at a very high level, delivering on our service and operating plans. We will remain agile and ready to handle whatever comes our way. Wrapping up, we remain committed to the long-term guidance that we laid out at our Investor Day last September. You see that in our results and in last week's dividend increase. We are confident we will remain the industry leader as we drive value for our shareholders. The foundation is built, we are growing with our customers, and we have strong momentum as we continue to maximize the value of this great franchise. In addition to today's earnings release, we also just announced that Union Pacific and Norfolk Southern are engaged in advanced discussions regarding a potential business combination. There are no assurances that we'll reach an agreement, but we are talking. We will not comment any further until there's something to disclose, and we will not take any questions relating to this topic during the Q&A. With that, Rob, we're ready to start the Q&A. Thank you.

And the first question today comes from the line of Jon Chappell with Evercore ISI.

That's quite a curveball with the press release and not taking any questions about the thing everyone is going to ask you about. So let me phrase it this way, and you can answer it however you so choose. Everything you just laid out before the mention of the press release is everything you said you were going to do, and you're going to join. The momentum is amazing. The OR is best in business, pricing, balance sheet. Everything is working the way it's supposed to, and you're doing this in a very tough freight environment. So why now potentially think on a multiyear distraction that could potentially sidetrack the organic momentum that you're already building?

So why don't we back up a little bit in time? Because I think you have to think about things in time and place. I've been involved with Union Pacific since 2019. It was a journey to be able to have a team, which I'm very proud of, to fundamentally drive efficiency, productivity, customer focus, and the capability to deliver and move products at a high level efficiently for our customers. If we look forward, truly as we look at what's possible and what's better, and that's what this is all about, is everything else in the world is moving ahead, technology-wise and fundamentally going to change. If you stand still, you get left behind. So I love where we are because if you fundamentally have a railroad that's operating the way we operate and the way we can react, then you can do things to help the nation, help our customers win. And that's what it's all about. So sorry for the long answer, but I thought I'd frame it for you.

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

If I could just ask more of a philosophical one for you, Jim. We've seen efforts to give shippers options like reciprocal switching over the past quarter. Obviously, just remanded that back to the STB. But what's your view on just conceptually the reciprocal switching, open access, giving shippers more options, maybe in exchange for the news you just announced? And you've also talked about the rail industry hasn't done a great job for intermodal growth in the past, making some tough decisions. I want to see if you had some further comments on that, maybe a direct-to-shipper offering at some point. So I know that's a lot of theoretical stuff, but I appreciate your thoughts on that, Jim.

So who are we at Union Pacific? I can't comment on the industry as a whole, but I believe people share similar objectives. We understand that by delivering high-quality service, which is what we promise our customers, we can achieve success. Our customers have varying needs; some prioritize speed, others consistency, and some require storage. Everything we do, from the technology we use to expedite access to our intermodal facilities to tracking cars, contributes to our success. Our approach remains unchanged, regardless of whether it was two weeks ago or today. We are committed to continuing our growth and supporting the country. By shifting more cargo from highways to our railroads, we empower our customers to succeed in the marketplace by providing them with the right service and products, which is beneficial for everyone. That’s my perspective, Brian. I hope you can appreciate the philosophy we uphold here.

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

I guess about a month or so ago, I think, in a public forum, you noted that you’d only do things that you thought were possible. And I guess just maybe big picture as you're thinking about the industry moving forward here, I think your comments were interesting about not standing still. I guess when you think about what's possible, is this the landscape that would allow changes to occur, whether it be from a shipper perspective, from a technology perspective, from a regulatory perspective? I guess we're just trying to get a sense of how you see sort of the receptivity of the other stakeholders in the industry as you think about what Union Pacific is trying to accomplish over the next several years.

I appreciate the question. If you examine what we've achieved, we do not focus on the past, and we never have. However, we are very thorough in our decision-making processes. When I joined the company, we committed to ensuring that our decisions about future direction, operations, and sales are well-informed. Kenny and his team work on this every day, with Jennifer keeping us anchored. We feel confident in our current position and remain diligent in our decision-making. We believed it was wise to update our shareholders on our situation this morning after the recent quarter, and we are moving forward.

Next question is from the line of Stephanie Moore with Jefferies.

Can you hear me?

I can hear you clear. How are you this morning?

Great. I'm doing very well. Maybe I'll jump...

I figure if I ask you a question, you won't ask me a question. Go ahead.

You're more than welcome to ask me whatever questions you'd like. Maybe I'll jump away from the topic de jure real quick here. I wanted to talk a little bit about the rail itself. I mean you've made tremendous progress. The network is working about as well as it has. So as you think about the back half of the year and you talk about really the cost performance as we go from Q2 to Q3, if you wanted to share any puts and takes about anything that might not continue from the second quarter into the third quarter. At the same time, how we should think about maybe some potential benefits as we look to the back half of the year and ultimately hitting that full-year target?

You know what, you guys are probably getting sick and tired of listening to me already. So I've got a couple of people here that can give you a real wholesome view on it, and all three of you please jump in. But Eric, why don't you start about what you see in the second half, what you're thinking about operationally, what's possible? And Jennifer and Kenny, you guys want to jump in the way we go, okay?

Yes. So two quarters in, and certainly in this quarter, we're already demonstrating a very high level of productivity and certainly a very high level of service to our customers. When you think about the second half and consider how we're going to execute that, the game plan really isn't different. We've got a great team executing against some very challenging goals and they're delivering on those goals. Now we're looking for opportunities always. That perpetual dissatisfaction that I've spoken about before, that's our mindset to see what's possible. I still see opportunities in how we think about improving service from a dwell perspective, which also has the benefit of driving efficiency to make Kenny even more competitive in the market with his team. I still see opportunities in the locomotive dwell side. We set a second-best record ever in the second quarter at 15.4 hours. There's no reason that can't be below 15, and the team is up against that. Even outside of the core transportation team, it's about how we think about automation within engineering and mechanical. So the plan isn't different. It's to continue to be safe, provide good service, and continue to find new and inventive ways to be efficient.

Yes. So I'll go through a few things I mentioned in my script. Certainly, we expect coal business to be up significantly. We're looking at grain. We've got a great harvest out there. We'll see where demand takes us. I like the fact that our network and Eric has a network that we can move wherever the grain attractive flows take us. On the Industrial side, I'm excited and I'm pumped up about the wins that we have in the marketplace. We're winning as our customers are expanding on us, and they are aligned with investments that we've made in the Gulf Coast. On the Premium side, the fight will be on international intermodal. And bottom line is we've got to backfill that volume. And some of the ways we do that is on the domestic side. And I'll tell you, when you have a strong service product like we have, we're going to introduce new products, we're going to introduce a seven-day-a-week service from Tacoma into Chicago. We're going to introduce a seven-day-a-week service from Memphis to Dallas. We're going to introduce the Kansas City Intermodal Terminal. That's the fourth one in the last few years. So when you have a strong service product and you're introducing what we're doing, I feel really good about where we expect to be.

Yes. So Stephanie, Eric and Kenny both hit great points in terms of the railroad is running really well. Kenny and his team are out there executing. We called out the one-timer that we have relative to the expense line with the labor agreement. Certainly, that's not going to repeat itself as you're thinking sequentially from the second quarter to the third quarter. So all really good progress and feel really good about those things. The only thing I'll remind you of, and we've talked about this before, is that this is going to be a little bit of an unusual year for us when you think about the volume cadence. Usually, you have your stronger volumes in your third and fourth quarter. Because of the strong comp that we have with the international intermodal and how we see that trending, that's likely not going to happen. In fact, we're expecting some sequential declines through the back half. But set that aside, the team is executing at a very high level, and we'll continue to do that.

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

Since you had the train article back in May, you really had a dramatic impact on the discussion on consolidation. There's been enough time, I would imagine, some of your good contacts and buddies in the customer and shipper side have reached out to you and probably given you some feedback. Can you offer any thoughts on the flavor of that feedback? Are shippers greatly concerned? Are they mechanical shippers? Are they excited about a transcon railroad? Is there anything high level you can give us and just the initial shipper response over the last couple of months?

So Tom, we deal with our unions and employees all the time. We decided this round to have direct negotiations, and we've signed up close to about 36% now of our employees are signed up or have a tentative agreement. And that's how our relationship is with our employees. We want our employees to come to work, deliver. We need them to work and be very efficient. We give them everything we can to make sure that they work in a safe manner, and all the training necessary using technology. So that's how I look at the labor and Union Pacific. It's a real positive place, and we're moving ahead just like we want to under all the agreements that we have. Appreciate the question.

Yes. I was really asking more about the feedback from shippers regarding potential transcontinental shipments.

Yes. Tom, I said it from the start is it's pretty clear. You never negotiate publicly. I think we came out and we're very specific in what we said this morning. And that's about all I'm going to say. I'm not going to get into any other detail when you're in the middle of a negotiation. I don't know about you guys, but last time I looked when I went and bought a home, and I've only moved like 19 times, I don't go tell everybody on the street what I'm thinking and where I am and what I'm going to pay. You're in negotiations. So it's advanced negotiations, which is good. But that's it, so as far as I'm going to say, Tom, okay?

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

As you look out long term, UP has been pretty committed to the modification approach to refreshing your locomotive fleet over the last 3 years. As that agreement, which I believe predated your arrival, Jim, comes to an end here in the next couple of quarters, how do you feel about the fleet today? What are your intentions and desire to continue refreshing it longer term? And does a combination make that a little more complicated than it would have been otherwise?

So let's start with reminding ourselves that it takes five critical assets, five critical resources to run this railroad, and locomotives are one of them. So what you always want to make sure you're doing, and we do it every single day, is to ensure that to your point, we're making the proper investments in our locomotive fleet. And to be clear, we are. As we look at the modernization program, that's one part of it. It's a very important part of it. It's what allows us to continue to improve reliability, renew the fleet, deliver fuel improvements as well as greenhouse gas emission reductions. But we also have our overhaul program, which is another way to keep our fleet in a specific operational order that runs efficiently, runs reliably. We also have investments that we make every single day in our shops when we make modifications to the locomotives. So as I look out, all three are going to remain very important. Now the distribution of where we spend in those three buckets may change based on the condition of the fleet or the mix of traffic, but all three are critical components for us to deliver a consistent and reliable service product to our customers.

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

Jim and team, there was certainly a significant announcement this morning. I would like to ask about the operating potential. You're currently at a 58.1%. Can you discuss where you think you can improve this railroad in terms of operating ratio efficiency? Jen, you mentioned the possibility of achieving upper single-digit to low double-digit targets. I believe you were referring specifically to this year, correct? I want to clarify that, as it hasn't been stated so explicitly before. Jim, can you also clarify what you meant by saying it's in advance? Are there different stages of discussion that we should be aware of regarding that comment?

Well, that was pretty good, Ken, three questions. Jennifer, why don't you reiterate what we are going to deliver going forward, our guidance?

Yes, thank you, Ken. We haven't changed our stance on the EPS front compared to what we've conveyed all year. We're reaffirming our three-year target and are confident in our ability to achieve it. We have indicated that this year's performance will align with reaching that target. There has been no change in our outlook. Of course, the situation has shifted somewhat since last September with unexpected tariffs and economic changes. However, we are performing better than ever. There are a number of factors to consider, but overall, we remain very confident in our ability to meet those targets.

You bet. Regarding operational efficiency, Ken, we've had many discussions, and I'm quite consistent on this. I don't make promises about specific numbers because there are many variables in running the railroad. However, our goal is to be the most efficient, which means achieving the lowest possible operating ratio based on our business mix. We've been leading the industry in this regard over the last few quarters, and we want to maintain that position. I can't predict what the future holds. If Kenny could secure higher pricing, it would greatly benefit us, so I might need to encourage him a bit more. Ken, I remember you saying I might be pushing Kenny a little too hard. Did I miss any of your questions? You had three or four.

Just the advanced comment. I just want to understand, is there a signal there or what it means? I don't know what you're trying to send with that comment.

There's nothing there. Just read it and think about what it says. That's it. It's as simple as that. And you're a smart guy, okay?

The next question is from the line of Daniel Imbro with Stephens.

Maybe a different question on regulation here, and to follow up on part of Chris' question earlier. Just with the new administration and maybe lower regulatory backdrop, are we seeing any progress on things like 0 to 0, 1-man crews? I mean, you mentioned when it was a five-man crew, four-man crew. I mean, any progress on that push towards automation, or are any closer to a more efficient future with the new administration?

Yes. Eric has really been leading a lot of that discussion with the FRA, and so I'll let him speak. Go ahead, Eric.

Daniel, we're definitely seeing momentum. We've always appreciated our partnership with the FRA as an example. Right now, those engagements, they've been very effective. They've been prompt. We're trying to move as quickly as possible, both as a railroad and the FRA, but also in the industry. Now you pointed out some of the technologies, and certainly, those are parts of our discussions, but it's broader than that. There are a lot of opportunities for us to continue to improve safety by being allowed to implement technologies, some of which have been around for a while, some of which that are just new, and some of which that we're developing. So I'm very happy with where we are with all of them. The way to measure us against that is the speed at which we can get through those conversations and get it on not just our railroad, but many other railroads, because the net benefit is a safer railroad industry.

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

I guess, with your line of questioning or how limited you could be, I could ask about if you guys had too much money in Bouchard's maintenance season, but I'm going to try anyway. There's been a lot of talk about opening up some of this watershed traffic or accessing it. So can you talk about sort of the market that's out there for the rail industry in terms of how much business you think is available to access, whether it be through a deal or through railroads working together more closely?

Let me talk real quick about the business and the way we look at it, okay? Because that's what's important, is if you build the fundamentals and have a very efficient railroad, you could open up markets that you can handle within the physical plant that you have. Delivering at a high level, to deliver what we sold and what we agreed to with the customer is real important for us to open up opportunity. And I have a little fun with Kenny every so often, but Kenny is really close to the customers, what we're doing and how we're looking at it and how we want to build together to win. So Kenny, why don't you fill in some of the gaps?

Yes. I will just say, through our Interline alliances, we've always looked at which markets we can open up. When you have a strong, efficient network and service products that we have today, obviously, that allows us to look at new opportunities and allows our customers to look at new opportunities. So we're going to keep with that mindset and see if we can grow the business.

Perfect. Thank you very much. Thanks for the question.

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

I'll focus on some of the basics for now. Jennifer, do you have any insights on the operating ratio and price/mix for the second half as you consider the business? And Kenny, there is significant strength in coal; aside from the contract win, what is the feedback from customers regarding the sustainability of this? Should we begin to rethink our approach to coal, considering the recent developments in the power markets?

Okay, Scott, I believe that was a three-part question, but I appreciate that you asked about the fundamentals of the business. Regarding our operating ratio, as Jim mentioned, it reflects the results of our ongoing efforts. Our focus as a management team is on continuous improvement, and we are confident that we can drive progress as we move into the latter half of the year. When it comes to price and mix, we anticipate that if our projections hold true, especially concerning international intermodal as part of our business, we will see a more favorable mix as we enter the second half of the year. That’s our expectation, Scott, and you're absolutely correct about that. Lastly, just a reminder on coal—while its performance is stronger than our international intermodal segment, it still remains below the overall system average. So, Kenny?

Okay. So yes, and I talked about the natural gas prices; that's certainly playing a role. But more importantly, the service product that Eric and his team is providing us, being able to pull ahead more tons and deliver more trains, especially in a time when they need it when natural gas prices are where they are, we benefited from that. Obviously, we've talked about the win, which is also uplift for us with LCRA. And I think you had a question about the future. And we'll see what happens. I mean we're looking closely at the impact of data centers out there and cloud computing. Will it have an impact on coal overall? Also, we’ll see some retirements get pushed out. But right now, we're really being opportunistic with the service and capturing what we can.

It's been a great opportunity for us to reinforce the buffer resources, that they're there. Kenny brings the business to the railroad. We're not waiting weeks and months. We're finding that we have the locomotives; they're prepositioned, we have the crews, and we get the volume on the rail. Build in America.

Yes, you bet. Scott, thank you very much. Appreciate it.

The next question comes from the line of Richa Harnain with Deutsche Bank.

So maybe you can talk a little bit about how you see your intermodal channel partners, the IMCs fitting into the equation of driving more domestic intermodal and enabling more conversions. It seems like you're doing more transloading services through your own subsidiaries. Do you think that's sustainable or you can grow it? Kenny, you talked about the new products you're introducing on the domestic side, seven days a week in various markets. Are your IMC partners able to keep up? And then I know just a bonus one, if you throw me a bone given it's on the core business. Kenny, you also talked about, I think, over 400 projects, and you have in line of sight winning those. And maybe you can talk about customer feedback on turning those on if those conversations are being accelerated by the new tax plan. Anything on the long-term outlook for the revenue growth would be helpful.

Yes. I'll just talk high-level about intermodal. And I'll tell you, we're excited about the framework we have with our portfolio of private asset customers and our own rail box. When we talk to BCOs, they like the fact that they've got a choice of IMCs and private asset owners to look at. Our rail box is very competitive, and we've seen it compete very favorably in the marketplace. The second part of your question is around industrial development. And yes, the team is out there hustling to bring on more traffic and engage. We've had some really strong wins already this year. Those are 40-year assets that will be around for a while. We've seen the cadence there, a slight uptick in run rate from what we've seen in the previous year. It's hard to pinpoint down because of the administration or some policy change. But we're encouraged about the future of how those projects will shake out.

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

I guess I want to ask one on the historical perspective of the industry just given your career. Like how has the interchange process for customers evolved? I mean we always used to talk about Chicago as being a real pain point. And I guess, can you talk to where that is today, some of the challenges that you still see with your shippers and maybe some of the inherent limitations on dealing with that given today's structure?

I think you always have to look at how you simplify the movement of products. And we do that internally in how we use our network. If you can come out of the L.A. basin with a number of different products and decide how you're going to move it to the different markets and what you've sold to the customer on speed – the more you can do that, the more efficient it becomes; this removes touch points. We spend a lot of time looking at ways we don't have to process cars in multiple hump yards or multiple switching facilities. If you do it in a much more seamless manner, the way we have, and also in a cost-efficient manner, it's a win-win. That's just the way my mind works. And I think Eric does as good a job or maybe even better than me at looking at that stuff. So I give the team a lot of credit. And Kenny loves it because we remove some of the noise on how we move the traffic and make it less expensive for us to move. So that's the way I look at it. Thanks for the question.

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

If we set aside discussions about mergers, Jim, you and I have previously discussed U.S.-bound traffic that goes through Canadian ports, which you've identified as a target for repatriation. Have you ever estimated the total addressable market for how much you could bring back? Also, if we were to pursue this, is the port a significant bottleneck that would limit your ability to handle that volume? Or should we not prioritize that volume? If we achieve better East-West fluidity, will your focus be more on domestic rather than international intermodal traffic?

As a railroad, we explore all opportunities to grow our business and succeed in the marketplace. This involves the entire supply chain, and if we can deliver effectively, we were able to expand our business this quarter. We increased our revenue and demonstrated our efficiency despite total compensation rising by 1% above inflation. This is our identity and what we provide to our customers. When we achieve this, our customers are inclined to remain loyal to Union Pacific. They want to be a part of this railroad and experience success together. It's that straightforward.

Yes, just to reiterate, having a strong service product. You heard me talk about ways we can penetrate those markets. How do you get a service product that we've created from Tacoma into the Chicago market? That's one way. Another way is creating a new ramp at Twin City. We're on the offense when it comes to trying to grab new business.

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

Just curiosity question. Simultaneous with the discussions you're having with Norfolk Southern, do you actually pre-discuss or engage in like pre-merger chats with the Surface Transportation Board around this?

Yes. I appreciate the question. But we've given all the information, those two lines that we put out, and that's where we are right now. I think that's a lot of information we handed out today. For us, that's where we are, and we'll see what happens next. But I appreciate the question. Thank you.

Next question is from the line of David Vernon with Bernstein.

Jim, thanks for disproving the thesis that something was wrong this quarter. Kenny, as you're looking at the tariff impacts on some of the grain export risk, I guess, it appears to me that the export side of the equation is going to be a negative. But as you're looking across the business, whether it's metal or some of the more domestic movements, are you seeing any positives as freight roads are kind of being redirected or tariffs are incentivizing additional production inside of the U.S.? Can you talk a little bit about how that balances out from an overall impact on the book of business?

Yes. David, first, I want to say the biggest positive is the service product, which we have out there to handle the stops and starts that come with the tariffs we've seen over the last, call it, 7 to 9 months. The also traffic flows have changed. When you have a prepared service network and strong service; that's a positive for us. Taking a step back, we are starting to see a few green shoots out there. I met with customers a couple of months ago that said they were shifting some of their production from Asia into Mexico, and we've got a strong service product coming out of Mexico. I mentioned our industrial development pipeline. We're keeping an eye on that to see if we see a little bit more growth on the metal side.

Our next question is from the line of Ari Rosa with Credit Suisse.

Congrats on a nice quarter here. Jim, you talked about evolving to the changing business environment. It's not really M&A specific. But I was hoping you could talk about what constraints you think UP has from kind of a structural network perspective that inhibit its growth. And what prevents you from taking more share off the highway, especially with the service levels as strong as they are today?

You know what? I've answered that type of question a lot, and I'd like to push my team a little bit. So Jennifer, it's yours.

Thank you, Jim. So I'm going to channel my inner Kenny Rocker on this. But I think, first of all, it does start with the fundamentals of how we approach our customers and how we can be flexible with them and how we can provide a great service product. So one of the things we really haven't talked about maybe and should talk about more is, Eric and his team are very much partnered with Kenny's team to say, what does this customer need? We're deep into those conversations. Not just saying, here's our service product; do you like it? It's more, what service product do you need? How can we serve you better to meet those needs? Kenny referenced earlier, we're introducing a couple of new intermodal service products. I know we've got lots of examples too on the manifest side where, in those customer discussions, they've told us they need either more frequent day-a-week service or maybe changing times of day, etc. Eric and his team have worked with that, and that's picked up incremental carloads. When we get involved in that as well, it's how we're effectively staying ahead.

Yes, Jennifer. You got an A-plus for that.

Yes, Jennifer, great job. Let's keep it going. With that, do we have any final questions?

We have no further questions at this time. Thank you, everyone for attending today. This concludes our conference call. You may now disconnect your lines and have a wonderful day.