Kansas City Southern (KSU) 17 Jan 202019 Q4 Earnings call transcript

Good morning and welcome to the Kansas City Southern Q4 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Pat Ottensmeyer, President and CEO. Please go ahead, sir.

Okay. morning, good and you everyone. Thank fourth Welcome review. earnings to our quarter Harbor to the I'll you Safe statement posted. just point been the in has presentation that for quarters. just to have also quick in today, lineup seen several then you same last And the as a the reference

to last Hopefully, everyone course, move Petroleum strength Chemicals year press led seen the now increase revenue and X. get earlier into in detail revenue minutes business. will Consumer Naatz and of posted side by Mike we today, Slide segments. Industrial of I'll of the has the more So release X% And few & versus in much a on

Mike ratio a reported including of items, Upchurch quarter XX.X%, but into that million as in more will number operating get detail. of that includes $XX Fourth charges was restructuring

we the of when last points basis of impact of points the of Credit. adjusted XX includes negative at Fuel versus improvement an look the loss operating basis XX.X%, the to really Mexican ratio Excise XXX Tax year, that and So due

that's slide XXXX. the the about this share progress is to earnings come. of I made there which more $X.XX, restructuring for and charge of PSR quarter our very again here adjusting of and items, implementation Fourth an story have comment of for pleased we headline clearly Very, at a that the with believe versus that last other increase made XX% year. was $X.XX, bottom per

on that bit for to end leave that. I'll Sameh at Mike back more commentary little additional So Jeff, come a color some and then get to for and into the

of operating performance did again operating per the and income, have adjusted levels on in If a an adjusted fourth adjusted at basis, quarter we share. earnings ratio adjusted revenue, we record number look

that points guided. had better up to today, the growth, - conversation our X, what you one data meaningful we in previously probably than growth a of about Slide bit outlook. can volume more And volume see the Moving revenue

the is XXXX think outlook it headline for XXXX and better I for terms than revenue. - in volume expect our we be that of for XXXX to

We ratio. operating on are also accelerating our guidance

know, moving I think our now a XX% end previous the that year. we're low to as the of By up XX%. guidance, XXXX, of range had been you

ratio to be between for We XXXX. operating then XX% expect below this and our and year XX% XX%

EPS topic longer-term out on expenditures, outlook November. three capital couple guiding the just our And finally, we on not to slide the next mid-teen announcement is I'll about are then growth here now for that's revenue of allocation period the of through XX% year years. one and other then that's and into mention from this years. capital

share We the dividend, program increase minutes. billion $X that Again, next in will in Upchurch about a announced three repurchase few have some the a years. detail more an over Mike

presentation the turn will Jeff Songer. I that, With to over

Pat morning. and Okay, good thank you,

growth of Starting X% in X. of operating with miles the year-over-year with our the XX% X% XX% review of and XX.X improved of remained sequentially. the metrics XX.X volume Velocity per the strong key region in for quarter year-over-year hours Dwell sequentially. on improved X% and border quarter Operations segment. for Slide hour

to over operated majority have gateway. will X,XXX Laredo base over which should XXXX Crew the we with International date, KCS our allow expand To Crews International and of we in trains Crews with trains the International operate

continue into processing XXXX. customs U.S.-Mexico with customs improvements and Additional joint will efforts

velocity improvement our with gains supported notably, are improvement continued the initiatives. to in were metrics by XX% PSR XX% all in a in progress X, Slide in a achieved very pleased Turning and dwell. we XXXX, Significant key

have We XXXX slide. provided targets on this

be significant Car we PSR. TSP, improvements our focus velocity an of in as equipment management. reduction we day and increased X expect see we area continued indicated, year for as key of on failures to in will through have enter resource opportunities Notably, And in improvement again focus strong metrics. miles our per

is metric is PSR effectiveness car of tracking indicator a in handlings. critical detail TSP the and provide the dwell changes for dwell to additional on Sameh for velocity both our will initiatives XXXX. of specific This and terminals and reduce reflective and initiatives

As highlighted item single XXXX efficiency our was PSR reduction cost last through fuel largest initiatives. quarter, the line

year, X% the For we additional and are for an planning improvement improved XXXX. X%

CapEx is of approximately have XXXX no on locomotive CapEx the of locomotive XX% purchases new XXXX largest XX% as planned to equipment in XXXX. outlook revenue change will percent XXXX. Regarding XX, for in the Slide elimination as from decrease The we or purchases a year-over-year

support expand CapEx our This to in will failure some we reduction program locomotive locomotive overhaul allocate of year, additional initiatives.

with As we of focus fewer our our remaining increase XX% are reliability fleet. about locomotives, now will operating on

provide XXXX of innovation our in control systems. and operations modernization with management will spend IT for initiatives ERM

are speed. technology portal installing we our automated railcar analyze vision health Mexico track Additionally, in machine equipment first inspection to utilizing

walking making success, support time more to into This make visual will spend would continue for cars, confident I'm technology to time increase for and and improved mechanical and repairs. operating will our XXXX. inspection inspection less productivity will forces, a recognize XXXX improvements like the that performing who efforts team quality their I operating

now over the presentation turn to will Sameh. I

Yes. Thank you, Jeff and morning. good

And have proud we said, forward in looking do two a to what lot I slides. in XXXX. Jeff Like are the we team are has more very of accomplished to XXXX.

and fast if for going later, them open more questions want over any I'm you to then it items. the of go details we'll So on

initiatives for to the done going XXXX, And years. XXXX. are how The be foundation second we we will in have slide the we in first then the is for and slide complete PSR forward what the trying coming laid new that on

understand X are be. to what's miles try like looking XX where we lower the at Mexico, which approach and running velocity task hour. started and U.S., at in things, hour, per miles that. first XXXX, velocity XX dwell was it by was miles causing KCS per an as in And hour; we example, than per they X hour, to at PSR key about was miles per way the considerably maybe In can the So

thing failures, reasons, other So, to from at time, plan cushions the congestion. yards we plan. we properly. trains of not lot was And our yet, it had look also, are deviations any delays, outside was held of or the is have looked executed The itself at or whether typical a locomotive

when we we San visited saw SLP, And Potosi. Luis that

So, lot we mechanical locomotives had looked and at two saw these things, functions as that And example. like also shops staff. we shop we looked inefficiencies it maybe the in a of across an a Monterrey at

suppliers, ready but for to that we accept waiting XXX example, as cars We and customer customers, to Monterrey, them. also engaged with yard are go, found with because the an in the

in of lot a did that we work area. So,

partner all if around very the was rights we us with the After to in execution we we really opportunities get to at going a earnest really to looked and disciplined yards momentum and It and railroads, particularly sense are look the going and going you And we urgency. looked see also at XXXX, against the network to time got took with at and in Pacific July. Union to a area. and great started new we understand clock. build the going. that, where We them We're Houston close trackage shared of

got were on in hitting running like we going calls operating right X we're and XXXX, Hopefully ground away. we January on the

waves XXXX, in changes, we of waves. implemented QX, service design including So, four

outsourced, in relationships. things To we we shops, consolidate, that manifest never labor be insourced should in outsourced There like supplier which so were Intermodal were restructured trains; that.

other material as the we On warehouses, hand, was that an outsourced insourced; example.

a scrutiny, analyzed that why then, hours. changes in bit. the it as we in operation down a for every hours annual train as We was an to and quite delays made down hours key every did solid an And Mexico we go to reduction basis the us put in to that XXX,XXX That's also XX%. took and example. like And example. in of and drilled delay on all on It positions and day improved management operation yard people running from set every the an XX XX,XXX we

and and of hire, million on a Fuel we As reduced $XX we XXXX. tonnage improved XX%, out went result online out we cars by We a like car cars that longer, particularly affected took heavier trains locomotives, took of XX%, in the took cars, which this, because out of things them. lot X% by foreign XX%. the efficiency down all the assets;

miles We locomotives. When old disproportionate improved. locomotive worst a when reduced mean, Jeff took we shops. failures reduced I car about about the that. old take - out improved, the velocity, the and ones. we also And on XX%. XXX definition, XXX by manner, The took the covered you by locomotives, the locomotive, on dwell workload reduced the we in improved failures fleet, we

slide. a efficiencies overtime the also emphasis staggering, all XX%, recrews, XX%. We you have deadheads, numbers lot reduced put crew XX%, the on They are and on of

X%; went we where have and Mexico, train service. of this all improved by improved crewstarts a also length by X% the focus We in put lot down

you you got When service, improve confidence. customer

We are seeing it.

We're And customers. Our Mike winning covering will side. revenue back growing. Naatz the on on more that commercial is be

So, will do we after. because we the start accelerate during and I like said, days XXXX? waste and we the any what While did going Christmas now we it, continue to then time before days in are actually two will momentum period, stopped not trains

can. in that the as we we are week so PSR of get savings that first We all and our to initiatives the And make right the started as, the watching had update as sure January actually staff, January away. first we fast are going, we can

thing, white-boarding which exercise, place the completed that end but Phase take pretty will first the at III there was the of month. a is So, much XXXX, this

that and Saltillo expect cars will have area, reduction in up cars. area, in We Saltillo working picking and are the that manifest setting and so the Examples that events. will crew train One trains I three others give through. up go for intermodal all the area and XX% before,

We XX velocity be are X seeing to miles velocity, used we're we in hour Mexico. per mile-per-hour we the seeing Mexico. the in miles in The per by in actually Well, U.S., yesterday mile per miles had two hour. like increase XX per I hour, And X, way, had hour. said, already one

really still we for are higher aiming velocity. So, getting but we're there,

take-outs also We where the are in City Luis and we have switching like are really small be Mexico tougher a more a and set doing yards of map, the yards more the Sanchez, the crew to car, less yard San yards in for classifications, where and going less asset is a Escobedo, but it's that very There classify. doing reductions. to switching you Potosi, large these large we're see and lot on

in is labor actually in much higher, making trains crewstarts, benefit higher And We effort the the an start you because finally is disproportionately U.S., getting the are - the we efforts of out also cost U.S. which when taking and make and you there. in started U.S.

from Jackson had way CM, going one, you the Cars that from we train coming So, NS doing where Dallas. intermodal, on see map, we and the were Wylie. all are to from Wylie

So, come East that's going you Freeport, back out-of-route. call what to West,

We and are reducing that trains. we taking some out are

We're XXXX, is to going at where on called of significant focus of lot crew Leon, costs management in the stopping in we than we're higher which with is base much in are place going be that. XXXX. putting trains. looking pool a reduction There And to pool, crew a a Monterrey, in crew north really

stop We trains that day Leon. have XX at every about

think We're the need you run with the hours that But in hours, we're when XX hours because not going crews to of to XX in same allowed velocity to the because crew. XX it train instead Leon stop if now Mexico makes them change because of anymore of network. about

about. that people, something we're So, of going to that's a okay, do pool XXX about

putting We're This emphasis X.XX on is are KGTM. gallons fuel, very again very, high. we at per

it improved room lot, still to lot have a but of we have a We grow.

other they associated I X.X. with, have Some was railroads

horsepower the of the that there a So, and as reduce the tonnage. lot be you possible on low train work the is as idea have to we have to to compared

a going Maintenance contractors. also side, of the are have where lot we some effort put We engineering on Way, to of the

maintenance XXX about instead the the of that supporting production equivalents gangs, who same FTE going have of to are contractors use sub-divisions. that we're people, while We our on are

largest in do, reducing and instead the obviously fleet, line at ones cars. reducing XX for contractors. shop, that programs of had shops shop, to last, SLP we we repair between two of ago, facilities, one which a capital have the the them the looking more repairs, shop. mechanical reduction San start Luis of getting locomotive, with our in days to two And is ago, points have staff they use When The had days Potosi one and

border in the And is maybe there point, can the more about here. So, period. talk room the streamlining last operation. question-and-answer that We

So, I'll to turn Naatz. now it Mike

morning, Thank you, Sameh, and good everybody.

like I'd comments on XX. to my Page start

X% And slightly within volume. guidance decline revenue X% XXXX, previously X% declining revenue volumes. Our on fourth revenue decline and full quarter year-over-year growth fell our up year in growth flat and was to for a to volume of provided X% the X% X%

was and surcharge unit was the revenue about our the million affecting results. fuel associated quarter with Our by fuel the by excise revenue during Fuel primarily mix which the per pricing, Mexico favorably X% fuel of positive driven with rate offset increased increases lower partially higher $X revenue prices. tax credit, loss

remain themes outstanding growth Reform led Mexico favorable nice cross-border all our service mix long. pricing key Energy Very and improvements in Our volumes, margin resulted strong and revenue gains. consistent year and by

freight pleased improvements our are PSR the customers are external of KCS. to seeing service in those initiatives. are and They've customers internal benefits report the to And We surveys that they and move our Both more same like highlight PSR. want of on experienced the version results.

And is are that's indicator a surveys goal that in the of heading implementation. indeed handle to PSR service key growth valuable provide ability compromising feedback our we right direction. efficiently these without Our important

I And to would beginning business volume revenue & Chemical Petroleum. our on unit a QX increase. unit XX% now, move increase like and The to X% Petroleum a results, with experienced & business Chemical

revenue related business our this this We on to the up increase relatively remained flat note volumes. Reform a Energy sequentially and of in seasonality XX% was that that due Mexico volume. XX% found did largely LPG was Our

this a products, at XX% being XX% softer looking full capacity demand sequentially our we monitoring business opportunity respectively, we and refined that said, are a basis, delivered On and for came year-over-year growth year online. fact remains great they this grew revenue and the overall as volume In storage additional note and That long-term growth segment. in us.

Our from & patterns. strong on in grew We revenue a in sourcing military and saw continued primarily Consumer shifting metal resulted Industrial XX% by X% favorability increase business shipments our volume. which

healthy saw mix I improvement segment Our growth service key in to We franchise caps. and supporting our lower QX. tougher however, continue see would cross-border to impacts Ag/Min like that in volumes we this note due rose revenue XXXX slightly to customers. with

mixed Our on a revenues. lower utility lower energy volumes bag up frac were offset crude and seeing is sand being business. performance strong slightly segment by This coal

market. are crude crude we to the monitoring and overall some forward, changes volumes Looking in upticks

a Our X% segment revenue. intermodal were down volumes to in X%, decline contributing

Our challenged our and cross-border positive that intermodal due to volumes It's very truck availability and a nice XX% pressures. year-over-year markets pricing remain remain U.S. delivering growth. domestic

volumes plant automotive resulted This As expected in by down, levels. fuel positive than pricing, were offset lower X% our segment, mix increase was automotive our revenue. which driven and production by year-over-year more impacts, actually in a in

XX, we Moving providing our page revenue on XXXX to are outlook.

be our we mentioned, revenue as you see portfolio And remaining XX% growth XX% the expecting Pat outlook expected of a growth. for As have the positive we can of low-single-digit volume revenue portfolio approximately with are to neutral. and mid-single-digit

exports will continue Our growth Petroleum segment Chemical to to & by refined strong see product led Mexico.

exports from we new Sasol to into growth addition, benefit plastic volumes and Mexico. in plastic expect production facility Charles Lake of In do out

on eye potential in in shifts market, global and saturation demand. an keeping including trends petrochemical are We the broader

time demand a improvements We in business. cycle contributing outlook our to and positive Ag/Min see steady

& Consumer in business sourcing from changes in easy forest Industrial patterns as XXXX metal benefit as Our will well comps products. unit

out. Our intermodal they've truck persist, to continued our segment again do being revenue domestic and with although that by pricing offset neutral volumes, bottomed expected cross-border pressures and believe U.S. growth be is we in somewhat availability Mexico franchise

coal key be segment, favorably which we in flat drivers saw our the two being Energy and this are is There actually we strong the year-over-year of to growth view in year-over-year first performance XXXX. considering utility expected

an continuation we've earlier, and mentioned favorable upside crude a Canadian crude in may our outlook. I to uptick recent as XXXX provide seen of Secondly, spreads shipments

downward neutral, acknowledging volumes. some our pressure on automotive expect revenue be We to

mix a plant volumes and favorable revenue have will pricing new Our impact.

estimates automotive indicating imports lower Lazaro are exports from We and U.S. KCSM monitoring to lower into the our auto plants served Cardenas.

of our trade by know, top And be to you areas. the in finally, positively It these developments as revenue economic remain XXXX. impacted And can changes of this in estimates and be or conditions in difficult negatively developments may predict area. course mind

optimistic. however are We

I, We I'm and element favorable one, to future. us USMCA some that that is behind an provide signals, is for almost prudent. the see that of think happy we continued benefits caution should economic just given us, mixed in feel that

I'll turn CFO, And Upchurch. things to that, with over our Mike

good everyone. Thanks and morning, Mike,

on start previously outstanding The growth growth again, adjusted this to been financial I I'm quarter have performance. and margins. cost my the fourth and strong slide, quarter adjusted to fourth once covered results comments revenue controls combination going this XX. led want XX% on of in income operating presentation, incremental grow XX% record X% but revenues Slide simply highlighted in that highlight just

a was Reported to operating credit. note $X.XX approximately below quarter. Our this adjusted adjusted are XX tax basis basis loss the will from XXX share $X.XX XX%. ratio per adjusted income grew was impacting tax XX.X% despite of of our IEPS of operating while EPS points and impact the ROR resulting earnings also improvement I points negative EPS items of that other

you but the XX a talk appendix, let of components Slide the provided a reconciliation me We've couple in on about here. key

earnings $X First recorded Mexico affiliate our City expense other the million project. $X.XX or affiliates non-recurring cancellation primarily declined in income and from by of equity that Airport per the from FTVM from a loss share and

we to a Interest drove $X.XX reduction the in issued notes XQ expense new year-over-year from November EPS. that

to realized the shareholder for key increasing a also $X.XX will returns We discuss count, a reduction as from going focus a share is year-over-year benefit Company a in moment, forward. I

decrease retroactively react million $X.X we for was a a to $X.XX we million. the benefit tax result for $XXXX enacted, for a short of in line quarter $X was of XXXX our XX.X% million of track enacted extension resulted $X.X that a from million which total so adjusted benefit fourth maintenance saw in the benefit December, and of rate late that in as tax then $X received an And effective finally primarily credit,

Along tax credit, loss This changes our years. by also details be the provided few credit appendix Tax GILTI And effective rate through the this more we be XX. Fuel next on XX% and us expect Slide will adjusted the taxes to in Excise approximately offset available we've tax a few over future of the in favorable to the with on back XXXX. to credit Mexican

to Turning improvements and driving are XX, significant our making will P&L. to structural are operations we that Slide you to see our improvements

PSR once our savings. PSR are continue progress As we we positive able and Sameh our to update a to discussed, to estimated on excellent make initiatives provide again

Covering XXXX, of design expecting are briefly, labor into primarily of to to we $XX we labor by million comprised now incremental and we including PSR in $XXX annualized of aggregate, reductions XXXX In XXXX, approximately million savings a negotiations. impact these efficiencies, million XXXX. one line each million, savings and service white-boarding $X an that Mexican items carry-forward million $XX during be benefits, of XXXX changes fleet in and in savings reductions made of comp $XX expect from effort, our realized

reduced benefit commented, Depreciation by expect fueling $XX as $X HPT strategies. and further Fuel that million fleet. we technology of railcar is decline as expected to we Sameh in compliance, assignment and a to efficiency as locomotive on of cross-border and opportunity; lots investments the by expense, million, result focus from gains

cycle and million we performance. we from by In align will expect to improved with the car network equipment $XX to optimize portfolio area, our times in continue to improvement benefit car

million. is purchased by benefit Finally, expected other to and materials and $X services

PSR, is be of that from the quarter, fourth $XX remainder related related of And quarter PSR of that note impairments. a freight parts related might to impairment our resulting expect we $X related would cars, inventory charge I XXXX contract comprised million million to $XX.X During end million restructuring. locomotives, did to we the the to the to and incur $X million

slide. of increase to X%. that comprised comp. despite FX expenses of driver drivers on Without was primarily fuel Turning our in in this a of cover remaining XX, which the $XX down and, credit, seen in The we increase operating fuel increase, adjusted The increased a loss which and incentive higher million, tax and the variance next resulted our year-over-year OpEx. would the have ben, million comp Mexican year-over-year Slide expenses are largest excise I'll $X

impact money and year-over-year. expense go just opportunity partially I'd interest asset impairments. this in of in like driven reference a be PSR we which January, that in of increase market do just $XX to base, mid-single larger locomotives, savings provide also the take to our expenses. offset and digits, leased a the expect would We to expect expense interest purchased in did up, approximately on completed couple of early purchase new to we full-year will respect And expense, some points to depreciation XXXX by locomotives XXXX and from then we November with million the raise by

expense by by FX. inflation, were to incentive work These increased XX, by driven and and increases in-sourcing million benefits comp Slide wage headcount a Turning lower and X%, partially $X and driven hours. comp, benefit reduction, offset

are a the consolidations, train lower certain some Our to mechanical optimization functions. hours result reducing headcount with and recrews and reductions G&A of due work overtime worked, along smaller deadheads, fleet crewstarts, hours of and

X%, down in-sourcing was headcount average quarterly of one FTE contractors. which excludes Our the

declined X%, higher efficiency an improvements ton fuel to reductions fuel miles the exchange. in and gross from expense and than Fuel foreign consumption price more to increase offset as

flow highlights. Slide up And allocation XXXX. cover I XXX% was to finally, in turning want to Free XX, capital cash

returns to shareholder how in KCS allocate our going program operations that higher announced primarily capital leverage including XXX%, November. forward. November repurchases driven share Company by we policy in its to plans repurchase the increased meant also accelerated our also from allocation We a targeted new shareholders a cash share announced generated understand and the help ratio

our of As of in in that our as we earlier well cross-border believe cost drive continue important returns investments investing particularly network, in discussed our the those Jeff network is capital. to presentation, excess

allocate will that help our that XX% of strategic capital XX% to forward, available growth. to to cash and expect support projects we Going approximately investments

modest in available also to shareholder returns, XX% We dividend. repurchases to of form XX% and our a primarily to allocate of expect cash the share

sheet range repurchase ratio our to share our also balance to maintain We expect two using capacity the in program. low prudently debt-to-EBITDA execute by our

back turn Pat. I'll over to call that, with the And

thanks. Okay

little more summary seen While I like good past, information a in shared makes. something difference information you've guidance some be the than hopefully a we've with might year detail a really perhaps comment in forthcoming what bit guess my

I expectations, ago year own our and confidence remember didn't our advantage will XX meet customers' our from degree number take and the fourth of some not at we a wasn't things that of of certainly some opportunities a do about, we was that a expectations, looked that shareholders' us. but on position, this, front for we back where one meet about our XXXX, performance growth year in which quarter a you talked XXXX there we horrible, on differently we and in January back terms - of transcript talked the to talked we call into of need get a to high did had of of year the levels could

there doing, that to has back you is of expectations entire exceeded And that which the PSR intensity I focus more that the slide, gave And I'll initiatives detail the are we you to come. is go Fahmy point. message this one good detail, implementation hopefully of Sameh some and the had our pretty level is our has hear level points brought things organization. at of my the of of today the to initial on

it institutionalizing that's the going Company, to the allow and level and and Mexico, with I is feel going a high sustain on, improve sustain cross-functional being that done throughout done into large that's into it's of the learning future. feel of to Company, a in further is U.S. intensity, way I functions recipe XXXX us in a effort number this people level that performance, of a involves and the high it well This a across being is

USMCA, the to of but in what about cloud a to is very resolution very on, positive. probably us which boost provide economy a be the going expectations certainly to expect. is uncertainty that that it's is a touched removes of Mike questions Mexico, it's a get and high quantify, resolving positive. which significant certainly We'll And a for It magnitude difficult to in welcome Mexico Certainly, USMCA of there is occurrence fairly the for us. would and

our know, was As you mantra Growth. Begets with Service PSR

extraordinary a are phenomenal, out we a have seen back. very customers And is winning it We that in improvement working service.

our a a mentioned, because more year up on than service couple was was we able earnings that to said to Sameh of to for business we were standard. there As ago, not us handle calls handle,

We have of market maybe We're and gaining back. new business high XXXX see, of conviction that, most cross-border opportunities lot that in and see a a still that share in that the particularly beyond. we gotten we opportunities have we

do be about we to no the sustainable accomplished, I will beyond So, like mission XXXX. slides, future the where that PSR will are, And we're from say Mike's reasons very and for the ready by had saw covered good to earlier, feel to we feel continue in but as means, there you more benefits that want these grow accelerate. to And I we convey that come. we again, as feel is

that, will questions. the With I for open call

ahead. from of line Allison first Landry Credit Today's go comes Instructions] is open. Ms. [Operator question Landry, Please your Suisse.

digits, like come sounds about yields. from half to So mid-single growth, top just wanted half volume, of the I line with start

way terms So in in benefit of and some the focused more to expectations there your think price a and what's about is had mix underlying guess assumption XXXX. versus positive you've for yield sort mix. core on I of

that cadence. through think to curious just So

This it Naatz. I'd different couple ways. I a of guess is Mike look at

a the perspective. certainly The Chemical unit. growing generate be have fastest will from higher of then help first which to segment. terms mix, is, & unit plus we to we'll to that expect And us continue revenue our able continue inflation our tends to And in pricing, believe we that be revenue business per to Petroleum

to that also us. So should a benefit provide

just the then at top to turning XX% line. And CapEx of

what to some there potential year. think And further? think the spots this overhaul that really - is do spending you the without you sacrifice on I having term longer mentioned growth. scale is there to locomotive CapEx Is sweet back for

Jeff. we - And locomotives. this. with operating I significant Yeah, think mentioned, we're looking significantly is at as this Allison, fewer

on bit a shifting We reliability. are

level fleet, our of that we'll a bit of improvements on which spend of and some see. increased continued little the And service is reliability focusing CapEx supports a existing an probably of and velocity

we're to that. do So to going continue

probably to There bit projects at of in all didn't that couple is look the mentioned some looking I a lower opportunity at we're little opportunities. although we business bring than this year. continue XX, to

And that, reduction at we know. I provided, from Pat provided outlook feel the XX pretty as then been you from good from which the historically longer-term, the we've as where think here just with range that - is I we long-term a - significant our pretty think guidance a least

next question Chris Wetherbee ahead. Our comes today go Please Citi. of from

Over given so, the in sort a have operating the PSR us or improvement of or last of what you could that walk see you've to progress we relative potentially initiatives guys ratio undertaken. nice to year terms

had peers? about you've of a helped Company Sameh, dig some to maybe bit we now sort type about sub-XX picture, quarters quite of really maybe well. very ORs relative few year kind of the there competitive run would two? potential to Is that in, of nature. sort longer I the the be been to just guess instrumental think explain over or smaller sort mid-XXs the had more when this bigger may Or is little in rank you next that You've be and a you of with thinking and a opportunity should how to the be of outside of the

you over are a guys the a Just picture thinking about maybe opportunity sense period? want multi-year of PSR big to to how get

a stab I'll Yes, at Chris. that. take

the time. I to next a We and and - know every ratio year. cost asset on it or for two on declare victory we to continue get just year that have efficient that operating better take and look don't can a this we to at year we're in Let's on guidance position focus opportunity an utilization. a for and based more

And then in as business talked this volume growth, the past, the we've in the is phenomenal. leverage

provided improve and back some to could improvement of where way start see we we're So run certainly get further operation today. we - And situation - volume into growth. the efficiency we of the to see guidance that we continuing beyond a we we the

as particularly about the U.S. it like can is headcount trend? think beginning that us maybe could XXXX, reduced a incremental was in that see further. you detailed quarter. we just initiatives the Obviously, a could maybe give moved of some then sounds happening, but sequentially down we as sense Mexico, And in It fourth maybe there point, into maybe how

cadence any that helpful. XXXX we for think about can be would Just

I think realize that things we of going we'll see TSP, that, particularly opportunities start exercise. the We Sameh the we at - phase Mexico in get of some that's the as X produce. to the talked into that to whiteboarding benefits about,

is performance. - headcount that's volume And then but there other look depend volumes. look the at that know gap, of mean I the when the you for PSR our some railroads, I particularly other, on a compared it totals you will at really recent to us also

volumes had some drop-off not railroads that have other in the of We the have had.

some we color. ourselves. so make the we And on we want short but - heat has toes. on based And are Sameh adjustments will our outlook, will we don't to

Pat And we said, the are we're looking The look as not the don't PSR of an call in at headcounts. as is situation like necessarily at you if which same then when pay know not if other mean, implementations, at but actually don't in may we’re the I case, end - case volume not them. good looking example, - add, looking the we is I revenue crews which also Yes. in are the day, the you at too, you money growing.

Okay.

going a do of that of more we XXXX. So a actually doing already to been XXXX. have that we're lot in in lot And

we Now don't people, net if just reduction, a breakthrough pools, crew we need call crew like, agreement get don't then make only basis talked where pools, in can I we labor, about them, period. some then not we with

pay headcount, reduce interim, except money, in the some - actually but we don't don't can we Now benefits. pay the for

So about that four that's we talked issue have really brakeman don't - extra something guys. we that's think men need to often, the about the two that we crews,

Okay.

people. areas, So out There are that maintenance to we would in where the mentioned contractors. are like I would take hundreds going way of be do one, of agreement significant, we if a that and engineering be labor that

of contractors. not maintenance out Now I and be productive same take because effective the people when lot far instead going a gangs reduction. I engineering using will more will a take out of the At actually show time, the a it money, to production contractors, in way staff in it's the in to as fill

insourcing last labor shops. said like So we've did significant also some I the way, locomotive year, by insourcing, in

it's increases the it Now but - headcount, that million like alone, move year. saved really saved one us us a $X

the rule, are cost area don't And not - XXXX up hung we as any day, want XXXX. the headcounts, focused a at to money. to from the on we we increase in we So are end on of

that. to is, revenue When has up strict bottom or are In to we the number the - whatever, X%, when Everything on the all all budgets, it's then way, lower. goes reviewed equal we line. this be it the by whatever very goes

I I to I more So bit answered gave color hope a - this.

about wanted make Chris, I operating to comment quick Mike your Upchurch. just real ratio. one

at that improvement. up in And XXX ratio. improvement in environment. basis in the volume look XXX had you XX.X%, operating that's But XXXX points finished we XX.X%, consider you basis X% If headwind we're a when point the you're at down IEPS year,

when and we XX%. the incremental and than fourth back there think a of did get volume it revenue leverage, margin a of lot is we almost better grows in Just quarter, had

from of go comes Tom Our question next today ahead. UBS. Please Wadewitz

just to union on Sameh you changes or give free Can little perspective to? taking of of to union people union flexibility, Mexico. any current reduction that you about area, constraint to changes Monterrey. there make a Is or and wanted impact for little the is Jeff, or more that I is much think I any I opportunity agreement are kind talked a north made bit greater out there or give of a think you're you in costs you the you how able you're constraint headcount as you've pretty all if of much there - referred

Jeff. is This

job As again focus mentioned, we've a primary done think cost and our with. I good is Sameh

the train you're starts As seeing come things, out. cost reducing and we're those

headcount see larger of labor Mexico. somewhat and this opportunities we are the with union of is Some dependent most centered in around talk and Mexico,

these work to continue on things. We

brakeman the these as of fourth work We have not on scale a we yet third eliminating reduction on, lot work to trains. continue and that rule achieved large such

wholly union. the However, not on I we're dependent point would

in by that to forces for we XXXX, reduce engineering attrition. actually Mexico able through Our X%, were solely

continuing to look union on continuing larger we're We're contractor-based said those with to at as on so, attrition-based Sameh and work reductions, reductions things. And continuing work the deals. to

I crews if going needed reduce such to the eliminate also, amount as But as you're follows classify independent crew one, can we of run. to change would locations,

Mendez Benjamin almost XX%. between example, and For Sanchez by

we're the the continue or with some think going larger get we we to quicker to rule continuing to So, smaller union, while on wins work work opportunities that have.

people you way is to the also right you headcount, because that it like just can't sounds you - fewer pay trips. reduce the understand it if don't So, less, have

So, you understand lower, doesn't or sound Is of a it's things get additional fair savings, could a crew doing. that three- not in way it? but going it four-person the you're like of you're other some terms is constrained to

go changing the locomotives make time crews, Benjamin adding if make of Like Instead of one example do breakthrough, on over even Leon place that, to Jeff is is a assuming And doing what north own, and grades. agreement, gave, all even we said, wasting the don't he a way that are with in don't Mendez to our we okay. can now of called and the a and Monterrey, just which we what all to actually we train start. a if lot South

and these and While we're to North, DP, to okay going locomotives, to those crews. not Sanchez not not to going stop. not and this from going and we're pay And we we're power, add crews locomotives going way, going in call to we're are distributed run

them. more on our that there on more reliance doing and things we base. that So, we reducing And are and started can do own our we are

we agreement with we three to same - Benjamin want these and how trying union detail, Mendez structure the to maybe the spent hours preferred can taxi to people move with we that's we time, we an you at don't and yesterday with Now to how the really feel feel arrangements that them that, like, good about way that, wanting us. work making stuff union And win-win, is like because the if also like obviously. and like

union. agreements the hopefully with So, make also we'll

comes Stephens. today question at Please ahead. Justin Long And our next go from

the began At these - So, savings moving implementation. operational to the that you pretty million kept you're that that last And upside? through you you good reflection XXXX the now financial rate $XXX PSR the where, making throughout the estimates year, were XXXX in into opportunity? year provided going along time, changes. total as were Are the getting working just as same point the in PSR could this you higher far impact. initiatives aren't still are factored drive an enough of you there are and estimate, that feel the is operationally run accurate Or incremental process that that we

we're find feel a to lack and continue $XXX new this would going question trying we certainly, where We going right. to to as throughout expect We down continued the that. continue do a that's be find path. time, better to to of Good very million. more we at just Mike. And is here than about lot and this is Justin, this end in think opportunities, opportunities. good not point there I And up. But last to more we'll you're be year able that

Okay.

the these we'll down and we this and money some we're onion, of we just at look likes period we'll But Sameh just finished just we're snapshot that that improvement time. I exercise. gave, feel where them say, with in think time, continue make continuous when of a things longer and kind to over peeling of some knock keep, the things sort just the ever this. just of bank, the in some say, might this everything this the put of one as we of of with we're I on We the to and And at a - of you Sameh up point say it's that at, don't do. we'll picked focused examples

outlook. about And secondly, ask the to volume wanted I

year, gave quarterly And So any low-single-digit that into are expecting your this this can provide of as answer excuse if color something would for mid-single - cadence on get the on conversions kind year. And factored as growth you progressing? that me, that's guidance mid-single-digit growth there take how but growth? truckload you you and - that's you guidance love of the each to that, Are well. is quarter

- depressed or with respect be your that certainly capacity here see my rates see more year. of expectation of softness to truckload that I We still. we're suppressed plenty would is, things the some we that portion With the Well, do think be things to there in likely front. continued see to do the question, - on favorable second continue out

us do for And that a makes challenging conversions. little more to so it

things bottom, to I think However, see did I the the we recovers, or then railroad. that rail as mention to move that and hit being to able back to earlier share has moving that expect pricing

of Our next Wolfe today Group Scott Research. Please comes question from go ahead.

clarify how us equity. your XXXX. want So on to thought comments, some going I those first expect guidance. Maybe you in some better in just And in better, one-time revenue if were there on other that, was then Mike, I you just said know give other to Pat, growth in income, XXXX things opening XXXX? you be guidance to than a couple just can of you you said the things be

one. guidance the take can I

project incurred - the but line Airport the favorable went the in that. fourth of with our should done was going we took comps $X.XX we those, we forward. cancellation items affiliates. predominantly that one have Mexico the I in that the We quarter through each equity a earnings, with that And in are associated loss quarter believe know, we hit of one of below You the

not provide into a entities that have you for line there, we three item. going So four we're number or to specific that because roll

in a in pressure gets the that see think item you did complex, don't should XXXX. but it So you line bit I that little

of interest shares. the transaction result $X.XX as buyback in for us. fourth we accretive a net the a to had also did That's expense borrowing quarter We higher that

I we XXXX. see to expect would reduction So comment you also have the increase to there. did But share interest that $XX in we're million in consider a count expense getting that

I think items. two cover line the the those primary below

on and than - a look at be but give guidance that to just, guidance but stronger I our misspoke in when volume bit, is outlook XXXX see XXXX, chart to we general, XXXX, feel XXXX. previous you Scott, specific guess to revenue I provided little for that maybe in intending relative for I going wasn't what I

So I'll to thank me clear up. allowing that for you

And comes ahead. Bank. from question Malhotra Deutsche today Amit our Please go next of

follow and in XXXX. the to just Mike, mentioned the on around if closer Congrats the XXXX, on OR that earlier. $XX XX%. the It to can exactly is wanted can obviously if it's - out I at if But margins incremental commentary much the you I for around, revenue if of incremental, impressive. I million sense. makes we success out, expectations The XXX%. implied, That's look incremental productivity pretty I up say all it you the back that just that called implied organic is way margin

Company, is greater. rate changes at at So, the just all right XXX% of even or think leverage making? that the the you're understand, run that beyond like you kind to kind rate structural are way of run structural guys to once I'm what's the this opportunity the about trying right

Yes, a on were dependent, question. the obviously reductions, and but get volume margins, then or growth we so incremental no, good cost only on XX% revenue pull-through not pricing. where Incremental

any incremental giving forward. going specific away from stayed of margin kind kind we of So

But that down pretty earlier and IEPS we X% improvement, the a a here. XXX basis saw OR my points comment nice set second, volume for a aside

a perhaps bit seeing to start able you and If achieve certainly low-single-digit should growth, be we that better.

comes today from of Allison Please Fargo. Poliniak go Our ahead. next question Wells

back kind path you the peel opportunity do greatest look of before. mean the well to of of you forward obviously, the you sort past year, as I benefit Where as spoke as over you going sort see or opportunities, So onion and PSR the of recently? these surprised down

was length say see the pay stuff the all - crew hours like it's arbitraries we call opportunity and, largest taxis, and we crews, train would bonuses crews, crew the like and I over I these that that. but And in that extra for is Well, it not time pools something everything and of in management. Mexico, just it, like

we on is in is But I are still gallons is you is million XXXX, a fuel lot So big X.XX of in a opportunity. aiming at $XXX X.XX, that - know, KGTM crew big spent at are said, We XXXX. per opportunity. a opportunity, fuel. we that like still And

are now watching we're Klein, watching daily, watching we on we delays, the And young that - people, and management horsepower I assigned by management put best And most one we locomotive we we HPT, promising we our were we train, trains. of of have made changes, crews. the when as put way said him in-charge Nick same the also, train some

a And he watching horsepower he And quite or ton that big time bit. is is already. delivering

We operation, we another also under is made. fuel move move which

did we changes. some management So and structure

Crews And important. heavy still cars - important. is cars. fuel we So are still on are are

Mexico. you We XXX miles day, very And XX inadequate high at went our day, per significant improvement. number, which especially, a very, XXX per improve. low there to miles from a miles miles mean still car is number, day is per day look especially to a in I and is room

car to that savings significant that We return, in leases some have was Mike going talked XXXX about. some that of PSR and part we're ones the

these your are the to would summarize So locomotives. opportunities big still still in cars, crews, opportunities. We say, answer I have question, fuel and

opportunities in have opportunities we engineering. touched the engineering, of not big We way; big last have big, that year in because maintenance that's

the on too. was for the And equipment He who he on my the was of track with potential gang, huge us this here. helping work And there week is And And on engineering actually the there productivity for watching gang, guys years. is the I long a the time. railroads, XX gang. now who of brought on chief my gentlemen, actually team, one - of at are is was a retired one associated a team

from ahead. next Please our of of Ken America. question today comes Bank go So Hoexter

more maybe growth. Pat, some just or on Mike Mexico thoughts

mentioned growth. there, And talk on growth. cross-border negative growth to you agreement, revenue is in Can expect I decelerating guess, and You on energy of reform industrial the contrast out production, low-single-digit the USMCA? out revenue volume some we auto the about trade slowing then anything economy MST should and there

implications of no, would first negative affect So USMCA saying out the that we're refined products But from slow question of question, growth portion looking of little at the the over has been tougher that on the we've just that your a I economy been seeing fuel automotive monitoring. we're really the what has part coming the respect anything Mexico bit automotive your With extent segment. soft, time, That's guess consumption. not because get will necessarily to of to the comps perspective, second year-over-year. that,

comes ahead. Our Ossenbeck from Brian of next question Please JPMorgan. go today

Sameh, one more for you fuel. on

OR of this the improvement You you the expense the look and the being what that doing and the think do that XXXX. you're hear thing bucket more to of there. look from at could structural year getting some benchmarking mentioned in here, some biggest and there. thoughts or equipment at next. Do getting when improving is What even side to you I is your the think the focus same wanted you sub-XX peers just be just versus you that versus maybe management efficiency

extremely grades Mexico very steep, are in the of And point good Very efficiency. that not good a steep. is very, view, question. for From structural obviously fuel

like, benchmark, I far even X.X go you of a of because use a to if is So, limit how that, of kind can as though there topography as Mexico. the we

structural So limitation that you like. is if a

target All low per I room for beyond there can how in XXXX. to I never is we the is accounted exactly is go definitely that gallons can a that go say which X.XX, KGTM.

with, about deployed here, partially second the associated is, stuff coming Some okay, KCS. do They But also are technologies, of the that if on railroad. horsepower railroad, that you extensively was I my there like HPT, on talked are the ton. like. - deployed a per were we'll before lot I and

top Trip week it aggressively, for is locomotives, really I called actually of fuel. I on in that was. cruise used know hardware which also locomotives you which which And lot many Optimizer But something we what and have and HPT, Smart there - avoids by week on braking, bad will control wasn't what those, continue on does like is deploying, we a really important know Trip have acceleration Optimizer, you the is deployed of we software deployed which our and

how an if shut And thing a have here, on not same we you example. the you heading many calibrate attempting down you will And are train. one locomotives as that the three know empties are only locomotives, back because of

it decreases. so horsepower But actually pick - out allow increases you or to the it will up, based even - actually we on you will traffic tonnage the tonnage the fluctuate traffic the set

during will you kind of is I trip, So us a help also allow up to a And down. going - lot. and it actually to that go technology,

Obviously, happening. it trains mix for things of service manifest efficiency. the long very, helps and also lot make are fuel there So very and lot. a with intermodal efficient automotive, design These

So I which it is number, is exactly year, than know can't as your is are answer quite better but X.XX? compared Is X.X? an - the question should this for X.XX. is the precision theoretical we the is which be to I with best what it to exact my say it all improvement don't can that, I X.XX aiming it

today our ahead. And question comes go Barclays. Brandon from Please next of Oglenski

volume policy, could didn't be forward? in in leveraging a expand guys Does so guys of allocation forward. that call growth more looking because the industry I opportunity opportunities So capital you or spend is that bit able And maybe little more out with incremental that this significant of guys historically, those more you being still efficient feel you pretty to more. would new have could a the have that see, looking you just what mean context maybe can be maybe the just bit little less bit

and the assume EPS some what longer models do might your is give given Mike. exactly know around allow you three-year I OR capital guidance there I be that to projections like, you on, that but term more this expand Brandon, this we've policy. on Well, cash the the and desire a flow us know look I there numbers much year there's we revenue allocation don't that given to would for guidance.

should flow should viewed But in here. distributions probably kind is stick that of guidance has away We'll shareholder more that favorable distributions I increase take that relative we've CapEx the point given and that than shareholder from to the more focus of here. with just be you CapEx as our saw shifted cash free light think the that to you in

question, And CapEx that of the the I targets - understand read our capital de-emphasizing drive into or anything other would the will suggest your question, other if that we're strategy part question I allocation core other growth. wouldn't

CapEx factored capacity, into but investment, those extraordinary have efficiencies growth the targets, in our capacity, make think that asset, terms We that of invest. PSR yard require are opportunities continue and we willing improve the with in perfectly to we future realizing we are we'll we if track happy to and that

today And from our comes ahead. Please Sachs. Jordan Goldman next of question Alliger go

they're sort of there phases, question, a you actual not obviously challenge timing the more I'm rollout thought? standpoint. going dollar the very PSR Just a quick of all track rollout a may any are be - curious, your phases PSR initiatives, than that amount, areas And the but from well. of then just the of are generally on

Thanks. something curious, to or just your I in January. I think thoughts. reading, phase you X be anyway, might if But up remember

well. very, has whiteboarding the Alli, very gone

long Laredo always Mexico us all is on there in train, which a it Lazaro for know had You in way adjustments we U.S., the and like the obviously, a from to We're is had Pacific that watching but many lot of a initially morning. about a traffic of a stops making yards lot concerned do we on in part it. it, and were bit of that's every haul

stuff tuning we look have Potosi. and delays Luis are some some been from at San where noticed there some adjustments, And the the

- never finishes And it so, exercise. really the it's

it. the the mean XX or at see of March, then tuning was I and the it, has and it network XX see you dreamed but January, whiteboarding been We in it the tuning it we keep well you miles do I February going in extremely Mexico, like big portion would said, of running have or February hour drinked mph. the in in we per velocity and have network never

So, well, Pat model fuel so The is the car the going fleet service of always is is revenue, car the okay. and reality that, that in whitebording The for KCS. and are reducing always mind the keep and results the adjusted that our and is going mentioned good, well. hire efficiency

agreements some And going on area going tight well. the frankly good been means the that that very it yards means challenging - has is get we have the even are just like agreements, adjust. have I of for Mexico, means said, the potential labor To if and revenue crews we labor don't we our way of is very getting that we savings, most to

rules, the we to and have current So if maximize.

final from question Please Susquehanna of ahead. comes And go Bascome Financial today's Group. Majors

closer at ago, X dropping to if you flow. guidance XX looks XX% Mike, revenues that's probably be cash to today, back your XX% If forward on of going look to it years You, were you going free based to look I like to expectations. X% your

just three been Can and looking more. was think it's there. Thanks. do about tight locomotives might perhaps the coming part hoping know expand up I little locomotives. speed both or railcars. that on further improvement you you holiday, mean a So get could you I of on talk on where addressed, of stock to you growth that for but railcars in years, years improvement the is your I this kind where rolling based start trends you and at to dramatic are

that's then plans locomotives think that that. but next say we years. a XXX purchases. the to and net, love I - We've right be three to technology. what's don't going would years, U.S. of begin old But here start I any we've of would there our may again, place recession be great growing volumes of think in about get us industrial in locomotives for the it's to lot I probably over would part predict look know that question. incremental I'd cars. seen locomotive hard that be out before now happen to all immediate, to that next this we'll don't I'd the see a of freight We That's retirements have think couple

back Pat I closing session. like you. This concludes to over the question-and-answer Thank remarks. for conference to would Ottensmeyer any turn the

joining for everyone us. Thanks you. thank Okay,

green of pick up I changes, said, I way whether of of things Just improvement couple have intentionally grow that that you this. been might and was and on going may an a share. opportunity that are we a approaching rather cars, to cars otherwise gain asset happen. cars, to as and our cycle couple felt minutes some we been these many them just lot of of heard just there in to about, question, that we And market extraordinary than as something that, us it's Sameh did made freed times, say fleet hold the example those a possible. you freight that ago we up have to quickly as we decision locomotives, have and behold, scrap Because saw that for lo - on and And would a final the where think significant, impairments, business about probably of on

targets of it that particularly back. come customers, or core we're there as road. said But think opportunities numbers being up these a while ramp growth and some to of to doesn't we ago, are investments, a And coming CapEx we time effect down as CapEx down. I careful our go to and few really make CapEx the make customers And sure that capital us. that conscious, under have that takes to unable read unwilling are for limiting very contracts yes, it very are period changes in those please are for about anyway growth attractive minutes don't - the as, investments, if very our But

reiterate again to I just there I where So come. that - very where feel started. We are, and about we very, believe good more is we

of and dark be of certainly. particularly helpful continue over also long some We the opportunities optimistic uncertainty the are about USMCA, to in term The will I opportunities, with the be cloud front us. removal of think growth growth cross-border of confident

very, working PSR our results there enthusiasm good Sameh the think very of excitement, there this. with within transformation lot us. I about people we that of a go are going number about are more we as lot And of company. high way cross-border with a The There's are large broadly, cross-functional, of ahead very expectations

and about for everyone. we'll here. o'clock thanks in Final Thank attention and to Go three Americas time So new talk Chiefs, your months. the on team, you, you Sunday, X comment,

thank for now We Thank all attending you, presentation. today’s concluded. sir. conference you has Today’s

and may a your have wonderful now You disconnect lines day.