Norfolk Southern Aktie

All right. Afternoon, everyone. We're going to get going with the next session. So we've got transports the rest of the day. By the way, I'm Scott Group, the transport and airline analyst here at Wolfe.

So for our next session, we've got Norfolk Southern. I know it says Jason Zampi, CFO, to my far left; but also Mark George, CEO from the company, is here as well.

So Jason, Mark, thank you, guys, for being here.

Glad to be here, Scott. Thank you.

Thanks for having us.

We're going to jump right into questions. I've got a few that I want to get to. And then if you have additional questions, raise your hand.

So I think -- I guess we'll start on the merger. Let's get an update. You guys resubmit -- you and UP resubmitted the application late April. I guess we should expect to hear from the Board probably end of next week, if they deem the application complete. Maybe just take a minute or 2, where are we in the process? What in your mind were the key enhancements you guys made to the application? And any sort of expectations that you have for next week?

Yes. So where we are in the process is kind of like you laid out, we had resubmitted the application, like you mentioned. I think we expect to hear next week -- I mean, the deadline would be technically the 29th, but it could be before that, that we learn what the STB does, which is we expect a full acceptance. And then there's a whole procedural schedule that they follow with hearings and then environmental reviews. And then that gets you -- that gets them to the point of final decision, where they have 90 days after they close the docket to publish their final decision.

So when you add it all together, we've said publicly first half of 2027, I think, let's be real, this is not going to happen in the first quarter of 2027. So it's sometime in the latter part of the first half, which means probably the summer months, that we learn. It could be May, it could be June. But ultimately, it's up to the STB how long they take.

The good news is that when we get acceptance of the application, the STB is going to publish their schedule. So we'll get a sense of how long this is going to take to play out. So we can stop speculating at that point and we'll have something to work off of.

Okay. Obviously, a lot of...

You asked about completeness?

Yes.

We think this is really complete. We think this is more fortified than the original application. And let me explain why. Not only did we answer the 3 things that the STB wanted. We responded to those fully and, we believe, in full satisfaction of their request. But we chose deliberately to almost redo the math using traffic data that was provided by the railroads. So we're the first merger application who's ever taken the full data set from all the railroads to project the future, as opposed to the sample data, which is the way everyone has done applications in the past and the way we did it initially, to project the impacts.

And that's a big deal. That's a big deal. Because the good news is it kind of validated where we were coming out. It actually -- we actually have more, we think, more conversion doing the math that way. We maybe lost a little bit of the merchandise conversion, but actually got more intermodal conversions in the second submission. But the data is irrefutable now.

And that took a little bit longer. I mean we had to run all of this data through, just like we did the first time, through all of our modeling. So it added a little bit more time to the resubmission, which is why it took us until April. But we feel as though we're taking away any potential argument that the other roads might say about the, "Well, I know this is sample data used, but this isn't really accurate data." This is their data. This is the full data set.

So we feel as though it's a much stronger application, more defendable with the data. And we went into even more articulation of the public benefits and enhanced competition. Go ahead.

A lot of comments from all the other rails, right? Maybe none of them surprising, that they're saying it's incomplete still. But anything -- any of the public comments from rails or other stakeholders that give you some pause of, hey, maybe we missed this or maybe we missed that? And then I'm sure you love hypotheticals, but in the hypothetical world where we learn next week they've deemed, for the second time, it's incomplete, like where do we go from there? Does that sort of put an end to this or not?

No, I'm not going to get into hypotheticals. We think they're going to accept it. I don't know if they ask for more information. But if for some reason that scenario played out, we'll deal with it at that point. But -- what was the first part of the question?

Any of the comments concerning you in any way or surprising you?

No. We responded to that. We think that people are somewhat grasping at straws right now. They're reopening things, and arguments they made the first time, that the STB ignored essentially, but they're opening it up again. So we're not too concerned nor are we surprised. I think the other roads that are in opposition to this would love to just stretch this out and drag it along. So they'll use whatever tactic they can.

Right. And I was just saying because last May, we were sort of -- at our conference, we were dancing around the M&A conversation a little bit without really able to get into specifics. So at our conference at least, maybe first opportunity for you to talk about it from this standpoint, right? There are, at its core, 2 key requirements for a merger. One is it has to be in the public interest. And two, now under the new rules, it has to enhance competition. So maybe just if you could just touch on those 2 pieces. Why is it in the public interest? How does this enhance competition?

Yes. That's -- it's easy. I mean on the public interest side, I mean what we're doing is massive in terms of trying to convert freight from the highway back onto the railroad, where it belongs, frankly. Heavy fleet belongs on the rail infrastructure.

There's reasons over decades after the interstate highway system was built out why freight has migrated. It's just convenience. But as passenger vehicles have filled up the highways, it's becoming less and less comfortable and more and more risky.

So what we do is if we can take, like we projected, 3.8 billion miles of truck traffic, off of the highway system, we're talking about reducing injuries -- I'm sorry, reducing accidents by about 1,750 per year on the highway system. We're talking about reducing fatalities on the highway system by about 65 million -- 65 per year. So that's a public interest.

I think there's also an affordability angle here, right? The truck is more expensive than the rail network. So we are going to save consumers money by shifting traffic back on to the highways (sic) [ rail network ]. It will be cheaper, it will be more convenient as well. So the public interest stuff that we've laid out is absolutely real.

And I think in terms of enhancing competition, as soon as we announced this, you saw how the other railroads started to work together. So the competition is already enhanced. In fact, we've lost business because they've decided to compete differently. I mean let's face it, this industry, the rail industry, has been a little bit lazy, and a little bit -- since I've joined 6 years ago, I kind of had the realization, "Oh my God, I joined a utility." There wasn't a lot of spryness to try to compete aggressively and to perform at levels that your customers expect. So we're seeing a spryness now in the industry just by the fact that we've announced this merger. So I think frankly, this is -- the enhanced competition is taking many forms.

Another thing, just by coming together, we're going to now offer single-line rail service compared to interline. That is huge. And when you look at the facts, where single-line rail service exists versus interline, customers are -- there's a 44% higher market share for rail on the merchandise side, okay? That's 144% on the intermodal side. When there's single-line traffic compared to interline, the share's 144% larger than single-line -- than interline alone.

So the competition benefits are significant. And ultimately, at the end of the day, we're trying to do this for customers. And I know people have been out there saying customers didn't ask for this, this is all about Wall Street. You guys didn't even know I was having these conversations. This wasn't for you. This is for the customers because of those stats I just laid out. The customers are demanding better transport service. They've been moving away from rail to the highway. So the only way to reverse that trend and to give customers what they want is to get together and work on single-line options for them.

So just to follow up, like, obviously, people can disagree. I think the public interest case you're making seems pretty clear, right? I think on the enhancing competition relative to truck, I think pretty clear. I think where there's probably more debate is on the enhancing rail-to-rail competition, right? And I understand you made your point, hey, look, you've seen competitive response from everyone else. And that's sort of, by definition, we're enhancing competition.

Do you have a sense, is the Board looking at broad competition, including truck competition, when we have to enhance competition? Or is the Board going to sort of look more singularly at intramodal rail-to-rail competition, with that enhanced competition? Is it clear to you which way they are going to look at this?

I think when you go back to 2000, I know there's a lot of people that are saying, no, no, no, the Board intended back then, 25 years ago, that this was intramodal, that this is really just focused on enhanced competition within the rail space, okay? The reality is the Board, whatever they were thinking at the time, they deliberately decided not to define it, okay? And I think it was the wisdom of the Board back then to not define it, to know that when something comes up, it gives them the flexibility, depending upon the market dynamics at the time, to interpret it appropriately.

So here we are 25 years later, 25 years later, the markets have changed dramatically. Rail has been pummeled by truck. And now this Board gets to decide how to define enhanced competition. And I think that they're smart. I think that they're wise. I think that they're going to be progressive-looking enough to see that we have to look at the broader ecosystem, and it's not just intramodal.

That said, even within rail, we believe we are enhancing competition because, again, look at the responses, they think they can compete, and God bless them, with partnerships. They're taking share from us, rail-to-rail share movements. We're going to try to compete with single-line, and there's rail-to-rail conversion from single-line. So absolutely. And then the committed gateway pricing is another enhanced competition feature. So we believe we're responding to it both ways.

Okay. That all makes sense. And I remember reading in the Board ruling about the CPKC merger, "Our job is not to protect one rail relative to another," right? So maybe other rails complaining, maybe that doesn't matter so much. I think what -- maybe what shippers have to say, what unions, other stakeholders have to say, so maybe just touch on that. What are you hearing from those other stakeholders positively? What are the negatives you hear from other stakeholders outside of the other rails?

Yes. I think we do a lot of talking with customers, we do a lot of talking with other constituents as well. I would tell you, let's break it down. You talked to our intermodal partners and those shippers, the beneficial cargo owners, they're all excited. They see the benefit for this. They see the fact that they can go into single-line versus interline. So it's all really good.

I think when you get down to some of the merchandise shippers, they're hearing the noise from the others, and they want to talk about that with us. And then when we have the dialogue and we open our eyes to what the prospects are, that whether it's a grain shipper in Ohio who now sees, "Hey, I can move uninterrupted into Texas on single-line service? That's a new market that I don't serve today." Or someone in the Midwest who wants to ship feed to chickens in the Southeast that would have had to go through watersheds so, therefore, they don't even bother competing in the Southeast. Or steel customers who now we can tell them, you can serve markets in the West on single-line service. Their eyes open up, and they understand, and they see the potential, and they get really excited.

So it's a slog. We have to go through and explain it one by one, which we're doing. And when we do, there's a lot of enthusiasm about it.

Yes. Makes sense. And then as part of the merger process, I think the Board needs to consider downstream effects. One thing that just wasn't clear to me, when you guys laid out like the synergy targets, is there an assumption -- inherent assumption that this is the only merger? Or is there an assumption that there's 2? And if there are 2, like how would that change the merger synergy assumptions that you guys have laid out?

Yes. I think the rails have -- the other rails have basically kind of made their case, right? We kind of know what their intent is. And there's one in particular, who's not publicly traded, so therefore, they're going to behave in a certain -- they've come out and said that they're going to behave in a certain way, which is to not do a merger.

So I think you could probably assume that what we've gone out there with is assuming that there is no follow-on. But otherwise, I can't really speculate. They're all on the record individually. If they were all publicly traded, I might have my own prognostication. But they're not.

Right.

And I think too, just to put a finer point, the revenue synergies are really -- we feel confident with or without a follow-on merger that those are attainable. You think about the portion of that that's coming from the truck market and how large that truck market is compared to the rail, so I mean there's plenty of business there for conversion.

And not offering up specific concessions, is that a realistic outcome in your mind, Mark?

What do you mean? We've offered up all sorts of concessions.

You're talking about the gateway pricing and all that.

Yes. I mean the gateway pricing, we've offered jobs-for-life guarantees, open gateways. So we've put concessions out there. And we'll see how this whole process evolves over the next year or so. But it's not like we haven't put concessions out there.

Okay. Fair. So maybe -- well, unless -- if there are other merger questions, we can get you involved. But maybe let's turn to just the business today. Maybe, Jason, I'll let you take a few here.

Just volumes up about 3% quarter-to-date. What's doing better than you thought? What, if anything, is worse than you thought? Just give a little bit of a demand update.

Yes, sure. So first quarter, I would say, was kind of bumpy from a volume perspective, right? January started off pretty good. February was kind of really impacted by a lot of the winter weather storms. And then March really picked up. And we've sustained that momentum here into April and May.

So we're around 140,000 units a week, and this is now I think the 11th week in a row that we've been at that level. So we're seeing some pretty good volume momentum there. And that's translating to the 3% you mentioned, that quarter-to-date perspective.

I think a couple of areas that are probably better than we expected, I would put chemicals in that bucket. Really kind of those energy markets, whether it's NGLs, frac sand, petroleum products. Those are coming in better than we thought. And then I think coal is better than where we expected it to be.

The third one, and there's puts and takes in all of these, but the third is domestic intermodal. International is still pretty weak, but domestic has come in better than we were expecting.

So I think there's a lot of positive things out there. I think as a whole, we're -- I'd kind of categorize it as cautiously optimistic. Things that we thought might have been better, if you look at the housing market, I think we were hoping maybe for some rate cuts and for the housing market to kind of take off, that has a big impact on our business. We're obviously not seeing that, and that's probably not going to change here in the near future. So it's something to watch out there.

And then I think the last piece is just the -- we know what happens with fuel prices. Do we reach a point that at some point that starts degrading demand out there? So we're not there yet, but that's something we're keeping an eye on. So definitely some puts and takes, but there's some favorable things we're seeing in the business for sure.

Okay. And that strength in domestic intermodal is in the face of losing some of the share that we did from the announcement of the merger. So it's a pretty good story. And I think we've been all tracking, everybody in this room, a little bit of what's going on with IPI and some of these manufacturing leading indices, and maybe that is starting to show up a little bit on the production and manufacturing side. So we're cautiously optimistic, as Jason said.

And then you just mentioned the domestic intermodal strength, and it seems to me, if I just take a step back, we've got this environment right now of rising truck rates, high fuel, right, rail service levels generally pretty stable. This feels like it should be a very good backdrop for certainly intermodal, but maybe the broad sort of rail market. Are we -- do you think we're starting to see evidence of this in terms of share gain from truck? We've been talking about it for so long and it feels like we haven't had it.

What is it, a 4-year freight recession, unprecedented in history, may be coming to an end? Whether that's a function of the evacuation of excess supply of trucks finally or if it's temporary because of what's happened with fuel pricing, hard to say. We are in an unusual spot with this war and with what's happened with fuel prices.

Right now, it feels good. If the war ends in the next couple of weeks and fuel prices start going back down over the next couple of few months, does that dynamic still persist or does it reverse back to where it was? Hard to say.

I think the key there, just to add on to what Mark said there, is really, can you retain those customers? And that's through, you pointed out service, right? And that's kind of the linchpin of that whole thing. So however, these shippers are attracted to us in the first place, we're ready to serve it. But it's -- that good service levels that will maintain it and keep them on rail for the longer term.

Jason, just a quick near-term margin question for you. You guys talked about 200 basis point sequential margin improvement Q1 to Q2. How are we trending relative to that given the volumes? Could it be even better? I don't know. Your thoughts.

Yes. I'd say we talk about that historical seasonality, 200 basis points. First quarter has some higher costs from comp and ben and incentive comp, payroll taxes, things like that. And then normally, we see -- we do see an uptick in volume moving from first to second quarter. So that is happening. That's good to see.

And I think we've got a lot of productivity initiatives underway that are really -- have taken hold. Over $500 million in the last 2 years and another $150 million planned this year. So that's all baked into that.

The real wildcard here is fuel. And I talked on the quarter-end call, I think the price we're paying at the pump in March was up over 40%. In April, it was up 80% year-over-year. So that is a really significant headwind. We don't see that coming down anytime soon here at least, we're halfway through the quarter now. So that is a significant headwind. Even with all that, we still feel good about the 200 basis points of OR improvement.

This wouldn't do anything to change like the cosmetic impact of fuel, but I asked this to one of the other rails on earnings, I'll ask too, like I don't really understand why rails still have 2-month lags on fuel surcharges. Truckers are 1 week, FedEx, UPS are 1 week. Why are we still doing 2-month lags?

Well, with intermodal, we're on like a 2-week lag, right? So I think it's really the other commodity groups. So that's a legacy. A lot of those are individually negotiated. And it tends to average out at about 2 months, right?

That's right.

But you want to talk about that?

Yes. No, you're absolutely right. 60% of our fuel surcharge revenue is based off our intermodal volumes. And like Mark said, that's only -- that's a 2-week lag. And that's really due to the fact that it is competitive with trucking, and we're matching what they're seeing there from a price perspective so the customer can really choose which mode makes the most sense given all those economics.

But the rest of our business, merchandise and coal, that's more on a 2-month lag. It's really based on what the customer needs. And at this point, we think that that's sufficient to address the market and the lead time for a lot of these customers.

At the end of the day, it all evens out, right?

Sure. Right. Jason, if fuel sort of stays here, what's the OR headwind to the year from fuel? It's just cosmetic OR headwind; the earnings impact is immaterial.

Right. So I think the way we're thinking about it is it was a pretty significant OR headwind in first quarter, will continue to be a headwind in second quarter. But as we move through third and fourth, again, assuming that fuel stays at this -- based on this forward curve, should switch to a tailwind in the third and fourth quarter. But overall, a bit of a headwind for full year.

And so when you add it all up, do you -- is there a path to full year margin improvement, you think, in 2026?

Yes. I think a couple of things to factor in here when we think about what we're facing this year. So we've talked about pretty significant inflation this year. We've got wage rates going up another 3.75% starting July 1, on the back of 4% last year. So we got significant wage inflation. Health and welfare rates are really high, insurance premiums, all those things. We had some pretty significant land sales last year that we're not planning on this year. So those are some headwinds we've got going against us.

On the good side, we've got productivity. I talked about what we've already achieved. We've got another $150 million of productivity. And I'd classify that as structural productivity, not volume dependent. So those are all good.

Now on top of that, you throw in fuel. And I think that, again, if you use that term, it's a big wild card and we'll see how that plays out. But I think what we're super focused on, and you've heard us talk about safety, service and this cost discipline, and we're really kind of showing how we're achieving that. The cost envelope that we've laid out, we feel like we are going to control what we can control.

Fuel price is something that it's a bit out of our hands, but what we can control from a fuel perspective is fuel efficiency. And really proud of what the team, the ops team has been able to do there, 5% improvement last year on top of 3% the year before that, hit a record in first quarter. So really building on that momentum from a fuel efficiency perspective, and there's no better time to have it at fuel prices like this. So long story, lots of puts and takes, but we see a path there.

Okay, great. There's one question in the back. Maybe if you can -- while the mic's going there, I'll ask one more. I want to talk about pricing. If I look in Q1, and I get there's mix involved here, but yields ex fuel up 1% in total, merchandise yields ex fuel flat. I feel like for so long, like pricing was sort of the constant in this industry. And I really feel like since the pandemic, the amount -- price relative to cost has been underwhelming to me in rail.

Like, can we get back to a sort of 3% to 4% type or maybe even more, I don't know, but can we get back to that kind of yields growth again? What needs to happen? I don't know, just it feels like it's been the missing -- the volumes have been -- are positive. Labor productivity you're talking about has been good. Like it feels like price has been sort of the missing link, the missing piece.

Yes. I mean when you go back to pandemic, Scott, you're also talking about going back to where the catalyst of where the truck recession started as well. And you really have to break our business down. Intermodal pricing is highly competitive with truck. So that is the governor ultimately on intermodal price, is what's happening in the truck market.

So that was going down for a while, and then it was -- it's flatlined for maybe the past year, year plus. But there hasn't been any traction. Now finally, we're starting to see that come up. And I think you would acknowledge you saw a little bit of that show up in the fourth quarter and now again a little bit more in the first quarter. So you got to look at that.

Then you got to look at the coal business, which those are index driven. And we, during the pandemic, or leading up to and during the pandemic, we had very significant gross up in energy prices that we all enjoyed. And since then, met coal pricing in particular has been coming down at a steady decline. That's just math. And okay, we think we've probably lapped that now and we've stabilized and maybe there's a path up on coal pricing, especially, not just on the export side, but even on the utility side. In time, with all those utility coal demand, as contracts reprice, there's probably upside there.

So then that leaves you with the balance, which is merchandise. That's the one thing that hasn't changed, to your point, we continue to give very good core pricing in merchandise. There's been no change in that trend line going back a decade. We get solid core pricing in our entire merchandise book of business. It gets dwarfed sometimes in certain years by mix within merchandise.

So that's why when you look at RPU changes, even within merchandise, it may look flat, but it's because core pricing might have been up 3% but mix ate it all the way. So I think the thesis looking forward is a little bit better on the overall book. Mix is always a player. And at some time, mix is going to be helpful as well. Like right now, I think we're seeing some favorable mix.

So I don't like to talk about price in one thing. You really got to break it down into those 3 components and then recognize, even within a commodity group, mix can play a role.

But it sounds -- so intermodal has been -- truck rate's going up, that clearly should be good for intermodal, right? Coal has bottomed and maybe hopefully you're going to start to see a little bit of upside from here. We'll have to see what the indexes are. And merchandise, you're saying you're getting good price and there's mix fluctuations, maybe it was a headwind, but maybe going forward it's a positive.

Maybe. Right.

There was one in the back, and we're getting on time, but please.

Yes. I was just going to ask if there's like a rule of thumb or level that you think about with diesel prices or with fuel surcharges where you -- like the phone starts really ringing off the hook. Like if there's like, I don't know, just sort of a disaggregation line where intermodal really cuts towards your product?

I would kind of say when oil is at $80 a barrel, $85 a barrel, you're in a sweet spot, where I think usually the highway prices are a little bit more supportive of getting back on to rail, yet not so high where it's starting to destruct demand for the consumers. When you start with oil getting closer to $100 a barrel, obviously, it's an even better compare for us highway versus rail, but you have to get worried about what's the broader impact on the consumer.

So that's why where we are today, we're in a little bit of a shaky spot with oil where it is. If it stays here for a prolonged period of time, we have to be worried about demand destruction. We like where it is in terms of intermodal conversion. But long term, we have to keep our eyes out. So I kind of say that $80 to $90 a barrel range has kind of been the sweet spot historically.

All right. I think we do have to wrap it up. Mark, Jason, thanks so much. This was great.

Thank you.

Good morning. It's my pleasure to welcome Norfolk Southern to the conference today. Thank you guys for being here. I'm Fitz Middleton. I'm on the BofA specialist sales team. I look at industrials. Given the pending transaction, I'll be sitting in and hosting the Q&A instead of Ken Hoexter this year.

BofA has the privilege of welcoming Norfolk Southern to the conference for the 22nd year out of the 25 years that Ken has hosted the event. Pleased to have Jason Zampi, CFO; Michael Barr, VP, Treasurer and IR, are both here for their second time; and Luke Nichols IR is here for the fourth time. Here we go. We appreciate the partnership and your participation in the conference over the years.

So Jason, let me turn it over to you maybe for an update on some of the key takeaways you want us to learn from today.

Yes. Thanks for having us here. As you mentioned, we've got a long and great history with Bank of America and coming to this conference. So we're pleased to be here again this year. I'd say we've really got a situation here where we're working very well with our customers to help them grow. And we're obviously right in the middle of a very transformative merger to unlock additional value. So it's an exciting time for us as a company.

I think 3 key takeaways, I would say, is first, we're executing on the plan we've laid out. So that's really focused on safety, service and cost discipline. And you saw that play out during the first quarter. We had, I'd say, kind of mixed demand environment in the first quarter. We had some challenges operationally due to weather and some other things. But it's how we performed during those things. And it's -- it really shows our ability to, again, to execute on that plan. So I think very strong execution there, whether it be safety, service and obviously, costs. So happy with that.

I think the second thing, obviously, is the merger and where we stand on that. So we've resubmitted our application. We think we have a materially stronger application with the STB addressed all of the concerns out there. And we're anxious to get them looking through to the merits of this and feel like the point of this all along throughout this application process has been to have a fact-based, data-driven approach, and we feel like we've done that. So we think we're in a really good place with the application.

And then third, I think just from a value creation standpoint, it's kind of what we call our operating flywheel with safety service and again, costs. So we -- you have to have a really good service product and that earns us the ability to grow. You take safety and reliability, and that enhances the trust and confidence that our customers and regulators have with us. And then on top of that, you add in productivity. And that really just generates this kind of self-reinforcing flywheel that we're seeing. So again, executing on the plan, making strong progress on the merger and then that operational flywheel is what really drives kind of long-term value creation.

Great. Maybe if we follow up and talk about the deal, and the recent refiling with the Service Transportation Board of the merger application with UNP. Can you talk about some of the changes versus the first application, particularly some of the CapEx down shifts, maybe decreasing of the revenue synergy target, thoughts on any of the more obvious changes that were in there?

Yes, sure. So obviously, the big change was implementing the 3 key areas that the STB called out. So that was forward-looking market share data, the TRRA ownership, railroad there in St. Louis, as well as some of the merger appendices. So we feel like we've addressed all of those. And another piece, though, is we've now used 100% of traffic data from Class I railroads. So that's kind of above and beyond what normally happens in these things. And when we put in the initial application, we had some sample data in there. Now we have 100% of the traffic data.

So what that resulted in is some changes, as you might imagine in traffic flows, the diversion model shows maybe a little bit more on the intermodal growth side, a little bit less on the carload side. So the combination of that is really what impacted the revenue synergy side. And then on the CapEx side, again from -- when you look at where that traffic is going to be flowing, you see that you have different needs from an infrastructure perspective. And so maybe a little bit less CapEx spending on things like sidings and stuff like that. But all in, even going from that, that sample of data to the 100% data set, it really did not change the overall thesis for the merger, and in fact, just reinforced what we knew to be true.

Great. And then one of the things that you guys kept the same and committed to was the gateway pricing commitments as they were. Can you talk about some of the benefits of the CGP and why it should be viewed as enough to get the merger through?

Sure. So at its core, the committed gateway pricing is really -- it extends the enhanced benefits to local interline lanes, right? So you take BNSF or CSX, and it allows them the ability to offer an end-to-end rate to a customer. And that obviously increases optionality for the customers and the ease of doing business. So that's a great outcome here. What I would say, too, there's a whole host of pricing and rate mechanisms that exist today. This is incremental to that. So this is additive to what currently exists.

And then I think the other benefit from this is it's kind of aligned with the STB themes and policies. It's a practical solution on the front end versus after the fact, try to remedy some potential issues. So we think that those are all -- you put all that together, it's a pretty powerful provision that we have in the merger agreement here. But what I'd say is also the committed gateway pricing is just one aspect of how we view the benefits from this transaction. It's really about providing better service, better route options for our customers, really ease of doing business with this combined coast-to-coast railroad.

So those are what the real values are and being able to unlock this watershed market that we've talked about. And all of those things are really what enhances optionality and competitiveness for our customers.

Same topic. You and Jim Vena have both talked directly about no need for concessions of any major scale, given the commitments that you're making and that this is an end-to-end merger. What do you think the pushback is to that? And why are you guys confident that no major concessions after all the discussions you've had to do?

Yes, sure. I mean I think it's understandable. You see all the -- maybe the pushback and noise from some of our competitors out there, not unexpected even before we filed the application, there was positions people were taking out there. So again, not unexpected. I think what we're really excited about is moving to this next phase where the STB can focus on the merits of the deal. And we can really get into looking at that, again, reviewing the data, the fact-based set that's on the record here and moving past some of the noise that's out there.

But again, from a concession perspective, we think that this deal on its own provides a ton of value, enhances competition is in the public interest. And that's kind of where we came out from a concession perspective.

Great. If we kind of talk about the system and trends that you guys are seeing, I think volumes quarter-to-date are trending up about 2.8%, that kind of trails CSX at [ 4.6% ]. Is this indication of some share loss, but still positive carloads. Is it a good run rate number for the quarter? How would that lead you to adjust above breakeven volume for the year? Any thoughts there?

Yes. So if you think about first quarter, we were down a little bit from a volume perspective, but it was really lumpy, I would say. So January, we started off pretty strong from a volume perspective. February had a lot of winter weather and you saw volume kind of crater during that period and then a pretty significant rebound in March, and we're seeing that saw that really through April here.

So we're kind of in that 140,000 carloads per week range. I think we've been there now 9 or 10 weeks in a row. So really strong performance on the volume side. And again, speaking to kind of the resiliency of the railroad, we're able to handle that. So I think we're in really good shape there. We kind of see that probably continuing for the remainder of the quarter, and we'll see where the rest of the year shakes out.

Great. And you guys have noticed some enhanced competitive environment, given the merger announcement will have an adverse impact on volumes in the short and maybe medium term. Is that quantifiable at this point?

Yes. So we put that right around 1% of our total 2026 revenue. So we started to see that last year. It's primarily within our -- obviously, our domestic intermodal business, but we kind of quantify it in that 1% range. I will say we've seen -- outside of that, we have seen some pretty strong performance in our domestic intermodal franchise that we're really pleased with here and coming out of the first quarter and into April. So international remains weak, but pretty good progress on the domestic side.

Awesome. And then kind of from an economic backdrop, you guys have talked about that improving something like 8 of 9 commodity areas have had green circles or kind of half green. Where do you think the economy is in that backdrop?

Yes. Maybe not surprisingly, that we take a lot of time thinking about the colors of those circles. So -- but I would say where we are right now is probably cautiously optimistic. I think it's still a little bit mixed bag out there. But I think we're starting to feel -- for sure, feeling better than I did a handful of months ago. If you look at a couple of things. I mean, I think from what you're seeing from an energy price perspective, we think there's some opportunities for modal shift, probably not surprising to anybody, we've seen that in prior cycles when fuel prices become elevated. We see those modal shifts, and we're ready to handle that.

I think the second thing is utility coal, has really been an outperformer for us running well ahead of where we expected. Utility coal was up from a tonnage perspective, over 25% in the first quarter and attribute that to the energy demand that exists out there. So I think 2 bright spots for us there. We're looking at all the same economic indicators, as you guys are, I think 2 things for us to watch out for is, one, what's the break point for the consumer. The fuel prices hit a magnitude and a duration of that, that impacts consumer spending. I mean, the consumer has been very resilient. So we'll see how that shakes out, but that's something to watch.

And then our business is obviously highly tied to the housing market. And unfortunately, we don't see a big turnaround there in the near future. But with what's happening with rates, but definitely something we're looking out for them.

Makes sense. And then if we think kind of about spending, so I think you've set adjusted OpEx to be in the range of $8.2 billion to $8.4 billion for the year?

Right.

Could you just walk us through some of the highs and lows within that target? Is it holding employees flat? Do you need to add back with carload growth, kind of how do you think about cost per employee, fuel exposure, any lag benefits? Is kind of what are the puts and takes within that range?

Sure. So if you think about it from a year-over-year perspective, we kind of talked about this at year-end, but the $8.2 billion to $8.4 billion is really informed by a couple of things. One, we've got some pretty significant inflation coming into this year, more in the 4% range, which is higher than maybe you think in the 2% to 3%. But that's wage inflation, health and welfare benefits, insurance premiums, things like that. So that's a significant headwind for us. The other thing we're experiencing on the cost side, again, just year-over-year compares fewer land sales than we had last year.

Fortunately, we've got a lot of productivity initiatives in the hopper. We're targeting another $150 million in productivity savings, this year, and that's on the back of $500 million over the last 2 years. So that's kind of how we got to that $8.2 billion to $8.4 billion. You take those 3 things and then you kind of slide that based on what we think volume is going to be. Now the uncertainty in the kind of wildcard that's presented itself, obviously, is fuel. And we'll see how that shakes out, but very, very significant increase in our fuel price. If you think about kind of our price at the gallon that's -- excuse me, price we pay at the pump, that's up 45% in March, and it was up another 80% in April year-over-year. So very significant increases there.

So that's something we're watching. I think when we get to the end of the second quarter and report earnings, we'll be able to provide a little bit better range and where we think that's going to come out. Sorry, just thinking about some of the other components. So I think from a headcount perspective, we're down about 1% in the first quarter from where we finished 2025. I think that's a pretty good run rate for the rest of the year, kind of staying flat from that point. We're hiring for attrition in some of our key areas and making sure we have a good conductor trainee pipeline, but kind of holding that flat.

And I think the last part of the question there, just cost per employee. We think about that in the $38,000 per quarter range. So that's as puts and takes, first quarter is usually higher. Moving to the second half of the year, you've got wage inflation that takes effect July 1, but we've got some productivity initiatives. So I think that $38,000 is a good range to think about.

Great. And then maybe we think a little bit about the quarterly cadence. I think historically, you guys improved operating ratio about 250 bps from 1Q to 2Q. So you did 68.7% in Q1, kind of what would lead to underperformance or outperformance versus a normal target? And would it be a fuel lag benefit weather in 1Q -- just kind of what are your thoughts on that?

Yes. Yes, sure. So we think about historical sequential OR improvement from first quarter to second quarter, more in the 200 basis point range. And again, it depends what period of time you look at and everything, but kind of a recent history, we're thinking about 200 basis points. And we flagged that we will achieve that or are on track to achieve that going from first quarter to second quarter this year. So you always have weather in first quarter, you always have step-ups in incentive comp and things like that, and this year is no different.

But what I will say is, even with those fuel headwinds that I talked about, we still feel like we can hit that 200 basis point improvement. So that's a pretty big deal, and we're able to do that through the productivity initiatives that we have in place.

Right. And then on those, I think you've delivered $30 million in productivity in Q1 of this year and reiterated the $150 million plus of efficiencies for '26, which is on top of $500 million over the last 2 years. Kind of thoughts on how much of that remaining cost opportunity is structural? How much is volume dependent? How should we think about that?

Yes. I think we're really proud of what we've accomplished over the last 2 years, like you said, over $500 million of productivity savings. But I would tell you, it's really the initiatives that we have in place are really structural versus volume dependent, and you saw that in 2025. So we had flat volume basically in 2025 yet, we still achieved over $200 million that year, and this year is no different. So the $150 million in productivity initiatives that we have in place this year really. And you think about labor productivity, not just T&E, but on the mechanical and engineering side, fuel efficiency and then the work we're doing in purchase services, materials and on the G&A side as well. So really kind of agnostic to the volume profile. Now that volume comes through. We've got capacity to move it should have good incrementals.

And so then as you think about how that productivity compounds and kind of matures with PSR 2.0. How do you think about NS's long-term operating ratio potential maybe on a stand-alone basis and then a combined basis, if you can talk about both of them?

Yes, sure. So I think the PSR journey is never done, right? And it's something that we're continuing to focus on, and I laid out kind of focusing on safety, service and productivity. And those things together will generate growth and cost savings, and that will improve your operating ratio. Now I will say the focus right now is truly on getting the merger across the finish line here, and that's what our investors have clearly signaled that is important to them. So that is our focus.

And I think when you think about the combined entity from an operating ratio perspective, I mean, we've laid out significant revenue synergies from this combined entity. You asked earlier a couple of small tweaks to those estimates, but really strong revenue growth. And that's what this merger is about, it's about growth. And on top of that, there's $1 billion in cost synergies as well as we combine these 2 entities and gain more efficiency. So I think all in, you put that together, it's a pretty powerful for financial benefit but also an operating ratio story as well.

Right. And then if we think about kind of volume and carload growth lately, chemicals have been robust, I think, kind of up single digits. Is that sustainable? Do you need an industrial turnaround? Is there new partnerships kind of -- is this a U.S. versus the rest of the world when it comes to pet-chems? How do you think about those volumes?

Yes. So you're right, Chemicals was a kind of bright spot for us in the first quarter within our merchandise business. We're really seeing that growth in kind of energy-related markets. So sand, frac sand, NGLs, petroleum products, things like that. And those have really picked up since the conflict in Iran have started. So we'll see how that plays out. But I think just as the impacts of those higher energy prices flow through the global economy, those will probably be sustained for us.

I think overall, though, just taking a step back, putting the macro side, what makes growth sustainable is really a strong service product and a reliable service product that we can provide to our customers. And so we're doing -- making good progress there, and we feel like that will allow us to gain share in any macro background. The other thing that I'd point out, just kind of in this merchandise space, when you think about our industrial development pipeline, have a really strong pipeline. But in 2025, you really saw that kind of stagnate from a standpoint of starting projects.

So there are a lot of things in the hopper, but people kind of sitting on the sidelines standpoint of starting projects. In 2026, kind of towards the end of '25 and now into '26, we're seeing a lot of those projects actually start. And so that's a really good sign for us. And something we're pleased about, and those -- that pipeline will provide a lot of volume growth for us moving into the future.

Curious your thoughts on coal. We get asked this question a lot at -- it's kind of up single digits in 1Q. I think trending double digits in 2Q, kind of how do you think about the drivers of this? And how should we -- is it pushing out retirements? Is this growth increasing sustainable? Do you think it should flip to declines later in '26 domestic versus export. And then kind of same on pricing. How do we think about revenue per carload sequentially and through the year?

Yes. So I'd say I think it's easier to kind of break out the components. I think like I talked about earlier from a utility coal perspective, up significantly in the first quarter. We're seeing that continue here into April. And it's really energy demand from whether it's AI or just kind of what's happening from an inventory rebuild perspective. So I expect that to continue on. We are hearing from some of our customers that their plants are staying open longer than planned. And so that's a good sign there.

I think on the export side, it's a little bit more mixed. We saw that kind of in first quarter flat. Flat performance overall year-over-year. So we're kind of watching the export side as well. But I think really good strong progress on the utility side. I will say anyone that's followed us, you've seen pull can be pretty volatile quarter-to-quarter. So I don't want to call it for the full year, but at least for second quarter, things are looking pretty strong.

From an RPU perspective, I'd look at it, we've seen now 4 to 5 quarters in a row of kind of sequential degradation in price. And that's really the utility and export benchmarks. But what I think we're finally seeing is some stability there. So I'm not ready to call kind of a steep inflection point there, but I think we found some stability. And that's a good side for us as well.

Great. And then you mentioned intermodal in the beginning. Can we just talk on that one for a little bit. So there's increased competitive environment, but there's also elevated fuel prices. Kind of are you seeing any of the secular growth opportunities return in intermodal, and kind of how do you think about competition, whether it's some of the stuff going on in Baltimore and I-95 traffic? And kind of maybe some of the Meridian Big B traffic. What do you think about Intermodal?

Yes. So again, I think intermodal is kind of tale of 2 cities, if you will, on the domestic even with those competitive pressures that we talked about, I think the domestic market is really performing well, and we see potential upside from some modal conversion due to higher fuel prices, and we're seeing that. We're hearing that from customers. On the international side, still a depressed market and really, I think, more of a trade tariff kind of impact there. See that probably continuing. But just as a reminder, we kind of started to see that last year in the July -- June to July timeframe. So back half of this year, you'll see some easier comps on the international side.

I think from a competitive standpoint, our approach is, right. We want to provide the best service product that's out there. I also think our advantage, we have a great intermodal franchise. Fantastic routes, really hitting a lot of the key markets. And it's really capitalizing on that. So that's kind of how we think about it from a competitive perspective.

Great. Does anyone in the room have a question? Okay. I'll keep going.

I think last week, you guys did 145,000 carloads. Peak, I think, is 147,000, kind of what's capacity look like? What are you built to handle? How do you think about it?

Yes. I mean we've, in the past, have moved well in excess of that 147,000. I think what's important for us is sustaining a level over time, like I talked about first quarter, it was kind of lumpy from a volume perspective, that's tough to manage through, right? It's easier when it's obviously more stable. So from a capacity perspective and when you think about that in different fronts, whether it's people having conductors and engineers out there, whether it's infrastructure, whether it's locomotives and equipment, I think we're good on all fronts. Like I said, we're continuing to hire in key markets to balance that attrition to make sure we're able to serve growth.

From an infrastructure perspective, we've done a lot of work over the last several years, specifically a lot down in kind of our 3D corridor down in Alabama, we're now reaping the benefits of those things. And from an equipment perspective, we've got -- we still have locomotives and certain freight cars and storage. So we're kind of -- we're poised for that growth. So the capacity is there to move quite a bit more. And again, like I mentioned, that's all comes through its strong incrementals.

Great. Maybe a little bit on pricing. It's probably the biggest theme we get asked about across all of industrials over the last 2 months. Average revenue per carload sequentially kind of considering fuel increases and mix. How should we think about it up sequentially for 2Q and 3Q? Is that an okay framework?

Yes. So again, maybe, let me separate this a little bit. First, on the fuel side, a good chunk of our business, merchandise and coal is on a 2-month lag from a fuel perspective. So the prices that you saw in kind of March and April are what come through in May and June. So those elevated prices. Now intermodal is more real-timish on a 2-week basis. So I think just if you looked at fuel, I think you'll see an uptick there from an RPU perspective.

Now if you strip out fuel and just think about core pricing, maybe, again, splitting this into different components. From a merchandise perspective, we've done really well from a pricing to the service products out there and are getting, I would say, kind of inflation plus type pricing. So really proud of what we've done there on a core price perspective. Intermodal and coal kind of based on more underlying benchmarks, if you will. So intermodal, kind of more tied to the truck market. But what we're seeing there is maybe some uptick there finally after 4 plus years of rate recession. So hopefully, we see that come back a little bit.

And then I mentioned on the coal RPU side, maybe not a quick recovery, but at least maybe past the bottom and now a little bit more stability from a price perspective. So it kind of helps me to think about it with fuel, without fuel and then amongst those 3 categories.

Helpful. And then maybe a little bit on metrics like velocity and dwell. Maybe a little shy versus last year's numbers. Does that indicate anything? Is there a cost story there? How should we look at that?

Yes. I think, again, we talked a little bit about the weather we had in February. We obviously have weather every year. Last year, we talked about we had, I don't know, 17, 18 named storms that hit us, but I think there were more discrete impacts. The storms that hit us in February are really broad-based and impact our entire network. So -- we kind of had that as the first hit, if you will. As we were coming out of that, we actually had a derailment in a pretty key corridor for us in Pennsylvania. And while fortunately, no injuries and the damage related to that was not that significant from a cost perspective, it did kind of delay things on that corridor.

And so trying to come back from the storms with that on the back of that caused some of the degradation that you call out kind of in speed and dwell. So I'm not expecting any significant impact to costs. There'll be things like you'll see maybe some increase over time in some recrew expense that we have, but to get that back on track to where we need it to be, but no like sustained structural increase in costs.

Great. And then if we focus on CapEx maybe for one, you've targeted $1.9 billion. I think it's down 14% year-over-year. Then there's also maybe a new locomotive order and some refurbs, can you talk about those decisions? And is the right spending level as a percentage of revenue, 16%?

Yes. So like you said, we're at $1.9 billion -- around $1.9 billion for this year. A significant chunk of what we do from a CapEx perspective is really focused on the safety and reliability of the network. So like I said, a very large piece. We put in 500 miles of rail last year, 2 million crossties. We're going to do the same this year, right? It's -- we have to do that every year, and it's important for the safety and reliability of the network. So those things don't change. The way we've been able to bring down the capital spend a little bit is through 2 things.

One, like I mentioned earlier, we're able to now kind of reap the benefits from some of the growth projects that we've had in the past. We don't have the need for as many of those this year. And two, when the network running really well and the kind of operations flywheel that I talked about, you've got better asset utilization and higher velocity, you just don't need as many locomotives and freight cars and that type of thing. So that's kind of how we've got to that $1.9 billion envelope.

From a locomotive perspective, I just mentioned not needing as many locomotives. But what we're doing with the DC to AC conversion refurbs that you call them, we are not adding to the fleet. We're just replacing kind of maintaining that same locomotive count and able to get rid of older, less efficient locomotives. So the modernizations that we've done really very fuel-efficient, highly reliable, more attractive effort, and they're less expensive than buying a brand-new locomotive. So really good story for us there on that front. And again, it's about having a more reliable fleet versus adding to the fleet.

Okay. Great. Helpful. We have a couple of minutes left, maybe close it out with more on the pending transaction. Can you just remind us on the process with the STB from here? I think 30 days to decide if the application is complete and then 250 days for hearings comments, environmental reviews, 90 days for ruling that pushes us to mid '27. Is that a right timeline? And any pushback to that?

Yes. I think obviously, the focus right now is getting this application approved through the process. I think from a longer timeline perspective, the STB has been pretty clear about -- they've got rules in place, and they're going to follow those rules. We saw that very clearly with the first application that we put in and hitting the deadlines that they laid out there. So this application has gone in. They offered people to respond to the application that's happened. And now the combined NS UP response will go back in today to those comments. And hopefully, by the end of the month, we'll know here one way or the other on the acceptance of the application.

I think the good thing is when the application is accepted, what we'll get is a definitive timeline. Right. again, that the STB has kind of laid out that they will commit to follow. And I think that's important for a lot of different stakeholders, most importantly, our employees to kind of know kind of what to expect over the next half. So I think kind of that first half of the year is a good target, but we'll see kind of when we get this final timeline, how it exactly looks.

Great. And then maybe lastly, how should we think about any of some of the public pushback or comments that are out there whether it's from peers or labor kind of -- how would you guide us to think about that?

Yes. I think on the labor front, you see probably 2 camps there. We've got some folks that are maybe not yet supporting the merger and other unions that have that see the value and see what we're doing. So different schools of thoughts there. I think you've got some coalitions that have come together to speak out against this again, not unexpected. And -- and it's all of these voices out there. We obviously listen to all these things and take them seriously.

But at the end of the day, what's important is for the STB to look at the merger application. And I think when they see the fact-based, data-driven approach that we have out on the record and the benefits that this brings, it's clear that this is really -- it's good for customers and good for the country. So we feel pretty confident about the benefits of this.

Great. Appreciate it. Anyone in the room before we wrap up? Okay. Great.

Yes. Thanks very much.

Thank you very much. I appreciate you guys being here.

Thank you.

Good morning, ladies and gentlemen, and welcome to the Norfolk Southern Corporation First Quarter 2026 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, April 24, 2026. And I would like to turn the conference over to Luke Nichols. Please go ahead, sir.

Good morning, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important.

Our presentation slides are available at norfolksouthern.com in the Investors section, along with our reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio.

Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis.

Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George.

Good morning, and thanks for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer.

Before we get into details, I wanted to start by recognizing our Thoroughbred team. Working together, we successfully navigated another challenging winter with weather events that affected most of our territory, putting real pressure on the network and our volumes in the month of February. But as conditions normalized and our network recovered, we were able to capture the available volume in March and exited the quarter with solid momentum, all while staying focused on what matters most: operating the railroad safely.

Our safety performance continues to excel, which remains our most important work. We're seeing the benefits of the investments we've made in technology, training and standard processes from digital inspection tools to more rigorous operating standards. These efforts are helping us detect and address potential issues earlier and keep our employees, customers and communities we serve safe.

Our FRA reportable accident rate is down yet again, thanks to the systems we have and our leadership. I'm proud of how our people stay disciplined and committed through all the weather challenges and other distractions.

On costs, we remained disciplined. Total adjusted expenses were up just 1% year-over-year despite inflationary pressures, storm costs and sharply higher fuel prices. We earn new business, expanded key relationships and saw customer confidence grow across multiple sectors, reflecting improved execution and trust in our capabilities. We're seeing strength and encouraging results across multiple parts of the business, reflecting focused investments and improved coordination across our teams. Ed will walk through some of our wins and the underlying volume drivers in more detail.

Lastly, stepping back to the broader environment, the macro remains a mix of puts and takes. Customers continue to manage dynamic and shifting supply chains. But our message is simple. Norfolk Southern is well positioned to grow alongside of them. The strength of our network combined with the flexibility we built into our cost structure gives us confidence to navigate whatever the market brings. And with that, I'll turn it over to John to get into the operational details. John?

Good morning, everyone, and thanks, Mark. Throughout 2025, our Norfolk Southern team was focused on growing our team's capabilities, skills and speak up willingness, creating the environment to deeply embed our safety and service maturity and capabilities. Now for the full quarter behind us in 2026, we are realizing measurable gains from those successive efforts. We are advancing and layering progressive PSR 2.0 structural changes to build more resilience and efficiencies across the railway, develop generational railway leaders and provide our customers with the best possible service plan. As Mark noted, extreme and network-wide winter weather in the first quarter tested the network. I'm very proud of the entire enterprise in the way we anticipated, prepared and responded to deliver for our customers.

The extraordinary commitment of more than 19,000 rail orders across our franchise was clear in the service and volume execution coming out of the system-wide storms. Thank you to all my fellow rail orders.

The entire team delivered both daily and storm backlog demand and drove post-pandemic daily GTM volume records, made possible by our operations and commercial teams.

Turning to Slide 5. At Norfolk Southern, Safety is the core value to which all of our operating decisions are made. Our continued investment in safety is producing results while building a stronger, more durable safety culture. In the quarter, our FRA personal injury ratio was 1.10. This is consistent with full year 2025 performance. Our FRA accident ratio was 1.43. This reflects a 37% improvement year-over-year in the first quarter. Our FRA mainline accident ratio was 0.26. For the second consecutive year, Norfolk Southern continues to lead the way for Class I railroads in mainline incident reliability. This progress is not isolated, it is also mirrored in a reduction of non-FRA reportable accidents. These improvements reflect the strategic impact of our intentional coordination of field-level technology coupled with execution across back office, work scope process refinement and field conversion engagement. Combined, we are creating reliable network value by engineering out risk from operations wherever our teams work.

This holistic approach to safety improvement is now embedded in how we plan, execute and manage the railway every day. While we are all proud and encouraged by our safety improvements, we are driven by a relentless drive for continuous improvement. Our enterprise is committed to putting in the work. We know there's more work to do. We are strengthening our stop work authority, reinforcing a speak-up culture and relentlessly addressing root cause analysis to prevent block crossing and other incidents.

Turning to Slide 6. Throughout the first quarter, the network demonstrated resilience in the variable demand environment we faced. Our focus remains on improving our train speed while maintaining balanced discipline around energy management and service levels, a core operational priority.

While shipments were modestly lower year-over-year, we moved 1.1% more gross ton miles, reflecting stronger train productivity and better asset utilization across the network. Terminals well improved year-over-year, coupled with continuous focus on execution of the plan. This supports gains in car miles per day. We have been intentional about protecting service and operating the network at a lower cost structure. That discipline is reflected in an 8.6% fewer recrews, improved locomotive reliability and continued reductions in unscheduled train stops. Improved crew scheduling and greater crew availability are supporting stronger crew productivity across the network and the better aligned, qualified T&E crew base, which is down about 6% year-over-year. And we continue to strategically recruit and renew our workforce in markets where we anticipate growth. Reliability drives improved productivity in cruise, locomotive and fuel efficiency. Taken together, these results demonstrate we are controlling what we can control, managing costs, improving efficiencies and positioning the network to respond to the evolving market conditions.

Turning to Slide 7. At the core of PSR 2.0 is a self-reinforcing operating system, a flywheel where disciplined execution compounds over time. At Norfolk Southern, we know when we run the plan, reduce recrews and improve network velocity, we create stability in the operation. Stability matters to our people and to our customers. It allows us to deliver our service and utilize assets more effectively, improve locomotive and field productivity and operate with better energy efficiencies.

Operational gains have manifested into the continued evolution of our service plan and its execution. They feed directly back into better schedules, better planning and more consistent execution. We now have a connected system where every improvement strengthens the next. That compounding effect is how we intentionally build a more resilient railroad steadily over time.

Our war rooms continue to translate this discipline into measurable results. The mechanical room has improved detection quality in our wheel integrity systems while delivering confirmed defect identification that directly improve safety and reliability. This is a clear example of technology process and field execution working together at scale. At the same time, our need for speed war room is embedding advanced analytics directly into daily operating decision-making. By pairing data science with frontline execution, we are improving plan quality, accelerating decisions and strengthening the performance across our network.

Disciplined execution across the organization is delivering results. In the first quarter, we achieved a fuel efficiency record, strengthening our competitive position in a high fuel price environment while protecting margins. More importantly, it reflects the repeatability of this operating system. Taken together, our PSR 2.0 transformation and operating systems position us to continue to outperform our original cost reduction commitments and deliver sustained progress across safety, service and financial performance.

With that, I'll turn it to you, Ed.

Thanks a lot, John, and good morning, everybody. Let's move to Slide 9. We closed out the first quarter with significant volume momentum, and this is offsetting a volatile February where severe winter weather impacted our customer car loadings for several weeks. Overall, volume finished down 1%, primarily due to challenging intermodal market conditions as well as merger-related losses. However, revenue ended the quarter flat year-over-year and RPU was up 2%, with solid core merchandise pricing and some favorable high-level mix, which were somewhat overshadowed by some puts and takes within the individual business groups, particularly within coal.

Within merchandise, volume and revenue increased 1% from a year ago, and this was driven by continued share gains in our chemicals and our automotive markets. RPU less fuel was flat year-over-year within the segment as strong core pricing was offset by mix interactions due to sustained growth of lower-rated commodities within our chemicals franchise that we've talked about for a couple of quarters now.

In our intermodal business, volumes decreased 4%, reflecting difficult comparisons related to tariff front-running in 2025 as well as impacts from the winter storms in the quarter and ongoing merger-related losses from prior quarters. Overall, intermodal revenue declined 1% and revenue less fuel decreased 2% due to these volume impacts while improved pricing and positive mix within the segment drove ARPU higher by 3% and RPU less fuel higher by 2%.

Looking at coal, volume increased substantially as higher electricity demand, stockpile replenishment and a supportive regulatory environment powered our utility segment. Now this strength was partially offset by reduced volume in domestic met coal. And so while total coal volume increased 9%, revenue declined 2% as mix headwinds from utility growth and continued overhang of export pricing drove ARPU down by 9%.

Let's go to Slide 10. Here, we highlight several dynamic factors influencing our market outlook, including the conflict in Iran, which has obviously driven energy prices sharply upward in the near term. Our fuel surcharge revenue will be the most immediate impact as an offset to fuel expense. And additionally, we're aggressively pursuing volume and revenue opportunities in a variety of energy-related markets while also monitoring potential impacts to overall consumer demand.

Looking at merchandise, we have a subdued, but positive outlook for vehicle production due to near-term economic uncertainty on the part of consumers. Manufacturing activity remains mixed with output forecasted to expand modestly amid the shifting economic landscape. Energy prices and global supply chains will be significant wildcards in the months ahead due to the conflict in Iran. And depending on the duration of supply chain disruptions, we could see near-term opportunities in markets like natural gas liquids, export plastics and potentially even crude oil.

Looking to our intermodal markets. International volumes are going to remain soft due to continued tariff volatility and trade pressures. On the other hand, retailers have been maintaining lean inventories in response to this macro uncertainty for which a visual restocking offers some support from baseline freight activity. The truck market has turned relatively positive with dry van rates trending upward in the first quarter of '26 and capacity continues to rightsize while demand is firming. Taken together, we have an optimistic view of intermodal, although we're tempering that optimism somewhat due to increased competitor activity following the merger announcement.

Let's turn to coal, where a combination of global factors is supporting pricing across both metallurgical and thermal seaborne markets. Now most notably, the conflict in Iran is impacting global LNG supply chains, opening the global market to consider alternatives such as U.S. sourced thermal coal. The Utility outlook remains positive as growing domestic electricity demand and inventory restocking should continue to support Norfolk Southern coal volumes.

Okay. Let's move to Slide 11, where I'm excited to introduce an innovative new short line and transload partnership, which is subject to standard regulatory approval with Jaguar Transport Holdings. Unlike traditional short-line transactions across the industry, which have been focused on finding efficiencies and leveraging lower density lines, our new partnership focuses on growth in a high-density switching corridor located in Doraville, Georgia. Our new partnership, which includes operation of both an industrial short line and our transload terminal, will deliver exceptional local service and responsive capacity to customers in the growing Metro Atlanta market.

Now here's what I want everyone to take away. This new partnership is just the latest example of our larger growth strategy in action. We're focused on building and executing innovative deal structures that deliver new capabilities and exceptional value for our customers. Look for more innovative solutions and new capabilities in the months ahead as we continue to execute on our strategy for growth.

With that, I'm going to turn it over to Jason Zampi to review our financial results.

Thanks, Ed. I'll start with a reconciliation of our GAAP results to the adjusted numbers that I'll speak to today on Slide 13. We incurred $52 million in merger-related expenses during the quarter, while total costs related to the Eastern Ohio incident were $10 million. Adjusting for these items, the operating ratio for the quarter was 68.7% and EPS was $2.65 per share.

Moving to Slide 14, you'll find the comparison of our adjusted results versus last year. From a year-over-year perspective, the operating ratio increased 80 basis points. Inflation and fuel price headwinds drove an approximate 280-basis-point increase. However, we were able to mitigate a large part of that increase through productivity and higher revenue per unit.

Taking a closer look at our quarter on Slide 15, overall costs were up 1% as we were able to offset an estimated 5% headwind from inflationary pressures. Specifically, fuel price alone was $31 million higher than last year and over $40 million higher than our expectations, a phenomenon that really accelerated in the later part of March and has continued here into the second quarter.

We have continued to deliver on our productivity initiatives with fuel efficiency and labor productivity delivering over $30 million in savings. Partially offsetting those gains we had some volumetric increases that drove purchase services and rents higher in the quarter.

So to summarize our financial results on Slide 16, while first quarter costs were only up 1% and in line with our cost guidance for 2026, the lack of revenue growth combined to drive a modest EPS reduction. While we overcame typical operating ratio seasonality in Q1, we are constantly striving to improve. We continue to refine our focus to unearth other opportunities, and you heard John talk about some of those initiatives as we work towards the $150-plus million of efficiencies planned for this year on top of the over $500 million in productivity we generated over the last 2 years.

Fuel is obviously going to be a wildcard for the remainder of the year, and we anticipate it to be a headwind in the second quarter. But despite that, we expect to achieve typical margin seasonality from 1Q to 2Q.

We continue to move forward. John and team are continuing to drive productivity while maintaining a safe railroad with consistent and predictable service levels and Ed and his team are pursuing high-quality growth opportunities across the entire book. Overall, we're executing to the plan we laid out, focusing on safety and service within a reasonable cost outlook while progressing through our merger application with UP.

And with that, I'll turn it over to Mark to wrap it up.

Okay. Thank you, Jason. You all just heard that we are laser-focused on 3 fundamentals: First, safety. We continue to make progress through better tools, better processes and a culture that treats safety as a value, not a metric. Second is service. Our customers are seeing our resilience coming out of the winter weather and getting back to consistent, reliable performance even as volumes increase. And third, costs. We're maintaining tight control, driving productivity and aligning our expense base with demand as we fight to win volume. Overall, we see a promising story emerging where we can leverage any reasonable volume expansion the market presents with our commitment to control costs, giving us confidence in our ability to drive attractive and profitable growth.

Now turning to guidance. Last quarter, we provided an adjusted operating cost envelope of $8.2 billion to $8.4 billion for 2026, and I'm proud of how the NS team has handled all the challenges in Q1 to remain on track for our guide, and I remain confident in our cost control playbook. Now while the underlying cost structure remains intact, fuel prices are obviously putting upward pressure on the cost outlook.

As you heard from Jason, the price surge in March alone resulted in expenses that were $40 million higher than our expectations. While we are sensitive to the impact of conflict and inflating energy markets are having on people's lives, today, it is unclear on how long fuel prices will remain inflated and by how much over the remainder of the year. In light of this, we are maintaining our current cost guidance while acknowledging the near-term volatility and uncertainty on one of our key cost inputs. Our team has worked hard to be transparent with all of you. We will continue to monitor the situation as we progress through Q2 and gain more confidence on where fuel will settle, and we will update you accordingly.

And finally, just as a brief update on the merger, we remain on track to refile the application by the end of the month. This revised application will be even stronger in articulating the benefits of creating the nation's first single-line transcontinental railroad. And with that, let's open the call to questions.

[Operator Instructions] First, we will hear from Chris Wetherbee at Wells Fargo.

Maybe 1 point of clarification and then the question. I guess, Jason, you mentioned normal OR seasonality 1Q to 2Q. Just kind of curious what you see that normal seasonality as being just to clarify. And then Ed, you talked a little bit about competitive activity, I think, particularly in Intermodal as it relates to the merger. I guess as you think about that, have we seen most of that happen already? Is that something that maybe still has yet to play out? And is it more than intermodal? Or is it really more sort of contained within Intermodal?

Chris, it's Jason. Let me start with the OR question. Just a reminder, first about some of the headwinds that we've got in our plan. We've talked about inflation and some of those year-over-year pressures in that 4% range. We've got lower land sales. Specifically, you may recall, we had a $35 million land sale in the second quarter last year that we don't expect this year. We've got to absorb those revenue losses from the competitive merger responses. And now obviously, we have to deal with these fuel headwinds that are going to continue into the second quarter. So that said, you put all those together, all those headwinds, we're really still expecting to be in that normal kind of sequential OR improvement. We think about that at about 200 basis points, and that's really due to all the productivity initiatives that we've got going on.

And an uptick in revenue from first quarter to second quarter...

And this is Ed. To your second question there. Yes, it's really, we think primarily an intermodal story. And it's playing out the way that we've anticipated so far. And frankly, we're doing everything we can to make sure that we're earning everything we can from both the road and from other modes.

Next question will be from Scott Group at Wolfe Research.

Ed, I have a question. intermodal pricing is arguably somewhat cyclical tied to truck pricing. Coal pricing is volatile. It feels like merchandise pricing has been like the constant, and I see merchandise RPU ex fuel flat and so maybe you'll say it's mix, but just some thoughts I would have thought or hoped we'd see some better merchandise pricing?

And then Mark, just -- you mentioned quickly the merger, just applications coming next week, you've had months now to gather feedback. Anything that gives you more confidence in approval? Any feedback that gives you concern? Just any high-level thoughts.

Ed, why don't you go ahead.

Sure. I'll probably disappoint you because I'm going to say it's mix. First of all, we've had a good quarter and a very strong track record on the core price here. RPU, of course, is not price. When we see our merchandise book, frankly, I think we're close to a record this quarter for RPU less fuel, it's really about growth in some of the lower-rated chemicals commodities, stuff like frac sand and NGLs, where we've done a really good job of earning new business there. And at the same time, we continue to take price very aggressively where we can. And I would say that for the most part, I'm really satisfied with where we've landed on core price and adding incremental revenue through some of those low rated commodities has been a good thing for us.

Yes. Thanks, Ed. And look, with regard to the merger, I think being out on the road and seeing how this has played out these past handful of months since we submitted the initial application, I'm feeling a lot better as we talk to customers and understand the concerns, as customers are listening to the opposition and some of the steer tactics, and we get a chance to clarify with facts, I believe we have a really good story. The new application is going to confirm what we said in the original application on the logic of doing this deal and the benefits that single-line transcontinental railroad will bring to the country and to our shippers. In fact, we're going to have a much stronger set of data that actually makes the case even stronger. So we feel pretty good about it and I think, right now, it's just about trying to get on the clock and by getting that application in on the 30th, the clock will start running. So I feel better, Scott, than I did even 5 months ago when I felt really good.

Next question will be from Brian Ossenbeck at JPMorgan.

Maybe just to clarify with Jason, can you give us the fuel and weather-related costs into the quarter? I don't think we heard the specific call out here directly. And just Ed, maybe going back to the '26 market outlook, much of the different I guess, segments here moved a bit higher vehicle manufacturing warehouse in particular, truck makes sense, but maybe you can give a little bit more context as to what you're seeing and feeling in there that gives you the confidence to move those up a notch on your rating scale and maybe how that's expected to play out throughout the rest of the year?

Brian, first part of your question. So thinking about fuel specifically, versus prior year was up $31 million just from price, but the really big impact that we're talking about is kind of that difference compared to what we expected. And just in the month of March alone, that was up over $40 million. So the price we paid per gallon in March was up 45% over last year, and we really see that same phenomenon kind of happening again here in April. So kind of splitting that up between prior year and then what our expectation was. I'd tell you on storm costs. And John, you can give a little color on this, but that was about million to $15 million in the quarter of costs. And John, you give a little background on that.

Yes. Let's just go to fuel for a second because it's not just the price story, it's the consumption story, and we set a consumption record that is compounding its value in the fuel efficiency cost levers that we've been pulling through our precision fuel operations all of last year and this year. With the help of finance, operations, IT, everybody, we've got an integrated fuel management system that is giving us value in both how we purchase it, how we distribute it and of course, how we consume it in our -- through our energy management on board. So those are some things that are in a high-cost environment give us those double coupon values that we can enjoy.

And as far as the storms are concerned, they were very concentrated. Unfortunately, they're across the whole Eastern Seaboard from north to south. And most of that, we're able to work through very quickly, but in a concentrated way. So the money you see there impacted us and were the nice thing for our services, we're able to rebound and push through for the balance of the quarter.

And this is Ed. You were asking about where we have optimism or where the markets are that we think have opportunities. I'll kind of just go around the horn and repeat someone has said on the prepared remarks and try to get in a little bit more detail. Start with intermodal, clearly, there's a reason to be optimistic about domestic Intermodal, domestic non-premium. We've seen growth there despite some of those competitive headwinds that we talked about. And I think there's more opportunity to come. When you think about higher fuel prices and what that does to our competitors on the road, it makes Intermodal more compelling naturally. And with the good service product that we're able to offer, I think we have a compelling case to make there.

International side, I think there's a lot of trade uncertainty still out there. And frankly, when you're comping against the pull forward that happened last year, that's going to be challenged. If I go to coal, we continue to be constructive on the utility side of the business. I think restocking will continue. And I think electricity demand over the medium term at least is going to inflect upward. And so we feel good about that piece. Met side -- or excuse me, on the export side, I think the U.S. coals are finding new opportunities overseas because of all the all the disruption from the conflict as well as commodity price constraints -- well, commodity prices and constraints on sourcing from some of those things. So we'll see how that plays out.

On the industrial side, I think I mentioned in the prepared remarks that we're exploring actively opportunities that are showing up in places like NGLs, export plastics as well as possibly even some of the petroleum products that we'll want to move in current environment. And generally, we feel pretty good about manufacturing. There are some real signs of life out there, whether you're looking at the economic factors or even listening to various stories. We have over more -- we have, gosh, 400 or so projects in our industrial development pipeline. We're actually starting to see that pipeline begin to move. Last year, it was really held pretty tight, but we've had 12 projects come online in Q1 here and that will be worth about 70,000 loads when they're at full rand. And for the full year, we'd like to see a few dozen more of those come across the finish line, and we think we can.

Next question will be from Jason Seidl at TD Cowen.

Wanted to talk a little bit on the Intermodal side. I mean, obviously, there's some competitive dynamics going on impacting the business. But one of the largest trucking companies indicated that they're already having inquiries from clients about peak season planning. I wanted to know where you stood with your discussions with customers on that? And then maybe a little bit on the new short line partnership initiative. Is this a one-off? Or do you see, if this gets approved, replicating this in other regions? And if so, where?

I appreciate the questions. They are good ones. Again, I'm bullish on domestic non-premium Intermodal for the rest of the year, at least for the foreseeable future from a combination of factors, first one being, we've seen the supply of over-the-road drivers be constrained. I think that's going to continue to happen. I think I said it on an earlier call that we really need to see demand rather than supply be the thing that pushes this forward. And I think we're starting to see that. You look at the price of on-highway diesel and what trucks are having to pay for that. Intermodal is going to be a compelling value proposition for a lot of customers, but it's only compelling we have a good service product, and that's what John and I are really focused on how do we deliver that value for customers. So I feel pretty good about that piece.

In terms of our new partnership with Jaguar, I meant what I said. It's an innovative deal that I think is going to deliver exceptional value for customers. And if we can make it work, and I am very confident that we can, we're going to look to replicate this sort of deal elsewhere.

Next question will be from Jonathan Chappell at Evercore ISI.

John, I wanted to ask you about 2 specific cost items and how we think about them going from here. You mentioned the fuel consumption down 6% year-over-year, but also down sequentially. I can't find another time where your fuel consumption was down 4Q to 1Q, especially given weather. So is that the new kind of base we should think about going forward, maybe not 6% year-over-year improvement, but continue to march lower from here? And then also on headcount, you're in this tight little range all year last year, about 19.3 to 19.4, stepped down about 300 in 1Q. What happened? Why is headcount down? And again, is this going to be a tight range where we should be about down 300 every quarter for the rest of the year?

Thanks for your questions. And on our fuel productivity, well, I'd like to take all the credit for such a sequential improvement, it is improving sequentially, but there are some accounting adjustments within that fuel number that give us a small benefit, but sequentially, we're improving, and that's really driven by treating fuel as a major cost lever and precision fueling, how we're managing that and how we're driving consumption, improving locomotive reliability and fuel efficiencies. As we said before, it's a journey, and the program will stretch over several years and it involves integrating more tech process refinement, both in the field and here at [ 650 ], and it's integral in our strategy. So well, it's never going to be a straight line and the volatility in pricing is going to have its own aspect. Our desire is to continue to march towards the most progressive fuel efficiencies we can get.

So that's aligned with our locomotive strategies. It's aligned with our conversions from DC to AC and even found within how we restructure our zero-based plan model and continue to have a relevant plan rather than a historic plan.

And as far as labor productivity is concerned, we're benefiting from fewer recrews. We've restructured our starts last year, our zero-based plan affected approximately 200 starts -- train starts and train revisions. This year, we have another pipeline of similar scale, and we'll continue to create predictable schedules. And that helps because as we restructure starts, well, it's being driven by volume and workload and held in place by zero-based plan, it's really focused on lowering held away, better using crew accuracy, lineups for crew rest and crew cycles and those was manifest into a more productive workforce. And our qualified count is really about not chasing the curve, it's about focus on retention, the accuracy of our new hire pipeline and our training and onboarding to better position us to absorb growth with the best existing resources.

So our pipeline is always active. We're recruiting the best people we can find, being very selective and giving them the benefit of a very robust and precise training program. Lots of work to do there, but we're exercising labor productivity and workload so that we can maintain our service structure and give our customers the best experience we can.

I guess I would just add, we're really not just hiring to some aggregate number. We've got some 90 different crew bases across our network where people have to be qualified to operate in those specific districts. So we have to monitor the demographics of each of those crew bases. When we expect to see retirements come and get ahead of those curves because it takes about 6 months to hire somebody, train somebody, qualify them and expecting some attrition to happen during that process as well, so we got to do that for 90 different crew bases. Now some -- we've got cushion, others were in deficit because they're in locations where employment is full and a very difficult place to hire. So there's a lot of work that goes in to make sure that what productivities we're going to be driving across the network so that allows us to absorb attrition versus when will volume come. So it's a real delicate balance to determine the level of hiring, for which location 6 months in the future in a very uncertain demand environment. And I think right now, we're doing well, but I will tell you, it's probably the the single biggest debate we have internally is the level of hiring we need to do based on the market outlook.

Next question is from David Vernon of Bernstein.

Sorry, problem with mute. So I guess, Ed, as you think about the growth prospects for export thermal if that were to kick in, can you kind of help us understand kind of what the range of possible outcomes is there from a volume and also from a yield perspective, would that be additive to ARPU -- negative to ARPU? How do we think about the potential for a pickup in export coal affecting the revenue outlook for you guys?

Yes. Export thermal would be helpful to our ARPU mix. And the first quarter got hurt by winter weather. It was just -- it was hard to get out of the ground, hard to move it and hard to dump it. But I think we're going to see that rebound, particularly if the conflict in the Middle East continues there's going to be more markets open up to U.S. coal. So yes, I'm optimistic about it, and it will be helpful.

Next question will be from Richa Harnain at Deutsche Bank.

I wanted to talk about costs, 1% cost increases by 5% inflation. Maybe you can talk about initiatives that you're focused on to keep that cost trajectory going. You gave us a lot on headcount and stuff and fuel efficiency. But maybe talk about some of the other buckets where you're seeing the most success what hasn't been done that you think there's more potential for? That's on the cost side. And then, Ed, I would love to hear, I think you said you feel really good about manufacturing picking up, and you've heard some anecdotes from your customers. I know you talked about the success you're winning on projects and things, but I'd love to hear maybe more broadly what your sense on the macro backdrop and what hand that's delivering to you?

Yes, I'll start on the cost side. You point out the I think, pretty good cost control we had here in the first quarter, up 1% with 5% headwinds from inflation and fuel. And it's really driven by a couple of things. And we have a really good track record that we've shown over the last 2 years of getting about $500 million in productivity, and we've got a lot of projects and initiatives in the hopper to hit that $150 million plus.

For the first quarter specifically, and then I'll turn it over to John to kind of talk about what we're working on the remainder of the year. just from fuel efficiency alone, we last year improved 5% the year before that 3%, now first quarter, we're hitting an all-time first quarter record. So really strong performance there. And that -- we will continue down that path. And that labor productivity continues to be one of our biggest components where we really benefited quite a bit over the last 2 years. And as we've talked about in the past, not just T&E productivity, but really labor productivity across the board.

Yes. Jason, you hit on a disciplined approach to this. and we're committed to it. We've adjusted our budgets accordingly. But it's across all streams. Productivity, obviously, we started in T&E, our zero-based planning through 2025 and version 3 that we're undertaking in 2026 is giving us a benefit on crew starts with a focus on continuing to create our own capacity through weight and train length that give us the opportunity to really make best use of our infrastructure. And from the T&E, there are incidental costs that come out of that with running a more resilient railway, and leveraging of our portals with fewer train starts, more mechanical resilience, better locomotive capability. So all of those [indiscernible] flow through to purchase services and others. Big focus on our next generation of purchase service and enterprise resource management and the discipline around those major purchases and fuel is going to continue to be a big driver of that. But I'm really proud of what the team is doing on safety, significantly lower incidents and oxidants even above and below the FRA reporting threshold. That's giving us the ability to really drive the plan, have accountability where our cars are, have more accuracy on when our trains arrive and depart. That gets us lower equipment rents that gets us into better locomotive turns, better locomotive utilization and there's significant value in those things.

So it is really working the fundamentals with projects that are coming online and really driving big benefits. It's small wins and big ones put together. They are going to really create the flywheel that we've got that's creating the improvement.

[Operator Instructions] Next will be Jordan Alliger at Goldman Sachs. Jordan.

Just wanted to come back to sort of -- I know you've talked a lot about the intermodal service, that's a key focal point. And I was looking at your network update slide, and it looks like the intermodal service composite has been sort of like 85%, which is off from the high of low 90s. So I guess, is that weather related? Is it temporary? How do you address that? And in your view, do you need to be above 90% to start getting market share back?

We'll let talk about market share. But if you've heard me speak on these calls, I'm never pleased about any particular metric. But I am pleased that sequentially, we're pacing slightly ahead of where we were last year at this time. And it's not just the average, it's really getting down to the lane, getting down into the customer, the important commitments that we've made to our customers and their product view and their sorting view and the end-to-end capability that we're building in them. So I would love to be a higher number. I'm striving to be a higher number. But sequentially, I'm very pleased that we're seeing that improvement. And my job is to give Ed every opportunity to walk into any customer with good service in his back pocket to negotiate is our market share.

Thanks, John. And look, I think we will have a better number, and I know you're working on it. But look, you nailed it, John, I mean, you said that we've focused at the lane level. There are some lanes that have a lot of potential, some lanes that have some potential. And where we have a lot of potential and we have very good data on that, we're very focused on delivering an exceptional service product. And that's what John and I talk about every single day. That doesn't necessarily manifest itself in an average, but I can tell you right now that we are laser-focused on those lanes and those opportunities where we have a lot of potential to take traffic off the highway and deliver a very good service product for them. So thank you.

Tom Wadewitz at UBS.

So Mark, I want to refer back to the fourth quarter call. I think you were kind of maybe somewhat fresh off the share shift in Intermodal. And you had some fairly aggressive comments, I think, on just competing in the market and you're going to compete hard in the market. What do you think the competitive dynamic is like among rails in the East? It seems like there are kind of puts and takes, maybe you've got a little growth in chemicals, autos, maybe a little late rail share, I'm not sure, and then you got -- they've got some intermodal. But how do you think about that? Is it pretty stable?

And then I think on the -- I guess, on the international and domestic, is there a share shift in international? Or that's just like kind of completely like-for-like customer? And I think, Ed, you talked about the just the weakness in international being maybe just demand-driven, but not share shift. So a couple of thoughts on competitive dynamic and then just shared international intermodal.

Sure, Tom. Thanks. Good question. And look, obviously, following the merger, you saw a flurry of new alliances taking place with our Eastern peer and Western peer and some of the Canadian railroads and that has obviously had some level of impact on us. I mean it's enhanced competition, frankly, just from the mere announcement of this merger. So we talked about some of the losses that we've had and that we're going to continue to fight like heck to retain our share and fight in other areas to gain to offset some of that. And that's what the team has been doing. They've been doing a great job, I think, competing. Look, I think you have to step back. This North American rail network is running pretty damn well. All the railroads are operating well and they're all offering very good competitive products, which is really great because we are an integrated supply chain and we cheer on the other railroads to have good service because we all want to be -- we all interchange with each other. Half of our volume interchanges with another railroad. So we don't want anybody to be in a bad service situation. So it's not just us, we want everybody to be good, and they are all good right now.

But when it comes to the competitive offering, I think the product that John and the operations team has put out there has been really good. It's been really resilient. And I think we're doing a good job on the commercial side as well being more responsive and working to solve problems with our customers. So I feel really good about our competitive position right now, I do, in pretty much all the areas. I think the challenge we have on the international side, there's a lot of uncertainty going back to tariffs of last year. There has -- there's been probably some inventory depletion that's taken place and it hasn't seemed to really fully started to restock yet. So international has been relatively weak. Not sure when that's going to turn around. Domestic on the other hand, for other dynamics, I think given the cost profile with what fuel is doing to truckers, we feel pretty good about being able to taking some share off the highway. But Ed, why don't you talk a little bit more?

Sure. I think you kind of nailed it. We believe that the product we're delivering is very competitive in the marketplace. And you're right, Mark. We want all of our rail competitors to be very strong because oftentimes it's hard to get customers to discriminate between ourselves and other railroads. We're all just one big railroad. And that's true in many cases. So we want strong rail competition. We're really focused on the highway. The competitive landscape continues to be very competitive. And frankly, higher fuel prices are probably helping us deliver additional value for our customers across the board, particularly on the domestic Intermodal side. And we've seen a little bit of share shift, as you alluded to. Some of it's a competitive response, some of it's just more book diversification. And we continue to work on how we can improve our position. I'm really proud of the team and what they've been able to do.

Next question will be from Walter Spracklin of RBC Capital Markets.

My question is for Ed, taking a little more high level on the freight recession. We're hearing a lot of commentary from your counterparts in trucking that is outright saying the recession -- this recession is coming to an end. But your peers in railroads seem to be a little bit more conservative in terms of making that call. Is this just a supply-side thing where the new rigs have driven better pricing for trucks, and that's what's causing that more positive view? Or I know the trucks have talked a little bit about higher demand in some of the industrial verticals. Just curious if you're seeing any green shoots on the demand side outside of truck pricing or just your own pricing that is suggesting that the freight recession might be finally coming to a bit of an end here?

Really good question. And I think I'm probably talking to the same folks you are when it comes to trucks on the supply side. There's a few uncertainties out there in a few parts of the equation that haven't been solved yet. The first one being what's going on with housing and interest rates and inflation. And those are 3 big factors that I think really need to resolve themselves before we can declare anything over, so to speak. At the same time, we see the IPI come up. We've seen manufacturing for, I think, 3 straight months now, be above water. We see some strength in the auto industry, both in terms of demand as well as supply. So there are some green shoots, and we are cautiously optimistic about certain segments. But I remain vigilant on those 3 factors that I think really need to come around before we could say we're out of the woods.

Yes. I think to call an end of the freight recession may be a bit premature. But I think for us to be able to start taking share from highway, fuel prices are going to help that. So that's a little bit of the optimism you hear. And then some of the green shoots we see in industrial production, which usually has a 6-month lead time, it gives us a little bit of optimism that maybe there's something they're brewing. And I think, Ed, you would say that when it comes to manufacturing, we're not necessarily seeing it yet except for some of the components that go into manufacturing. Those are areas like plastics and some metal components, we're starting to see some growth there. So we're not calling an end to the freight recession, but we're saying there's green shoots. So we'll keep an eye on it.

Next is Brandon Oglenski at Barclays.

Sorry, Mark, you got one more from me. I'll keep it pretty short here. Jason, can you just help us and maybe already address this, but the average sequential OR change that you guys would view in 2Q? And maybe just at a higher level, I mean, you guys have been working towards like more safe outcomes and everything I get it, but the operating ratio has been moving maybe in the wrong direction. Should we be thinking, though, if that freight market is turning that there's a lot of like potential for incremental margin here, too?

Yes, absolutely. No doubt about that. We've got the capacity to move all this volume. John and the team have done a great job from a service perspective and making sure we're ready to handle it. We've got the resources in place. And then to your point, because of that capacity, when this comes through, it's a really good incrementals.

I think you just wanted to hear the sequential margin improvement, you would think a couple of points.

Yes. Yes. About 200 basis points of sequential OR benefit from first quarter to going into the second quarter.

Thanks a lot, Brandon. And look, I think just to kind of recap a little bit here. We told you at the beginning of the year that we were focused on preserving safety, maintaining service and controlling costs while we were going to fight for every dollar of quality revenue we could. And we did exactly that in the first quarter. Revenue being flat later than we hoped, but we are more optimistic on the top line as we enter the second quarter because there are some signs of life emerging in the market. Now that said, this is a very dynamic world with an awful lot of cross currents. So we've just got to keep an eye on that. Let's keep an eye on those weekly volumes, and that will give you some indication of how things are shaping up. But we got a tight grip on cost right now and real good momentum on productivity and efficiency.

So we're going to carefully balance all of our resources, and so that we're able to move the volume when it comes while we continue on this never-ending drive for productivity and efficiency.

And regarding the merger, we're going to submit our revised application here on the 30th. Like I said before, the rationale is the same, but the depth and the quality of the data in the application considerably strengthens our case. And look, when you step back and look at it, our customers, our supply chains, they're increasingly national and global, but our U.S. freight rail network is fragmented. So a single-line transcontinental network is going to simplify service, reduce interchange complexity, that's going to allow freight to move more efficiently, more safely and more reliably from origin to destination. That's what this is about. It really is going to deliver a very compelling proposition for more customers to choose rail over highway. And ultimately, I think that's good for the country, and it's good for everybody.

So thanks all for your participation in today's call and stay safe out there. Thank you.

Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Have a good weekend.

Okay. So we're going to get started here in the afternoon track here for transports. Again, Brian Ossenbeck covering the space for JPMorgan. Really excited to have Norfolk Southern here. Mark George, President, CEO; Jason Zampi, CFO; Luke Nichols in the audience. Clearly there's a lot to get to in terms of just the structure of the industry and how it might change over time. Clearly, there's a transaction in the market. But I wanted to start a little bit more fundamental.

You guys are still out there running the business every day. Clearly, tough winter, dwell times and parts of the network look a little bit elevated. So maybe we can just talk about how the network is running in the first quarter and just go from there. And thanks again for being here.

Thanks, Brian. We're happy to be here with you. And I'm glad to be talking about fundamentals because we do spend most of our time running the business. Even though it might seem to many of you that we're spending all of our time trying to get this merger across the finish line.

We started the year actually really strong in January. Volumes we're pretty happy with coming out of the gate. But when the winter hit us that, I guess, was the fourth week in January, that final week in January. It hit us hard in the East. Unlike the West, we got pummeled all over the network with three successive storms and deep freezes on top of it. So yes, it definitely had an impact on our fluidity. It did create some increased dwell times and it reduced our train speeds and reduced our service metrics. But just like we saw last winter, we came bouncing right back at the end of these storms. So we're in a good spot right now.

I'm really happy with the resiliency that we're demonstrating on the network. I will tell you that in February that the storm impact and the impact on our network definitely hurt us from a volume perspective. So we were running ahead of schedule first few weeks. We went deep into a hole in February compared to our expectations. But I would tell you here in March, we've been coming back ahead of our expectations in March. So we're kind of -- we're feeling pretty good about coming out of the stores.

And the only other thing I'd add about the storms, if you think about last year, we talked about like 17 or 18 storms that hit us in the first quarter, but those were like much more regional or localized. These two storms that hit us really to last handful of days in January, first handful of days in February were really, really widespread. So very, very impactful to the network. But even saying that, I think we bounced back pretty quickly.

Yes, you don't see that much ice in Atlanta or Memphis or any place like that. So we've heard from others, some of the rough cost ideas of how much this might impact the network on a year-over-year basis. I don't know if you're at a point where you can share any of that? Or is it material to how you experienced versus last year?

Yes. I mean there's definitely incremental costs, cleanup costs. You have a lot of contractors out there, clearing trees and helping us bring the network back. So there's incremental cost for sure, probably $0.04 or $0.05 of cost when you say.

Mark, you mentioned the volumes were looking pretty good, and they were definitely coming in at a pretty good pace. Of course, weather had something to do with that, but you don't necessarily have an official like market view or target for the year, but like just where are things better than what you expected in terms of volume? And why was that? Was it service? Was it conversion?

You were talking about the first quarter?

Yes, the first quarter in general, as they progress into...

Like we said, it's been lumpy, strong January, weak February from the storms. March has come back well. I would just tell you the overall markets, and Jason, you're going to jump in here, but utility coal, it's been good. It's been real good. Last year, it was good. Data centers help. Nat gas prices, we'll see where those kind of go to. We can talk about the war later. I'm sure you're going to ask about that. We're feeling pretty good about that.

And honestly, I think our Industrial Products business has been -- we had a really good year last year with Industrial Products. We saw some good volume growth, and that's continued strong here in the first quarter as well. And intermodal has been weak. We all know what's going on in the domestic side with regard to some of the share shift that's happened on the domestic side. But international, which is kind of a proxy for imports, has been really soft. Everybody is seeing that all imports. What do you think, Jason?

Yes. I mean just to put a little finer point on. I think intermodal quarter-to-date, we're down about 6% volume-wise versus where we were like Mark said, truly, that's the international story that kind of everybody is feeling there.

And then coal, I think, that's been not only a good year-over-year story, but just versus expectation. I mean utility coal volume has really been strong.

The only other piece I'd add to what Mark said, in addition to electricity demand and the high natural gas prices, you also have probably a little bit more favorable regulatory environment. We don't really see any closures on our system and any major closures in the near future. So obviously, new coal-fired plants coming on, but I think you're seeing some delays in closures of existing plants.

Right. Were some of those expected to happen this year as you entered? Or they just kind of in perpetual restatement or...

Just expansion, just continue to move out.

Right.

I think you heard a lot of those announcements last year where they were kind of a boarding plans to decommission coal power plants. So that's good. That's held. And you're hearing more chatter when I talk to some of the utilities, more chatter about recommissioning some plants that may have been decommissioned. So again, the war may also accelerate some of that depending on how long that lasts.

For sure, we'll get to that in a second, but coal being a bright spot, you want to focus a little bit more on so you don't get that opportunity. Is there anything on the Warrior Coal partnership you guys shared a little bit about last quarter, like how that's ramping up? What brought that about? And as we think about the competitive losses.

You've also mentioned like, are there other ones that we should think about in terms of wins? Because I think CMA CGM was a new service launch. So like what else is in the hopper in terms of additional opportunities that you're already working on or potentially could be seeing pretty soon?

So Warrior, we had been working on for about 2 years, working very close with them to develop a solution for the new mine that they were looking to open where they had alternatives, including barge, which was fairly convenient for them. But we came and worked with them very closely on a rail solution that would have involved -- that involves them investing a fair amount of money for conveyor system and us investing a fair amount of money to create more capacity on our line to go down to the Port of Mobile.

So we both invested that money. And now we're looking -- we've already started the service and it's going well. It's extremely high-quality coal, met coal, extremely high quality. And we think this can ramp up to, what, 6 million tons a year. So we're really excited about it.

And again, it's a really good partnership that we have with them, and we're really proud of the investment. Like I said, this has been going on this discussion on developing a solution for over 2 years.

Yes, you cited CMA another, again, what kind of solution can we create and deliver for you? So we've done that. It's kind of a truck-like solution that we've created there. We're working on others. We've had other big wins in auto, and I'm not going to get into details of some of the other negotiations we're deep into, but the team is working really hard.

And I think what I want to do is maybe take a second and explain One of the things about a year ago, I talked to our Commercial Officer, Ed Elkins, about the fact that this industry, maybe we need to think a little bit different about our commercial organization and our structure and the way we do things. And I'd like to see us maybe take a look at more specialized sales folks that are on specific incentive plans like you see in most other industries, and separate that functionality from other marketing folks.

So today, people's jobs or in the past, I should say people's jobs were kind of co-mingled doing a little bit of sales, a little bit of relationships, a little bit of pricing, a little bit of marketing. Let's take a look at a more bifurcated structure with specialists with a sales organization that has incentives that can help drive more top line growth. So for the past year, we've been building this out, and we are now live with a new structure. And we feel pretty excited about where this could lead in terms of propelling us at a faster rate than we've seen in the past.

But we can't just keep doing the same things we've been doing and expecting a better outcome. We've got to try something different. And hats off to Ed for embracing that and driving that. And his VPs, they've done a spectacular job leading the organization through that change. A lot of people, hundreds of people's job descriptions were changed. Their compensation structure has changed. And I feel like we're going to start seeing the benefits of that soon.

You mentioned two wins, one against truck and one against barge like, yes, usually, that doesn't really happen. So are these service driven? I mean, the relationship you mentioned as well. But...

Oh, yes, they're also service-driven because let's face it. We're in a position of strength, which is another reason why this was a good time to do the merger. But it's also a good time that we're able to demonstrate to our customers.

Look, you can trust us. Look at how reliable we are, look at how resilient we were after the hurricanes, after the winter storms of 2025 and they're seeing it. So now they trust us. We have a strong operations team and strong disciplines. And honestly, we're bringing the operations folks into these discussions with our customers. They're vested in it. So our Chief Operating Officer, our Head of Transportation, they're in the meetings with the customers and they're vested in it. So we're approaching things a little bit different now as more of a team.

What we did allude to the conflict in the Gulf. And clearly, there's a couple of different factors that would play out across the rail networks. Maybe in the short term, like what's -- how do you how you size up the impact on fuel because obviously, it went up quite a bit, we're now chasing it with the reset?

And then secondly, aside from the obvious potential for impacting consumer demand and sentiment like are there any end markets that are particularly exposed? I don't know, maybe there's some NGLs that can be exported somewhere else like frac sand maybe picks up, like not looking necessarily for a silver lining, but just like the broader impact higher energy prices for longer?

Yes. So look, I think it's been 2 weeks pretty much of volatility in oil that we've seen. And we still got another 2 weeks before we close out the quarter, right? So we know that fuel is already going to have a very significant impact on our expense. And when you think about it, we burn about 1 million gallons of diesel fuel a day. That's 30 million gallons a month. So you can kind of do your own math. If the rates go up by $1 from where our expectations were, that's a $30 million headwind. If it goes up by $0.50, it's a $15 million for the quarter because of the 1 month in March.

Now we do have -- obviously, it's a pass-through mechanism with our surcharge program. And there, you have basically a couple of weeks lag before you'll start to see the surcharge take effect in intermodal and a couple of months lag before you start to see it take effect in Industrial Products. So really, you'll start to see the surcharge flow through here in the second quarter and with full effect in the third quarter. But we don't know what the curve is going to be on oil prices. Just in these 2 weeks, it's been pretty spiky and volatile. But what would you gauge the range for -- if you were going to guide, Jason?

Yes. I'd say on the expense side, it's where I think, Mark, your frame of reference here is great rule of thumb, kind of probably $20 million to $30 million of expense headwind in the first quarter here. And then hopefully, that -- as Mark said, that kind of gets covered with the fuel surcharge revenue that picks up in the second quarter.

And then so as I think about it over the course of the year, we don't know how long this lasts. -- okay? But let's just say it lasts for a while. And the Straight of Hormuz kind of stays in fluid. Natural gas becomes a little bit of a of an issue coming out of there, what does that do to U.S. nat gas prices? You start seeing more export there. We move nat gas. But on top of it, when nat gas is high, it's pretty good usually for coal. In our coal franchise, our utility franchise. You'll see the utilities burn more coal. So that's not a bad thing for the business volumes.

On top of that, I mean, fuel stays high that puts a little pressure on trucking doesn't it? And so on the intermodal space, it starts to maybe put pressure on truck rates, which is a pretty good thing for us. We've been pretty depressed for a while. We'd love to see some evacuation of capacity in trucking, maybe this helps accelerate the evacuation of some of the smaller players who can't sustain the fuel spikes. So we think that's another potential good news item for us on the intermodal side.

So you play this out, you can see a lot of good. But depending on how long this lasts, obviously, high fuel prices can have an adverse impact on the consumer. Ultimately, it will lead to inflation. We don't know what it does to demand. And if there's demand destruction that ultimately impacts an offsetting counterweight to our volumes in the future. So you get all those things you kind of got to put in the mix master.

Okay, would you add anything?

Yes, I was just going to say, I mean, you kind of saw that exact same experience back in 2022 with the Russian-Ukraine conflict, that 6-month spike in prices that really started to impact the economy. But obviously, a lot of other things going on at that time that are very different than now. So I just kind of have to wait to see how that shakes out.

One thing on the fuel side, Norfolk, in my time covering the company is historically been viewed as like less efficient in terms of fuel for a number of different reasons. But I think last year, it's really materially changed and improved. So that didn't go unnoticed by us in particular, but like what really drove such a big gain? And is there still more room for improvement now that you've kind of broken through that at least perceived threshold?

I'll start. I think first thing we've been talking about it for years since I came 6 years ago, we've been investing more and more in modernizing our locomotive fleet from DC technology to AC technology, which is a significant -- has significant advantages in terms of fuel efficiency.

So as we penetrated from what was below 30% AC in our fleet to now in our active fleet, what over 70%.

Yes. Yes. And we just finished our 1,000th locomotive that we converted DC to AC.

So that's paying the dividends that we talked about when we were making those investments. So that's a big driver. But on top of it, I think you've got to give a lot of credit to our operations folks where this is an obsession. So they are -- there's a lot of other little disciplines that they're doing, managing HPT and trying to drive every last drop of fuel productivity without compromising speed and some of the other tricks that you can do to optimize it in the short term.

I will say trying to get to a fuel efficiency of a 1.0 5 years ago, I heard every story in the book about how impossible that was by our ops teams back then. We have a unique network, we can never get to that even though the other guy was there, close to there. We have too much rise and fall. We have too much curvature. Obviously, we have an adverse locomotive mix, which we did resolve, but we would never be able to get all the way down to 1.0, not even close. Well, here we are. So it's really good to see very gratifying.

Yes. I mean we finished the year last 2025 at 1.03, 5% improvement over the prior year, and we've got more improvement baked into the plan this year.

And it's been frustrating because that great fuel efficiency we had last year, right? It's kind of wasted when fuel prices are so low. So now when fuel prices spike like this, we get the advantage of that great fuel efficiency.

There you go. Well, Jason, you've been talking about in the industry has talked about more inflation at the start of the year, which is probably not too surprising, but maybe for some a little bit more than expected. One of the areas I want to ask you about is just for the merger review and it seems like maintaining good excellence services kind of pre-req.

So the thought is you have to maintain like a higher level of staffing to put more buffer and resiliency in the network. But I don't know if that's necessarily true or not. I mean I don't think we can even see the headcount from the STB because they're quasi shutdown right now. But would you agree with that you're running with a little bit heavier than normal to kind of keep that buffer for the next year or so?

For sure, during this period, safety is always critically important, and we'll continue to be in service. We have to maintain the extremely high level regardless of the right? I mean we need that. We -- our customers are demanding that. So -- but that is -- those are two critical things for us. I think if you think about pure headcount, the way we're really looking at it is we're planning to be kind of flat to down with last year. We're we have some hiring that we need to do in certain locations on the T&E side, but it's really for attrition, not for growth. We've got a lot of capacity to grow at our current levels.

And then we don't talk about it a lot. We talk about the T&E productivity. But if you look at our salaried workforce over the last 2 years, we're down below double digits. In that workforce. And that's again, really trying to drive efficiency and productivity throughout the organization. But the bigger, I think, levers kind of on the T&E side, it's really just hiring for attrition and trying to maintain this consistent service product. And when the volume comes, we're ready to handle it. We've got a lot of latent capacity on the network.

Yes. I think you'll probably see it like last year, a little bit of leakage on the T&E side. And while volumes may be in kind of that flattish range, you'll probably see net leakage a little bit that really translates into the productivity that product we have.

I wouldn't say we're deliberately trying to keep a buffer on the network. I think generally, we drive more efficiency and productivity every year so we can absorb a little bit more attrition. And when volumes come, then you probably need to be adding a little bit more. But every railroad is going to keep a little bit of buffer to make sure that you're resilient and [ Jim ] even talks about that with at UP. Despite how low his operating ratio is with all that length of haul advantage they have and scale advantage, they talk about that, too. I mean that's just smart railroading. And you've got to be able to recover when you have a pump in the night.

But -- and the key is really just keeping that trainee pipeline going. You can't -- it's something that we found out couple of years ago, the hard way to cut that off, it takes a very, very long time to rebuild that back up.

Right. That's a good point. Mark, just in terms of the merger itself, you've been talking to Jim and team for a while now. Just be curious to hear your thoughts like at this stage, what have you learned different this may be a little bit more exciting or opportunities that you didn't quite fully appreciate it when this conversation was first starting.

I think what's been kind of refreshing and interesting is when you look at the cultures. I mean, we're obviously two very different railroads that came up with different histories we are a roll-up of, gosh, probably 100 different railroads over the past 200 years, and Norfolk Southern was born in 1982 with the combination of Norfolk and Western and the Southern Railway Company that had very different cultures, and they came together under the Thoroughbred brand and very effectively, where Union Pacific was created in basically 1862 by Lincoln with the vision to become a transcontinental railroad. And obviously, we're looking to try to fulfill that dream.

But when you start to bring the teams together and you start to -- there's limits to what we can do right now, because we're not going to cross lines and done jumping in all of that. But we can start to benchmark a little and start to work on, obviously, the application together. And then we work on integration planning together, not integration work, but integration planning. And you start to see that at the core, they're railroaders on both companies.

And you got a great Southern culture at Norfolk Southern, you've got a great Midwestern culture. Those are two great cultures that our country has of people who are considerate, they're kind, they're respectful of one another, and they're working on trying to truly benchmark objectively what the best from each place is.

So that's been kind of encouraging, and I just had a call this to get an update on kind of where the integration planning is you run it with us, Jason, things are progressing really well. So I'm encouraged by that. I really am is how well the teams are working.

And I come from -- obviously, spent 30 years in a different industry, more cutthroat industry, very acquisitive. We did a lot of M&A. I did a lot of personal M&A. And a lot of times, you're buying competitors at a hostile view you and kind of businesses from adjacent industries and trying to integrate those companies has been a challenge.

This is different this is railroaders, and we're just bringing together and clicking the Lego set together to create something that covers the country compared to some of the stuff I've seen in the past and other Heck, I spent more than 6 months of my career in Korea, trying to integrate an acquisition from LG, the giant, who -- this was after the agent financial crisis 1998 wanted nothing to do with being merged with a western company and trying to carve out talent from that mothership who didn't really want to leave the mothership to come be part of this big western conglomerate was painful.

And -- so I'm just encouraged because I come from a different vantage point that I've seen what hard is. I've seen how challenging integrations can be or marriages can be, and this is something that I think is almost like a Lego set.

So a big part of the Lego set coming together, a big reason for part of the thesis at least, is truckload conversion over time and as you know, in the past, it's not really how it's worked out in the industry for a bunch of different reasons, some of which we already talked about. But I guess, how would -- and we've seen that with CPKC, like they've fallen short of their goal as well. So like how is this time different? And I guess, do we really need this new Lego set to really drive this type of growth for the industry overall and obviously, for this combination?

I've spent a better part of the year thinking -- actually, since I joined the industry 5 years ago, trying to understand why we can't grow as an industry. And what is the unique obstacle. And for the early part, all I heard was just you need better service, consistent service and then customers will come to you. Well it's true we hadn't always provided that and we haven't always been reliable. But when we started to provide it, you get a little bit that come back to you, but you realize that it's not coming at you in waves. It really isn't that there's something else there.

When you start to talk to customers instead of just your staff to understand why, they start giving you the real answers, which is just truck is just so much easier. It's so much more convenient.

And yes, I know I got to pay 10%, 15% more, but I can go nonstop service, and I can have visibility of my shipment throughout the journey, where with you guys, you have to interchange it with somebody else, I don't have visibility, and it's -- I lose time in the middle, and it's just painful. And so when you start to understand that and then you look, and I've kind of done a lot of analysis on this. Would you look and you say, "Okay. So over the past 20 years or so, U.S. railroad volumes are down double digit", okay? Canadian railroads are not. One has grown, the others grown modestly. And aside from having a transcontinental railroad in Canada and the pleasure of coming in and competing in the U.S. as well and in one case, going all the way down to Mexico. What else is different?

Well, the U.S., we've got these artificial barriers that were created in 2000, when we consolidated the industries Post Staggers Act from 80 to 2,000, we kind of frozen time all that consolidation, which, by the way, spurred tremendous growth in this industry from 1980 through 2000, as we were consolidating it spurred growth and a revival of health of the U.S. railroads because they were all failing. They were -- they had bad safety records, and they were financially failing.

You allow that consolidation to have benefit from the economies of scale, volumes went up, rates actually went down, okay? And then we snap the line because integrations got screwed up by the railroads. And in 2000, the regulators understandably said, all right, no more, moratorium in place, and then they rewrote those rules. And now we're frozen in time with two in the East, two in the West. And I'm telling you that watershed in the middle that interference that's been created on the Mississippi River is the reason why I think it's the biggest impediment for why we can't grow. It's the obstacle. And that's what I hear from customers, too. It's not just instinct. So that's why I think that this is different.

CPKC truckload conversion Look, I don't know the details. I don't think it's an apples-to-apples comparison. I mean the -- it's largely their north-south they've got different dynamics at play for sure. What we're talking about intra watershed, if you're trying to move product 100 miles east of the Mississippi to 100 miles west of the Mississippi, rail is not even in the thought process. Because you're going to have an interchange it's going to take 48 hours of extra time and those costs are going to be significant. Now you break that down and you create this fluidity of single-line that CPKC talked about. Customers are 2 to 3x more likely to use single line service over just traditional rail as it is today. So that's why I'm so convicted on this.

So I was at the TPM conference a couple of weeks ago. One interesting thing I heard was this perception at least at the this merger would go through that the West Coast ports would be net beneficiaries. I don't -- I guess, because UP is the technically the acquirer here, but like that seemed a little off to me, but I think it was maybe just people not knowing exactly where the freight would land and who would serve which ports. So is that something -- I mean, there's so many stakeholders involved in this transaction. But how do you think about the ports and maybe in terms of reaching the watershed, you get they're easier from one side to the other and it just more options. But it's another stakeholder group to manage.

Yes. I would trust your instincts, Brian, because they're pretty good. I think the ports in general are going to benefit all the ports in general are going to benefit. So whether it's New York and New Jersey that we serve, down to Virginia, down to Savannah, to Charleston to Jacksonville, all of those ports are going to benefit from having deeper access to the West, okay?

And it's one of the things Jim and I talked about early on was this is not some desire to take out the East Coast by owning an East Coast railroad. The railroads aren't the reason why steamship lines choose ports, okay? The freight is going to find the most frictionless way to move. And we're just going to provide better optionality, deeper access into the nation from both sides. And frankly, okay, give us an option to now start bringing the U.S. freight that's currently going up to Canada ports, back to the U.S. So let's not forget that. There's a fair amount of freight that's being imported to the U.S. that comes via the Canadian ports. They have single line service and then they drop it down into the U.S. So this is another area of opportunity, whether it's on the East Coast or on the West Coast.

How do you think technology? I mean, the rail industry isn't really known for being tech forward, maybe it's putting it kindly, but can technology really play -- it kind of make a differentiating role here in the integration if it were to go forward because we still have air brakes from the 1800s for good reason, but I think there's probably some room for this to improve. So could this be a catalyst for greater technology adoption.

Yes. I mean I think you're right. I think when you think of a railroad, you don't think of cutting-edge technology, but I think there's a lot of things that we've done specifically. You think about these -- our digital portals that we have where trains are going through at full speed, and we're taking thousands of pictures a second in identifying defects in that train or things that need to be fixed. It's truly -- it is cutting edge, what we're doing, the algorithms that we've developed there, I think that's best in the industry there. So I think that's an example.

I know Mark is passionate about that. He's seen has gone out and visited all these locations. And I think there's other areas where we're using AI and other spaces in the business. So I think it's -- again, I know that's the perception, but I think that's changing in what we do. I also think that both entities when you kind of move to the merger, I think we're both sophisticated technology organizations, and we've both been through different upgrades and things in the past. And I think those experiences that we've had are going to help us when we do integrate and as we start working through in our integration planning, taking all those experiences that we've had in putting specific to this to make sure that this goes as smoothly as possible.

So those -- the portals are really remarkable. I mean the concept has been around for a while, but taking photos of moving trains have been around for a while. What we're using are ultra high-speed cameras with stadium lighting that's getting images of trains at full speed with incredible resolution. And then we've written AI or data scientists have written algorithms that are able to take a standard image, this is what it should look like and find exceptions in those images and highlighted immediately sends an alert before the trains even out of the portal sends an alert to our wayside desk, who then validates that this is not a false positive that, yes, there's a missing cotter pin here, and there's a dragging brake line and this and that.

And then we use our judgment as to, okay, that can wait until the next stop. It's not a critical issue. Or this issue, we got to stop that train right away. And it's really remarkable. Our data scientists have written 85 different algorithms. The number keeps climbing as they get new ideas. They work really tightly. These aren't just data scientists sitting in a room. They're sitting in a room with mechanical experts who are telling them, it would be great if we could see this. And so these guys and gals are learning the industry and they're working hand in glove. And if you come to Atlanta again, we'll show you the boardroom and these guys will display the exactly what they're doing. It's really, really neat stuff.

And that's why when you look at our accident rate, single biggest driver why our accident rate has plummeted. And our mainline accident rate leads the industry 2 years in a row now, it's pretty exciting stuff.

That said, I'm more excited about what AI is going to be able to do for us in the future. I mean you can think about using AI to really help us optimize our train plans, right? Help us figure out how to get out when you have issues from weather or whatever in your out of balance how to help us find solutions, there are judgments being made distributed throughout this organization every day to try to resolve unique circumstances, but not everyone has the training to use the right judgment. And you have a fair amount of turnover, so that legacy knowledge is really important to kind of capture. And so if you can start capturing that using AI and have quicker, faster real-time solutions, you can do exciting things, I believe.

And I think that's why -- another reason why I do think growth in this industry is between the merger and the advanced use of technology, we can start providing meaningful advances. And I think it's critical because we're also fighting against a trucking industry that is advancing using technology including autonomous vehicles, right? So we have to have some level of modal equity here, let us use this technology to advance us, let us merge because we're competing against trucking who is unencumbered by those restrictions.

We'll be talking to one of them later today.

All right. I ask them about it.

We'll do. Well, I'll take you up on that war room visit to see the pictures. But for now, we have to wrap it there. Thanks, Mark. Thank you. I appreciate you guys coming.

Thank you for having us.

Thank you.

Good morning, ladies and gentlemen, and welcome to the Norfolk Southern Corporation Fourth Quarter 2025 Earnings Conference Call. Also note that this call is being recorded on Thursday, January 29, 2026.

I would now like to turn the conference over to Luke Nichols, Senior Director, Investor Relations. Please go ahead.

Good morning, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important.

Our presentation slides are available at norfolksouthern.com in the Investors section, along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George.

Good morning, and thanks for joining. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampey, our Chief Financial Officer. Before we get into the numbers, I want to recognize our Thorough Bread team. 2025 was a demanding year in every sense, and our people have met it with resilience, focus and commitment.

They kept serving customers, improving our railroad, and they did it while tuning out the noise and concentrating on what matters most. Look, Q4 played out in an environment where volume was clearly softer than anyone had predicted. But even so, we controlled the controllables. Costs landed exactly in line with the guidance we provided last quarter, reflecting disciplined execution across the company. And while there's been heavy external attention around the merger, I'm really proud that the team maintained its focus on the business, prioritizing safety, dependable service and strong cost control. Now looking back at the full year, 2025 was dizzying.

It started with a challenging winter followed by persistent tariff uncertainty and then competitive dynamics tied to the announced merger. In the back half, the macro softened further and freight flows shifted. But through it all, our operating foundation held. Safety, our most important work, continued to advance and service was consistent and reliable. We expanded our digital train inspection program, so now more than 3/4 of our traffic each month is scanned by portal technology. We had 0 reportable mainline derailments in the fourth quarter.

Let me repeat that, 0 reportable mainline derailments in the quarter. Our investments in our one-of-a-kind digital inspection technology, our enhanced processes as well as investments we've made in our people are collectively paying dividends. John will share more detail, but based on current data, 2025 stands as our best year in more than a decade when it comes to train accident rates. That progress comes from better technology tools, rigorous standards and a culture that treats safety as a value, not a statistic.

A year ago, I spoke about our desire to adopt a total quality management mindset at the railroad. And in our results, we are now seeing evidence of what we call total quality railroading. On cost and productivity, we did what we said we would do. And in several areas, we did better. We moved 3% more GTMs in 2025 with 4% fewer employees. That's 7% productivity. Our network is humming. And in 2025, we delivered steady efficiency gains with improved fluidity, asset utilization and day-to-day execution that our customers can feel. These aren't one-off wins, but they're the product of sustained discipline and a team that knows how to execute. With that, I'll turn it over to the rest of our leadership team to walk through the quarter in more detail. John, let's start with you.

Good morning, and thanks, Mark. I want to repeat Mark's opening comments, recognizing the outstanding railroaders across all of Norfolk Southern. Today, I will highlight their resilience, discipline and committed leadership that produced the transformational results that I'll share with you today. 2025 was a defining year for operations. We strengthened the core of the franchise, delivered measurable improvements in safety and service and advanced the structural changes required under PSR 2.0 to build a more resilient and efficient railroad. Despite macroeconomic volatility, weather-related disruptions and the operational transitions required by the zero-based plan, the team executed with discipline and intention.

The progress achieved in 2025 reflects the maturing operational culture, one grounded in accountability, transparency and intentional leadership and positioned us to enter 2026 with stronger fundamentals, improved cost discipline and a more reliable network for our customers. Turning to Slide 5, safety as an operating system. In 2025, we closed the year with exceptional safety performance. As we enter '26, operations strategy is clear: a relentless commitment to our core value of safety, a relentless focus on service and decisive actions to operate with cost discipline, positioning Norfolk Southern to compete and win. The data points on this slide represent a structurally safer, more resilient railroad, poised, deliver consistent and reliable performance. Our [indiscernible] reportable injury ratio improved 15% to 1.0, and reportable accidents improved 31% to $2.19, reflecting meaningful sustained progress that underscores the effectiveness of our transformation. We closed the year with a Capstone and tremendous momentum, delivering a quarter with 0 reportable mainline derailments, finishing the year with an industry-leading 0.43 ratio.

For the quarter, our mainline accident rate dropped to 0.13%, a 71% improvement year-over-year. Taken together, these results are balanced and intentional. We are developing generational railroaders through the Thoroughbred Academy, placing people in the right roles with the right workload and reinforcing organizational clarity.

[indiscernible] Authority is respected and safety accountability is synchronized at every level. Turning to Slide 6. Disciplined, scheduled, operations. Our PSR 2.0 transformation has been rapid, multidimensional and disciplined. It is an operating model designed to simultaneously deliver safety, service and productivity. In 2025, we focused on delivering high-quality service and reducing costs in response to variability. One of our most effective productivity levers, Australian operations, increasing train size while lowering the horsepower used to move those trains.

Throughout this effort, we are intentional about protecting service performance and keeping the network operating at a low cost structure. This strategy delivered meaningful results Train load increased 4%. Horsepower per ton decreased nearly 10%. Fuel efficiency improved 4% and GTMs per crew start rose 2.5%. [indiscernible] have matured into a core competency, improving over-the-road performance and tackling complex mechanical and need for speed challenges. Year-over-year, unscheduled stops declined 31% and through zero-based plan migrations. Q4 '24 versus Q4 '25, we reduced qualified T&E head count by 7% and 6% for the full year. Let's go to the ballast line for a minute. Our new wheel integrity system introduced just last quarter, has already proven its value, pinpointing a critical external vendor casting flaw on a wheel set that had been in service for less than a week. The new system internally developed by NS coupled with our relentless root cause investigation with stakeholders, confirmed there were 7 additional brand-new wheel sets across North America with the same manufacturing defect. Our findings and the collective actions of stakeholders led to an immediate industry-wide recall of these defects across North America. This is a powerful example of how Norfolk Southern's advanced digital capabilities, help us solve real problems with scale, speed and accountability.

From an infrastructure point of view, Mega [ work blocks ] continue to elevate productivity. In 2025, we delivered our $2.2 billion capital programs on time and on budget. Network reliability derived from our PSR 2.0 flywheel, has allowed us to reduce our 2026 capital envelope by a further 14%, bringing our 2026 capital budget down to approximately $1.9 billion, delivering a 2-year $450 million planned capital reduction, while supporting a safe and reliable network ready for future growth.

Turning to Slide 7, continuous measurable improvement. Our team delivered a clear and compelling results, even after raising our cost takeout commitment to $200 million during the year, we outperformed that higher target, delivering $216 million in full year savings. As we have said before, our team is never satisfied. As you can see in the chart, we exceeded our 2025 cost takeout targets, and we are once again raising our 2026 cost takeout savings commitment from $100 million to $150 million bringing our 3-year cumulative total cost takeout to approximately $650 million. This underscores the strength of our PSR 2.0 transformation and our committed leadership to deliver.

Turning to 2026. We are intensifying efforts to lower dwell for both cars and locomotives. We will apply our new zero-based terminal methodology to terminals with outsized consumption of core resources and assets. By challenging and strengthening processes, our BT will instill factory management mindset, empowering terminal teams to operate their yards like small businesses. Supporting this shift are our clarity camps, which will equip frontline supervisors to think like owners, understanding how their decisions influence cost, how they drive profitability and how to do so while maintaining industry-leading safety performance. They will gain a deeper appreciation for the cost of every asset and help build a bottom-up culture of disciplined cost control. I'm proud of how our team performed in 2025. They embrace change, delivered results and strengthened the foundation of this railroad. We have talent. We have 19,000 railroaders who deliver safety with intention, where discipline drives performance where accountability builds trust and where culture fuels pride. Our people are propelling our PSR 2.0 transformation, shift by shift, mile by mile with intention and clarity.

Now I will pass the mic to Ed.

Thanks, John. Let's move to Slide 9. Overall, this quarter presented challenges for both volume and for revenue. As you can see on the slide, merchandise led the way, although our success was tempered by challenging market conditions, within intermodal with persistently weak export coal markets. Overall volume for the fourth quarter was down 4%, driving a 2% reduction in total revenue. The volume impacts were partially offset by positive mix with RPU increasing 2% year-over-year. Now within merchandise, volume increased 1% from a year ago, driven by auto and our chemicals markets. Merchandise revenue less fuel grew 2% year-over-year, reflecting strength in both volume and price, supported by our strong service product that John mentioned.

RPU less fuel grew 1% year-over-year within the segment as negative mix offset core pricing, most notably mix within the chemicals franchise. In our intermodal business, shifting market conditions during the quarter drove a 7% decline in volume. RPU was up slightly at 1% as we continue to compete in an unexceptional pricing environment, leading to a 6% decline in revenue.

Let's look at coal. Volume was up as increased electricity demand, favorable natural gas prices and regulatory support gave strength to our utility markets which was partially offset by reduced volume in export. So while volume was up 1%, revenue was down 11% as lower seaborne coal prices drove RPU less fuel down by 12%.

If you'll turn with me now to Slide 10, let's review the full year. Walking left or right on the waterfall chart, we achieved an outstanding year in our merchandise business, growing revenue less fuel by $287 million or 4% through volume growth and pricing discipline. To underscore the strength, we delivered record annual revenue and record revenue, excluding fuel across each of the underlying merchandise business groups for the full year 2025.

Now I want to drill into this one just a bit. We delivered a record year for our automotive franchise, setting a record for total revenue and revenue less fuel. And this performance was enabled by strong train performance and car order fill thanks to our operations group as well as focused efforts by our customer logistics group to reduce on terminal dwell. The key result of these combined efforts was a 4% year-over-year improvement in equipment cycle times and substantially greater terminal fluidity, allowing us to take advantage of the favorable market conditions and deliver the record revenues that I just noted.

A really nice job by everyone and Bob and our customers took note gaining confidence in our service throughout the year. Back to the numbers. Intermodal revenue finished flat as we weathered trade volatility throughout the year and second half share losses due to merger-related competitor activity. Seaborne coal market weakness throughout the year drove a $108 million year-over-year decline even as utility coal volumes increased in 2025. Finally, volatile fuel surcharge revenue represented $134 million of drag for the year. These factors combined to produce a modest increase to overall volume and revenue. Moving to Slide 11, we have our market outlook.

Like last quarter, we continue to navigate an uncertain economic environment. For our merchandise markets, we expect a mixed outlook for vehicle production due to affordability challenges and the fading EV incentives. Overall manufacturing activity remains mixed with output forecast to expand modestly amid ongoing economic uncertainty. Elevated natural gas fracking and drilling activity in the Marcellus Utica is contributing to stronger demand across noncrude chemical energy sectors, driving increased engagement and business development of both new and existing customers. Looking to our intermodal markets, import volumes are expected to remain soft due to continued tariff volatility and evolving trade pressures.

Warehousing capacity is increasing as companies deplete inventory backlogs and truck capacity remains oversupplied. All these factors plus an enhanced competitive environment in response to our merger announcement, shape our restrained view for intermodal. Seaborne coal prices have remained pressured with significant uncertainty surrounding export trade, but we expect that utility demand to remain elevated due to continued strong demand for electricity generation in our service area, along with supportive natural gas pricing. All right. Let's quickly turn to Slide 12, while we're on the topic of coal. We're proud to be partners with Warrior Met Coal in servicing their new Blue Creek facility in Alabama.

Back in 2024, we noted that the mine was in development, and we're equally proud now to have attended the formal ribbon-cutting ceremony earlier this month. As the mining operations, the belts and the rail load-out are now fully operational, we are pleased to be ramping up rail service and delivering high-quality metallurgical coal to markets around the world. As always, we want to thank all of our customers for their continued partnership and their business.

The entire [indiscernible] is aligned around delivering the service that our customers need every day, building trust as a vital partner in their supply chains. And with that, I'll hand it over to Jason to review our financial results.

Thanks, Ed. I'll start with a reconciliation of our GAAP results to the adjusted numbers that I will speak to today on Slide 14. Total costs attributable to the Eastern Ohio incident were $29 million, which included $24 million of recoveries under our property insurance policies. In addition, we recorded $65 million in merger-related costs consisting primarily of legal and professional services and employee retention accruals. Adjusting for these items, the operating ratio for the quarter was 65.3%.

And from an EPS perspective, we earned $3.22 per share. Moving to Slide 15. You'll find the comparison of our adjusted results versus last year and last quarter. Both comparisons reflecting a degradation in the operating ratio due to the top line headwinds as Ed just discussed. The drivers of the revenue decline are similar to what we discussed last quarter. And additionally, as we previously guided, we absorbed a full quarter's worth of impact from competitor responses to the merger in the fourth quarter. Expenses were favorable by 1% in both periods, primarily due to 1 large land sale in the quarter that benefited operating expenses by $85 million. Those year-over-year expense variances are laid out on Slide 16. Overall, we had guided to quarterly expenses of $2 billion to $2.1 billion, and absent the large land sale that we weren't counting on closing in the quarter, we were right within that range.

Notably, inflationary pressures we have experienced throughout 2025 in wages, materials and depreciation continued to be headwinds in the quarter. That, coupled with timing of certain expense activity drove increases primarily within purchased services and materials. Nonetheless, we continue to focus on the controllables, delivering significant improvements in fuel efficiency and continued strong labor productivity.

Lastly, I'd point out we did have some recoveries in the quarter associated with storm damage incurred throughout the year. All in, while there were some puts and takes in the quarter, we are pleased with how our team handled a dynamic environment. Turning to full year results on Slide 17. You'll note favorable performance across all metrics compared to last year. However, not in the way we originally intended. A year ago, we were projecting 3% revenue growth, which didn't materialize, but we did control the controllables. .

We had good cost discipline and exceeded our original productivity targets, as John just discussed, by over $65 million. In addition, while the timing of large land sales are hard to predict, the actions we took to monetize these underutilized assets during the third and fourth quarters helped to mitigate the operating income shortfall from the weak macro. The fourth quarter and full year also benefited from the resolution of a state tax issue, which increased net income and EPS by $50 million and $0.22, respectively.

Overall, the bottom line grew by 5% compared to last year. Finally, moving to cash flow on Slide 18. The we generated $2.2 billion in free cash flow, an increase of almost $500 million over the prior year. In addition, our free cash flow conversion was very strong with the highest conversion rate since 2021. As we had guided to, we spent $2.2 billion on our capital plan, a 7.5% decrease from 2024. Going forward, we are planning for a $1.9 billion CapEx spend in 2026 with continued focus on the safety and resiliency of our network.

I'll hand it back to Mark to wrap it up.

Okay. Thanks, Jason. Before we wrap up, I want to leave you with a clear view of how we are approaching the road ahead. With the amount of change and uncertainty around us, given the demand environment and, of course, the pending merger, we are keeping our team focused on simple priorities for 2026. We will prioritize safety. We've got to keep our employees and our communities safe. We must continue to deliver consistent and reliable service. and we will control costs by driving productivity across the network, all while we fight for every dollar of quality revenue that is available.

While we are seeing long-awaited stabilization in truck pricing, the impacts of shifting tariff policies remain uncertain, and many customers continue to adjust to fluid conditions. So the macro backdrop remains hard to read, but we are staying sharply focused on the fundamentals. For the year ahead, we expect our cost base to be in the range of $8.2 billion to $8.4 billion, with an ability to accommodate a variety of volume growth scenarios within this cost envelope.

We are also reducing capital spending by nearly $300 million to $1.9 billion, reflecting a prudent approach in this environment, while still supporting the reliability and safety of the network. Now let me close with a brief update on the merger. As you heard from Jim on Tuesday, we are working closely with UP to include the additional information requested by the STB and submit an augmented application, taking the necessary time to ensure that it's thorough. We remain committed to working constructively with all stakeholders throughout the regulatory review. We continue to firmly believe in the benefits of creating the nation's first TransCon rail network, one that connects to the United States from East to West and gives shippers a more competitive single-line rail option to ship across and within the watershed.

Growth has alluded the U.S. rails, and I strongly believe that this merger is a necessary catalyst to grow, helping us recapture freight from the highway while supporting the reindustrialization of our country and strengthening our supply chains while offering better opportunities for employees across a unified network. We will have a more efficient, flexible and reliable railroad, providing single-line access to more than 100 ports connecting to global markets and 10 gateways to markets in Canada and Mexico.

So to wrap, as we move into 2026, the priorities for our team are clear: focus on the preservation of safety, protect the excellent service that our customers count on maintained tight control of our cost structure and compete hard for quality revenue. That's how we will continue delivering value both at Norfolk Southern today and as part of a stronger future Transcontinental network.

So thanks for your time and your continued confidence in our team. We'll open it up to questions.

[Operator Instructions]

Your first question will be from Tom Wadewitz at UBS.

I wanted to ask you a bit about the -- how you're thinking about volume. You gave us the expense guide. I just want to see if you could kind of point us to an area for volume and revenue? And also, I guess, within that, how are you thinking about, I guess, the strategy on volume? Obviously, you took a bit of a hit from the shift in some of the JB Hunt business over to CSX. I'm just wondering, and it's a weak overall freight backdrop, right? So I'm wondering, do you get more aggressive in your focus on growing volume or those efforts? Or do you kind of say, look, we'll just kind of deliver good service and we'll see what the market does, kind of take what the market brings to us.

Tom, thanks a lot for the question. And look, like I mentioned, it's a tough demand environment out there. It's actually pretty hard to predict. As we go into 2026, just you have to understand, we're also swallowing about one point of revenue headwind from the enhanced competition that already exists out there and some of the losses that we've had because of that new competitive environment. we feel really good coming off of 25% based on our performance and merchandise where we grew healthy, and we also took share. Obviously, Intermodal was the battleground for us where we face some real challenges. So it's a little bit hard to say, and I'll hand it to Ed to give you his perspective. But right now, we're really focused on just maintaining our cost within the guidance range that we gave you, where we can accommodate a variety of different volume scenarios.

And so we can handle growth up to several points. And frankly, whatever revenue we get, it's going to come with really strong incrementals because we've got the capacity. But Ed, why don't you build on that?

Sure. And thank you, Tom, for the question. Look, we know what we have to do in '26. We got a great record on safety right now, and our services is where we want it to be, and that's what our customers have really come to depend on. And so we're going to fight for revenue for every dollar, both in terms of share as well as pricing. And frankly, I expect to continue the momentum that we've had in merchandise, particularly around our price model. .

Now that's going to be offset probably by intermodal, which still looks sluggish when you think about all the trucks that are still out there on the highway and the enhanced competition that Mark mentioned. And frankly, we don't see a lot of support from coal going forward, at least in the near term in terms of price. So '25 is a volatile year and November and December, in particular, we really had a loss of momentum across the industry, I would argue, in terms of volume and demand. So it's really hard to predict where '26 is going to land. But again, as Mark said, we know we got a 1% headwind to start with. And we think softness is probably going to continue in the first half at least. We're going to wait and see what happens, but we are ready.

Next question will be from Brandon Oglenski at Barclays. .

Mark, maybe you want to reply to some of your competitors because we had a call last night where maybe the view was that this merger really doesn't enhance rail-to-rail competition maybe customers aren't really asking for it. So maybe you want to provide a little bit of insight from your perspective?

Sure, Brandon. Look, the railroads came out, the competing railroads came out pretty early on opposed to this before we even filed an application, okay? Before we could even lay out the case, there was a little bit of a panic reaction. And let's face it. They're all taking position that they believe will benefit their own business. I understand it, but it's not really -- however, it's couched, it's not really positions that are based on customer interest or benefiting the industry. I feel when you look at it, there's a lot of misinformation out there. There's a lot of scare tactics that are out there, and those are being circulated by the other railroads, and we're addressing those. .

But when it comes to prices, as an example, those are based on market principles, not simply the elimination of arbitrary geographic barriers that exist like the Mississippi River. Remember, the customers aren't losing options. BNSF, they're still competing in the West with the combined railroad. CSX is still competing in the East against the combined railroad. They all say alliances work just as well as a merger, but then they've -- so they're quickly going up with each other in various alliances and they took business from us. It's enhancing competition. No doubt about it. So their arguments are deeply inconsistent. Ultimately, they know that to compete with seamless single line service, they've got to compete harder, including likely lowering their prices. And that's what customers should be excited about. And frankly, that's what scares the other railroads. And that's why you hear such a backlash about this merger.

I would argue we're on the side of mobility here because we're giving customers more options than they have today. And the customers I speak with, they know it. They -- really, they're rolling their eyes at a lot of the noise that they're hearing from the others. They actually want deeper access into the watershed via rail to new and unserved markets or underserved markets, so they can move the freight onto the railroad from the costlier highway solutions. So that's basically it from my perspective.

Next question will be from Jason Seidl of Cowen.

Sticking on the sort of the competitive nature. Do you guys still think that there's going to be a little bit of bleed of freight to some of that competitive environment that exists in the marketplace as we move throughout the year and sort of what steps are you taking to sort of stem the tide? And then maybe if -- as a quick follow-up, the $300 million reduction in CapEx, can you talk about where it comes from?

Sure. Yes. I mean more bleeding, I would say, we've got to lap the impact of what happened in the September time frame. And as we lap that, we're looking at, like I said, a full point of headwind. Could there be more? Well, I mean, like I mentioned, we are in a new enhanced competitive environment. And we're fighting back. We've offered new services. And will the other railroads compete harder? Probably. But right now, what we've got line of sight to is about 1% of revenue headwind. But I've kind of told the team, we're going to fight like hell for quality revenue here. So we want to get attractive carloads, and we want to try to optimize our revenue line as best as we can. We're not sitting back and take body blows. So we're going to fight like how we're, like I said, offering new products at the same time. So Ed, do you want to add on to that a little bit?

Yes. Not much to add. You think about products like our new Louisville service in conjunction with UP as well as what we just announced of an Air Massachusetts, which will enhance the competitive landscape in England. That's just 2 examples of what we're doing to fight back. There's more in the pipeline and we'll have those out as soon as we're ready. Frankly, Mark hit it, of what we know it's about 1 point of headwind. Customers, as Mark said, they're going to choose the options that make the most sense for them economically, and that's what we're focused on.

Jason, do you want to talk about CapEx?

Yes. Yes. So, Jason, thanks for the question. I think just to be clear, our capital spending as it's always been and as we will continue to as we move forward is really focused on the safety and resilience of our network that I talked about. We've also done a lot of work over the last couple of years to build the foundation for growth. You've heard us talk about that in strategic areas like the 3 down in Alabama to support the Warrior Coal partnership as an example. So we're now benefiting from a lot of those investments. .

Specific to the reduction in capital that you've seen not only over the last year, but our projection for 2026. It's really the result of asset efficiency and the gains we've made from a network fluidity perspective. It's really allowed us to pull back on some of the equipment spending as we're turning our assets more quickly. John, I think maybe some color on locomotives and the capacity that we've created.

Yes, Jason, I couldn't say it any better than you did. It starts with our productivity. We're sweating every asset accountability for the consumption of our resources. And the value we've generated over the last, call it, 2 years, is really paying dividends in that. So we're able to protect all of the core investments to harden the network from an engineering perspective, harden and moderns our technology structure, and then take some reinvestments in our growth and our capacity so that we're able to grow, be poised for growth for Ed without having to do those capacity projects. And as we've committed to, as always, as our business pipeline comes to fruition, we'll make those smart strategic and very tactical investments from a capital perspective, very, very specifically. So we have no regrets approach to things, and we're going to sweat every asset.

Next question will be from Chris Wetherbee at Wells Fargo.

I was hoping maybe you could unpack the OpEx guidance, maybe help us walk from, I guess, the roughly $8 billion in 2025 to where you see it going in 2026. And I know it's difficult to predict the top line from a volume perspective given the macro and competitive forces. But I guess, do you see a path to year-over-year earnings growth? I guess the OpEx number gives us a little bit of context of what the potential earnout of the business could be? I'm just kind of curious how you think about year-over-year earnings growth in that context.

Jason? .

Yes. Let me start with the OpEx side. So when I look at this, Chris, I'd really put the expense drivers into 3 buckets. So first, we've got some outsized inflation. You think about, I think, the latest forecast I saw was about 2.6%, 2.7%. We're expecting inflation more in the 4% range. So we've got things like our wage inflation. We had a 4% increase last July that's coming in still into the first half of this year and another 3.75% as we move into the back half. Our health and welfare rates are up over 12%. We've got insurance premium increases. So you put all those things together...

25% insurance premium increase. .

That's right. That's right. And so you put all that together, and that's about a 4% increase in inflation. In addition, from a land sale perspective, we're expecting some more normalized land sales. We had 2 large ones that we called out in the third and fourth quarters. But even without those, we had some smaller sales that totaled about $70 million in 2025. And next year, we're really back to that $30 million to $40 million run rate. So that's another headwind. Finally, the third bucket is productivity. So we talked about another $150 million of productivity that we're going after here, and that's on the back of $500 million that we've already achieved over 2 years, almost hitting our full 3-year guide within that 2-year time frame. So you put all those 3 things together. And then I think when you think about the range, it's really based on a range of various volume outcomes that Mark talked about that we're really ready to handle in any scenario.

Yes. So I mean in the end of the day, we got higher inflation than obviously, any of us want. So we've tasked ourselves with going after more productivity than we originally had in the line of sight, but there's still some leakage that grow the OpEx line.

Next question will be from Scott Group at Wolfe Research.

So Mark, anything from the STB process or rejection of the application. Anything in there actually concern you as it relates to sort of ultimate merger approval odds. And then just separately, Mark, I've heard you now say fight for business 5x, including, I think, 1 fight like hell. I haven't really heard that language before. What does this ultimately mean from a pricing standpoint? Do we need to think about what are we seeing with price right now? Do we need to think about price just differently right now given this backdrop?

All right. I'll start with the first point. Obviously, the turnback from the STB was not what we wanted, but all the precedent and history shows that this is what typically happens. It's hard to get this right the first time around. Nobody really does. When an application of 7,000 pages and marked in complete, you feel kind of bumped about it, but we shouldn't we shouldn't be too too surprised.

And so the beauty is they've given us the path to completeness. We know exactly what we need to do, and we're working on it. And as kind of Jim mentioned on Tuesday, we'll -- we're going to get it in and we're going to get it in right. We're going to -- we're working hard together to make sure that it's thorough. And at the end of the day, the STB has made it very, very clear they are not reviewing. They did not review this based on the merits. They reviewed it based on completeness. So don't read anything else into it other than it was incomplete. So they've given us the answer key to completeness we'll get it done. So we're not too worried about that.

Yes, look, when I say fight for business, it's a rallying pride of this organization to go out and continue what we did as an example in merchandise where we had an excellent year last year. We grew our merchandise business, and we grew yields. So we're really proud that we have that double coupon and it's a rallying cry. We're going to remain disciplined. We actually had very, very good yield performance in the areas under our control. pricing -- core pricing was really good, and the volume growth was really good in merchandise and auto.

It was kind of overwhelmed and offset by the challenges that we had in seaborne coal pricing as well as fuel. So that kind of neutralized what you see a little bit on that great top line performance we had in merch and auto, in particular. So that's kind of what I mean and I wouldn't read anything into it. There's -- we need quality revenue. And you heard me say that too. So we're not going to do anything other than what we've been doing this past year, which is to fight like hell to offer new products and create a compelling environment for customers to come on to our railroad.

It will fight for every revenue dollar. .

Yes. Quality revenue dollar.

Yes.

Next question will be from Bascom Majors at Susquehanna.

Just a follow up on the fight like hell commentary. Can you talk about where you see maybe more tactical opportunities where there are some potential wins in the merchandise portfolio that hits those quality revenue thresholds. And on the other side, the enhanced competition sort of leakage from some of the competitive actions you've talked a lot and sized up the J.B. Hunt thing. Is there anything else you think might be on the horizon that can move the needle in 2026 there?

Ed, why don't you talk about that? .

Sure. I'll start back at the beginning of your question, which was what do we think we can grow. We had really good tailwind behind us in our automotive markets as well as some of our discrete chemical markets throughout the year. That includes nonpetroleum chemicals as well as some of our energy markets and waste markets. We think about automotive in a couple of different ways. One is we serve more direct auto origins than I think just about anybody. And because of the network and the way it's running right now, which I talked about during the prepared remarks, we were able to take everything that our auto partners can throw at us in terms of volume. And that is a real testament to fluidity of the network. And as John mentioned, sweating every asset, that's what gave our partners in the industry, the confidence to deliver that volume to us because they know we can handle it, and that confidence increased throughout the year.

So I look at those markets and that kind of performance as a place where we're going to be able to continue to capitalize. We'll see what Intermodal does. We're 4.5 years into freight recession. And at some point, it's going to end if demand comes back and we're ready for that, too. And frankly, the utility markets, we think, for coal are going to be strong this year, like they were last year. Seaborne is going to be a tough 5 dose, another 5. So that's where we see the opportunities.

Next question will be from Brian Ossenbeck at JPMorgan.

Just a quick follow-up for Jason or Mark, how much retention expense do you have in your OpEx guide, maybe you can give us a little bit of color on how that's going, given some of the challenges you're talking about here? And then maybe for John, obviously, the STB has talked about some form of reciprocal switching. You've got the experience of your career in Canada. How do you think that would be applied? Or how will the impact be if it was applied as written in an Eastern network? What would you think would be some of the challenges that could come from that? And do you think you have to deal with this with or without M&A.

Jason, why don't you start?

Yes, Brian, on the retention dollars, so that's in our merger-related cost line item, which is excluded from a non-GAAP perspective. So the guide we gave you of $8.2 billion to $8.4 billion is excluding those amounts. .

John, do you want to talk a little bit?

Well, I think the proposed rule-making is really indicative of customers being dissatisfied with service in general in certain locations. And the good news is that we're building the case of great service and the focus we're putting on our franchise, the commitment we've made to our customers to deliver outsized service performance and value really moots the whole argument associated with that proposed rule making. They've got great service, there's no reason to want to go somewhere else. And it's a little different than in Canada, where you have 2 transcontinental railroads that don't give the options that customers have here in the U.S. So I'd say it's early. It's proposed rule-making. And I think there are 2 different distinct options. And from an Eastern Railway and really for the sector, our job is to perform with exceptional reliability with enough resilience to carry the planned and the emerging volumes that come with it. and to have the overall commitment to this -- to the ecosystem that we support. That's what PSR 2.0 does, and we're really proud of how we performed. My job is to give no customer any reason to want to talk to at about going somewhere else or anything else like that. So we're really, really pleased with the competitive service product we put out there. We always want to be better. Mark, is you guys hear the word fight a few times you get excited. We hear it every day here. And he's tenacious, on safety and service, and that's what we're all about. And that's why we have 19,000 committed railroaders with absolute clarity on what makes this company work, service and safety.

Next question will be from David Vernon at Bernstein.

I'm sorry. Moving on to Richa Hernan at Deutsche Bank.

So basically, what I wanted to talk about was, Mark, you said your cost target, the cost study you laid out is ready to absorb a variety of different revenue scenarios, including higher ones. Back of the envelope math for us suggests you need to grow revenues by like a pretty significant amount, call it, maybe mid-single digits to not see a deterioration in OR. Just is that correct? And is there a reasonable scenario you think that could get you there? And then just on that, if you are getting some revenue tailwinds, should we assume higher personnel expense or like you said, you've been doing a really good job on productivity. I think head count was down 4%, volume up 3%. Should we assume head count kind of can stay where it is if you potentially pick up extra revenue?

Yes. I'll let Jason talk to this. But I think when you look at the low end of our range, it's, I think, basically a 1.8% growth. So in spite of all of those inflation numbers that we gave you and other headwinds, the productivity really offsets a lot of it and leaves us with 1.8% growth. So that's where we kind of see a more moderate revenue outlook. And as you grow revenue, you might have some volumetric costs that bring you higher into that cost range. Now from a head count perspective, I think what you're going to continue to see is us continue to drip down a bit, especially if the volume isn't there. I mean we have to continue hiring our trainees, our conductor trainees to replenish the pool because we do have a fair amount of attrition, but there will still be net attrition. And I think we put that model out there in 2025. You saw incredible productivity. I think GTMs were up 3% and head count was down 4%. And that 7% productivity right there. We expect you're going to see similar type of results here in 2026. But Jason, what else you want to add?

Yes. No, I think you hit it well, Mark. I think the key here were the guide to expenses controlling what we can control. And specific to your head count question, just a little more color there. We've held head count relatively steady during 2025 around that 19,350 employees, quarterly average, a bit lower than we were projecting for 2025. And as Mark said, will it track down a little bit, kind of flat to down for 2026, but really trying to maintain that trainee base. .

And the one thing that we've always reinforced as well is the overall productivity and decreasing the overall cost associated with employee and the workload that they have. And so as we make the system work better, we reduced recrews by our technology and the implications of running a tighter network. That translates into less overall wages by less retention, less taxes, less just cost of disruption. That feeds itself into the productivity we associate with locomotives. They're not sitting idle longer. They're not wasting fuel. All of those things go hand in hand. So the 1 indication on productivity head count really drives, or is driven by dozens and dozens of metrics that trade on their own, a lot of small wins, some outsized wins that all come into the cost reduction program that we've got, so we can manage expense to workload.

Next question will be from Walter Spracklin at RBC Capital Markets.

I just wanted to understand the productivity gains that you flagged, I think it was [ $260 ] million in total. Land sales, was that -- I know you did north of $150 million [indiscernible]. Was that in the productivity number. And then just following up on the truck competitive lane on the pricing side, truck competitive lanes, we've heard about capacity taken out of the truck market now on some of the regulations and higher prices. So is that having any positive impact on your efforts toward truck to rail conversion as truck prices move higher and their capacity lower?

Yes. This is Jason. I'll start with your -- the productivity question. So we had, as you mentioned, about $150 million in kind of outsized land sales, third and fourth quarter. that is excluded from the $216 million in productivity that we earned during the year.

Yes. And talking about truck competitive lanes and competition from the highway. Look, all those factors are going to help over time, whether it's a reduction in the available driver pool or the amount of trucks that are out there on the road themselves. But to be clear, in my career at least, I've never seen a recovery that was supply side led. It has to be demand led. And that's where I think we're really going to be looking hard to see what the U.S. consumer does and what the market can offer us. .

Next question will be from David Vernon at Bernstein.

So Ed, with the coal outlook, I wonder if you can help us understand kind of what's happening on the pricing side right now. Obviously, on the net side. I understand it's challenged, but are rates still declining? Or are they stable? And we're just -- just have to get through the comps. And it feels like it looks like when I go and check like Australian benchmarks in the global market, pricing has actually recovered a little bit there. And I'm wondering if you can help us understand maybe why that's decoupling from the U.S. market a little bit?

Sure. Well, it wouldn't be an earnings call if we didn't get a coal pricing question. So thank you for that. We've seen that benchmark price slide throughout the year. pretty consistently. But you're right. We've seen a little uptick here in January in the benchmark price. And that's given us some encouragement. But when I look at the forwards, it's still declining for at least the first half of the year, and we'll see what happens in the second half. In terms of decoupling, I'm not sure it's a pretty thinly traded market, frankly, on a global basis, even. And there's a lot of weakness both on domestic side for met coal and frankly, on the global side. We're ready to handle it. And as we talked about with Warrior. We got -- we have a fantastic new coal mine that's now pumping out coal for the global markets, and that's exciting. As those markets recover, we're going to be in a really good place. But I don't see it at least in the first half.

I think there's probably some geopolitics at play to where Australia is largely supplying kind of now.

Yes, not us.

Right. So I think some of who procures from who can sort of create a little disconnect in the markets. .

Look, to recap recap 2025, just to put it all in perspective, I think we delivered extremely solid productivity, $216 million of productivity, and that follows $292 million that we delivered in 2024. But this year, in particular, we moved 3% more GTMs with 4% fewer employees, that 7% head count productivity. T&E productivity actually improved 9%. We drove 21% reduction in recrews. And on top of that, we delivered 5% fuel efficiency in the year, which is what we budgeted for that I thought was going to be a stretch and probably, we wouldn't get there all the way, but we did. We delivered 5% and we pretty much got 4% to 5% each quarter of the year. So really great performance there. We improved our locomotive productivity by 10%. And we kept a lid on our OpEx by really offsetting inflation with this incremental productivity.

And then on top of that, we grew merchandise and our merchandise share with healthy core pricing. So really pleased with that. And we did it all while delivering outstanding service throughout the year and really excellent safety performance, as John detailed in his prepared remarks earlier. We've got industry-leading accident rates right now and mainline derailment rates. So really proud of what we did. And we did this all while we negotiated a transformational merger for the industry and began the heavy lift of a whole application process. So we didn't get distracted by that. We still delivered on that.

The challenge in '25 was just simply revenue was flat. We had flat carloads and the negative fuel and seaborne coal pricing offset that good core pricing we had in merchandise as well as we had some favorable mix that got offset. So that's kind of 2025 in a nutshell. And again, for 2026, we aim to keep the priority on safety, service, responsible cost control that don't compromise safety or service, and fighting for quality revenue. So we guided you to a cost envelope, the demand environment, it's the wildcard, but we can handle whatever demand comes our way.

And I can tell you whatever revenue growth we do get, it's going to drop through at attractive incrementals, given the capacity that we have. And I'll just leave you with this. Several of us are going to be working quite hard through the year to try to get this merger across the finish line with the STB process, but we will protect the vast majority of our business leaders from distraction so we can continue to execute on a daily basis to bring these 2 well-run railroads together. So thank you very much for the participation today, and please all stay safe.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines. Enjoy the rest of your day.

Good afternoon, ladies and gentlemen, and welcome to Norfolk Southern's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And I would like to turn the conference over to Luke Nichols, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important.

Our presentation slides are available at norfolksouthern.com in the Investors section, along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis.

Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George.

Good afternoon, and thank you for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. We delivered another quarter that demonstrates the team's ability to deliver a quality railroad.

Throughout the year, we have highlighted our continued commitment to focus on what we can control, running a safe, efficient network, improving processes, delivering solutions for our customers' most pressing needs and supporting our people. That remains the approach today of our 20,000 thoroughbreds who deserve thanks and credit for our performance. On safety, our train accident and employee injury rates continue to improve. That's the result of disciplined execution and continued emphasis on training. Safety is a core value, and we will never compromise on it.

On service, our network is running well. Terminal dwell and car velocity remains stable, and we once again saw fuel efficiency gains, attaining a new quarterly record. These improvements are integral to delivering reliable, high-quality service for our customers and they position us to sustain performance over the long term. Safety and service together form the foundation of our ability to serve customers at the highest level. And what truly powers this progress is our people. Across the railroad, the Thoroughbred team shows up every day with focus and determination. We are committed to building the next generation of railroaders because careers in rail continue to be among the best in the country. As we noted at recent conferences, the third quarter volume surges forecasted by partners didn't materialize as expected and the truck market remains oversupplied. Ed will detail this.

So while revenues were short of where we expected, the continued success on productivity was evident in the quarter. We also had a large land sale at the end of the quarter that helped neutralize other adverse impacts that Jason will cover. While not big in Q3, we started to see some of the revenue erosion from competitor reactions to the merger announcement. We expect the impact to grow in the fourth quarter and continue to be a challenge over the near and medium term.

As we make progress toward getting approval for the proposed merger with Union Pacific, our focus remains squarely on ensuring momentum on safety and service. while executing on our strategy and delivering for our customers. We've got a lot to be optimistic about. We're on a good path, and we're doing what we can on the controllable side to prepare for growth. I'm proud of the progress we've made, and I'm even more excited about what's ahead.

With that, I'll turn it over to John and the rest of our leadership team to walk through the quarter in more detail. John?

Thanks, Mark, and good afternoon, everyone. Turning to Slide 5. I want to recognize the deliberate transformation Norfolk Southern has delivered in safety, service and cost structure from 2024 and throughout 2025. This progress reflects a culture of accountability and disciplined execution, powered by generational leadership investments that position us for long-term success. We're creating a network that is safer, more reliable and more efficient, shaping the future of rail and setting the standard for what rail service can and should be.

Our PSR 2.0 transformation is delivering measurable outcomes that matter to every customer and stakeholder. For example, Amtrack host delays across Norfolk Southern improved 26% year-over-year, underscoring our progress and unwavering commitment to precision, reliability and the standards that define Notebook Southern.

In Q4, we're going live with Clarity camps, the next cornerstone of the Thoroughbred Academy. The curriculum elevates PSR 2.0 business excellence. And importantly, as we transform safety and service standards were simultaneously delivering productivity gains, creating a clear and steady direction across the organization. All these efforts are aligned to our broader commitment to deliver meaningful expense controls while operating a reliable and more resilient railroad. Relative to 2024 full year results, our year-to-date safety figures demonstrate FRA personal injury ratio has improved 7.8% and our train accident ratio has improved 27.7%.

Our team will never be satisfied with our safety results. We always strive to improve on our best performance. That's why my team and I are spending more time in the field this quarter, staying close to the work, staying close to our people and staying focused on what drives results.

Turning to Slide 6. We achieved stronger service and volume growth this quarter while operating with fewer assets and resources. That discipline is clearly reflected in our financial outcomes. GTMs increased 4% year-over-year, which were accurately delivered with 6% fewer qualified T&E. Our revolving zero-based train service plan continues to drive cost control, precision and productivity. Key highlights include a 19% reduction in [indiscernible] a 12% decrease in intermodal trend starts since the beginning of the year, alongside of sequential improvement in intermodal service composite and a 5.5% merchandise carload growth.

Turning to Slide 7. These results reflect decisive actions to balance quality service and efficiency. We're on track to exceed our expense reduction and broader financial commitments, and we're not stopping there. The team is stretching for more. raising our efficiency targets to a 2026 cumulative goal in the range of $600 million. Operational metrics confirm the effectiveness of our field management strategy. which delivered an all-time quarterly record of $1.01, a 5% year-over-year gain. This reflects both immediate savings and a durable path to greater efficiencies. Sequentially, train speed rose 3%, allowing us to store more locomotives while running a leaner, more reliable fleet.

Turning to Slide 8. Rapid deployment of next level field technology is part of a broader strategy to transform inspection, reliability and overall performance. In the photos, you can see a new state-of-the-art wheel integrity system being installed near Burns Harbor, 1 of our busiest quarters. We're advancing machine vision at speed across our network. In the quarter, we deployed a new inspection portal in Virginia, bringing the total now to 8. We positively identified over 40 wheel integrity defects. And we've launched 6 new algorithms with 9 more already in development. The data from these field technologies feed our war room that are staffed with craft employees, managers and senior executives facilitating real-time problem-solving and cross-functional collaboration. We're leveraging digital tools, operational analytics and ecosystem level coordination to elevate our capabilities and operation and safety excellence.

Wayside stops are down 6.7% year-over-year and 36% year-to-date, even as we expect 5% more axles daily. This quarter reflects that our operational fundamentals are sound and are supporting a strong service offering. This is made possible by the commitment and resilience of our railroaders across the entire enterprise. At Norfolk Southern, results matter, and our people continue to deliver with confidence and momentum. With that, I'll turn it to you, Ed.

Thanks much, John. Now let's go to Slide 10, where you'll see that we achieved 2% year-over-year growth in both revenue and RPU in the quarter. We see several dynamics at play in the business portfolio. We have strength within our merchandise markets, partially offset by meaningful declines in export coal markets. We see reduced fuel surcharge revenue and softer-than-expected intermodal volumes.

Overall, our volume for the third quarter finished flat despite gross ton mile growth of 4%. Let's look inside of merchandise. Volume grew 6% from a year ago, driven by our auto, chemical and metals and construction markets. Revenue less fuel grew 7%, which underscores our pricing discipline and our volume performance. However, we had mixed headwinds from growth in commodities such as natural gas liquids, sand and scrap metal, which diluted our overall RPU performance. In Intermodal, we're navigating the complexity of ongoing trade and tariff uncertainty persistently abundant highway truck capacity and outside factors, including competitor responses to our merger announcement, which caused volumes to decrease 2%. Intermodal revenue less fuel and RPU less fuel both grew, reflecting the overall stable pricing environment right now.

Now here, I have to note that year-over-year RPU comparisons benefited from an abnormally high volume of empty shipments ahead of the East Coast port disruptions last year. Let's turn to coal, where weakening seaborne coal prices drove RPU less fuel lower by 7% and and this was the most significant revenue headwind for the quarter. We enjoyed stronger demand in our Utility segment, but it didn't offset the sustained weakness in export. This interaction has been playing out throughout the year, and we expect it to persist.

Let's go to Slide 11 and talk about the market outlook. Like the third quarter, we continue to navigate a dynamic economic environment, along with competitive cross currents. For our merchandise markets, we forecast vehicle production will be challenged in part due to recent disruptions at a key material supplier to our customers. We expect this will have a meaningful impact to production at several NS-served automotive plants in the fourth quarter. At the same time, overall manufacturing activity remains mixed with output expected to grow despite the backdrop of trade and tariff uncertainty. Strong fracking activity in the Marcellus Utica Basin is supporting demand and NGLs and sand in our merchandise markets. Looking into our intermodal markets, we expect softer import demand in the near term. This reflects the impact of tariff volatility and growing trade pressures.

Warehousing capacity remains tight as inventory levels expanded at the beginning of the year ahead of tariffs and truck capacity remains oversupplied. Coal prices have remained pressured with significant uncertainty surrounding export trade. And at the same time, we're expecting utility demand to see continued support from growing electricity demand and lower existing coal stockpiles. Now these dynamics should be considered against the backdrop of our recently announced merger, which has intensified competitor activity across the industry. And as a result, we anticipate volume pressure, particularly in our Intermodal segment. and so we're maintaining a cautious outlook for the remainder of 2025.

Lastly, as always, we want to thank our customers for their continued partnership and business the entire NS team is aligned around delivering the service that our customers need every day, building trust as a vital partner in their supply chains. Now with that, I'll hand it over to Jason to review our financial results.

Thanks, Ed. I'll start with the reconciliation of our GAAP results to the adjusted numbers that I will speak to today on Slide 13. The Total costs attributable to the Eastern Ohio incident were $13 million, which included $16 million of recoveries under our property insurance policies. In addition, we recognized the $12 million restructuring charge in the quarter as we continue to rationalize our technology projects.

Finally, we also recorded $15 million in merger-related costs, consisting primarily of legal and professional services as well as employee retention accruals. Adjusting for these items, the operating ratio for the quarter was $63.3. From a bottom line perspective, we earned $3.30 per share.

Moving to Slide 14, you'll find the comparison of our adjusted results versus last year and last quarter both comparisons reflecting a 10 basis point improvement in the operating ratio and the sequential comparison basically even with the current quarter.

On a year-over-year basis, Revenue was up, as I just discussed, but we were expecting approximately $75 million more revenue as we had guided to within the second quarter materials continued macro headwinds, a surge that never materialized and competitor responses from the merger announcement that started to really ramp up at the end of the quarter, all were barriers to the attainment of that expectation.

Expenses were up 2% on a 4% increase in GTMs, but there are a lot of puts and takes within OpEx, and those year-over-year expense drivers are laid out on Slide 15. You'll note that the quarter benefited from higher land sales, which were $65 million more than last year. In fact, the entire variance was driven by 1 large sale that closed at the very end of the quarter.

Another quarter of strong productivity gains also helped to mitigate both inflationary and volumetric pressures in addition to the absence of benefits recorded last year in the form of cancellation of stock awards and fuel recoveries. I'd also point out that claims expense was elevated in the quarter despite the outstanding progress we're delivering on our safety initiatives as we react to unfavorable developments on claims from several years ago, in addition to claims inflation on a few incidents that we have experienced this year.

So as I think about our 63.3 operating ratio for the quarter, Clearly, that was aided by outsized land sales. However, we were short on revenue from our latest guidance, and we dealt with higher claims expense than what we had been experiencing. And as we move into the fourth quarter, Revenue will continue to be challenged, but we are focused on what we can control, and we expect to maintain our cost structure in the $2 billion to $2.1 billion range. I'll hand it back to Mark to wrap it up.

Thanks, Jason. As you can see, there were a lot of moving parts in the quarter, but as a thoroughbred team, we are successfully controlling the controllables. Looking ahead, macro environment remains uncertain and we acknowledge that over the next several quarters, unpredictable demand and unique competitive dynamics will create some abnormal fluctuations in our top line. We are not standing still. Our recent Louisville announcement will create attractive volume growth as it builds out. Additionally, once the merger closes, we can provide attractive solutions for our customers unlocking faster, more reliable service, streamlined shipping experiences and expanded access across a unified coast-to-coast rail network.

These improvements will strengthen our value proposition and help drive long-term growth in our combined railroad through highway conversion. While the regulatory review process is ongoing, we remain laser-focused on maintaining strong safety performance, while running a fast and resilient network. That is delivering great service that our customers have now come to expect from us. Meanwhile, we will continue to maintain a sharp focus on optimizing our cost structure. As you saw in John's section, we are making excellent progress on the productivity front and are raising our 2025 efficiency target to roughly $200 million, and this follows the nearly $300 million we achieved in 2024. I am really proud of our team for the work they've done on this. And while revenue in this environment is proving difficult to guide, you can expect that our fourth quarter costs in absolute dollars will be in the $2.0 billion to $2.1 billion range.

So with that, let's open the call to questions.

Operator? .

[Operator Instructions] First, we will hear from Scott Group at Wolfe Research.

So Ed, if I heard right, I think you said a 2-point drag in Q3 from some business losses related to the merger. And it sounds like it gets worse going forward? Is this just intermodal? Are you seeing in any other places? And ultimately, how much business do you think is at risk until we see merger closing?

We saw that start to really manifest itself toward the tail end of the quarter, call it, September-ish. And so it's going to manifest itself to wrap around it year-over-year. It's a minority of -- certainly a minority of the business, and it's really focused geographically to this point. in the Southeast. We're working really hard to do 2 things: Number one, to make sure that we're providing a fantastic service for everybody that wants to use us. And number two, we're really leveraging the network that we have, the route structure and the terminal structure to bring freight back to Norfolk Southern that may have left for whatever reason. And so I'm pretty confident that, yes, while this is going to be a headwind for a while going forward, over the next couple of bid cycles, you'll see it start to iterate itself back toward what I would call the high-value, low-cost solution, which is Norfolk Southern for the beneficial cargo owners.

And that's independent of a merger, Scott.

And then maybe just, Jason, I think that the $2 billion to $2.1 billion of cost, it's a relatively wide range on a quarterly basis. Any sort of more help in terms of where you think we could be in that range in Q4. I don't know, is maybe the right way to think about it, excluding the gains was a 65.5% OR in Q3. Do you think that gets worse in Q4? Just any thoughts there?

So when I think about the expense profile going from third quarter to fourth quarter, as you mentioned, you've got to kind of normalize for those outsized land sales that we had in the third quarter. And then historically, as we move from third to fourth quarter, if you look at the 5-year average, expenses are up about 1.5%. And that's kind of really what brings us into that $2 billion to $2.1 billion range. So kind of moving with that seasonality.

A couple of drivers that I'd point you to. We've talked about headcount in the past, guided you to the fourth quarter 2024 exit rate, which is about $19,500. We're a little bit below that in third quarter. So that should step up a little bit as we move into the fourth. Depreciation expense always steps up as we move into the fourth quarter just as we get more capital work done and get those projects in service. And then finally, we've talked a bit before about what we've done on the technology front, and we've really gone to that managed services model. So you'll see some higher purchase services expense in the fourth quarter that are being driven by that. eventually, you should see that come out of comp [indiscernible], but it will definitely be a driver in the fourth quarter.

Next question will be from Brandon Oglenski at Barclays.

Maybe this is for Mark or John, but when you guys think about managing the cost structure in this environment where maybe there's some share loss and obviously, some headwinds just given the trade environment especially as you look out further, if the deal gets approved, then maybe you want to maintain some excess capacity as well. So how do you balance these differing needs as you look out over the near term and medium term?

Yes. Great question, Brandon. I think you're right. We've got to be really careful how we address this. I mean as you see, we have been trading down a bit and driving some productivity with regard to moving 4% more GTMs this quarter, while we saw headcount kind of drift down 3%. So that's a 7% spread. We're really really happy with that outcome, and we're seeing actually better service and better safety performance while we do it. So we're going to be really careful here. And I think, John, maybe you can talk a little bit about the next step of cost reduction. But the other element I'd point you to, Brandon, we continue to focus on fuel efficiency, where we had a 5% gain year-over-year in fuel efficiency from all the initiatives that John has put in place. So we continue to get these mid-single-digit improvements in fuel efficiency. So labor productivity, fuel efficiency. We've been attacking purchase services, although we are making a deliberate shift to outsource some stuff in IT that will yield benefits in comp [indiscernible]. So that's why it's a little bit of an odd a little bit of an odd quarter because you do see 0 volume growth on the carload side, but there is actually GTM growth so that does require resources. And also remember, 18% growth in autos, 18% growth in auto this quarter year-over-year, huge growth. And that, of course, has some incremental volumetric costs that come with it that you'd see manifest in equipment rents. So those are the kind of things where it's a complex P&L. We're going to be really mindful of really trying to drive those areas for productivity and efficiency while not undermining our ability to move volume.

[indiscernible] chime in, please. Yes. Mark, you're speaking like an operating -- Chief Operating Officer with all the detail gives me the chance to talk a little high level. So I appreciate that. Let's just start with the fundamentals. We're moving more volume with more yield on our trains slightly heavier trains with less crews and more overall fluidity. So using that train speed that we're generating to reduce our locomotive fleet increase our car miles per day, decrease the number of cars it takes to create a load and doing all those fundamental things that show through to the customer and give the chance to sell aggressively in whatever market he's in at the time. So those fundamentals are very sound. We are -- we have restructured a number of things, including how we manage fuel, which is showing through in sequential fuel improvement and flowing through to the bottom line. But it doesn't stop there. We've restructured how we hire people speed and the quality to which they enter the workforce. So that gives us the opportunity to be more responsive, even longer lead resources and assets. So we're ready for those things. And we'll continue to improve locomotive fluidity by revamping our train service plan I'll just say that our zero-based plan version 3 has just come out. And year-to-date, we've reduced our interval crew starts by 14%. Our shipments per crew start have improved by 11% and we've simplified our lean offerings and are blocking complexity. And as a result, we're really energizing how we service that product. and delivering it with more resilience and capability. So that's what gives me confidence that we're going to not only stretch ourselves this year and the remainder of the year in that overall cost takeout in that financial improvement from an operating perspective and an overall enterprise perspective, but even continuing that momentum into 2026 and stretching ourselves in the range of $600 million cumulative takeout. So it's going to be hard work, which is in our DNA, and we're ready for it.

Next question will be from Jonathan Chappell at Evercore ISI.

Ed, you mentioned in your prepared remarks that the coal RPU was one of the single biggest impacts on revenue. And you also said you expect the headwinds to persist. If we look at export benchmarks and even your [indiscernible] last week, made it seem like the coal RPU pressure would stop at least sequentially, maybe you're referring to year-over-year. Can you give us any sense to how much that may continue to step down from the third quarter level? And when do you think that, that headwind may begin to stabilize?

I think you got that right. And thanks for the question, so I can clarify. I think the export benchmark is something like 175 right now. And I don't necessarily anticipate any material degradation from that. So on a sequential basis, maybe go sideways, which on a year-over-year basis, is still double-digit down. Same is true on the utility side for export. Probably going sideways, but still on a year-over-year basis, double-digit down. And I think that's going to persist certainly through the quarter and maybe into early next year before it hopefully starts to climb out. There's a lot of uncertainty around export coal when it comes to both the met and utility side. who's going to get it or who's going to take it and where it will come from. So we're keeping a really close eye on that.

Great. So that revenue headwind than mostly volume, we should stop looking for RPU deterioration overall?

Yes. Year-over-year ARPU deterioration will continue. Sequentially, it should be pretty stable. And this quarter, we did start to see volume degradation as a result of the poor pricing environment.

Next question will be from Tom Wadewitz at UBS.

Wanted to ask a little more on the topic of the competitive responses. I guess the kind of name that comes out and seems the most prominent in Intermodal would be J.B. Hunt. And I just want to get a sense if you could Help us think about to the extent that BN is going to exert some control here and push more business over to CSX. How much of the business do you think should be sticky to Norfolk? I recall back quite a long time ago, you had some corridor initiatives that I think are differentiated like the [indiscernible], just lines that maybe CSX isn't going to serve markets as well. So I just want to see if you have some high-level thoughts on what can make business with JB or intermodal, in general, sticky in terms of network differences? And how much kind of risk is there of kind of [indiscernible] forcing some business over to CSX?

So I think we talked about it before that more than half of our business with J.B. Hunt originates and terminates here in the East. And we continue to provide a really excellent service product to them, and we feel comfortable and confident with that. retaining that business. I think for the balance and particularly in certain geographies, perhaps in the Southeast, that's really what's at risk right now that they can go in and talk about. But I just want to reemphasize that one thing. About 2 decades ago, we started investing hundreds of millions of dollars to build out our intermodal franchise. We built out that premier corridor in the Crescent Corridor, we built terminals, and we have an unrivaled intermodal franchise in the East. And it's a franchise that people want to be on because it provides the fastest route for the major markets. And with a terminal footprint where customers want it to be. So with time, cargo owners are going to want that business back on the NS and we are going to work aggressively to help them get that cargo back on the. So Ed, please chime in.

Well, gosh, I think you pre summarized it, but let me say this. There are a number of key lanes where Norfolk Southern offers exceptional value for customers that really can't be replicated anywhere. There's -- I would say this from experience, there's a reason why we have the second largest intermodal franchise in North America is because of the superior route structure that we've built out that Mark just referenced. And also a terminal network that gets you with your freight, landed closer to the consumer than any other network out there. So there's lots of things that can happen in terms of pushing freight around that, what I would call, be unnatural. But over time, we're very confident. John and I are that we put our heads together, make sure our service is exceptional. The way it is now. We continue to partner with the riots we're going to be in good shape.

But I guess one component of that as well is just that CSX has had this major construction project and debottlenecking with their Howard Street Tunnel. And so that makes them a lot more efficient north, south along the east. Is that like is that a significant competitive impact? Or do you think that's not -- that's kind of a impact on a modest portion of your domestic?

I can't really comment on that project for them. I hope it makes them a lot more competitive with truck.

Next question will be from Brian Ossenbeck at JPMorgan.

First, just a quick follow-up maybe for Ed. I think you mentioned that business and we're talking about here, it would come back to the network even without mergers. Maybe you can just elaborate exactly what would have to change if it's better service or competing more on price? And then just maybe for -- on the upside for John, when you think about fuel efficiency, I mean we've always heard it was going to be a challenge at Norfolk because of length of haul and mix and a bunch of other things, wait but it looks like you've clearly broken through. Is that something you feel like you can get to sort of best-in-class levels with your peers? Some more thoughts on that would be helpful.

All right. I'll go first before I forget the question. When I think about the service from the West Coast into the Southeast, I think about UP and NS utilizing the Meridian Speedway as the fastest shortest route between those 2 regions, period. There's not a better ride out there when it comes to that kind of freight for intermodal. So that's one thing. The second thing is the exceptional amount of terminal capacity that we have and expertise to back it up, both in the Carolinas, Florida as well as in Georgia. That's just going to be a force multiplier and has been. So we're confident that over time, cargo owners are going to make the right decision about where their freight routed. I'll hand it off to you, John.

Well, I'm glad you're noting the hard work the team has done on fuel. And I won't comment on what the order the possible may have been thought through back then, but I'll tell you right now, and as we go forward, it's a big part of a strategy that includes all of our strategic sourcing and logistics approach, including the assessment of distribution, the use and consumption of the product like fuel. And the current efficiency represents a significant dollar value. And if you look at the Mosaic of measures that we present to you all, we're balancing speed, locomotive productivity, the fuel burn. And we're looking at it, not how fast can we go just to get faster and to get to point A to point B quicker, we will, if that means we can use a crew at the end of that trip to use them within the yard and save money somewhere else. But as we work through fuel consumption, we want to make sure that how we manage our fuel resources is aligned to what our train service plan is. And we're always looking at that service plan. we're taking more detailed approach on each element of it. what resources we need, how much fuel we need to move the tonnage, how soon we need to get to a customer. So on a product level view, we're satisfying the contractual obligations and elevating our service metrics and how they face the customer. And we're taking that -- the nice thing is we're taking that approach in mechanical, how we service our locomotives, how we maintain our parts inventory how we're putting stress on our engineering team through Ed Boyle and his great leadership and managing ties, plates, rail, ballast, all of those things. So across all of those things, whether it's fuel and operational resources, we're taking a really hardline approach on it. So I think we've got room to grow on fuel. I don't have any end in sight to the value we can create managing all of those components. But I can tell you, it's the tip of the iceberg as we move forward against all our enterprise resources.

And I would just add one other thing, Brian, is when I look back years ago when I came in, we had roughly high teens percent of our locomotive fleet that was AC. And through those investments that we've been making every year systematically to upgrade our locomotive fleet from DC to AC, we're now approaching 80% AC. So that is definitely helping provide more runway for the future that John is extracting using the methods that he's talking about. So that definitely is a driver as well, right?

Yes. And that gives us the just run just look at 2019, which was one of the bellwether years from a financial and service perspective. And right now, we're running year-to-date 23% less horsepower per ton. When you have that discipline in managing locomotives, the utilization of your power, your crews, you're reducing your stops, you're creating more fluidity it shows up in fuel and shows up in so many other P&L items. So you're right, Mark, those investments, those wise investments are paying dividends.

But the discipline you're bringing now for the things you're just talking about is really what's accelerating benefits and providing more runway into the future. So congratulations on that.

[Operator Instructions] Next, we will hear from Chris Wetherbee at Wells Fargo.

I guess I wanted to sort of ask about what you think is possible from an OR improvement perspective, particularly as we're thinking about 2026. So you came into this year, I think there was a revenue target around 3% with 150 basis points of productivity. And then 50 basis points of OR. Obviously, the revenue side has been more challenging because of volume. We'll see how much OR you get this year. But I guess maybe the question as we go into next year, how much sort of OR opportunity do you think there is that you can control and maybe how much is more revenue dependent? So obviously, it's an uncertain environment out there. I want to get a sense of out of the $600 million of productivity, how much do you think can be translated from an operating ratio perspective as we think about next year?

Chris, thanks for the question. Look, I think what we're going to do, which is very similar to what we're doing this year is we're going to focus really hard on the controllables, in particular, those elements on the cost side. So we're going to maintain a lot of discipline on our employment levels and try to drive labor productivity for sure. We're going to focus on the fuel efficiency and every single line item in the P&L that we can control. Obviously, we get things like claims that surprise us -- and Jason has talked a little bit about that and can talk to you some more about that, some of the social inflation we're seeing. But there's a lot we can control, and that's where we're going to put our focus. On the revenue, obviously, we've got some headwinds. And mathematically, that's going to probably put some short-term pressure on the OR that we're going to have to deal with. But Ed and his team are doing a great job fighting every way they can to preserve every single unit that's out there and try to grow every single unit with the value offering that we have, thanks to the great service John is providing. So we're going to do that. But I think at the end of the day, the OR is going to be an output of the those 2 elements. Jason, do you want to add anything?

Yes. I would just say it's really -- if you look at our kind of our cost profile over the last couple of years and think about the inflation that we've taken on and the volumetric expenses, really, and thanks to what John and the team have done from a productivity standpoint, harvesting almost $500 million of productivity. That's what's enabled us to kind of keep that cost profile flat over these last couple of years. So I think you hit it right on, Mark, as we move into next year. I did just want to for a second talk about claims because you had mentioned it, Mark. But John, you can maybe jump in and talk a little bit more about what you guys are accomplishing from a safety perspective, which I think is really remarkable progress. But on the cost side, claims is always very volatile, and we see that quarter-to-quarter. But what we're seeing right now is the resolution of some older claims. And while the frequency is going down, we're experiencing higher cost per incident to close out those claims. So over recent years and quarters, we've seen pressure on that claims line. as both the insurance rates increase, but also we're facing the same type of social inflation that you're seeing across the transportation sector. But John, maybe a little color on what you guys are doing to mitigate the number of incidents.

Yes. And we've said it. Our safety from an injury and accident perspective are taking on a really strong momentum, and we're continuing to invest in our safety camps I've mentioned it before on these calls, our [indiscernible] has got a component of safety and safety leadership. We've processed over 2,500 leaders through that program who have now had a more capable way of approaching our workforce, building the environment and skills that are necessary. And you couple that with the investments we've made in technology and a great story. We had a broken wheel derail with a train that had come on us for 1 mile. And we -- as a leadership team said, there's got to be a better way. And very rapidly through the work we do with Georgia Tech and our portal systems, we created a wheel detection device that gives us -- identifies wheel integrity on all of our trains that pass through those portals. It was so effective that we made a suit case version, a mobile version, and we're putting it into the ingress and egress of our hump yards and other high-density corridors to give us a good view to insulate ourselves from something that is not ours. Most of it is on foreign cars. And it's been really effective so far, we've -- I would say using my own language that we prevented over 40 games by the detection that we've had with these wheel inspection devices that didn't exist a year ago. That ability to take ideas understand the business, convert them into actionable items and then put them into field use at scale is a testament to the commitment we've got on safety and how we can really influence line items that you're talking about and solve them at the root cause.

And Chris, I just want to come back to one other thing as we look to '26. So obviously, we're going to work on controlling the controllables on the cost side. But paramount importance in 2026 is for us as an enterprise to continue this quest toward improving and preserving a very safe railroad. We cannot have a mismatch. Similar to that, we have to maintain outstanding service for our customers. We cannot step back from that. Those are the 2 most important things. We're going to control costs. But those 2 things are paramount importance. And I would say the other thing is really the preservation of employment and retention because we have to go into this merger with talent to ensure that it succeeds. So that's where our focus is. And like I said, we're going to fight like hell for every unit and every dollar that's out there. But let's not lose focus on the the safety and service elements, which are high, high priorities for us.

Next question is from [indiscernible] at Deutsche Bank.

So sorry to beat a dead horse, but I also wanted to talk about the revenue erosion you expect from competitor reaction. First, I wanted to confirm that this was ring-fenced to intermodal. And then I guess what is really hindering your ability to compete? I know you enhanced your partnership with UNP in the interim, for example, Mark, you just reminded us today about the hundreds of millions of dollars invested in intermodal over the past 2 decades to make for a very strong product. So I guess I'm just confused on why you would be challenged just because you're pursuing a merger? And then is your competitor winning on price? Or is it something else? I mean that it's not Howard Street. So maybe just elaborate a little bit more there.

That's a great question, Ed?

Sure. Well, let me start with your first question, which is, yes, it is confined to intermodal and specifically to domestic nonpremium intermodal. And I can't talk about or address why other entities contracts may or may not allow for certain things to occur. But I can tell you that we're competing vigorously both from a price perspective in a market that's been down for 40 months, but also from a service perspective. And John and I are laser-focused on the route coming out of L.A. across Freeport, Meridian Speedway and into the Southeast. And we have a great team operating our 2 terminals in Atlanta, our one terminal in Charlotte, our other terminal in Greensboro and the one in Jacksonville that are not only poised to handle the freight we're getting today, but can accept more, frankly. So that's the landscape. And again, like I said, I think over the next couple of bid cycles as those beneficial cargo owners look at the value that they're receiving from the service that they are getting from whoever they're getting from we're going to offer a very compelling case for them to come back to a network that makes the most sense for them. John, do you have anything to add there?

I would just emphasize that our customer-facing composite standards are extremely high. We're committed to delivering them. And we've got resources, we've got assets, and we've got a corridor that's poised and ready for growth. And we're going to deliver regardless

For every customer that is able to use Norfolk Southern. We're open for business.

And look, again, I'll get back to the fact that when we control the relationship entirely with our customer base in our region, we're doing great. But when it's an interline arrangement and the contract may not be specifically through us, that's where we're seeing some of these challenges. So this is really kind of interline only. That's where it's -- that's where we're seeing it.

Next question will be from David Vernon at Bernstein.

I guess, Ed, sticking on this topic, can you put a finer number on kind of what the quarterly run rate should be down, assuming nothing else changed in the business from where we're exiting kind of 3Q, just to help us kind of better understand what's in that model. And it sounds like you're saying you guys can go market that against that service and maybe get some of traffic over time. What's the risk that this gets worse, right? I mean it sounds like you're saying you're going to go back and try to go directly to BCOs presumably with another IMC to pull back some of that volume. Is there -- do you get worried at all that maybe there's another shoe to drop as far as kind of the volume that's been lost.

[indiscernible] But I would say this, we're working really close with all of our partners, including ones that may be affected with this to make sure that we're offering exceptional value for them in places where we can do that. And there are places across our network that I would argue we offer services that really no other railroad can replicate. Quantifying it's probably a little bit difficult. You saw what the effect kind of was really on a portion of order. So we'll see from here. And again, it's not like we're in a super healthy truck freight environment where there's a lot of lift right now. So the whole world is struggling when it comes to freight, this is one other -- one more headwind applied to the portfolio, but we're very confident in the service -- we should reiterate.

In the third quarter, it wasn't the majority of the challenge in intermodal. It was on the margins -- this will build in the fourth quarter and into the first quarter. And that's where it will take us, like you said, a couple of good cycles, we should end up getting it back. But we're going to feel the pain here in the next handful of quarters.

Next question will be from Stephanie Moore Jefferies.

Maybe talking a bit about your plans currently or your strategy to mitigate potentially any integration risk that we should see with the integration of the 2 networks. Clearly, you've made tremendous efforts from a service standpoint over the last several years and UNP as we all saw earlier today, also at a really strong point. So wanted to just talk again hear your view how to early on mitigate any of that integration risk or network disruption that could come as a result of the merger.

Yes. I think that's 1 thing, Jim and I are very, very aligned and clear on is that we cannot afford to have any integration pickup or challenge. So we're going to take our time and do this the right way. We're going to learn from the lessons of the past, and we're going to study that carefully. And we're going to kind of do a lot of benchmarking and leverage the talent we have on both teams to start planning when that's appropriate and observing what it is we can do from a systems perspective and then even from a technical perspective. We're going to do this very, very deliberately. It's an ultra high priority for us when we do bring these companies together to ensure that the integration is done right. John?

Yes. Mark, I've been through these potential mergers before, and I'll let those results speak for themselves, but merger or new merger leadership matters. And since early 2004 and throughout 2025, this team has successfully delivered our PSR 2.0 transformation, which has been building the momentum and producing irrefutable value. And we've had to navigate complexity ambiguity and even adversity. It works in all business environments, and we're going to continue to invest in our generational leaders elevate our service. We're going to continue to stress the plan. remove waste and deliver more volume with fewer people, fewer locomotives, fewer cars and less fuel. So really, it comes down to the fundamentals. As I said in my prepared remarks, the fundamentals are sound. And from that stability lends the opportunity for the development of an integration land?

Yes. I think, again, it gets back to my response to Chris. We've got to go into this merger, both of us really operating well. And that will certainly ensure a good foundation for integration. And right now, we're both in strong positions and the way our safety and our service metrics are yielding and that is important to maintain because once we come together, we're coming together from a foundation of strength, we can integrate a lot easier.

Next question will be from Bascome Majors at Susquehanna.

As you think about the competitive response what conviction do you have that some of what's happening in intermodal doesn't bleed into the carload side of the business? And maybe aligned with that 3 months in post announcement, like what conversations are you having with your large industrial carload customers? And do those skew optimistic or cautious?

I would categorize it in a couple of different ways. Number one, we have built a firm runway of success there when it comes to our carload service. And of course, that's the number one thing that our customers are looking for on that side. They want that conveyor belt that moves at the same speed all the time with little variation. And John and his team have done a really good job of building that resiliency back into it. Number two, and I think this is kind of turn horn, but I can't help [indiscernible] we're known for being a relationship business. We are a relationship company, and we've built strong partnerships across the board with our big industrial customers. They know us. We know them. And I can say hi to them on this call. We -- they know us and they know the way that we do business, and I will tell you that they are curious, of course, to learn more about what's going to happen in the future, but they're confident that with us being a part of the equation that they're in good hands, so to speak. Now in terms of any other erosion, it's a competitive landscape. We'll see what happens. We're competing every day to try to get more so as everyone else. We'll see where that part goes. But I think that combination of relationships and good service is a very good defense for us.

Next question will be from Jordan Alliger at Goldman Sachs. .

You gave some good color around the coal yields intermodal. But maybe thinking through sort of like total yields or revenue per carload as we look out to the fourth quarter, maybe talk about some of the puts and takes overall, whether it be core price, mix, et cetera?

I appreciate it. I'm very pleased with where we've landed with our price plan this year so far, and I fully expect that to continue for the rest of the year. So our pricing plan is intact. And I would say that we're in good shape there, particularly versus inflation. When I look at the mix piece, we're going to see more utility. We'll probably see a little bit less on the export side. And you got erosion in the RPU for the coal piece because of that seaborne price. That's going to be a little bit of a mixed headwind. On the merchandise side, we've already highlighted that natural gas liquids and even some metals markets in terms of scrap, that's diluted the RPU sum. But I will tell you that probably the the biggest challenge we're going to have from where we've come from might be on the automotive side where we've seen that one big supplier to one of our big customers have an issue. And so we expect that there'll be a little bit of wind taken out of the automotive side, so to speak, when it comes to the volume piece, and that's to go along with everything else. Hope that helps.

And at this time, ladies and gentlemen, I'd like to turn the call back over to Mark George.

Okay, everyone. Really appreciate you dialing in this evening. Just to summarize, we're running a really good railroad right now despite the uncertain macro environment that's ahead and obviously the increasing competitive pressures. So our top line may be volatile going forward, but we are absolutely committed to safety, to service and maintaining our cost structure, and we are going to fight like hell over every available unit and dollar rest assured. There's a lot of opportunity on the horizon with our proposed merger with UP, and that's going to yield huge benefits to our customers as well as our country.

So we thank you for your time this evening, and take care.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Good afternoon, ladies and gentlemen, and welcome to Norfolk Southern's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And I would like to turn the conference over to Luke Nichols, Senior Director, Investor Relations. Please go ahead.

Good afternoon, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important.

Our presentation slides are available at norfolksouthern.com in the Investors section, along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis.

Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George.

Good afternoon, and thank you for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. We delivered another quarter that demonstrates the team's ability to deliver a quality railroad.

Throughout the year, we have highlighted our continued commitment to focus on what we can control, running a safe, efficient network, improving processes, delivering solutions for our customers' most pressing needs and supporting our people. That remains the approach today of our 20,000 thoroughbreds who deserve thanks and credit for our performance. On safety, our train accident and employee injury rates continue to improve. That's the result of disciplined execution and continued emphasis on training. Safety is a core value, and we will never compromise on it.

On service, our network is running well. Terminal dwell and car velocity remains stable, and we once again saw fuel efficiency gains, attaining a new quarterly record. These improvements are integral to delivering reliable, high-quality service for our customers and they position us to sustain performance over the long term. Safety and service together form the foundation of our ability to serve customers at the highest level. And what truly powers this progress is our people. Across the railroad, the Thoroughbred team shows up every day with focus and determination. We are committed to building the next generation of railroaders because careers in rail continue to be among the best in the country. As we noted at recent conferences, the third quarter volume surges forecasted by partners didn't materialize as expected and the truck market remains oversupplied. Ed will detail this.

So while revenues were short of where we expected, the continued success on productivity was evident in the quarter. We also had a large land sale at the end of the quarter that helped neutralize other adverse impacts that Jason will cover. While not big in Q3, we started to see some of the revenue erosion from competitor reactions to the merger announcement. We expect the impact to grow in the fourth quarter and continue to be a challenge over the near and medium term.

As we make progress toward getting approval for the proposed merger with Union Pacific, our focus remains squarely on ensuring momentum on safety and service. while executing on our strategy and delivering for our customers. We've got a lot to be optimistic about. We're on a good path, and we're doing what we can on the controllable side to prepare for growth. I'm proud of the progress we've made, and I'm even more excited about what's ahead.

With that, I'll turn it over to John and the rest of our leadership team to walk through the quarter in more detail. John?

Thanks, Mark, and good afternoon, everyone. Turning to Slide 5. I want to recognize the deliberate transformation Norfolk Southern has delivered in safety, service and cost structure from 2024 and throughout 2025. This progress reflects a culture of accountability and disciplined execution, powered by generational leadership investments that position us for long-term success. We're creating a network that is safer, more reliable and more efficient, shaping the future of rail and setting the standard for what rail service can and should be.

Our PSR 2.0 transformation is delivering measurable outcomes that matter to every customer and stakeholder. For example, Amtrack host delays across Norfolk Southern improved 26% year-over-year, underscoring our progress and unwavering commitment to precision, reliability and the standards that define Notebook Southern.

In Q4, we're going live with Clarity camps, the next cornerstone of the Thoroughbred Academy. The curriculum elevates PSR 2.0 business excellence. And importantly, as we transform safety and service standards were simultaneously delivering productivity gains, creating a clear and steady direction across the organization. All these efforts are aligned to our broader commitment to deliver meaningful expense controls while operating a reliable and more resilient railroad. Relative to 2024 full year results, our year-to-date safety figures demonstrate FRA personal injury ratio has improved 7.8% and our train accident ratio has improved 27.7%.

Our team will never be satisfied with our safety results. We always strive to improve on our best performance. That's why my team and I are spending more time in the field this quarter, staying close to the work, staying close to our people and staying focused on what drives results.

Turning to Slide 6. We achieved stronger service and volume growth this quarter while operating with fewer assets and resources. That discipline is clearly reflected in our financial outcomes. GTMs increased 4% year-over-year, which were accurately delivered with 6% fewer qualified T&E. Our revolving zero-based train service plan continues to drive cost control, precision and productivity. Key highlights include a 19% reduction in [indiscernible] a 12% decrease in intermodal trend starts since the beginning of the year, alongside of sequential improvement in intermodal service composite and a 5.5% merchandise carload growth.

Turning to Slide 7. These results reflect decisive actions to balance quality service and efficiency. We're on track to exceed our expense reduction and broader financial commitments, and we're not stopping there. The team is stretching for more. raising our efficiency targets to a 2026 cumulative goal in the range of $600 million. Operational metrics confirm the effectiveness of our field management strategy. which delivered an all-time quarterly record of $1.01, a 5% year-over-year gain. This reflects both immediate savings and a durable path to greater efficiencies. Sequentially, train speed rose 3%, allowing us to store more locomotives while running a leaner, more reliable fleet.

Turning to Slide 8. Rapid deployment of next level field technology is part of a broader strategy to transform inspection, reliability and overall performance. In the photos, you can see a new state-of-the-art wheel integrity system being installed near Burns Harbor, 1 of our busiest quarters. We're advancing machine vision at speed across our network. In the quarter, we deployed a new inspection portal in Virginia, bringing the total now to 8. We positively identified over 40 wheel integrity defects. And we've launched 6 new algorithms with 9 more already in development. The data from these field technologies feed our war room that are staffed with craft employees, managers and senior executives facilitating real-time problem-solving and cross-functional collaboration. We're leveraging digital tools, operational analytics and ecosystem level coordination to elevate our capabilities and operation and safety excellence.

Wayside stops are down 6.7% year-over-year and 36% year-to-date, even as we expect 5% more axles daily. This quarter reflects that our operational fundamentals are sound and are supporting a strong service offering. This is made possible by the commitment and resilience of our railroaders across the entire enterprise. At Norfolk Southern, results matter, and our people continue to deliver with confidence and momentum. With that, I'll turn it to you, Ed.

Thanks much, John. Now let's go to Slide 10, where you'll see that we achieved 2% year-over-year growth in both revenue and RPU in the quarter. We see several dynamics at play in the business portfolio. We have strength within our merchandise markets, partially offset by meaningful declines in export coal markets. We see reduced fuel surcharge revenue and softer-than-expected intermodal volumes.

Overall, our volume for the third quarter finished flat despite gross ton mile growth of 4%. Let's look inside of merchandise. Volume grew 6% from a year ago, driven by our auto, chemical and metals and construction markets. Revenue less fuel grew 7%, which underscores our pricing discipline and our volume performance. However, we had mixed headwinds from growth in commodities such as natural gas liquids, sand and scrap metal, which diluted our overall RPU performance. In Intermodal, we're navigating the complexity of ongoing trade and tariff uncertainty persistently abundant highway truck capacity and outside factors, including competitor responses to our merger announcement, which caused volumes to decrease 2%. Intermodal revenue less fuel and RPU less fuel both grew, reflecting the overall stable pricing environment right now.

Now here, I have to note that year-over-year RPU comparisons benefited from an abnormally high volume of empty shipments ahead of the East Coast port disruptions last year. Let's turn to coal, where weakening seaborne coal prices drove RPU less fuel lower by 7% and and this was the most significant revenue headwind for the quarter. We enjoyed stronger demand in our Utility segment, but it didn't offset the sustained weakness in export. This interaction has been playing out throughout the year, and we expect it to persist.

Let's go to Slide 11 and talk about the market outlook. Like the third quarter, we continue to navigate a dynamic economic environment, along with competitive cross currents. For our merchandise markets, we forecast vehicle production will be challenged in part due to recent disruptions at a key material supplier to our customers. We expect this will have a meaningful impact to production at several NS-served automotive plants in the fourth quarter. At the same time, overall manufacturing activity remains mixed with output expected to grow despite the backdrop of trade and tariff uncertainty. Strong fracking activity in the Marcellus Utica Basin is supporting demand and NGLs and sand in our merchandise markets. Looking into our intermodal markets, we expect softer import demand in the near term. This reflects the impact of tariff volatility and growing trade pressures.

Warehousing capacity remains tight as inventory levels expanded at the beginning of the year ahead of tariffs and truck capacity remains oversupplied. Coal prices have remained pressured with significant uncertainty surrounding export trade. And at the same time, we're expecting utility demand to see continued support from growing electricity demand and lower existing coal stockpiles. Now these dynamics should be considered against the backdrop of our recently announced merger, which has intensified competitor activity across the industry. And as a result, we anticipate volume pressure, particularly in our Intermodal segment. and so we're maintaining a cautious outlook for the remainder of 2025.

Lastly, as always, we want to thank our customers for their continued partnership and business the entire NS team is aligned around delivering the service that our customers need every day, building trust as a vital partner in their supply chains. Now with that, I'll hand it over to Jason to review our financial results.

Thanks, Ed. I'll start with the reconciliation of our GAAP results to the adjusted numbers that I will speak to today on Slide 13. The Total costs attributable to the Eastern Ohio incident were $13 million, which included $16 million of recoveries under our property insurance policies. In addition, we recognized the $12 million restructuring charge in the quarter as we continue to rationalize our technology projects.

Finally, we also recorded $15 million in merger-related costs, consisting primarily of legal and professional services as well as employee retention accruals. Adjusting for these items, the operating ratio for the quarter was $63.3. From a bottom line perspective, we earned $3.30 per share.

Moving to Slide 14, you'll find the comparison of our adjusted results versus last year and last quarter both comparisons reflecting a 10 basis point improvement in the operating ratio and the sequential comparison basically even with the current quarter.

On a year-over-year basis, Revenue was up, as I just discussed, but we were expecting approximately $75 million more revenue as we had guided to within the second quarter materials continued macro headwinds, a surge that never materialized and competitor responses from the merger announcement that started to really ramp up at the end of the quarter, all were barriers to the attainment of that expectation.

Expenses were up 2% on a 4% increase in GTMs, but there are a lot of puts and takes within OpEx, and those year-over-year expense drivers are laid out on Slide 15. You'll note that the quarter benefited from higher land sales, which were $65 million more than last year. In fact, the entire variance was driven by 1 large sale that closed at the very end of the quarter.

Another quarter of strong productivity gains also helped to mitigate both inflationary and volumetric pressures in addition to the absence of benefits recorded last year in the form of cancellation of stock awards and fuel recoveries. I'd also point out that claims expense was elevated in the quarter despite the outstanding progress we're delivering on our safety initiatives as we react to unfavorable developments on claims from several years ago, in addition to claims inflation on a few incidents that we have experienced this year.

So as I think about our 63.3 operating ratio for the quarter, Clearly, that was aided by outsized land sales. However, we were short on revenue from our latest guidance, and we dealt with higher claims expense than what we had been experiencing. And as we move into the fourth quarter, Revenue will continue to be challenged, but we are focused on what we can control, and we expect to maintain our cost structure in the $2 billion to $2.1 billion range. I'll hand it back to Mark to wrap it up.

Thanks, Jason. As you can see, there were a lot of moving parts in the quarter, but as a thoroughbred team, we are successfully controlling the controllables. Looking ahead, macro environment remains uncertain and we acknowledge that over the next several quarters, unpredictable demand and unique competitive dynamics will create some abnormal fluctuations in our top line. We are not standing still. Our recent Louisville announcement will create attractive volume growth as it builds out. Additionally, once the merger closes, we can provide attractive solutions for our customers unlocking faster, more reliable service, streamlined shipping experiences and expanded access across a unified coast-to-coast rail network.

These improvements will strengthen our value proposition and help drive long-term growth in our combined railroad through highway conversion. While the regulatory review process is ongoing, we remain laser-focused on maintaining strong safety performance, while running a fast and resilient network. That is delivering great service that our customers have now come to expect from us. Meanwhile, we will continue to maintain a sharp focus on optimizing our cost structure. As you saw in John's section, we are making excellent progress on the productivity front and are raising our 2025 efficiency target to roughly $200 million, and this follows the nearly $300 million we achieved in 2024. I am really proud of our team for the work they've done on this. And while revenue in this environment is proving difficult to guide, you can expect that our fourth quarter costs in absolute dollars will be in the $2.0 billion to $2.1 billion range.

So with that, let's open the call to questions.

Operator? .

[Operator Instructions] First, we will hear from Scott Group at Wolfe Research.

So Ed, if I heard right, I think you said a 2-point drag in Q3 from some business losses related to the merger. And it sounds like it gets worse going forward? Is this just intermodal? Are you seeing in any other places? And ultimately, how much business do you think is at risk until we see merger closing?

We saw that start to really manifest itself toward the tail end of the quarter, call it, September-ish. And so it's going to manifest itself to wrap around it year-over-year. It's a minority of -- certainly a minority of the business, and it's really focused geographically to this point. in the Southeast. We're working really hard to do 2 things: Number one, to make sure that we're providing a fantastic service for everybody that wants to use us. And number two, we're really leveraging the network that we have, the route structure and the terminal structure to bring freight back to Norfolk Southern that may have left for whatever reason. And so I'm pretty confident that, yes, while this is going to be a headwind for a while going forward, over the next couple of bid cycles, you'll see it start to iterate itself back toward what I would call the high-value, low-cost solution, which is Norfolk Southern for the beneficial cargo owners.

And that's independent of a merger, Scott.

And then maybe just, Jason, I think that the $2 billion to $2.1 billion of cost, it's a relatively wide range on a quarterly basis. Any sort of more help in terms of where you think we could be in that range in Q4. I don't know, is maybe the right way to think about it, excluding the gains was a 65.5% OR in Q3. Do you think that gets worse in Q4? Just any thoughts there?

So when I think about the expense profile going from third quarter to fourth quarter, as you mentioned, you've got to kind of normalize for those outsized land sales that we had in the third quarter. And then historically, as we move from third to fourth quarter, if you look at the 5-year average, expenses are up about 1.5%. And that's kind of really what brings us into that $2 billion to $2.1 billion range. So kind of moving with that seasonality.

A couple of drivers that I'd point you to. We've talked about headcount in the past, guided you to the fourth quarter 2024 exit rate, which is about $19,500. We're a little bit below that in third quarter. So that should step up a little bit as we move into the fourth. Depreciation expense always steps up as we move into the fourth quarter just as we get more capital work done and get those projects in service. And then finally, we've talked a bit before about what we've done on the technology front, and we've really gone to that managed services model. So you'll see some higher purchase services expense in the fourth quarter that are being driven by that. eventually, you should see that come out of comp [indiscernible], but it will definitely be a driver in the fourth quarter.

Next question will be from Brandon Oglenski at Barclays.

Maybe this is for Mark or John, but when you guys think about managing the cost structure in this environment where maybe there's some share loss and obviously, some headwinds just given the trade environment especially as you look out further, if the deal gets approved, then maybe you want to maintain some excess capacity as well. So how do you balance these differing needs as you look out over the near term and medium term?

Yes. Great question, Brandon. I think you're right. We've got to be really careful how we address this. I mean as you see, we have been trading down a bit and driving some productivity with regard to moving 4% more GTMs this quarter, while we saw headcount kind of drift down 3%. So that's a 7% spread. We're really really happy with that outcome, and we're seeing actually better service and better safety performance while we do it. So we're going to be really careful here. And I think, John, maybe you can talk a little bit about the next step of cost reduction. But the other element I'd point you to, Brandon, we continue to focus on fuel efficiency, where we had a 5% gain year-over-year in fuel efficiency from all the initiatives that John has put in place. So we continue to get these mid-single-digit improvements in fuel efficiency. So labor productivity, fuel efficiency. We've been attacking purchase services, although we are making a deliberate shift to outsource some stuff in IT that will yield benefits in comp [indiscernible]. So that's why it's a little bit of an odd a little bit of an odd quarter because you do see 0 volume growth on the carload side, but there is actually GTM growth so that does require resources. And also remember, 18% growth in autos, 18% growth in auto this quarter year-over-year, huge growth. And that, of course, has some incremental volumetric costs that come with it that you'd see manifest in equipment rents. So those are the kind of things where it's a complex P&L. We're going to be really mindful of really trying to drive those areas for productivity and efficiency while not undermining our ability to move volume.

[indiscernible] chime in, please. Yes. Mark, you're speaking like an operating -- Chief Operating Officer with all the detail gives me the chance to talk a little high level. So I appreciate that. Let's just start with the fundamentals. We're moving more volume with more yield on our trains slightly heavier trains with less crews and more overall fluidity. So using that train speed that we're generating to reduce our locomotive fleet increase our car miles per day, decrease the number of cars it takes to create a load and doing all those fundamental things that show through to the customer and give the chance to sell aggressively in whatever market he's in at the time. So those fundamentals are very sound. We are -- we have restructured a number of things, including how we manage fuel, which is showing through in sequential fuel improvement and flowing through to the bottom line. But it doesn't stop there. We've restructured how we hire people speed and the quality to which they enter the workforce. So that gives us the opportunity to be more responsive, even longer lead resources and assets. So we're ready for those things. And we'll continue to improve locomotive fluidity by revamping our train service plan I'll just say that our zero-based plan version 3 has just come out. And year-to-date, we've reduced our interval crew starts by 14%. Our shipments per crew start have improved by 11% and we've simplified our lean offerings and are blocking complexity. And as a result, we're really energizing how we service that product. and delivering it with more resilience and capability. So that's what gives me confidence that we're going to not only stretch ourselves this year and the remainder of the year in that overall cost takeout in that financial improvement from an operating perspective and an overall enterprise perspective, but even continuing that momentum into 2026 and stretching ourselves in the range of $600 million cumulative takeout. So it's going to be hard work, which is in our DNA, and we're ready for it.

Next question will be from Jonathan Chappell at Evercore ISI.

Ed, you mentioned in your prepared remarks that the coal RPU was one of the single biggest impacts on revenue. And you also said you expect the headwinds to persist. If we look at export benchmarks and even your [indiscernible] last week, made it seem like the coal RPU pressure would stop at least sequentially, maybe you're referring to year-over-year. Can you give us any sense to how much that may continue to step down from the third quarter level? And when do you think that, that headwind may begin to stabilize?

I think you got that right. And thanks for the question, so I can clarify. I think the export benchmark is something like 175 right now. And I don't necessarily anticipate any material degradation from that. So on a sequential basis, maybe go sideways, which on a year-over-year basis, is still double-digit down. Same is true on the utility side for export. Probably going sideways, but still on a year-over-year basis, double-digit down. And I think that's going to persist certainly through the quarter and maybe into early next year before it hopefully starts to climb out. There's a lot of uncertainty around export coal when it comes to both the met and utility side. who's going to get it or who's going to take it and where it will come from. So we're keeping a really close eye on that.

Great. So that revenue headwind than mostly volume, we should stop looking for RPU deterioration overall?

Yes. Year-over-year ARPU deterioration will continue. Sequentially, it should be pretty stable. And this quarter, we did start to see volume degradation as a result of the poor pricing environment.

Next question will be from Tom Wadewitz at UBS.

Wanted to ask a little more on the topic of the competitive responses. I guess the kind of name that comes out and seems the most prominent in Intermodal would be J.B. Hunt. And I just want to get a sense if you could Help us think about to the extent that BN is going to exert some control here and push more business over to CSX. How much of the business do you think should be sticky to Norfolk? I recall back quite a long time ago, you had some corridor initiatives that I think are differentiated like the [indiscernible], just lines that maybe CSX isn't going to serve markets as well. So I just want to see if you have some high-level thoughts on what can make business with JB or intermodal, in general, sticky in terms of network differences? And how much kind of risk is there of kind of [indiscernible] forcing some business over to CSX?

So I think we talked about it before that more than half of our business with J.B. Hunt originates and terminates here in the East. And we continue to provide a really excellent service product to them, and we feel comfortable and confident with that. retaining that business. I think for the balance and particularly in certain geographies, perhaps in the Southeast, that's really what's at risk right now that they can go in and talk about. But I just want to reemphasize that one thing. About 2 decades ago, we started investing hundreds of millions of dollars to build out our intermodal franchise. We built out that premier corridor in the Crescent Corridor, we built terminals, and we have an unrivaled intermodal franchise in the East. And it's a franchise that people want to be on because it provides the fastest route for the major markets. And with a terminal footprint where customers want it to be. So with time, cargo owners are going to want that business back on the NS and we are going to work aggressively to help them get that cargo back on the. So Ed, please chime in.

Well, gosh, I think you pre summarized it, but let me say this. There are a number of key lanes where Norfolk Southern offers exceptional value for customers that really can't be replicated anywhere. There's -- I would say this from experience, there's a reason why we have the second largest intermodal franchise in North America is because of the superior route structure that we've built out that Mark just referenced. And also a terminal network that gets you with your freight, landed closer to the consumer than any other network out there. So there's lots of things that can happen in terms of pushing freight around that, what I would call, be unnatural. But over time, we're very confident. John and I are that we put our heads together, make sure our service is exceptional. The way it is now. We continue to partner with the riots we're going to be in good shape.

But I guess one component of that as well is just that CSX has had this major construction project and debottlenecking with their Howard Street Tunnel. And so that makes them a lot more efficient north, south along the east. Is that like is that a significant competitive impact? Or do you think that's not -- that's kind of a impact on a modest portion of your domestic?

I can't really comment on that project for them. I hope it makes them a lot more competitive with truck.

Next question will be from Brian Ossenbeck at JPMorgan.

First, just a quick follow-up maybe for Ed. I think you mentioned that business and we're talking about here, it would come back to the network even without mergers. Maybe you can just elaborate exactly what would have to change if it's better service or competing more on price? And then just maybe for -- on the upside for John, when you think about fuel efficiency, I mean we've always heard it was going to be a challenge at Norfolk because of length of haul and mix and a bunch of other things, wait but it looks like you've clearly broken through. Is that something you feel like you can get to sort of best-in-class levels with your peers? Some more thoughts on that would be helpful.

All right. I'll go first before I forget the question. When I think about the service from the West Coast into the Southeast, I think about UP and NS utilizing the Meridian Speedway as the fastest shortest route between those 2 regions, period. There's not a better ride out there when it comes to that kind of freight for intermodal. So that's one thing. The second thing is the exceptional amount of terminal capacity that we have and expertise to back it up, both in the Carolinas, Florida as well as in Georgia. That's just going to be a force multiplier and has been. So we're confident that over time, cargo owners are going to make the right decision about where their freight routed. I'll hand it off to you, John.

Well, I'm glad you're noting the hard work the team has done on fuel. And I won't comment on what the order the possible may have been thought through back then, but I'll tell you right now, and as we go forward, it's a big part of a strategy that includes all of our strategic sourcing and logistics approach, including the assessment of distribution, the use and consumption of the product like fuel. And the current efficiency represents a significant dollar value. And if you look at the Mosaic of measures that we present to you all, we're balancing speed, locomotive productivity, the fuel burn. And we're looking at it, not how fast can we go just to get faster and to get to point A to point B quicker, we will, if that means we can use a crew at the end of that trip to use them within the yard and save money somewhere else. But as we work through fuel consumption, we want to make sure that how we manage our fuel resources is aligned to what our train service plan is. And we're always looking at that service plan. we're taking more detailed approach on each element of it. what resources we need, how much fuel we need to move the tonnage, how soon we need to get to a customer. So on a product level view, we're satisfying the contractual obligations and elevating our service metrics and how they face the customer. And we're taking that -- the nice thing is we're taking that approach in mechanical, how we service our locomotives, how we maintain our parts inventory how we're putting stress on our engineering team through Ed Boyle and his great leadership and managing ties, plates, rail, ballast, all of those things. So across all of those things, whether it's fuel and operational resources, we're taking a really hardline approach on it. So I think we've got room to grow on fuel. I don't have any end in sight to the value we can create managing all of those components. But I can tell you, it's the tip of the iceberg as we move forward against all our enterprise resources.

And I would just add one other thing, Brian, is when I look back years ago when I came in, we had roughly high teens percent of our locomotive fleet that was AC. And through those investments that we've been making every year systematically to upgrade our locomotive fleet from DC to AC, we're now approaching 80% AC. So that is definitely helping provide more runway for the future that John is extracting using the methods that he's talking about. So that definitely is a driver as well, right?

Yes. And that gives us the just run just look at 2019, which was one of the bellwether years from a financial and service perspective. And right now, we're running year-to-date 23% less horsepower per ton. When you have that discipline in managing locomotives, the utilization of your power, your crews, you're reducing your stops, you're creating more fluidity it shows up in fuel and shows up in so many other P&L items. So you're right, Mark, those investments, those wise investments are paying dividends.

But the discipline you're bringing now for the things you're just talking about is really what's accelerating benefits and providing more runway into the future. So congratulations on that.

[Operator Instructions] Next, we will hear from Chris Wetherbee at Wells Fargo.

I guess I wanted to sort of ask about what you think is possible from an OR improvement perspective, particularly as we're thinking about 2026. So you came into this year, I think there was a revenue target around 3% with 150 basis points of productivity. And then 50 basis points of OR. Obviously, the revenue side has been more challenging because of volume. We'll see how much OR you get this year. But I guess maybe the question as we go into next year, how much sort of OR opportunity do you think there is that you can control and maybe how much is more revenue dependent? So obviously, it's an uncertain environment out there. I want to get a sense of out of the $600 million of productivity, how much do you think can be translated from an operating ratio perspective as we think about next year?

Chris, thanks for the question. Look, I think what we're going to do, which is very similar to what we're doing this year is we're going to focus really hard on the controllables, in particular, those elements on the cost side. So we're going to maintain a lot of discipline on our employment levels and try to drive labor productivity for sure. We're going to focus on the fuel efficiency and every single line item in the P&L that we can control. Obviously, we get things like claims that surprise us -- and Jason has talked a little bit about that and can talk to you some more about that, some of the social inflation we're seeing. But there's a lot we can control, and that's where we're going to put our focus. On the revenue, obviously, we've got some headwinds. And mathematically, that's going to probably put some short-term pressure on the OR that we're going to have to deal with. But Ed and his team are doing a great job fighting every way they can to preserve every single unit that's out there and try to grow every single unit with the value offering that we have, thanks to the great service John is providing. So we're going to do that. But I think at the end of the day, the OR is going to be an output of the those 2 elements. Jason, do you want to add anything?

Yes. I would just say it's really -- if you look at our kind of our cost profile over the last couple of years and think about the inflation that we've taken on and the volumetric expenses, really, and thanks to what John and the team have done from a productivity standpoint, harvesting almost $500 million of productivity. That's what's enabled us to kind of keep that cost profile flat over these last couple of years. So I think you hit it right on, Mark, as we move into next year. I did just want to for a second talk about claims because you had mentioned it, Mark. But John, you can maybe jump in and talk a little bit more about what you guys are accomplishing from a safety perspective, which I think is really remarkable progress. But on the cost side, claims is always very volatile, and we see that quarter-to-quarter. But what we're seeing right now is the resolution of some older claims. And while the frequency is going down, we're experiencing higher cost per incident to close out those claims. So over recent years and quarters, we've seen pressure on that claims line. as both the insurance rates increase, but also we're facing the same type of social inflation that you're seeing across the transportation sector. But John, maybe a little color on what you guys are doing to mitigate the number of incidents.

Yes. And we've said it. Our safety from an injury and accident perspective are taking on a really strong momentum, and we're continuing to invest in our safety camps I've mentioned it before on these calls, our [indiscernible] has got a component of safety and safety leadership. We've processed over 2,500 leaders through that program who have now had a more capable way of approaching our workforce, building the environment and skills that are necessary. And you couple that with the investments we've made in technology and a great story. We had a broken wheel derail with a train that had come on us for 1 mile. And we -- as a leadership team said, there's got to be a better way. And very rapidly through the work we do with Georgia Tech and our portal systems, we created a wheel detection device that gives us -- identifies wheel integrity on all of our trains that pass through those portals. It was so effective that we made a suit case version, a mobile version, and we're putting it into the ingress and egress of our hump yards and other high-density corridors to give us a good view to insulate ourselves from something that is not ours. Most of it is on foreign cars. And it's been really effective so far, we've -- I would say using my own language that we prevented over 40 games by the detection that we've had with these wheel inspection devices that didn't exist a year ago. That ability to take ideas understand the business, convert them into actionable items and then put them into field use at scale is a testament to the commitment we've got on safety and how we can really influence line items that you're talking about and solve them at the root cause.

And Chris, I just want to come back to one other thing as we look to '26. So obviously, we're going to work on controlling the controllables on the cost side. But paramount importance in 2026 is for us as an enterprise to continue this quest toward improving and preserving a very safe railroad. We cannot have a mismatch. Similar to that, we have to maintain outstanding service for our customers. We cannot step back from that. Those are the 2 most important things. We're going to control costs. But those 2 things are paramount importance. And I would say the other thing is really the preservation of employment and retention because we have to go into this merger with talent to ensure that it succeeds. So that's where our focus is. And like I said, we're going to fight like hell for every unit and every dollar that's out there. But let's not lose focus on the the safety and service elements, which are high, high priorities for us.

Next question is from [indiscernible] at Deutsche Bank.

So sorry to beat a dead horse, but I also wanted to talk about the revenue erosion you expect from competitor reaction. First, I wanted to confirm that this was ring-fenced to intermodal. And then I guess what is really hindering your ability to compete? I know you enhanced your partnership with UNP in the interim, for example, Mark, you just reminded us today about the hundreds of millions of dollars invested in intermodal over the past 2 decades to make for a very strong product. So I guess I'm just confused on why you would be challenged just because you're pursuing a merger? And then is your competitor winning on price? Or is it something else? I mean that it's not Howard Street. So maybe just elaborate a little bit more there.

That's a great question, Ed?

Sure. Well, let me start with your first question, which is, yes, it is confined to intermodal and specifically to domestic nonpremium intermodal. And I can't talk about or address why other entities contracts may or may not allow for certain things to occur. But I can tell you that we're competing vigorously both from a price perspective in a market that's been down for 40 months, but also from a service perspective. And John and I are laser-focused on the route coming out of L.A. across Freeport, Meridian Speedway and into the Southeast. And we have a great team operating our 2 terminals in Atlanta, our one terminal in Charlotte, our other terminal in Greensboro and the one in Jacksonville that are not only poised to handle the freight we're getting today, but can accept more, frankly. So that's the landscape. And again, like I said, I think over the next couple of bid cycles as those beneficial cargo owners look at the value that they're receiving from the service that they are getting from whoever they're getting from we're going to offer a very compelling case for them to come back to a network that makes the most sense for them. John, do you have anything to add there?

I would just emphasize that our customer-facing composite standards are extremely high. We're committed to delivering them. And we've got resources, we've got assets, and we've got a corridor that's poised and ready for growth. And we're going to deliver regardless

For every customer that is able to use Norfolk Southern. We're open for business.

And look, again, I'll get back to the fact that when we control the relationship entirely with our customer base in our region, we're doing great. But when it's an interline arrangement and the contract may not be specifically through us, that's where we're seeing some of these challenges. So this is really kind of interline only. That's where it's -- that's where we're seeing it.

Next question will be from David Vernon at Bernstein.

I guess, Ed, sticking on this topic, can you put a finer number on kind of what the quarterly run rate should be down, assuming nothing else changed in the business from where we're exiting kind of 3Q, just to help us kind of better understand what's in that model. And it sounds like you're saying you guys can go market that against that service and maybe get some of traffic over time. What's the risk that this gets worse, right? I mean it sounds like you're saying you're going to go back and try to go directly to BCOs presumably with another IMC to pull back some of that volume. Is there -- do you get worried at all that maybe there's another shoe to drop as far as kind of the volume that's been lost.

[indiscernible] But I would say this, we're working really close with all of our partners, including ones that may be affected with this to make sure that we're offering exceptional value for them in places where we can do that. And there are places across our network that I would argue we offer services that really no other railroad can replicate. Quantifying it's probably a little bit difficult. You saw what the effect kind of was really on a portion of order. So we'll see from here. And again, it's not like we're in a super healthy truck freight environment where there's a lot of lift right now. So the whole world is struggling when it comes to freight, this is one other -- one more headwind applied to the portfolio, but we're very confident in the service -- we should reiterate.

In the third quarter, it wasn't the majority of the challenge in intermodal. It was on the margins -- this will build in the fourth quarter and into the first quarter. And that's where it will take us, like you said, a couple of good cycles, we should end up getting it back. But we're going to feel the pain here in the next handful of quarters.

Next question will be from Stephanie Moore Jefferies.

Maybe talking a bit about your plans currently or your strategy to mitigate potentially any integration risk that we should see with the integration of the 2 networks. Clearly, you've made tremendous efforts from a service standpoint over the last several years and UNP as we all saw earlier today, also at a really strong point. So wanted to just talk again hear your view how to early on mitigate any of that integration risk or network disruption that could come as a result of the merger.

Yes. I think that's 1 thing, Jim and I are very, very aligned and clear on is that we cannot afford to have any integration pickup or challenge. So we're going to take our time and do this the right way. We're going to learn from the lessons of the past, and we're going to study that carefully. And we're going to kind of do a lot of benchmarking and leverage the talent we have on both teams to start planning when that's appropriate and observing what it is we can do from a systems perspective and then even from a technical perspective. We're going to do this very, very deliberately. It's an ultra high priority for us when we do bring these companies together to ensure that the integration is done right. John?

Yes. Mark, I've been through these potential mergers before, and I'll let those results speak for themselves, but merger or new merger leadership matters. And since early 2004 and throughout 2025, this team has successfully delivered our PSR 2.0 transformation, which has been building the momentum and producing irrefutable value. And we've had to navigate complexity ambiguity and even adversity. It works in all business environments, and we're going to continue to invest in our generational leaders elevate our service. We're going to continue to stress the plan. remove waste and deliver more volume with fewer people, fewer locomotives, fewer cars and less fuel. So really, it comes down to the fundamentals. As I said in my prepared remarks, the fundamentals are sound. And from that stability lends the opportunity for the development of an integration land?

Yes. I think, again, it gets back to my response to Chris. We've got to go into this merger, both of us really operating well. And that will certainly ensure a good foundation for integration. And right now, we're both in strong positions and the way our safety and our service metrics are yielding and that is important to maintain because once we come together, we're coming together from a foundation of strength, we can integrate a lot easier.

Next question will be from Bascome Majors at Susquehanna.

As you think about the competitive response what conviction do you have that some of what's happening in intermodal doesn't bleed into the carload side of the business? And maybe aligned with that 3 months in post announcement, like what conversations are you having with your large industrial carload customers? And do those skew optimistic or cautious?

I would categorize it in a couple of different ways. Number one, we have built a firm runway of success there when it comes to our carload service. And of course, that's the number one thing that our customers are looking for on that side. They want that conveyor belt that moves at the same speed all the time with little variation. And John and his team have done a really good job of building that resiliency back into it. Number two, and I think this is kind of turn horn, but I can't help [indiscernible] we're known for being a relationship business. We are a relationship company, and we've built strong partnerships across the board with our big industrial customers. They know us. We know them. And I can say hi to them on this call. We -- they know us and they know the way that we do business, and I will tell you that they are curious, of course, to learn more about what's going to happen in the future, but they're confident that with us being a part of the equation that they're in good hands, so to speak. Now in terms of any other erosion, it's a competitive landscape. We'll see what happens. We're competing every day to try to get more so as everyone else. We'll see where that part goes. But I think that combination of relationships and good service is a very good defense for us.

Next question will be from Jordan Alliger at Goldman Sachs. .

You gave some good color around the coal yields intermodal. But maybe thinking through sort of like total yields or revenue per carload as we look out to the fourth quarter, maybe talk about some of the puts and takes overall, whether it be core price, mix, et cetera?

I appreciate it. I'm very pleased with where we've landed with our price plan this year so far, and I fully expect that to continue for the rest of the year. So our pricing plan is intact. And I would say that we're in good shape there, particularly versus inflation. When I look at the mix piece, we're going to see more utility. We'll probably see a little bit less on the export side. And you got erosion in the RPU for the coal piece because of that seaborne price. That's going to be a little bit of a mixed headwind. On the merchandise side, we've already highlighted that natural gas liquids and even some metals markets in terms of scrap, that's diluted the RPU sum. But I will tell you that probably the the biggest challenge we're going to have from where we've come from might be on the automotive side where we've seen that one big supplier to one of our big customers have an issue. And so we expect that there'll be a little bit of wind taken out of the automotive side, so to speak, when it comes to the volume piece, and that's to go along with everything else. Hope that helps.

And at this time, ladies and gentlemen, I'd like to turn the call back over to Mark George.

Okay, everyone. Really appreciate you dialing in this evening. Just to summarize, we're running a really good railroad right now despite the uncertain macro environment that's ahead and obviously the increasing competitive pressures. So our top line may be volatile going forward, but we are absolutely committed to safety, to service and maintaining our cost structure, and we are going to fight like hell over every available unit and dollar rest assured. There's a lot of opportunity on the horizon with our proposed merger with UP, and that's going to yield huge benefits to our customers as well as our country.

So we thank you for your time this evening, and take care.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Amazing. So well, that's loud. Welcome, everyone, to the 13th Annual Laguna Conference. For those who don't know me, I'm Ravi Shanker, Morgan Stanley's Transportation Airlines Analyst. And for the next 3 days, you guys are going to hear from the castings in industry across all industrial verticals, obviously, very important trend themes going on both macro and idiosyncratic.

So We're very pleased and excited to jump right into it with probably the hardest story, the hardest stock definitely in transports right now, maybe in all cyclicals, Norfolk Southern, very happy to have with us CEO, Mark George and CCO, Ed Elkins. Gentlemen, thanks so much for being here.

Before we start, I should point out that for a research -- disclosure leading to Morgan Stanley's relationships, please read our latest research or go to morganstanley.com/researchdisclosures. With that, Mark, it was at Laguna last year, that he became CEO so congratulations on your 1-year anniversary. I'm sure it's been a really quiet and boring 12 months. I guess anything in particular going on?

It's been a very busy 12 months and it's been a very busy 50 days since we announced the proposed merger with Union Pacific. We're really excited by this. And we're really proud of this combination. I think when you look at it, this will go down, and you look back 5 years from now when the deals close, integration is large and complete, this will be as transformative as what Eisenhower did in the '50s when he built the interstate highway system when it comes to freight transportation. Ever since then, when that highway system was built, I think freight has started to navigate toward the highway and it's been hard for rail to recapture share.

This is our opportunity to redefine rail's role in freight transportation. So I'm really excited by that. We've spent the past 50 days meeting with various constituencies, and we'll continue to do that, whether it's shippers, labor unions, people in the political world. And honestly, there's just a lot of optimism and positivity towards what we're doing, and we're really excited by that. In parallel, we're working on a lot of things that are due to a lot of deliverables. We've got to get the S-4 filed and go through our shareholder voting process.

So that -- we're working on that real time. And at the same time, we're working on our STB application. And again, that needs to be filed within 3 to 6 months. And we're working as fast as we can because we want to move this along as quick as possible. And look, at the end of the day, windows opened up. We got, I think, a pretty good STB going from -- you look back to November last year, and there was a big change in the STB after the election. And we think that the members are pragmatist and they'll be open and receptive.

And I think when you look at what's going on just in the past week with a lot of announcements, just the mere idea of having a transcontinental railroad has already enhanced competition in this space. And I think that's a very, very important point. Our argument is being made for us. But we're really excited.

Got it. That's a great overview. A few follow-ups on that. But before that, a little bit of a side bar, I'm watching the TV show The Gilded Age right now. And obviously, it's about a railroad baron who's trying to buy the Illinois Central and trying to build a transcontinental railroad and telling him, it's going to be impossible literally 100 years ago. So it's amazing how the more things change, the more they stay the same. So maybe kind of if you can give us -- so that's a very good overview. Maybe a little more color around genesis behind this kind of how it came together, kind of what triggered that opportunity for you when there's been a lot of talk about rail M&A kind of over the last several years, like not happening over the last several years. So like maybe why now?

Well -- look, I think I joined the industry just under 6 years ago. And I've been told for 6 years that it's just impossible. It can't happen. Because you always look at it and you say, "This is ridiculous when you look at the way the rail networks are partitioned in our country." You've got a couple of the east, you've got a couple in the West, you've got a couple in Canada who are transcontinental by the way. And then they dip down into the U.S. .

And into Mexico.

And into Mexico. So the way that the whole network has evolved after the decades of consolidation that happened in the '80s and '90s and then you put a hard freeze on it for understandable reasons. There were all sorts of integration challenges. The STB was freaking out at the time and said, all right, no more to protect shippers. I get that. I do. But it was a real inopportune time to put a freeze.

Maybe it was appropriate at that time. But look, with the passage of 25 years, I think sentiment has changed. And I think you bring in new thinking to say, why not? Tell me why not? Nobody will tell me that it doesn't make sense. They just tell you that the hurdles are too great to get there.

And I get that, too. My single biggest concern and when I started to talk to Jim about this was what do we do for 2 years, if it takes 2 years to get this thing through. How do we continue to run our business without disruption for 2 years when with Norfolk Southern, we're going to have employees, human beings who are uncertain. You'll have that even on the UP side, people who are uncertain about their future, right? So that was one of the considerations for sure. We had to make sure that we address that, and we did. But ultimately, why not now? And I do think that something happened in November with the STB following the election, and I think it's worth giving it a try.

That's a good way to frame it, instead of why now, the question is why not now? You touched upon this in your opening remarks, but can you remind us again what the next catalyst path is and kind of what the time line looks like?

Well, the time line is simple. I mean, we've got to get the S-4 filed and we got to go through kind of -- I think of it as we've got 3 paths right now. We got to get the S-4 filed and pursue shareholder approval. And I believe that, that will all happen depending on the SEC's interest and review, it should happen by the end of the year for the shareholder votes. And then in parallel, so we're well along that way. In parallel, we're working on the STB application. That's a monster. But we got a lot of people involved in that. We've got great game charts and good planning.

I'm really proud of the collaboration between the NS team and the UP team. We are working extremely well and extremely close, and it speaks to why I think the combination of UP and NS makes the most sense. There's a cultural fit. We have very similar value systems, a very similar culture. And we're working really well together. Just the way Jim and I worked variable together since we started this conversation to now our teams. That process is playing out.

Again, the application is a monster. It's a bear. And we want to make sure that it's comprehensive because you don't want to submit something that is missing things and you have kind of a restart and that extends the whole duration. But that said, we want to be fulsome, but we want to move fast. So I'm not going to put time lines out just yet, but I can say that we're pushing the team to be on the earlier side of the 3- to 6-month window.

But we'll see where that goes. And then the third stream -- process stream really is kind of integration planning. And those -- the good news, if there is any good news about having this longer review process within STB as opposed to FTC DOJ process is that it gives us time to plan and as I mentioned before, I mean, we cannot have integration issues. And Jim and I are aligned on that. We're going to do everything possible to ensure that we have a seamless integration. We're going to learn from the mistakes of the past. And if it takes a little longer to make sure that it's smooth from a systems perspective, then it will take a little bit longer.

But we can start the planning now to some degree without crossing lines or boundaries, I think what we're going to do, particularly on the system side, is just for our benchmarking. What systems do you have, what systems do we have and start thinking about where we would end up migrating to and start building plans for that. We do the same thing on the operations side. But again, we've got to do it in a very measured way. And that right now is not the focus. Right now, it's about -- we don't want anything to get in the way of getting the application in.

Got it. Last question on this topic, at least from me. Again, you touched on this in your opening remarks, but in these few weeks you've had since the announcement, any surprises, positive or negative with either the process or the feedback you've got from various constituents or kind of what any surprises?

Yes. The feedback has been good, especially as I talk to customers, as I talk to members of the administration as well. The feedback has been good. People see the value that we're creating for America. As we rebuild and reindustrialize America, they understand and see it. So I'm favorably surprised that we don't have to do a lot of convincing. It's intuitive to everybody. So that's a good surprise. And I think the other good surprise is just that everybody is making the case now that this is enhancing competition. We're seeing announcements from other roads, and I think that's great.

Got it. So let's move on to fundamentals there, right? So -- and the market environment and maybe Ed, we can get you in here so can you just update us on kind of recent demand trends, I think 3Q looks like it's setting up to be a little bit better than 2Q was. And there's a lot of focus on the handoff between 2Q and 3Q. So how are you seeing the volume in moment right now?

Well, we actually have 2 or 3 different things going on in that macro economy. And I'm guessing based on our discussion before and people in this room are going to fall on maybe one side or the other, no one in the middle in terms of...

It's very polarized out there...

In terms of outlook, the industrial economy for us, that is our industrial products, our merchandise business is generally on track with what we expected, which is a pretty good growth trajectory on those commodities. There's some tariff distortions, I'd put it that way, and we can set that aside for a second. And we're seeing a real -- I was talking to Mark earlier, there's a couple of stories out there that are maybe getting covered up by tariffs.

The first one is this demand for energy going forward. And we're seeing a lot of inventory replenishment on the utility side for our coal burning customers in the U.S. That has been overshadowed to a degree by the weak export markets, whether it's commodity pricing or actual demand for the export product. But you look at our industrial fundamentals frac sand and NGLs are 2 of the real bright spots for us right now. So there's clearly -- clearly, I would call it, developing story when it comes to the long-term energy demand inside this country. And then now let's go back to tariffs and probably intermodal.

Talk about auto, too.

Yes, that's true. Before I leave the merchandise space, we've had multiple monthly records so far this year in our automotive space. And that's really -- we're the #1 railroad in terms of originating autos. And what I would call our success is really defined by is our service product, which is allowing us to deliver the capacity that our customers need right now. And that really comes down to enhancing the velocity of the fleet so that we can make those cycles happen. And really and truly, we're feeling really good about that. Our automotive customers are also feeling really, really good about our capability to deliver value for them in that space.

And we're taking share from the highway because of that service product.

That's right. Share that over the years has gone back to the highway because they couldn't trust the rail industry to deliver that capacity. So on the merchandise side, feeling pretty good. On the coal side, it's sort of a 2-edged story, right? Exports weak, but domestic utility quite strong. Then on the intermodal side, I think one thing that probably everyone in this room would agree with and maybe everyone in the U.S. is we probably underestimated as an industry, how much pull ahead inventory there was earlier in the year ahead of the old tariff story.

And what that has caused is a number of distortions in the economic environment. I think we're still actually burning off some of that inventory buildup that happened in the year earlier. And that manifests itself as pretty weak volumes, both on the import side, but also on the domestic transload which for us is sort of an idiosyncratic story in and of itself and that we have some great partnerships on the TransCon side for a domestic product. And so we've seen that show up in terms of weakness on the domestic side as well.

And we're in what, the fourth year of a freight recession in the U.S. for trucking. And certainly, we haven't seen prices get weaker on the truck side, but they're sort of bouncing right along the bottom. And our service product is what is allowing us to be as successful as we are right now because our channel partners can go out and deliver that value to their customers, be very confident in it. And I think we're -- I've said before, we're setting up as sort of a coiled spring when it comes to that demand on the intermodal side, we're going to be really well positioned to take advantage of it when that demand comes back. And eventually, it will.

Absolutely. Thanks for that overview. Just a couple of follow-ups there. You mentioned kind of we may have underestimated the pull forward. Do you have a sense of the magnitude of that pull forward? Is it going to take a couple more months to burn it off quarters, obviously not years, but kind of how long does that take to normalize you think.

I think it's like everything else, it depends. On the consumer side, I think we're probably I think the trajectory we're on now is sort of normal for a peak season, right? But we didn't see that anticipated import surge that was supposed to happen in July and August. And I think that is a testament to that inventory pull ahead, which let the consumer continue to consume even without that big surge. On the industrial side, I've talked to a number of customers, and some of them are actually now at the very end of those inventory buildups that they had, whether it's in commodities like steel or aluminum or copper, et cetera, et cetera.

So we'll see what plays out there. But again, we're seeing some of that strength and some of those distortions in those markets like metals, where intuitively, we would say, well, there must be a whole bunch of demand out there. Auto is doing great and prices are up, right? But it's -- there's a whole lot of puts and takes. And I call those really tariff distortions, which will settle themselves out over time as the economy to use the Secretary Bessent's words, realign. And that will happen, I think. But -- so it's a different story based on different commodities. But all in all, I think we'll settle out this year.

Got it. Just on that note, you guys put in place early and forward-looking demurrage going into July kind of almost expecting kind of a big surge, right? So can you just talk about the reasons behind that decision? I think is it fair to say that, that was like not triggered kind of with the volume environment that we saw?

Yes. Well, look, we know what a good running network looks like. We have one, so we really wanted to protect it. And we've seen in the post-Covid era a number of instances where that unexpected demand sort of knocks the whole world off kilter. And before you know it, all the railroads are running poorly because of that bullwhip effect of inventory distortions. And so we didn't want to jeopardize the good service that we're producing out there, whether it's on the intermodal side or on the carload side.

And so we preemptively sort of looked at what the economy was telling us, what our port partners were telling us, what our steamship line customers were telling us. And everyone was really anticipating this big surge of imports in July and into August and so we Drink our own Kool-Aid and put our -- and put some rules in place to protect the network, and it turns out we really didn't need to do that. And so what we've done is roll those back off again. And what we want to make sure that we're always doing is being, number one, sort of highly protective of the service products that we're able to deliver, but number two, that we're responding to the market at the same time.

Got it. So just on that note, kind of -- obviously, as you said, we're in the fourth year of a freight recession and kind of there was this expected improvement and you guys put in place demurrage and surcharges, is there any risk or concern that if we do see this prolonged up cycle kind of kick in at some point that it may strain the network or put at risk that service product you have built out. How do you make sure that, that is sustained through the up cycle without having to put in place these fees?

So look, I think our service product right now is as good as it's ever been. And with John Orr what he's done and the team he brought in, what they're doing, it's -- we've never seen it and certainly in my 6 years because it's just been crisis after crisis -- service crisis after service crisis. But even I think Ed will tell you that we go back to 2019 levels, which were kind of considered our benchmark. And we're driving incredible productivity while providing as good, if not better service than we were back then at that benchmark.

Now the reality is we have got a real lot of capacity to move volumes, a real lot of capacity to move volumes. So we are not worried. And the mindset, fortunately, that John has, is bring it on. He wants volume. He understands an entire P&L. He's not just focused on trying to keep his network running smooth with light volumes, and then he stays out of trouble. That's not John like bring it on, I want the challenge. But it's actually fairly easy in the sense that we've got all this capacity. We've moved more than double digit in the past higher volumes than we are now. So we're -- what we have right now truly is a volume revenue problem.

We've done great things on the cost side. And it is about volume, and we're not worried about a potential disruption of our service product.

And probably the most important thing that we're doing right now, and we do it every single day pretty much is John's team and my team every morning 8:00, get together talks about what's going on. And that sort of a dynamic ongoing conversation is really what protects the network, number one. But then allows us to resource up in those very specific places where we have opportunities, right? And so we're not really -- we're responding to what the market is giving us, but we're not responding in a way that I would say is too late.

And so it's a pretty dynamic process, but we're very, very dedicated to it in terms of making sure that we're capturing every single opportunity and we're protecting the network and service.

Got it. So to put a bow on this, when you look at this kind of mixed volume environment, how is it tracking relative to expectations for both your 3Q revenue commentary, which you said might be slightly pressured and also the full year guide, you said it was plus 2% to 3%.

Yes. Look, we're behind the curve. Year-to-date now, including through early part of September, we're only up about 1 point in volume. So that translates to revenue that's behind the curve, too. So we had put guidance out there of 2% to 3% and in order to get there, we're going to need kind of a real -- the bounce-back scenario in the balance of the year to get there. Something like 5% growth in the last 3.5 months of the year. Probably unlikely that we're going to see that but it is possible because this has been a very unpredictable environment and very polarized based on people's projections. So I think it definitely puts that at risk.

Got it. Just kind of -- so the next question would be, you guys obviously have shown tremendous improvement in the OR, a lot of it on the cost side with John's initiatives on the network and the service, but you just said which we also believe that you probably have a revenue issue now, not a cost issue because of the progress you've made. So when you think of that 100, 150 basis point improvement in OR, kind of how much of that could potentially be at risk because of these volume issues as well versus how much internal initiatives do you still have.

Yes. Look, I think we've got this temporary challenge right now. You can't really respond that quickly. And we've already taken out a real lot of expense. John is a year ahead of schedule pretty much on the multiyear cost takeout. And so we're actually beating our cost targets. But the OR is a simple equation. And so we're kind of on target ahead of target on the cost part of that equation. But when revenue is off by that much, it's going to have a mathematical effect on the OR. That's going to be meaningful.

Got it. Maybe kind of just 1 more for me before I turn it over to the audience to see if there is any questions. But just given all your extensive experience kind of in this industry and kind of talking to like basically everybody in the economy, what, in your view, is the bottleneck? Do you think rate cuts might help unlock this kind of 4-year down cycle? Or do we just need more tariff clarity or what happens from here?

I think it's a combination of a few things, and I'll let Ed our amateur economist plan as well.

Well. We all are closet economists.

Yes. But certainly, there's a strong correlation in the rail space with housing. So seeing housing come back with starts will be helpful because that drives a lot of other moves, including people wanting to fill their houses with new stuff that comes on the intermodal side. So it's not just the lumber and other things. So housing, it would be -- rate cuts, obviously, will prompt that.

And so we would be certainly encouraged by that. I think ending this 4-year freight recession, which is -- the end has been imminent for a couple of years now, and it remains imminent. But will rate cuts help that. Potentially, it's hard to predict. But certainly, that is -- that's a big 1 for us. And I think export coal is another thing where we've seen dramatic reduction in export coal prices that have certainly hurt our top line. So if we see some normalization in the overall trade environment, clarity on tariffs, that start to rebalance the demand for some of our exports, it's going to help us in multiple ways.

So those are what I think we're waiting to see. So does a 25 or 0.5 point cut start to trigger things, I think certainly that will be helpful, but I think clarity on trade will also be enormously helpful, just finality so people who were frozen, they don't know how to act can just start to plan now. Right now, I think it's just because we're still in a period of uncertainty, there's some paralysis in the market that's causing some of the volume pressures we have. But ultimately, I also think just share recapture from the highway is partly in our own control, and I think we're making good progress there. And I think the proposed TransCon over the long term is going to dramatically help that. But go ahead, Ed.

Well, I think mortgage rates follow interest rates down that's going to be a really important phenomenon. I think at 1 point in the past, we had estimated that every new house construction start is worth 7 or 8 truckloads might be dated on that. But it's more than 0. And what we have is we still have a, what I would call a U.S. freight environment, particularly when it comes to truck that is oversupplied, really as a lingering distortion of the post COVID environment where sort of everybody in their brother jumped into the truck in the industry and there was just a whole bunch of capacity added, which has still not come out, quite frankly.

And you look at the cash rate index, which is something I kind of paid attention to, it's negative year-over-year. So there's still a headwind when it comes to total freight demand in this country with an oversupply of trucks. And it's just going to -- we have to get further and further away from COVID for that to sort of normalize itself an interest rate cut, which then manifests itself as lower interest rate for mortgages will certainly help that. I truly believe that. And I'm very bullish overall on the U.S. economy at large, which really our transaction is about, it's about bullishness in the outlook for the U.S. economy in the long term.

I think as this country reindustrializes, we're going to see more and more opportunities and whether it's in our industrial development pipeline or in our business levels, what we're going to see, I really believe, is more demand for high-quality transportation, not only of truckload replacement business in intermodal but also in the carload business. And when I think about things like the demand for energy in this country, I think I feel very good about some of our prospects and then where we're positioned in those markets.

Any questions from the audience? One back there?

[ Guilherme from Tarpon ] here. I'd like to hear your thoughts from a broader looking back, why do you think the industry as a whole failed to capture volume growth whether there was too much focus on pricing perhaps or not? And what structurally the industry needs to do to have more volume.

So I'll start and say that when we look back, I think our industry has been too volatile with the service product that we offer unreliable with service crises that have really disrupted our ability to deliver reliable and consistent service to our customers. So over time, customers have built out alternatives with trucking and even though maybe it's more expensive than rail, at least it was more reliable. We went through a decade where service crisis -- more than a decade where service crisis happened every couple of years.

For the whole industry.

For the whole industry, I'm talking about, right? And so that has conditioned the customer base, the shipper base to be prepared with alternatives. And frankly, we've just come out of one as an industry post COVID, only a short while ago. But I think there is -- as an industry as a whole now, an acknowledgment that we've got to stop that. We've got to stop being short-term focused and induce these service crisis. And I'm really happy to see that overall right now, the network is running really well.

And we care about that. We're not competing on somebody else's misfortunes or crisis because it creates a problem for all of us. We have to interchange with each other. Half of our freight interchanges with another carrier. So if they're not running well, it impacts our service, too. We want everybody to be running good. And right now, everybody is so I think the biggest impediment in the past, which was service crisis at one or more railroad is -- doesn't exist today. So I think this is good for the industry. And I'm hopeful that all of us collectively in North America can start taking share back from the highway.

100% agree. I think the equation for growth is pretty simple, deliver service that you can count on from people that you can trust. And that's what we're really working on every single day. And it's not good enough to just deliver good service yesterday. You have to have a track record of it. You have to have really a runway of good service so that customers can make those adjustments in their supply chain to get themselves unwound from those higher cost and more expensive options and really reap the benefits of using rail transportation over time. So that's what we're focused on, and that's why we're so protective of the network and the service that we're...

You go back several decades and I'll give you 1 industry paper, right? There's no product that's more tailor-made to move on trains than paper, very heavy, very bulky. And frankly, rail had largely 100% share in the paper industry. Fast forward today through various crises over time, going back to the '70s, '80s, '90s, 2000s, they all have built out trucking, shipping docks out of their factories and facilities. And over time, our share has shifted dramatically toward more like the 40%, 50% range because they have to have options, right? If we were more consistent delivering service as an integrated freight rail network, that's an area where you can see significant share recapture from the highway. And it's not just paper. There's plenty of other examples like that.

Yes. Just a quick follow-up. What were the root causes of the service problems? Is it the PSR implementation?

Well, I would say this. I think over time, and I'm looking at the rail industry, written large, right? Generally, crises and service emanate from a couple of different places. Usually, it's a mismatch of resources and demand somewhere, and that starts to ripple through the economy. I can't lay it at PSR per se. It's a network business, and we just have to be very responsive to what's going on in the environment and make sure that we're resourced appropriately. And that's what I know Mark and Jim both talked about, we have to have a buffer of resources so that we can absorb those supply chain shocks that are inevitable. You want to talk about that?

Yes. No, that's exactly right. And you'll hear Jim talk about it. We have the same philosophy, right? You have to have to combat this mismatch of resources you may have to make sure you have a buffer. So oftentimes, the trigger to these crises might be weather, right? Well, what does weather do? It slows you down. It creates an imbalance in your network that you can only dig yourself out of if you have appropriate resources in place. That's kind of the buffer. When you're too thin on resources, you can't respond, and it takes you not just months, it takes you quarters to catch up and to rebalance yourself.

So you have to make sure that you have the buffers in place. So some people might say, well, weather was the cause of that service crisis or some other network change was a cause. It's usually a mismatch of resource. You don't have enough locomotives or people as a buffer to help dig you out quickly and avoid a prolonged crisis. I think it's hard to point to PSR and say, "Oh, it's PSR." That is certainly a narrative I've heard in the past. There is -- PSR is the most logical approach to railroading, there is. It's the application of it that has maybe been a challenge in the past where maybe we've gone a little bit too far or too aggressive in trimming resources, leaving yourself no buffer. So when one of these external influences happen, you can't respond or you can't react.

So you need to be less aggressive on margins and financial management and more focused on operations going forward as an industry, I mean.

Yes. I mean, I think we need to be financially focused too and financially responsible too so I think you can do it all in a well-balanced way. And I think the industry is doing it right now. And I'm really proud of where we are.

Any other questions. Anyone else? So maybe just to wrap, obviously, a lot going on. And I hope you can use the next 24 hours at going to relax a little bit and get some sleep. But -- yes. So what can we look forward? Like -- so how much are you spending? Like what's management time split like between fundamentals versus the deal and kind of where your resource is going?

Well, I think we're allocating management time and resources. I've got certain key members that are disproportionately allocated towards fulfilling our deal-related obligations while trying not to distract the remainder of management who's focused on running the business. And so that's part of my job is to make sure that Ed is not distracted. And Ed's team is not distracted.

They've got to try to find volume and be creative in responding to some of the new competitive threats that are out there. Same thing with John and the operating team. It's like we got to focus. We cannot have a service setback at all during this application period or forever, frankly. So we don't want that team distracted. But we've got core leaders, Jason Zampi, Jason Morris, are heavily focused on making sure that we fulfill our deal-related obligation. So it's a delicate balance, but it's very much top of mind.

Great. Thank you for bringing a really interesting story to the transportation space at the time when we're still waiting for the cycle. But Mark, Ed, thanks so much for being here, and I wish you all the best.

Ravi, thank you very much.

Thank you.

Take care.

Good morning, ladies and gentlemen, and welcome to the call to discuss America's First Transcontinental Railroad. [Operator Instructions] And I would like to turn the conference over to Luke Nichols. Please go ahead.

Good morning. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to both Norfolk Southern Corporation and Union Pacific Corporation's annual and quarterly reports filed with the SEC for a discussion of those risks and uncertainties we view as most important.

Our presentation slides are available at norfolksouthern.com in the Investors section, along with our reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio to date will be provided on an adjusted basis. A brief question-and-answer session will follow the formal presentation.

Starting the presentation on Slide 3, I'll now pass the call over to Norfolk Southern President and Chief Executive Officer, Mark George.

Well, good morning, and thank you for joining us on today's call. As you saw from this morning's announcement, the focus of today's NS earnings call has changed. Today is a historic day for America with the announcement of our country's first transcontinental railroad. I'm actually in Omaha, Nebraska this morning, and I'm pleased to be joined by Jim Vena, Union Pacific's Chief Executive Officer; Jennifer Hamann, the CFO; Jason Zante, Norfolk Southern Chief Financial Officer. So let me ask Jim to start the call by laying out our vision.

Thank you, Mark. On behalf of Union Pacific Board and leadership team, I am honored to be with you today to discuss our agreement to combine Union Pacific and North folk Southern and a combination valued at over $250 billion. This is a historic transformative moment for our companies, our customers and our great nation. Together, we will create America's first transcontinental railroad. With this transaction, we will generate significant value for our stakeholders and for all Americans.

It builds upon President Abraham Lincoln's vision of a transcontinental railroad from nearly 165 years ago, and will usher in a new era of American innovation. Union Pacific and Norfolk Southern are 2 of the strongest operating railroads in the U.S. with a combined 360 years of franchise history generations of railroaders at both of our companies have helped build America into what it is today. And today's railroaders will demonstrate that there is no better combined team to deliver America's first transcontinental railroad.

Ask you to turn to Slide 4. Lays out how this new seamless single-line service supports U.S. growth. Railroads are the backbone of the U.S. economy. We power industries connect communities and deliver the materials that build homes, grocery stores, factories and cities. You name it and the rail road likely moved it. Moving freight safely, efficiently and affordably keeps American manufacturing competitive and neighborhoods growing.

To that end, the United States has the best break transportation system in the world, and this transaction will make it even stronger. The transcontinental railroad is the right next step toward achieving that goal. Combining Union Pacific and Norfolk Southern to unite the nation from East to West transforms the U.S. supply chain and transportation landscape. Our single-line service will create new routes and increased access across this nation, making freight rail transportation a cost-effective option for more American shippers. By eliminating interchanges, customers' products will reach their destination faster, increased speed and reliability, combined with lower freight costs per mile makes rail a more attractive option than truck.

And with improved service reliability, we will lower our customers' inventory and equipment costs with reduced cycle times. The impacts of this transaction for American communities can't be overstated. Our merger will reduce highway congestion and road maintenance burdens on American taxpayers. One intermodal train removes more than 550 trucks from the highway and is 75%. We pay to maintain our networks with focused infrastructure investment to support long-term growth and the safety of our operations.

Together, this will enhance supply chain reliability, support the industrial renaissance and make U.S. manufacturing more competitive and accessible. Real investments have a broad impact on economic development and job creation. Importantly, Union Pacific and Norfolk Southern are aligned. All of our union employees who have a job today will have jobs tomorrow in our merged company and a company that is growing its business and spurring economic development creates even more jobs. The ultimate impact of investment in our combined company infrastructure, talent and technology will be immense for American communities and businesses nationwide.

Union Pacific and Norfolk Southern are committed to finding new ways to drive growth benefit customers and enhance real safety and competitors. I could go on and on, but I'll pause and ask Mark for his perspective on this historic transaction. Mark?

Thanks, Jim. It is a historic day, not just for our companies, but for our industry, our country and all of our stakeholders. This combination brings together 2 teams with a shared commitment to advancing our nation's economy connecting people, strengthening our communities and building a stronger, more competitive America. Both Norfolk Southern and Union Pacific have been an integral part of our country's growth for generations. With this transaction, we will extend Norfolk Southern's rich nearly 200-year history alongside Union Pacific, unlocking new opportunities for our customers in our next chapter.

We've strengthened our operations and have been disciplined in the execution of our strategy, running an efficient network, improving processes and driving excellence. We're championing safety and continuous improvement at every level and have fostered the discipline to continue delivering of service product that's not only competitive, it's compelling for our customers. And with the leaders we have and processes we're instilling, we are now demonstrating network resilience in the face of challenges. In these efforts, they have led us to today a turning point for the industry that's only possible because of the thorough [ Bread's ] team commitment, strength and belief in our mission. I'm so proud of everything we've accomplished, and I want to commend our dedicated leadership team and our whole organization for they've all done wonderful things to deliver results.

By joining together with Union Pacific, this transaction will allow us to build on the momentum that we've created and to really create America's true first transcontinental railroad delivering more for our customers, our shareholders, our people and the communities we call home. The ability to deliver for all our stakeholders simultaneously was central to my initial conversations with Jim, we share a vision for the rail industry where traffic grows, customers have faster, more reliable shipping.

Our nation's economy expands with less emissions and importantly, our people continue to be central to our business. Not only is this an opportunity to strengthen the supply chain, but one where we can deliver something no one else can, a freight railroad that unites our nation. Joining our over 19,000 mile network and powerful franchise with those of Union Pacific will allow us to deliver a more effective and competitive rail road, creating compelling benefits for the iconic American industry and our workers.

We will create opportunities for our employees as we grow by delivering reliable and timely service for our customers. We will build value for shareholders who will benefit from both the opportunity to participate in significant upside as holders of the combined organization. which we believe will be a must-own large-cap stock and should trade at a robust multiple. We will unlock potential for the American economy today and well into the future. And we look forward to all that we will accomplish together. Jim?

Thank you, Mark. Combining our 2 great companies creates an impressive rail network as laid out on Slide 5. The Union Pacific Norfolk Southern combined network supported by over 52,000 railroaders will spend 50,000-plus miles across 43 states, reaching nearly every corner of the United States. It connects major manufacturing centers, agricultural region and population center. It also unlocks rail options for shippers in markets where today's real network is currently inefficient, such as gateway operations and connecting short-distance markets on both sides of the Mississippi River.

Our combined network will connect 10 gateways with Mexico and Canada as well as over 100 ports, opening strong international trade routes and supporting local and cross-border economic growth. Importantly, single-line service reduces interchange points and creates increased fluidity and optionality. It reduces strain at our gateways and interchange points, optimizes handoffs and eliminates rubber tire interchanges.

Today, around 1 million carloads interchange between our 2 companies. In the future, those million carloads will immediately see a 24- to 48-hour improvement in their transit time. That combination of faster service and greater market reach is powerful making our transcontinental railroad an attractive choice for both current and future customers. Our network will be strengthened by continued capital investment. In 2025, that combined investment will total around $5.6 billion. These investments are critical to support safety, service and operational efficiency improvements, and we're committed to continue those investments to support U.S. economic growth going forward.

Now turning to Slide 6. Ultimately, we believe this new combined network enhances competition and increases growth opportunities that are in the public interest, benefiting all stakeholders. For us, this isn't just about winning versus the other rails, which we will but it also competing against other modes of transportation, whether that's barge, truck or pipeline to name a few. It's providing the transportation product to compete for broader industrial development that supports reshoring manufacturing growth in the U.S.

Our unified transcontinental offering will allow us to compete more effectively with Canadian transcontinental rails, making U.S. ports more competitive and winning back U.S. freight volume in American jobs. With route optionality that creates direct routes East and West will help our customers win in their marketplaces. Single-line service opens up more customer options to and from underserved areas in the Ohio Valley and the Mississippi River watershed, by connecting around 100 ports and 10 international gateways we enable more efficient and cost-effective supply chains.

Stepping back, the combined network will capitalize on the strength of Union Pacific's West Coast ports and Norfolk Southern East Coast ports. Merging the strength of both companies' intermodal network facilitates the capture of international trade volumes and domestic truck conversion. The beauty of U.S. ports is the population centers around the ports as well as the inland reach, thus making our ports a more natural destination when paired with excellent service and a wide portfolio of destinations.

Slide 7 summarizes a lot of what you've heard so far and why we see this combination as a win for our customers. A couple of things I'd add. First is a question of enhancing competition. One way we're considering addressing this is through a proven framework we've employed in the past. It's a framework used by Union Pacific for select traffic in the Pacific Northwest. The results have demonstrated that it has enhanced competition while supporting carload growth that has outpaced the market. While more details will come through the STB application process, we believe it will be a win for our customers.

A significant note, with this combination, fewer than 20 customers will go from having 2 rail providers to just one, and we intend to provide a competitive alternative. Second, the deployment of state-of-the-art technology like Union Pacific's NetControl and [indiscernible] systems, along with Norfolk Southern's advanced algorithms that drive digital train inspection will create a safer, more efficient overall network while enhancing customer experience through shipment visibility and tracking.

Now imagine steel movement from Pittsburgh, Pennsylvania, The Colton, California seamlessly and then copper moving from Arizona to the east with fewer touch points, increased speed and better customer tracking capability. The possibilities are endless and only increases my excitement about what's possible. I'll now hand it over to Jason to transition the conversation to the financial aspects of the deal. Jason?

Thanks, Jim. This proposed combination creates both scale and balance as laid out on Slide 8. Based on 2024 pro forma results, our combined company has revenue of $36.4 billion, EBITDA of roughly $18 billion and an operating ratio of 62.1%. This scale, combined with operational discipline, positions us to capture greater value as rail demand continues to grow. And specifically, with the combined operating ratio, there is clearly room for continued improvement. Together, UP and NS handled more than 14 million carloads a year across numerous business lines within our industrial, bulk, intermodal and automotive segments. You've heard both companies talk separately about how this diversity helps us navigate the ups and downs of economic cycles.

This merger only increases our combined company's ability to weather any storm. Importantly, this isn't just about being a bigger railroad. It's about being a better railroad, one that is more efficient and creates more value for our customers. Now I'll turn it over to Jennifer to walk through the financial opportunity our proposed combination creates. Jennifer?

Thank you, Jason, and good morning. Slide 9 provides a one-stop shop for the transaction details. Jim has already touched on a few of these points, but let me highlight that under the proposed terms, Norfolk Southern shareholders will receive 1 share of Union Pacific stock and $88.82 cash for each Norfolk Southern common share. This represents an $85 billion headline value based on Union Pacific's July 16 unaffected closing price and a 25% premium to Norfolk Southern's 30 trading day volume weighted average price.

In terms of the roughly $20 billion cash portion required for the transaction, I should point out that there will be no voting trust, so no funding will occur until the transaction closes. At close, we will fund that through a combination of cash we generate between now and closing as well as issuance of debt. As part of that, both Union Pacific and Norfolk Seven have suspended share repurchases but will maintain their respective dividends. For that premium, we are creating a transcontinental railroad that unlocks $2.75 billion in synergies, as illustrated on Slide 10. We see a clear path to achieving these annualized synergies in the third year post close, represented by both revenue growth and productivity.

On the revenue side, synergies of $1.75 billion will be heavily driven by modal conversion as single-line service makes rail more competitive versus truck. As Jim laid out, lanes such as the Pacific Northwest to the watershed and Southern California to the Ohio Valley provide great opportunities to win new business. Beyond intermodal, we see opportunities such as finished vehicles moving nationwide. Food and beverage shipments traveling west to east, industrial chemicals, moving from the Gulf to Eastern markets and tires and steel rod moving east to west.

As you saw on Slide 8, both companies bring a diverse business mix to this transaction which gives us a wide aperture to pursue growth opportunities. Cost synergies of $1 billion will result from improved safety and efficiency through shared best practices, reduction of material costs. enhanced asset utilization, routing efficiencies and rationalization of back office costs. For example, through just the optionality of single-line service will increase locomotive productivity and generate fuel savings through less idle time and gateways.

We'll gain workforce productivity through fewer car touches as well as driving the culture of operational excellence across an expanded footprint. To support these cost synergies, we expect to spend roughly $2 billion in incremental capital to integrate the networks. Finally, the deployment of state-of-the-art technology from both rails will create a safer, more efficient overall network. Looking then to Slide 11. This transaction yields a very compelling financial profile for the combined company as the $2.75 billion in synergies achieved by year 3 represents more than $30 billion of value creation.

We expect adjusted EPS to be accretive early in the second year post close with high single-digit accretion thereafter as the synergies are realized. Annual free cash flow will grow from a 2024 pro forma combined $7 billion to an estimated $12 billion by 2029 with synergies, reflecting 10% annual growth. With this strong cash generation, we will rapidly delever our balance sheet. In fact, we expect to close the transaction with a debt-to-EBITDA of around 3.3x and be back to around 2.8x by 2028, less than 2 years post close. With our commitment to prioritizing the balance sheet and discussions with the rating agencies, we would expect to maintain our current A rated status.

The more than 60% increase in run rate free cash flow supports our balanced capital allocation policy, reinvesting in our combined network rewarding our shareholders with a competitive dividend and resuming share repurchases in 2028. By year 3, we expect to be repurchasing more than $10 billion in shares annually. Bottom line, we are very pleased with what this deal represents for both Union Pacific and Norfolk Southern shareholders. We see it as a win today and a win for the future.

I'll now turn it back to Jim to discuss the next steps and wrap up.

Thank you, Jennifer. Obviously, this is a first major step in this process. I'm on Slide 12. In terms of the timing and path to completion, the transaction is subject to review and approval by the Surface Transportation Board with its statutory time frame. We at Union Pacific do not take steps lightly. We think them through. We make sure we have a strong case. We make sure that the team is ready to move ahead, and we're very comfortable with where we are as we move ahead. As I mentioned earlier, our robust plans not only preserve but also enhance competition and will be filed with the Surface Transportation Board in due course for all the reasons you've heard today, we're confident that transportation -- the transaction serves the public interest and meets relevant requirements.

The transaction is also subject to approval by both Union Pacific and North Bulk Southern shareholders, I want to be very clear here. We are both deeply committed to making this a seamless an integration process as possible. We understand that we need to avoid distracting our organizations during this approval process in a way that impacts our customers. And once the transaction is complete, we need to move as quickly as possible to deliver the benefits our stakeholders expect.

Now turning to Slide 13. The transaction of this size and scope won't be easy to execute. We understand that. Key is having the right strategy and the right team to execute it. At Union Pacific, our safety, service and operational excellence strategy has propelled our company to industry best -- we've made significant safety improvements taken service to all-time best levels and the operational efficiency and financial performance speaks for itself as we reported just a short time ago. A big part of our strategy's success has been maintained a buffer of resources to handle the fluctuations of railroading.

As we implement this transcontinental railroad, that buffer strategy will remain imperative. At Norfolk Southern, their thorough bread culture has driven significant improvements over the past year plus. They have great momentum across those same key elements of safety, service and efficiency. It demonstrates that our companies are aligned on the fundamentals of running a great railroad.

With the collective talent of both organizations combined with a winning strategy, I'm confident that we'll deliver for our stakeholders. Mark, I appreciate your thoughts on the cultural alignment before we wrap it up.

Sure, Jim. However, you label the strategy, it comes down to the core fundamentals. And from the start of the transaction, it was evident that the DNA of our companies were very similar. We have our core NS spirit values, which represent safety, performance, integrity, respect, innovation and teamwork and those are very closely aligned with Union Pacific. And we expect to combine the best of both companies' programs and technology to set a new bar for rail safety and performance advancing our shared commitment to keeping rail the safest way to move freight over land.

And I just want to reiterate a point that Jim made earlier. Both companies are committed to a seamless integration. We understand that we need to continue to provide our customers with a high level of service throughout this process, avoiding distraction and disruptions. We'll have plenty of time to do thorough integration planning while the transaction is under review and post closing. And we commit, we're going to put the appropriate resources and time in place to assure that we do this the right way. Both companies have an immense amount of pride in their histories and how they've shaped our great nation.

And if we use that as a foundation, while focusing on what we can control, I'm confident that these groups of railroaders will come together to win for our customers, our communities, our nation and each other. Jim?

Thanks, Mark. Now wrapping up on Slide 14, it summarizes the unprecedented benefits of this merger. This is a historic milestone for the entire rail industry and for America. This transaction will unite the nation connecting businesses, consumers and communities. It will accelerate growth, enhance competition, spur economic development unemployment and unleash economic innovation. Built on our safety, service and operational excellence strategy, we will accelerate improvements in the safety, service and efficiency of our combined network and through significant synergies and free cash flow generation, we will deliver enhanced shareholder value. Our great companies have deep roots and spur in the industrial revolution of the past.

With this combination, we take the next step in driving economic growth and prosperity of the future. That concludes our prepared remarks. We will now open the lines to answer your questions. Thank you.

[Operator Instructions] And your first question will come from Scott Group at Wolfe Research.

Scott, how are you this morning, I get to talk to you twice in a week.

Pretty historic day. I have a question on deal mechanics and then maybe just a bigger picture question. Why no voting trust? And then can you give us the break fee if there is a superior offer that sort of mechanic stuff. And then Jim, just bigger picture. I know you don't have a operating ratio target. But when you think about UP stand-alone and now this combination, in your mind, as the combined railroad is this a better margin railroad? And as you think about like $2.75 billion of synergies. Is that inclusive of any potential regulatory concessions?

Well, Scott, listen, thank you very much. I'll answer the second question in a minute, but I'll pass it over to Jennifer. You can talk about the breakup fee and why Noble in Trust.

Yes. So I'll start with the voting trust, Scott. We actually believe that a voting trust would complicate and potentially delay the transaction. So we want to go to the STB with a fully developed merger application that allows us to really lay out the fundamentals of this merger and provide all the necessary detail that supports our position that this will not only enhance competition, but it's absolutely in the public interest. And so again, with the time frame relative to regulatory approval, we also think it's in the best interest to not fund it fully 2 years before we would have to, which would obviously be required as part of the voting trust. In terms of the deal and the breakup fee, it is $2.5 billion is what's set for that. Certainly, we don't expect to be invoking that. We're very confident in this transaction.

So Scott, listen, I'm going to broaden a little bit the question that you've asked, okay, because I think this is really important to understand, and I've sort of said it a little bit in the prepared remarks. So when I came back to work at Union Pacific, after I was away for a sabbatical for a short time. I came back with a list of things. I carry around a block folder that -- I put my thoughts in on the back of it. And before I showed up, I said to myself, there's something missing in the United States of America, and that is truly a transcontinental railroad.

And we limit the capability of customers and manufacturing and supply chains in the U.S. because of the handoffs and what we do. The difficulty was always, could you ever get the deal and have a partner. And I'd tell you, it's a partner with Mark and his entire team. We spent all yesterday together, just crossing teas and dotting eyes. But at the end of the day, it was one of my goals. But of course, time and place is important is do you have the right fundamentals. And what I like is I like the fundamentals and what Norfolk Southern is doing.

And I trust that they are going to deliver as we go through this time frame to get to the -- and the STB, if they look at it, which I think they will, in a very systematic, is it better for customers, is it better for the country? Is it better to help people win in the marketplace, they'll approve this. We're very confident of that or we wouldn't have taken the step. So Mark and I had a little discussion. I always had it on the list of things to do, and we started the ball rolling. And when I look at how we got here, you need to make sure that the fundamentals of both railroads are in the right place.

And I'm telling you the fundamentals I know and I spoke about Norfolk Southern are in the right place. The fundamentals for Union Pacific are also in a great place. We have a strong team right across the board. And you need that and make sure that you have it. I'm very comfortable with Jennifer who's sitting next to me with Eric with Kenny and Marc is absolutely, and I'm going to ask him to jump in and give his view of this in a minute. So we have the right team.

Then at the end of it is where are we, time in place? Does this make sense? And we are absolutely sure that when everybody stops and thinks about this in a logical fundamental pattern, it is compelling. It's a case that's compelling for us to move ahead. Now you asked me about the ore. I don't give ore. All I'll tell you is my goal has always been the best in the industry, and you can go back to when I was at Canadian National, okay?

As the Chief Operating Officer, and we had great operations, and we've continued that at Union Pacific. We expect to be the best in the industry. And that's what we're going to drive towards and make sure that we're still the best and be able to return the best service to our customers. In the last quarter, Union Pacific service level was close to 100% on both the Manifest and Intermodal and that is service that we measure what we deliver -- what we agreed to with our customers. So high service, great efficiency, build on that for these combined companies, I'm telling you I'm very comfortable. I do not make decisions lightly, and I gave it a lot of thought and the entire team did. And absolutely, Mark, you did the same thing. Mark, any comments to add to what I just said?

No. I mean we've spent -- quite a while talking about this. And I think the most important part was fit and whether the fit was there. And I do believe, like I mentioned in the prepared remarks, culture was very much aligned I think our joint mission and vision for our country is 100% aligned. This is good for America to try to link our networks, independent networks. We can only go so far independently. And let's face it, this industry has faced contraction in deck over the last couple of decades in terms of volume growth.

We've been losing share to truck, and this is one way to reverse that trend. So I'm supremely confident that we've got the right partnership that we're culturally aligned and that we're going to execute brilliantly on integration to ensure that there's no disruption.

Thanks, Scott. Appreciate it. Sorry for the long answer.

Next question will be from Jonathan Chappell at Evercore ISI.

Jim, you're going to get a lot of questions that you had on Thursday that you couldn't answer. So let's start with the D.C. environment. You've said very clearly you're not going to take steps lightly, you thought this through. I assume you've had some conversations with the administration, with the Department of Justice, with the STB what can you tell us about the feedback you received from those initial conversations? What have you heard about adding the fifth member to the STB? And how does that fit into the time line that you've laid out?

Well, as the largest railroad in the United States of America, we have continuous discussion and dialogue with all facets of government and regulatory agencies in Washington. We continue to do that. So we would not have taken the step if we don't feel comfortable that we can deal with any of the issues that come forward. And that's the best way to describe any discussions we've had, and we'll continue to make sure that everybody understands what we're doing and how we move ahead.

Do you know anything about the fifth member of the timing there?

No, you probably know more than me on that. So if you know something, let me know.

I think there's quite a backlog nominee. So it may take a little bit of time. That's kind of what we're hearing.

Next question will be from Brian Ossenbeck at JPMorgan.

For Jason as well -- congrats on the announcement today. I wanted to ask a little bit more about the strategy to grow and enhance competition. So I guess, 2 parts. First one, if you have a view on intermodal service, combining these 2 networks? Is it still something where you need IMCs? Will you provide more on your rail-owned boxes? And then -- the second one, I guess, is really thinking through the approval process, how are you going to be able to come up and improve and quantify that these benefits are achievable through the merger and not through some other means.

Well, listen, you know what, Mark, why don't you start on the intermodal. You guys do a spectacular job of that. And you guys I'm always envious when I look at how well you guys have done on that. So why don't you talk about the intermodal piece?

Look, here's an interesting thing. With our interchange with UP today, of our interchange is over 2,000 miles, meaning only 5% is under 2,000 miles. We see an enormous opportunity to grow in lanes where we would be in that 1,000 mile or 1,500-mile range. So that's just one example and that kind of touches upon the entire watershed story. So again, you've got this interference in the center of the country with these interchanges that creates friction -- and you've got 500-mile moves 1,000 mile moves on each side of the Mississippi. And when you're going from west of it to east or east to west, rail has never even contemplated because it's just too much hassle too much extended time and frankly, too much cost.

So these are the areas where we see tremendous growth. And that's part of what you see in the revenue synergy number. So we're supremely confident as we look at the growth, and I think Jim would tell you the revenue synergies here were supremely confident in.

You bet. What I could add, [indiscernible] if you had a case where we was not thought through and was not compelling, you'd have a hard time being able to get anything done. When we look at what this combination delivers it delivers truly better service for our customers. Think about this you've been following us, Brian, for a long time, and I could go on -- this is one of those white board exercises that we could be at for 2 hours. But just to give you a little snippet, when a railcar moves non intermodal and it meets the goal from east to west or west to east, we can get across the country. We get across all the way from L.A. to Dallas in less than 2 days with an intermodal train.

It's a little longer with a freight train. We will remove touch points. And every time there's a touch point, you add 24 to 36 hours even at the best while you're switching the railcar. That's gone. On top of that, at the interchange points where we used to stop and hand off, those are removed. So every customer that today when we are finally approved.

And that's what the STB is going to look at is what's the advantage? How is service? Is it better for America and what they'll look at is we're going to cut a day or 2 off of every transit time. That means less cost for our customers. They'll have to have less cars, less leases less -- the congestion on the railroad will be less because there will be less railcars that are needed to move the same amount of business.

That's something we've done at UP already within our own network. The amount of carloads, okay? Cars per carload that we operate is improved by 20%. The velocity has improved and this combination moves it. So given all that, I trust what the STB Chair has said that he wants to live up to commitments and time line and make sure that the process of anything that they look at is clean, and that's why we're very confident that we'll be in the time line, unless we make a mistake in what the information that they require to look at our transaction, but I'm very confident that we've done the homework and we're in the right place.

Next question is from Brandon Glenski at Barclays.

Brandon.

Congrats on the deal, Jim and Mark. Jim or Mark, I mean, if we go back in the history of STB merger approval or on approval, I think integration service risks come up quite a bit, especially with integrations that happened decades ago. You guys talk about some of your strategies to maybe mitigate those integration risks and what the service plan would be in the first year or 2 of the integration of the 2 networks.

Mark, do you want to start?

Yes. I think like I mentioned in my prepared remarks, Brandon, we're very aware of what led to the merger moratorium back in 2000, 2001 time frame, and it was just a bunch of bad integrations. And we are committed to make sure that, that doesn't happen in this case. And we're going to use this 2 years of review process to start getting our teams together to talk and think and learn about the way our systems communicate, what platforms we want to be on to ensure that we have a running start when we close on this deal in 2 years' time.

And we're not going to turn any switches on unless we're 100% confident that we're going to be disruption free. So we're -- we've learned -- we're learning from the lessons of the past, and you have our commitments there. So I agree with Mark 100%. We're going to be very prudent in how we do things. But you know what words are easy, and people can talk about things and what -- and say this is what they're going to do. I'm not into talking about things. I mean to showing and then being able to replicate that. So shutdown, everybody remembers, and we talked lots about our implementation of net control. That change -- that was -- that is the fundamental system that runs our railroad, keeps track of every railcar movement sets up for billing, and we shut it down, replaced the old one with net control, and it was a nonevent.

It was like nobody knew it actually happened. I was hoping I'd get more questions and give a little pat on the back for Rahul and his entire IT team about how well Union Pacific did, but I never got any positive remarks from anybody. Rahul is still waiting for some.

Welcome to world.

Yes. Exactly. So at the end of it, I could go on the things. But fundamentally, the fundamental strategy that we are going to partake in this is having a buffer of resources so that we do not get ourselves in a place where we can handle because you're always -- it's an outdoor sport. You're always going to be confronted with something and you need to make sure that you have a buffer of locomotives and a buffer of assets and a buffer of people at the right level so that you can win. So I'm very confident. I really am that we will take it, like Mark said, take the right steps, don't get too carried away. Don't think -- I don't know Norfolk Southern like I know Union Pacific. And if anybody thinks first day, we're going to go out there and start slashing and burning, that's not going to happen. We need to learn and get the team together to build the right plan that wins. I'm being very verbose this morning. I think we're going to have to cut off some of these I'm going to try to do 3 word answers from now on

Next question is from Fadi Chamoun of BMO Capital Markets.

How is everything in Canada this morning

It's great up here, Jim. We miss you. So I want to say congrats on the deal first. And just a follow-up on an earlier question. Does the synergy numbers and the cash flow numbers that you've outlined in any way, accounts for any potential concession in the --

My main question, though, is there's 2 ways this could have gone kind of transcontinentally. And I understand what you outlined in terms of team alignment and culture but are there other network synergy consideration and mix, commodity mix or kind of business mix consideration then went into why NS and UP make the best transcontinental combination versus potentially another one. And lastly, is Jennifer can give us what's the gross revenue number underlying the $1.75 billion.

So I'm probably not going to give you that gross number, Fadi, but I will tell you that the synergy numbers themselves are growth synergies. So $1.75 is what we're looking at for revenue. And as you heard Mark say and you hearing the enthusiasm from the group, we think that there's more opportunity there and then $1 billion on the cost side. So that's that part. In terms of the returns and the cash flows that we talked about, we have taken into account the fact that there will likely need to be some concessions made. We're not going to size that. So when you hear us talk about the economics of the deal, I know that that's taken that into consideration, but the synergies that we're talking about are on a gross basis.

Fadi, you said why NS, I think they're a great company. Mark, why Union Pacific.

I think we've got the largest interchange only.

We do.

Million carloads of interchange -- you bet you. We've got a really strong cultural alignment. So it's a beautiful complementary fit.

You bet. Thanks, Patty.

Next question will be from Tom Wadewitz at UBS.

Jim and Mark, yes, congratulations on the deal. Let's see. Wanted to ask if you could help frame a little bit more on the revenue synergies. And then I don't know if you think like there's more likely to be upside on cost to revenue synergies. But I think you mentioned Canadian opportunities and taking business from Canadian ports. You mentioned the watershed markets. Can you give any more perspective like how large are those pieces of the $1.75 billion -- is it -- is Watershed, the biggest piece? Is intermodal biggest piece? How much is Canadian ports. Just any maybe high-level perspective on how you think about the bigger opportunities within that $1.75 billion number?

You know what, -- you did a great job of sort of framing the opportunity, you really did. You covered it all. So let me just say this is -- at Union Pacific, we have always been very prudent about what we put out for goals, okay? And Jennifer is not sitting close enough. She's worried that I'm going to say blow by. So I'm not going to say blow by, but what I will say is we're prudent on what we see for revenue synergies and we've done a detailed study, and I'm very comfortable that we're going to deliver what we said because we're prudent people. Mark, anything you want to add?

Yes. I think, again, we talked about the watershed opportunities, you've got markets like we can really attack in the watershed like Houston to Charlotte, for example. Dallas to Columbus, Laredo, Denver to Columbus. There's an awful lot of opportunity here where there's virtually no rail moves -- it's all truck moves. And those are big markets we can start to exchange. So there's -- I think there's opportunity well, well, well in excess of the numbers there. But we've made estimates and approximations that get us to the 1.75. But frankly, like Jim is saying, and I'm saying there's a lot of confidence in that number and most likely a lot of upside.

And on the Canadian side, just detail a little bit about the competition and why this is great for America and great for the industry and great for customers. Intermodal comes in at Halifax, comes in Montreal, comes in at Vancouver, comes in at Prince Rupert and single line haul they have, the Canadians to be able to come into the U.S. deep into the U.S. and deliver, and we're going to be competitive on that. We're going to be able to come out of the East Coast ports and the West Coast ports and compete.

That's what we want to do. All we care about is let's get -- whoever has the best service, best price, best model to win, and I think it's wonderful for us moving ahead. And then you have to look at the fact that you just can't really our opportunity to take share against long-haul truck is really amplified here when you start to eliminate the friction of interchanges. So eliminating a lot of those friction points and being able to build blocks and move traffic without an interchange is going to help us take share from truck on the long-haul side.

One component within that. Is it primarily intermodal that we're talking about? Or is it a big mix of carload as well.

It's carload as well.

Yes, it's carload as well. Absolutely.

Absolutely. We described the touch points. Yes.

Next question will be from Jason Seidl at TD Cowen.

Jim, Mark and team, congratulations I wanted to dive a little bit more into the synergy side of things and talk about the conversions. Clearly, the rail industry has lost share to the truck market over the last couple of years. How much has been lost at least in your estimation in the longer length haul lanes. And then when you look at the synergy numbers that you've given us, does that assume that there's no reaction by the other 2 to create another transcontinental railroad to compete with you? Or is that on a combined basis as well?

Listen, the truck market is huge. And we're not saying that we have the capability to take trucks out of everywhere. There's certain length of haul where the truck has an advantage. There are certain types of business that need a truck. And I think were mutually we can work together to win even more business and help with the transformation that's happening on the industrial side in the United States of America right now. So the way we look at it is the opportunity is there for us to be able to sell that model and end-to-end closer to what the customers have, extend the reach and not have that hand off.

I give the example for people that aren't railroaders. I know I've read a lot of your articles lately. So you're a railroader, just like I am, okay? And at the end of the day is I would like to have in the United States of America that if you cross the Mississippi and you were flying from one end of the country to the other, you'd have to get on the plane in New York, get up in Chicago at Ohar, change plans change carrier and go to another airline to go to L.A. And that's what we do.

And book 2 tickets to do it.

Book 2 tickets to do...

2 different companies. Exactly. So but that's how we treat freight in our country.

My interchange is Newark. So it's pretty bad.

Sorry about how I apologize. Mines Omaha, it's very simple to get to. Thank you very much for the question.

Next question will be from David Vernon at Bernstein.

First of all, congratulations and Jim, for what it's worth, I'm a big fan of that control. So good job on that. So with the revenue synergy number of 1.75, I know Jennifer, you said it's a mix of carload and intermodal, can you kind of put a finer point on what percentage is carload versus intermodal. And should we be thinking about this as all sort of incremental industry -- incremental revenue to the railroad industry? Or is there also some diversion contemplated in the revenue synergy number?

Yes, I appreciate the question, but you know that I'm not going to give you that level of specificity. But you heard in Jim's remarks, I mean, we're expecting to convert traffic, certainly bring new business onto the rail. That's a very big part of this transaction but we also think it will position us very well competitively against our peers as well.

Jason, anything to add? Like we kept you out of this discussion, anything else?

No. I think Jennifer hit it really well. A lot of opportunities on the revenue side. And I think -- we haven't talked much about the cost side, but there's great opportunities there. I think 2 of the biggest areas in our purchasing strategies as well as our technology and how we combine that.

Next question will be from Stephanie Moore at Jefferies.

Maybe just continuing on the conversation in terms of the revenue synergies. If you could talk a little bit about any conversations that you've had with customers either leading into this deal? Or do you plan to have coming out of the deal and how your maybe looking to just address any potential concerns around network issues post close, but also to really come after and kind of take this incremental share from truck as well.

Let me just start by saying, I think we're both coming from a wonderful position of strength right now when it comes to our service product. I know on the NS side, our Net Promoter Score is as high as it's ever been. Our customers are quite pleased, and I know we hear the same thing on the UP side with regard to customer satisfaction. So I think that customers generally are going to feel as though this is going to provide them more opportunity to leverage that good service product that they've been receiving. And give us more share going forward. Jim?

Mark, you know what, I think you've done a great job of summarizing that the way we're moving forward. So thank you very much for the question.

Next question will be from Bascome Majors at Susquehanna.

Can we go back to an earlier question, I know we'll get the detail from the lawyers on the origin story here when you file the proxy for the shareholder votes. But how long have you been talking beyond the sketches in your notebook, Jim, more seriously here? And did you speak to the other Eastern rail and what ultimately pushed you into this 1 being the right one, the biggest 1 or 2 reasons.

Well, I tried to clear this up at the very start about how this -- all this started. But Bascome we have been talking and our Board, and I'm absolutely sure and Mark can jump in here. Our Board when we started to talk about this internally and what we saw the benefits for customers, benefits on service and benefits for America, my Board really went through it in detail to make sure that we were doing the right thing for Union Pacific.

And we wanted to also make sure that whoever our partner was, was the best partner for us that we saw the best capability moving forward. And that's what we've done. And it took months not years, but it took months from when we first talked, and I give Mark credit he came in for a top-to-top and he said, growth? And what do you think? And that sort of spurred something that we already had. So we're talking months away. And when we start to work through, I'm not going to get into any detail about any other conversations with anybody.

That's just not the way business should be handled. But we worked through this, Mark and I, hand-in-hand and their boards and our Board, and we've had a lot of discussions about this to get it to the finish line. It's amazing how much -- even with a small team well, I guess, maybe a little larger team than I thought originally that we had on it, that it didn't matter as soon as we said something in the last couple of weeks, something would come out. So

we needed to move fast, which we did. Mark, anything you want to add?

No, that's you nailed it.

Next question will be from Walter Spracklin at RBC Capital Markets.

Congrats on the deal. I want to start with the CapEx question. I know you mentioned your run rate for free cash flow. Can you give your implied annual CapEx run rate that drives that free cash flow? And Jennifer, did you say $2 billion in onetime CapEx to achieve the $2.75 million in synergy I guess my question there is where are the pass-through points here? And how much investment has to be made for you to avoid Chicago or push through within Chicago or not Chicago at all -- is there short lines that you are contemplating to make that more fluid? Just curious as to the level of project investment that would be required to increase the connectivity between the 2 companies.

Well, thank you for that question. So first of all, we're spending about $5.6 billion this year. That's the combined between the 2 companies. I think you've seen us both be very disciplined in terms of our CapEx approach. We're going to invest for growth. We're going to invest for safety and service. And we will stick to those principles throughout the next 22 months or so that it takes to have this transaction approved and then going forward. That's always our first use of capital dollars, cash dollars is to invest it back into the business. That's our best investment, as I think you know. In terms of the $2 billion, we see that largely around tech integration because that will be extremely, extremely important to connect this net control system that we've just been talking about with NS system, leverage some of their systems with ours. Think about our progressive gate technology that you've heard us talk about.

NS, I think, has 50-plus intermodal ramps. That's a huge opportunity for us to deploy that system and gain productivity through that deployment. And then, of course, you think about siding extensions, I think when you think about the length of the trains that we run and how we want to seamlessly interchange and run those intermodal trains and manifest trains, East West, that will be an important part of that. Obviously, there's still a lot of details to work out there. But at a high level, that's really how we're thinking about it.

I think sometimes people are mistaken about the discussion about Chicago and Memphis and New Orleans and interchange points. So Chicago works for us, it really does but you're interchanging and you're sitting there with railcars having to sit. What we're talking about is Walter is you take a train and you run it between our combined network, and it's just a crew change and you keep on going. That's the big benefit. We don't see a huge amount of business changing from Chicago to go to Memphis or go to New Orleans because the [indiscernible] miles just don't add up, don't make a particle of sense.

But if we can be smoother, cleaner the way we interchange Walter, that's what is the real important piece of it. And on capital, everybody always thinks about capital and they think about it on what are we doing with locomotives, what are we doing with this? We have developed systems at Union Pacific and so has Norfolk Southern, some really good systems that improve productivity and how we handle ties, how we give track work time, how we replace rail and do that.

So those are the things that you combine and put together. And we've identified $2 billion that from technology and everything else that we think to be able to combine these 2 companies and make sure that it's truly operate seamlessly as one railroad when we're moving our products is in the best way possible. So we've done, again, a lot of work to get to that number. I'm hoping we can do it for 1.7. Thank you very much.

At this time, I would like to turn the call back over to Jim.

Okay. Well, listen, everyone, thank you very much. We appreciate you all taking the time this morning to come in and join Mark and I. Mark, sorry for jumping on your quarterly call. But at the end of the day, Mark, I'm very pleased with this combination, this merger. I'm really pleased to get through this in the next 22 months and get it done. And we will deliver railroad that is like none other in North America that provides the best service for customers, best cost-effective way to move products across the country. and I'm very excited. Mark, any last words?

Yes. Look, we're really excited to be combining 2 great railroads, the 2 greatest in the country to create the first Intercon Transcontinental railroad, I should say. And I'm extremely proud of where we've come just in these past few months to arrive at a deal. And I think we're going to transform industry. So we were making history together here, and thanks for joining us on the call. Thank you very much, everyone. Have a good day.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we ask that you please disconnect your lines.

All right. Great. We're going to go ahead and get started continuing on the rail track at the conference this morning. We're very pleased to be joined by Norfolk Southern. From Norfolk, we have John Orr, Chief Operating Officer; and Jason Zampi, Chief Financial Officer. Gentlemen, thanks very much for joining us. I think I saw Michael Barr and Luke are also in the audience. So thanks, guys, for joining, and welcome to the conference.

Thanks, Chris.

Yes. Thanks for having us.

So I think we're going to turn it over to you for a couple of intro comments. We can kind of get the ball rolling, and then we'll dig in for questions. And for the folks in the audience, we do want to make it interactive. So if you do have questions, raise your hand, we'll make sure we'll get those questions asked and answered. So with that, let me turn it over to you folks.

Yes. Thanks, Chris. It's great to be here. Great to be in Chicago. And just coming in here this morning, it's a perfect day for railroading, not too hot, nice and sunny. And I think that reflects on how the operations are running right now. Very scheduled, very disciplined. And as I look at the fundamentals of what we're doing, both from a connection standard, from a terminal capability and how we're servicing our customers. Things are right on track the way we would expect them to be. Very, very proud of the way the team has embraced our speak-up culture and really driving safety performance. It's really the enabler that allows us to be on a scheduled rail path. And I would say that very, very pleased on how things are going right now.

Yes. And I think the momentum that we have on the operations side is really what's giving us a lot of confidence in some of the financial goals that we laid out from a perspective of $150 million plus of productivity and cost takeout, made really good progress on that in the first quarter and moving strong there. Our goal of 3% revenue growth. I know we'll get into some of the components of that. Obviously, we've talked about the uncertainty related to tariffs and just the general macro there, but still feel good about that on that front. And then putting all that together, 150 basis points of OR improvement year-over-year. So all in, I think we're feeling good where we are. The operations, like John said, are running really strong, and it's just given us a lot of confidence on where we're headed.

Great. So let's dig into that a little bit. So volume up kind of mid-single digits, I think, quarter-to-date. Carload has been moving nicely in that sort of high 130s, I think, on a weekly basis. So maybe we can kind of break down where you've seen the relative strength or where maybe there are some areas that are a little bit on the softer side.

Yes. So overall, like you said, volume, we're up about 4.5% quarter-to-date. So pretty good progress there. I think the key things to think about are, one, how does that volume growth manifest into revenue growth? And then two, what do we see here as we're moving through June. So on the first side, when we think about the volume growth going to revenue growth, that 4.5% volume won't translate directly to 4.5% revenue growth. And the reason is we've got some pretty big headwinds both from fuel that we've talked about as well as coal price. So those are 2 significant headwinds that we've laid out.

To a lesser extent, we have some mix impacts that are also affecting that. So we'd expect a lower revenue growth than that volume growth. The second piece is then, okay, so first 2 months of the quarter in the bag, how do we think June is progressing here? And we are starting to see a little bit of softness more than what we expected probably. Chris, you mentioned 130,000 units a week, high 130s, which is where we've been in the last couple of weeks. That's a little lower than where we had been. And so it's a little bit broad-based. We're keeping our eye on it. It's something that we're definitely monitoring. But we'll definitely stay close to our customers on this and make sure we're looking at any leading indicators that point to any further degradation.

So when you think about kind of how we thought 2Q might shape up, you had the potential for some lull in activity in the immediate aftermath of tariffs being implemented and then maybe some pickup as China came back online after the tariffs were dropped from 145 down to 30. So I guess, are we seeing any of that manifest on the network, understanding you guys are on the veastern part of the United States, so a little less directly sort of exposed to that Western import market. But kind of how is that playing out?

Yes. I think what we're seeing there is kind of 2 things. One, you have some traffic that's kind of shifting back from West Coast to East Coast. We had the disruptions. I don't know how many months ago that was now, a handful of months ago related to potential port strikes. So some of that volume is coming back, and we feel like we're well positioned to handle that. From an air pocket or bubble, we're not seeing that as significantly maybe as what the West Coast is seeing, but it is there a little bit where our international volumes are ticking down a little bit there. So again, something to watch. I think the good side, John, is that when that volume does come back or if we have any kind of surge that folks have been talking about, we're well positioned to handle it.

Yes. I think the capacity that we created to take on more business is helping us through the ebbs and the flows. And the discipline on resources, the discipline on how we engage from over-the-road transit times and cranking the structural wheel on our zero-based plan has helped us get ready for the variability. So we've got the resilience built in with a huge amount of discipline around cars and locomotives and even people. At the same time, we're able to respond on both sides of that equation, which is a strong fundamental that I was talking about earlier.

So as you see carloads tick down a little bit, maybe a little bit of softness here picking up. So John, from your perspective, what are the sort of the near term or the immediate type of actions that you can take on the ops side to kind of help mitigate some of that?

Yes. Well, Chris, it's a strong continuation of the transformation we're under. Maybe it puts more emphasis on some aspects of it. But where we've seen ability to surge up, we've rallied the team around every opportunity for revenue so that we don't get lost in the macro. And staying there connected with the commercial team has helped us jump on opportunities, whether it's center beams or coal or other markets that are going to come up at the same time being ready in places like Chicago, where there's a high degree of interchange from the West Coast or to and from the West Coast. So I think those fundamentals and the discipline around that.

And then we have the compounding value of the discipline around fuel and our energy management systems. We're seeing some really strong productivity on fuel. So train yield, weights, tons on top of new skills that we're building in to manage fuel a lot more fully. Those things are starting to really show up. And so we get ready by being really good at being ready. And that resilience philosophy is giving us the ability to surge when we need to and be disciplined around our expense structure.

So Jason, you had talked about some of the areas that there were areas of softness. Maybe we can dig into that a little. Anything specific jump off the page at you in terms of what we should be thinking about? We obviously understand the dynamics around coal yield specifically. But within the commodity set, what is -- what sort of work and what's not.

Yes. So I think maybe just kind of walking through. I mean on the coal side, you've seen our volume trends there. Utility coal is really strong right now. That's really due to a restocking phenomenon there as coming out of the relatively harsh winter into the summer. And then we've seen the forward natural coal or natural gas prices, what's happening there. So I think kind of building up those stockpiles as we move into the next winter season. So utility is looking pretty strong. On the export side, 2 things in the quarter. One, we have the comp versus last year with the Baltimore port closure there. That -- we didn't move as much volume. But actually, John and the team did a great job of pivoting.

So we're able to mitigate that some, but that is still a comp issue. But the other thing we're seeing on export coal, you talked a little bit about price, Chris, but we're actually starting to see that price degrade production a little bit. And again, something we're keeping our eye on. We recently had one of the mines that we serve on our lines has announced the possibility of them closing down. So I think it's -- again, the price point has finally reached a place where some of that production is being impacted.

So that's kind of the coal story from a volume perspective. Again, I think on intermodal, we talked a little bit about what we're seeing there on the international side. Domestic is probably relatively stable from the last several weeks. And then on the merchandise side, kind of some puts and takes there. We're seeing some pressure within the steel markets, within grain, within our aggregates markets. So that's -- there's definitely some pressure there on the merchandise side.

Okay. So in terms of some of what you guys have laid out, you talked about the operating ratio improvement. I think on the last call, we talked a little bit about the potential for improvement in 2Q and 3Q potentially getting those numbers down into sort of the maybe sub-64% kind of range. Maybe any thoughts around progress and puts and takes as you think about maybe getting that progress and hitting those numbers in 2Q, 3Q?

Yes. I think for 2Q, just like you said, we kind of laid out normal seasonality if you think about going sequentially from 1Q to 2Q, 150 to 200 basis points. We're definitely going to outperform that from the 67.9% that we had in the first quarter. But also the first quarter had some kind of unusual or onetime items with -- we had really bad weather that we had to contend with. And so we had costs related to that as well as fuel headwinds and some -- an incentive comp true-up adjustment.

So you kind of take out those things as well as the normal seasonality and that really brings us to the sub-64% for the second quarter. So feel good about that. And then as we move into third quarter, really ready for any volume surge that we see there. And so again, I think those mixed with all the productivity initiatives that John and the team have working -- are working on that gives us a lot of confidence in that sub-64%.

Got it. And the $150 million of productivity improvements, I felt like that was a number you guys were highly confident on when we talked last, I guess, as we sit here kind of halfway through, is the kind of thing that you'll be sort of north of 50% of the $150 million as we get through 2Q? Is it how do we think about sort of the cadence through the rest of the year?

Yes. I'll kind of hit it high level and maybe John can talk about some of the specific components. But if you think about just the cadence of the year. Obviously, the back half of the year is a tougher comp. That's really when John and the team hit the ground running, started pulling out a lot of costs. So we had to get more than 50%. We have to get more than 50% of that $150 million in the first half of the year. So we're well on our way there.

I think the only other thing I would say is that the initiatives that are in place are really absent any volume, right? We're just -- those -- we will hit those regardless of what happens on the demand and the volume front. We proved that last year. We had pretty much flat revenue, and yet we still took out almost $300 million of costs and improved productivity there. So again, I think we're feeling really good on that front.

Yes. And as we work through it, Chris, the flywheel impact of continuous improvement from the structure of terminal performance, over-the-road performance, we're seeing the discipline of accurate car management manifesting itself into lower rents. We're looking at better over-the-road capability by reducing our train stops through our war rooms and really digging into root cause analysis on why things are not moving the way they should and solving them in near real time. So eliminating waste and at the same time, creating value through our better cycle times for unit trains, better cycle times for over-the-road performance. That's allowed us to get into our zero-based plan, which is a huge crank of the wheel for structural improvement.

And so taking out handlings, removing time from train schedules and putting more emphasis on the management of the plan and the teams responded nicely to the challenge. And then we've got other elements that we're just starting to come into their own returns through our mechanical discipline, the fuel initiatives, not only on how we burn fuel, but how we source it, the categorization of our resource management. So we just finished our 100-day review. Now it's into an implementation phase. That will start to bring yield across a wide swath of expense that we have. So I think that balanced approach that's creating more capability than we've ever thought of and at the same time, taking out cost is really pretty inspiring and people are really catching on to it.

So you're about a year-ish, a little bit more than a year into the process at NS. And so maybe you can give us your view of the state of the railroad in terms of maybe what you thought coming in and where you stand now in terms of maybe the bigger picture opportunity for not just OR improvement, but of course, we're interested in that, but just sort of in general, getting the network operating efficiently.

Yes. And look, when I came to NS, I had spent a lot of time in the East in Canada, particularly in the U.S. kind of Midwest. But I know it to be an industrial complex. So there's a lot of moving parts. There's a lot of discipline around how we serve customers and customer expectations. And layering on top of that, some of our biggest customers, you almost look at a product level because of the discipline around how we service first mile and last mile and really helping them compete. So while we're looking at waste reduction, we're also looking at service improvement. And we're stepping that up through our intermodal franchises, through our merchandise franchises. So it's not one or the other. It's several items at the same time being elevated.

And I would say that the maturity and the capability of the team has really amplified our ability to do all those things at once. So I'm really, really pleased with the performance of the team, the environment that we're creating and the skills that we're fostering and able to sustain the improvements that we've got. That's why I'm really confident on the $150 million. I know Jason and I, we hold ourselves to a much higher standard than that. And we're going to push each other hard to get the most out of the network, create the most value we can, sustain really high levels of service for our customers because we want customers to be inspired to come to us that's how we really create value, and that's the agenda.

And so I guess when you think about you joined the firm, I think -- I don't know if it's fair to say you inherited some OR targets, I think the company had laid out. I guess, those still -- those seem right? Do they seem conservative, aggressive? I don't know if you could put a finer point on what you think about sort of that $150 million over a multiyear period of time.

Yes. Look, I'm completely confident in what we published. You're right. I wasn't a part of the authorship of that. But that's life, right? You have certain expectations that are -- that you can create yourself and others that are created for you. The nice thing is our entire management team is aligned to achieving those objectives, no matter what their genesis and beyond because we're committed for the long term in value creation for NS. And we see what our network can give. We see where the customers want to go, and we're in the right place, and we can be really highly competitive where we need to be, but also highly complementary and extending reaches of respective networks and even other modes of transportation that can really have a value plus plus when they work with NS.

I think, too, one of the other things John talked about, the team is completely aligned. The other thing that's really great about this team is productivity isn't John's responsibility. Growth isn't Ed's responsibility. Everyone is engaged and involved in hitting these targets. And so it's really nice to see kind of everyone aligned and working towards these common goals together.

So let's talk a little bit about price. Obviously, there's the coal piece in international export coal, and we understand that's a function to a degree of the commodity price. But maybe putting that aside for a moment and thinking about the opportunity that you see better service -- stable sort of backdrop from a freight cycle perspective. We'll see how that kind of plays out. There's been cost inflation in the last couple of years that the rails have probably underperformed in terms of capturing through price. Is this an opportunity this year? Do we need to wait to 2026 to start to see that pick up?

Yes. So I think when I think about price, for me, the easiest thing to do is to kind of break it into a couple of buckets, and I'll talk about this absent fuel, right? I mean we know we have some fuel headwinds, some significant fuel headwinds this year. But if we break it into components, we talked about coal, right? The seaborne coal price is going to drive a significant headwind there. On the intermodal side, heavily dependent on what's happening in the truck market, and that's really been kind of a gating factor for us this year, if you will, and feel like it's stabilized a little bit, but we don't have a lot of that upside baked into our plan, right?

We're just assuming kind of flat going forward. But I think where you've seen and where we've really been able to achieve some good pricing is in our merchandise business. We've done that over time consistently. But I think with the service product that John and the team have created, it really helps, obviously, with those pricing discussions. And not just that, but it helps to bring share back onto our railroad, right? We had a period of time where we didn't have a great service product that was consistent enough for our customers to trust. And now I think they're seeing, hey, we can come back to NS, bring that freight back to them.

So the service product is really a double coupon there from a standpoint of we're getting price because of it, but also being able to attract volume back onto the railroad. So I think what you should expect to see on the merchandise side from a pricing, core pricing, again, when you take out fuel is really inflation plus pricing. There's always going to be mix effects in there, but I think we're feeling good about where we are from a price perspective in the merchandise business compared to our plan.

And Intermodal was positive, I think, this last quarter [ ex fuel. ] So that I guess there is at least some degree to get -- and I don't know how much of that is mix. It's a little hard to tell through the way you guys report. But I guess that at least is it flat or down in the context of a truck market that's probably not super strong at this point?

Yes. Yes, that's right. I think the way to think about it, I think we might have been up 2% [ ex fuel ] in the first quarter, kind of again, flattish from here. So we'll see how it plays out, but we're not anticipating a significant rebound there.

Okay. John, I wanted to ask you about some of the potential regulatory FRA type of changes and maybe what that can open up in terms of productivity, whether it be on the inspection side or some of the other things that maybe there's going to be a bit more latitude for you to do on the op side. Can you talk a little bit more about that?

Yes. It's a great question. And we at the [indiscernible] committees are really aligned around how do we implement technology to augment what people do and then to really create more consistency and capability for the rail. So we embrace it at NS. I turn to our portals, which give us a really good snapshot of the health of our cars and how we've developed over the course of the last 8 months since our war room started on how do we deal with deviations. We've been able to energize the capabilities of not only the portals, but the technology around that. And we found things that I would never have dreamt possible in such a short period of time.

And I'll give you an example. I was here at Christmas time and we had a broken wheel. And because I was in Chicago, I went to the derailment and let my team sit in Atlanta. And it really made me reflect on how do we get technology to find these things, not only on us, but on our partner railways much more quickly because this wheel came off of a short line. And we were able to develop an algorithm and start identifying broken wheels to the tune of finding almost more than a dozen over the last few months that prevent real-time derailments.

So when I go to the FRA and talk about the implementation of technologies to inspect cars, it's not meant to replace people, but to identify things faster, protect our infrastructure and protect communities faster and use the people that we have to learn more about how we maintain cars, third-party ownership and to fix them a lot more quickly. And so that's the same approach we're taking with our engineering. We've deployed technology on locomotives that give us the same effect as a geometry car that's self-propelled and inspects the health of the rail and the rail infrastructure.

Now we were regulated to inspect about 125,000 miles, 200,000 miles a year of track. Now we do 125,000 miles a month with these inspection vehicles. And we're asking the FRA to recognize the use of that technology to allow us to move away from something that is 1976 vintage regulation and get to modern time so that we can use our workforces to get out there and fix the rails faster and reinvest in capital in different ways. So that's kind of the environment we're in with the FRA. I've met with them a number of times as I always have. They're very responsive to acting in accordance with the science, and we're having really good discussions with them. And I think that's the approach that we need to take.

And when you maybe sort of widen out the lens and think more about technology, and we spent some time recently looking at what we thought opportunities could be on the rail space. Are there others beyond inspection? I guess, as you think about that, is it something that you think might have a real impact on sort of profitability as you get out, maybe it's not this year, maybe it's next year or the year beyond. I don't know how you think about sort of some of the stuff that's out there.

Yes. I remember distinctly having a mind shift as a result of PTC, positive train control. And here was a regulated imposition of a safety overlay and then realized that this opened up a whole new aperture for operations technology field-centric to back office. I think there's a tremendous amount of work we can do with the right regulation and the right structure to reap a dividend ROIC from that kind of capital investment as it reduces regulatory obligations that may be steam engine days, and we still have a few of those. And so I think when we can get an open mind on what's the real value, whether it's a better way to run trains, whether it's a better way to oversee crew capability or other things like that, there's a lot of places in that, Robotics included.

So there's a number of things we think about. It's just the call for capital. He keeps me highly accountable to having a relatively high ROIC, which is good. We all want that.

And a lot of these projects that -- or technologies that John is talking about, it's -- obviously, from a safety perspective, it's a no-brainer for us. We should absolutely do these. But it's also creating a lot of efficiency and productivity, stopping line of road failures, things like that, taking our employees and instead of them being the ones that find all this stuff, they become the fixers and really enhancing that efficiency on their behalf. So John talks about return on capital, obviously, crucial. These projects are right in that sweet spot from a safety perspective, but also truly enhancing efficiency.

The topic of rail M&A has come up quite a bit more often. There's been some discussion in the press. And obviously, folks like me asked the question, folks like the people in the audience asked the question. So kind of curious your thoughts on what you think about the potential for maybe another wave of rail M&A and specifically maybe Transcontinental mergers. Is that something that you see as a possibility?

So I think the trains article that came out, whatever it was, 3, 4 weeks ago that we've all read and interpreted for ourselves, but I think that's kind of maybe what started this last round of questioning that seems to come up every handful of years. I think from a Transcon merger perspective, I think there's a lot of benefits in doing that. You think about the growth synergies that you could have between 2 Transcon mergers and taking out interchanges, things like that.

So obviously, it seems like there would be a lot of benefit there. As I've said before, I think the regulations, the regulatory environment and really the political environment are kind of the 2 things that we have to work through there. But yes, I think it's -- there would be value there. But as I've also said publicly, I think it's -- we don't want to get distracted with this. Our focus is really on enhancing productivity, making sure we're providing a great service product to our customers and operating safely. So that's where our primary focus is on right now.

And John, from an operations perspective, anything that sort of stands out as you think about the potential of Transcon?

Yes. I think Jason said it best, that it's -- we all know that the story is out there. We all know the hypothesis. And we're really staying focused on the absolute and the transformation that we're under right now. And we've got a lot of value to create. But having gone through and testified at some of the merger hearings between CP and KC, obviously, as an operator, the more linear an operation is, the more repetitive it is. So there's a lot of points from a Transcontinental perspective that you could argue make sense. But like Jason said, I think there's time for thought and there's time for doing. We're in the doing zone and the markets do what the markets do.

Yes. Okay. That's helpful. Certainly, if anybody has questions in the audience, let me know, happy to get you involved while they think about that. Maybe to kind of summarize some of the opportunities in the guidance that you guys have talked about. So I guess from a revenue perspective, 3%, you guys talked about macro uncertainty. It sounds like you're seeing a little of that macro uncertainty here in the second quarter, but I think you also noted that there's maybe a possibility of a little bit of more freight moving in the third quarter. So I guess as you think about that, is that still the right way to say 3%, we'll see what the macro does. There's maybe a little bit of weakness here, but maybe potential strength coming?

Yes. I think that's the right way to think about it. That when we laid out that 3% revenue growth, it was really all volume related. We talked about the headwinds on the pricing side that kind of got us to a flat RPU perspective. So it's -- we still think that, that 3% is doable. But at the same time, we've got to stay really close to our customers, make sure we're understanding what they're fully seeing and looking at any leading indicators to figure out if something is changing there.

And we know there's a bathtub effect. There's some [ sloshiness ], right? We saw it after the longshore activity even from the uncertainty around the next iteration of what that [ CBA ] could look like in -- we're watching what's going on in the West. We're seeing what's going on in the East. So we can anticipate where that [ sloshiness ] is going to hit our interchange locations. We've got great relationships with our Western carrier partners. And we're prepositioning our resources in places like Chicago, in Memphis and New Orleans just to be ready for that surge and give us some elasticity in the event that we have a locomotive failure or something happens that we can get on things really quickly because it will be incumbent upon us to pull that [ sloshiness ] out and smooth it out as fast as possible. And we do that by having really reliable, engaged understanding of what's happening and delivering and executing as fully as we can. And that's how we're running the business, staying ahead of the market as much as possible and where we can't, just being ready to go as fast as we can.

Maybe my last question would just be on buyback. I think you talked about that in the first quarter. So maybe give us a little bit of an update of how you guys are thinking about the opportunity here for 2025.

Yes. So we had a lot of calls on cash over the last 2 years really related to not only the East Palestine incident, but we also purchased the Cincinnati Southern Railroad. So we're at a point where we feel like we've really kind of rebuilt our balance sheet, seeing strong profitability and got back in the market, which we were really happy to do. You saw we purchased around $250 million in the first quarter, maybe not as high as we have been in prior years, but we think that's a good rate to be at and taking that opportunity to continue to buy shares.

Obviously, share repurchases, when we think about our priorities, we invest in our business, we pay our dividend and then share repurchases is kind of that last lever. But again, I feel good about where we are from a balance sheet perspective, done good work working with our partners and the rating agencies to get our metrics back in bounds and pleased where we are on a profitability perspective.