All right. Good morning. Next up, we continue our 30th Annual Transport Conference. Again, thank you for taking the time out of your day. I'm Ken Hoexter. Next up, we have Norfolk Southern, who we welcome to our conference for the 19th time in the 22 years we've hosted the event. From the company, we've got Alan Shaw, President and CEO. Having taken the CEO role just about a year ago, May first. Certainly an adventurous year, a tumultuous one recently. We welcome him for the fourth time participating in the conference. Thank you, Alan. Also with Alan in the audience is Mark George, CFO, joining us for his third time. I believe Ed Elkins is here hiding behind the pole. Chief Marketing Officer for his second consecutive conference, and Luke Nichols all the way in the back. I guess he wants you to ask him the tough questions on your way out. We truly appreciate the gracious participation and partnership with NS over the years. Alan, thank you. Let me start with that. I think I'm gonna turn it over to you. I think you've got some opening remarks, you know, giving an update, market update. I would just throw out before you even get started, you know, just these last few weeks, it's been great to see we've been highlighting in our weekly, last week, just seeing the service levels rebound. You know, I think that's a few weeks ahead of your kinda June target. That's a tremendous, you know, ramp-up and so even the Chairman had some, you know, positive comments about the way you've been handling this and moving forward. With that, let me turn it over to you for the intro. Yeah, I wrote those down. What's that? I wrote those down. If Marty says something nice about a railroad, you gotta write it down. Yeah. Yeah. Well, thanks for hosting us today. It's, it's always a pleasure to visit with you, and this is, frankly, a good opportunity for us to talk about what we've been doing this year with respect to East Palestine and, more importantly, also what we're doing with our strategy and how they interrelate. I will make a couple forward-looking statements. Those are obviously subject to risks and uncertainties, cannot invite your audience to take a look at our filings with the SEC and our website and this presentation for more info on our risks. Let me start with East Palestine. It's been about three and a half months since the derailment. In the immediate aftermath, I made the commitment we were gonna do what's right, and we were gonna do more than less. That means more involvement than less involvement with Norfolk Southern on helping the community recover, more involvement than less on the environmental remediation, and more involvement than less in my own personal involvement with this. I was there in the immediate aftermath. I've been back almost every week since. I'm going there tonight. I've, I personally endowed a couple scholarships at the high school, and I'll be awarding those tomorrow at a school assembly. What's important is we're making progress there. We've contributed over $34 million to the community, whether that's the school system, whether that's local businesses, whether it's families, and that's just a start. We've made a lot of progress on the environmental remediation. We've moved over 40,000 tons of soil off-site and over 17 million gallons of contaminated water. There's more work to be done on both of those. We've established and are working with the two attorneys general from Ohio and Pennsylvania on long-term funds to address some of the things that folks in the community have expressed to me as real concerns, and that's property valuation assistance, that's healthcare and monitoring or healthcare, and it's also long-term water monitoring. We're addressing those issues. We've got about 300 NS employees and contractors who are there on a daily basis. I'm really proud of the progress that they've made. I think the community recognizes it as well. What I see is that when those employees go home, they typically wanna go back. I've actually heard examples of employees cutting vacations short so they can get back up to East Palestine. That tells me two things, Ken. That tells me, number one, they know we're having a positive impact on the community and helping their community recover. Two, we're getting positive feedback from the community as well. We're doing the right things, and we're taking a longer-term view in our approach to this. That's really consistent with that unique strategy that Norfolk Southern laid out last December that Chairman Oberman talked about, right? That's our approach: long-term value creation. It's a balanced approach. You know, in the past, you could rightfully accuse some in the industry of really focusing on short-term operating margins by cost control at the detriment of long-term growth opportunities and long-term EPS growth opportunities as well. You know, we did the math, and we laid that out pretty well at our investor day. It's a balance between service, productivity, and growth. It's more about long-term value creation through top-tier revenue and EPS growth, a commitment to industry competitive margins, and a balanced and disciplined capital approach. It works. We saw it work in the fourth quarter. We saw it work in January, where our service was near or at two-year highs, and our volumes were outperforming seasonality. Candidly, we had an awesome January. I mean, we really exceeded our expectations on the top line and on the bottom line in January. Then we had some issues, you know, on February 3rd, and that's what we're working through right now. As I think about our response in East Palestine. In that long-term approach, it reconfirms my commitment to our strategy because I think taking a long-term view when you're a railroad is the right thing to do now. We're gonna be focused on the long-term best interest of our customers, of our shareholders, our employees, and the communities we serve. We made two consequential decisions in the first quarter that I knew were gonna have an impact on our service product and an attendant impact on our revenue. That was based on feedback from the community to take the soil up from underneath the tracks. You know, that's our double main line. As you know, it's our premier corridor. It's our busiest corridor, and we went from double main line to single main line at restricted speed in early March. We expect that that work will be done in early June. That will have an impact. That's not the only thing that needs to get fixed, there's no doubt. The other thing that had a near-term impact was after a couple of derailments in early March, I asked our operating team to get really conservative on our train makeup rules. I wanted to make sure that we were really conservative on our consists, and I wanted to re-engineer our consists by train symbol, by line segment, and build capacity back. We've done that. When we went really small in early March, you will have seen our cars online rise, and you can see it right here. That congested our network, and it primarily congested our network and our merchandise network because that's where we really had to look at this. In fact, right now, our intermodal network is running pretty darn well. It's not exactly where we need it, but it's in really good shape, and the issues that we're seeing right now are primarily isolated to our merchandise network. Ultimately, these new train makeup rules are gonna help us. We're using more distributed power so we can run longer trains, and it ultimately will mean improvements to our cost structure and our service product and our capacity. Those rules are now all in place. Right now what we're doing is just modifying some slightly. What you can see is that, as you noted in your opening remarks, we're seeing train speed get better, we're seeing terminal dwell get better, we're seeing cars online get better. I know you look at the weekly volume figures, they're getting better sequentially as well. It does prove that service sells. I mean, we make one product, and it's service. We sell one product, and it's service. We're gonna provide a really good service product. That's how we're gonna compete going forward, and we're gonna make sure that we remain focused on industry competitive margins and a balanced capital approach. Thanks for that. Maybe just to jump in on two of those points, right? One, which is, you know, service came down after East Palestine and glad to hear all the steps you're taking to improve, remediate, work with the community. I think you had also said, you know, recently, don't expect that service until June, yet we're seeing that velocity pick up before your second main line. Yeah. Is fully operational. How are you able to do that? What's leading that? You know. Add a little bit more thought to that. Very good. What we're doing is we're working through that backlog, or that backlog of cars, of inventory on our network. Pay close attention to cars online. As we start working that off, and that built up because we got really conservative initially on our train makeup rules. As we start working that off, that's improving our service product. We will not be to where I'm comfortable with service, which is hitting our service targets until the third quarter. Bringing back that second main line will help. Working off this backlog is probably a bigger issue, I would invite you to continue to pay attention to the cars online number. Bleed that right into what you just, I think, wrapped up with, which was car volumes, right? Car loads are down about 8% midway through the second quarter, a bit larger than what we had built in. You were mentioning maybe seeing some of that sequential improvement. Look for that, you know, going forward. Does the volume improvement follow that service improvement? I presume it does, but maybe scale? Yeah, it does because right now, candidly, we're not handling all the demand out there in the automotive network and in the steel network primarily. As our assets turn faster because we've worked off that inventory, because our dwell is going down, the cars online are going down, then we'll pick up more within that merchandise network. The intermodal network, Ken, it's our service is pretty darn good, and it's more of an issue with overall demand. Even there, we're starting to see some sequential improvement there as well. I was talking to Ed this morning, and you know, I think maybe what we're seeing there, although J.B. Hunt will have a unique perspective on it as well, is that that inventory drawdown may have kinda hit a level where it's no longer going on. We'll see. That market remains stressed. I can tell you there's a lot of uncertainty, right, with the consumer, particularly with higher interest rates and a weak housing market. Frankly, when you move into a new house, you buy a lot of stuff, durable goods, and that's what we ship. There's not a lot of activity now in the housing market, that's having an impact as well. Yeah. No, we're definitely seeing that. I mean, it sounded like from Walmart we might have found that floor on inventories. From our truck shipper survey, it's still, I mean, it came off all-time highs, it's still extremely elevated levels. I agree. Hopefully, we're starting to work that down or chip away there. Let me go near term for a second just 'cause here we are midway through the second quarter, and I know a lot of people wanna talk, you know, near term, and then we'll talk some big picture questions. Yields, you know, yields were pulled back a bit, you know, from fourth quarter to first quarter, you've got, you know, yet they're still up 8%. I'm talking sequentially pullback, but, you know, you've got fuel surcharge, highest levels last year, a year ago. You've obviously got a tougher comp. How should we think about pure pricing? You know, a number all the rails used to give, don't give anymore. How do we think about the underlying outpacing, you know, a fight against rising inflation here in this environment versus what could be an optical continued pullback, I presume, in terms of arcs in or revenue per car? Yeah. When you look at yields, the other impact, in addition to fuel surcharge is the unwinding of intermodal storage revenue, right. That just tells you that the supply chain's getting better and more fluid. As intermodal storage revenue declined, we actually picked up share from truck in the international market in the first quarter. I would tell you that our pricing was pretty good in the first quarter. It's a little bit better than what we had thought, and that's primarily in the export coal market and in the merchandise market. You know, it's really tough to forecast the export coal market right now, but I, you know, the prices are down pretty significantly from where they were this time last year, the indices, but they're still at pretty elevated levels. Enough to pull in and attract more production, which will be good for us. I think, you know, pricing within merchandise will stay pretty good as our service improves. You know, we really try to price to the value of the product that we're providing, and there's a lot of reasons customers wanna use rail. Capacity, sustainability, and it's more cost effective than truck. They want to, and they definitely need the service to be there, it seems like, in order to get the volumes. Yeah. We'll talk about that in a minute. Let me knock off my last near-term question. Okay. Right? Which you always love the near-term operating ratio, right? Typically between 1Q, 2Q, there's about a 70 basis points average improvement. This time, obviously, given the different issues, first quarter deteriorated about almost 260 basis points, reversing a normal trend that had been kind of flattish. Does that make hitting your target easier in terms of given the harder starting point, or are there still overhangs from, you know, the events going on that still drag it and the service levels? Yeah, you know, I think with what's going on on us and then what you've kind of seen in the macroeconomy since the pandemic, normal seasonality really hasn't held that much in the rail industry. Recognize in the first quarter, as I noted, we had a great January. It was fantastic. So we had two tough months in the first quarter. We'll probably have three tough months in this quarter. You'll be able to see it and watch it with the weekly metrics. As volume improves, the service improves, we'll unwind some of those service recovery costs, and we'll bring more revenue onto the network. But we're still dealing with lower fuel surcharge revenue, and we're still dealing with lower accessorial storage revenue services. Yeah, I think the second quarter is gonna. It's gonna be tougher in that perspective. We just finished with the chairman, as you mentioned, and, you know, obviously, a big thing he's talked about is employees, highlighted your improving service, your dedication to keeping the employees. You still noted, I think, that on the call, about 25% of crew regions were short back in December. In the first quarter, I thought you mentioned it was as high as 1/3 of the regions were short on crews. How are you doing now and how should we think about that going forward? You know, our pipeline of conductor trainees is close to a record high. We can continue to, compared to where we were last year, where we felt like we had to hire for almost every location. We can really now become a lot more surgical, and a lot of it's in the Midwest, so we're really focused on hiring in the Midwest. A lot of our conductor trainees are targeted for the Midwest. In some areas, we've got enough flexibility because of the hiring that we've done over the last couple years, that we can apply go teams and temporary transfers to help us in areas where we continue to be short. You know, Ken, we went into this year knowing that we had to invest in resiliency. We knew even though our service was really good at the end of last year and great at the beginning of January, we knew we weren't resilient and that we needed to build that so we could handle shocks to the system. That's what we're doing right now. That's part of our long-term strategy. That's actually a perfect segue into my next question. Got, you know, you talked about the analysis of makeup of train rules that you adjusted. Maybe dig into that a little bit more. What does it mean? What have you changed? What does that mean for train lengths? What, you know, the efficiency of the network? How do you think about that? It really is about the locomotive configuration with the in-train, within the train. Enhanced use of distributed power. It's about the placement of loads and empties within the, within the train. There's some cars that have end-of-car cushioning devices as well, which you have to be particularly careful about where you put those cars in a train. As we noted, after the Springfield, Ohio derailment, I asked my team to get really conservative really fast because we were just in a position where we couldn't afford something like that, right? I needed to take the long-term view. I knew it would have a near-term impact, but I had to take the long-term view on this thing. We did that. We put the capacity back in as we've remodeled everything. You're starting to see the results from the service product. Ultimately, it's gonna help us because it will give us the opportunity to run longer trains because we've increased our use of distributed power by, like, 50%. I want to be clear. It will not have any negative long-term impact on our cost structure, our service or our capacity. In fact, it will help. How then, you know, we had another rail talk this morning about now being 100% on time in terms of origination. That's the plan and a focus on the plan. How does Norfolk think about that? You never, you know, did the full PSR kind of adoption. It was always our own way of doing it. How then do you view it? What's important for Norfolk in terms of the schedule and running the operation? Yeah. Getting back on plan is where we are now. That's what we're focused on. We've made a lot of strides on decongesting the network, and you've seen it with the cars online. Now the team is really intently focused on running to our plan. I mean, that just makes a lot of sense, right? That provides a better service buy. You can plan your assets, whether it's locomotives and crews a lot better. Crews like it better too, because they know when their next train start's going to be. That kind of eliminates my next question, is what has Paul Duncan made to change the operating plan? It sounds like it's still just maybe these minor adjustments in terms of how you set up the infrastructure, whether it's more distributed power, more. You know, Paul came in early last year. Since then, I've made a complete refresh of our operating team with a focus on service and safety. This is the same team that delivered exceptional service for us last year and the beginning of this year. I always think about service and safety as a combination of leadership, plan and resources. We invested in the resources last year. Paul put in TOP|SPG, you know, that balanced plan that had really good results for us. We got the right leadership in place. Now, it's about tweaking the plan and really focusing on running to the plan and executing the plan on a daily basis. Okay. Let's go back to your December analyst day where you set a few targets, right? Volumes over GDP. I'll just refresh everybody who might not recall them all. Right? GDP, so now you're talking about 2%-4% volumes, revenues over volumes, operating income over revenues, and EPS above operating income or effectively double-digit growth. Here we are five months later. The backdrop has maybe clearly changed from the starting point. What are your thoughts on those targets? Yeah. To be clear, those are long-term targets. I'm fully committed to those. You know, we have a unique opportunity at Norfolk Southern because of our franchise. We serve 60% of the consumption. Every day, about 100 million consumers wake up within 50 miles of one of our intermodal terminals. We've got the most powerful intermodal franchise in the East that faces the fastest-growing segment of the U.S. economy. We serve more than half of the U.S. light vehicle production. We've got a wonderful franchise that's built for growth. You combine that with a lot more onshoring that you're seeing in the Southeast and the Midwest because of energy security concerns and rule of law. There's a lot of opportunities for growth at Norfolk Southern above kind of, I would say, industry level over the long- term. That is the basis for our new strategy, is provide a good, safe and reliable service product and drive longer term growth. That will allow us, as we continue to focus on productivity, and I, you know, I tell the team all the time, we are gonna focus on productivity. Everyone does it, including our customers. Embrace it. We're gonna focus on productivity, disciplined capital deployment. Mark's gonna make sure of that. That's gonna drive, top-tier EPS and revenue growth, competitive margins for us. I wanna come back to the margins in a second, but I wanna hit on the CapEx one, right? You know, especially because of what you just talked about, some of the near-sourcing energy rule of law needs of just bringing business back here. Your CapEx is now about $2.1 billion or 17% of revenues. After you launch of PSR principles, it went down to 13% for a few years. It's now climbing back to 17%-18%. Is that the right level for the rail going forward? You know, CSX earlier this morning talked about given that near-sourcing a lot of opportunity to go get more industrial sites and develop given the growth that's coming your way. Is that built into that kinda 70% target, or do we see that creeping up over time? Yeah. Our target isn't necessarily based on next year's revenue. Our target is we're taking more of a long-term approach. I think of it like there's probably, like, five or six things that I know we're gonna need five years from now. Track, infrastructure, it's locomotives, it's crews, it's technology, it's intermodal terminals, it's types of cars like boxcars and gons to help us compete with truck. I'm gonna invest in that ratably, right? We're not gonna see a large fluctuation in our capital deployment on those year in and year out. We're gonna snap a string line and say, "Where do we wanna be five years from now on those things?" We're gonna invest accordingly. Yeah. Okay. There's not, you know, it's not like you see a wave of, you know, catch-up capital or anything else that's gonna push you up to the 19%, 20% from a kinda steady investment cycle. Again, I'm not gonna base it on revenue, right? Okay. It's gonna be a steady capital deployment. I will note that at some point, whether it's late this year or early next year, we hope to close on the CSR. Okay. That's right. Talk about what it's gonna take to get back to January operating statistics. You talked about kind of the main--. Is it just simply the main line getting up and running? Is it a continued shift in the plan? What has to happen to get? No, it's certainly the main line up and running will help. Okay. The other thing is continuing to work off this inventory of cars online. We're making progress there. Frankly, I wish it were going faster. I really do. Okay. I have a real sense of urgency about this thing, and I'm not necessarily always patient about this kind of stuff, but I want it to move faster. I really think it'll happen in the third quarter. Okay. Bring that down because we just ran through kind of the revenue growth and you said continued operating. Does that mean we get the operating... I don't know, can you talk to an operating ratio long- term? Does it mean it's sub-60? Is there a comfort level you kind of see as kind of a run rate for the railroad? You know, I think what we had talked about was, revenues grow faster than expenses. When we talk about smart growth, we talk about business with which we can be successful, and that business should be accretive to our margin profile. No, no specific number target. I like that. So do I. As CEO so do I. As CEO, you know, you get to see the big picture. Right now, the Senate subcommittee has passed a bill, which seems to me, as an analyst, seems to have some troubling things in terms of potentially locking in a cost structure if it stands as is, right. Obviously, it still has to go to the full Senate then the full House. You know, it looks to mandate two-man crews, looks to mandate time to inspect cars, train lengths. Are these things that really can inhibit the rail tech innovation and operating gains? How is it, as CEO, do you start looking at this thing, is there still an education that needs to happen with members of, I mean, maybe it's too late for the committee, but the Senate and House in terms of what some of these things can do in terms of stopping how you would like to see the growth? Yeah. I think it's really important that we all kind of level set on this and not make decisions based on emotion. Rail is the safest, most efficient way to handle goods over land. We're a safe railroad. You know, last year, the number of derailments on Norfolk Southern was the lowest in two decades. We know we can do better. Last year, our employee injury rate was amongst the lowest in the industry, and it was amongst the lowest in a decade, and we can do better. I can tell you that this year, many of our safety metrics are starting out better than they started out last year. You know, Paul took over as COO on January 1st, and even before the events of East Palestine, Paul made it a personal commitment to invest in safety on Norfolk Southern. He held multiple town halls in January and early February across our network talking to our team about safety. We also talked about service and productivity and growth. Ed Elkins and I participated in a number of those too to show our alignment as a management team on that unique strategy that Norfolk Southern rolled out last year. With respect to the legislative process, I was in D.C. yesterday, meeting on the Hill. There are a lot of things in that bill that make a lot of sense, and there are a lot of things in the House bill that make a lot of sense. I can tell you that the Senate bill is in much better shape having come out of markup last week than it was going into markup. A lot of the things were adjusted that I think make more sense from a safety standpoint. I really don't think a lot of the things in that bill are too overly burdensome for the rail industry or for our customers. In fact, you know, one of the primary focuses of that bill is enhanced tank car standards. As I understand, the American Chemistry Council has endorsed the bill. Okay. Next phase of TOP|SPG, which you talk about balancing profitability and growth. Maybe talk more about the growth outlook. You kind of hit on a couple of these factors and where you can see growth. I think investors love to hear the plan and how you continue to grow the railroad, right? I was talking to, you know, another railroad this morning about how the last, you know, 10 years I think it was seven years, we've still had flat car loads. Yeah. If you go back. Yeah, we had between 2011, 2017, lost 50% of coal on the East Coast in particular, right? Which is, you know, painful, and you've got to offset that. Now you got to continue to focus on that growth. You're targeting intermodal growth 2x GDP. I'm gonna go short term on you again here because that's how we think sometimes. Volumes are down 11% quarter- to- date. You know, how do you think about getting back to that? Is that, you know, East Coast port growth taking structural share? Is it J.B. Hunt has talked about continuing to grow their assets. How do you think about that, you know, 2x GDP growth on intermodal? You know, we're uniquely positioned for intermodal growth because we are aligned with, by far, the two best channel partners in the industry, with J.B. Hunt and Hub Group. They're investing through this economic cycle. They're basically taking the same kind of view we are on a long-term approach. I think you've heard John Roberts talk about how it's only a question of when the consumer recovers. That's how we're approaching it, because we want to make sure that we are coiled up and ready to go when that economic recovery occurs. We're not gonna try and time it because we haven't done a very good job of that in the past. We are ready based on our investments in resiliency so far and the new operating plan that we built. I look in the merchandise network and it. You know, there are some secular changes in the macroeconomy that were accelerated by the pandemic, I think, that really highlight the advantages of rail. Forward positioning of inventory next to the consumer. That's the market we serve in the East, right. A willingness to hold more inventory. That's kind of a shift away from just-in-time inventory practices on a lot of things. Well, that benefits rail too because of the capacity that rail brings. It's also sustainability. You know, Mark and I really started hearing about sustainability in early 2020, late 2019, as a driving factor for customers shifting stuff over to rail. You know, we're 3 to 4x more sustainable than truck. You, you layer on top a best-in-class consumer-oriented experience. You know, we are a B2B company, but our customers have B2C experiences and expectations. We're really focused on investing in technology to take business away from truck. That's what we're focused on. Then you've got our best-in-class industrial development team in the markets we serve. Right now we've got about 600 ID projects in the pipeline, and the value of those exceeds everything that we've landed in the last 10 years combined. We're not gonna land them all, right? I think what it does is it shows the confidence that customers have in the U.S. economy and the confidence that customers have in Norfolk Southern. That's great. Let me stick on that last technology concept. Some of the most exciting thing in the rail industries in years are some of the developments, you know, we're hearing, whether... Hank Wolf used to talk about this all the time with the original Thoroughbred operating plan. What do you see as the benefits from autonomous track inspection, car inspection, and what else? Is there anything else on the horizon that you think can be automated to improve the quality and service from the rails? Yeah. You know, you take a look at machine vision portals that we're establishing. We're partnering with the Georgia Tech Research Institute, we're gonna install several of those next generation machine vision portals this year. You know, one of them is gonna be right outside of East Palestine, and that's gonna help us catch stuff on a train moving at track speed that the human eye never could catch. That's gonna make us safer. That's gonna make us more efficient. Automated track inspections will certainly help as well. We use artificial intelligence to predict rail wear on our network. That enhances safety, that enhances service. Then it's the a lot of it is the mobility functions that we put into the hands of our conductors, which allows us to offer real-time updates to our customers. Norfolk Southern was the pioneer that launched RailPulse, which will ultimately put sensors on all the cars in North America, I hope, as long as we get, you know, industry cohesion around that. That'll help us compete with truck. It's improving that customer interface through mobile apps and through the desktop. I'm gonna do rapid fire 'cause I have one last question, then I wanna do the wrap up. 2.5x debt to EBITDA leverage, is that the right level for the rail? Yeah. For us it is. You know, we're gonna be BBB+, Baa1 over time. We've consistently been able to do that over time. I think that's where we need to be. It gives us access to capital and keeps interest rates as low as possible. I thought you were gonna throw that to Mark and say, "Mark, why don't you just handle that one?" All right. Alan, just let's wrap it up, right? Service rebounding, still more to go, right? You look into June and you can see that you're hiring for growth, not, you know. Yes, it's a downturn. We talked about volumes being down a little bit worse than we thought, which might lead to a weak second quarter OR just 'cause costs will stay high, see that improvement thereafter. What message do you wanna leave us? Any other two, three points you wanna leave us with? Yeah. Look, I'm committed to our long-term approach. We put a lot of thought into this. It works. It works for our franchise. That's the only one I can speak about because of the unique assets that we have based on what my predecessors have invested in, based on our customer base, based on our channel partners and based on our people and based on the management team that we've built over the last year. It works. We saw it work. We saw proof points in December and November and January. Our approach to East Palestine was based on taking a long-term approach to things and doing the right things. It reinforces my commitment to a long-term value creation that takes into interest the best results long- term for our shareholders, our customers, and our employees, and the communities we serve. I'm gonna see this thing through. Always a pleasure having you here. Thank you so much for your time and thoughts and insights. It's great to be with you, Ken. Thank you.