Great, morning, everyone, and, welcome to the 11th A nnual Laguna Conference. I'm Ravi Shanker, Morgan Stanley's freight transportation airlines analyst. Over the next three days, we have 18 transportation companies and 10 airlines to go through. So you're gonna be seeing a lot of me, unfortunately. But also, we are very, very happy to kick off this conference with a really big bang, with, Union Pacific, one of, the top 10 most requested, companies here at Laguna. I think the only non-transportation company on that list- sorry, non, Morgan's company on that list. Which kind of tells you the level of interest, in the story here. A lot of that to do with, the gentlemen and the management team that have on stage here. And so kind of we'll dig into details a little bit. But first, I need to point out that for disclosures, please see Morgan Stanley's research disclosure website at morganstanley.com/researchdisclosures or see our latest research. So before we kick off with Q&A, Jim, do you want to-- Hey, welcome, thanks for coming, Jennifer. And if you wanna kick off with any opening remarks. Well, listen, Ravi, I appreciate it. Thanks, everyone, for coming so early in the morning. It's wonderful. What a beautiful spot. It's nice to be here, and I'm looking forward to the questions, so we'll be brief. Yeah. Why don't you start it off? Well, yeah- You do the boilerplate. So I need to give our disclosure. So Ravi covered his. So, you know, we will be making some forward-looking statements today. Those are subject to risks and uncertainties, so please refer to the UP website and our SEC filings for more information on those risk factors. So- Perfect. Go for it. Well, listen, I've met some of you before, and it's nice to see some familiar faces, and I'm excited to come back to Union Pacific. I really am. And you know, I was off for a couple of years. I was here at Union Pacific for a couple of years, and you learn something about the company. And what you learn about the company is, is what's the possibility? What can we do? And we did a lot of hard work last time I was at Union Pacific. We improved the operation. That was. That's what I was brought in to do, and I did that with the team, and we were able to improve the operation to be best-in-class and best-in-class in margins. And I think that's the, that's the road we want to take. If I frame where we are today, the difference is we do have a lot of inflationary pressure, and the inflationary pressure we have to take care of. It's not as simple as parking locomotives and just looking at the assets and how we operate, and that's part of it, and I still think there's some possibility. I woke up this morning with us finally over 200 miles a day, car velocity. Anybody that's heard me speak before will tell you that that's the single best measure. It actually has no fluff on it, no noise. It's when a customer releases a rail car, to when the customer receives the rail car or says they don't want the rail car, and it doesn't matter what kind of rail car. So that's a real positive number for us. We need to be the best in the industry in that, because that will reflect the franchise we have, the service that we need to provide the customers, and make sure that we're delivering exactly what we said. But before I started, so why did I come back? What is it that I saw? Strong team. I know the people at Union Pacific. Am I going to be as patient as a person, brand-new CEO? No, I expect people to deliver, and I think they will. We've got a great team there, and I'm absolutely sure that we're gonna deliver. The vision is pretty simple. Now, if you go underneath and look at everything that's involved to get to that place, as a railroad, safety's got to be the foundation of everything we do. So we want to be the best in the industry. We're not there yet. Even though all of us, every Class One, every railroad in North America, can look at a graph and look at the slope and say, "Wow, it's, we're headed in the right direction," I think we need to take it to the next level. If it takes some investment to do that, we will do that. If it takes more training of the people, making sure that people understand and how the jobs are, and if we have to invest in ways to make the job and technology, taking advantage of what's available to make the job even better, we need to do that. That's one of the key foundations. Operating excellence and service excellence. When I talk about service, I've been spreading the news. So when I started on August fourteenth, so just about a month ago, it was real simple. The message was, what is service? I received that question from a number of people in the company. Service is what we sold and what we told the customers, either by contract or what they, if they don't have a contract, what we normally deliver for them, and that's what we'll measure. Enough of just looking at one overall company metric, that by Trip Plan Compliance, because at the end of the day, it's important to get that message to each individual customer. I have met with bulk customers, I've met with intermodal customers, I've had meetings with industrial customers already, and I think they agree with the message, and they want to work with us. They know the value of what Union Pacific can deliver and what the railroad can deliver for them, and we want to grow with them. Now, how do you get the growth? Great safety, operating excellence, and service. Let me talk about operating excellence for a minute. As you know, I'm not real good at a whole bunch of things, but I'm not bad as a railroader. I've been doing it for 40-some years, and I'll tell you, you know, I spend time out in the field. I've already been out to three locations, Portland, Los Angeles, and Las Vegas. When I go out, I don't sit there with an entourage.... I go out myself or with a couple of other senior leaders if they want to come, and I go visit the local people that actually supervise the crews, and we talk about how they operate. Now, I can't visit every place, so we're going to train them to be the best operators. And that's why already we've seen high single-digit improvement in our car velocity, high single-digit improvement in locomotive and asset utilization, and I want to get it back. We're not measuring against what we did last year. We're measuring against what was possible and what we did in 2020 when I was here, and it was really good to see. When I went to Las Vegas, the supervisors there had a comparison for me, and they had a spreadsheet that showed what they did in 2020 and what they were doing now. So that's where we need to get to. Now, is the huge change in operations as evident as it was when I joined in January 14th of 2019? Absolutely not. But there is opportunity there, and we're going to get the opportunity, and we're going to embed it so that it's part of the culture. I think we have the team. I know we have the team and operations that deliver it, and that's what we're going to deliver. So we'll see an improvement in the service, improvement in operating excellence, improvement in safety, and that's the goal for the company. Now, I could keep on going, but I think I'd rather listen to the questions you have. It's just like when I went to the industrial forum with over 100 of our biggest customers, and I opened up the floor for questions for them, and I think it's more important to get the feedback so everybody's clear on what we're trying to do. I'm also just to give you an example of what we're doing. This morning, you'll see an announcement come out from us. We took a look at our service in and out of Mexico with the FXE and how we could improve that. Also, work with CN in tying it through so that we can open up and use the leverage. We have the fastest route from the Mexican border. We have a 70-mile-an-hour railroad, and we have the fastest route from the gateways in Mexico that we handle up to Chicago. And the announcement will be that we've taken a full day, 24 hours, out of the service that we used to have, and I think we have the fastest service out there for customers to build on. So customers that want just in time, we're there. Our performance so far, we started that shortly after I arrived, and our performance is in the high 90s%, and that's where you need to be, is in the 90s% to be able to deliver what the customers want. So I'm very excited. I really am. Nice to be back. And Ravi, instead of me going on, I could speak for the full 30 minutes, and you wouldn't even get a chance to ask a question. I think they'd love for you to speak for 30 minutes. Why don't I stop there and pass it over to Jennifer? Jennifer would like to give an update of where we are at this point. Yeah, just a little bit of a quarterly update. So Jim obviously talked to you with a lot of enthusiasm that the whole company has in terms of what the future holds for UP. We do have a tough setup, though, in the near term. Much of that isn't unique to Union Pacific. It's a tough setup in terms of the freight transportation market. We knew that coming into the quarter, but I would say the volume picture is probably even a little bit weaker than what we originally expected. Normally, you'd see some seasonal growth from the second quarter to the third quarter, and that just hasn't materialized here in 2023. Our volumes are, are flattish going from Q2 to Q3. And if you look on a year-over-year basis, we're down about 3%. So, continued softness in the transportation demand side of the equation. On the cost side of the equation, Jim mentioned inflation, and that inflation continues to be very real, and obviously, without much volume there, that makes it hard to leverage against some of those inflationary pressures. Just a couple reminders there. So one is on the labor side. We talked at our second quarter earnings call that with the new sick leave agreements, we'll have added pressure of about $50 million in the back half of 2023 related to the implementation of those new sick agreements as people are taking more time off. We need more people, particularly in the train and engine ranks, to be able to move the freight. We also mentioned that we're going to start implementing... In fact, we're just beginning to implement some of the new work rest agreements. There's going to be a cost impact to those. We still are working through some of that, but we know that there will be headwinds that we need to work through. Purchased services in the area that you all have seen the inflationary pressures, that's continuing. You also are familiar with some of the weather issues that we had the earlier part of the quarter with Hurricane Hilary and some of the monsoons. When you think about restoring the railroad, there's a little bit more pressure there in that purchase service line. And then the last thing I'll mention is fuel. So we also talked at second quarter that fuel was going to be about a $0.50 headwind to us, to EPS, in the second half of the year. That was really related to fuel surcharge in that year-over-year comparison as surcharges are coming down. We absolutely are going to experience that here in the third quarter. We're getting a little bit of a double whammy, though, in the near term because fuel prices are starting to come up a bit on us. We're probably going to be around $3.10 a gallon or so here in the third quarter, and so with the two-month lag in our surcharge programs, there's going to be a little bit of a headwind there. So near term setup, tough. I can't, you know, wipe that away. And unfortunately, even with all the work that the team's doing, we can't take some of those inflationary pressures away. But long term, obviously, great opportunities, and that's what we're all about. Right. If I could just add one, one more thing. I didn't come back to work because I thought that possibility wasn't there. Like, you'd have to be a little bit on the crazy side to want to become the CEO of a company that did not have the opportunity, and did not have the chance to win, and did not have the basic network to be the best in the industry. So it might take us a little longer than when I came last time, we were shutting down hump yards. We were doing all sorts of things real fast because it was right in front of us and easy to take. But the opportunity is there. So I came back to work. We're going to be the best in service, operational excellence, and safety. That's the road we're on short term. I love it when Jennifer talks, I sometimes go: Wow, there's a lot of negative in there. But I'm not real worried about that. We're worried about that. We're gonna grow, and we're gonna grow by having great service, and customers have to trust us, so that doesn't turn around overnight. We need to show them that we can be resilient, and if something happened, we recover. Who the heck thought that we would have a hurricane hit the West Coast in the US? That's always an East Coast problem more than it is a West Coast. But the team recovered quick. We did some things a little bit differently, and we're back to normal. We're running at better than we were before, and that's what it's all about. So thank you, Ravi. Great. No, thank you for the opening remarks. Lots to unpack there. Let's do the long-term stuff first, and then go to Jennifer for some of the shorter-term questions. Jim, again, you've had a busy first month, sounds like it. But has it been like, you know, wearing an old pair of shoes or riding a bike and instantly familiar, like seamless? I think you said something like, you're not gonna be patient this time. Do you see some, like, bad habits that may have crept in in your time out? Kind of, what exactly do you find in terms of what you can do right now to get the ball rolling? So when you're, when you're operating a railroad, you don't make one big mistake normally, and you cause yourself to impact the system, and you slow down, and then you can't provide the service. What happens is you make a lot of small mistakes, and if you make small mistakes, they come back all of a sudden and add up, and you wake up one day, and you go, "Wow!" So that's what I want. I want to make sure that we're on top of. I want to be close to the operating person. I've got a great operating person in Eric. I'm gonna teach him more so that he is the operating person. I'm not the day-to-day operating person. Well, if you ask him, he might just say, at this point, maybe I am, but that's okay. But he's responsible for it. So the way I see it is, it was easy to walk in that front door. I knew where my office was, I knew where to go, and I knew what this company was and the people. So if that gives you the head start to go, and when I talk about not being patient is we need to make decisions quicker. We need to make sure that when we make a decision, we make it, we use the best information possible, we have it in front of us, and as a team, we need to move quicker. I had one customer ask me before the forum if he could take me aside and have a question for me, and the question was: they've been looking to build the track, and it was 18 months long for us to give them a decision on whether they could build this track. It was somebody that wanted to bring a whole bunch more business onto our railroad. I hate to tell you, Ravi, three days later, we had the answer: "Build it, okay, and we'll be there to service." So that... Now, it's not always three days. There was a little bit of work to do, but it should not take 18 months. We moved the decision-making down to the right level. That's a big change. It's a cultural change. When you take decision-making away from people out at the local field, decisions they should make on how they supervise, number of people they actually need, feed back up the ladder, gonna drive that. That opens up. They know the operation locally better than anybody else. Let them do that. We drive that. Quicker decision-making, be absolutely. We look at assets, look at people, look at everything that is operational excellence. I'm not changing, okay? I have. People can call it PSR, people can call it whatever they want. Those five tenets of how you operate a railroad safe in the proper way are there, and that's what I live by when I look at the operation, and we're gonna continue to do that. And we have to have good service, so you cannot. And I know I'm repeating myself, but this is real important. I remember early in my career, I went in to see a big customer of ours when I was working at the Canadian National, and I thought I had a pretty good story to tell. Our trip plan compliance was pretty high, and I went into this old grizzly guy. He was, like, in his late fifties. So now I think there it's a young guy in their fifties, okay? I said to him, "You know, we're doing pretty good. We're looking for a rate." And he stopped me, and I can't say exactly the sentence he said in public, but he basically told me, "WTF, what are you talking about?" Okay? "Your service to us is awful." So we need to develop the relationship to truly understand the business, and then we can grow. The business is out there. We're more fuel efficient. You know, a couple of locomotives will handle 300 containers. We do it at a real high speed, just like we're shown with the new service coming out of Mexico and partnering with the FXE coming north. And we're as fast as anybody coming out of Los Angeles, moving containers into the different markets. That southern corridor, you know, we're running trains at 70 miles an hour, and we're fast, and we need to expedite that and learn how to be resilient. It's a long answer, Ravi, but I wanted to make sure everybody understands where we are and how I feel we need to get there. Absolutely. This may be an oversimplification, but forgive me, I'm a sell-side analyst, I always do. But, it felt like your previous tenure or your time as COO was marked by a lot of cutting and, you know, trimming the fat, you know, killing the-- taking out the deadwood, you know, over the years at Union Pacific. I feel like I'm getting a different message now. I mean, you said, you know, you're not averse to adding more investment, you're not averse to giving your team more tools. So just until you get that service back and the volumes roll in, like, does the OR need to get worse before it gets better? No. So what is that thought for kind of getting up to that level of service? Is it just a case of, again, you teaching people, saying: "Hey, you've been doing the wrong things with the right tools," or kind of how does that work out? ... Well, the answer would have been a little more complicated, so I know you want me to answer more than no. But no- Pretty inviting, though. Yes. We need to bring new business in. Yeah. So Kenny's all over that. We need to cover what inflation gave us- Yeah - and the extra costs that we have, both from an employee base and structurally, some things have gone up. I'm comfortable that we have the mechanisms in place. That's going to take a little bit longer. Contracts don't come up all at one time. We have to deal with that. Yeah. And on the service side, and what we're trying to do with margin or OR, and I'm good talking about OR, that's a good metric that just sort of tells you where the heck your railroad is. I think we can be the best margin railroad in North America. My story hasn't changed from the last time I was here. Mm-hmm. Nothing changed, and we delivered good OR before, and we're going to get there. Now, the road is always bumpy. There's things that are thrown at you. I've been around for way too long to promise you that this is where we're going to take it. But I'll promise you this: we're going to be the best. We're going to have the best margin, we're going to have the best service, and we're going to have the best safety record. And if we do that, customers will want to come with us. They'll see what we can do, and we'll win. So yeah, I don't see, unless there's a big problem with the economy and that affects us, Ravi. Who knows what's gonna- Right ... what's going to happen in the U.S. economy in the next six months? Yeah. If anybody knows that, let me know and I'll go out and buy some stock in some companies right after I leave here, okay? Or call my wife. But, if everything is normal, our OR, our margins will be better. I was just about to ask that question to Jennifer, to kind of go over the next six months and kind of what are you seeing out there. So clearly, kind of your, your comments are pretty clear about what Q3 has been like so far, and kind of you, you see that in the cargo data. But what are you hearing from your customers? Like, any signs of life, peak season, kind of do you think that there's an upturn coming? Yeah, I mean, I think everyone believes right now that the peak season is probably going to be pretty muted. You know, we have an opportunity with the grain harvest, and so, we had a bad harvest in 2022. It's shaping up to be better for us in 2023. Still a little bit spotty, but when we look at that, and that hasn't started for us yet, so I do think on the grain side of things, we've got the potential for some decent growth there. Sequentially, year-over-year, it's probably still going to be a pretty tough comparison for us. We still are seeing coal demand decent right now- Mm-hmm ... just because of the very hot summer that we had. And then the industrial side, which is really, in many ways, our bread and butter, you know, we continue to see good demand from some of those industrial customers. Plastics, we've had business wins. Stone, we've had business wins. Metals, we've had business wins. So going back to Kenny and his team, they're out there working with the customers, engaging with them, and selling them a very strong service product. Intermodal is weak. The consumer demand is weak. The only exception to that is finished vehicles, which we all know kind of the story there, and that's been great growth for us this year. Mm-hmm. That'll be a tough comparison as we move into 2024, but, it, it's been a good uplift for us here in 2023. But on the cost side, you guys will have an easier comparison starting Q4 onwards. So do you see that as being a much kind of more muted environment, kind of on the inflation side, kind of over the next four months? Well, on the cost side, we still are going to have the sick pay agreement that we have- Right ... which is, you know, $50 million for the second half. Just rough math, $25 million and $25 million. I mean, that's going to be a pretty significant headwind- Mm-hmm ... as well as us continuing to start implementing the work rest agreements. We know that that's going to be a headwind for us as well. So I don't have a magic wand, unfortunately, that's going to take some of those inflationary headwinds, particularly on the labor side, away. Efficiency is obviously an area that we can work on, we're going to be working on. The team is working to make the assets more efficient, and you're seeing that in some of the metrics. But it's going to take a bit for some of that to come out. Got it. Before I open the floor to the audience, I had one question for either of you on the Mexico announcement this morning. Obviously, there's been a lot of focus on the changing competitive dynamics, you know, Canada, U.S., Mexico, with the CPKC combination and other the Falcon Service launch, et cetera. How do you think that evolves over the next kind of, you know, three to five years? A, kind of, what's your view on nearshoring? How powerful is it going to be? What is the timeline for that? And B, I think there may be some sort of, you know, foregone conclusions or the market saying, "Hey, this is a slam dunk for certain players." Kind of, how do you see that kind of competitive situation there evolving? Well, I think we need to leverage our railroad. And the way we look at it, I think Mexico, if they haven't surpassed China as the- They have ... the biggest trading partner. Mm-hmm. I knew that, but I thought that. So at the end, so we see growth there, and we need to have service, and we need to have assets, the way we use them and what we do, and we need to leverage our railroad a lot better. We have an absolutely fabulous network that was built over the years from, you know, 1862 on, where it started from Council Bluffs and Omaha west railroad, and we've added all the pieces in. And when you actually look at our railroad and where the customer base are, where people live, where the industrial base is, and then we add that to what we can do out of Mexico with our little ownership that we have of the FXE, plus what we have, and we work very good together, and the gateways that we have, I think we win. And we just showed that this morning by the announcement. To take 24 hours on a service that runs from Monterrey, Mexico, up to Chicago is a big deal. Mm-hmm. It really is. So people that want speed, it's there. People that want reliability with the high 90%, it's there. So we want to leverage that network. And then it's more than just that. It's, it's not the one lane, it's how you can offer... Do you want to go to Seattle? Do you want to go to Portland? Do you want to go to the Bay Area? Do you want to go to California? This is pretty nice here, I'll have to admit. I think we need to do more business here, okay? And I need to come and visit. So we have... and the South Coast, a lot in and around Houston, and that whole belt from Brownsville all the way around to New Orleans, that's what it's about, Ravi. And that's why, and you'll continue to watch us. We will continue to do that, and it's not like I'm working at a broken railroad. It's a great railroad. It's a great franchise, and I think we win. Absolutely. Any questions from the audience? Okay, one up here. Give him the mic. Hello? Yeah, thank you. Yeah, I'm from Holland, and just a very generic question, which always puzzles me: if on UNP and in, if you compare with other co-peers in your whole U.S. and North American operations, don't you think that's a bit of a difficult game to fight if you always focus on the operation metric, for instance, but that some of the franchises could be beneficiary or disadvantage versus cost and cash flow? So how do you view whether your sort of the level of competition is versus your peers? Because for your clients, it doesn't matter whether- Right ... they are global, is it, or they are national and doing... But so how is UNP positioned versus the others in terms of your costs and your, and whether your franchises? Right are a benefit or, or a bit of sometimes a negative? You know, that's a great question, and I really appreciate you asking it. You came all the way from the Netherlands to ask me that question, so thank you very much. If you concentrate on OR as the driving force of what you do in the decision-making, then you're making a mistake. OR is a precipitation. It's a result of what you do. So it's a result of having service and having operational excellence, safety, but it's also a result of making sure that you grow your business, because there's nothing better than growing the business, and we will invest. Now, I do like looking at free cash flow. Jennifer will tell me, tell anybody that wants to listen, that for me, free cash flow gives me a good, good indication. We can pay all the bills and at the end of the year have a billion or $2 billion left over, that's a good thing. We can invest back in the company. We can decide to spend it on and buy back shares, or we can do something with the dividend. So that's real important, and we want to make sure. So I've got line of sight on that. And operating income is real important to me. So sometimes we use OR as the proxy of what we do, but I don't look at it that way. I look at OR as after... If we do everything right, where can we be? So that's the way to look at it, because you're absolutely right. People ask me about train speed. I can get train speed up to whatever, people want. If we want to be at 30 miles an hour, I could fix that tomorrow. Well, it might take me 3 days, okay? But that would not help us. That would not move the assets quicker. Mm-hmm. Doesn't do the service that we want. So for me, that's why car velocity is real important. We do that. We watch our assets. We look for opportunity to invest. When I was here last time, we invested in a new intermodal terminal, a pop-up in Minneapolis, 'cause it tied to what customers of ours needed, and that is the way we grow. So excellent question. OR is the last thing you should look at. It's just the result, and it's a great number to look at, to say margin, how well are you doing against your peers? Sure, we look at it, but I don't get up every morning to see relative to everybody else where my OR is. First thing I look at, I still, 65 years old, and I love it. I don't have a problem telling anybody, okay? I go to bed at 12:00 A.M., get up at 6:00 A.M. This morning, Jennifer will tell you that because it was - I'm here. It was 4:00 A.M., and I started sending out - I was seeing messages at 4:00 A.M. -to get people moving, okay? But I was up, too. So it was time to go. So... And, that's what it's all about, is, is look at the railroad the right way. Good question. Thank you. I hope you get some time to go to the beach. There's one more question in the back. Thanks. You know, PSR aside, the reason these have been such great businesses, the railroads generally over the past decade, has been pricing in excess of inflation. You guys have talked a lot about inflationary pressures on the business here. I know service is still on the mend, but as it gets better, when should we think about getting pricing in excess of inflation, if this is kind of the new normal of inflation? Right. Is this still the right formula to think about the railroad businesses, and specifically UNP? It is absolutely. In the short term, when you have mid-single digits or a little higher inflationary pressures, it's pretty hard. You don't want to damage the customers, where they start to lose, because it's a worldwide. They're not just in competition with their neighbors here in the US. They're selling products everywhere or importing from different places. So you need to be careful. So in the short term, it's going to be a little harder. Our goal is always to be, okay, to price ahead of what the economy gives us. No ifs, ands, or buts. So we will do that for sure. Nothing's changed on that. Yeah, and just to level-set that, when we talk about that, we're talking about yielding dollars, and we have been yielding price dollars that have exceeded our inflation dollars. But because of the pressures that we've had these last couple of years, you're not seeing the OR benefit or the margin benefit that you would typically see from that, because we are chasing that a bit, and we don't have access to our full portfolio on an annual basis. Right. Consider half of our business in long-term contracts. It's going to take us a bit to catch up, but we're absolutely dedicated to do that, and certainly, a good service product helps. Absolutely. Jim and Jennifer, we could talk about the opportunity all day, but I think they'd want me to keep the first session on track. So I think we need to probably call it a day there. Thank you so much for your time and your thoughts. I think the entire industry is very excited to see what you can do, so- Perfect. Well, let me, let me close this off real quick, okay? I know, I see some of you running away. I'll take less than 50 seconds. I'm excited. Got the right team. It's all about safety, service, operational excellence. We do that, we get growth. We price above what inflation is. We drive it to the bottom line. Stay tuned, and when I come back next year, maybe I'll come back a day earlier, because my schedule won't be as full. And I'd like to see you all again at some point in next year. Thank you very much for coming in.