Ladies and gentlemen, the program is about to begin. A reminder that this webcast presentation is for Bank of America and Union Pacific clients only. If you are a member or representative of the press or media, please disconnect now. At this time, it is my pleasure to turn the program over to your host from Bank of America, Ken Hekster. Great, good morning. Thanks, Paul. I am Ken Hekster, B of A's Air Freight and Surface Transportation and Shipping Analyst, here with my teammates, Adam Rakowski and Tim Chang. We welcome you to our Sixth Annual 20-minute Transport and Shipping Conference Call series. Today's call is with Union Pacific, part of a dozen 20-minute calls we've got scheduled for mid-year updates. We aim to use the 20 minutes to give you quick updates on the state of the market. Just a quick commercial: if we've been helpful over the past year, Excel or II voting is in its final week this week. Please vote for us for the two categories we're eligible: Air Freight and Surface Transportation and Shipping, if we've been helpful. Today we're hosting Union Pacific's CFO, Jen Hamann, and Investor Relations, Diana Prauner. Good morning to you both. With that, since we work hard to keep these to around 20 minutes, let me just jump in. Jen, I am going to ask kind of the topic of the day, and we kind of touched upon this at the conference a month ago, but Jim kind of stirred the pot with the trains.com article that came out on Monday back in mid-May, right before we launched into our conference a month ago. He kind of opened a Pandora's box of what-if questions. Let us just set the table with M&A. If the TransCon acquisition leads to improved service given the inefficient interchanges, it reasons that rails would become more competitive with truck and boost the U.S.'s ability to compete. One, I guess, let me start out: why the comments now? Was this to test the waters, ruffle some feathers, and see the fallout? What should we take away from the commentary? Yeah, I mean, I do not know that I would take away more than what was said, but I should go back for just a second, give you our disclaimer to say, check our website, SEC Filings, because I am going to make some forward-looking statements today. I was feeling special until you said you had a dozen of these lined up post the end of the quarter. I will try to get over that. You know. Only what I'll run. In terms of Jim's comments, I mean, he was asked a question, i t was kind of part of the normal post-earnings conversations that happen. And you know Jim pretty well, I think, Ken. He gets asked a question, he's going to be transparent in terms of his thoughts about it and answer it. Who knew that several weeks later we'd still be sitting here talking about the comments from that article? So be it. You laid it out yourself, a transcontinental merger would, we think, be good for customers, et cetera. To really get much further on that, I do not know that there's anything I can truly add to that conversation. You also have the regulatory backdrop that has to be considered with that. Obviously, that's why, since the new rules were put into place in 2001, 2002, there has not been activity against those new rules. Let me just ask on that one. Since it has been 25 years since the rules were set after the BNSF and CN tried to merge, does the competition mandate relative to increased competition, is that only relative to increased rail-to-rail competition? Do they consider trucking as competition? Consider if peers also made moves to merge? Is there any concept of how they would think about that? I mean, that's really a question probably for the STB, Ken, in terms of what did they mean or how do they define enhancing competition? Yeah. Jim made comments about a book being prepared and ready to move. What would make UP be the first mover to be preemptive as opposed to waiting to have the book to see if others were to make a move? You know, that'd be pure speculation. I mean, I think the point Jim's trying to make when he says that is we're always looking at what can we do to grow our carload base. You've seen us do a lot of different things. You've seen us buy transloads. You've seen us actually shortline one of our terminals because we thought that was an opportunity to improve the service that we're providing to customers in that area and grow the business. It is really just within that whole scope of what are all the different things that we can do to grow the railroad and keeping all of those things front and center as a management team. Yeah. All right, last one on this. Just what's been the feedback since the floating of the idea? Is there regulators, government officials, customers kind of have you? I mean, obviously, this clearly stirred the pot because I know we've had to deal with it from the analytic side. What's been the feedback you've gotten that you can talk about, I guess, from some of those in the market? Again, I think you've probably got more of that feedback than I have, Ken. I mean, you all have different sell-siders have talked to regulators, had regulators at conferences, et cetera. I don't meet with customers, so I really don't have any feedback there. Got it. All right, so let's get into the meat of the stuff. Carload growth up 4% quarter to date with about a week to go, but mix looks very much in your favor. We talked a bit about this at the conference after you ran up with international volumes last year. Let me start off with the first one. Coal is up 31% given the new Colorado customer and strength in utility demand. Should we expect sequential growth continuing to the third quarter in absolute volumes given seasonality? Is there a pull forward here? Just trying to understand on the coal side, given the strength here, do we expect that to continue? Yeah, so certainly here in the second quarter, the new customer that we have, which is LCRA, which is actually in San Antonio, Texas, that's been a strength for us. It's added about a train a day. Natural gas prices have stayed high. That makes our coal customers more competitive in the grid. We're running the network very well. We're cycling the coal cars. That's giving our customers more opportunities for loads. The mines are performing well. We're performing well. The customers are processing the cars at their end. That's all been a very positive dynamic. I think looking forward, it's kind of almost back to the old days of coal, Ken, in terms of what's going to be the driver. It's going to be what's happening in terms of the electricity burn. A lot of that is going to go to the summer and the cooling season. The assumption is that natural gas prices stay high. They continue to stay at current levels. I think that is a positive dynamic and would be a good setup for us, at least into the third quarter. You hit the shoulder season and we will see where things are at. It does not necessarily feel like you mentioned pull forward. I think stockpiles are normalized, but I am not reading anything or seeing anything that would say that they are elevated at this level. Excellent. Given coal is no longer a base load, can we still think of this as margin accretive business on the coal side like the old days, or has it changed given the mix? Yeah, coal has changed some, that's for sure. Probably the best way to talk about that is relative to the average revenue per car. Coal does still have an average revenue per car that's below our system average. It is better than international intermodal when you start talking about that mix. Certainly, it's unit train business. We run it well. As I mentioned, the network is running well, and that helps us. I would not necessarily think about this as what was the old days of coal. Yeah. Moving on to grain, up 9% quarter to date, t hat actually accelerated from our discussion in mid-May, is, again, just a strong crop. Is it because of tariffs? What are your thoughts on the grain side, just given the profitability of grain? Yeah, had a good harvest last year, and continuing to draw for those stocks. We continue to see strong pull into Mexico in terms of export grain. I would also say it's some of our business development that you've heard us talk about in terms of expansions on our network from the renewables and feed stocks. I think one of the examples we might have used at your conference is with Norfolk Crush. It's a soybean crush facility in the northeastern part of Nebraska. We worked with that customer to site them on our lines, give them both unit train service and manifest, so we were flexible with them, and really driving some good growth there. Industrial, right up about a point and a half, a few basis points above our target. It is staying steady as she goes. Any economic signs you look for within the category as far as signals that say, "Hey, we are starting to see something build"? Yeah, I would say it's mixed and continues to be mixed. On the bright side, continues to be some of the industrial chemicals and plastic business. Those are up, I think, call it 3% or so quarter to date. That really ties into a couple of things. Certainly, it's continued investment that our customers are making in the Texas Gulf Coast region, as well as our success in winning incremental business within that sector of the business. That's really the heartbeat of our network, great footprint, great facilities, and we're running it well. We're also seeing some strength in metals and minerals. That's up about 4% quarter to date. Some of that, though, is easier comps in 2025 versus 2024, where Texas was having a lot of wet weather, and that was pretty weak last year. Flip side, the housing side of the world, forest products still down 4%. I would like to see some relief come there, but probably as interest rates stay at current levels, you're probably not going to see much activity. Housing prices are still high as well. A bit more of a mixed bag, I would say, in the industrial side of the world. Perfect. I think Powell is literally testifying right now about rates. Intermodal, we talked about tougher comps coming in, coming up, given the pause in shipments that hit our shores. Are we now done with that pause? I guess now it is just tough comps coming down in the back half year-over-year. Is that what we look for in the second half? Certainly to your latter point there, we are at the point where we have tough comps as we finish out the second quarter and move into the third quarter where last year in the second half, our international intermodal volumes were up over 30%. That is what we have been kind of talking about, messaging as we have been going through 2025. We are certainly seeing what I will call a little bit of a comeback in terms of the absolute volumes. Just to kind of give you some perspective from an international intermodal space, if you looked at our April volumes, those volumes were still up not quite 20% year-over-year, I think about 18%. In May, when you hit the air pocket, so to speak, they were down 3% year-over-year. Right now, June month to date, they are down about 10%. That gives you some idea of how that trajectory is trending. It sounds like from this point, you've got those tough comps that continues, right? Yes, yes. Yeah. Maybe absolute. When you think about. I don't think they'll look that different, but certainly on a year-over-year comparison, you're going to see some pressure. On an absolute basis, should we expect seasonal improvements in absolute car loads 2Q to 3Q, or does the international outweigh that and drag it down sequentially? Yeah, so that's something we've talked a little bit about too. I think this could be a very unusual year for us from a standpoint of potentially having some of our strongest car loadings of the year in the first quarter. Second quarter is probably going to end up being pretty close. When you get into those year-over-year comps in the third and fourth quarter, I think that could look different from a seasonality perspective than what you're used to seeing from us. Yeah. Your latest comments, what are your latest comments then for annual carload growth for 2025? I don't believe we've given a target for 2025, Ken. Okay. Yeah, I was looking for it. Did not think we would put one out there for full year. Sorry. No, no, I guess that makes sense because given the seasonality and the unsurety of what's coming in the second half. Your concern or the concern post the CPKC, at least from my perspective for a UP point of view, was that business was going to move on to their consolidated network, that UP would lose some cross-border volumes. Can you just give us a sense on how has that developed? CP's growth continues to outpace the industry, as do you, but it looks like they're taking share. Are they taking share at the border, or is it just converting truck and growing on their own from your point of view, from a UP point of view? The only thing I can really speak to there, Ken, is what we are seeing. I would say the data shows that we have actually grown our cross-border business since the CPKC merger and that our market share is up a couple of points since then. We feel very good about the fact that we are continuing to compete as Kenny and team are selling the broad and diverse network that UP has to offer. Okay. On yields, you noted pricing dollars above inflation was the best in a decade and that it was in a market of flat truck spot pricing and scaling international intermodal, which impacted mix. Maybe just talk about that. Looking at coal, does that come in at a similar revenue per car now that you have this new contract, or will that impact the base level at about $22.50 per car? Yeah, I mean, obviously, I'm not going to give you anything specific, but talking just about the LCRA contract, you're talking about a move that's going to go from the Powder River Basin down into Texas. That is good length of haul for us. Yeah. Same thing with intermodal. Revenue per car has been stable the last two, three quarters, about $13.78 per car. Is there any shift we should expect given the mix of international, domestic, right, as international starts to decline? Does that favor the yield per car? Yeah, I mean, you've heard us talk about the fact that international intermodal ARC is about 40%-45% of our system ARC. And the domestic ARC, to your point, is better than that. As that mix between international and domestic moves, that has an opportunity to improve ARC as well. Okay. Given the commentary about the best pricing in a decade or however you want to phrase that, should we expect ARC to be up sequentially? I guess I am just trying to think of the mixed benefits you have walked us through and then maybe offset by fuel. Yeah, I mean, like the fourth quarter and first quarter, we continue to have very strong conviction in our pricing and that that's going to continue to be accretive to our ratios. As we've been talking, we do expect and are seeing the mix improve in the second quarter. I'm not going to say that we're going to get to mix positive in the second quarter, but certainly we are seeing it improve. Okay. Jen, I think at our conference, you mentioned 1Q- 2Q historical average operating ratio improvement is about 270 basis points, again, from 1Q- 2Q. Do I have that right? I think you suggested 2Q should exceed normal performance given unfavorable fuel and weather in the first quarter and strong car loads in the second quarter. Just want to, I guess, wrap that up and make sure I understand your commentary. Yeah, I actually think the 270 is your number, Ken. If you look back historically, I take your word for it. Again, I think our position really is not changing there. For us, the operating ratio is going to be the outcome of all the good activities that we are doing to run the railroad well, deliver strong service for our customers, be fluid, do it as efficiently as possible, and grow the business, which we are doing on a carload basis. Then you have got that pricing on top of that. We certainly believe we are going to maintain the position that we have had the last several quarters to be the industry leader. We would expect good operating ratio improvement in the second quarter, whether you are talking about it sequentially or year-over-year. No real change in how we are thinking about it. Okay. If I think more on an annual basis instead of short-term, then you posted a 60% last year. Is there an average annual gain you target in your kind of upper single-digit, low double-digit EPS gain? Is it to get that 150 basis point long-term per year? Is there a number you've given with pricing above inflation and the service improvement or a range of how we should think about that? No, I mean, I think you know we've not given a number there. But we have laid out the target that our goal is to be industry leading. And with that, we're going to deal with a few different things, obviously. We can control our service product. We can control how we're putting pricing into the marketplace. We can't, unfortunately, control what all is happening in the market. And certainly, when we talked last September and gave this guidance, we were anticipating tariffs and some of the disruptions with that. I also wasn't anticipating coal was going to be up 31% in the second quarter. So there's puts and takes in all of those things. Really, it's why we have felt confident and continued to be confident to say that we're still on track, granted only a couple of quarters in, but still on track to meet the goals that we set out last September for the three-year CAGR. Yeah, great stuff. Two real quick questions on expenses. One, labor was up sequentially in the first quarter. I'm talking employee counts. Given the winter shifts or increasing car loads went up to 30,000 from 29,000 and change. Should we expect flat levels of headcount, or does it climb just less than the 5% car load growth or 4% that you're seeing? We are absolutely going to be more than volume variable in terms of what our headcount does relative to car loads. You guys see the STB reports that come out. 2Q, we are seeing FTs that are flattish to down a little bit from first quarter. Good workforce productivity continuing. Yeah, it's great. Your cost per employee at $40,000, I think you said that should hold until you get to third quarter, second half when the labor rate kicks in, or was there anything that compressed first quarter? Yeah, so our all-in guide for 2025 is that we expect our cost per employee to be up 4%. We had a really good start in the first quarter with cost per employee up only 2%. We are still setting aside kind of what I'll call the normal labor negotiations. We are still anticipating moving into the work rest agreement with our SMART TD craft. We've been implementing that on the engineering side, have not started that yet on the conductor side. That is part of what we have baked in in terms of thinking about that all-in cost for 2025. I just got a couple more. I know we're coming up almost on 20 minutes, but you've noted your target EPS growth consistent with UP's three-year target of high single-digit to low double-digit growth in 2025. At the low end, that would suggest 2025 earnings of about $11.85, just guessing at 7% growth from last year. That would place you well above the street. Is there a disbelief from the street that you can hit your low target? I think, Jen, you've said even you'd hit it this year, right? Just trying to understand what the street may be missing in your commentary versus your spoken comments. Yeah, no, I mean, I think we've been, again, pretty consistent with that. Three-year target, high single-digit, low double-digit. Really not been as specific about 2025 just because of all that's been happening, tariffs, no tariffs kind of thing. Obviously, there's a number of different pathways that you can get there. First quarter, you could say we had a slow start, flat EPS. This quarter, 5% volume growth, feeling better about how the network's running. I'm not going to put a finer point on 2025, but again, still feel very confident that we are doing the things that we need to do as a company and can do as a company to meet the targets that we laid out for our investors. Okay. Just a few more on that, right? Your buyback, you've targeted $4 billion-$4.5 billion at 2.8 times leverage and very robust free cash flow. Is there anything we should think about? What gets you to the top end of that $4.5 billion versus the $4 billion? Is there anything you'd highlight within that target? No, I mean, and I think we talked about this some at your conference. We started off very solidly in 2025. We did the debt issuance in February, did an ASR. And then we've also seen that our shares, we think, are pretty undervalued right now. So we've been opportunistic with that. We're a buy on UP. And as cash flows come in, we'll look at that. I think the $4 billion-$4.5 billion is very doable for us. Okay. I guess that's good. We have a buy too, Jen, so we're aligned. Good. We're aligned. I'm going to squeeze two more in as we hit the 20-minute mark. Any update on union negotiations? I know you had the NCFO done in March and been relatively quiet. Unless I've missed anything, base wages are set. Is it just dealing with work rule changes? Is there something you'd highlight, territory interoperability or anything other? Any operating leverage we should expect out of the agreements? No, I mean, we continue to have, I would say, very constructive dialogues with our other unions moving forward. I think, making some good progress. We do not have anything new to update in terms of any new ratifications, but feel very good about that conversation. I think our workforce understands what we are trying to accomplish, what the strategy of the company is, and how being able to have maybe a little bit more flexibility in some of those work rules can help us be just that much more reliable for our customers. It is just working through some of those details, but feel very confident in our ability to reach agreements. Okay. Last one for me is thoughts on service levels. Car velocity is at 217 mi per day, actually down a bit from 226 at our conference a month ago. Train velocity down a touch to 19.4 from 20.5. While dwell, by the way, is really strong at low points, i s that a product mix? Is there anything else, I do not know, maybe some weather that crept in or anything else here recently or just seasonal boost? Yeah, I mean, you maybe have a little bit of mixed impact there with intermodal coming down a bit and coal rising. I would say the bigger really issue, though, has been we have had a couple just episodic things that happened on a railroad. We had some fires out in Oregon that slowed things down for a little bit. We've had some flooding down in Texas. In fact, we're washed out in a couple of places in Texas right now. Nothing significant. The team is doing a great job of recovering, bouncing back from those things, communicating with the customers. Overall, I would continue to say that the network is extremely fluid. Eric and team are doing a great job there and putting a very solid service product forward for our customers. Okay. Jen, we've hit just about 20 minutes. Really appreciate you taking the time to join us. If I were to try and sum up, I know real fast, but I think about kind of on the M&A side, Jim was looking, trying to make the point as to how do I grow the railroad and whether it's through M&A. I don't know, it seems like there was a lot more feedback and continuity, but it seemed to open a can of worms that I think, as expected, just given all the discussion and what that opens after 25 years. Really, and it makes sense, right? It's something that truly makes sense, but who knows where we go from here. Car loads really staying on track here, 4% up, strong, but really the mix is the pleasant surprise, right? Given the coal and the grain and what that can mean in terms of the mix. The seasonality, you might have some tough upcoming absolute numbers in the second half. Mix can work in your favor to offset that. We'll see. On yields, again, still solid core pricing, but too early to talk about kind of the overall impact. I'm sorry, just given the mix change. The operating ratio, you were aligned with our 270 basis point being a historical average as you took our word for it. You're saying that the OR just should continue to improve and sequentially year-over-year maintain the position to be the industry leader. Nothing on a full-year target, but near term, it's tough, just really volume dependent, and that should help you out. I'm trying to sum up real quick. Is there anything else? Good strong buyback. Is there anything you'd want to make sure we're taking away real quick? No, I think the key point, Ken, is we're almost up on the two-year anniversary of when Jim came back from sabbatical. I think the team is doing a great job on executing on the vision of safety, service, operational excellence, leading to growth. We're probably going to be the fourth or fifth quarter here that we've had volume growth, revenue growth. That's a dynamic that is great for us, great for our industry, and we feel very good about the future of Union Pacific. Thank you so much, Jen. Truly appreciate it. Diana, I appreciate you setting this up. Thank you very much for your time and thoughts. Thanks. Thanks, Ken. Have a great afternoon, everybody. Have a good one. Thanks.