Operating Ratio Outlook
Q: Can operating ratio continue improving despite economic uncertainties?
A: CEO Jim Vena expressed confidence in continued operating ratio improvement, noting a 160-basis-point improvement in the last quarter despite challenges like coal volume drops ( , , ). He emphasized that revenue growth, driven by bringing in volume at the right price and effective pricing strategies amidst inflation, will aid in further improvements ( ). While acknowledging potential quarterly fluctuations, he believes in optimizing operations and is comfortable with the company's trajectory ( , ).

Pricing Power & Inflation
Q: When will you achieve margin-accretive inflation-plus pricing?
A: CFO Jennifer Hamann stated that while they are not providing a specific timeline, the team is making good progress in driving price where possible, aided by improved service levels ( ). Despite current challenges, they are achieving solid margin improvements and expect more upside as they gain access to more contracts ( ). Kenny Rocker added that they are maximizing price and margin expansion in contracts, taking into account inflationary pressures ( , ).

Volume Growth & Business Development
Q: Where are the biggest opportunities for new business wins?
A: Kenny Rocker highlighted several areas with significant opportunities: renewable diesel as an emerging market, growth in the petrochemical sector in the Gulf, and leveraging the Mexico market in both the near and long term ( ). They are focusing on product development and creating new markets, including expanding services from Houston to Phoenix and into the Southeast, to drive volume growth ( ).

Coal and Intermodal Demand Outlook
Q: What's the outlook for coal and intermodal volumes ahead?
A: Coal demand remains uncertain due to fluctuating natural gas prices, making forecasting difficult ( ). However, the company is engaging with coal customers to capture available demand ( ). International intermodal is a strength and expected to remain robust at least into the next quarter, aiding overall demand ( ). The grain crop looks great, and demand is stable, with opportunities in domestic markets and Mexico ( ).

CapEx and Capital Allocation
Q: How are you approaching capital spending amid potential growth?
A: The company is comfortable with its $3.4 billion capital plan for the year and sees no substantial changes moving forward ( ). They focus on necessary investments in the railroad and development projects to drive more business ( ). Excess free cash flow is prioritized for share repurchases; after investing in the business and dividends, excess cash goes to buying back shares ( ).

Inflation Impact on Costs
Q: What is the outlook for inflation's impact on your costs?
A: Full-year inflation is tracking close to 5%, consistent with initial expectations ( ). Wages increased by 4.5% effective July 1 for craft professionals ( ). The company is seeking ways to mitigate inflation through productivity improvements and better purchasing ( ). Looking ahead, they hope to reduce inflation below 5% but don't expect a return to historical levels around 2% ( ).

Operating Metrics Improvement
Q: Can train lengths keep increasing to improve OR?
A: Yes, there is room for further growth in train lengths. In the quarter, average train length reached a record 9,600 feet in June, with a 2% improvement over the quarter and 3% sequentially ( ). This has been achieved while reducing mainline derailments by 42% since 2019, despite a 20% increase in train length, thanks to investments in technology and operational practices ( ).

Intermodal Pricing
Q: Are domestic intermodal rates firming as truck markets remain weak?
A: Domestic intermodal pricing has been flat or declining for over 18 months ( ). While it's uncertain when rates will improve, the company has seen recent year-over-year growth in domestic intermodal volumes ( ). They are focusing on product development to capitalize when market conditions change ( ).

STB Regulatory Hearing
Q: Thoughts on STB's plan to discuss railroad growth?
A: Jim Vena welcomes the Surface Transportation Board's focus on growth, aligning with the company's objectives to expand business despite market headwinds ( ). He is looking forward to the hearing, though he won't attend personally due to commitments in Dallas; Kenny Rocker will represent the company ( ). They plan to showcase how they leverage their franchise to drive growth ( ).

Seasonality of Margins
Q: Any seasonality factors affecting margins ahead?
A: Margins are typically influenced by volume performance; stronger volumes generally lead to greater margin improvement ( ). While volumes largely dictate seasonality, recent efforts in productivity have led to sequential margin improvements, breaking traditional trends ( ). Future performance will depend on volumes and continued emphasis on productivity and pricing ( ).