Margin Outlook
Q: Can prior margin improvements be achieved, and is industry-leading OR possible next year?
A: Management affirmed they have an industry-leading operating ratio (OR) and see no reason not to continue that. They highlighted past achievements since 2019, including parking over 1,500 locomotives and adjusting the workforce, leading to significant changes. Despite inflationary pressures, they are pushing pricing and expect EPS growth in the high single digits to low double digits, with potential share buybacks of $4 to $5 billion if no other uses for cash are found. They are absolutely online for operating ratio improvement at Union Pacific.

Pricing Above Inflation
Q: Are pricing dollars exceeding inflation dollars, and can this continue in 2024?
A: Management stated that their pricing dollars are exceeding inflation dollars currently and have throughout this inflationary period, including 2023 and 2022. They are committed to this strategy and expect it to become accretive to margins next year. They feel very bullish about maintaining this pricing momentum.

Productivity Improvements
Q: Can mid-single-digit improvements in productivity continue next year?
A: Management expects to continue improving productivity, citing achievements like 12% workforce productivity increase and record train lengths. Opportunities exist in reducing recrew rates, optimizing workforce through technology and agreements, and enhancing fuel efficiency. They have action plans for productivity improvements going into 2025 and beyond, giving them confidence in delivering future results. ,

Coal Outlook
Q: What are the expectations for coal volumes and their impact?
A: Management indicated no surprises with coal; they expect current volume trends to continue through the rest of the year. Coal volumes are down, impacting mix and margins, but they are focusing on countering challenges with renewable fuels and the grain network. They acknowledge that while coal is down 20%, they view it as one of the challenges they are addressing through diversification. ,

Mix Pressures and Q4 Outlook
Q: How are mix pressures affecting fourth-quarter results?
A: Mix pressures are expected to continue into the fourth quarter, with normal seasonality leading to lower volumes and potential weather impacts. Fuel surcharge revenue is anticipated to be approximately $200 million less in Q4, creating a year-over-year and sequential drag. Management expects fourth-quarter outcomes to be very similar to the third quarter across revenue, operating ratio, and operating income—emphasizing that "consistent is consistent." ,

Intermodal Volume Surge Handling
Q: How did you handle the unexpected 33% increase in international intermodal volume?
A: Despite no advance notice, they successfully managed the 33% increase in international intermodal volume by deploying buffer resources like locomotives and cars, staging trains across the system, and working closely with interchange partners. They maintained network fluidity, with ships not being held at ports and terminals remaining in great shape. This demonstrates the capacity and efficiency of the L.A. Long Beach ports and their network. ,

Employee Compensation and Costs
Q: How is the increase in employee compensation affecting costs going forward?
A: Compensation for employees increased 8%, with roughly half due to the July 1 wage increase, and the rest from higher incentive compensation and guarantee payments associated with new work-rest agreements. Similar increases are expected in the fourth quarter as they continue to carry extra resources during the implementation of these agreements. Workforce productivity is critical to offset these inflationary pressures.

Mexico Business Outlook
Q: What is the outlook for the Mexico business and any geopolitical impacts?
A: There are significant opportunities in Mexico, particularly with over-the-road trucks, finished vehicles, and auto parts. They offer daily service into and out of Mexico, which is unique. With multiple partners and their own rail box, they are well-positioned. They anticipate a pro-business environment from the administration and are excited about growth prospects in this market.

Domestic Intermodal Growth
Q: What are you seeing in the domestic intermodal market in Q4?
A: They are encouraged by the domestic intermodal front, having seen positive growth even as early as the second quarter. Some growth benefits from the international intermodal surge. They have products like Inland Empire that help capture domestic intermodal, and they expect to see more benefits in the fourth quarter due to ongoing international dynamics.

Competitive Landscape
Q: Are you noticing changes when bidding on business, and how is merchandise pricing?
A: Management focuses on competing against trucks by offering a superior service product. They have secured strong pricing in the merchandise business, leveraging capital investments and improved service. While healthy competition exists, they are confident in their position and focus on what they can control to grow and win share.