UNP
#As we regularly say, we are continuing to focus on business development.
And we have a huge number of business development initiatives underway, across the board, which are really overshadowed by the coal and the shale fall-off and some of the rationalization we're seeing in international intermodal.
If you look at our chemicals business, the Gulf Coast franchise, while many of those plastics expansions will not come on until next year as we've talked about in the past, we still have lots of opportunities in terms of LPG growth.
Mexico energy reform, there's a lot of growing interest in terms of moving products there.
We are working on a number of different initiatives with that.
And so there is general economic strength that we're seeing in our Industrial Products business in terms of construction coming back, housing coming back.
Chemicals has the benefit of plastics going to the automotive industry, as you see automotive sales.
So, there's a slowly-strengthening economy out there and we're doing a lot of business development to go after it which, again, is being overshadowed by the huge volume numbers for coal and shale and the other headwinds we have.
<UNK>, you want to handle that.
<UNK>, as you know, we have a standard answer where we don't really talk about specific contract negotiations.
I will say we negotiate aggressively and assertively, and we are in a very competitive environment.
And for any particular contract negotiation, we probably have dozens, if not hundreds, of terms that we're negotiating.
And, like always, as markets change and we look to be competitive, we evaluate a bunch of those terms and conditions and what works for us, works for our customer base.
Yes, as you just lined up, volume is our friend.
We're looking forward to the point where we're growing on the top line because it does make it easier to drop that to the bottom line.
Having said that, in the place we are right now, we're in the process of getting our overall structure to match where our markets are today.
And then from that point moving forward, we'll continue to be aggressive on our productivity, on our efficiency, on our business development, And generally that model is very attractive when we grow.
<UNK>, this is <UNK>.
It was yeoman's work by the operating team because it was a significant challenge for them, but they did a fabulous job.
I would say that the impact to us was less than $0.01 in terms of EPS for the quarter.
<UNK>, this is <UNK>.
You know, we don't give guidance on mix.
And the reason we don't is because we are in so many different markets, which we are very proud of in terms of the diversity of our network.
There are a lot of moving parts, as you know, and there's mix even within each of the commodity groups.
Having said that, you're right.
We are coming off of unusually high negative mix challenges.
And we do think our best look at the balance of the year is that will moderate.
Again, we're at high-water marks here I would hope, at 2.5%.
And certainly last quarter's 4% negative impact on mix I would hope is an all-time high-water mark.
But we do think our best guess is that's going to moderate, but it's difficult to actually put any finer point on it.
Thank you, <UNK>.
Let me take a stab at that, <UNK>.
The way we think about coal is it's facing a large number of headwinds right now: low natural gas prices as an alternative; pretty significant inventory overhang on piles right now; and a weak electricity-generating market, some driven by weather.
So as those headwinds persist, coal's going to continue to have some difficulty.
We're going to have to chew up some of this excess inventory before we see coal demand really strengthen.
What it might look like two, three, four, five years from now, we still think it's a pretty important part of the overall electricity-generating base in the United States.
It's not going back, we don't think, to where it was four or five years ago.
And you can make an argument either way that it strengthens a bit or that it might decline a bit.
Our best guess is we're probably in the relative sphere where it's going to operate, other than the really significant headwinds that we're facing in this particular time frame.
I think if you're asking specific to the floods, we did a great job of making sure our customers had alternatives and satisfying their needs and keeping them well informed.
If you're asking in terms of the overall operating environment, we are in a competitive environment.
We compete every day for every piece of business that we enjoy.
And we compete on the basis of providing our customers the best experience they're going to get in the marketplace.
Everything we do every day is oriented towards making that happen.
<UNK>, for us, I would say minor and I would anticipate that it'll be minor for the balance of the year.
Correct.
<UNK>, the point I was trying to make on the ---+ number one, you can always have those swings depending on what capital projects are going on.
But that was more of a sequential comment.
Generally speaking, you would start to ramp up some of your capital projects in the first quarter that perhaps you weren't running as you finished the fourth quarter.
So that was more of a comment relative ---+ this particular go-round ---+ relative to the sequential look.
Year over year, in the first quarter, not as material of an impact.
But that can change from time to time.
But I think if you look at ---+ again, the first quarter was pretty clean in my view, when you look, year over year, in terms of 11% headcount reduction really is representative of very solid, outstanding productivity performance.
And, of course, remember the year before, we had our share of challenges.
I wouldn't give guidance on that.
I think probably the best way to think about it is that 2% inflation, generally speaking, should look like the guidance we're getting on the labor inflation line, which would be closer to 2%.
The actual numbers, I think, are 108 days, which is about 41 days above, call it, a five-year average.
No, 41 days above last year.
And how long it takes to come down just depends on all the factors we've talked about.
<UNK>, we can do it for as long as is necessary.
We've demonstrated that we understand how to use attrition as our friend, how to use initiatives like Grow to 55+0.
We know how to get our cost structure right.
We're in the middle of doing that and we're going to continue to do it.
My expectation is that we don't have to do that forever because I do expect us, at some point, to start growing the top line.
We're in a unique environment right now with a lot of headwinds.
Some of those headwinds represent structural shift, like in coal, where a portion of that book of business is probably permanently reduced.
But, in the big scheme of things, at some point those headwinds abate; we start growing again.
And even in that environment, we're still focused on making sure that we have the structure right, that we have our costs right, and that we're constantly looking for efficiency.
<UNK>, I would say, no.
I wouldn't read into the fact that we happened to finish the quarter with a high cash balance as a change in anything we're doing.
It's going to be the balanced approach.
We need the cash for working capital, for taxes, for dividends.
And we'll continue to be, as we have been, opportunistic on the share buyback as we move forward.
This is <UNK>, <UNK>.
There is a lot of grain in storage.
There is about 200 million bushels that were carried out from last year.
I think the USDA estimates are that can grow by another 500 million bushels, based on the number of acres that are being planted and the types of yields that are expected.
So, there is a lot of grain out there.
We believe that eventually it has to move, and so we are certainly optimistic that, when it does move, we're going to get our fair share of that.
And it will move; it's just, right now, US grain is not competitive on world markets.
The strong dollar is an issue.
There are other issues in terms of really good crops in other places ---+ growing regions around the world.
But we do think it ultimately will move and we're going to get our fair share of it when it does.
Cam, you want to start by talking about locomotives in storage.
We have a really good mix of high horsepower and low horsepower in storage.
And, particularly on the low-horsepower fleet, as we look out over the next three to four years, there's some very nice lease return-backs that we will do.
And we're very confident we can hold our low-horsepower fleet size and return those leases without any impact to our customers.
I'll let <UNK> talk about fuel headwind.
From the standpoint of operating ratio, we wouldn't be reaffirming it and talking about it if we didn't have confidence and faith in achieving it.
We believe that, given any reasonable outlook, we are going to improve operating ratio this year.
I would just add to that, <UNK>, that clearly we'd rather have positive volume.
And, just a reminder, we did guide that we think full-year volumes will be down mid-single digits.
That's a challenge.
But, to <UNK>'s point, what we're expressing here is confidence in our ability to continue to be squeezing out productivity initiatives and continuing to price appropriately in the marketplace.
On the fuel ---+ the guidance we're giving on fuel is that while it was a $0.10 headwind in the first quarter, largely driven by the $0.08 benefit the previous first quarter last year, we think that's going to moderate.
If fuel prices stay where they are, our expectation would be that, that headwind will moderate, largely because we start to lap the fall-off in fuel from the previous year.
That's exactly ---+ the quarter-over-quarter look, yes.
I would say probably comparable to what we saw in the first quarter.
Absolutely.
Within the operating department team we have 12 projects that we've identified that we kicked off late 2014 and into 2015.
Many of those projects are gaining very, very good traction in 2016.
And we have a couple others lined up for the end of 2016 going into 2017.
So, they're broad based, they're well measured.
We feel very confident, to an earlier question, that when we identify one of these productivity projects, that we can hold that productivity as volume comes back to us, so that we have great leverage out into the future.
<UNK>, as you know, we don't break it out by commodity, but clearly the mix that we've seen in the last few quarters is a challenge.
And I'm particularly proud of the fact that, with reductions in volume and the headwind that we faced in the mix, we have continued to drive outstanding operating ratio performance.
So that's the focus.
Irrespective ---+ you've heard me say this many times ---+ we're going to play the hand that the economy deals us.
We're not going to use the challenge that we're facing right now of a mix headwind as an excuse not to make continued margin improvements.
That's what were all about.
That's what's driving our initiative of G55.
That's what's still driving our plus or minus 60% operating ratio by full-year 2019 focus.
We have to live in that world.
But, clearly, those challenges that we faced here on the mix have been challenges.
Thank you.
It is reasonable to expect us to continue to be able to be effective at adjusting our cost structure, even in the face of further volume declines.
Now, we're not saying we anticipate things get worse from where they are right now.
But if they were to, we have the ability to continue to adjust our cost structure.
We've demonstrated that, to this point, there are still levers to be pulled.
We'd much prefer to grow, but we will pull those levers as we need to.
From my perspective, there are ample opportunities to be more efficient everywhere I look on the railroad.
We will continue to be able to generate productivity from that perspective.
And as we have to take larger chunks of cost out, we'll continue to evaluate that and do that effectively as well.
Thank you very much.
And thank you for your questions and interest in Union Pacific today.
We look forward to talking with you again in July.
