Greetings, and welcome to Union Pacific's Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific. Thank you. Mr. Vena, you may now begin your presentation. Vincenzo

Thanks, Rob, and thanks, everyone, for joining us this morning. Another beautiful day in Omaha. Little bit of thunderstorms last night, but the skies are clear this morning, and a wonderful day to be railroading. So good morning, everyone, and thank you for joining us today for Union Pacific's Second Quarter 2025 Earnings Call. I'm joined in Omaha by our Chief Financial Officer, Jennifer Hamann; our Executive Vice President of Marketing and Sales, Kenny Rocker; and our Executive Vice President, Operations, Eric Gehringer. As you'll hear from the team this morning, we are delivering on our strategy, and our results demonstrate our commitment to leading the industry as we set new standards for safety, service and operational excellence. Now if we turn over to Slide 3. This morning, Union Pacific reported 2025 second quarter earnings per share of $3.15. We had 2 unusual and offsetting items in the second quarter: a deferred tax benefit; and a labor expense for a crew ratification agreement, both of which Jennifer will discuss in more detail. Excluding those items, our adjusted earnings per share is $3.03, up 12% versus last year's adjusted results. Volume growth, core pricing gains and productivity improvements drove the solid results in the quarter. Our adjusted second quarter operating ratio was 58.1%, improving 230 basis points versus last year's adjusted results. Freight revenue, excluding fuel surcharge, grew 6% in the second quarter, setting best ever quarterly and year-to-date records in 2025. In addition, we set quarterly records in both quarters for workforce productivity with second quarter ranking as the best ever. Importantly, we efficiently handled the first half volume growth, while also improving our safety and service performance. I'm very comfortable with where we are and pleased with the level of execution I see across the company. Next, the team will walk you through the quarter in more detail, and then I'll come back and wrap it up before we go to Q&A. With that, Jennifer, second quarter results.

All right. Thank you, Jim, and good morning, everyone. I'll start with a walk down of our second quarter income statement on Slide 5, with operating revenue of $6.2 billion, improved 2% versus last year, while freight revenue of $5.8 billion set a second quarter record and increased 4%. Breaking down the drivers of freight revenue, volume growth in the quarter added 375 basis points. Fuel surcharge revenue of $569 million declined $100 million or 225 basis points as lower year-over-year fuel prices reduced our freight revenues. Price combined with mix for a 200 basis point benefit to freight revenue versus last year as strong core pricing dollars more than offset the continued business' mix impact. We are disciplined in our pricing, supported by a strong service product, and for the third consecutive quarter, yielded price dollars net of inflation that were accretive to our operating ratio. Wrapping up the top line, other revenue declined 16% to $311 million. Included in the year-over-year change are the items that we've discussed previously, last year's intermodal equipment sale and the metro transfer. Also impacting other revenue in the quarter were lower accessorial and subsidiary revenues. Switching to expenses. Our appendix slides provide some more detail, but I'll walk through the highlights as operating expense increased only 1% to $3.6 billion against a 4% increase in quarterly volume. Looking closer at the expense lines, compensation and benefits increased 5%, driven by the Brakeperson buyout agreement of $55 million. This is the third and final Brakeperson agreement, further enabling more efficient car handling. When you adjust for the Brakeperson agreement, quarterly compensation and benefits expense increased 1%, while our cost per employee increased 3.5%. These results demonstrate how a 3% lower workforce level and strong productivity almost entirely offset the impact of voyage inflation. We would expect a similar level of increase in compensation per employee for the full year as we continue to leverage process improvements and technology to offset wage increases. Additionally, in the quarter, we transferred close to 250 employees to Metro, completing the majority of the transfers we began in the second quarter of 2024. Fuel expense declined 8% on an 11% decrease in fuel prices from $2.73 to $2.42 per gallon. Our fuel consumption rate improved 2% and set a second quarter record. Ongoing benefits from our fuel and locomotive initiatives, coupled with running a more fuel-efficient business mix, drove the improvement. Equipment and other rents increased 5%, driven by lower equity income and our business mix. Finally, other expense improved 5% versus last year. Lower casualty, including environmental costs, more than offset last year's $46 million gain from the intermodal equipment sales. Our reported operating income grew to $2.5 billion, a second quarter record. Income tax expense improved 14% as the state tax legislation change provided a onetime deferred tax benefit of $115 million, more than offsetting the tax increase from higher income. Our reported net income totaled $1.9 billion and earnings per share was $3.15. Excluding those unusual items in the quarter, adjusted earnings per share was $3.03. Our adjusted operating ratio came in at 58.1%, reflecting the 90 basis point impact of the Brakeperson agreement. Overall, a very strong quarterly performance by the team executing on all elements of our strategy and demonstrating what's possible from the Union Pacific franchise. Turning to shareholder returns on the balance sheet on Slide 6. Our second quarter cash from operations totaled $4.5 billion, up more than $500 million versus last year. Through the second quarter, we've returned $4.3 billion to our shareholders through a combination of share repurchases and dividends. And in keeping with our Investor Day commitments, we announced a 3% dividend increase last week. This marks the 19th consecutive year of annual increases. Our adjusted debt-to-EBITDA ratio finished the quarter at 2.8x, and we remain A-rated by our 3 credit rating agencies. Looking out to the remainder of 2025 on Slide 7, we expect third quarter other revenue to be in line with our second quarter results due to continued softness in the autos market and lower accessorials. Additionally, other income will look more like first quarter results as a result of lower expected real estate gains. For volume, everyone recalls the benefit that we experienced in the second half of 2024 from the surging international intermodal flows through the West Coast ports. Month-to-date in July, we are seeing the impact of the tariff pause as reflected in the current volume surge. Similar to last year, we're seamlessly handling this volume, although we do expect volume to moderate to the point of sequential declines through the quarter. On the flip side, our diverse franchise is providing numerous growth opportunities, which Kenny will discuss a bit later. Operationally, we plan to stay the course and keep driving improvement, working safely, controlling our costs, providing good service and seeking out price opportunities that reflect the value of that service product. Our second quarter results support our conviction in the 3-year targets introduced last September. Specific to 2025, EPS growth will be consistent with attaining our 3-year EPS CAGR view of high single to low double-digit growth. Further, we reaffirm our view on accretive pricing, industry-leading operating ratio and ROIC. And of course, our capital deployment strategy is unchanged. The team is confident, energized and ready to deliver value for our stakeholders. With that, I'm going to turn it over to Kenny to provide more details on the business.

Thank you, Jennifer, and good morning. We delivered a solid second quarter. Freight revenues totaled $5.8 billion, which was up 6% excluding fuel surcharges, driven by strong core pricing gains and increased volume. Confident in the strength of our service product, the team remains bullish on our pricing strategy, and this approach continues to deliver positive results. Let's jump right in and talk about the key drivers for each of these business groups. Starting with our Bulk segment. Revenue for the quarter was up 10% compared to last year, with an 11% increase in volume, while lower fuel surcharge and business mix resulted in a slight decrease in average revenue per car. Strength in coal was driven by strong customer demand due to favorable natural gas pricing and the start of Lower Colorado River Authority shipments. Softer domestic grain demand was more than offset by strength in export shipments to the Gulf and Mexico, resulting in double-digit growth. Grain products volume was also up for the quarter, which continues to be driven by new soybean crushed production in Nebraska and Kansas. Turning to Industrial. Revenue was up 4% for the quarter on a 3% increase in volume and a 2% increase in average revenue per carload. Strong core pricing gains were partially offset by business mix and lower fuel surcharges. Rock shipments remained solid this quarter, driven by a strong customer demand and favorable weather conditions compared to last year. And increased shipments of industrial chemicals were partially offset by continued softness in our forest products market. Premium revenue for the quarter was down 4% on a 1% increase in volume and a 4% decrease in average revenue per car, reflecting the mix impact of increased international intermodal shipments and lower fuel surcharges. Intermodal volumes continued to show year-over-year growth as our business development efforts offset market uncertainty and slower consumer spending. Automotive volumes were down based on reduced OEM production. Turning to Slide 10. Despite the challenging market outlook, our hustle mindset and continued focus on business development gives us the edge to outperform. Starting with Bulk, we expect coal volumes to significantly exceed last year's levels, driven by current forecast for natural gas prices through the remainder of 2025 and the new volume with LCRA. Grain had a strong first half of the year. And while we are still a couple of months from fall harvest, the 2025 crop looks favorable, and we are working to finalize customer demand. We're evaluating competitive risk to the fourth quarter exports. As it relates to grain products, our intense business development focus will offset policy-related uncertainty in renewable fuels and associated feedstocks. Moving to Industrial. Our strong investments in our Gulf Coast franchise continue to help us win in the petrochemical market. For example, we are proud to serve out new expansions in Freeport, Texas, which began operations last month. We anticipate stable performance in the metals and minerals markets. Tariff activity continues to impact metals shipments, but this is balanced by continued strength in construction, specifically in the South. With our exceptional service, we're well positioned to capture that demand. Additionally, we anticipate petroleum volume to remain challenged due to business shifts and our commitment to balance volume at the right margins. Wrapping up with Premium, as Jennifer indicated, strong comparisons and port shifts will challenge international and domestic intermodal volumes. We saw an uptick in automotive volumes at the end of the second quarter and we recently converted new auto parts volume originating from Mexico. That said, softer vehicle sales are a concern. While we remain mindful of external pressures, including potential tariff implications that could influence consumer behavior, we're focused on the shift within our control, and I am confident we'll win in the marketplace. That confidence is reinforced by the investments we're making to expand our capabilities and our footprint. Just last week, we opened our new Kansas City intermodal terminal, our fourth new intermodal terminal in the past few years. Since 2020, we've invested over $1.4 billion to support growth and expansion in our intermodal business. But our focus extends beyond Premium. The industrial development team is actively driving carload growth, managing nearly 400 projects that are opening new doors for us. So as we move into the second half of the year, I'm encouraged by our dynamic service and adaptability of our team. What truly sets us apart is our relentless ability to rise to any challenge, from unexpected international intermodal volume to surges in coal, we've proven we will deliver. Our commercial and operations teams are working together to unlock growth in unexpected areas. We don't wait for opportunity, we create them, turning momentum and to impact and driving results that matter. And with that, I'll turn it over to Eric to review our operational performance.

Thank you, Kenny, and good morning. The team delivered another strong operating performance in the second quarter, demonstrating exceptional results behind our strategy of safety, service and operational excellence. Our agility was once again on full display as we effectively handled a 30% surge in coal and renewable shipments, all while providing the service we sold to our customers. Ultimately, it's another proof of statement highlighting our robust and reliable service product, which is imperative as we strive to grow with our existing customers and unlock new markets. Moving to key performance metrics on Slide 12. Safety remains our top priority at Union Pacific, and our goal is to be the safest railroad in North America. Importantly, we are making continued progress towards that goal with improvements in both personal injury and derailment rates versus their 3-year rolling average. We won't stop until each and every employee goes home safe every day. Freight car velocity, the best measure of fluidity on the railroad, improved 10% to 221 miles per day. Driving the performance was both reduced terminal dwell as well as increased train speed, which improved 7% and 3%, respectively. We continue to leverage new technology to enhance terminal processes and adjust transportation plans, eliminating touch points, while simultaneously improving cycle times. Importantly, we are turning our customers' assets faster, enabling growth through efficiency. Also key is how that translates into our service for our customers. And in the second quarter, both intermodal and manifest service performance improved year-over-year to 99% and 97%, respectively. Our buffer of resources, coupled with further improvements in line of road variability, terminal run through dwell and first-mile last-mile performance, is generating a very high level of service for our customers. It's great work by the team as we deliver on our service commitments. Now let's review our key efficiency metrics on Slide 13. As I mentioned before, fluidity is king, and the results on this slide are a byproduct of the exceptional results throughout the quarter. It's the team pushing the limits of what's possible to drive continuous improvements across our railroad. Locomotive productivity improved 5% versus last year, a second quarter record, as we efficiently handle the heavier business mix, while also improving dwell times across the network. Workforce productivity, which includes all employees, improved 9% and marked an all-time quarterly record. Similar to first quarter, our active train engine and yard workforce decreased 1%, again demonstrating excellent operating leverage against the 4% volume growth. We are confident there is more opportunity in front of us as we leverage technology to make our workforce safer and more efficient. Train length in the quarter grew both sequentially and year-over-year. In fact, the second quarter set an all-time record at nearly 9,700 feet. It continues to be an ongoing source of productivity as we look to reduce crew starts, improve asset utilizations and build capacity on our network. Wrapping up, we have tremendous operational momentum, momentum that is enabling growth across our railroad. Our footprint is unparalleled and built to handle that growth. It's on us to execute in an efficient, service-focused manner. We will continue to work hand-in-hand with Kenny's team, remaining agile with our customers to quickly adapt to changes in demand and traffic flows. Jim?

Eric, thank you very much and the entire team. But before we get to your questions, I'd like to quickly summarize what you've heard from all of us. First, as you heard from Jennifer, the team is delivering on our strategy. We're generating carload growth and price by delivering the service we sold to our customers, while driving continued productivity into the network. We are controlling what we can control. We produced quarterly records in freight revenue and operating income and a best-ever record in freight revenue, excluding fuel. And I'm confident our 58.1% adjusted operating ratio will be industry-leading. Kenny summarized second quarter volume and revenue drivers and discussed his thoughts for the second half of 2025. Unknowns remain, but we are focused on outperforming our markets and pricing to the value we're providing our customers. The second quarter surge in coal and our ability to seamlessly handle it demonstrates the value our buffer of resources provides as we compete and win business. Next, Eric reviewed our strong operating results. Safety metrics continue to show great improvement as we strive to lead the industry and bring our employees home safe. Operationally, the network is running at a very high level, delivering on our service and operating plans. We will remain agile and ready to handle whatever comes our way. Wrapping up, we remain committed to the long-term guidance that we laid out at our Investor Day last September. You see that in our results and in last week's dividend increase. We are confident we will remain the industry leader as we drive value for our shareholders. The foundation is built, we are growing with our customers, and we have strong momentum as we continue to maximize the value of this great franchise. In addition to today's earnings release, we also just announced that Union Pacific and Norfolk Southern are engaged in advanced discussions regarding a potential business combination. There are no assurances that we'll reach an agreement, but we are talking. We will not comment any further until there's something to disclose, and we will not take any questions relating to this topic during the Q&A. With that, Rob, we're ready to start the Q&A. Thank you.

[Operator Instructions] And the first question today comes from the line of Jon Chappell with Evercore ISI.

That's quite a curve ball with the press release and not taking any questions about the thing everyone is going to ask you about. So let me phrase it this way, and you can answer it how you so choose. Everything you just laid out before the mention of the press release is everything you said you're going to do and you're going to join. The momentum is amazing. The OR is best in business, pricing, balance sheet. Everything is working the way it's supposed to and you're doing this in a very tough freight environment. So why now potentially think on a multiyear distraction that could potentially sidetrack the organic momentum that you're already building?

So why don't we back up a little bit in time? Because I think you have to think about things in time and place. So I've been involved with Union Pacific with a short little time when I was on sabbatical as I described it since 2019. And since 2019, it was a journey to be able to have a team, which I'm very proud of, the team that's sitting here with me and everybody that works at Union Pacific, to fundamentally drive the efficiency, drive the productivity, drive that customer focus, drive the capability to deliver and sell and be able to move products at a high level for our customers in an efficient manner. If we look forward, truly as we look at what's possible and what's better, and that's what this is all about, is everything else in the world is moving ahead, technology-wise and fundamentally going to change. So I've been railroading for maybe way too long and I remember when there was 5 people on trains, and there was a 4 and 3. I also remember when locomotives couldn't communicate and we could not run in train power. If you stand still, you get left behind. So I love where we are because if you fundamentally have a railroad that's operating the way we operate and the way we can react, then you can do things to help the nation, help our customers win. And that's what it's all about. So sorry for the long answer, but I thought I'd frame it for you.

The next question is from the line of Brian Ossenbeck with JPMorgan.

So if I could just ask more of a philosophical one for you, Jim. We've seen efforts to give shippers options like reciprocal switching over the past quarter. Obviously, just remanded that back to the STB. But what's your view on just conceptually the reciprocal switching, open access, giving shippers more options, maybe in exchange for the news you just announced? And you've also talked about the rail industry hasn't done a great job for intermodal growth in the past, making some tough decisions. I want to see if you had some further comments on that, maybe a direct-to-shipper offering at some point. So I know that's a lot of theoretical stuff, but I appreciate your thoughts on that, Jim.

So who are we at Union Pacific, okay? I can't talk about the industry in general. People, I think, have very similar goals. We want -- we know that if we provide service at a high level, and the service is what we sold to customer. We have a range of customers that need different types of service. Some need speed, some need consistency. Some need storage. Some need additional. But everything that we do, from the technology we put in place to make it easier to enter faster into our intermodal facilities, faster being able to trace cars, being able to tell where all their equipment is, working on innovative solutions, is that's how we win. And nothing changes. It doesn't matter whether it was 2 weeks ago or today, nothing changes in what we think we need to do to continue to grow this and absolutely help the country. The more we can move off of highways onto our railroad, the more we allow our customers to be able to win in the marketplace by giving them -- tie in with them and have that service and product where it should be, is a win. So that's the way I look at it, Brian. Hopefully, you can see the philosophy that we all have here.

The next question is from the line of Chris Wetherbee with Wells Fargo.

I guess about a month or so ago, I think, in a public forum, you noted that you'd only do things that you thought were possible. And I guess just maybe big picture as you're thinking about the industry moving forward here, I think your comments were interesting about not standing still. I guess when you think about what's possible, is this the landscape that would allow changes to occur, whether it be from a shipper perspective, from a technology perspective, from a regulatory perspective? I guess we're just trying to get a sense of how you see sort of the receptivity of the other stakeholders in the industry as you think about what Union Pacific is trying to accomplish over the next several years.

I think it's a great question. And I do talk about what's possible, and that's the way we think here at Union Pacific. And if you take a look at what we've done, we don't look at -- and we never have. But we're very, very diligent in going through any decisions that we make. And I can go back in my time here and I could go back to my time to the other great railroad that I worked for, Canadian National Railways, okay, great company, great franchise. And when I came here, and the team, we decided that what we wanted to be able to do is make sure that we make smart decisions how we move ahead, how we operate, how we sell. And Kenny does that and his team every day. And Jennifer keeps us grounded. She's -- some of the discussions you would find very interesting on making sure that we are driving to the best decision possible. But that's who we are, is if we can fundamentally operate a railroad in a safe, provide great service and be operationally excellent, then we can look at what's possible and decide what we want to do next. We never take decisions lightly. We do not flippantly wake up one morning and say we're going to do something like we just announced that we're in discussion and we thought about it yesterday. We've done a lot of homework to get us to this place. And I'm not going to comment. Nobody would expect me to. Only a fool would expect me in the middle of when we're having discussions to start getting into any details. And none of you are fools, I've met you all, you guys are smart people. So at the end of the day, I'm very comfortable where we are. We're diligent on decision-making. We thought it was prudent for us where we were and to be fully -- tell our shareholders and everybody exactly what we're -- where we're at this morning after the quarter that we had, and we're moving ahead. So thanks for the question.

Next question is from the line of Stephanie Moore with Jefferies.

Can you hear me?

I can hear you clear. How are you this morning?

Great. I'm doing very well. Maybe I'll jump...

I figure if I ask you a question, you won't ask me a question. Go ahead.

You're more than welcome to ask me whatever questions you'd like. Maybe I'll jump away from the topic de jure real quick here. I wanted to talk a little bit about the rail itself. I mean you've made tremendous progress. The network is working about as well as it has. So as you think about the back half of the year and you talk about really the cost performance as we go from Q2 to 3Q, if you wanted to share any puts and takes about anything that might not continue from the second quarter into the third quarter. At the same time, how we should think about maybe some potential benefits as we look to the back half of the year and ultimately hitting that full year target?

You know what, you guys are probably getting sick and tired of listening to me already. So I've got a couple of people here that can give you a real wholesome view on it, and all 3 of you please jump in. But Eric, why don't you start about what you see in second half, what you're thinking about operationally, what's possible? And Jennifer and Kenny, you guys want to jump in the way we go, okay?

Yes. So 2 quarters in, and certainly in this quarter, we're already demonstrating a very high level of productivity and certainly a very high level of service to our customers. When you think about the second half and as we think about how we're going to execute that, the game plan really isn't different. We've got a great team executing against some very challenging goals and they're delivering on those goals. Now we're looking for opportunities always. It never ends. That perpetual dissatisfaction that I've spoken about before, that's our mindset or seeing what's possible. So I still see opportunities in how we think about improving service from a dwell perspective. which also has the benefit of driving efficiency to make Kenny even more competitive in the market with his team. I still see opportunities in the locomotive dwell side. We set a second-best record ever in the second quarter at 15.4 hours. There's no reason that can't be below 15, and the team is up against that. Even outside of the core transportation team, it's about how we think about automation within engineering and mechanical. So the plan isn't different. It's to continue to be safe. It's to continue to give good service. And it's continue to find new and inventive ways to be efficient.

Yes. So I'll go through a few things I mentioned in my script. Certainly, we expect from our coal business to be up significantly. We're looking at grain. We've got a great harvest out there. We'll see where demand takes us. I like the fact that our network and Eric has a network that we can move wherever the grain attractive flows take us. On the Industrial side, I'm excited and I'm pumped up about the wins that we have in the marketplace. We're winning as our customers are expanding on us, and they are aligned with investments that we've made in the Gulf Coast. On the Premium side, the fight will be on international intermodal. And bottom line is we've got to backfill that volume. And some of the ways we do that is on the domestic side. And I'll tell you, when you have a strong service product like we have, we're going to introduce new products, we're going to introduce a 7-day a week service from Tacoma into Chicago. We're going to introduce a 7-day a week service from Memphis to Dallas. We're going to introduce the Kansas City Intermodal Terminal. That's the fourth one in the last few years. So when you got a strong service product and you're introducing what we're doing, I feel really good about where we expect to be.

Yes. So Stephanie, Eric and Kenny both hit great points in terms of the railroad is running really well. Kenny and his team are out there executing. We called out the one-timer that we have relative to the expense line with the labor agreement. Certainly, that's not going to repeat itself as you're thinking sequentially second quarter to third quarter. So all really good progress and feel really good about those things. The only thing I'll remind you of, and we've talked about this before, is that this is going to be a little bit of an unusual year for us when you think about the volume cadence. Usually, you have your stronger volumes in your third and fourth quarter. Because of the strong comp that we have with the international intermodal and how we see that trending, that's likely not going to happen. In fact, we're expecting some sequential declines through the back half. But set that aside, the team is executing at a very high level, and we'll continue to do that.

The next question is from the line of Tom Wadewitz with UBS.

So I want to see you -- since you had the train [ saved ] article back in May, you really had a dramatic impact on the discussion on consolidation. There's been enough time, I would imagine, some of your good contacts and buddies in the customer and shipper side have reached out to you and probably give you some feedback. Can you offer any thoughts on kind of what the flavor of that feedback is? Are shippers greatly concerned? Are they mechanical shippers, are they excited about -- maybe intermodal shippers excited about a transcon railroad? Is there anything high level you can give us and just kind of initial shipper response over the last couple of months?

So Tom, we deal with our unions and our employees all the time. And we decided this round to have direct negotiations, and we've signed up close to about 36% now of our employees are signed up or have a tentative agreement. And that's the way our relationship is with our employees. We want our employees to come to work, deliver. We need them to work and be very efficient. We give them everything we can to make sure that they work in a safe manner, and all the training necessary using technology. So that's how I look at the labor and Union Pacific. It's a real positive place, and we're moving ahead just like we want to under all the agreements that we have. Appreciate the question.

Yes. I think -- I was really asking more about shipper feedback on potential transcontinental?

Yes. Tom, I said it from the start is it's pretty clear. You never negotiate publicly. I think we came out and we're very specific in what we said this morning. And that's about all I'm going to say. I'm not going to get into any other detail when you're in the middle of a negotiation. I don't know about you guys, but last time I looked when I went and bought a home, and I've only moved like 19 times, I don't go tell everybody on the street what I'm thinking and where I am and what I'm going to pay or anything else. You're in negotiations. So it's advanced negotiations, which is good. But that's it, so as far as I'm going to say, Tom, okay?

The next question is from the line of Bascome Majors with Susquehanna.

As you look out long term, UP has been pretty committed to the modification approach to refreshing your locomotive fleet over the last 3 years. As that agreement, which I believe predated your arrival, Jim, comes to an end here in the next couple of quarters, how do you feel about the fleet today? What are your intentions and desire to continue refreshing it longer term? And does a combination make that a little more complicated than it would have been otherwise?

So let's start with reminding ourselves that it takes 5 critical assets, 5 critical resources to run this railroad and locomotives is one of them. So what you always want to make sure you're doing and we do it every single day is to ensure that, to your point, we're making the proper investments in our locomotive fleet. And to be clear, we are. As we look at the modernization program, that's one part of it. It's a very important part of it. It's what allows us to continue to improve reliability, renew the fleet, deliver fuel improvements as well as greenhouse gas emission reductions. But we also have our overhaul program, which is another way to keep our fleet in a specific operational order that runs efficiently, runs reliably. We also have investments that we make every single day in our shops when we do modifications to the locomotive. So as I look out, all 3 are going to remain very important. Now the distribution of where we spend in those 3 buckets may change based on the condition of the fleet or the mix of traffic, but all 3 are critical components for us to deliver a consistent and reliable service product to our customers.

The next question is from the line of Ken Hoexter with Bank of America.

Jim and team, certainly a loud announcement this morning. So I want to ask about the operating potential, right? You're at a 58.1%. Maybe can you talk about where you think you can still take this railroad in terms of operating ratio efficiency? And Jen, you talked about the ability to hit the upper single digit, low double-digit target. I think you were kind of saying specifically to this year, right? I just want to clarify that, where it hadn't been, I don't think, that specific before. And Jim, just can you clarify just using words, right? You mentioned it's in advance. Is there different stages of discussions that -- like we should be taking away with the advanced comment?

Well, that was pretty good, Ken, 3 questions. Jennifer, why don't you reiterate what our -- we're going to deliver going forward, our guidance?

Yes. Thanks, Ken. I don't -- we have not said anything different on that EPS piece than what we've been saying all year. We're reiterating our 3-year target. We're confident in our ability to hit that. We've said that this year's performance will be consistent with hitting that. So I really -- there's been no change there. And obviously, the world has changed a little bit since last September. We weren't expecting tariffs, we weren't expecting some of the things in the economy. Conversely, we're running as well as we ever have. So lots of puts and takes. All in, we're still very confident in our ability to hit those targets.

You bet. And on the second pieces of operational efficiency, Ken, you know me, you and I have talked -- if we haven't talked 100 times, I'd be surprised, is I'm very consistent on that. I don't get out and tell people and put a number out and say this is what we're going to deliver, because there's so many puts and takes in operating the railroad. But bottom line is, our goal is to be the most efficient. So that would mean driving the operating ratio the lowest in what the business and the mix that we have can deliver. And that's what it's all about for us. And we're real happy in the last few quarters, I think we've been in the position that we're leading the industry in that, and we want to continue to do that. What it looks like down the road, I don't know. If Kenny could go get a whole bunch more price, he would really help us on the operating ratio. So maybe I'll have to push him a little harder. Ken, I know you've told me a few times that I push Kenny a little too hard. So I just thought I'd remind you about that. Did I miss any of your questions? Because you had 3 or 4.

Just the advanced comment. I just want to understand, is there a signal there or what it means? I don't know what you're trying to send with that comment.

There's nothing there. Just read it and think about what it says. That's it. It's as simple as that. And you're a smart guy, okay?

The next question is from the line of Daniel Imbro with Stephens.

Maybe a different question on regulation here, and to follow up on part of Chris' question earlier. Just with the new administration and maybe lower regulatory backdrop, are we seeing any progress on things like 0 to 0, 1-man crews? I mean you mentioned when it was a 5-man crew, 4-man crew. I mean, any progress on that push towards automation, or are any closer to a more efficient future with the new administration?

Yes. Eric has really been leading a lot of that discussion with the FRA, and so I'll let him speak. Go ahead, Eric.

Daniel, we're definitely seeing momentum. We've always appreciated our partnership with the FRA as an example. Right now, those engagements, they've been very effective. They've been prompt. We're trying to move as quickly as possible, both as a railroad and the FRA, but also in the industry. Now you pointed out some of the technologies, and certainly, those are parts of our discussions, but it's broader than that. As we look at technologies even outside of what's related to crew, the number of people in the cabin of the locomotive, there's a lot of opportunity for us to continue to improve safety by being allowed to implement technologies, some of which have been around for a while, some of which that are just new and some of which that we're developing. So I'm very happy with where we are with all of them. I think the way to measure us against that is the speed at which we can get through those conversations and get it on not just our railroad, but many other railroads, because the net benefit is a safer railroad industry.

Our next question is from the line of Jason Seidl with TD Cowen.

I guess, with your line of questioning or how limited you could be, I could ask about if you guys had too much money in Bouchard's maintenance season, but I'm going to try anyway. There's been a lot of talk about opening up some of this watershed traffic or accessing it. So can you talk about sort of the market that's out there for the rail industry in terms of how much business you think is available to access, whether it be through a deal or through railroads working together more closely?

Well, let me talk real quick about the business and the way we look at it, okay? Because that's what's important, is if you build the fundamentals and have a very efficient railroad, you could open up markets that you can handle within the physical plant that you have. And that's real important for us. Delivering at a high level, to deliver what we sold and what we agreed to with the customer and they know we're consistent and not just for a short period of time, is real important for us to open up opportunity. And that's what's really important. And you know what, I have a little fun with Kenny every so often, but Kenny is real close to the customers, what we're doing and how we're looking at it and how we want to build together to win. So Kenny, why don't you fill in some of the gaps?

Yes. I will just say, through our Interline alliances, we've always looked at which markets we can open up. When you have a strong, efficient network and service products that we have today, obviously, that allows us to look at new opportunities and allows our customers to look at new opportunities. So we're going to keep with that mindset and see if we can grow the business.

Perfect. Thank you very much. Thanks for the question.

The next question comes from the line of Scott Group with Wolfe Research.

I'll just stick to some of the fundamentals for now. Jennifer, any thoughts on second half operating ratio, second half price/mix as you sort of think about the business? And then, Kenny, that's just huge strength in coal, putting aside the contract win, like what's the sense from customers about the sustainability of this? Do we need to just think about -- do we need to start thinking about coal a little bit differently just given everything going up with the power markets?

Okay, Scott, I think that was about a 3-part question, but I'm going to give you extra credit because you asked about the fundamentals of the business. So in terms of how we think about OR, obviously, Jim has talked about that, that's an outcome of all the efforts that we're putting forward. But our challenge and our task as a management team is to make continuous improvement. And so we feel very confident in our ability to continue to drive improvement as we move through the back half of the year. And you mentioned price/mix, so yes, as we look at the back half of the year, we do actually think, assuming our belief is correct, which I think it is in terms of what's going to happen with international intermodal as a part of our business mix, we should see that mix piece turn more positive as we move through the second half. So that is an expectation that we have in there, Scott. I think you're spot on with that. Even though -- one last comment and then I'll let Kenny talk to coal. But just as a reminder, on the coal piece, while it is -- has a higher arc than our international intermodal, it is still below the system average. So Kenny?

Okay. So yes, and I talked about the natural gas prices, that's certainly playing a role. But more importantly, the service product that Eric and his team is providing us, being able to pull ahead more tons and deliver more trains, especially in a time where they need it when natural gas prices are where they are, we benefited from that. Obviously, we've talked about the win, which is also uplift for us with LCRA. And I think you had a question about the future. And we'll see what happens. I mean we're looking closely at the impact of data centers out there and cloud computing. Will it have an impact on coal overall? And maybe we'll see some retirements get pushed out. But right now, we're really being opportunistic with the service and capturing what we can.

It's been a great opportunity for us to reinforce the buffer resources, that they're there. Kenny brings the business to the railroad. We're not waiting weeks and months. We're finding that we have the locomotives, they're prepositioned, we have the crews and we get the volume on the rail. Build in America.

Yes, you bet. Scott, thank you very much. Appreciate it.

[Operator Instructions] The next question comes from the line of Richa Harnain with Deutsche Bank.

So maybe you can talk a little bit about how you see your intermodal channel partners, the IMCs fitting into the equation of driving more domestic intermodal and enabling more conversions. It seems like you're doing more transloading services through your own subsidiaries. Do you think that's sustainable or you can grow it? Kenny, you talked about the new products you're introducing on the domestic side, 7 days a week in various markets. Are your IMC partners able to keep up? And then I know just a bonus one, if you throw me a bone given it's on the core business. Kenny, you also talked about, I think, over 400 projects and you have in line of sight winning those. And maybe you can talk about like customer feedback on turning those on if those conversations are being accelerated by the new tax plan. Anything on the long-term outlook for the revenue growth would be helpful.

Yes. I'll just talk high level about intermodal. And I'll tell you, we're excited about the framework we have with our portfolio of private asset customers and our own rail box. When we talk to BCOs, they like the fact that they've got a choice of IMCs and private asset owners to look at. Our rail box is very competitive, and we've seen it compete very favorably in the marketplace. The second part of your question is around industrial development. And yes, the team is out there hustling to bring on more traffic, engage. We've had some really strong wins already this year. We look at those as 40-year assets that will be around for a while. We've seen the cadence there, a slight uptick in run rate from what we've seen in the previous year. It's hard to pinpoint down. That's because of the administration or some policy change. But we're encouraged about -- in the future of how those projects will shake out.

Our next question is from the line of Brandon Oglenski from Barclays.

And I guess I want to ask one on the historical perspective of the industry just given your career. Like how has the interchange process for customers evolved? I mean we always used to talk about Chicago as being a real pain point. And I guess, can you talk to where that is today, some of the challenges that you still see with your shippers and maybe some of the inherent limitations on dealing with that given today's structure?

I think you always have to look at how you simplify the movement of products. And we do that internally in how we use our network. And it's a great example of how we operate. So you can come out of the L.A. basin with a number of different products, not just intermodal, and decide how you're going to move it to the different markets and how -- what you've sold to the customer on speed and what. The more you can do that, so you remove touch points, and we do that all the time, Eric, we spend a lot of time looking at ways that we don't have to process cars in multiple hump yards or multiple switching facilities. And that's one of the -- here I am talking about our secret sauce. We spend a lot of time worried about and have technology that helps us be able to examine it. So for us, that's really important. That's the way we operate. And if you can have a much more fluid, less touching railroad, and that's what we've driven, it helps us being able to provide a higher level of service because you remove some of that noise that happens when you hand off. So if it gets to the hump yard in Inglewood, and you hump it there and then you want to go all the way to Minneapolis, and you're trying to figure out that -- we used to touch those cars 2 or 3 times, every time you touch, something could go wrong. But if you do it in a much more seamless manner, the way we have, and also in a cost-efficient manner, it's a win-win. And sorry for getting into the detail, but that's just the way my mind works. And I think Eric does as good a job or maybe even better than me at looking at that stuff. So I give the team a lot of credit. And Kenny loves it because we remove some of the noise on how we move the traffic and make it less expensive for us to move. So that's the way I look at it. Thanks for the question.

The next question is from the line of Walter Spracklin with RBC.

Good. Yes.

My Oilers didn't make it again. I remember that last time we were talking. Son of a gun. Okay keep on going we'll get back to railroad.

Absolutely. So I'm going to put -- if we put aside merger talk, Jim, you and I, we have talked in the past about U.S.-bound traffic making its way up through Canadian ports, and that's been a target for you in terms of repatriating that. I was wondering, have you ever quantified that as a total addressable market as to how much you could repatriate? And if you -- even if we were to go after that, is the port a big bottleneck at all in terms of you getting that volume? Or is it forget that volume, if we get more East-West fluidity, it's really domestic that you're going to focus on, not international intermodal?

Well, I think as a railroad, we look at all ways to be able to grow our business and win in the marketplace. And that, it's the entire supply chain, is the only way you win. You can have the most efficient one piece of it that will not, Walter, allow you to win that business. But if you can deliver it -- and listen, the Canadians, and I was there with CN, they've done CN, and I don't know CP quite as well, but I'm absolutely sure that keeps all over it big time. He's a smart guy. Same thing with Tracy, very smart person. So at the end of the day, they're working hard to make their supply chain better. My job, and all of us here, is to have a competitive product that we can win. We are competing as railroads every day. So I'll be honest, if I could figure out a way to drop about 3 trains a day coming out of Canada going into Chicago and win in that marketplace, I think that's my job and that's my responsibility and I would do it. Kenny, anything you want to add?

Yes, just to reiterate, very strong service product. You heard me talk about ways that we can penetrate those markets. How do you get a service product that we've created from Tacoma into the Chicago market? That's one way. Another way is creating a new ramp at Twin City. So we are on offense when it comes to trying to go out there and grab new business.

The next question is from the line of Jordan Alliger with Goldman Sachs.

Just curiosity question. Simultaneous with the discussions you're having with Norfolk Southern, do you actually pre-discuss or engage in like premerger chats with the Surface Transportation Board around this?

Yes. Listen, I appreciate the question. But like I said, we've given all the information, that one -- those 2 lines that we put out, and that's where we are right now. I think that's a lot of information we handed out today. So for us, that's where we are, and we'll see what happens next. But I appreciate the question. Thank you.

Next question is from the line of David Vernon with Bernstein.

Jim, thanks for disproving the thesis that [indiscernible] service or some [indiscernible] in this quarter. Kenny, as you're looking at the tariff impacts on some of the grain export risk, I guess it appears to me that the export side of the equation is going to be a negative. But as you're looking across the business, whether it's metal or some of the more domestic movements, are you seeing any positives as freight roads are kind of being redirected or tariffs are incentivizing additional production inside of the U.S.? Can you talk a little bit about how that balances out from an overall impact on the book of business?

Yes. David, first, I want to say the biggest positive is the service product that we have out there to handle the stops and starts that come with tariffs that we've seen over the last, call it, 7 to 9 months, the also traffic flows have changed. And so when you have a prepared service network and strong service, that's the positive for us. Taking a step back, if you look at it externally, we are starting to see a few green shoots out there. I met with the customer a couple of months ago that said that they were shifting some of their production from Asia into Mexico, and we've got a strong service product coming out of Mexico. I mentioned our industrial development pipeline. We're keeping an eye on that to see if we see a little bit more growth on the metal side. Over the long term, we think that, that will be a positive for us even if it doesn't happen today or next week. So encouraged by that.

Our next question is from the line of Ari Rosa with Credit Suisse.

Congrats on a nice quarter here. Jim, you talked about evolving to the changing business environment. It's not really M&A specific. But I was hoping you could talk about what constraints you think UP has from kind of a structural network perspective that inhibit its growth. And kind of what prevents you from taking more share off the highway, especially with the service levels as strong as they are today?

Okay. You know what, I've answered that sort of type of question a lot, and I'd like to push my team a little bit. So Jennifer, it's yours.

Thank you, Jim. So I'm going to channel my inner Kenny Rocker on this. But I think, first of all, it does start with the fundamentals of how we approach our customers and how we can be flexible with them and how we can provide a great service product. So one of the things we really haven't talked about maybe, and should talk about more is, Eric and his team are very much partnered with Kenny's team to say, what does this customer need? We're deep into those conversations. Not just saying, here's our service product, do you like it? It's more what service product do you need and how can we introduce that? How can we serve you better to meet those needs? Kenny referenced earlier, we're introducing a couple of new intermodal service products. I know we've got lots of examples too on the manifest side where, in those customer discussions, they've told us they need either more frequent day a week service, maybe changing time of day, et cetera. And Eric and his team have worked with that, and that's picked up incremental carloads. And then I'd also take you back to something that Jim brought when he first got here, and I know you've heard us talk about this, is speed of decision making, speed of market, supporting those customers. When they come to us with a business opportunity, they're not talking to us about something they want to do sometimes in 2 years to 3 years, sometimes it is, but sometimes it's in the next 30 days, in the next 60 days. This is the opportunity we have. And so by being much more nimble, we've delayered the organization, that's allowing us to jump in there and attack that as well. And with the strong service product, we're saving money for our customers by taking days out of their transit time. That's real money for our customers in terms of inventory and in terms of their equipment assets. So it's all of UP kind of effort, and it's winning. And Kenny just raised his hand. So I think he wants to add something.

Jennifer, you got A-plus for that. That was good. But one thing I'll add that Jim and Eric have brought to us is around car supply and equipment supply and nearing 100% in that order fulfillment number, we're really excited about that. And customers are excited. It gives us an opportunity to get 1 or 2 more cars out of that facility. So that's another win for us.

The next question is from the line of Ravi Shanker with Morgan Stanley.

Jim, maybe just a follow-up to a previous question. Obviously, you've had many, many, many customer conversations over the years. To what extent have you been effectively asked by your shipper customers to see if you can put together something like a transcon railroad because they want a service like that and they want to take trucks off the road? And to what extent has this been precipitated by customer conversations?

Customers tell us this. They've been very consistent with me in my entire career. What's my service? How do I move to the markets? What are my options? And then it comes down to, what do you charge me for it? So if we can win on the service, we could win on that, customers are happy. And you can see that. Like fundamentally, this quarter, and I think sometimes we get caught up in other noise, but if you look at fundamentally this quarter, we were able to grow our business, okay? We were able to increase our revenue. We were able to show how efficient we could be when our total compensation was up at 1% above with all the inflationary. That's who we are, that's what we sell to our customers. And if we do that, our customers are aligned with us. They want to be with Union Pacific. They want to be with this railroad. They want to win and they want to be with the railroad that opens opportunity for them. It's as simple as that, that's all I have to say. Thank you very much.

Our final question is from the line of Jeff Kaufman with Vertical Research.

Congratulations. Terrific quarter. Jen, have you looked at the One Big Beautiful Bill and assessed how that might impact the opportunities and cash flow at the company?

Yes, we have looked at that. And so going back and restoring 100% bonus appreciation, obviously, is a benefit. We think for us, it's probably cash, $250 million to $300 million incremental on an annual basis.

Okay. And that's the primary impact or are there others?

That's the primary impact. We do make some investment tax credit purchases. Those are still available through the bill. R&D credits. Yes. So I think that's all there.

Yes. So there's lots -- Jennifer, the only thing I would add is the administration talking about deregulation, making sure that the businesses have the opportunity to win, because we do compete against everybody else in the world, it's really important to us, and I liked some of those things that weren't specifically in the Big Beautiful Bill, but help us to compete better and be able to move our products within the U.S. and internationally. So thank you for the question. And I guess, operator, that's the last question. So if I can just tie it up. So I apologize for the curve ball that we set out, but we thought it was prudent to put that out. But fundamentally, what is more important to myself and the entire team and all 30,000 of us that work at Union Pacific is to move this company forward. We like where we are. Do we have more work to do? Eric says it well. We are never satisfied. I never wake up in the morning and say, my God, what am I going to do today? It's who can I push and what can I do to deliver better operations and better value to our customers. So we're excited. We had a great quarter. We've got to build on this for the third quarter. And we're looking forward to having a discussion with all of you, for sure, when we report after the third quarter. Have a great day. Thank you very much for listening in and taking the time. Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time, and have a wonderful day.