Norfolk Southern (NSC) Q1 2026 Earnings Transcript

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DATE

Friday, April 24, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Mark George
• Chief Operating Officer — John Orr
• Chief Commercial Officer — Ed Elkins
• Chief Financial Officer — Jason Zampi

TAKEAWAYS

• Revenue -- Flat year over year, reflecting mixed market conditions and volume softness in certain segments.
• Total Adjusted Expenses -- Increased by 1% despite inflationary pressures, winter storm costs, and sharply higher fuel prices.
• Adjusted Operating Ratio -- 68.7, with an 80-basis-point increase versus prior year, mainly due to fuel and inflation headwinds.
• Adjusted EPS -- $2.65 per share, modestly down from the prior year due to flat revenue and increased costs.
• Volume -- Down 1%, primarily impacted by intermodal softness and merger-related losses, but offset by momentum in chemicals and automotive.
• Merchandise Segment Performance -- Volume and revenue up 1%, driven by share gains in chemicals and automotive, with RPU less fuel flat due to lower-rated commodity growth within chemicals.
• Intermodal Segment Performance -- Volume decreased 4% and revenue dropped 1%; RPU increased 3% and RPU less fuel rose 2% primarily from improved pricing.
• Coal Segment Performance -- Volume rose 9% but revenue declined 2%, with RPU down 9% due to mix headwinds from utility growth and export pricing overhang.
• FRA-Reportable Safety Metrics -- FRA personal injury ratio at 1.1 and FRA accident ratio at 1.43, a 37% improvement year over year.
• Fuel Costs -- Expenses were up $31 million year over year and over $40 million above company expectations for March, driven by a 45% year-over-year increase in per-gallon price.
• Productivity Initiatives -- Delivered over $30 million in cost savings for the quarter, continuing trajectory toward $150+ million in planned full-year efficiencies.
• Fuel Efficiency -- Achieved a record in the quarter, with fuel consumption down 6% year over year and sequentially, aided by integrated operational and technology enhancements.
• Merger Status -- Revised application with Union Pacific to be refiled by the end of April, with management expressing increased confidence in regulatory approval based on strengthened data and customer engagement.
• Cost Guidance -- Reaffirmed adjusted operating cost guide of $8.2 billion to $8.4 billion for the year, despite upward pressure from volatile fuel costs.
• Operational Metrics -- 1.1% increase in gross ton-miles and 8.6% reduction in recrews, with a 6% year-over-year decrease in train and engine (T&E) crew base.
• Short Line and Transload Partnership -- Announced innovative growth partnership with Jaguar Transport Holdings in Doraville, Georgia, focused on high-density switching and transload operations pending regulatory approval.
• Second Quarter Operating Ratio Outlook -- Management expects a sequential improvement of approximately 200 basis points, overcoming Q1 headwinds from higher fuel and absence of prior-year land sale gains.

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RISKS

• Jason Zampi said, "Fuel is obviously going to be a wildcard the remainder of the year, and we anticipate it to be a headwind in the second quarter," with March fuel expenses $40 million over expectations and prices up 45% year over year.
• Management acknowledged "ongoing merger-related losses" affecting intermodal volume declines and increased competitive pressure in certain markets following the merger announcement.
• Total coal revenue decreased 2% despite a 9% volume increase, attributed to mix headwinds and continued export pricing overhang in the coal segment.

SUMMARY

Management highlighted the success of disciplined cost control as total adjusted expenses rose only 1% despite material headwinds from inflation, storm costs, and sharply higher fuel prices. Executives described substantial gains in safety as evidenced by a 37% year-over-year reduction in the FRA accident ratio. The company reported flat revenue performance for the period, with merchandise and coal posting offsetting results across major segments. The recently announced short line partnership in Georgia was positioned as a new template for future growth strategies, pending regulatory approval, and the revised Union Pacific merger application is set for submission this month with management citing increased confidence in its approval due to additional supporting data.

• The company achieved record fuel efficiency this quarter as a result of multi-year efforts in technology and process improvement.
• Management reaffirmed operating cost guidance but cautioned that volatility in the fuel market remains a critical near-term risk to expense outlook, particularly as prices surged at the end of the quarter.
• Sequential improvement in operating ratio of approximately 200 basis points from Q1 to Q2 is projected, with noted capacity to translate future volume gains into incremental margins.
• Merger-driven competitive responses in intermodal and other markets are expected to persist as the revised transcontinental network application progresses.

INDUSTRY GLOSSARY

• GTMs (Gross Ton-Miles): A measure of work performed by railroads, reflecting the movement of one ton of freight over one mile.
• RPU (Revenue Per Unit): Revenue generated per unit of shipment, commonly used to assess pricing power and mix in rail operations.
• RPU less fuel: Revenue per unit excluding fuel surcharges; used to isolate core pricing/mix drivers from the impact of changing fuel costs.
• FRA (Federal Railroad Administration): The U.S. regulatory body overseeing rail safety, with reportable ratios covering accidents and personal injuries.
• PSR 2.0 (Precision Scheduled Railroading 2.0): Norfolk Southern Corporation's evolved operating model focused on disciplined planning, asset utilization, and compounding operational improvements.
• Zero-based plan: A planning approach requiring justification of all crew and operational resources from the ground up, rather than using prior year figures as a baseline.
• Short line: A smaller railroad operating over relatively short distances, often feeding traffic onto larger national rail networks.
• Transload terminal: Facility where freight is transferred between different modes of transportation or handled for local distribution.
• T&E crew (Train and Engine crew): Operational personnel qualified to operate trains across specific segments or districts.

Full Conference Call Transcript

Mark George: Good morning, and thanks for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. Before we get into details, I want to start by recognizing our Thoroughbred team. Working together, we successfully navigated another challenging winter, with weather events that affected most of our territory putting real pressure on the network and our volumes in February. As conditions normalized and our network recovered, we captured available volume in March and exited the quarter with solid momentum, all while staying focused on what matters most: operating the railroad safely. Our safety performance continues to excel.

We are seeing the benefits of the investments we have made in technology, training, and standard processes—from digital inspection tools to more rigorous operating standards. These efforts are helping us detect and address potential issues earlier and keep our employees, customers, and the communities we serve safe. Our FRA-reportable accident rate is down yet again thanks to the systems we have and our leadership. I am proud of how our people stayed disciplined and committed through all the weather challenges and other distractions. On costs, we remained disciplined. Total adjusted expenses were up just 1% year over year despite inflationary pressures, storm costs, and sharply higher fuel prices.

We earned new business, expanded key relationships, and saw customer confidence grow across multiple sectors, reflecting improved execution and trust in our capabilities. We are seeing strength and encouraging results across multiple parts of the business, reflecting focused investments and improved coordination across our teams. Ed will walk through some of our wins and the underlying volume drivers in more detail. Lastly, stepping back to the broader environment, the macro remains a mix of puts and takes. Customers continue to manage dynamic and shifting supply chains, but our message is simple: Norfolk Southern Corporation is well positioned to grow alongside them.

The strength of our network combined with the flexibility we have built into our cost structure gives us confidence to navigate whatever the market brings. With that, I will turn it over to John to get into the operational details. John?

John Orr: Good morning, everyone, and thanks, Mark. Throughout 2025, our Norfolk Southern Corporation team was focused on growing our team’s capabilities, skills, and speak-up willingness, creating the environment to deeply embed our safety and service maturity and capability. Now, with a full quarter behind us in 2026, we are realizing measurable gains from those successive efforts. We are advancing and layering progressive PSR 2.0 structural changes to build more resilience and efficiencies across the railway, develop generational railway leaders, and provide our customers with the best possible service plan. As Mark noted, extreme and network-wide winter weather in the first quarter tested the network.

I am very proud of the entire enterprise in the way we anticipated, prepared, and responded to deliver for our customers. The extraordinary commitment of more than 19 thousand railroaders across our franchise was clear in the service and volume execution coming out of the system-wide storms. Thank you to all my fellow railroaders. The entire team delivered both daily and storm backlog demand and drove post-pandemic daily GTM volume records, made possible by our operations and commercial teams. Turning to slide five, at Norfolk Southern Corporation, safety is the core value against which all of our operating decisions are made. Our continued investment in safety is producing results while building a stronger, more durable safety culture.

In the quarter, our FRA personal injury ratio was 1.1, consistent with full-year 2025 performance. Our FRA accident ratio was 1.43, reflecting a 37% improvement year over year in the first quarter. Our FRA mainline accident ratio was 0.26. For the second consecutive year, Norfolk Southern Corporation continues to lead the way for Class I railroads in mainline incident reliability. This progress is not isolated; it is also mirrored in a reduction of non-FRA-reportable accidents. These improvements reflect the strategic impact of our intentional coordination of field-level technology, coupled with execution across back office, work-scope process refinement, and field conversion engagement. Combined, we are creating reliable network value by engineering out risk from operations wherever our teams work.

This holistic approach to safety improvement is now embedded in how we plan, execute, and manage the railway every day. While we are all proud and encouraged by our safety improvements, we are driven by a relentless drive for continuous improvement. Our enterprise is committed to putting in the work. We know there is more work to do. We are strengthening our stop work authority, reinforcing a speak-up culture, and relentlessly addressing root cause analysis to prevent blocked crossing and other incidents. Turning to slide six, throughout the first quarter, the network demonstrated resilience in the variable demand environment we faced.

Our focus remains on improving our train speed while maintaining balanced discipline around energy management and service levels—a core operational priority. While shipments were modestly lower year over year, we moved 1.1% more gross ton-miles, reflecting stronger train productivity and better asset utilization across the network. Terminals were improved year over year, coupled with a continuous focus on execution to the plan, which supports gains in car miles per day. We have been intentional about protecting service and operating the network at a lower cost structure. That discipline is reflected in 8.6% fewer recrews, improved locomotive reliability, and continued reductions in unscheduled train stops.

Improved crew scheduling and greater crew availability are supporting stronger crew productivity across the network, with a better-aligned qualified T&E crew base that is down about 6% year over year. We continue to strategically recruit and renew our workforce in markets where we anticipate growth. Reliability drives improved productivity, improves locomotive and fuel efficiency, and, taken together, these results demonstrate we are controlling what we can control—managing costs, improving efficiencies, and positioning the network to respond to evolving market conditions. Turning to slide seven, at the core of PSR 2.0 is a self-reinforcing operating system—a flywheel where disciplined execution compounds over time.

At Norfolk Southern Corporation, we know when we run the plan, reduce recrews, and improve network velocity, we create stability in the operation. Stability matters to our people and to our customers. It allows us to deliver our service and utilize assets more effectively, improve locomotives and field productivity, and operate with better energy efficiencies. Operational gains have manifested into the continued evolution of our service plan and its execution. They feed directly back into better schedules, better planning, and more consistent execution. We now have a connected system where every improvement strengthens the next. That compounding effect is how we intentionally build a more resilient railroad steadily over time.

Our war rooms continue to translate this discipline into measurable results. The mechanical war room has improved detection quality in our wheel integrity systems while delivering confirmed defect identification that directly improves safety and reliability. This is a clear example of technology, process, and field execution working together at scale. At the same time, our Need for Speed war room is embedding advanced analytics directly into daily operating decision-making. By pairing data science with frontline execution, we are improving plan quality, accelerating decisions, and strengthening performance across our network. Disciplined execution across the organization is delivering results. In the first quarter, we achieved a fuel efficiency record, strengthening our competitive position in a high fuel price environment while protecting margins.

More importantly, it reflects the repeatability of this operating system. Taken together, our PSR 2.0 transformation and operating systems position us to continue to outperform our original cost reduction commitments and deliver sustained progress across safety, service, and financial performance. With that, I will turn it to you, Ed.

Ed Elkins: Thanks a lot, John, and good morning, everybody. Let us move to slide nine. We closed out the first quarter with significant volume momentum, offsetting a volatile February where severe winter weather impacted our customer carloadings for several weeks. Overall, volume finished down 1%, primarily due to challenging intermodal market conditions as well as merger-related losses. However, revenue ended the quarter flat year over year, and RPU was up 2%, with solid core merchandise pricing and some favorable high-level mix, which were somewhat overshadowed by some puts and takes within the individual business groups, particularly within coal. Within merchandise, volume and revenue increased 1% from a year ago, driven by continued share gains in our chemicals and automotive markets.

RPU less fuel was flat year over year within the segment, as strong core pricing was offset by mix interactions due to sustained growth of lower-rated commodities within our chemicals franchise that we have talked about for a couple of quarters now. In our intermodal business, volumes decreased 4%, reflecting difficult comparisons related to tariff front-running in 2025 as well as impacts from the winter storms in the quarter and ongoing merger-related losses from prior quarters. Overall, intermodal revenue declined 1% and revenue less fuel decreased 2% due to these volume impacts, while improved pricing and positive mix within the segment drove RPU higher by 3% and RPU less fuel higher by 2%.

Looking at coal, volume increased substantially as higher electricity demand, stockpile replenishment, and a supportive regulatory environment powered our utility segment. This strength was partially offset by reduced volume in domestic coal. While total coal volume increased 9%, revenue declined 2% as mix headwinds from utility growth and continued overhang of export pricing drove RPU down by 9%. Let us go to slide 10. Here we highlight several dynamic factors influencing our market outlook, including the conflict in Iran, which has driven energy prices sharply upward in the near term. Our fuel surcharge revenue will be the most immediate impact as an offset to fuel expense.

Additionally, we are aggressively pursuing volume and revenue opportunities in a variety of energy-related markets while also monitoring potential impacts to overall consumer demand. Looking at merchandise, we have a subdued but positive outlook for vehicle production due to near-term economic uncertainty on the part of consumers. Manufacturing activity remains mixed, with output forecasted to expand modestly amid the shifting economic landscape. Energy prices and global supply chains will be significant wildcards in the months ahead due to the conflict in Iran, and depending on the duration of supply chain disruptions, we could see near-term opportunities in markets like natural gas liquids, export plastics, and potentially even crude oil.

Looking to our intermodal markets, international volumes will remain soft due to continued tariff volatility and trade pressures. On the other hand, retailers have been maintaining lean inventories in response to this macro uncertainty, for which eventual restocking offers some support for baseline freight activity. The truck market has turned relatively positive, with dry van rates trending upward in 2026 and capacity continuing to rightsize while demand is firming. Taken together, we have an optimistic view of intermodal, although we are tempering that optimism somewhat due to increased competitor activity following the merger announcement. Turning to coal, a combination of global factors is supporting pricing across both metallurgical and thermal seaborne markets.

Most notably, the conflict in Iran is impacting global LNG supply chains, opening the global market to consider alternatives such as U.S.-sourced thermal coal. The utility outlook remains positive, as growing domestic electricity demand and inventory restocking should continue to support Norfolk Southern Corporation coal volumes. Let us move to slide 11, where I am excited to introduce an innovative new short line and transload partnership—subject to standard regulatory approval—with Jaguar Transport Holdings. Unlike traditional short line transactions across the industry, which have been focused on finding efficiencies and leveraging lower-density lines, our new partnership focuses on growth in a high-density switching corridor located in Doraville, Georgia.

Our partnership, which includes operation of both an industrial short line and our transload terminal, will deliver exceptional local service and responsive capacity to customers in the growing Metro Atlanta market. Here is what I want everyone to take away: this partnership is the latest example of our larger growth strategy in action. We are focused on building and executing innovative deal structures that deliver new capabilities and exceptional value for our customers. Look for more innovative solutions and new capabilities in the months ahead as we continue to execute on our strategy for growth. With that, I am going to turn it over to Jason Zampi to review our financial results.

Jason Zampi: Thanks, Ed. Starting with a reconciliation of our GAAP results to the adjusted numbers that I will speak to today on slide 13, we incurred $52 million in merger-related expenses during the quarter, while total costs related to the Eastern Ohio incident were $10 million. Adjusting for these items, the operating ratio for the quarter was 68.7 and EPS was $2.65 per share. Moving to slide 14, you will find the comparison of our adjusted results versus last year. From a year-over-year perspective, the operating ratio increased 80 basis points. Inflation and fuel price headwinds drove an approximate 280 basis point increase.

However, we were able to mitigate a large part of that increase through productivity and higher revenue per unit. Taking a closer look at our quarter on slide 15, overall costs were up 1%, as we were able to offset an estimated 5% headwind from inflationary pressures. Specifically, fuel price alone was $31 million higher than last year and over $40 million higher than our expectations, a phenomenon that really accelerated in the later part of March and has continued here into the second quarter. We have continued to deliver on our productivity initiatives, with fuel efficiency and labor productivity delivering over $30 million in savings.

Partially offsetting those gains, we had some volumetric increases that drove purchase services and rents higher in the quarter. To summarize our financial results on slide 16, while first quarter costs were only up 1% and in line with our cost guidance for 2026, the lack of revenue growth combined to drive a modest EPS reduction. While we overcame typical operating ratio seasonality in Q1, we are constantly striving to improve. We continue to refine our focus to unearth other opportunities—and you heard John talk about some of those initiatives—as we work towards the $150+ million of efficiencies planned for this year, on top of the over $500 million in productivity we generated over the past two years.

Fuel is obviously going to be a wildcard the remainder of the year, and we anticipate it to be a headwind in the second quarter. Despite that, we expect to achieve typical margin seasonality from 1Q to 2Q. We continue to move forward. John and team are continuing to drive productivity while maintaining a safe railroad with consistent and predictable service levels, and Ed and his team are pursuing high-quality growth opportunities across the entire book. Overall, we are executing to the plan we laid out—focusing on safety and service within a reasonable cost outlook—while progressing through our merger application with UP. With that, I will turn it over to Mark to wrap it up.

Mark George: Thank you, Jason. You all just heard that we are laser-focused on three fundamentals. First, safety. We continue to make progress through better tools, better processes, and a culture that treats safety as a value, not a metric. Second is service. Our customers are seeing our resilience coming out of the winter weather and getting back to consistent, reliable performance, even as volumes increase. Third, costs. We are maintaining tight control, driving productivity, and aligning our expense base with demand as we fight to win volume.

Overall, we see a promising story emerging where we can leverage any reasonable volume expansion the market presents with our commitment to control cost, giving us confidence in our ability to drive attractive and profitable growth. Now turning to guidance. Last quarter, we provided an adjusted operating cost envelope of $8.2 billion to $8.4 billion for 2026, and I am proud of how the Norfolk Southern Corporation team has handled all the challenges in Q1 to remain on track for our guide. I remain confident in our cost control playbook. While the underlying cost structure remains intact, fuel prices are obviously putting upward pressure on the cost outlook.

As you heard from Jason, the price surge in March alone resulted in expenses that were $40 million higher than our expectations. While we are sensitive to the impact the conflict and inflating energy markets are having on people’s lives, today it is unclear how long fuel prices will remain elevated and by how much over the remainder of the year. In light of this, we are maintaining our current cost guidance while acknowledging the near-term volatility and uncertainty on one of our key cost inputs. Our team has worked hard to be transparent with all of you.

We will continue to monitor the situation as we progress through Q2 and gain more confidence on where fuel will settle, and we will update you accordingly. Finally, just as a brief update on the merger, we remain on track to refile the application by the end of the month. This revised application will be even stronger, articulating the benefits of creating the nation’s first single-line transcontinental railroad. We will now open the call for questions.

Operator: To ask a question, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised. To withdraw your question, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. Please press star one now if you have a question. Thank you. First, we will hear from Chris Wetherbee at Wells Fargo. Please go ahead, Chris.

Chris Wetherbee: Yeah, hey. Thanks. Good morning, guys. Maybe one point of clarification and then a question. Jason, you mentioned normal OR seasonality 1Q to 2Q. What do you see that normal seasonality as being, just to clarify? And then, Ed, you talked a little bit about competitive activity, particularly in intermodal, as it relates to the merger. Have we seen most of that happen already? Is that something that still has yet to play out? And is it more than intermodal, or really more contained within intermodal? Thank you.

Jason Zampi: Hey, Chris. Let me start with the OR question. Just a reminder first about some of the headwinds in our plan. We have talked about inflation and some of those year-over-year pressures in that 4% range. We have lower land sales—specifically, you may recall we had a $35 million land sale in the second quarter last year that we do not expect this year. We have to absorb those revenue losses from the competitive merger responses, and now obviously have to deal with these fuel headwinds that are going to continue into the quarter.

That said, putting all those headwinds together, we are still expecting normal sequential OR improvement of about 200 basis points, due to the productivity initiatives we have going on and an uptick in revenue from first quarter to second quarter.

Ed Elins: And to your second question, it is primarily an intermodal story, and it is playing out the way we anticipated so far. We are doing everything we can to make sure we are earning everything we can from both the road and from other modes. Thanks, Chris.

Operator: Next question will be from Scott Group at Wolfe Research. Please go ahead, Scott.

Scott Group: Hey, thanks. Ed, I have a question. Intermodal pricing is somewhat cyclical and tied to truck pricing. Coal pricing is volatile. Merchandise pricing has been the constant, and I see merchandise RPU ex fuel flat. Maybe you will say it is mix, but I would have hoped we would see better merchandise pricing. And then, Mark, on the merger—you mentioned the application is coming next week. You have had months now to gather feedback. Anything that gives you more confidence in approval? Any feedback that gives you concern? Any high-level thoughts?

Ed Elkins: I will probably disappoint you because I am going to say it is mix, first of all. We have had a good quarter and a very strong track record on core price. RPU, of course, is not price. Within our merchandise book, we are close to a record this quarter for RPU less fuel. It is really about growth in some of the lower-rated chemicals commodities—things like frac sand and NGLs—where we have done a really good job of earning new business. At the same time, we continue to take price very aggressively where we can.

I am satisfied with where we have landed on core price, and adding incremental revenue through some of those low-rate commodities has been a good thing for us.

Mark George: With regard to the merger, having been out on the road and seeing how this has played out since we submitted the initial application, I am feeling a lot better. As we talk to customers and understand the concerns—as customers are listening to the opposition and some of the scare tactics—and we get a chance to clarify with facts, I believe we have a really good story. The new application will confirm what we said in the original application on the logic of the deal and the benefits that a single-line transcontinental railroad will bring to the country and to our shippers. We will have a much stronger set of data that makes the case even stronger.

Right now it is about getting on the clock, and by getting that application in on the thirtieth, the clock will start running. I feel better, Scott, than I did even five months ago—when I felt really good. Thank you.

Operator: Next question will be from Brian Ossenbeck at JPMorgan. Please go ahead, Brian.

Brian Ossenbeck: Hey, good morning. Thanks for taking the question. Jason, can you give us the fuel and weather-related costs in the quarter? I do not think we heard the specific callout directly. And, Ed, going back to the 2026 market outlook, a bunch of the subsegments moved a bit higher—vehicle manufacturing, warehousing in particular. Truck makes sense, but maybe give more context on what you are seeing that gives you confidence to move those up and how that is expected to play out for the rest of the year?

Jason Zampi: Hey, Brian. On fuel specifically, versus prior year we were up $31 million just from price. The really big impact we are talking about is the difference compared to what we expected. In March alone, that was over $40 million higher than expectations. The price we paid per gallon in March was up 45% over last year, and we see that same phenomenon here in April. Splitting that up between prior year and what our expectation was, storm costs were about $13 million to $15 million in the quarter.

John Orr: Let us go to fuel for a second, because it is not just the price story; it is the consumption story. We set a consumption record that is compounding its value in the fuel efficiency cost levers we have been pulling through our precision fuel operations last year and this year. With help from Finance, Operations, and IT, we have an integrated fuel management system that gives us value in how we purchase it, how we distribute it, and, of course, how we consume it through onboard energy management. In a high-cost environment, those are double-coupon values. As for the storms, they were concentrated across the whole Eastern Seaboard from north to south.

We worked through most of that very quickly in a concentrated way. The costs you see impacted us, but for service, we were able to rebound and push through for the balance of the quarter.

Ed Elkins: On the markets, starting with intermodal, there is reason to be optimistic about domestic non-premium. We have seen growth there despite the competitive headwinds. Higher fuel prices make intermodal more compelling relative to the road. With the good service product we can offer, we have a compelling case. On the international side, there is still a lot of trade uncertainty and tough comps against last year’s pull-forward. For coal, we remain constructive on the utility side—restocking will continue, and electricity demand over the medium term is likely to inflect upward. On exports, U.S. coals are finding new opportunities overseas because of disruption from the conflict and sourcing constraints.

On the industrial side, we are exploring opportunities in NGLs, export plastics, and possibly petroleum products that want to move in the current environment. Generally, we feel pretty good about manufacturing—there are signs of life—both in the economic indicators and in what we hear. We have about 400 projects in our industrial development pipeline, and that pipeline is beginning to move. It was held pretty tight last year, but we had 12 projects come online in Q1 worth about 70 thousand loads at full ramp. For the full year, we would like to see a few dozen more cross the finish line.

Operator: Next question will be from Jason Seidl at TD Cowen. Please go ahead, Jason.

Jason Seidl: Thank you. Mark and team, good morning. On intermodal, one of the largest trucking companies indicated they are already getting inquiries from clients about peak season planning. Where do you stand with your discussions with customers on that? And on the new short line partnership initiative, is this a one-off, or do you see replicating it in other regions? If so, where?

Ed Elkins: I am bullish on domestic non-premium intermodal for the rest of the year. We are seeing constrained supply of over-the-road drivers, and I think that continues. Higher on-highway diesel prices make intermodal a compelling value proposition, provided we deliver a good service product—and that is what John and I are focused on. In terms of the Jaguar partnership, it is an innovative deal that I believe will deliver exceptional value for customers. If we can make it work—and I am confident we can—we will look to replicate this sort of deal elsewhere.

Operator: Next question will be from Jonathan Chappell at Evercore ISI. Please go ahead, Jonathan.

Jonathan Chappell: Thank you. Good morning. John, two cost items. You mentioned fuel consumption down 6% year over year, and also down sequentially. I cannot find another time where fuel consumption was down 4Q to 1Q, especially given weather. Is that a new base we should think about going forward—maybe not 6% year-over-year improvement, but continuing to march lower from here? And then on headcount: last year you were in a tight range around 19,300 to 19,400, and stepped down about 300 in 1Q. What happened and why is headcount down? Should we think about down ~300 every quarter for the rest of the year?

John Orr: On fuel productivity, while I would like to take all the credit for such a sequential improvement, there are some accounting adjustments within that fuel number that gave us a small benefit. Sequentially, we are improving, driven by treating fuel as a major cost lever—precision fueling and how we manage consumption, improving locomotive reliability, and fuel efficiencies. It is a multi-year journey integrating more tech and process refinement in the field and at headquarters. It aligns with our locomotive strategies, including DC-to-AC conversions, and how we restructure in our zero-based plan model to keep the plan relevant.

On labor productivity, last year our zero-based plan affected approximately 200 train starts and revisions; this year we have another pipeline of similar scale. We are creating predictable schedules, lowering held-away time, improving crew accuracy and rest lineups, and better crew cycles—all of which drive a more productive workforce. Our qualified count strategy is about not chasing the curve: focusing on retention, accuracy of the new-hire pipeline, and robust training and onboarding so we can absorb growth with existing resources.

Mark George: I would add that we are not hiring to an aggregate number. We have about 90 different crew bases where employees must be qualified to operate specific districts. We monitor demographics in each base, anticipate retirements, and get ahead of those curves. It takes about six months to hire, train, and qualify someone, and we expect some attrition. Some locations have cushion; others are in full-employment markets and harder to hire. There is a lot of work to ensure our productivity plans align with attrition and potential volume. It is a delicate balance, and probably the single biggest internal debate is the level of hiring by location based on market outlooks.

Operator: Next question is from David Vernon at Bernstein. Please go ahead, David.

David Vernon: Sorry, problem with the mute. Ed, on growth prospects for export thermal—if that kicks in, what is the range of possible outcomes from a volume and yield perspective? Would that be additive or negative to RPU? How should we think about export coal affecting the revenue outlook?

Ed Elkins: Export thermal would be helpful to our RPU mix. First quarter was hurt by winter weather—it was hard to get out of the ground, hard to move, hard to dump—but I think we will see a rebound, particularly if the conflict in the Middle East continues. More markets will open to U.S. coal. I am optimistic, and it will be helpful.

Operator: Next question will be from Analyst at Deutsche Bank. Please go ahead.

Analyst: Hey, thanks, gentlemen. On costs, you had a 1% increase despite 5% inflation. Maybe talk about initiatives beyond headcount and fuel efficiency—other buckets where you are seeing success and what more potential there is. And, Ed, you said you feel good about manufacturing picking up and have anecdotes from customers. Beyond project wins, what are you seeing from the macro backdrop and what hand is that delivering to you?

Jason Zampi: You point out the good cost control in the first quarter—up 1% with 5% headwinds from inflation and fuel. We have a strong track record over the last two years of about $500 million in productivity, and we have a lot of projects and initiatives to hit the $150+ million this year. For the first quarter specifically, fuel efficiency has been a standout—improving 5% last year, 3% the year before, and an all-time first quarter record this year—and we will continue down that path. Labor continues to be a big component where we have benefited across the board, not just T&E.

John Orr: It is a disciplined, enterprise-wide approach. Our zero-based planning in 2025 and version three in 2026 is giving us benefits on crew starts, with a focus on creating our own capacity through weight and train length to make best use of infrastructure. From T&E, there are incidental cost benefits from a more resilient railway—leveraging portals with fewer train starts, better mechanical resilience, and stronger locomotive capability—flowing through to purchase services and others. We have a next-generation purchase services and enterprise resource management focus, with discipline around those major purchases. Safety improvements—significantly lower incidents and accidents above and below FRA thresholds—are giving us better plan adherence, car accountability, and train arrival/departure accuracy, leading to better locomotive turns and utilization.

It is fundamentals plus projects—small wins and big wins—creating the flywheel of improvement.

Ed Elkins: On manufacturing, there are real signs of life—both in data and what we hear from customers. Components that feed manufacturing—plastics, metals—are moving. Our industrial development pipeline is beginning to convert, and as those come online, they provide steady volume tailwinds.

Operator: Ladies and gentlemen, a reminder to please limit yourself to one question. Thank you. Next will be Jordan Alliger at Goldman Sachs. Please go ahead, Jordan.

Jordan Alliger: Yeah, hi, morning. On intermodal service—your network update slide shows the intermodal service composite around 85%, off from the low-90s high. Is that weather-related and temporary? How do you address that? Do you need to be above 90 to start getting market share back?

John Orr: I am never satisfied with any single metric, but sequentially we are pacing slightly ahead of where we were last year at this time. It is not just the average; it is lane-by-lane and customer-by-customer performance, aligned with commitments we have made. I want a higher number and we are striving for it. My job is to give Ed the service in his back pocket to win share.

Ed Elkins: We will have a better number, and we focus at the lane level. Some lanes have a lot of potential, others less. Where we have high potential—and we have good data—we are focused on delivering exceptional service. That does not always show up in an average, but we are laser-focused on those lanes where we can take highway traffic with a very good service product.

Operator: Next question will be from Tom Wadewitz at UBS. Please go ahead, Tom.

Tom Wadewitz: Good morning. Mark, on competitive dynamics among rails in the East—you had aggressive comments last quarter about competing hard after the share shift in intermodal. How do you see the dynamic now—stable? And on international vs domestic intermodal, is there share shift in international or is that demand-driven?

Mark George: The merger announcement prompted a flurry of new alliances between our eastern peer, western peers, and Canadian rails, which has enhanced competition and had some impact on us. We have talked about some losses; we will fight to retain share and gain in other areas to offset, and the team is competing well. Broadly, the North American rail network is running well—good competitive products across the board. That is great, because we are an integrated supply chain, and half our volume interchanges with another railroad. We want all roads to perform well. Our offering has been resilient, and commercially we are being more responsive and solving problems with customers.

On international intermodal, there is uncertainty—tariffs from last year, inventory depletion without full restocking—so it has been relatively weak. Domestic, given the fuel cost profile for truckers, we feel good about taking share off the highway.

Ed Elkins: We believe our product is competitive. We want strong rail competition because many customers view us collectively as one big railroad. We are focused on the highway. The landscape is competitive, and higher fuel prices likely help us deliver additional value, particularly in domestic intermodal. We have seen some share shift—some competitive response, some book diversification—and we continue to work to improve our position. I am proud of the team.

Operator: Next question will be from Walter Spracklin at RBC Capital Markets. Please go ahead, Walter.

Walter Spracklin: Thanks very much. Question for Ed. On the freight recession—trucking counterparts are saying it is coming to an end, but rails seem more conservative. Is this supply-side (regs, pricing) driving the truck outlook, or are you seeing demand-side green shoots in industrial verticals suggesting the freight recession might be ending?

Ed Elkins: Really good question. There are uncertainties that still need to resolve—housing, interest rates, inflation. Those are big factors before declaring anything over. That said, we see the ISM manufacturing index improving—we have had several months above water. There is strength in autos on both demand and supply. So there are green shoots, and we are cautiously optimistic about certain segments, but we remain vigilant on those three macro factors.

Mark George: Calling an end to the freight recession may be premature, but fuel prices should help us take share from highway. Green shoots in industrial production—with a typical six-month lead—give us some optimism. In manufacturing, we are not broadly seeing it yet, but components that feed manufacturing—plastics, some metals—are growing. We will keep an eye on it.

Operator: Next is Analyst at Barclays. Please go ahead.

Analyst: Sorry, Mark, one more. Jason, can you help on the average sequential OR change you expect in 2Q? And if the freight market is turning, is there a lot of potential for incremental margin?

Jason Zampi: Absolutely. We have the capacity to move the volume. John and the team have ensured we are ready from a service perspective with resources in place. Because of that capacity, when the volume comes through, it is at really good incrementals. On sequential margin improvement, you should think about roughly 200 basis points of sequential OR benefit from first quarter to second quarter.

Mark George: Thanks a lot. To recap, we told you at the beginning of the year we would preserve safety, maintain service, and control costs while fighting for every dollar of quality revenue. We did that in the first quarter. Revenue being flat was lighter than we hoped, but we are more optimistic on the top line as we enter the second quarter because there are signs of life emerging in the market. This is a dynamic world with many crosscurrents, so keep an eye on weekly volumes for how things are shaping up.

We have a tight grip on cost and good momentum on productivity and efficiency, and we will carefully balance resources to move volume when it comes while continuing our drive for productivity and efficiency. Regarding the merger, we will submit our revised application on the thirtieth. The rationale is the same, but the depth and quality of the data considerably strengthen our case. Our customers and supply chains are increasingly national and global, but the U.S. freight rail network is fragmented. A single-line transcontinental network will simplify service, reduce interchange complexity, and allow freight to move more efficiently, safely, and reliably from origin to destination. That is a compelling proposition for more customers to choose rail over highway.

It is good for the country and good for everyone. Thanks for your participation today, and stay safe out there.

Operator: Thank you, sir. Ladies and gentlemen, this concludes today’s conference call. Thank you for attending. Please disconnect your lines, and have a good weekend.

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