"Union Pacific" Q2 2026 Earnings Call - Record Financials and Raised EPS Guidance Fueled by Volume Growth and Operational Discipline

Operator/Disclaimer Reader, Union Pacific Corporation: Thank you for accessing Union Pacific Corporation’s 2026 second quarter earnings conference call held at 8:45 A.M. Eastern Time on July 23rd, 2026 in Omaha, Nebraska. This presentation and the company materials include statements that contain estimates, projections, or expectations regarding the company’s financial results and operations and future economic conditions. These statements are forward-looking statements as defined by the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The materials accompanying this presentation include more detailed information regarding forward-looking information and these risks and uncertainties. In addition, please refer to the company’s website and SEC filings for additional information about our risk factors.

Operator: Greetings, welcome to the Union Pacific second quarter 2026 earnings call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. 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 begin.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Thank you, Rob. Really appreciate it. Listen, pretty special day here today. Great day to be putting our results out for the second quarter. It’s my wife’s birthday, so it’s a double win. She would’ve complained big time if this quarter wasn’t good, so let me just highlight how it is moving forward. She might’ve been mean to me today. Why don’t we get started? Here with me today in Omaha is our Chief Financial Officer, Jennifer Hamann, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer. Good day to railroad out there. Weather’s good. Little storm coming in, nothing we can’t handle. Right, Eric?

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Yeah.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Perfect. Let’s review the highlights on slide four. This morning, we reported record financial results driven by strong execution and 2% volume growth. Net income totaled $2 billion. Earnings per share after we adjust for merger costs grew to $3.41. There was a lot of in and outs as we compare our performance against last year. Fuel was a big driver of both surcharge revenue and expense this year. We had some one-timers we called out last year. What’s real important is when we remove all of that, we see solid core improvement in our results with growth in revenue and operating income. We were about 10 basis points better on our operating ratio. The team will walk you through the quarter in more detail. I’ll come back and wrap it up before we go to Q&A.

I’m very excited this morning on the Q&A, looking for some great, smart questions from our smart analysts and owners. We’ll start with Jennifer and the second quarter financials. Jennifer?

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: All right. Thanks, Jim, and good morning, everyone. Let’s begin with our second quarter income statement on slide six, where operating revenue of $6.9 billion increased 12% versus last year, and freight revenue also grew 12% to $6.5 billion. Breaking down the drivers of freight revenue, volume growth added 225 basis points. Fuel surcharge revenue added 750 basis points and increased roughly $460 million, reflecting the impact of higher year-over-year fuel prices and volume. Solid core pricing combined with business mix to drive 175 basis points of freight revenue improvement. Importantly, our quarterly pricing dollars continue to exceed inflation dollars as we compete and win business at levels that reflect the value of our rail service.

I also want to call out that second quarter business mix was a slight headwind in the quarter as growth in domestic intermodal outpaced expectations and offset the mix benefit of less international intermodal traffic. Wrapping up the top line, other revenue increased 11% to $346 million, as higher volume drove increases in both subsidiary and accessorial revenue. Turning to expense, our appendix slides provide more detail as total operating expenses increased 13% to $4.1 billion, primarily from higher diesel fuel prices. Compensation and benefits expense improved 1% against last year’s reported results, which included the final brakeperson buyout agreement of $55 million. Excluding that agreement, second quarter cost per employee increased 7%, driven by higher wage and benefit costs. A key driver to offsetting wage inflation is workforce productivity, and we have delivered eight consecutive quarters of record results.

Although we’re confident we’ll continue that productivity trend, we now expect full-year compensation per employee to increase around 6%. Fuel expense grew 63% on a 60% increase in average fuel price and 2% higher gross ton miles. Year-over-year, our price per gallon grew from $2.42 to $3.86 and added 120 basis points to our operating ratio. Purchase services and material expense increased 10% due to merger-related costs as well as higher intermodal and subsidiary expenses. Despite increased volume, fewer operating equipment leases and record second quarter cycle times drove a 7% reduction in equipment and other rents. Other expense grew 13% on higher casualty costs. Income tax expense increased 29%, reflecting last year’s one-time $115 million deferred state tax benefit and higher pre-tax income this year, partially offset by some good news in 2026 from state taxes.

Put it all together, we had a record quarter with reported earnings per share of $3.36. Adjusted for merger costs, our earnings per share totaled $3.41. Operating ratio was 59.2%. Turning to cash and returns in the balance sheet on slide seven, our strong financial results carried forward into cash from operations of $5.5 billion, up 21% versus last year. Free cash flow totaled $1.8 billion after we reinvested in our network and returned an industry-leading dividend to our shareholders. We also paid down $1.5 billion of long-term debt in the first half of the year, resulting in an adjusted debt to EBITDA ratio of 2.5 times. Turning to our outlook on slide eight. We have delivered a very strong first half 2026 as we execute on our strategy and deliver improvement in safety, service, and operational excellence, leading to carload growth.

From that focused approach, we have generated reported EPS growth of 6% year-to-date, in line with our January outlook. Looking to the remainder of the year, we are raising our 2026 outlook to reported EPS growth in the high single-digit range as we continue to efficiently move increased volume on our network. We also expect to continue delivering operating ratio improvement and maintain our position of industry leadership, even against ongoing margin pressure from fuel. Fuel prices remain volatile. Our recent purchases have been over $4 a gallon. Overall, a strong first half of 2026, coupled with an improved outlook, highlight our ability to grow volumes, deliver for customers, and manage costs, a strategy that delivers value for all of our stakeholders. With that, I’ll turn it over to Kenny.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Thank you, Jennifer, and good morning. We had a very strong second quarter as freight revenue grew 12% to $6.5 billion. If you exclude fuel surcharge, grew 4% to $5.5 billion. Both were best ever records. Let’s walk through the key drivers on slide 10. Starting with our bulk segment, revenue was up 7% compared to last year on a 1% decline in volume. Grain and grain products had double-digit volume growth in the second quarter, driven by strong export demand, facility expansions, and growth in renewable fuels and associated feedstocks. That resulted in record second quarter volume and revenue. Meanwhile, coal volume was challenged by weaker natural gas prices, mild weather across our served locations, and customer downtime. These factors adversely impacted overall demand. Shifting to industrial, revenue was up 8% on a 3% increase in volume.

When you exclude fuel surcharge, strong core pricing gains delivered record freight revenue and average revenue per car. Petrochemicals growth was driven by improved demand and new business. In metals and minerals, volumes rose on higher domestic steel production and business development wins, more than offsetting the ongoing weakness in the export soda ash market. Premium revenue for the quarter increased 21% on a 4% increase in volume and a 16% increase in average revenue per car, reflecting higher fuel surcharge, core pricing, and improved business mix. Domestic Intermodal delivered its fourth consecutive record quarter in both volume and revenue. It’s evident our outstanding service set the foundation to grow the business. That’s exactly what we’re doing. In the second quarter, private asset, rail asset, and parcel volumes were all up double digits, benefiting from constrained truck capacity and share gains.

Our buffer resources allowed us to respond quickly to increase customer demand. International Intermodal volume was down 14% versus last year. However, we saw improvement as we closed out the quarter, driven by stronger West Coast import volumes. In automotive, results were positive despite market softness due to strong business development results. Looking ahead on slide 11, Grain and Grain Products is positioned for further second half growth, driven by strong export demand, ongoing business development, and new facility openings. I’m excited about AGP’s new export facility that opens next week in Grays Harbor, Washington. We also see continued upside from growing renewable fuels and feedstock markets, supported by greater policy certainty. In coal, elevated inventory and lower natural gas prices will make for a challenging second half.

We will continue to watch this market closely. Eric and his team have proven they can quickly flex to handle shifts in volume. Business wins are also helping to offset some of the market-driven declines. Moving to industrial. We still see a soft housing market, but we remain firmly focused on winning new business and outperforming industrial production. We expect continued strength in metals, growth from industrial development efforts, and increased petrochemicals from customer wins like the startup of CP Chem that I mentioned last quarter. Wrapping up with premium, we expect domestic intermodal to continue to perform very well, supported by over-the-road conversions and our service product. International intermodal will fully lap last year’s tariff volatility in August, and we expect volume to be positive in the second half. For automotive, we expect new business to offset market weakness.

While we’re proud of the record second quarter, the team is focused on capturing the opportunities ahead. Our approach does not change. Price for the service we provide, invest for growth, and keep winning new business. With that, I’ll turn it over to Eric.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Thank you, Kenny, and good morning. We delivered record second quarter operating performance, ran a fluid network, and improved safety, all while handling 2% more volume. It all starts with safety. Both employee and derailment rates improved versus their respective three-year rolling averages, highlighting the team’s dedication to critical safety rule compliance and human factor prevention initiatives. Moving to Slide 13. We provided exceptional service as freight car velocity increased 5% to 231 miles per day and set a second quarter record. Train speed increased 3%, and terminal dwell improved 7% as we tied our first quarter record of 19.7 hours, our third straight quarter below 20 hours. Both the Intermodal and Manifest service performance index finished at 95%, demonstrating our ability to execute on the fundamentals and effectively utilize our buffer of resources. This enabled the team to support double-digit domestic intermodal growth at very high service levels.

Remember, this bar only gets harder for us as it resets based on monthly bests, which we achieved in 2025. Opportunities remain to improve, and we are committed to providing consistent, reliable service while growing with our customers. Moving to Slide 14. Our key efficiency metrics reflect our commitment to operational excellence as we delivered record workforce productivity, record train length, and record fuel consumption. The team is relentlessly focused on identifying opportunities to further enhance service, productivity, and efficiency across the network by first executing on the fundamentals, then implementing new technologies, and finally, investing prudently back into the railroad. Locomotive productivity of 142 improved 1% as the average active fleet decreased 1% against 2% higher gross ton miles. We successfully onboarded incremental volume by leveraging existing train starts, demonstrating strong asset utilization and efficiency.

Our fuel consumption rate improved 1% as we continue to benefit from fuel conservation initiatives and locomotive technology and modernization investments. Workforce productivity increased 5% on 2% higher volume. Our active train engine and yard workforce decreased 2%, demonstrating our discipline and remaining more than volume variable. Finally, train length grew 2% versus last year, driven by continued optimization of the transportation plan and reduced train starts. Closing the quarter, we delivered on the fundamentals while growing volumes and effectively serving our customers. As Kenny’s outlook has improved, we’ve been agile and re-examined our base resources and buffer, aligning both to support growth. We are also continuing to make strategic capacity investments, including the Houston Complex, Pacific Northwest Siding Extensions, and Sunset Double Track projects.

The operating team is demonstrating daily that we are ready to grow with our customers while delivering the service we sold them. With that, I’ll turn it back over to Jim.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Thank you, Eric, Kenny, Jennifer. Why don’t we turn to Slide 16? Before we get to your questions, I’d like to quickly summarize what you’ve heard and provide an update on our merger with Norfolk Southern. As the team walked through, we had a very strong second quarter as volumes, pricing, and operational efficiency drove record financial results. The network continues to be very fluid, and our buffer of resources is supporting broad-based growth. Looking ahead, we are prepared to meet increased customer demand with best-in-class safety, service, and operational excellence. For our 2026 outlook, we are raising to full-year reported EPS growth in the high single-digit range. As to the status of our merger with Norfolk Southern, first, we met a very important milestone when the Surface Transportation Board accepted our application as complete on May 28th.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: On Monday, we will meet another important milestone when we complete the supplemental information asked from the Board. As you’ll see when you read it, we’ve carefully answered each of the Board’s questions. We’ve also taken the opportunity to further improve the competitive nature of our merger through an expansion of Committed Gateway Pricing, among several other voluntary commitments. This is in addition to the merger benefits of seamless single-line service, better reliability, lower costs, and greater competition against trucks and other railroads. Also yesterday, we announced that we reached a merger settlement agreement with the railroad I used to work for, Canadian National. I said from day one that our merger will create a stronger railroad industry that delivers better service for customers. Our agreement with CN, Canadian National, reinforces those commitments. Our merger is unprecedented and deserves a careful review. We’ve done our homework.

Now versus almost one year ago when we first announced our plans to merge, we have even more conviction that our transaction is in the public interest and will deliver benefits for our stakeholders, especially our customers. The case for our transcontinental railroad is clear, and we’re ready to go. With that, Rob, we’re ready to take questions.

Operator: Thank you. We’ll now begin the question and answer session. If you’d like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Due to the number of analysts joining us on the call today, we’ll be limiting everyone to one question to accommodate as many participants as possible. Thank you. The first question is from the line of Ken Hoexter with Bank of America.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Ken.

Ken Hoexter, Analyst, Bank of America: Hey, good morning, Jim. I guess, a two-parter. One, a little confusion on the $0.14 fuel gain. Is that just all upside from fuel and the pricing? Maybe if, Jen, you could just delve into that a little bit. If you can expand on the commercial agreement with CN, the access to the EJ&E, maybe talk about what that gives you and what you’re giving up on the network down south.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Jennifer, why don’t you?

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Ken, on the fuel piece, we’re just calling out the fact that it did have the 120 basis points headwind to our operating ratio mathematically. When you look at the difference between expense and surcharge, the benefit there was the $0.14.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: On the Canadian National announcement yesterday, it was in two parts. The one part was something that we knew that we wanted to make sure. We said it right from the start, what we looked at with the merger, that we needed to do something. We told the Surface Transportation Board twice that we never wanted to take control and get over 50%. In fact, we called meetings at the TRRA. The other railroads didn’t show up. At the end of the day, the nice part about the deal is that clears that up as far as ownership, the Kansas City terminal and TRRA.

It also allows Canadian National to come over between St. Louis, just east of St. Louis to Kansas City, and give optionality to the customers in an old area, because we would have ended up with the two rail lines that we use in directional, and we would have had another one. We thought it was prudent for us not to be too concentrated. Ken, that was the only part of the company where we have a significant overlap, and that was a pretty small area when you take a look at the entire railroad. With Canadian National, we’ve got an MoU that takes care of that. We also talked about, and it goes with our commitment to keep every gateway open.

Canadian National says, "Listen, can we figure out a way to get into Mexico to be able to move traffic, we could still use Chicago if we wanted to, but we want to be clear that we could use a priority location that they find better to be able to have access into Mexico," and we worked out a deal. For that, we said, "Listen, we want better access through Chicago, east to west." Sometimes people look at things in the short term instead of long term, and they don’t understand. Listen, I’ve worked in Chicago, and I worked at Canadian National, where it took us longer to get a train from the north side of Chicago to the south side of Chicago, where our terminal was, than it did to run it from Prince Rupert to the northern part of Chicago.

Anytime a railroad can figure out a way to be able to run much more seamless east to west to make interchange connections or run through trains, that’s what we’ve done. It’s a win-win. It’s a win for Union Pacific, and it’s also a great position for Canadian National. I think it’s a deal that is going to help both of us be able to increase traffic from both of us because of what we’re able to take off the roads and move more of it on the rail. Ken, maybe you didn’t want that much detail, but I just gave it to you, okay?

Ken Hoexter, Analyst, Bank of America: No, I appreciate it. Have a great birthday dinner night. Thanks, Jim.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: You bet. If I’m good, I’ll take her out. If she’s good, I’ll take her out. If not, we’re just ordering in McDonald’s, okay?

Operator: Our next question is from the line of Chris Wetherbee with Wells Fargo. Please proceed with your question.

Chris Wetherbee, Analyst, Wells Fargo: Morning, Chris.

Hey, good morning, guys.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Morning.

Chris Wetherbee, Analyst, Wells Fargo: Maybe sticking on that topic, I guess I just wanted to see if you could expand a little bit on how you think this plays out, both from a revenue synergy perspective. I think there’s initially, in the initial merger agreement, there was some concessions baked in, several hundred million USD of potential concessions. Maybe thinking about this agreement that you’ve constructed and how it may influence some of the revenue synergies and concession numbers, and then maybe a bigger picture, is this the first of what could be multiple of these types of arrangements? I guess, how do you feel about the receptivity of the rest of the rail industry? This is a big move coming from potential opposition to agreement to get on board with the deal. I just want to get a sense of how you see the landscape right now.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, Chris, I won’t get into too much detail of some other discussions we’ve had, but I’ll tell you that if people are reasonable, we are more than willing to come, and this one is a reasonable expansion for Canadian National, and it’s great for Union Pacific. As far as the impact, listen, we knew we were going to have to do that. We see this as, for both of us, a growth story, not a limiting factor on business. This will not impact what we’re doing. Remember, we’re still going to have to have them operate on our railroad to get to Mexico. What it does is it makes them much more competitive against Canadian Pacific Kansas City.

They’re able to originate out of Canada and compete head-on and sell a direct link, we see that as them being able to grow more business and not be less, that we should be able to get more revenue on trackage or whatever else that we do and how we finalize the deal. It’s a real positive, Chris.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: I would just say a big part of it, which is addressing the three to two to one, as well as access into Kansas City, was all part of what we knew we were probably going to have to do something to address that. All part of our thinking.

Chris Wetherbee, Analyst, Wells Fargo: Perfect. Thanks for the time. Appreciate it.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Oh, have a good one, Chris.

Operator: The next question is in the line of Walter Sprackman with RBC. Please proceed with your question.

Walter Sprackman, Analyst, RBC: Yeah, thanks very much.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Walter Sprackhouse.

Walter Sprackman, Analyst, RBC: Good morning.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: How are you?

Walter Sprackman, Analyst, RBC: Good. I know, Jim Vena, as you mentioned, you worked a lot on the EJ&E, certainly when we first met and some of the loop arounds and efficiencies you get and as you translate into the Transcon solution is quite compelling. Curious if whether, when you were talking to CN, does this open the avenue now for more cooperation with CN? Is this something, okay, we’ve addressed this now with CN, let’s move on to any of the other railroads? Just curious whether you’re seeing this as, okay, that’s one player we’ve addressed, and now we move on, or is there avenue for further opportunities with CN that might have come up in the conversations?

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, let’s start with, fundamentally, we would have never been able to get to this kind of deal with Canadian National if it wasn’t because of going through the merger. Okay? That’s the problem with people, anybody thinking that it’s easy to make a deal with another railroad or another company is, Walter, pretty tough. Okay? It was the merger that drove this, and it was something that helped us and helped Canadian National. It truly is a win-win. I’m not sure what the next step is. Okay? I really don’t. Would I like to make a The problem we have is, because we do not have a whole bunch of overlap, we’ve basically dealt with our 2 to 1 and 3 to 2 customers even. There isn’t a lot else that we need to give up. What is it that you give?

You give access to somebody around Nashville? Well, we’d like access to Florida, further south in Jacksonville. At the end of the day, it’s going to be difficult, but we’re always open to have discussions. We really are. If something happens, and I love our relationship with Canadian National, but I’ll tell you, they don’t give me any deference because I know their railroad. I’ll be honest. They’re tough negotiators. Son of a gun. Okay. I was hoping I didn’t have to give them that much access into Mexico. At the end of the day, they’re tough negotiators. They’re smart. I like that. That’s what you want, Walter, is to be able to move the deal forward together. If there’s other things that we can figure out how to do, we’ll do that. We really will.

I don’t see a whole bunch of things that are sitting on the platter. Walter, because I think you’ve met my wife, you know I would never take her out for a burger, okay? Sometimes I like having a joke. The chance of me having a marriage for 43 years like I have, or 44 years, and take her out for a burger for her birthday, that would not work out good, okay?

Walter Sprackman, Analyst, RBC: Yeah. McDonald’s is not on the menu. I got it. Okay.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: It is not. No.

Walter Sprackman, Analyst, RBC: Thanks very much, Jim. Appreciate it.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: We’re in Omaha. It could be like a nice steak from Omaha. I’m telling you. Nice Wagyu from a farm out in Iowa or Nebraska. I’m looking forward to it tonight.

Walter Sprackman, Analyst, RBC: That might play out a bit better. Okay. Thanks again, Jim.

Operator: The next question is in the line of Jonathan Chappell with Evercore ISI. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning.

Jonathan Chappell, Analyst, Evercore ISI: Thank you. Good morning. Hey, Jim. Jennifer, shifting gears away from the merger for a second. You raised the EPS guide versus three months ago, while also raising the outlook for your most important cost line item with the cost per employee. Can you help us solve then for where the majority of the upside’s coming from? Is that volumes running better than expected? Is it surcharge tailwind benefiting you more than you thought in 2H, more productivity in other line items? How do we rectify those two changes?

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah, I think you answered your own question there a little bit, Jonathan. It really is a number of different things. Certainly, when you hear Kenny talk and look at his outlook in terms of how the business is performing and what we see the opportunity for the second half of the year, it’s stronger than when we thought it was coming into the year, which is great news, and we feel very bullish about that. Then you see how Eric and his team are handling that increased volume, doing it very efficiently, very cost efficient manner, and giving a great service product to support our customers as they’re growing their business. It’s all of those things, and we feel great about it. It’s a great setup for the first half and looking forward to a strong second half.

Jonathan Chappell, Analyst, Evercore ISI: Thank you.

Operator: The next question’s in the line of David Vernon with Bernstein. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, David.

David Vernon, Analyst, Bernstein: Hey, good morning, guys. Thanks for fitting me in here. I’m going to try to squeeze two into here because you guys are quick on the next question, Mike. The first question is really around the outlook for the second half. Kenny, you sound pretty positive about everything except coal, which sounds like a throwback to last decade. I wanted to ask if you’re seeing any sort of broadening of industrial demand outside of anything related to data center construction, anything that you’re seeing in the economic tea leaves that would tell you that we are starting to see some broader industrial recovery building up. And then the second question would be around the Falcon service, right? How does this agreement change that? Or is CN going to be running some of its own trains? Or is that totally separate from what you guys announced today? Thank you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Yeah. The first question. We look at car orders, and we’re at 100% fulfilling those, and those are up slightly. Yes, if you look at it broadly, if you look at the car orders, I’m talking across the board, there is some slight uptick that’s there. You’re also seeing that in the momentum that we talked about

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: That’s largely a lot of our carload business, where we’ve had a record Average revenue per car and candidly, record revenue that’s there. That’s encouraging to us as we move and turn into the second half. There are some things that we’re doing that make our life a lot better. You look at grain and grain products, we’ve got a few more facilities that are coming online, some that are export, some that are domestic. Automotive, it’s not a great overall macro area, but we’ve won new business to go out and compete in that area. A little bit of a macro bump on the industrial side, but also, we’re balancing that and supplementing that by winning new business. I think the second question was around the Falcon. Our Falcon product with CN is going well. The service product is strong.

Eric, you’ve really helped us out on CN there. As we look at Mexico again, and you can see the numbers, Mexico, we’ve done well in Mexico, and we see that occurring as we go through.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Kenny, sorry for interrupting, or Eric, you guys should talk about, we’ve talked about open gateways and the Falcon was through Chicago, but we have no problem with making sure that the other railroads come to our network and move the way that customers want it to move.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: When we think about the Falcon, it is independent of this. To Jim’s point, our commitment as part of the merger, which has remained unchanged and will remain unchanged, is full access to all the active interchange points. When some people think about that, they underestimate, when I say interchange points, they think of places like Chicago and New Orleans, which are obviously incredibly important to us and all the other railroads. Just remember that every single day, there’s 260 interchange points across the Union Pacific network as we sit here today.

We’re really committing to that 260 open interchanges, just like they were yesterday, just like they were a month ago, and that’s going to remain that, because to Jim’s point, our partnerships with all of the railroads are incredibly important when you consider 40% of our volume every day is interchanged to another railroad or received by us from another railroad.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Perfect. Thanks, David.

Operator: Our next question is from the line of Stephanie Moore with Jefferies. Please receive your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Stephanie.

Stephanie Moore, Analyst, Jefferies: Hi, good morning. Thank you, guys. I guess I wanted to maybe ask a bigger picture question here, for whoever on the team would like it. I wanted to ask a little bit about just maybe the reindustrialization theme that we’re seeing across the U.S., maybe that means a bit more domestic manufacturing and maybe less imports coming onto the West Coast. Can you maybe frame how you think the network is positioned to handle what could be a pretty big medium-term theme here over the next five, 10 years? Thanks.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Kenny, why don’t you talk about what you see with all the construction, different products, hot markets, cooler markets real quick, and then Eric, talk about the railroad and how it is.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yeah. Stephanie, you’re really asking about what we call our industrial development area, where we’re either expanding at a plant or locating a new customer on our network, and that pipeline has remained strong. We’ve seen a lot of new customers come onto our network. I talked about AGP, which is a grain customer, but then we’ve also seen it with Hyundai Steel that’s bringing on new production here in the U.S. into the Gulf. That pipeline is strong, and we see it show up in other areas. Someone talked a little bit earlier about the data centers, but we’re seeing really good strength, really good pipeline. We’re converting that at a great rate. We’re seeing a robust number of RFIs, meaning our opportunity to compete in that area. We’re bullish and we’re excited about that. We’ve been able to convert on that.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Stephanie, as far as the railroad’s ability to handle it, we are, and we remain poised to be able to handle that growth. You saw that, a couple examples here recently. You go back to last year with the 33% increase in international intermodal, and we handled it. We handled it well. You look at what’s happened in the domestic intermodal market, which credit to Kenny and his team, they’ve done a great job bringing that growth to our railroad, and you’ve seen us handle that exceptionally well, especially when you see 5% increases on car velocity in a period of the year where historically, no matter how many years you go back, we actually would degrade by about 15-20 miles per day. 50 days into the summer, we haven’t had any degradation, and we don’t plan to have any degradation.

That really tells you that the fundamentals of the railroad are strong. Every single metric I gave this quarter, last quarter, the quarter before that indicate that we’re not only strong, but we continue to make more progress. On the capacity side, to be able to handle that, and you used examples like the West Coast and Mexico, think about what we’ve been doing, and this is not a new thing. We’ve always invested in our capital, invested that into the railroad prudently.

Whether you’re thinking about the more than $125 million we’ve invested in our Houston complex, whether you think about our continued work to finish double tracking the Sunset Route from Yuma all the way to Tucson so that we’re actually double track all the way to El Paso, and even on the bulk side and the manifest side, when you think about our siding construction projects and siding extension projects up in the Pacific Northwest and across Iowa, we are poised, we’ll continue to be poised, and we’ll continue to maintain a buffer so that when unexpected growth comes

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Because of all of Kenny’s team’s hard work, we can bring it onto the railroad with an immediate yes to our customer.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah. Just one last thing to add there, Stephanie. You’ve heard us talk about our pipeline of industrial projects where Kenny mentioned the RFIs. We’ve got about 200 of those in the pipeline today. It’s a very strong pipeline, we feel very bullish about our opportunity to continue to grow there.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Perfect. Thank you very much, Stephanie.

Operator: The next question is from the line of Tom Wadewitz with UBS. Please proceed.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Tom.

Tom Wadewitz, Analyst, UBS: Yeah. Good morning, Jim. Congratulations on this deal with CN. That seems like a really nice step forward for you in terms of making the case with STB. I wanted to ask you, just for a little more kind of understanding on how you would view that deal. Can you give us any kind of framing of, we say, three to two to one customers when you consider the customers on St. Louis to Kansas City or in St. Louis area that are seeing, getting access to, how large is that group? Is that five customer facilities? Is that 50? Is there any way to kind of frame that? I guess the other component would just be their access to your line on Memphis to Eagle Pass. Would you expect CN to compete with you on business to and from Mexico?

Is that like, hey, this is going to really enable them to compete with CP on business? It’s more like, call it, Eastern Canada to Mexico. Just want to see if you could give us a little bit more perspective on how meaningful that is, and how you think it affects the competition.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Okay. The new deal is Canada to Mexico, so it’s not competitive with us. It’s good for both of us. It allows them to sell it. Second is as far as the number of three to two and two to one, it’s in the application, Tom, it’s absolutely a small number. Out of the thousands of customers we have, we’re talking about a couple of handfuls, if that. Jennifer, what’s the exact number? I don’t want to put the wrong number out.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: I think the-

Jim Vena, Chief Executive Officer, Union Pacific Corporation: It’s being a freaking moving target.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah. The two to one is three or four. The three to two, I think is low thirties.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Right. That’s it. Out of all our customers, we said that we would fix the two to ones, we have a remedy even for the three to twos, which truly is, let’s get serious. If somebody has two plus a truck or two, they should be competitive, but we want to make sure that there’s no question about leaving every optionality that people have. Tom, I’ll take exception to one thing on yours. It’s pretty straightforward. This merger doesn’t need a lot of help. Okay. I’ve been pretty adamant about this. What people are missing is when you give customers a seamless single point railroad that can move things a longer distance, that just automatically makes the thing less expensive for the customer and more competitive against any other product that’s out there.

People want to make noise about whether we need to help this. I think the CN deal, the Canadian National deal, is great for both of us with EJ&E and Mexico and then within the piece. We’re talking a small number of customers. This is a growth deal. We see taking trucks off the road to go across the U.S. faster and take things that are right now going through cities and less fuel efficient, more greenhouse gas, impacting roads, that, of course, everybody knows trucks do not pay their full share of the construction and capital costs on the interstate system while we pay for all ours. We want to put them on our railroad. This is truly more compelling today than we looked at it than ever before. Think about that.

Less than 10 customers go two to one. This is truly an end-to-end that wins. We think we have a strong case. People, they can write stories that aren’t factual, can say whatever they want. The facts are pretty clear. You got me going a little bit this morning. Good morning.

Tom Wadewitz, Analyst, UBS: Jim, do you think you’ll get a shipper agreement as well? Are you optimistic on that?

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Sorry, you broke up on one piece. What did you say? Shipper agreement.

Tom Wadewitz, Analyst, UBS: No, I’m just.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Oh, shipper.

Tom Wadewitz, Analyst, UBS: I’m saying like, yeah, you got to see agreement with CN. Do you think it’ll announce some kind of big shipper agreements as well or maybe not for a while?

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, we talk to our customers all the day. We have said to a number of customers how do we move ahead? How do we make sure that they understand how it is and how they can win in the marketplace? Yeah, we’re not going to announce them because they’re private deals, at the end of the day, absolutely. We’ve been talking to a lot of customers. I sent a letter to our top 50 customers saying, "If you have any questions about the business that we’re doing together," I sent it to their CEOs, "here’s my phone number.

Give me a call, text me. We’ll get the teams together to go through details so you understand what the benefits are." I had a meeting on Monday with one of the big shippers here in the Midwest. They’re not going to come out. He told me black and white. He says, "Listen, I’m not going to come out to support it because the other people have not. I worry about what they might say and do if I do." At the end of the day, he says, "I see the advantage." If we’re moving pulse products from the southeast U.S. to the west, which they are, they see the seamless. Customers, absolutely. Thanks for the question. It got me to fill in all the gaps of what I haven’t been able to say yet this morning. Appreciate it.

Tom Wadewitz, Analyst, UBS: Okay. Thank you, Jim.

Operator: Next question is from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Brian.

Brian Ossenbeck, Analyst, JPMorgan: Hey, good morning, Jim. Good morning, team. Thanks for taking the question. Maybe just one real quick for Jennifer, then a couple for Jim. Jennifer, the comp per head up 6%. Typically, you have good visibility on that to start the year. It continues to move up a bit. Just wanted to see what the driver was for that. Jim, you mentioned or hinted that there’ll be some, I guess, improvements, expanding of the CGP and a couple other, I guess, voluntary enhancements, if you want to call them that we’ll see on Monday. Wanted to see if you could get a little bit more granular on that, give us a little bit of a preview of what to expect. The STB had a couple decisions out yesterday.

One that was interesting, just the trackage rights, the reciprocal switching with UP going back to Lake Charles. Is that anything that you think sets a precedent as you start to work towards the merits of review of the transaction on the merits? Thanks very much.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Real quick on the STB, listen, I think they were very prudent when they came out with the decisions. Basically, they just said that there are certain things that were in place that just make sense, and you can’t just automatically ask for access for nothing on somebody else’s property. It would be like somebody setting up a coffee shop and going to Starbucks and saying, "I want to set up a coffee shop in Starbucks because I drove by the freaking place." That doesn’t make a particle of sense. That’s what the STB said. We’re very happy. Now, are we happy with every decision? No. They want us to put out detailed information on employees. You think about it, we’ve given it to every law firm that covers every person that might want to comment on this deal.

At the end of the day, are we happy with that one? I’m not, because it impacts people’s lives, and I always worry about that and how it impacts our employees. Overall, I think it’s a clear win for Union Pacific that our position was correct in how things were done with the 3 cases. On that’s where I am with it. Jennifer?

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah. On the comp per employee piece, Brian, it really is wage inflation and benefits. Really, the part that’s been a little bit hotter than we were expecting coming into the year is on the health and welfare side. You’re right, the wage inflation is known. Just as a reminder, we had the 4% for the 1st half of the year, and effective July 1st, we now have 3.75% increase in terms of the unionized wages. Good, healthy increases there, and that’s where we’re just running a little bit hot.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Per employee, we’re up, how’s the productivity? Remind everybody.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Absolutely. When you think about some of the numbers that I report in my prepared comments, they start to give you some perspective, but I have the benefit to be able to peel that back and see at the ground level exactly what’s happening. To Jennifer’s point, while we are running hot on that, we’ve seen continued progress on the productivity side. You don’t grow train length to almost 9,900 feet by chance. If you think about it, not that long ago, we were at 7,500 feet. Our 2% gain is on a very large gain over the last five years, and we don’t see a stop to that.

I often get asked, "Can you make it to 10,000 feet?" We got the team here at Union Pacific that takes challenges like that very seriously and looks for safe opportunities for us to be able to do that. When you look down even deeper into our terminals and you look at line of road with our wage increases, our challenge that we take on every year, we focus on every quarter, every week, is to offset as much wage inflation as possible. You can see how we’ve done that. You can see that when you’re increasing car velocity and you’re running at 231 miles per day, you’re dropping your re-crew rate to 4.5%. We did that in the quarter. That’s two whole points better than it was last year. I can go on and on. Terminal dwell being down 7%, run-through dwell down 8%.

It’s all those things that our team in the operating department, with the support of the rest of the company, do every single day, and I could not be more proud of them, mostly because they’re perpetually dissatisfied, always looking for more opportunities. We’re going to offset as much inflation as we possibly can, and our track record demonstrates we do that quite well.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: You know what? You had a third question in there, or sorry, a subpart. What was the third subpart?

Brian Ossenbeck, Analyst, JPMorgan: Thank you for that, humoring me there. I think just to give us all a preview of what to expect on the supplementals, because it sounds like there might be a couple additional things. You went above and beyond the initial list. Thank you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: I was hoping you forgot that piece, okay, when I asked you. Bottom line is

Brian Ossenbeck, Analyst, JPMorgan: No chance

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, there’s a whole bunch of detail in there. What the expansion does is we went out, talked to our customers, the feedback we received was, "Would you guys examine?" We went to detail with a lot of them to say, "Listen, it’ll help us being able to" Just because, I’ve always talked about distances is your enemy if you try to route things the wrong way. The bottom line is when we went through that, you’ll see it in the application, we’ve expanded it because of what our customers gave us of feedback. Again, we don’t see that as a negative because the more you can open up some of those things to make sure the optionality is there, we get more business out of it, and it’s about growth.

I thought Eric was going to give you a real quick, yeah, our productivity was again great, but he decided to show you the whole freaking railroad. I love it. He’s starting to sound more like me, okay? Pretty soon, Eric, I don’t even have to come on these calls. Between you and Kenny and Jennifer, you guys have got it. That’s where we are. You’ll have to wait till Monday, okay? I can’t let the whole cat out of the bag.

Brian Ossenbeck, Analyst, JPMorgan: Understood. Thanks very much for the time.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Have a good one.

Operator: The next question is from the line of Jason Seidl with TD Cowen. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Jason.

Jason Seidl, Analyst, TD Cowen: Hey, morning, Jim. Congrats on a good quarter here. Wanted to focus on two different things. One, I guess I want to talk to Eric a little bit about operations. Guys doing a great job out there. How much ability do you have to take on additional freight without adding much in the way of headcount or other expenses, particularly on the intermodal side for both the near term and also the longer term as you look at some of your forecasts that are out there for the deal? And then, I guess for Kenny, how should we think about pricing on intermodal as it flows through your network for the remainder of the year in 2027?

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: All right. Let me start. You asked the question in the context of the merger. When we put in our application, we said that there would be an incremental increase in our union employees to be able to handle the revenue synergies that Kenny and the team have identified with the help of Norfolk Southern. Don’t be surprised by the fact that when we look at that, we didn’t start in that place. You start from the place of, we know our transportation plan and we know our network, and Norfolk Southern knows their transportation plan and their network, and you look first for where do you have latent capacity within your existing train starts. Now, you’ve seen our history over the last four to five years. We’ve done an exceptional job of being able to utilize latent capacity. You always want to look there first.

From there, we then overlay the new volume that’s coming onto the railroad, and we have to add some train starts. Now, we’ve been clear with that, and it’s in the application that those train starts involve trains that are going to go from L.A., generally speaking, from L.A. to Chicago.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: You don’t have to give our.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Well, I’m not, but I want to make sure you understand.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Son of a gun.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: We-

Jim Vena, Chief Executive Officer, Union Pacific Corporation: You just sort of give them a high level picture. I don’t want the other railroads to listen in though.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Yeah, I know. Jason, he’s afraid I’m giving away the secret recipe.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: There’s no secret.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: The secret recipe.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: The secret sauce stays here, sadly.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: That’s right. That sauce is our people. We will make sure that we have the appropriate number of people to make sure we run the railroad, also do it in a volume variable way.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: That last part’s important, is you’re not going to see people grow at the same level as volume.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Yeah, that’s exactly right.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, Eric, I love it, son of a gun, I thought you were pretty soon you were going to say how we start people and what our terminal dwell is and how we got that down.

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: I’m not giving that secret sauce away.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Would you stop, for God’s sakes, Kenny?

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: Eric, you can just email that all to me, that’s fine.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: I tell you, Jason, we’re coming from a position of strong momentum. You heard me talk about the fourth consecutive quarter of record volume. We already have that momentum. Eric just talked about it. He’s given us a strong service product that we sell. Because we’re moving boxes faster, we’re talking to customers about price when you’re doing that, and BCOs want to align with us because of that. As we’re able to quote these new rates, as the private asset folks are able to quote new rates to the IMCs, we are getting a little bit more price uplift as we move throughout the year. Obviously, the biggest opportunity for us will be as we enter into the next bid season, we’re pulling more containers out of the storage. Our private asset folks are doing the same thing.

On these spot moves, it’s a small percentage of our business, but we are getting some of that price uplift now. The big apple is once we get into the next bid season.

Jason Seidl, Analyst, TD Cowen: Okay.

Makes sense.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Thank you very much. Good question. Maybe the rest of the people that are on, I want to answer everybody’s question, but we’re going to try to be real fast because I do not want to overlap with Norfolk Southern, who’s coming on here at the top of the hour. If we could ask the question, you might not get as long an answer. Ask me any, and the team any yes or no, we’ll be quick, and away we go.

Operator: The next question’s from the line of Ari Rosa with Citigroup.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Ari, good morning.

Ari Rosa, Analyst, Citigroup: Hey, good morning, Jim. Just, was there any discussion with the STB prior to reaching the agreement with CN? To the extent you can give any color around how it came together, whether it was you approaching CN or the other way around, it would be appreciated. Thanks.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: The answer is no with the STB, and I don’t know who made the first call. Probably was me.

Ari Rosa, Analyst, Citigroup: Okay, fair enough. Thanks.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: That was quick. I appreciate it, Ari. Thank you.

Operator: The next question’s from the line of Brendan Oglenski with Barclays.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Brendan.

Brendan Oglenski, Analyst, Barclays: Hey, Jim. Good morning. Sorry, I haven’t been on the full call here, maybe I’m being redundant with my question, too, you can just tell me to shut up.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: No

Brendan Oglenski, Analyst, Barclays: in the world where truck availability and spot rates are so volatile, up like 50% in the last six or nine months, doesn’t this just embolden the case for transcontinental rail mergers? Congratulations on the deal with CN. Do you need to do more like that as well just to win over more hearts and minds here? Maybe that’s where it is. Is this going to close, Jim?

Jim Vena, Chief Executive Officer, Union Pacific Corporation: The merger’s going to close. It’s just too compelling for the country. It would be a mistake for this deal not to close. We would be harming. Canada goes across the entire country, and there’s a reason why they haven’t applied to the Canadian equivalent to the STB to split their railroad up there, both of them, because it doesn’t make a particle of sense. It hurts customers, hurts the country. This deal will close. It’ll close with limited impact just because it’s an end-to-end. Yes, as far as I’m concerned, if there’s something else with other people, we’ll move ahead. Anything else I missed? Brendan, thank you very much.

Operator: Our next question’s from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question.

Jordan Alliger, Analyst, Goldman Sachs: Yeah, hi, morning.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Hi, Jordan.

Jordan Alliger, Analyst, Goldman Sachs: Hi. I know there’s a lot of moving parts on the yield front between fuel and mix and core price, is there a way you could maybe give some thoughts, at least on how you’re thinking about revenue per car load, whether it be the third quarter or the second half, take into context core price, mix, and the fuel impact, volatile as it may be? Thanks.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Let me start, then Kenny, real quick, talk about ex fuel, the way we look at it, too, and just give an idea because we don’t always split everything up particularly. Put it this way, if you remove all the noise, we actually had a 58 operating ratio. Okay? That tells you fundamentally who we are and what we’re doing. We absolutely report the way we’re supposed to report. If you remove the noise from those things because fuel was an impact of 120 basis points. You take that away from our reported, we’re at 58. The railroad is good. Kenny, second piece.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yeah, we do look at revenue ex-fuel. Let me just leave with the fact that on the service end, Eric, on our carload business, the FBI has oscillated between 95 and 100, depending on where it is, and we price according to that. Most times, it shows up in Average revenue per car. I talked a little bit about that, depending on the mix. With the service that we’re providing, the investments that we’re making, with the market where it is and the truck prices where they are, we’re going to make sure that we’re pricing to that value proposition.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah, just one quick comment on mix, though, Jordan. As you heard me say, it was a little bit of a headwind for us in the second quarter that surprised us a little bit just because of how strong domestic intermodal came on in the back half of the quarter. As we look then to the second half with domestic intermodal likely staying very strong and maybe some upside on the international side, we’ll probably see a little bit more pressure on that mix side. It’s great business. We’re handling it well, and we look forward to the contribution that provides us.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Listen, thank you very much, and we love the way July is running so far, and you guys can all see the car loads. Thank you very much.

Operator: The next question is from the line of Bascome Majors with Stephens.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Bascome, how are you this morning?

Bascome Majors, Analyst, Stephens: Hey, Jim. How you doing? Thanks for the time here. As you look forward and get to the point on Monday where you release the next set of things the STB has asked for, where do you think we land on in the procedural schedule where we get to the point where you see the more formalized list of demands for some of the competitors that oppose the merger and ultimately, the hearings where we discuss that live with the regulator? Does the agreement that you’ve reached with the CN change the tone of that in any way that you think is meaningful or impactful for those of us watching? Thank you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Well, I think the deal with CN clears up some of those things that we said that we needed to clear up. That’s real helpful, it expands competitiveness coming out of Canada to Mexico, it expands our capability to go through Chicago faster. I love it. Not a problem there at all. What was the other part of the question?

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Timing on hearings.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: What’s that?

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: The timing on hearings.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: The timing? My chief legal officer and everybody that we’ve hired, some of the best law firms, say the statute’s pretty black and white. When you accept the application, they have a year. I just follow the law, right? Like, if I get caught speeding out there, when I get pulled over, the police officer says to me, "You know why I pulled you over?" I go, "Yes, I was going 70 in a 55 zone." He goes, "Son of a gun, you’re telling me the truth." Yeah. Usually, it gets me off of the ticket. I like to be honest and upfront. The statute’s pretty black and white. It’s clear. We would expect the clock to have started when they accepted the application. The next step is people get to comment.

We’re looking forward to that, looking forward to finally people putting their facts in and telling us factually what it is, not some high level, whether Union Pacific has the capability to operate the system across the country and worried about this and that. I’m looking forward to it, to tell you the truth, let’s hurry up and get this thing done. We’re not going to get it done for my birthday on August 17th, but I love it. Let’s move ahead. Good question.

Bascome Majors, Analyst, Stephens: Thank you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Thank you very much.

Operator: The next question is from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning.

Madison, Analyst, Morgan Stanley: Hi, good morning. This is Madison on for Ravi.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Madison, I like having you on, okay? I can’t remember the last time I talked to Ravi. I knew you were going to be on. Thank you very much.

Madison, Analyst, Morgan Stanley: Thank you. I like talking to you guys, too. I think we’re just wondering how does fuel impact seasonality on numbers in third quarter and fourth quarter, and how we should be thinking about the opportunity on OR.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah. In terms of fuel, it likely will continue to pressure OR. As I mentioned, we’re paying a little bit north of $4 a gallon right now. Even with that, though, we’re still very confident that we’re going to make margin improvement. We feel like when we look at what we see ahead for ourselves in terms of volume opportunity, in terms of our continued gains from productivity and efficiency, we should be able to overcome the headwinds from the fuel. Who knows exactly how it’s going to play out? That’s why we just need to be nimble, need to try to become more fuel efficient to the extent that we can. Obviously, we’re already more fuel efficient than truck, and that’s a benefit to us. More fuel efficient, more emissions friendly. We’ll wait and see how that plays out overall.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: We always worry about what happens with our customers.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Oh, yeah. No, true. That’s a good point, Jim. I should mention that. The issue with fuel can be what that does to overall price inflation and the consumer, and if that stays high enough long enough, that it starts to reduce demand overall.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: We haven’t seen it so far.

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: We have not.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: That’s always a worry, and that’s why I’d rather have fuel prices come down and not gather that extra revenue from fuel, because we’re better off having the consumer strong. Kenny, they’ve been pretty strong right now?

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: They have.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: That’s a yes or no.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yes. That’s a strong yes.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: I love it.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yeah.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Good question. Thank you very much. Say hi to Ravi for me.

Operator: Our next question is in the line of Jeff Kauffman with Citizens. Please proceed with your question.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Morning, Jeff.

Thank you, Barry. Hey, good morning, Jim. Congratulations. Just terrific news. I have a question for Kenny. Kenny, the volume environment feels pretty good. Some of this, as you mentioned, is customers can’t find truck capacity because of the driver shortage. I think some of this is customers may be diverting because of the pricing and the fuel surcharge situation. One of these is a little longer-term potential. One of these is a little more temporary. Can you talk about what you feel is just shorter-term customers scrambling to the rails? Then beyond intermodal, which is kind of the obvious conversion, what other rail commodities do you think are seeing a benefit from whatever is going on in the trucking industry that’s creating this shortage of capacity?

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yeah. One part that you did not mention is the fact that we are winning business, and we are winning over-the-road business, and that’s not necessarily tied to one or the other. That’s just a strong service product that we have. Yes, as you look at the overall domestic intermodal network, what’s helping us out is the fact that we have different levers and optionality for our customers. We’ve got our Railbox, which we’ve deployed. For a couple of years now, I’ve been talking about the number of private asset folks that we have that give our BCOs optionality. With that strong service product, that’s how we’re going out and winning the business and setting aside where fuel is. Yes, to your point, there are other markets that are very strong for us.

You look at what’s happening in our petrochemicals market, that’s been a strong uptick for us. We talked about some wins there, but that market is also strong and we’re moving a lot export. We’ve invested in the Gulf for our storage and transit network to support that. Same thing with our grain network. We’ve invested and put in new facilities on the grain network, and Eric and his team has shown us that we can flex to different markets. Last year, it was Mexico. This year it’s been the Gulf. Whether it’s the PNW, the Gulf or Mexico, we’re able to flex in those markets, wins in automotive. As you look at the overall landscape, coal is still the wild card, and I got out of the business of trying to figure out how to forecast coal a while ago.

I’m very bullish on where we sit from a demand and our ability to win new business.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Perfect. Thank you very much. Thanks for the question.

Operator: The next question is in the line of Harrison Bauer with Susquehanna.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Harrison, good morning.

Great. Morning, Jim and team. Thanks for taking my question. Jumping off Kenny’s point on some of the rail assets that you’re deploying, can you walk through maybe the thought process, decision and the opportunity that you have in some of your assets? Are private assets constrained right now? Then maybe how does this allow you to accrue more economics, whether through peak season surcharges or into next bid season? Thank you.

I love the way you asked that. I think you always need to price on what the market provides that you can still move the product and win. That’s the way we look at it. If we can price higher because of it, which we have, we’re going to do that. As far as the assets, sure. We went from having a whole bunch of our containers stored to just about all of them out. What we’re doing is we’re trying to drive more productivity by being able to get the turns on them quicker so we can get more turns on there, we see some of that. That’s what it’s all about. We’ve always liked to have a buffer.

Now, we chewed up a big piece of the buffer, we’re sitting in a place where I think there’s still more growth we’re not going to limit it. Of course, we’re going to price and be smart about how we price so we can continue to move. Kenny, anything you want to add or you good?

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: No. I said this a little bit earlier, the private asset folks, they have ample capacity.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Perfect.

That’s new business. That’s a positive for us. You’ve seen some of the surcharges that we put in place for a small amount-

Right on

of the customers. We’ll do that if we have to.

Yeah. People on our railroad have capacity, right?

Absolutely.

They have extra assets.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Yeah.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Good question. Thank you very much. Last one. We’re going to do it and get it done.

Operator: Last one is from Richa Talwar with Deutsche Bank.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Good morning.

Jeff Kauffman, Analyst, Citizens: Good morning. Honored to be the last question. Thanks for squeezing me in. I just wanted to clarify, maybe piggybacking off that last point and maybe drilling down more into the intermodal commercial strategy. I’m curious how you’re partnering with other IMCs, and I know you just said your private assets have capacity, but are other IMCs you work with private assets struggling with drayage drivers? We’ve heard that’s a concern that’s been popping up over the last couple of months, and how the strategy has changed and is influencing your ability to address the strong demand. We’ve also been hearing transcon intermodal trends are pretty competitive. It sounds like you’re doing a good job getting price. Just curious if you could square all of that. Thank you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Okay. Listen, I think it’s a two-parter. One thing about this team here is operations and marketing work close every day to figure out exactly the question that you’re asking. How do we do this, and how do we make things more efficient so we can get the asset turns quicker so that we can use less assets and use that 20-plus % capacity buffer we have on our railroad to be able to run it faster? Don’t kid yourself, Jennifer is in there like a dirty shirt, pushing these guys around to make sure that they’re spending money the right way and the capital. I’m going to let the team talk about this. It’s the last question, but you guys don’t go on for 10 freaking minutes because we need to let NS on, okay? Away you go. Do whatever you want.

Kenny Rocker, Executive Vice President of Marketing and Sales, Union Pacific Corporation: Let me make this clear because that’s a great question. We’re very judicious about how we supplement our capital and our containers out to the IMCs. We’re crystal clear on the ones that have higher dwell versus the ones that have lower dwell, and we’re not afraid to have difficult conversations with them about it. If you’re sitting on our box a long time, that’s a problem, and we’re going to address it with you.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: You don’t want to say anything, Eric?

Eric Gehringer, Executive Vice President of Operations, Union Pacific Corporation: I think Kenny did a great job explaining exactly how we think about it.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Well, let me say it for you. Bottom line is who we are, and this is culturally, and it’s not just Eric and I, okay? Eric’s a real smart guy. He’s well-educated, but I’m telling you, he’s a railroader. Probably five or six years ago, I would have said he was an engineer or in the engineering department. Now he’s a railroader. What we do and what he’s led the team and the people, the culture that we’ve developed from the frontline people, they’re not afraid to make a mistake. We want them to push. We want them to look at what’s possible, and we want to make sure we move ahead. That’s who we are.

When we do that, because you can’t operate a railroad that’s spread out across the entire country and think you’re going to make every decision from Omaha, you have to make it locally. I love where we are. We’re clear on what we have to do. If we need to speed up something, we react quick. We decide how we’re going to do that. We measure the heck out of it, and we move ahead. Listen, that’s where we are. Jennifer, anything before we tie her up?

Jennifer Hamann, Chief Financial Officer, Union Pacific Corporation: Yeah. The only thing I’ll say is, I think you slid something in there at the end of your question about transcontinental pricing, transcontinental margins. Again, we have surcharges out earlier than normal on our assets. We see very strong demand, and we’re providing a great service product. We are competing in a market that is strengthening, and we’re not putting discounts into that marketplace.

Jim Vena, Chief Executive Officer, Union Pacific Corporation: Well, listen, that was the last question. Why don’t we just tie it up real quick? We are going to look forward to having another discussion here in a few months, and we don’t look backwards, okay? It’s done. We’re delivering for this next quarter and seeing what we can do to get this merger approved quicker than slower because we think it’s a benefit. We want to move ahead and return for our shareholders a high return like we talked about, where the EPS is going to be high single digit. I’m excited about where we are, what we’re doing, and blessed to have a team that makes my life easy. I get up in the morning and sometimes I wonder what I’m going to do. Everyone, have a great day. Thank you very much.

Operator: Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.