Image source: The Motley Fool.

DATE

Thursday, July 23, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• Investor Relations - Luke Nichols
• President and Chief Executive Officer - Mark George
• Chief Operating Officer - Michael Barr
• Chief Commercial Officer - Ed Elkins
• Chief Financial Officer - Jason Zampi

TAKEAWAYS

• Railway Operating Revenues -- $3.5 billion, representing an 11% increase year over year and an all-time quarterly record for the company.
• Adjusted Income From Railway Operations -- $1.2 billion, reflecting a 5% increase compared to adjusted second quarter 2025 results.
• Adjusted Operating Ratio -- 65.5%, representing a 210 basis point increase year over year, driven by fuel and inflationary headwinds.
• Adjusted Diluted Earnings Per Share -- $3.52, a 7% increase year over year, exceeding internal company expectations.
• Volume Growth -- 4% year-over-year increase, driven by strength in energy markets, domestic intermodal, and industrial products.
• Fuel Surcharge Revenue -- Contributed 6 percentage points of total revenue growth during the quarter.
• Merger-Related Expenses -- $51 million incurred during the second quarter.
• Restructuring and Other Charges -- $6 million in costs recognized during the period.
• Eastern Ohio Incident Costs -- $15 million in additional costs recognized during the second quarter.
• 2026 Operating Expense Guidance -- Updated to $8.8 billion to $8.9 billion, incorporating a significant upward swing in fuel prices.
• Incremental Fuel Expense -- Estimated at $400 million to $500 million for the full year compared to original estimates.
• Capital Expenditure Guidance -- Maintained at approximately $1.9 billion for the full year 2026.
• Intermodal Revenue Less Fuel -- Increased 7% year over year, supported by a 5% volume increase and tightening highway capacity.
• Merchandise Revenue Less Fuel -- Reached a record high with a 4% increase, supported by a 2% volume rise and 3% growth in RPU less fuel.
• Personal Injury Index -- Improved 16% year over year as part of a broader focus on network safety.
• FRA Accident Rate -- Decreased approximately 25% year over year during the second quarter.
• Cost Takeout Target -- Management committed to at least $150 million in cost reductions during 2026.
• Cumulative 3-Year Savings -- Projected to reach $650 million, exceeding the company's original efficiency targets.
• On-Time Originations -- Increased 20% in the last month as network acceleration actions began to take effect.
• Inflationary Headwinds -- Accounted for 190 basis points of pressure on the operating ratio compared to the prior year.
• Manufacturing Expansion -- The ISM Manufacturing Index showed expansion for six consecutive months, the best post-COVID performance reported.
• Trucking Tender Rejections -- Averaged 15% across all truck types, with flatbed rejections reaching a multiyear high of 40%.
• T&E Attrition Rate -- Averaging approximately 8% annually among train and engine employees.
• Coal Volume -- Increased 3% year over year, benefiting from new metallurgical export customers and thermal opportunities.
• Industrial Development Pipeline -- Design and construction projects for 2026 are projected to be nearly double the volume of last year.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

• George stated, "sustained higher fuel prices eventually hurt the consumer, which can diminish demand and start working against us in the future," noting that while the economy has handled short-term bumps, prolonged high prices are a significant risk factor.

SUMMARY

Management at Norfolk Southern Corporation (NSC +5.32%) reported a sharp inflection in volumes, primarily driven by energy markets and domestic intermodal demand. The company stated that second quarter results exceeded internal expectations, with record quarterly revenue and growth in net income despite significant fuel and inflationary headwinds. Leadership emphasized that while network recovery from winter disruptions placed pressure on resources, recent tactical actions have accelerated train velocity and improved terminal dwell times. The company updated its full-year operating expense guidance to reflect higher fuel costs but maintained its capital expenditure targets. Management indicated that industrial development activity is accelerating, with a project pipeline nearly double the level of the previous year.

• COO Barr emphasized the focus on fundamental execution, stating, "Railroading is a grind: doing the small things over and over again, very well. That is what delivers results."
• CCO Elkins commented on the improving pricing environment for intermodal, noting that after a long period of stagnation, the company is "right here ready to uncoil now" as truck market dynamics shift.
• CEO George described the potential for improved margins through top-line growth, stating that managing the expected volume growth while keeping costs in check is the "path toward really improving margins over the long term."
• CFO Zampi projected that the company could beat normal sequential seasonality for the third quarter by up to 100 basis points, despite a 4% wage increase that took effect in July.
• COO Barr noted that network improvements are reducing the need for incremental resources, stating that "the quicker we can accelerate the network, the fewer additional incremental resources you actually need."
• The company reported a definitive agreement with CN intended to enhance competition and provide "single-line frictionless service" to customers.
• Management identified manufacturing expansion and industrial development in states like Alabama, South Carolina, and Ohio as key drivers for long-term carload potential.

INDUSTRY GLOSSARY

• Operating Ratio (OR): An efficiency metric calculated by dividing operating expenses by revenue; a lower ratio indicates higher efficiency.
• RPU: Revenue per unit, measuring the average revenue generated per carload or container.
• T&E: Train and Engine, the employee group responsible for the physical operation of trains.
• Intermodal: The movement of freight using multiple modes of transport, typically involving containers moved by both rail and truck.
• FRA Accident Rate: A standardized safety metric established by the Federal Railroad Administration to track reportable rail accidents.
• Metallurgical Coal: A high-grade coal used in the production of steel, distinct from thermal coal used for electricity generation.
• Frictionless Service: A strategic goal to simplify rail transport by reducing delays and administrative hurdles during interchanges between different railroads.

Full Conference Call Transcript

Operator: Good morning, ladies and gentlemen, and welcome to the Norfolk Southern Corporation Q2 2026 Earnings Conference Call. Also note that this call is being recorded on Thursday, July 23, 2026. And I would like to turn the conference over to Luke Nichols. Please go ahead, sir.

Luke Nichols: Thank you, and good morning, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Our presentation slides are available at norfolksouthern.com in the Investors section along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio.

Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George.

Mark George: Good morning, everyone, and thanks for joining us. Here in Atlanta with me are Brian Barr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. Look, a lot has changed since our last call, most importantly, the sharp inflection in volumes. Initially catalyzed by the Iran conflict that bolstered our energy markets and that strength has now spread into other markets, including domestic intermodal and industrial products. With that backdrop, we delivered a strong second quarter with results that exceeded our own expectations starting with strong volume and revenue growth, culminating in 7% net income and EPS growth.

The results are thanks to the dedication of our railroaders and a special shout out to our commercial team who stayed close to our customers during this dynamic environment. As demand strengthened in several markets, our team continued to focus on operating safely while serving our customers. Absorbing the higher volumes coming out of the winter disruptions put pressure on the network, but we've addressed these issues head on. Our team has worked hard to execute with urgency and discipline. We already drove acceleration of the network here in July, and we will continue to progress. Brian will give more detail on these actions in his remarks. Bottom line, I'm holding our team to a high standard.

Our customers count on us to maintain consistent, reliable service. And as such, we have to be resilient, whether it's bouncing back from weather events or absorbing volume surges we need to deliver the service our customers expect from Norfolk Southern. And our priorities remain clear: safety, service, disciplined cost control and earning the trust of our customers. Those priorities guided our decisions throughout the quarter and will continue to guide the company moving forward. Now before we move on, I'd like to touch on the recent appointment of Brian as our Chief Operating Officer. While he may be a new face to many of you, he's certainly not new to Norfolk Suven.

Over the last 2 years, he's led our mechanical organization, where his team helped deliver industry-leading locomotive fleet reliability and he played an important role in optimizing network performance, while earning the trust and respect of our organization. He has had a long and successful history on the transportation side as well at our eastern peer, and he started his to wear at Conrail. So he knows our network well. It's another example of the leadership depth we have across the organization and our commitment to developing strong operators who are ready to lead. In his new role, he's building on the progress he himself helped us deliver.

Now leading the broader operations organization with a strong foundation and safety and a shared commitment to creating a faster, more reliable network while continuing to innovate and drive more productivity. So with that, let me turn it over to Brian to discuss our operational results in more detail.

Michael Barr: Thanks, Mark, and good morning, everyone. It's my privilege to be with you today. Before I begin, I want to recognize the men and women of Norfolk Southern. They worked through a challenging quarter, continued serving our customers and remain committed to operating safely. NS railroaders are the heartbeat of this network and their efforts continue to propel our results. successful railroading demands doing the simple things exceptionally well. I have learned that throughout my career, including my time working directly for Hunter Harrison. Planning and execution are built on discipline. Accountability and staying relentlessly focused on the operating plan. The reality is railroading is a grind doing the small things over and over again, very well.

That is what delivers results. Those principles still apply today, which is why I'm spending as much time as possible in the field, leading from the front, not the top. Working with our teams, understanding challenges firsthand and driving the actions necessary to improve service and strengthen network performance. This is not about changing our operating strategy, it's about continuously improving our results. The primary levers for improving service and productivity across the network are running the plan, aligning the resources with demand, improving terminal performance and eliminating unnecessary variability. We've got more work to do, and we know it. Turning to Slide 5. To be the best run railroad, you have to be the safest.

Safety remains the foundation of Norfolk Southern. Our teams delivered another quarter of strong safety performance with continued improvements in FRA accident and personal injury rates. Let me be very clear, safety has no finish line. This is not about ratios, it's about our employees. No matter how strong our results are, we approach every incident with humility and discipline. As you can see on the slide, the first half comparisons for our FRA personal injury index, accident rates and mainline accident rates are all improving. Specifically in the quarter, our personal injury index was down 16% year-over-year.

I want to acknowledge my former department mechanical, we're going 2 consecutive months injury-free, a significant step for an entire department operating in shops and yards across our entire network. Our accident rate was down approximately 25% in the quarter year-over-year, while our near best-in-class mainline accident rate remained flat. We're proud of the progress but we're not satisfied as we still have work to do. Strong safety performance drives strong operating performance, discipline, accountability and consistent execution. The 2 go hand-in-hand. Turning to Slide 6. Demand remained strong throughout the quarter.

At the same time recovering from several network disruptions while supporting that level of buying placed additional pressure on crew resources and create a variability and portions of the network. We have a clear understanding of what we need to do to create real resilience and deliver on our strategy, improve originations, reduced terminal dwell, increase velocity, run the railroad, the plant. That's where our attention is focused. When we do those things consistently, velocity improves, the network becomes more fluid, and the railroad performs at a very high level. I'm highly confident in our team and many of the actions we have taken in these past 6 weeks are already starting to demonstrate tangible benefits.

In the last month, on-time originations have increased 20%. Terminal performance is improving as we have balanced our resources, which is leading to a reduction in terminal dwell. And train velocity is rising as we are reducing recrews and giving the railroad back on plan. Our priority remains executing the fundamentals exceptionally well. Turning to Slide 7. Operating safely and efficiently, optimizing asset utilization, driving cost discipline, delivering consistently for customers and developing our team of railroaders will drive our long-term success. We remain committed to at least $150 million in cost takeout during 2026, which will deliver at least $650 million in cumulative savings over the 3-year period, exceeding our original target.

One of the most powerful levers we have is velocity. When the railroad moves quickly and consistently, service improves and cost comes out of the system. Recrews decline, grow productivity increases, terminal congestion eases, asset utilization improves, locomotives cycle more efficiently and spend less time sitting in yards. The more efficiently, we move freight across the network the more value we create for our customers and shareholders. The opportunity in front of us is straightforward. Their disciplined execution with the strong commercial momentum Ed and his team continue to generate across the business. That combination is how we improve service, grow the franchise and create long-term value. I am exceptionally confident in our team and the potential of this railroad.

There is no shortage of talent, experience or commitment across our organization. We know where the opportunities are. We know what needs to improve, and we have the people and resolve to get it done. When we do those things consistently, the results will follow. With that, I'll turn it over to Ed.

Ed Elkins: Thanks a lot, Brian, and good morning, everyone. Let's move to Slide #9. We can see that fuel surcharge was a major factor in the second quarter, helping to blunt some of the fuel expense pressures. Now if you look past these headline numbers, you'll see that even without fuel, we achieved record revenue in the quarter. Volume increased 4% year-over-year, driven by strength in several commodity markets that benefited from elevated global energy prices as well as very favorable trucking market dynamics that bolstered our intermodal business. RPU less fuel was up 1% as steady pricing was partially offset by some high-level mix.

Within merchandise, volume increased 2% and revenue less fuel achieved another record, increasing 4% from a year ago, driven by continued gains in energy demand in our chemicals markets. RPU less fuel grew 3% year-over-year, supported by price and mix. In our intermodal business, volumes increased 5%, and this reflected firm consumer demand highway market conditions that increased demand for intermodal and recent business wins, particularly within our domestic segment. So overall, Intermodal revenue less fuel increased substantially by 7% and RPU less fuel increased 1%, marking the beginning of a positive shift in intermodal pricing. Turning to coal.

Volume increased 3% and benefiting from the continued ramp-up of our new metallurgical coal export customer as well as incremental export thermal business opportunities, reflecting volatile global energy markets. RPU less fuel increased 1% due to favorable seaborne coal pricing, and this was partially offset by some negative mix within the commodity group. On Slide 10, we highlight several dynamic factors that are influencing our market outlook. The Warner Iran impacted many energy-related commodities in the second quarter. These impacts could carry forward for the duration of the conflict, bringing volume and revenue opportunities. Overall, we're positive on the growth potential across the markets that we serve.

Now as you would expect, however, energy prices, the consumer and interest rates all remain wildcards and factors that we will be monitoring. In merchandise, we have a subdued but positive outlook for vehicle production. Industrial activity has shown solid momentum with manufacturing continuing its expansion for the sixth consecutive month and we maintain a cautious but optimistic outlook despite volatility and a shifting economic landscape. Additionally, and specifically, we could continue to see near-term opportunities in markets like natural gas liquids export plastics and crude oil. Turning to our intermodal markets. The truck market has turned positive with dry van rates trending upward and capacity continues to tighten as demand is also firming.

Demand has been supportive for our domestic and premium segments in the near term as new orders are rising and retail sales have shown some modest growth. This has been partially offset by tariff and trade uncertainty that's going to continue to weigh on international volumes. Taken together, we have a bullish view of intermodal, an outlook which is only reinforced by elevated fuel prices that will continue to make truck conversion more attractive to our customers. Considering coal, we expect to see continued overall strength led by our export in metallurgical coal business.

And while our outlook for utility coal remains positive due to growing electricity demand and a favorable regulatory backdrop natural gas prices and growing renewable energy production does create some uncertainty for utilities heading into the second half. Now let's look at Slide 11, where industrial development remains a key strategic priority for Norfolk Southern. Our project pipeline continues to gain momentum with a number of new manufacturing facilities and expansion projects that are expected to enter the design and construction phase in 2026 projected to be nearly double last year's level. And as you would expect, we're also projecting substantially more carload potential to materialize as a result across multiple commodity groups.

All of this bodes well for the long-term value of our network and for the American economy. To highlight just a few examples. So Dito Apco joint venture will build a new manufacturing facility in Orangeburg County, South Carolina, to produce ladder frames for Scout Motors. Additionally, Virginia Transformer, the largest transformer manufacturer in North America will build a state-of-the-art power transformer plant in muscle shows, Alabama to support growing demand in heavy manufacturing, mining, energy infrastructure, grid expansion and behind-the-meter power generation in the U.S.A. And lastly, Sylvie Materials is constructing a new cement terminal in Columbus, Ohio, Piedmont, South Carolina; Greensboro, North Carolina and in Charlotte, North Carolina to support increased construction demand.

As always, and finally, we want to thank all of our customers for their continued partnership and business. The entire NS team is aligned around delivering the service that our customers need every day building trust as a vital partner in their supply chains. And with that, I'll turn it over to Jason Zappi to review financial results.

Jason Zampi: Thanks, Ed. I'll start on Slide 13 with a reconciliation of our GAAP results to the adjusted numbers that I'll speak to today. We incurred $51 million in merger-related expenses during the quarter, while total costs related to the Eastern Ohio incident were $15 million. Additionally, we incurred $6 million of restructuring costs. Adjusting for these items, the operating ratio for the quarter was 65.5% and earnings per share was $3.52. Moving to Slide 14, you'll find the comparison of our adjusted results versus last year. As expected, higher fuel prices were a significant driver of both the revenue and expense increases.

Overall, the operating ratio increased 210 basis points versus last year. with fuel price headwinds driving an approximate 110 basis point increase. In addition, inflationary pressures drove another 190 basis point headwind compared to last year. That said, higher volumes and RPU in the quarter helped mitigate these expenses, leading to a 5% improvement in operating income. Last quarter, we had highlighted our expectation to match normal operating ratio sequential seasonality of 200 basis points despite the known fuel pressures. The team did a great job capitalizing on the sustained volume trends in the quarter while managing our controllable costs to deliver a 320 basis point sequential improvement.

Taking a closer look at our expense profile for the quarter on Slide 15. Costs were up 15%, over 2/3 of which was driven by the substantial rise in fuel expense this quarter. In addition, inflationary pressures continued, notably as you see in comp and benefits, but also within purchased services and materials. Finally, volumetric and some network fluidity related costs drove increases in overtime rents and materials. So to summarize our financial results on Slide 16, and despite the cost headwinds we faced, higher fuel prices, inflationary pressures and volumetric expenses, we drove a 5% increase in operating income. Importantly, we also delivered a 7% increase in both net income and earnings per share in the quarter.

We are pleased to see the continued strength in volumes, and we will continue to focus on opportunities to improve our service product, which will generate incremental revenue and drive cost efficiency. Mark, I'll turn it back over to you.

Mark George: Okay. Thanks, Jason. All right. Closing on Slide 18. As we move into the second half of the year, our priorities remain clear. First, we will continue to focus on operating a safe and reliable railroad. As Brian said, safety is paramount. Our metrics are good relative to history, but we will never be satisfied or done seeking improvements. Second, we remain focused on disciplined execution, there's more work to do to fortify service, but we are making progress and are driving improvements across the network that you'll notice in the weekly data.

The stronger-than-expected results we delivered this quarter reflect the hard work of our team, delivering continued productivity improvements and managing through a dynamic operating environment, all while positioning the company for long-term success. Looking ahead, as Ed laid out, we remain optimistic about the demand environment. We are seeing encouraging trends across key markets, including domestic intermodal, chemicals and coal. And while there is uncertainty in the broader economy, we are well positioned to capitalize on profitable growth opportunities while continuing to improve operational performance.

Now regarding the financial guidance, our original OpEx guidance was $8.2 billion to $8.4 billion, which we are updating to account for the large swing in fuel estimated to be $400 million to $500 million of incremental expense compared to our review at the beginning of the year. So our new 2026 operating expense outlook is $8.8 billion to $8.9 billion. Now neutralizing for the fuel impact, our core operating costs are trending toward the higher end of the prior range due to a stronger volume outlook. But overall, I am pleased with our team's cost performance in this dynamic and volatile environments. Our CapEx guidance of approximately $1.9 billion this year is unchanged.

We are maintaining discipline while continuing to invest in the safety, reliability and capacity of our network. And finally, while we are fully focused on running the business and serving our customers every day, we continue to make progress on the proposed company supply chain delivering greater value for customers and communities with single-line frictionless service that will create benefits for all stakeholders. You'll have seen our agreement with CN, which is a win-win-win scenario that further enhances competition in the freight rail space on top of the additional enhancement features that we will be presenting in the STB response here shortly. And with that, we'll open the call to questions. Operator?

Operator: And your first question will be from Chris Wetherbee at Wells Fargo.

Chris Wetherbee: Maybe I could start with a question just on sort of the pricing environment and the opportunity that maybe you guys can see. We tend to think about the sort of truck markets being a little bit more an interplay with the rails in the Eastern part of the U.S. And obviously, you have a very robust intermodal franchise. So I guess as we think about the tightness we're seeing in the truck market, can you talk about how we might see that sort of transition into pricing opportunity for you, both on the intermodal side of the business, but also merchandise as well?

Mark George: Thanks, Chris. Sure. It's a great question and 1 that we're dealing with every day here. It's really an encouraging freight environment right now, not only for truck freight and competing with the highway, but also, in general, for freight in the U.S. I'll look at a few key indicators and all of them have improved themselves since the beginning of the year when we when we really laid out our plan. And that includes GDP as well as manufacturing and housing starts shocking, which was also improved in terms of outlook. And when I think about manufacturing, we've seen 6 months of sequential improvement now in the ISM Manufacturing Index, and that's the best post-COVID performance that we've seen.

So I think that's very encouraging for the U.S. economy. You couple that with what I just talked about regarding industrial development, what we're seeing with our pipeline moving. And I feel like that, that also bodes very well. Thinking of truck and specifically, you look at outbound tender rejections, right, up at around 15% now on average, I think, across all truck types across the U.S. That is a multiyear high in and of itself. And then we look at flat dead rejections, which are a subset of that, that's about 40% right now, which is about as high as I've ever seen it. That means construction really. And so I think that bodes well in general.

And then, of course, we've talked about fuel as have other people. That too sets the stage for our intermodal business, but also merchandise and both franchises to compete very ably. So we are we are very optimistic for the outlook going forward, both in terms of volume opportunity, but also the opportunity to price in several key markets.

Operator: Next question will be from Scott Group at Wolfe Research. .

Scott Group: So it sounds like you're confident about making progress on the service side. I'm just wondering, do you feel like you need to add a lot of head count and other resources in order to get that service improvement. And so maybe just along those lines, like I don't know, Jason, if you have any thoughts about like how to think about the just near-term cost and margin trends into Q3 and Q4?

Mark George: Yes. I'd start first regarding headcount. I think overall system-wide, we're probably at an area where we can absorb volume, but we do have pockets where we are a little bit tight on T&E. So that's -- those are the areas where we're focusing on. So we probably have little bit more hiring to do there. But again, we have to continue to hire to replace attrition because we do run at around 8% attrition a year out of our T&E rank. So we're always going to be hiring system-wide, but we've got a handful of core locations that we probably need to augment, and that's where we're putting our more immediate focus.

Brian, I don't know if you have any other comments on that. .

Michael Barr: Yes. So going through the operations here, I mean, where we're at in the second quarter and transitioning to the third quarter now. We're seeing improvements in originations were up 20% right now from where we were in the second quarter. we're seeing improvements in the velocity, the car miles per day. So as we go through the operation, that's really generating some efficiencies for us where there won't be a massive add to resources other than the natural attrition that occurs in the second half of this year going into 2027. But there doesn't need to be an ad.

We're really running the plan, refining our processes getting back to basic fundamental railroading of on time over the road to help us pick up speed. You got to remember, Scott, when you slow a network down, which is what happened to us for a couple of reasons, it requires more resources to dig back out. So the quicker we can accelerate the network, the fewer additional incremental resources you actually need to add it actually frees up resources on the human side and on the locomotive side. So these are encouraging trends that Brian has driven here in the past 1.5 months or so to actually spool the network up a little bit.

So we're in less deficit than we otherwise would be if we were still stuck in that, call it, 18-mile an hour range, 19 miles an hour range.

Mark George: Jason, is there something you want .

Jason Zampi: Yes. I think, Scott, the last part of your question, just kind of talking about what we should think about for margins here on out. Obviously, like we talked, we're pleased where we finished the second quarter. outperforming both historical seasonality and our own expectations. But what I would say, if you think about the third quarter, typical seasonality on average, call it, flat to 50 basis points worse as you move from second quarter to third quarter. But 2 things I'd call out here specifically. First, we've talked about that fuel price headwind that we've been experiencing here in the second quarter. and that's switching to a tailwind in the third quarter.

That's both true from a year-over-year and a sequential perspective. So we will have that benefit sequentially going from second to third. However, we do have some almost about a 4% wage increase that's going into effect that -- excuse me, did go into effect in July here. So that will temper a little bit of that tailwind. So you put that all together, I think we're at a place where we believe we can beat that normal sequential seasonality. And I'd put that up to 100 basis points better than normal.

Operator: From Brian Ossenbeck at JPMorgan Chase.

Brian Ossenbeck: Maybe just a follow-up for Ed. I mean looking at the RPU ex fuel, not a whole lot of movement of our in the quarter. So maybe you can give us a sense in terms of how the cadence progresses with some of these renewals, maybe some of the tighter truck market environment starting to flow through the numbers. And I guess when you try to balance that out with volume is a little while ago, we heard about the flexible freights and trying to get freight off the highway and keep it.

Maybe you can give us an update in terms of how that's progressing because clearly, the market's got a lot stronger since I think the last time you laid out that framework?

Ed Elkins: Yes, for sure, and I appreciate the question. I think as I said earlier, it's a very optimistic freight market out there. And I think we have the right tools in place to really be able to capitalize from that and deliver value for our customers. So when I think about price right now on the highway, you're hearing it from some of our customers and probably some of your other channel checks, that it's a really good environment. Spot price has been putting pressure upward now for several months. And that's exactly what it takes to drive that contract price, which is longer term up as well.

I typically say you need 3 to 6 months of upward pressure to start moving that line up or downward pressure to move it down. We're solidly in a place where there's upward pressure being applied now on the highway, and that will flow through over time into our long-term contracts as well as our short-term contracts with our intermodal customers and with others. So we see -- and I think I've talked to you guys a lot over the past 4 years, about a cold spring and all that stuff. Well, we're right here ready to uncoil now.

And I think as the year progresses and we move into '27, a lot of the work that we've done over the past 3 or 4 years to really restructure our contracts to make us more responsive that pressure that I was talking about from the spot price into the contract price is going to manifest itself.

Operator: Jason Seidl at PD Carlin.

Jason Seidl: Mark and team, I hope you guys are well. how should we think about the intermodal conversions that are coming off the highway? In other words, when you guys take this business back to the --

Mark George: Jason, I think we're doing really well today. Ed, why don't you respond to that?

Ed Elkins: For sure. It's really our customers on the intermodal side who are out there selling our service in theirs to the BCOs, the beneficial owners. Typically, what we would see as an annual bid cycle. Sometimes there's a few that are multiyear and some that are what we call mini bids, which might last for order but typically, we think in annual pulses for those customer commitments and as I do that, what I'm really thinking about is how do we deliver value alongside our partners on the intermodal side so that, that 1-year commitment maybe turns into a generational commitment because the service is good and the value is outstanding.

Jason Seidl: And that's in the demand environment and the weekly volumes certainly seem to be pretty consistent and consistently improving. We've reached kind of the anniversary date of the announced merger, and I know there was a lot of share shift or share loss, honestly, in the early stages of that. Has that ended at this point? And do you feel like you're at a point now where you start winning some of that business back, even given the uncertainty in the timing of the review process?

Mark George: Yes. Actually, great question. We did have some losses right out of the gate there, which we're going to be lapping here in September. So I would say that the bulk of what those losses were probably experienced between September and November, September, December. And frankly, I think we've had a pretty good run since then. I'm not sure that we're going to recapture those specific things that were lost, but we are growing in other areas that are really helping to offset and compensate for it. But we'll largely be lapping that here in the fourth quarter. But Ed, do you want to add anything to that?

Ed Elkins: Sure. When you look and when you talk to our customers about where they're growing and where you've heard from them about where they're growing on their recent calls. The action is mostly in the East, which is really good because our network is superbly positioned to take advantage of that. And I think that's why you're seeing this share conversion and the opportunity that's there, specifically on our local network alongside our transcontinental connections that's really driving a lot of that growth. So I'm confident, just like Mark is that over time, we're going to get that business back because I think our network delivers the most value.

In the meantime, we're continuing to accumulate share from the highway from other places. .

Operator: From David Vernon at Bernstein, Fair .

David Vernon: Sorry, troubles with the new button. So Ed, I wanted to get your perspective on sort of what you're seeing in the activity book for you guys from an industrial perspective. I think a lot of our investors are keenly focused on whether we're starting to see some broadening of industrial activity outside of AI and data center build-outs. So I'd love to get your perspective on that. .

And if you could also share kind of what the underlying sort of volume growth rate is in intermodal ex some of the declines that you had from some merger actions before the volume numbers there are coming in above 3, probably stronger than I would have thought they would have been at the beginning of the year, just given what we're talking about with the competitive share losses. So any commentary there would be helpful.

Ed Elkins: Sure. Thanks for the question. If you look back to that slide we presented that showed the acceleration, I think that really tells the story right there. We have maintained a robust pipeline over the past couple of years of economic activity in terms of industrial development. And what we try to do is watch as that activity moves this way through the pipeline from being a prospective investment to 1 that we believe is actually turning into freight.

And so we've seen that pipeline accelerate over the past 6 months I would probably argue that it was decelerating for the past year before that, mostly because of trade uncertainty, tariff uncertainty, a lot of economic uncertainty, which was probably impeding customers from making those investments. But probably through a combination and this is conjecture on my part, through a combination of they've waited so long they can't wait anymore plus getting signals from the market that it is a safe investment despite all the uncertainty, we've seen a real acceleration in that pipeline, which we think is encouraging, of course, both for our network and for the American economy. And I think this goes beyond data centers.

It really is new manufacturing capacity coming online, either in the form of expansions for our existing facilities or new facilities actually being located there. So we feel very good about that, and we look forward to seeing that continue. On the intermodal side, we think there's still plenty of room to run in terms of opportunity and our ability to absorb that volume over time here. We have a good intermodal network. Brian has made some real strides in terms of delivering that value and reaccelerating the network, and we're being aggressive in terms of making sure that our customers, as they go out and sell that freight have a real solid place to land it.

David Vernon: But I think with regard to how much headwind were the share losses to our intermodal, we say it's about 3 points. That's right, in the quarter right? So if not for those share losses, we would have had 3 points more growth.

Mark George: 100%.

Operator: From Ravi Shanker at Morgan Stanley.

Unknown Analyst: This is Mason on for Ravi. I was just wondering if in the results, you guys saw any pull forward of import volumes and if you're expecting any bounce in volumes after the August tariff deadline?

Ed Elkins: Very good question. I would say, I would argue that we probably have seen a little bit of pull forward throughout the beginning portion of this year, the first half. It's probably too early for me to determine whether or not we're seeing any additional activity predicated off new tariff implementations or regimens coming online. .

Operator: Stephanie Moore at Jefferies. Please go ahead.

Stephanie Benjamin Moore: Maybe touching on a couple of questions that were asked, but maybe asked a little bit differently. You talk a lot about the maybe resurgence and industrial activity. And to your point, some of those major projects getting to a more accelerating phase. That being said, given there is a lot of noise and conversations obviously going on around what the network will look like post merger, if the merger goes through, I can imagine it creates maybe some uncertainty for your customers.

So to the extent that you've obviously seen really good progress across a lot of your industrial customers, maybe talk a little bit about the response from others that maybe are taking a little bit of a pause if they are, just given maybe some of the uncertainty deal related?

Mark George: Thanks, Stephanie. Look, I think, honestly, the merger is giving a lot of the potential customers here some hope. And so it's definitely not slowing things down. If anything, it's accelerating things because they know that they're going to need maybe 18 to 24 months before they're live, so they want to be ready to take advantage of the new network. But Ed, why don't you add more color, please?

Ed Elkins: No, I agree. And it's been talked about plenty of times before, but I'll say it 1 last time, and that is removing interchange friction, removing the impediments to a transcontinental network here is good thing for customers. And I think it's a remarkably good thing for new customers who are investing today in a network that we believe is going to be even better and more powerful going forward.

Mark George: It actually has the opposite effect, Stephanie. It's not paralyzing decision making. If anything, it's accelerating decision making. So thanks for the question.

Operator: Bascome Majors at Stephens.

Bascome Majors: Bascom Brian, I wanted to see if you could go a little more into the sequential shift in the customer-facing side of the metrics, particularly where the merch plan compliance dropped about points or so quarter-per-quarter over-quarter, but you did talk about directionally, a lot of the service metrics improving both client-facing and the ones that we can see into the end of the quarter now?

Mark George: Yes, absolutely. So the merchant and compliance year-over-year, we were down 12.8%, 13.9% sequentially here right now in the third quarter, we 6.62% improvement currently from where we finished the second quarter. We have a lot of activity around the car movement, and I spoke of the improvement in the originations and the velocity. But just to give you a perspective, we went out and wait boarded a terminal there in Chattanooga in the month of June. Going through that. We took 150 cars a day out of Chattanooga that were coming off interchange and from other locations on the network, we were able to take that handling out at Chattanooga.

So we weren't processing the cars there, moving them up the network process on the second time with removing that handling, we were able to serve those cars deeper into the network speed them up. That helped Chattanooga pick up their originations. It improved their terminal dwell. And it helps us provide the resources for the entire south as Chattanooga and Birmingham, where we've done similar things occur, which then carries the traffic to the north.

So we're finding activity like that all across the network, and we're opportunity ripe for those events as we're creating blocks in even areas in the north at Bellevue and in Elkhart, where generating those blocks because we're running on time because we're processing more rapidly than we were in the first half of the year is allowing us to create capacity. Those blocks are allowing us to even remove train sets from the network, putting resources, both crew and power back into the network and help us provide service to the customer, reducing their time in route.

So we're seeing very positive effects here with the speed, with the origination and some of the internal measurements, but it's all really in an effort to help process cars for the customer and be more reliable.

Unknown Executive: And I think what you're seeing here is really a team that's getting into the details and getting out there in the field and being very, very tactical, trying to really accelerate the network and free up some resources. So a lot of the moves that Bryan is talking about lessens the dependence on human resources. So that's another way to free up T&E to actually be able to respond to some of the volume that we've had. So that growth, coupled with these actions, we've actually seen an improvement in our train speed now here in the past few weeks. So we're feeling very encouraged about where we are operationally. So thanks,

Operator: From Richard Harnain at Deutsche Bank.

Richa Talwar: Yes, I just wanted to see if you could talk about the competitive dynamic a little bit more. Your competitor -- primary competitor in the East has introduced some new product improvements, be it their new partnerships and Harry tunnel beginning to sell that. Just curious if that's affecting the competitive environment at all and how that overall environment is basically evolving. I know you kind of touched on it. You're seeing opportunities to grow in other areas. But yes, just addressing those specific points.

Mark George: Yes. I think both competitors in the East are doing good things for their customers. Ultimately, we're both driving to try to take freight off the highway and we're having success, and this is a really strong market backdrop to do that. So we applaud them for their successes and we're really proud of ours. Ed, do you want to add anything?

Ed Elkins: No, I agree. I'm really proud of ours, too.

Mark George: All right. Thanks a lot, Rich.

Operator: Brandon Oglenski at Barclays.

Brandon Oglenski: This is Eric Morgan on for Brandon. I wanted to just come back to pricing in intermodal. Can you just maybe speak at a high level to the extent to which you normally participate in the truck load cycle. I'm not sure if you have like a rule of thumb where truckload contract rates are up x, you might see your yields move why a certain number of months or quarters later. And relatedly, just it sounds like you're incrementally constructive on domestic relative to international and intermodal. Can you just speak to how that might translate to mix in that line from here?

Ed Elkins: I think you got it right in terms of -- we are very constructive on the domestic side, maybe a bit less so on a sequential basis for the international side. Look, we have spent years working on reframing our contracts and our relationships with customers so that we can be responsive to that market dynamic of rising or falling truck prices to number one, stay competitive; and number two, delivers much value that we can to shareholders with the service that we're offering. We've taken that from a lag that's probably defined in many months or sometime maybe a year down to a couple of quarters, a couple 3 quarters. I'm really rounding off there.

But it's a shorter cycle than it was previously, and we are very encouraged by what we're seeing both in the headlines on the highway, but also what we're seeing in our own day-to-day pricing opportunities.

Operator: Question from Ari Rosa at Citigroup.

Ariel Rosa: So this is 1 of the more upbeat calls I've heard from you guys in a while. I guess, understandably given the macro backdrop. But talk about the downside risk. Like how do you think about what -- the kind of the sustainability of this macro environment do higher fuel prices pose any risk or any concern to some of the industrial customers? And then broadening that out for a long time, we've talked about the ability for NS to get back into that kind of low 60s OR if we see this macro environment sustain itself, do you think that's something that's feasible as we think about kind of the trajectory over the next 2 to 3 years?

Mark George: I think from a macro perspective, we all feel good now, but there's -- we're cautiously optimistic and the cautious part is due higher fuel prices, sustained higher fuel prices eventually hurt the consumer, which can diminish demand and start working against us in the future. So that is the risk. I think we all felt like a short-term bump in fuel is something that the economy can handle and it has handled thus far. How long this persists and the long-term impact of it is the question mark, and I think that's probably the big risk. Let's face it. We've had basically 4 years that we've navigated through a freight recession. And we've been waiting for this to break.

It is the longest freight recession in history. So we've been ready to come out of this, I remember quite well when we were at 18, 24 months, the recovery was imminent, and it never actually came. So it does feel like this confluence of higher fuel prices and also some of the enforcement on commercial driver licenses and drug and alcohol testing, all of these things maybe have had an impact finally on the trucking side of things, where we're coming out of this in a much more rail competitive environment. But we have to keep our eyes on what happens long term if fuel stays high for long.

Maybe if we stay under $100 a barrel, we can handle it. But if it goes to $110, $120 for any prolonged period of time, maybe it becomes more problematic. I don't know where those thresholds are but that's where we feel we have probably the bigger risk. Did I miss anything, Ed?

Ed Elkins: No, no. I think we see a good demand environment and improving the command environment and the supply side that has been constrained on the highway for all those reasons that you talked about. And I think you're absolutely right to be cautious about fuel price and how long is the same itself at those higher prices.

Mark George: Yes. So hopefully, that gives you the answer you're looking for, Ari. And look, that same 4 years, we've been dealing with a freight recession, which has basically wanted our top line completely from a volume perspective. We've also had to absorb very high inflation right? And that's a real hard combination that's had an impact on the overall P&L and profitability. So can we now enjoy a couple of few years, a real strong top line where we keep in check the cost line. That is going to be the path toward really improving margins over the long term.

I don't think the inflation goes away, quite honestly, because we're locked in with these union agreements that are fairly generous but we have to control all the other aspects in our P&L on the cost side, while we try to manage the volume growth that we expect if things turn like we think they will, and better RPU, hopefully not offset by mix like we've also had to deal with in the past several years. So there is a path there. There is a path there. If everything goes right, and we manage well. Thank you, Ari. .

So look, I think at the end of the day, we're going to wrap the call up here, and I want to thank everybody for listening in. Again, we're executing in a very dynamic environment, thanks to the discipline of the team. I'm really excited about the work that Brian and his team are doing to already improve our network so we can handle more and more volume. -- service is improving, and we've got momentum. So I feel good about that. We haven't taken our eye off the ball at all with regard to productivity. Productivity and service and safety. They all must move together. Safety. We're really proud of our results.

We are doing well and looking ahead, we're just -- we're cautiously optimistic as we just said. So thanks again to our role rotors and thanks again to our customers and all of our other partners out there. We'll see on the road. Take care.

Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.