Good morning and welcome to the Kansas City Southern First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] It is now my pleasure to introduce you to Ashley Thorne, Vice President Investor Relations for Kansas City Southern.

Thank you, Drew. Good morning. And thank you for joining Kansas City Southern first quarter 2020 earnings call. Before we begin, I want to remind you that this presentation contains forward-looking statements within the meaning of the Securities Exchange Act as amended. Readers can usually identify these forward-looking statements by the use of such words as may, well, should, likely, plan, projects, expect, anticipate, believes, or similar words. Actual results could materially different from those anticipated by such forward-looking statements as a result of a number of factors or combination of factors including but not limited to the risks identified in our Annual Report on Form 10-K for the year ended December 31, 2019 and in other reports filed by us with the Securities and Exchange Commission, including our quarterly report for the quarter ended March 31, 2020. Forward-looking statements reflect the information only as of the date on which they are made. KCS does not undertake any obligation to update any forward-looking statements to reflect future events, developments or other information. In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying earnings release and presentation contains non-GAAP financial results. These non-GAAP measures should be viewed as a supplement to and not a substitute for our U.S. GAAP measures of performance and liquidity and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated. All reconciliations to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP can be found on our Web site and our full Safe Harbor statement can be found on Page 2 of the earnings presentation. And with that, it's now my pleasure to introduce Kansas City Southern's President and CEO, Pat Ottensmeyer.

Okay. Thank you, Ashley. Good morning, everyone. We are going to make the best out of this. We're all together here, if you go to Slide 4, you'll see the list of presenters and others who are available. We're all going to stick to the format that you're familiar with and use to hear even though we are all distanced. I will make the comment. Brian Hancock, who all of you know is our VP and Chief Innovation Officer, much of our business continuity infrastructure fits in Brian's organization. So there may be a few more opportunities for him to provide guidance in terms of our COVID-19 response strategy, which I'll talk about in a couple of minutes. And obviously, José Zozaya is on the phone again, if there are particular topics of interest related to Mexico, and what's going on in Mexico, but again, I'll cover some of those. So moving on to Slide 5, we had a great quarter. The first three bullet points we're going to go through all of this in much greater detail over the next several minutes, but revenue increased 8%, volume is up 4%. I'll talk about the adjusted operating ratio and EPS since the adjustments relate to restructuring items, but adjusted operating ratio for the quarter of 59.7, 650 basis point improvement from last year, best operating ratio we have ever posted. And then adjusted diluted earnings per share of $1 96, an increase of 30% over last year. And again, we'll have much more detail on both of those over the next few minutes. I do want to talk about our COVID-19 situation, the health profile of our company what we're doing briefly to prevent the spread of the virus across our network. And from the very beginning when it became…

Okay, thank you, Pat and good morning. Starting on Slide 8¸ all of my comments today with a brief overview of our COVID-19 related efforts and expand a little bit on what Pat discussed. We have an extensive business continuity program in place. At the onset of the virus, we enacted several measures to ensure the safety of our employees and continuation of our operations. Early on, we took steps to adhere to social distancing recommendations, such as separation of our network operating center and dispatching functions. We're currently operating out of five separate NOC facilities across the network. Ensuring the safety of our workers remains our top priority and we have implemented self isolation protocols for anyone potentially exposed to the virus or showing symptoms of the virus. Regular cleaning up facilities, sanitation of locomotive cabs, supplying face masks and temperature readings at major facilities are some of the specific actions we have taken to-date. We believe our actions to follow relevant CDC recommendations has led to low incident rates and relatively low impacts to the operation in general. At this time, our workforce is stable and we continue to monitor the situation daily. Other industry related efforts include daily updates with FRA, NSTB as we are working to ensure strong communications across the entire rail network. Regarding key operating metrics for the quarter, velocity of 15.9 miles an hour improved 26% year-over-year and 4% sequentially. Dwell of 19.8 hours improved 99% year-over-year and 1% sequentially. Cross border performance continues to outperform with volumes up 12% year-over-year. Some of the new train consolidation opportunities we will discuss later will continue to support growth in this segment. Turning to Slide 9, PSR metrics have shown significant year-over-year improvement across the board and we're tracking well to our 2020 goals. Noting the column on the far right current month to-date metrics are showing substantial improvement in most categories versus the Q1 average. Our enhanced PSR infrastructure has allowed us to quickly adjust to recent changes to volumes and business patterns and created opportunity, continued to drive efficiencies in the operation. Car miles per day, velocity and train length are showing significant gains over the past few weeks as our heightened focus and discipline have allowed further consolidation of trains, reduction in train starts and scaling of expenses in line with changes in volume. Sammy will provide more details on these specific actions as we see an opportunity in the current environment to accelerate these productivity improvements. As Mike Upchurch will detail these operational improvements are having direct impact to the bottom-line. Picking a couple of examples, improved velocity contributed to $3 million reduction in car hire or gains in fuel efficiency led to a $5 million reduction in that category. As we look forward to recovery, I want to acknowledge the resilience and extraordinary efforts of the operating team during these challenging times. I would now turn the presentation over to Sammy.

Thank you, Jeff, and good morning. So on Slide 11, I would like to describe two stories that happened in this quarter. January, February and then March which is at the bottom of the slide. So January and February, we kept going pretty much along the same strategy and the same phase that we have taken since the onset of PSR early last year. So, our focus was very much on eliminating delays, eliminating mechanical failures, improving velocity of the network, a great emphasis on service and allowing revenue to grow. And as a result of that, as Jeff mentioned, we have been increasing our velocity in a significant manner. We used to run in Mexico this time last year at about 11 miles per hour. In January and February, we ran 16 miles per hour, in a minute I'm going to describe what's happening in March and April. The equipment obviously comes out of this, I mean, the more fluidity you have in the network, the more equipment you can take out. So, we have taken out a lot of locomotives out of the fleet. We are down now by about 20% since the beginning of PSR, while at 1046 locomotives we started the year -- this year at 880 around the end of February, we were down to about 825. So we have taken out about 20% of all locomotives. We have taken out about 10% of the cars, a lot of focus on the car hire because they cost us money everyday that's foreign cars and TTX cars that have come down by 13%. And a lot of focus also on the returning leased cars because that has obviously cost us money. So Grey and Harper cars were returning about 300 of them for -- while returning…

Thank you, Sammy, and good morning everybody. I'll begin my comments on Page 15. Despite seeing COVID-19 impacts, which occurred in the latter portion of March, we had a very nice quarter. Year-over-year revenue grew at 8% and a 4% increase in volume. Revenue growth was led by the usual suspects. Our cross border franchise business experienced strong revenue growth of about 13% on a 12% increase in volume. This was driven by strength in our Mexico energy reform business, which experienced a 43% revenue increase on a similar increase in volume. Our total cross border business now represents approximately 53% of our total revenue. We also benefited from easy year-over-year comps due to the 2019 teachers' strike as well as an increase in fuel surcharge revenue. Our core pricing and renewals were in line with our expectations and we're similar to levels reported in the prior quarter. It is somewhat challenging to discuss revenue drivers for the quarter without getting into the impacts of the current economic environment. Nonetheless, I will address current quarter performance first and we'll conclude with some thoughts on the current situation. Again, we did see some limited impact from the COVID-19 situation in the first quarter. Our chemical and petroleum revenue was up about 18% and a 14% increase in volume energy reform and plastic segments where the primary contributors to growth in this business unit. The metal segment was the primary driver of growth in our industrial and consumer business unit recording a 6% increase in revenue and a 4% increase in carloads. Our ag and min business unit also had a great quarter seeing revenue growth of 9%. Our food products business benefited from a shift in sourcing patterns and the cross-border franchise grain business continues to take advantage of our improved…

Thanks, Mike, and good morning everyone. I'm going to start my comments on Slide 18, the first quarter results highlighted on this slide as already been covered. So I'll just once again reiterate the combination of record first quarter revenues and strong cost controls led to outstanding financial performance, 8% of revenue growth and a 2% decline in adjusted expenses combined for 29% growth in adjusted operating income and over a 100% incremental margins. Our adjusted operating ratio 59.7 improved 650 basis points over first quarter of 2019 and is the first sub-60 OR posted by KCS in any quarter. Reported EPS was a 1.58, adjusted EPS was a $1.96 up 30% over prior year. Our reported earnings per share includes a negative $0.33 impact from the net of FX hedge losses and the offsetting benefit that we see in income taxes. Please refer to Slides 28 and 29 in the appendix for reconciliation of reported to adjusted EPS and for details on our net hedge loss. Our reported earnings per share includes a $6 million charge or $0.05 per share for true-ups associated with our PSR restructuring actions and primarily relates to the completion of the purchase of leased locomotives we executed earlier in January of 2020. Turning to Slide, 19 I'd like to remind everyone that Kansas City Southern's PSR implementation is driving significant and sustainable improvement to our cost structure. We are reiterating our outlook for $125 million of savings for 2021 was $61 million of savings being incremental in 2020. This outlook is unchanged from the update that we provided in January despite the anticipated negative volume impact of COVID-19 relative to our original plans. And as Sammy indicated, we're aggressively reducing expenses on a real-time basis that we believe will offset any kind of reduction…

Okay. I think, we've covered a lot. We've taken a little bit more time in the prepared comments. So I'll just make a couple of points to reinforce some of the key messages. Again, our prioritization will continue to be focusing on the health and wellbeing of our employees and assuring the continuity of our business operations. And as we began to see hopefully sooner rather than later return to business and the reopening so-called reopening of the economies, we will continue these practices to make sure that both of those objectives are accomplished. I feel very good about the focus on rightsizing the resources. As I mentioned at the beginning, the PSR infrastructure that we've put in place with Sammy as the lead and the cross functional nature of that exercise has put us in terrific shape. We are on our toes, we are responding daily to changing circumstances and what has been declining volumes here the last few weeks. But we are very focused on remaining to be prepared for a return of volume growth whenever that happens. And I think with some of the recent news, the federal government in the U.S. beginning to talk more specifically about reopening the economy things like, new vaccine technology that seems to be very promising and large companies such as Boeing that are returning to work as soon as next week. It may hopefully be the case that reopening of the economy is sooner rather than later. And we want to be prepared to help our customers recover and see volume growth as quickly as possible when that economy reopens. So with that, we're going to open the lines for questions. I'm going to be -- since we're all distanced and separate, I'm going to be the quarterback here. So I will refer questions to my colleagues here as they come in. So I'll go ahead and open the line for Q&A.

[Operator Instructions] The first question comes from Chris Wetherbee of Citi. Please go ahead.

Maybe to start off with Mike's comments around free cash flow and maybe some of the scenario analysis that you've done, is it's fair to assume that $500 million or free cash flow that you're targeting in 2020, is a number that you feel good with under sort of multiple scenarios that you're -- both of those scenarios that you outlined on the prepared comments? And I guess maybe a follow-up just if I could squeeze it in, and this one question would be kind of related to Sammy and sort of thinking about PSR and the ability for the network to flex up coming out of this and whether or not there will be sort of good opportunity for incremental leverage as volumes returned to the network. So I know that's two questions, but that's sort of what I was asking.

And Mike, you want to start with that one?

Sure. On the 500 million, the answer to your question is yes. We've looked at a variety of different scenarios, very difficult to model exactly. What ends up happening here, how quickly we come out of this crisis. But, we feel very comfortable that we can achieve that level of free cash flow under those scenarios if something else happens to occur here that that changes those scenarios, we would certainly keep people posted. But, we feel pretty good about the 500 million.

And as for the second question, Chris, second part of your question, yes, I'll have Sammy, provide some comments here. But, yes, as he mentioned in his comments, we're not only responding on a daily basis to changing volumes and changing circumstances, but, trying to make sure we learn from what we're seeing and respond as we come out of the recovery when we come out and business recovers that we learned from this. And, as we grow and ramp things up, we do it perhaps a little more intelligently with the benefit of this experience. So, we're keeping things close. As we scale back looking at equipment and people, making sure that we keep them close so that when the recovery occurs, we don't short heat ourselves, but at the same time, really paying attention in doing diagnostics on the things we were doing to recover the way we're using our yards. The way we are handling trains and service to individual customers so that we can be very well prepared when that recovery occurs. Sammy, I don't know if you have anything to add to that question from Chris.

Maybe I can give an example or two, Pat to reinforce what we're all talking about. And any how before I say that, by the way, Chris, I had your report last night and really nice, I think you mentioned in it that week-15, the velocity is 56% higher than it was week-15 of last year, year-over-year. So thank you for seeing that. And, we always read your reports. Now as to, I'll just give some small examples like that train I was talking about, I didn't elaborate because I didn't want to take too much time, but that train from Lazaro going to Texas, it has been bothering us for a while, even before Corona, okay? Like it dropped off a lot of traffic in a place called Escobedo, which is in the middle of Mexico. And that's Escobedo all the way to San Luis Potosi which is 250 miles. It would carry very few cars, okay? Like, honestly, it's even embarrassing, like on Sundays, five cars, eight cars. So here you have two locomotives or crews, sometimes maybe even a third locomotive. That's the waste. Now we've had more work to do in San Luis Potosi, and then a place called Victoria Salinas in Monterey on his way North to handoff traffic and interchange to another railroad. Now, it was all the pressure that we have now and the focus we said, well we're going to take that train only to a place closer to Escobedo, which is called Carretera and then we left Carretera carry whatever cars we have left and go on and do the work on behalf of this train in San Luis Potosi and Victoria Salinas, okay? So these are situations that were that before Corona. And now as all the focus and intensity…

Yes. That's fantastic information. I appreciate the time guys. Thank you.

The next question comes from Tom Wadewitz of UBS. Please go ahead.

Yes. Good morning. Great execution in the quarter. Very impressive results in the quarter and sounds like you're off to a really good start in terms of responding to the decline in volume. I wanted to see if you could give a little more perspective on refined products into Mexico. I know that's been a powerful growth driver for you and I think there are a couple of moving parts that are kind of tough to get a clean read on. So I think one would just be how do you think about the market response? Would you expect the demand to fall pretty meaningfully for refined products in Mexico? And then how do you think about the sheer performance within that? Do you have good visibility to your customers taking share from PEMEX and potential to offset what might be decline in market demand for refined products in Mexico. Thank you.

Okay. Thanks, Tom. That's a perfect question for Mike. Naatz.

Thank you, Pat. I guess in general demand is really going to be the driver of refined products. I mean consumption, whether it's in the U.S. or Mexico, certainly with this stay at home or shelter in place orders you're seeing in both countries, demand for the product is falling. And of course demand is falling at different levels depending on whether you're looking at regular gasoline versus diesel. With respect to share, our customers are still telling us that they are proceeding with their plans. They're viewing this current situation as temporary in nature. And so they are expecting a rebound and they're moving forward with their retail station openings. Does that answer your question okay.

Well, so you put those together. Do you expect your volumes and refined products to fall meaningfully or does the kind of share gain offset the decline in the market?

No, I expect given a demand reductions of dependent being upwards of 50% or more in some circumstances. I think that demand will have a bigger bite in the near term. Then we'll the share gains. So we will see probably some falling volumes in the near term. Once the economy is reopened, we expect that that's going to rebound quickly.

Yes. Okay. That's very helpful. Thank you.

The next question comes from Jason Seidl of Collins. Please go ahead.

Thank you operator and Pat and team thanks for taking the time. And I just want to express my admiration for the men and women across the KCS network are helping keep the economies rolling here. Wanted to ask José a question, you put that graph up there about Mexico and how you're able to basically offset the last downturn. How was the Mexican government response been to COVID? Can you compare and contrast that to North America? And do you expect sort of additional rules that might either hurt or help you in this effort to sort of keep the network running? Specifically when you look at crew sizes, they're much bigger obviously in Mexico than they are here in the U.S. Could that be an opportunity for the Mexican government to cut back in terms of social distancing?

Hey Jason, before I turn that to José. Thank you for your recognition of the role and the contribution of the employees. And Jose maybe talk about the government response and then specifically on the crew costs may refer that in the way we use our crews might refer that to Jeff. But go ahead, José. José, are you there? José Zozaya: Thank you, Jason, and thank you for your question. As you may know that the Mexican government, precisely the President on April 5, he [indiscernible] in economic recovery plan touch on two basic parts, sanitary regarding the measurements of the government is stating to fight the pandemic that is now all over the world. And economic, how people will support the economic of the country to the finance of the country to go ahead in a growth phase in this pandemic. What's not according to the business strategy, so there was not enough effort from the government and that they declared after seeing this trend. But there were some agreements that are guiding like DAT devolution immediately or start to do the devolution immediately to support some of the companies and some supports to the small and medium companies to fight these crisis. It is a still ongoing negotiation between the chambers and associations and the president and the Mexican government on how to fight towards these crisis. And there is a special effort being done by the [Condamine] [ph] or the National Industrial Associations, which we are part of it and we play an very important role also the CTE, which is a private sector organization and the other international members like the American Chambers. We do play an important role in all of chambers and through those chambers we are participating in these efforts with the Mexican government. There is still, like I said, ongoing negotiations of seeing what else the government is going to do. As you may know, the peak part of the crisis in Mexico is expected for May 8 or 10. So there are planning on how to do to react and to support the Mexican economy. I don't know, if that I have answered that part of the question.

No, that was largely answered, but I guess when I'm looking at the crew sizes, is that something that your company would want to be reduced? Or is that something that you're fine with existing regulations? José Zozaya: That's something that Pat that you may want to do direct.

I'm sorry, Jason, could you repeat that question? You are talking about our desire?

Yes. Your desire to potentially reduce the crew sizes in Mexico due to COVID-19?

Yes. That hasn't changed. We're still engaged with the union for longer term solutions and I refer to it as modernizing and updating some of our work rules in Mexico. Obviously, that's been put on hold to some extent here as we get through this and make sure that we just focus on the health and wellbeing of our employees. That's still something that's very much on our radar screen and a longer term strategy. I'll just make a couple of comments in addition to what José said about the government's response. And we're close to what's going on in Mexico. José has continued the dialogue with government officials over these last few weeks and we have been very, very clear in our communications internally with our employees, with our customers. We are going to support all of the government initiatives regarding the sanitary procedures. And in many cases we had, as I mentioned at the very beginning, because we started to do these things as a result of what we were seeing on the Northern side of the border and we were doing them consistently across our entire network. We were starting to do some of these things even before they were part of the government guidelines. But and as far as economic stimulus, you guys all kind of know what's going on in Mexico. I think a lot of the dialogue between the business chamber, the business community, private sector, and the government continues to be active and hopefully healthy. Some of the specific incentives and stimuluses that the Mexican government have really focused on are more to small and medium size enterprises. And one comment here and I certainly don't want to give you the impression that we think that our business in Mexico is going to be immune to what's going on in Mexico, however that plays out. But a large portion of our customer base in Mexico, our U.S. companies or multinational companies doing business in Mexico producing products that are sold in other parts of the world. So they're going to be -- they're going to have some, tailwinds for lack of a better word that's coming to mind, for example, because the stimulus that's happening in the U.S. that's going to help these companies and as the U.S. market reopens, the economy reopen, Mexico is going to be a part of that. So we're going to be getting the benefit of some of those stimulus activities, even though they may not be coming from the Mexican government. And I think the positive momentum and I don't know if there are questions about the timing of the U.S. MCA implementation still believe that that could be July 1st. That provides certainly some very positive air cover as the markets reopen as the economy reopens that tension that might've existed previously between the U.S., Mexico and Canada has been removed.

The next question comes from Allison Landry of Credit Suisse. Please go ahead.

Thanks. Good morning guys. So clearly you've been making some rapid progress on and even accelerating where you thought you'd be with train consolidation given the drop in volumes. So I guess first is the roughly 10% delta between train starts and volumes that you're seeing in April something that you think you can hold going forward? And then just this level of productivity along with the increases in trade length and weight suggest that maybe there's some upside to the 61 million comp target? Thank you.

Yes. Alison, I'll take that. Yes, I do think we can hang on to that. And in terms of any incremental benefit to the 61 million, it's tough sitting here understanding exactly what's going to happen with our volumes between now and the end of the year. But, we have a lot of confidence in the 61 million. I think all the examples Sammy gave you were great examples of how we're stepping on the accelerator and getting more cost savings. So we feel very, very confident about the 61 million and we'll continue to update everyone on the calls or at conference presentations.

The next question comes from Jon Chappell of Evercore. Please go ahead.

Thank you. Good morning guys. On the capital return, so pretty generous with the buybacks in 1Q just kind of makes sense given volatility in the share price, but as we look into kind of the depths of the uncertainty here in 2Q and maybe in the 3Q. Can you help us think about the two levers of capital returns? Is dividend kind of untouchable the buyback maybe we put a pause on that at least while we're through the maximum period of uncertainty.

Yes. Good question, Jon. Remember the first quarter was positively impacted by the ASR that we announced back in November of 2019. So that program was wrapped up in the first quarter and that's why you saw sizeable amount of buybacks taking place. You never say never in this business, but I would say the dividend is not something we have even thought about cutting. So we feel very, very committed to that. And we're just going to see what happens in the equity markets here. We have a lot of dry powder. We have the ability to continue to buy back shares based on our plan and we'll kind of evaluate market conditions, but a little bit of caution right now given the volatility probably make some sense there.

I think the only thing I'd add to that is just no one knows how deep and how long this is going to be. We did have a touch point with our Board yesterday to update them on some of the forecast scenarios that we went couple of them we went through with you all here today. And it's just something that we're going to be on our toes and just see how things play out, how quickly economies come back to normal and what that means in terms of our outlook for cash flows. But just have a lot of financial cushion right now and feel very good about our ability to manage through this.

Okay. Thanks Pat. Thanks Mike.

The next question comes from Ken Hoexter of Bank of America Merrill Lynch. Please go ahead.

Good morning. A great job in the first quarter. I hope you're all well and safe. And this was great detail on Mexico and the PSR updates. But if I can just follow-up on that. Two things, one, Mike, you said in your prepared remarks, cross border was now 53% of revenues. I just wanted to clarify that. And then secondly, Pat how do you balance your thoughts on these scenarios? And then cutting back employees in the fearful of kind of what you went through in the great recession where you kind of turned around and experienced that great growth and you want to be prepared for that. So how do you prepare not to lose those employees? So you're going through six to whatever months of training for engineers, conductors and that you've got the right setup for that bounce back while managing the cost and the downturn.

Okay. Let me maybe I'll take that one first, second half part of your question first. And then Mike can address the other. At this moment we've been managing through the way we've the crews particularly in Mexico. Of course, we have different furlough rules in the U.S. and Mexico. But we've had no big reductions in force. We've had no management layoffs or any of those other things at this point. Of course, we're four months in or maybe four weeks, six weeks into this crisis and again, just don't have a lot of clarity on how long this is going to last when economies are going to return to normal or reopen. And what that's going to mean in terms of our resources we're not going to make a bet on an economic outcome or forecast. What we've done and Mike kind of gave you a couple of points on the spectrum here is look at a range of outcomes and just be prepared for any possible outcome when I listen to economists and other people who do this as a living. There's just so many different views out there as to how long this is going to last and how deep it's going to go. It doesn't sound crazy to me. And I think to us even in discussions with our Board that we could have a noticeable recovery, possibly even a strong recovery before the end of the year. So we want to be prepared for that and make sure that we're ready and we have the adequate resources to respond when and if the economies recover. So that's a vague answer to your question, but at this point we're trying to be very responsive, be on our toes. And we've talked a lot about the PSR focus and what we're doing on the field with train consolidation, the way we're using our crews to produce the cost savings and continue the customer service. But to keep things close so that if we do have a strong recovery relatively quickly, that we don't miss that opportunity. And more importantly, the opportunity to play our role in getting our customers and the economies back on track. And after that, the comprehensive answer, I forgotten the first part of your questions. So…

I just want to clarify. He said cross border was now 53% of revs in his prepared remarks that it just seems, way higher than the normal mid 30. So did I catch the right number or was he speaking about something else?

Yes, Ken, that includes what we refer to as non-franchise. So it's interconnected predominantly with UP at the border. We're still roughly 35-ish percent on franchise KCS to KCSM or KCSM to KCSR.

The next question comes from Scott Group of Wolfe Research. Please go ahead.

So I understand that the Easter shift point you guys were making earlier, but we've seen a much sharper drop so far in volumes in Mexico versus the U.S. historically that used to have margin implications. Maybe Mike, can you comment on how we should be thinking about that shift and any potential margin implications right now? And then several of you can make maybe just some quick thoughts about sort of the net impact of fuel in this environment? Thank you.

Okay. Yes, I think Mike's comment was spot on. Our volumes as what everybody's volumes at this point in the month would be negatively impacted by the fact that Easter has already occurred this year and it was I believe the 22nd, 23rd last year. So that puts us in somewhat of a shutdown mode Friday, Saturday, Sunday. In Mexico I would tell you it goes much beyond just that three day period. There's really a -- what's referred to as Holy Week and many plants actually shut down for the entire week. So you typically see a much bigger drop in Mexico as a result of Holy Week. You're right with respect to margins. I mean if that were to play out obviously the margins are a bit better in Mexico. But, I think you've got to let us get through the month of April. We think we're going to see improvement in Mexico and certainly in our overall volumes from where we're at right now.

The next question comes from Justin Long of Stephens. Please go ahead.

So Mike, the commentary on the different revenues scenarios, it's helpful, but I was wondering if you could also address how you're thinking about detrimental margins as you model that outlook. Your commentary on that variable versus fixed cost structure seems to suggest detrimentals around 40% to 50%. Is that a good ballpark as we think about your ability to flex the business and its environment? And I know that can be impacted by mix fairly significantly. So maybe as you answer that question, you could address the mix and package you're baking into to those scenarios as well. Thank you.

Yes. I'll give you an answer here that may not be entirely satisfying and try to wrap in the last part of Scott's previous question around fuel. I think the challenge with us giving you any guidance on detrimental margins is just some of the impact around fuel price and FX rate. And I think what we would encourage you to think about is the amount of variable or semi-variable expenses that we have and how we're scaling those down right now. Again, I mean, fuel in FX can have fairly significant impact on those margins particularly in a quarter. In the first quarter as an example, we did have a $6 million fuel lag benefit as a result of prices declining. And that adjustment won't get on to customer bills until April, May. But we're going to stay away from that stick with our guidance around 500 million or more of free cash flow. And hopefully you've gotten the message here today that we have been very aggressive on the cost side trying to take out expense.

Next question comes from Amit Malhotra of Deutsche Bank. Please go ahead.

I think Pat, Mike, you talked about, 125 million and kind of total profit improvement or savings. You put out that number and you talked about how you guys feel very confident in achieving that based on kind of the actions that you're taking of the run rate that you're at currently. And then, you've also talked about kind of some opportunity beyond that. I was just hoping you to think kind of help us with what that opportunity could be based on a lot of the good work that you guys are doing. And the automotive business because obviously gets a lot of attention. It's 8%, 9% of the revenue. Just given what's happening in U.S. assembly plants and U.S. production sites. If you could just give us a little bit more color around how much of that business -- how much of the finished inventory or parts you're producing in Mexico actually going to just in time delivery for assembly plants and how quickly can that business ramp up and what does that ramp up look like in pipeline production comes back.

Let me take the PSR portion of that. I mean we're going to stick with the 61 million for 2020 and the 125 million full year as we roll into 2021. And here's the complexity that you have in trying to give you a little bit additional insight into this. As an example, fuel and equipment, depending on how volumes drop, there's clearly going to be a negative impact related to the 61 million. However, based on what Sammy explained very well, he explained this as we consolidate trains, length in trains, make heavier trains, we would fully expect our fuel efficiency to improve and offset those kind of volume declines. And so, I think that that's a really good example. Likewise on the equipment, I mean, if volumes drop faster than what we think the velocity improvements we've seen on our network are going to improve our foreign cycle time and move that equipment off of our network and therefore continue to reduce the equipment costs. So I think we feel very confident around the 61 million. And as I mentioned earlier, we'll continue to update everybody on our quarterly earnings calls.

And as far as the second question about the auto supply chain, I'll make a high level comment and maybe Mike Naatz, if you have anything further to add. Obviously, Mike covered this. We're very, very close to our customers to make sure that we're prepared. This auto is probably one of the best examples of where we really want to be prepared when our customers and the factories that we serve come back into production, that we have the resources, the equipment, the cars, the rail cars, locomotives, et cetera. So we're staying very close to our customers. I think the auto supply chain is probably one that's getting more attention in the national media, so everyone can sort of follow how that's going to play out maybe a little bit better than we can. But that's an industry that's very much in the focal point now. I will also say that the U.S. and Mexico including what appears to be dialogue between the two presidents very much in sync. And I think Mexico has said that they will expect to -- I'm not sure this is a correct phrase, but loosen the guidelines so that the auto plants in Mexico will reopen on basically the same timeframe as auto plants in the rest of North America and the U.S. Mike, I don't know if you have anything to add to that, but that's kind of how we are viewing the auto recovery.

Yes. I will add briefly. The automotive supply chains are a very large and complex and there's a lot of coordination that needs to occur. And so, an example of new communications that are in place to make sure that we're prepared to start up properly. The OEMs, the railroads and the carpooling entity TTX have now established new weekly conference calls, so that we can properly prepare for the return of business. And of course, we'll communicate what we know with providers, including steel manufacturers, plastic manufacturers, glass manufacturers and the like, so that we're ready to go in those plants start up.

The next question comes from Ravi Shanker of Morgan Stanley. Please go ahead.

So my one's going to be on a intermodal. If you can give us an update on the current competitive environment in the intermodal business in Mexico given what field price have done? And also maybe kind of given some of the changes to train schedules and such a resident relating from PSR kind of how is the -- maybe a little bit of share from rail to truck is out of that?

Mike Naatz, you want to address that question?

Yes, sure. So not unexpectedly, the intermodal business is competing more heavily with the truck business. As you know, our Lazaro business for example is U.S. dollar base. So with the weakening peso that provides trucking with an additional advantage there. So we are seeing that pressure and we continue to see that pressure into the near future. With respect to train consolidations, we're doing our best to make sure that we satisfy the needs of our customers in terms of the frequency of service that we provide, but at the same time, we are controlling costs. We believe that we're striking a good balance there and we are in constant communication with our customers so that they can plan accordingly with any changes that we do decide to put in place.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Ottensmeyer for any closing remarks.

Okay. Thank you, all. I know we've had a very long call here and hopefully we've answered most of the questions -- has been consistent in some of our responses. There are still a lot of questions. We don't have good answers to. We are very pleased with the way we're responding and we'll do our best to keep everyone informed as we get new information and material information, whether it's through conferences that Mike and Ashley and others will be attending, if there are any conferences scheduled and in other means. But thanks again for your attention and we appreciate your time here this morning and we'll be in touch as we get more information and hopefully see economies reopen and business began to recover. Thanks again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.