Good morning and welcome to the Kansas City Southern First Quarter 2021 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] Please note, this event is being recorded. It is now my pleasure to introduce you to Ashley Thorne, Vice President of Investor Relations for Kansas City Southern. Please go ahead.

Thanks, [Rako]. Good morning and thank you for joining Kansas City Southern's first quarter 2021 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. Actual results could materially differ 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. 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. And with that, it is now my pleasure to introduce Kansas City Southern's President and CEO, Pat Ottensmeyer.

Thank you, Ashley, and good morning everyone. Welcome to our first quarter earnings call. I'll start on Slide 4. You’ll see this quarter we are going to shorten the prepared comments, that’s our intention and leave a bit more time for Q&A given the situation that we are in right now. I would like to draw attention to the participants on the Q&A, and specifically introduce John Orr. You may have seen a press release that we issued yesterday after the market closed announcing that John had joined our executive team as the Executive Vice President of Operations. John, many of you probably know John spent 20 plus years at Canadian National, just a wealth of experience in transportation, terrific leadership positions in safety and environmental, and in other aspects of operations. John's been working with us for the past two months as an executive consultant. So he's had an opportunity to really see what we're all about. And we've had a chance to see how John operates and I can tell you, it's just been a tremendous fit. John has jumped in with both feet and really helped us in the two months that he's been here and just delighted that he's here and available to move into this position, and welcome John to the team and congratulate John on this appointment. Sameh will continue as you have seen Sameh for the past two plus years, leading our PSR initiatives, particularly as we head into this important Phase 3 focusing on the customer touch-points and service sustainability. And then Jeff Songer will continue on as an executive member of our executive team and really dedicate his focus to strategic merger planning. As you know, we have been granted a protective order by the STB, which allows small group of…

Good morning, everyone. Thank you, Pat. I will begin my comments on Page 10 with an update on our first quarter volumes and revenue performance. As Pat mentioned, our overall revenue was down 4% on a 1% decline in volume. Holding FX and fuel price constant revenues would have been down only 1% on a year-over-year basis. If you feel pretty good about this, considering that we had some headwinds during the period, including February's Polar Vortex, the global semiconductor chip shortage, network congestion, and then a slower recovery at Lazaro Cardenas The core pricing and contract renewals are similar to previous quarters. We continue to maintain a disciplined pricing strategy. We are targeting inflation or better price increases. Right now the macro pricing environment appears to be very healthy. Looking at the business segments, chemical and petroleum revenues rose a very nice 16% in the quarter. This was primarily driven by tremendous growth in our refined product shipments. As you will see or may have noted in the appendix, Mexico energy related business posted a 47% year-over-year volume increase. Refined products volumes grew at 56% with manifest traffic leading the way. In March, refined product volumes were up 69% on a year-over-year basis. Growth in this segment that was partially offset by lower plastic volumes as the Polar Vortex affected Gulf Coast manufacturing operations. Industrial and consumer business segment experienced a 16% year-over-year revenue decline as volumes were off 13%. Weakness in demand and changes in sourcing patterns created a significant shortfall in our metals business. We continue to see lower demand for oil and gas drilling pipe, metals used in automobile manufacturing due to the chip shortage and for metals products used in infrastructure projects, particularly in Mexico. Our Forest Products business underperformed as tight inventories, the Polar…

Thanks, Mike and good morning, everyone. I'm going to start with our first quarter results. As Mike indicated, carloads and revenue declined 1% and 4% respectively. Fuel price and FX did negatively impact revenue by 3 percentage points. Our reported operating ratio of 64.2% includes 19.3 million of merger costs that we incur during the first quarter, primarily banking and legal fees. Our adjusted operating ratio of 61.4 was up 170 basis points year-over-year, and that did include a 90-bit negative impact headwind from fuel surcharge lag and a 110 basis point headwind from congestion and weather during the quarter. Rapidly escalating fuel prices during the quarter have created an $11 million fuel lag headwind from Q4 2020 to Q1 2021. We saw fuel prices increase $0.50 per gallon or 29%. And given more stable highway diesel prices recently, we would expect some reversal of this negative lag to begin benefiting us going forward. Our reported diluted earnings per share were $1.68. Adjusted for FX and the merger costs I mentioned previously, our adjusted EPS, diluted DPS was $1.91, down 3% from the prior year. So, let me put our first quarter into perspective and provide a little bit of color why we continue to believe we're on track to meet our guidance for the year. As Mike discussed, the Polar Vortex certainly depressed revenue in February, and the auto chip shortage weighed on automotive and auto parts volumes throughout the first quarter. Offsetting those impacts were strong chemical shipments, particularly the refined product into Mexico. And while the quarter didn't measure up to our expectations, both financially and operationally, if you look at the three months during the quarter, I think this is important. January and March were essentially in-line with our financial expectations. We dealt with an incredibly…

Okay. Thanks, Mike. I think we accomplished a shorter presentation. We didn't talk a lot about operations or PSR, but don't take that as any indication that we're any less committed to continue our focus on PSR and phase III. Sameh’s on the phone here to answer any questions. And again, I just noticed – came across a post, an article from Bill Vantuono, at Railway Age picking up on the announcement about Jeff and John Orr, and was reminded that John participated in a series of podcasts about PSR 2.0. So that was a nice reminder that we've really, if anything, strengthen our focus here, not only with Sameh continuing on in his capacity, but with John and his experience. And I think Mike put a lot of really good perspective on the quarter. Obviously, a tough quarter, but I think we managed very well, and very pleased that we still feel very confident in our guidance for the full-year. Just one reminder as we open it up for Q&A, please don't ask me any questions about how we got here through the process, that will all be disclosed in great detail in the proxy statement. And as far as the STB process, we're just not going to be in a position to say much about that beyond what I said in my opening comments. So, with that, let's go ahead and open up the line for questions.

Thank you. [Operator Instructions] Our first question today comes from Allison Landry with Credit Suisse. Please go ahead.

Thanks. Good morning. Maybe if you could talk about the opportunities post-merger approval in terms of cross border intermodal, specifically, what are some of the key lanes or corridors where you think you can gain share? Would you expect any impact on the franchise business with the [indiscernible]?

Yeah, I'll take a first shot at that. I think the, you know, the most obvious opportunity for us for really extraordinary growth in intermodal would be the route between Mexico and the upper Midwest, Chicago, Detroit, Toronto, Minneapolis. The combination obviously creates new service lines that are in addition to those that are available today. That is a huge freight corridor, a huge truck market, and we know that there's opportunities to convert and this is one example where the single line service option in premium service sensitive business like intermodal is a real factor in making that opportunity become a reality. There will be investment required. And again, the safety, the environmental benefits of rail versus truck, the size of that market, the opportunity for conversion is a very exciting opportunity for the combined CP KC, but we’ll have to work through a lot of details to put more detail and more substance to that plan.

Okay. And if I could just sneak a little quick one in, you know you mentioned the trip plan compliance metrics that are now part of the, I think you said, annual incentive comps, what are the specific targets or thresholds that you guys need to meet?

We’re basing this on an improvement, Allison, year-over-year improvement that I think will certainly move us in the direction that we need to be from a customer satisfaction standpoint. And we haven't specifically disclosed those, but the targets will be based on year-over-year improvements.

Okay, thank you guys.

Your next question today comes from Jason Seidl with Cowen. Please go ahead.

Thank you, operator. Pat and team, good morning, everybody.

Good morning.

Pat, you guys have a lot of support, obviously from the whole shipping and railroad community for this merger. Has any of that supports surprised you? And then when you look at the potential revenue synergies down the road since you guys have announced this transaction, has there been anything that popped up that wasn't expected that could be a potential bonus for investors?

In terms of support for the transaction, I think just the number of shippers and others that have come out very quickly is very supportive. And when we add to some of the associations, you know, I think it validates what we believe to be the case as we were getting to this point, which is, this is a combination, unlike a lot of combinations in the past that enhance rail options. And as we said, there's not a single market or a single customer that experiences a reduction in rail options that they have today. There's no three to two or two to one. And I think, you know, given the corridors and the markets that we connect with this combined network and the amount of traffic and freight that's available for, you know, again, going back to the intermodal story, the truck to rail conversion, I think this is going to be very attractive to shippers. And that's reflected in the number of support letters that we've gotten and the quickness of the response. As far as synergies, I'm probably not going to comment on that. And in terms of anything specific, we'll have time to get into more detail about that at a future time.

Okay, that was my one. Appreciate the time.

Thank you.

And our next question today comes from Chris Wetherbee with Citigroup. Please go ahead.

Chris, good morning.

Hi, thanks. Good morning, guys. Maybe a question about this year and I guess I just kind of curious about some of the variable opportunities, you might have to catch up on the guidance after what was obviously a pretty challenging, you know, first quarter from an operating standpoint, can you talk a little bit about, sort of maybe some of the levers you can pull on the cost side? And or it may be is it more driven by the potential for revenues to accrue at a faster pace as you're sort of lapping very easy comps here over the course of the next several months, but just kind of curious as you go from sort of that challenge in the first quarter, maybe pick up some steam as you move forward towards those guidance points for this year?

Yeah, Chris, this is Mike. I'll take a crack at that. You know, 2021, I think has always been more about our growth than necessarily cost reduction. And, you know, as I mentioned, during my prepared comments, January and March, were basically on our expectations. We dealt with a rough, you know, month of February, for the reasons Mike Naatz talked about. We do believe in the auto sector, you're going to see a strong catch up. The SAR numbers continued to be very, very positive. Dealer inventories down to 38 days, which, you know, is down from an average of like 80 days to 85 days. So, the OEMs are telling us, they're going to catch up that lost production. You know, refined product continues to perform quite well. You know, production within the country of Mexico continues to decline. And that's giving us a great opportunity to move product from the U.S. Gulf Coast into Mexico. We've got the DRUbit facility that's coming online, Here in third quarter that's going to be a nice boost. We've got a major new steel plant in Mexico that will be available to us. So, we feel really, really good about the growth. We're getting our mojo back on service, you know just another most recent data point, even just this morning, I hate to react to one data point, but the fewest held trains I've seen in the last quarter or so, I mentioned yard inventory being down 50% in some of the key locations. I mean, I think there's a lot of optimism, the economy looks really solid to us, including in Mexico, we talked frequently about the two cycle economy, the domestic economy there may not be performing quite as well. But when you look at manufacturing and IP with, you know, roughly 80% of the goods being manufactured moving into the United States that business is going extremely well. And we continue to see strong cross border growth. So, we still feel very good about where we're headed here and April's off to, you know, just an amazing start. Realize that's the start of easy comps, but roll all that together. I know that was a lengthy answer, but hopefully it gives you a sense for the excitement we have for the opportunity ahead of us.

Okay. Yeah, no it sounds like an interesting revenue opportunity. Perfect. Thanks very much. Appreciate it.

Thanks Chris for that.

And our next question today comes from Tom Wadewitz with UBS. Please go ahead.

Good morning.

Yes. Good morning. I wanted to see if you could offer some thoughts on the voting trust and, you know, obviously, there's some debate around, you know, Department of Justice said that, you know, shouldn't use it, but they don't make the call, STB does. So, is that something that you think is really important to the transaction going forward or would you say that’s not necessarily, you know, the relationship and the deal is so strong that, you know, that's not necessarily imperative to the deal. You know, I guess if it doesn't happen, then maybe KSU would have additional options, potentially. But just wanted to see if you could offer some thoughts about, you know how much should we focus on voting trust approval?

Well I think the voting trust obviously is the plan to close into voting trust so that the shareholders get the consideration as soon as possible. All I can say is that we have done everything we and Canadian Pacific really has done everything possible to create not only a [indiscernible] squeaky clean trust structure that should, there just should be no basis to, to object, particularly from an independent standpoint. And I think one very strong powerful evidence of that is the selection of Dave Starling as the Trustee. You know, Dave has no prior relationship with CP. Dave ran KCS as a public independent public company with a lot of success for many years. And I think that was just one indicator that we just wanted to – they just wanted to do everything possible here to create the cleanest trust structure and just make it very easy for that transaction to proceed on that basis.

Do you have a sense of when you'll find out, I know, it's tough to say precisely, but what's your kind of best guess of timing to find out from STB on voting for us?

We really aren't going to comment on that. That's, you know, that's out of our control of we've – we believe the STB wants to move quickly, but we don't have specifics on the timing.

Okay. Thanks for the time.

You're welcome.

And our next question today comes from Bascome Majors with Susquehanna. Please go ahead.

Yeah, thanks for taking my questions. I was hoping you could update us on the total revenue on your entire network that has interchanged with other partners, any fresh thoughts on the mix between those partners with that interchange? And maybe an update now that we're approaching a month removed from the merger announcement? You know, any discussions on interchange partnerships? jayvees, that sort of thing? And how am I reacting to the news? Thank you.

Bascome, I'm sorry. You know, just no comment on that on this call right now. I'm sorry. I'm going to fall back to my statement that, you know, we're happy to talk about the quarter, the outlook, and things that we can control and respond to, but we're not going to address those questions on the call.

You mean, can you share historically, how much of your revenue has been interchanged?

You know, I don't – honestly don't have that in my finger tips for an earnings call. It's about 80% in the U.S. is interchanged.

Thank you.

And our next question today comes from Justin Long with Stephens. Please go ahead.

Thanks and good morning.

Good morning, Justin.

Obviously, a lot of discussion around different growth opportunities and the merger will help expedite growth in the network. I wanted to ask about locomotive needs going forward in light of this growth, if you could comment on what you're expecting for locomotive needs the next – let's call it 3 years to 5 years and similar question on technology and the level of investment you expect their pro forma for this deal?

Yeah, I again, I'm going to be stubborn about this. We're not going to talk about asset needs after the time of the merger. So, we're happy to answer questions about locomotive outlook for KCS, you know, going forward, but we're really just not going to talk about capital needs beyond completion of the merger. So, I don't know. Jeff, for Sameh, if you want to go ahead. Mike, you were going to something.

Well, I was just going to say, Justin, our guidance on CapEx is 17% of revenue. We still think, you know, on a standalone basis that's a good number for us. That would include any kind of equipment needs we need, including locomotives. So, there's certainly nothing I see sitting here today that would change that equation for us.

You know, maybe a lot I can add, this is Sameh. We still have a long way to go on our locomotive utilization. You know, we are at about 150 GTMs per available horsepower in U.S. and we’re still at about 90 GTM per available horsepower in Mexico. And you know, our Class 1s have been associated with, they are at about 200 GTM per available horsepower. So, we still have a long way to go on increasing the utilization for our locomotives. And that goes hand-in-hand, those are the last day of the network. You know, when you have trains, you know, stranded or setting or held. And like Mike Upchurch mentioned, a few minutes ago, we had the lowest number of trains held in a very long time showing up on the report this morning. But when these trains sit, they set [Bruce locomotives] on them, you know, which obviously, you know, is not a good use of the assets. The other things on the border, we, you know, our velocity is really being improved now with significant change in processes. And John, you know, came in and he's bringing in, you know, a lot of fresh ideas and a lot of intensity and scrutiny, you know train-by-train, you know, why is it waiting and all the rest at Laredo yard. And we changed from 6-hour windows to 4-hour windows this week, which is something we have been working on for two years. So, a lot of this is coming together and the yard inventories are coming down. All that does is improves locomotive utilization. And as a result, you know, we have, we still have a lot of work to do.

Thanks. And Mike you said, some locomotives would be coming out of storage this year, is there a way you can help us quantify that and what it would leave you with in terms of a search fleet pro forma?

I think the slide that, you know, Pat had in his section gives you a sense of what we've brought back out and what the active fleet is, 915 and, you know, 6%, higher, we still have some ability to bring some locomotives back. But again, remember, you know, throughout this whole journey, we're still down about, I think, close to 20% from when we began our PSR journey, and as we lengthen trains and, you know, become more fuel efficient. We were, you know, Sameh talked about the available growth – or the [gross 10] miles per available [HP]. I mean, we're going to continue to lean into this and gain some efficiencies there. So, hopefully we can keep our future locomotive needs at a minimum.

Okay, great. Thanks for the time.

Thank you.

Our next question today comes from Amit Mehrotra from Deutsche Bank. Please go ahead.

Good morning.

Hey, everyone. Happy Friday.

Thank you.

And I'll just keep my one question on pricing. I think Mike, initially you mentioned, you talked about pricing opportunities. It just seems like the pricing environment, kind of everywhere you're looking in the transport complexes is kind of inflecting pretty hard. And I just want to understand if you're seeing better pricing opportunities, and maybe – then maybe what you were envisioning, when you provided the guidance back in January. And Mike Upchurch, I think when you first gave that guidance of $9 in 2021 of EPS, I think embedded in that was kind of a mid-60s incremental margin. And if you're seeing better pricing opportunities, I wonder if there's just a little bit of conservatism in there in terms of what the incremental margins can be, if some of that upside in revenue is driven by pricing? Thank you.

So, with respect to the pricing environment, I think we would agree with you. The pricing environment is very healthy. We're certainly seeing, you're seeing it cross many modes of transportation. You're seeing it on the ocean side. You're seeing it on the truckload side, you're seeing it on the small parcel side, you’re seeing it on the LTL side of the business. So, to the extent that that pricing remains elevated, that certainly provides us with opportunities to be a little bit more aggressive on that front. So, we continue to optimize pricing for yield. And we will continue to do that as we move forward.

And as for the EPS, you know our guidance was $9 or better. So, you can assume that number that we had a little bit of breathing space. I don't disagree with your comments around incremental margins continuing to be strong, certainly as we carry on throughout the rest of the year, but the one thing that I would remind everyone, we certainly had a certain amount of share repurchases built into our plan that we will not be pursuing and models would need to be adjusted for that downward, but we're still comfortable with the $9 or better?

Yeah, that's a good point. And just one quick one for me just on the trip plan compliance, is [Technical Difficulty] compliances today is that 70%, 80%? I don't know how you do it on a consolidated basis, or maybe by commodity, just be helpful to understand what the starting point is to see what the opportunity is as that improves on a service [indiscernible]?

Yeah. Amit, we're going to stay away from a specific number. We've actually tried to benchmark across the other carriers and everybody defines it a little bit differently. We've got some fairly tight definitions, particularly around intermodal. And so our numbers are going to be comparable to others. But as Pat indicated, we do have incentive compensation tied to trip plan and compliance, and it does require an improvement for us to get paid. So, I think we're going to leave it at that.

Okay. Thank you. Have a good weekend, everybody. Appreciate it.

You too.

And our next question today comes from Scott Group from Wolfe Research. Please go ahead.

Good morning, Scott.

Hey, thanks. Good morning. I just want to clarify one of Tom's questions, and then I had a fundamental question. So, the CP filings suggest that this deal cannot happen without the voting trust. I wasn't sure if your answer, do you share that same view?

We’ll refer to the CP filings.

Okay. And then, just fundamentally, so you talk about returning to prior service levels, but maintaining train land, not adding back much headcount, I guess, how do you get back to those prior service levels without adding stuff back? And does it require much ongoing cost to get there?

Pat, I can answer this. This is Sameh. We are doing very structural changes now, you know, to our network that go far beyond what we have done in phase I and phase II of PSR. And all that while we are very focused on customer service, and trip plan compliance that we talked about and percentages of spotting and pulling and first miles, last mile, so we, you know, the service is a huge emphasis, at the same time the Velocity Dwell, and like Mike Upchurch mentioned, we have significant improvements in Monterey. There was a team that spent at least two weeks in Monterey going through the switching operations and how to be more effective, you know, in our switching, and as a result with the same headcount, you know, to answer your question, same headcount, which is already in our headcounts, our 9% to 10% below what they were pre-pandemic. You know, we are doing a lot more switching in the yard, and we are servicing, you know, about 500 cars to our customers every day, you know, spotting them, and the inventory levels have come down from something like 3,000 to 1,800, you know, on a on a typical day. At the same time, Sanchez, you know, which is another yard, which is very, very much impacted by Monterey, you know, it used to have something like 1,500 cars waiting to go to Monterey. Now, it's about 300 cars, you know, waiting to go to Monterey. So, there is structural improvement, you know, to the way our yards are running. And the same is true with Shreveport where we have made some design changes. Shreveport is in U.S. side now. We made some adjustments, you know, to balance, you know, fine tune, you know, the requirement…

Thank you, guys.

Our next question today comes from Brian Ossenbeck with J.P. Morgan. Please go ahead.

Hi, good morning.

Good morning. Thanks for taking the question. Maybe, you can just give us a quick update on political landscape in Mexico, and we've seen a few headlines, maybe you can help fill in the blanks. Energy reform, clearly very strong, easier comps coming up, but there's another bill looking like it's going to put the private sector at least a little bit behind public. You know, last time we saw that in utility land, it was challenged in the courts immediately assuming that will happen here, but didn't know if that affected sentiment in any shape or form. And then lastly, on the on the outsourcing bill, it looks like there's at least some negotiation on the private sector, because that does seem to be coming back. You can share your thoughts on that and potential offsets that would be helpful. Thank you.

Yeah, Brian, I'll go ahead and take the labor outsourcing. Yeah, you're right. There's some momentum forward on that with the bill in Mexico. You know, once we see the final bill and it's been approved they have 30 days to then provide, you know, all the details behind that bill, the detailed regulations. So, we still have a little bit of time, but before we kind of get a good assessment of that, but at least what we've seen so far heard so far would suggest this is going to have a lesser impact to us than what we might have initially thought. We don't believe this is going to have a material impact, predominantly because of the concept around a cap that's been proposed here. And that cap, in light of what we're already paying in PTU and profit sharing, we believe what will not be a material increase in our labor expense.

With respect to the energy reform question, I think the way you characterized, it's probably pretty straightforward. Yes, there were some changes that pass through the lower house in Mexico. Those have to go through the Senate, there is some belief that that will continue. It could put additional pressure on some of the smaller manifest type shippers who don't have the storage capacity available to meet the government requirements on that front. To that extent, it may favorable some of the larger players which would frankly just drive up our unit train business. I think this is really a function of supply and demand. And you know, Mexico has the demand, the PEMEX is unable to meet all of that demand. And so we continue to believe that the fuel is going to continue to be imported into Mexico into the foreseeable future. Might there be a challenge to this like there was with the electricity side of things? Yes, quite possibly. And like I said, I believe that your characterization is accurate. But again, I'd focus on supply and demand.

Right. All right.

And Brian, just to emphasize again, I mean, production continues to decline, right, 10%. You know, the demand environment hasn't fully recovered. But we would expect that to begin crossing that breakeven point here, given all the stay at home orders a year ago. And when you look at importation by third parties that's up dramatically, which plays, you know, extremely well to our business. So, we continue to have a very positive outlook on that business.

Alright, thanks, very helpful.

Our next question today comes from Ken Hoexter with Bank of America Merrill Lynch. Please go ahead.

Great. Good morning. Can you talk a little bit about the North American supply chain fluidity given the timing of your return of velocity and Dwell post the storms? And then given those PSR gains, you mentioned that the Loco as you took out of storage? Would you look to put those back into storage, if you improve the fluidity, and I guess your thoughts on the employee reductions, and just the overall North American network congestion? Thanks.

North American supply chain fluidity, I'm not sure exactly what you're looking for Ken, but you know, I mean, just look across the board and Mike touched on it. Freight capacity is tied everywhere. Certainly ocean trucking, rail, we're not the only railroad that's experiencing capacity issues and service issues. And but, you know, I think we believe that a lot of this is a function of just the disruption, the shock to the system of in our case, you know, really go back to fourth quarter of last year with hurricanes. I know that's – it's ancient history. But as we were recovering, and kind of getting back on our feet, and we got hit with the COVID related labor issues in Mexico, the red, yellow green status, which really caused a lot of stress on our crew base in Mexico. And then, of course, the Polar Vortex, but, you know, just speaking for ourselves, I think, you know, we've talked about this that we can see trends and indicators that we measure that give us a lot of confidence that at a high level, we're seeing improvement, congestion in yards and other measures that we look at every day, show that we are we are getting better and we're seeing improvement in those trends. We need to see that in customer touching and customer facing metrics to a greater extent. So that's really the primary focus here. We've brought back resources. We brought back locomotives and crews, we're hiring new crews. So, just looking at what we control in our own network, we're bringing back resources to really get the network performing the way we want it to. And we know it needs to, because we also know that we've got growth opportunities that we want to be able to go after and to pursue. I don't know if that's the kind of answer that you were looking for, but you know, really more focused on our own situation than the broader North American issues.

Ken, I [indiscernible] last year, I mean, we had a 25%, 30% reduction in volumes and a 50% bounce back we've, I think done a pretty solid job of scaling down resources, whether it's labor equipment, then bringing it back, clearly unprecedented, kind of downward turn and bounce back that we saw. That’s made things a little bit challenging, but we're going to continue to do the right thing from both the labor and equipment standpoint to make sure we can meet our customers, expectations and if things will level off, we'll put equipment back into storage. So, we’ll be very adaptable.

Yeah, Thanks, Mike and Pat. I guess the only thought, I guess maybe more detail or follow up would be just, is there a timing when you think you get to that fluidity? You know, is it you know, just on these trends, would it be back half that you'd expect to be back to your operating levels that you could pull out some of those extra locomotives or employee reductions? Any thoughts on that?

As soon as possible. We got a couple more in queue, why don’t we try to get…?

Thanks.

All right. Thanks everyone. Our next question today comes from David Zazula with Barclays. Please go ahead.

Good morning. This is a question for Mike Naatz. Just on the industrial and consumer outlook, I wonder if you could provide a little more color on the sourcing shifts and delays in plant opening in Canada, the relative impact of those and whether the sourcing shifts are more transitory or structural? Thanks.

Sure. So, down in Mexico, there was a couple of steel operators, one of which provided flab to another provider on the north-end of Mexico. That length of haul has changed as the consumer of the slab has changed their source. So, we no longer have that sort of long length of haul from the southwest portion of Mexico, into the Northeast portion of Mexico. With respect to other metals manufacturing, a number of facilities or new lines that were supposed to open up with these piece plants have been delayed as a result of COVID. So, the manufacturing of new products or expanded products is going to be delayed along with that.

Great. Thanks very much.

Sure.

And our next question today comes from Jeff Kauffman with Vertical Research Partners. Please go ahead.

Thank you very much, and congratulations on a lot of exciting things going on. I actually had a question for John Orr, John, you know, I'd love to get your perspective as someone coming in from the outside and looking at the operating fluidity at Kansas City. And you came in at a very interesting time, but you know, relative to what you're seeing going on, given your prior experience, is there anything that surprised you in terms of the operations of the railway? And can you give us an idea for maybe some of the ideas you might have that might be new and different from the way things are going?

Thank you for the question. And thank you for bringing me into the conversation. So, first, I have to thank Pat and the team for bringing me on. It is such a wonderful opportunity. [Technical Difficulty] great team. And, you know, I think they're – what you’ll expect from me is continuity from my friend and colleague, Sameh Fahmy and the energy and the focus detail, and the complimentary strategic views that Jeff has brought to the table, as far as capital investment, people development, and customer service and focus. But one thing I'll tell you, I am so impressed with is, is the team, and the entrepreneurial values and perspectives they have. And I'm really looking forward to building value, and doing it safely, and doing it with the focus of customers and the health of the railway. So, for me, I love to get granular and meet with train masters, meet with locomotive foreman, meet with engineering folks out on the [Leeds building trucks], because I completely respect the contribution and people who work night and day to run the railway. [Indiscernible] make it as simple and predictable as I can for them, and as predictable and valuable for our customers. So comparing things, I think this is a world-class operation. The people I've met in Mexico, I spent the first four weeks of the sixth I've been on the team in Mexico or just top drawer. And that goes with the people and the processes in the infrastructure that I've seen in the United States as well. So, I'm impressed. I'm humbled and encouraged by how valuable and how much contribution this company can make to the North American economy.

Well thank you and best of luck. I'll keep it short because I know the calls going on. Thanks, everyone.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Ottensmeyer for any closing remarks.

Okay, thank you all for your time and attention. And you're good questions. Just a summary, obviously a tough quarter, you'll hear that probably across the entire sector. We feel great and still very confident about the outlook. The opportunity for growth. We've got the great – we have best, we got a great team, we got to focus. I think we're very confident and optimistic that we are moving in the right direction in terms of service metrics. Focus on PSR continues to be very high. And obviously with Sameh continuing in his capacity and John coming on board, I think you'll see us deliver continued benefits on that front. And we know there are revenue opportunities and growth opportunities out there for us and very pleased to see Mike Upchurch dust off the service begets growth motto that is alive and well. And we believe that’ll put us in great position in the quarters ahead. So thank you again and we'll look forward to seeing you in about 90 days, if not sooner. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentations. You might now disconnect your lines and have a wonderful day.