Greetings. And welcome to the Norfolk Southern Corporation’s First Quarter 2020 Earnings Conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Pete Sharbel, Director of Investor Relations. Thank you. Mr. Sharbel, you may begin.

Thank you, and good morning, everyone. Please note that during today’s call, we may make certain forward-looking statements, 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 our non-GAAP reconciliation. Additionally, a transcript and downloads will be posted after the call. It is now my pleasure to introduce Norfolk Southern’s Chairman, President and CEO, Jim Squires.

Good morning, everyone. And welcome to Norfolk Southern’s first quarter 2020 earnings call. Joining me today are Alan Shaw, Chief Marketing Officer; Mike Wheeler, Chief Operating Officer; and Mark George, Chief Financial Officer. Before we discuss our financial results, I’d first like to thank our employees for their dedication during these unprecedented times. Norfolk Southern employees are proud to be delivering an essential service. In a video message to employees dispatcher Misty Brayton expressed the sentiment well when she said, we supply America with the goods that they are short of right now. And I hope everybody that works for Norfolk Southern feels essential after this. It is truly inspirational to watch our employees rise to the challenge. In response to the COVID-19 pandemic, we established three simple goals early on, protect our employees, serve our customers and exercise strong financial discipline. I will talk briefly about the steps we are taking in each area. Our first responsibility is to protect our people. We acted quickly based on CDC guidelines and took extensive measures to keep employees safe. We transitioned most of our office employees to remote work in a matter of days. For employees whose jobs require them to work on site, we implemented social distancing and established rigorous cleaning protocols for their work environments. Our preventive measures, combined with the diligence of our employees have kept the number of confirmed COVID-19 cases at Norfolk Southern low. I am also pleased to report that our employees are working safely through the many potential distractions. Our thoughts are with all those whose lives have been impacted by the virus. Our second goal is to continue providing an excellent service product for our customers and that’s exactly what we are doing. Our customers are making rapid adjustments to their operations due…

Thank you, Jim, and good morning, everyone. The first quarter started with the impact of low natural gas prices and mild weather on our coal franchise. In February, we saw the initial impacts of the COVID-19 crisis, impacting international intermodal volume. As COVID-19 evolved into a global pandemic, a majority of our markets experienced volume declines, with business levels further impacted by plummeting energy prices. In the face of this challenging environment, we are flexible and responsive to market changes and customer needs, adjusting our operating plan and resources where necessary. We remain focused on our long-term strategy with an emphasis on superior service to our customers and margin improvement, demonstrated by consistent growth in revenue per unit and revenue per revenue ton-mile over the last three years. Our service is the best in Norfolk Southern history, a testament to the commitment of our employees to respond to rapidly evolving customer requirements and deliver an exceptional service product, while producing structural and volumetric improvements to our cost. Moving to slide seven. The impacts of COVID-19, energy and excess truck capacity lowered our revenue by 8%, with the volume decline partially offset by RPU less fuel growth in all three business groups, marking our 13th consecutive quarter of delivering year-over-year RPU growth. Merchandised revenue was down 1%. As record RPU, partially offset a 5% volume decrease. Automotive car loads declined due to plant shutdowns late in the quarter in response to COVID-19. Steel volumes continued to be impacted by weak demand and frac sand faced pressure from low energy prices, while favorable spreads allowed increases in crude oil volumes. Intermodal revenue declined 9% driven by a loose truck market, lower demand and the early negative impacts of COVID-19 in our International Group. RPU gains propelled by our strong service product offset…

Thank you, Alan. Today, I will update you on the state of our operations. The first quarter continued our story of superior service and improved cost structure, leading to increased operational leverage even in the face of declining volumes. We are continually improving our operating plan and using PSR principles to deliver superior execution. Going to slide 10. Continued improvements in train speed and terminal dwell despite tougher year-over-year comps drove record quarterly terminal dwell, train performance, customer service at the car load level and unprecedented executional success in the service sensitive intermodal segment. We achieved these milestones with fewer assets and lower employment levels, further reducing our cost structure and driving efficiency. These trends have continued into the second quarter. Moving onto our service and productivity metrics on slide 11, which I have shared with you in prior calls. These metrics measure important productivity and customer service levels and are indicators of our success meeting our productivity goals. The service delivery index measures our on-time performance at the shipment level and is indexed to 2018. Our first quarter 2020 performance is at our 2021 goal and we are confident we will maintain these service levels throughout the year. Our lowest T&E headcount on record drive substantial year-over-year productivity, while still providing stellar service. As I will show you on the next slide, we continue to aggressively size our train plan to the changing business levels. We continued our momentum of train weight improvements, showing further progress in the first quarter. Remember that we re-targeted this goal 6,700 tons in light of continued changes in the coal market. Productivity driven by our top 21 operating plan will boost us towards this goal, despite the challenges of the current volume environment. We made considerable progress in locomotive productivity in 2019 by…

Thank you, and good morning, everyone. Before I get into the review of adjusted financials, just a moment to talk about the locomotive write-down that we disclosed two weeks ago, simply said, it’s a capacity dividend of our TOP21 PSR implementation, which has resulted in the decongestion of our yards and road network, allowing cars to turn quicker in the terminals and trains to move faster on the network. The blending of our discrete networks resulted in fewer but longer trains, fewer trains along with better balancing of our routes require fewer locomotives. We enter 2020 with roughly 1,000 locomotives on the sidelines, out of the approximate fleet of 3,900. We spent time this quarter aligning on exactly how many locomotives we would need even at 2018 volume levels. Our operations team essentially modeled the capacity requirements in a post PSR world and determined that of our stored locomotives 703 are deemed excess and available for sale, while the balance are held for surge and in cycle for AC upgrades. In fact, 298 of the 703 were effectively sold in Q1, while the remaining will be marketed for sale or scrapped in the next 12 months. The $385 million is essentially the remaining book value on those locomotives that otherwise would have been depreciated in the P&L in the years to come. In the process, the team targeted removal of the oldest, least reliable and least efficient of the locomotives and eliminated entire model lines, moving us to a more homogenous fleet of 10 models from ‘19. With that we were able to also eliminate inventory and rationalize mechanical resources. So moving now to slide 17 and the remaining slides will reflect adjusted results, excluding the impact from the locomotive rate down. Recall this slide format we introduced last quarter…

Thank you, Mark. There is much for us to be proud of in our report today, from our strong first quarter financial performance to the incredible job the men and women of Norfolk Southern are doing to keep the trains running. Our industry faces a difficult volume environment with an uncertain trajectory. By executing our strategic plan, exercising capital discipline and serving our customers well, Norfolk Southern is poised to emerge stronger and ready for growth as the economy recovers. Thank you for your attention and we will now open the line for Q&A. Operator?

[Operator Instructions] Thank you. Our first question is from Jason Seidl of Cowen. Please go ahead.

Thank you, Operator. Gentlemen, good morning. I hope everyone is doing well. I wanted to jump on the outlook question. I think one of you mentioned sort of not cutting too much into the system, not only for safety but to handle the rebound whenever it does come. How much in expenses do you think you are holding in anticipation of that? Let’s say, if you look at the automotive sector, for example, plants being shutdown, how much more expenses is Norfolk sort of maintaining right now and how do you think about forecasting some of these areas for head count or equipment demand?

Good morning, Jason. It’s, Jim. We are committed to managing our volume variable and structural cost through this downturn. So you saw evidence of that in the first quarter with adjusted expense reductions totaling $202 million. We are pulling every lever at our disposal when it comes to cost reductions in this environment and that’s the right thing to do given the trend in the revenue this year. Nevertheless, we do believe we are capable of responding to the upturn, which will come as volume growth resumes. We expect to generate significant operating leverage and that will result in rapid margin improvement and bottomline growth.

And right now, how are you guys looking at the anticipated rebound, because clearly, we are going to see 2Q that’s going to take a big step down, right, even from the weakness in 1Q? But what is Norfolk looking for in terms of a gradual recovery and how should we think about headcount throughout the system as we move throughout the quarters?

Well, growth will resume and when it does, as I said. We will have the resources in place and we expect to generate significant operating leverage. Let me talk a little bit further about kind of next steps in terms of cost reductions, and I will ask Alan to comment on the topline outlook. So we are pressing the TOP21 accelerator right now. And that, as Mike said, that means crew start reductions going forward, a hard look at our yard and facilities network, blending more trains, the kind of step straight out of the PSR playbook to continue to drive down costs. So, Alan, what about the revenue outlook?

Hey. Good morning, Jason. We are staying very tight with our customers and modulating our expenses appropriately because we are going to make sure that we are there as they start to recover. The first step would be say reopening within auto manufacturing and that’s generally targeted to start slowly, in the middle of May, that should pull some additional raw materials through the pipeline as well say steel for example and some plastics. And then, as I noted on Slide 8, it really is about just the reopening of the economy and improvement in energy prices. Resolution of that is open-ended and so it remains critical for us to stay close and tight with our customers as we plan going forward.

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

Good morning. Thank you. So, good progress on the OR improvement in the first quarter. So, I know you withdrew the 2020 guidance expect some near-term margin pressure, but I don’t think I heard you comment on the 2021 OR guidance, so is this intact and do you think a 60 is still achievable?

We did not pull our guidance for 60 in 2021 and we are still focused on getting to a 60 OR as fast as we can. The timing and shape of the recovery will likely have an impact for sure. But one thing is for certain, as I said, we get to the other side of this and growth resumes, our operating leverage would be very powerful and should drive rapid OR improvement in bottomline growth.

Okay. And then -- and just sort of in light of the collapse in volumes, are you seeing any increased resistance from customers with respect to the yield-up strategy. I think we have heard from a number of shippers that said they are being asked for monthly volume commitments and liquidated damages and exchange for one-year contracts. So just hoping to get your thoughts on whether this is leading to some share losses to truck and if you are considering any changes to the pricing strategy, in order to keep more volume on the network? Thank you.

Allison, there are lot of unknowns in the market space right now. Our critical role in the nation’s economy and our customer supply chains is clearly evident right now, that is not an unknown. We are pricing the value of our product, we are pricing of the value of our franchise and we are very confident in our understanding of the market. We are maintaining a long-term view of this and we are maintaining a long-term view of our business decisions to benefit our shareholders. We understand that eventually we are going to cycle through this market and we have got a great franchise and a great approach to support our customers’ growth when that occurs.

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

Hey. Thanks. Good morning, guys. So, I want to ask a few things on the cost side, maybe just starting with labor comp per employee was up 6% sequentially -- 6%, sorry, 6% year-over-year. Any thoughts on how we should be thinking about comp per employee going forward and then any thoughts on where -- what you are doing with head count right now, given the volume environment?

Mark?

Yes. Scott, you are right, the comp per employee did move 6% sequentially. But remember, these are quarter-to-quarter in particular is very lumpy. And you are always going to have some noise on the timing of when you have incentive accrual top-ups or write-back. So I think you are got to look at it more over time and when you look at it over time, you are always going to be fighting inflation, wage inflation. So, that’s certainly something that we are dealing with every year. And but generally, we are really shifting our focus to the absolute comp and win numbers, which as you know, have gone down and continued to decline in part from the volume, but in particular from the PSR actions that we have taken.

I guess I am not sure I followed. So, like, so, as we think about going forward, I guess, was there anything unusual in this first quarter on the comp per employee or should we assume like that this level continues going forward, meaning, certainly…

Well, look…

Meaning in the fourth -- in the first quarter you had headcount down 6% sequentially, but I think labor costs, total labor costs to your point were only down 1% or 2% sequentially?

You had some incentive accrual disparities between quarters. So that’s one thing, where in Q4 you had -- based on the way the year ended, you ended up having a benefit or a pickup from writing back some of the incentive accruals. So that certainly dropped the Q4 number and creates a little bit of a tougher compared sequentially. I think from here, you will see that it’s going to be more even throughout the year.

The next question is from Brian Ossenbeck of JP Morgan. Please proceed with your question.

Hey. Good morning. Thanks for taking the question. Mark, can you go back to the locomotive side and maybe just walk us through the potential benefits, some that you may be recognized or whether you called out like the depreciation? And then, secondly, out the different components on the labor side, maybe even further on the D&A side, on the efficiency side for fuel and just how do you think about what this has done for Norfolk so far and what it could represent in the future, your call this year and next year as it rolls out completely.

Sure. I mean, we talk a little bit about the locomotives, first. And again we took out 250 locomotives last year as we launch the TOP21 strategic plan and mainly those were on the sideline, but they were with a lot of other locomotives that we had on the sideline. We knew that every quarter throughout this year, we were probably going to see, we were going to convince ourselves that we were going to have more and more surplus locomotives. So rather than leak it out over time, we really held hands as an organization and said, look, we have got very good progress here on liberating assets in the field. Where can we be in a post-PSR world with regard to locomotive needs? And there were several iterations, I think, the PSR experts that we have in-house, really pushed the envelope and said, look, we know where we can get to. So, we had a 1,000 when we started the year on the sideline, the numbers initially started with 400, maybe 450, the team iterated several times and ultimately got back to a number of 703, where we said that is absolutely doable, even if we go back to 2018 volume levels, we can still manage with the remaining fleet. So we decided, rather than just leak this out over time to take a look at it, it was clearly a significant portion of the -- of that particular asset base. So we decided the right thing to do, the appropriate thing to do is actually pull it out of group accounting and write it off. The benefit of doing that, first off is, we get the organization focused on removing assets and I think that’s a very important thing for any company when you have surplus assets is to eradicate them, because assets attract cost. You got yard congestion in our case. You have got network congestion by parking all these excess locomotives, let’s commit to get rid of them quickly, and then they will attract less cost, less maintenance and less attention and less property tax whatever you can assign to it will end up being savings. So it’s healthier just to get to recognize what surplus upfront and move as quick as possible to remove them from the company’s properties. And then by removing them from group accounting, you also now have taken that $385 million asset and you avoid depreciating it over many years and absorbing it into your remaining assets, it seems like it’s a very unusual form of accounting that’s relatively unique to our industry, where you have group accounting attaching excess book value from discarded assets to remaining assets and depreciating further over time. So we avoid doing that, we get rid of it, we get depreciation benefit in the future. So that’s really how this came about.

Okay. Can you offer any commentary on this, what that means for maintenance or mechanical resources, fuel economy going from -- to a more homogenous fleet in anything beyond the D&A that you are looking to realize in the next couple of quarters or into ‘21?

Yes. Clearly, they attract less maintenance and part of that $385 million was a little bit of inventory that went for the model lines that are no longer here, the seven model lines we eliminated. So that’s another trailing benefit that we have. And but, yes, clearly, we are going to have some mechanical benefit from this, savings that arise from having fewer locomotives and a more streamlined fleet model. Maybe, Mike, you want to make some comments.

Yeah. I mean, it helps your whole material network, because you are managing less, less materials with less models. A lot of these models were smaller type models and so that helped to be efficient. And it’s also going to help our sharp footprint going forward as we continue to rationalize that, you have heard some of the things we are doing there and those are coming to fruition now and those will help that as well. So, yeah, there’s a lot of ancillary benefits to this going forward.

And remember, Brian, we got rid of 300 of those already in Q1. So the physical assets have been removed and there is just the remaining 400 now, that over the next 12 months, hopefully in the next 9 months or so we will follow.

The next question is from David Ross of Stifel. Please proceed with your question.

Yeah. Good morning, gentlemen. I wanted to talk a little bit about Phase 3 of TOP21. We mentioned combining the cars of all different types onto a single train. Where are you in that process, has that been done yet, what’s left and how might mix in the second quarters, you are doing this, I would say not look normal depending on the restart of the economy in which commodity types come back online and is that going to create any issues at completing Phase 3?

Well, Mike went through the steps that we have taken under TOP21 and essentially we have completed all of the network redesign to this point that we had mapped out through 2021. So all phases of TOP21 that we had initially signaled we would implement, we have implemented at this point. Going forward, our focus, as we have said is on additional crew start reductions, blending more trains and a hard look at the facilities we use, the yards we use to support network operations. Mike, anything to add?

Yeah. We have been talking with you on all the quarters about our blending of our network. We first started talking about blending bulk into the general merchandise and we did that. And then we started blending the automotive into the general merchandise as well and that was a big part of TOP21 last year, very successful. And as we have continued on, we have blended general merchandise and bulk into the intermodal network that’s been very successful. And then, now we are in the process of blending traffic even into our premium network. So we have really blended all of the different traffic types into our network. So we are to the point now where a train is a train. So our Phase 3 implementation is really in place. And the beauty of this, as you go forward and traffic comes back, we are blended now that a train is a train, and it can ride on a train that gives us the right service requirement that it needs, but also as efficient as it can be. So we are really in a good place with our network with the TOP21 implementation, and going forward, we are just going to continue to optimize the network as traffic comes back on.

And David, if I could add one thing, it also benefits us and our customers and that it provides us with a broader product offering, and no longer do we need to find enough density for a point to point intermodal train. We could find smaller blocks of intermodal and put it on a merchandise train and open up some lanes, which we are doing.

That’s great color. Thank you.

The next question is from Jordan Alliger of Goldman Sachs. Please go ahead.

Hi. I just wanted to follow up a bit on the price for the yield question a bit, obviously, volumes have been impacted pretty heavily hearing thus far, as you said, I think, you mentioned down about 30%, which is trailing the industry for some degree. I am just curious -- at the same time, your yields are tending to be better, so I am just curious, some of the volume discrepancy maybe related to that or how do you deal with price for yield in the face of these steep declines going forward? Thanks.

Jordan, at Norfolk Southern, we are fierce competitors and we are determined to make decisions in the long-term, best interest of our shareholders. We have got a deep knowledge of our markets and we are confident in our ability to price to the value of our service product, which is outstanding and our franchise, with a focus on margin improvement and also providing our customers with a platform for growth and you can see this in our RPU, in revenue-to-revenue ton-mile trends over the last three years, it’s a consistent and a strategic approach for us. There are some specific market forces that are impacting our volumes. Last year, 60% of our coal volume was in the utility coal network. That volume was down 44% in the first quarter of this year. We participate in the energy markets, whether that’s frac sand or ethanol and those have been pressured. They have been pressured for much as a year, as I called out. And separately, we also are highly integrated with customers who are the integrated steel mills, so that has taken a hit throughout the year. One thing to point out is, we are running against our toughest year-over-year comps of the year. I believe week 20 of last year, so mid-May was our highest volume week of the year. So that’s causing part of the volume decline year-over-year. But we also understand and it’s important to note that our opportunities are within that $800 billion plus truck and logistics market. We have got the most powerful intermodal franchise in the east, and as you know, we are aligned with the best channel partners in the industry. We have got a diverse merchandise network with a great service product. We are staying very close to our customers and we are collaborating with them right now, near-term opportunities as they adjust the supply chain dislocations and on longer term opportunity. So we are confident about where we are headed.

Thank you.

The next question is from Brandon Oglenski of Barclays. Please proceed with your question.

Hey. Good morning, and thanks for taking my question. Alan, I guess, if we could just follow-up there though, I mean, in an environment coming out of post-COVID. Are you talking with your customers right now about what’s going to take for a recovery and get them back up to prior volume levels and does that include changes in service patterns or pricing or I guess what’s the path forward once we get beyond the shutdowns here?

Yeah. Brandon, I think, you are going to see some differences in supply chain requirements moving forward. There is going to be potentially more forward positioning. There is going to be more an emphasis on reliability and consistency. And frankly, that benefits Norfolk Southern, because we have got the best intermodal franchise in the East. When the recovery happens, people are going to be focused on capacity, cost, service and ESG and Norfolk Southern offers all of that relative to our primary form of competition, which is truck. So we touch over 50% of the consumption and the manufacturing in the economy. We are staying close to our customers. Even now we are launching innovative service products. So we are pretty confident about where things are headed once the economy re-opens.

Okay. I appreciate that. And then, maybe follow up for Mark or Jim, you guys did say that some of your cost variability is dependent service product expectations. And Jim that was pretty bullish that you are not backing off of the 2021 OR target. So, I guess, are you putting a cost structure in place where you see line of sight to achieving that type of operating ratio at some sort of volume level in the future?

Well, the question is not if, but when we get to a 60 operating ratio. That remains our goal. We are going to get there as quickly as we can. And yes, that will be through a leaner cost structure, with the kinds of cost structural initiatives that we have been through this morning. And so, yes, that’s very much part of the outlook and we believe we will have strong operating leverage when growth resumes, which it will.

All right. Thank you, Jim.

The next question comes from Bascome Majors of Susquehanna. Please proceed with your question.

Yeah. Thanks for taking my questions. Mark, most of the class ones have pulled their guidance like you did today, but several have continue to provide investors with some sort of framework to think about kind of a worst case, free cash flow scenario in their own stress tests of the business. How should we think about free cash flow for Norfolk this year?

Thanks, Bascome. So we have modeled a number of different scenarios and we haven’t picked one, because we know whatever one we pick will be wrong. But we have modeled high single-digit declines to mid-upper teen declines on revenue and volumes to ‘20s and ‘30s. And in all those circumstances and cases, you are going to see that we have modeled free positive cash flow contribution, we are going to grow cash flow this year regardless. But one thing we are doing is to preserve cash, you would have noticed, we have really taken a significant chunk out of capital expenditures this year to make sure that we maintain the proper balance and we augment our liquidity and certainly what is going to be an uncertain time, because we don’t know how deep this will go and how long it will last before recovery begins again. So in pretty much all the scenarios we have modeled we are still generating positive cash flow and positive free cash flow and we feel actually very good about our whole liquidity equation as well as you can see from the slide I shared. We have got plenty of plenty of vehicles to go for credit, if we needed, and again, the capital reduction is also very, very meaningful to us as well as frankly, a very strong cash balance opportunity.

Thank you. Thank you for walking us through that. I am sorry, so on the January call, maybe take that a step further to the structural discussion, you said one of the biggest surprises coming into this industry from the outside was the capital intensity of the business and that was going to be a priority for you to take a hard look at that as the CFO. I mean, so you have been going through these this process of broader structural cost reductions, any update you could have on some opportunities you think where you could kind of change that equation longer term within that?

Yeah. I mean, I think, you see a little bit of evidence of that here with the capital reduction that we have done very early in the year. You don’t cut $500 million or 25% out of your annual capital spend easily. So we really got together as a team and similar to the whole locomotive discussion, I just went through, we iterated several times on what we could do to reduce capital spend and get to a new baseline level. For which to be honest, we are at -- this is a low level, we haven’t been here since 2010 in absolute dollars. But we felt it was the right thing to do because we sense that there was going to be volume pressure, sure enough, it’s come and it’s, it’s real in front of us, so I am glad we have gone through this exercise. From here though as revenue grows, I would hope that we are able to contain growth in CapEx at a more moderate pace below the pace of revenue growth in the future and maybe grow into a lower percentage of revenue below the 16 to 18 at some point. So that’s one thing that I think the organization is very keen on and then the second frankly is what we talked about with regard to the locomotive rationalization itself. We took a long hard look at the assets and in that particular pool, and frankly, we are going to shift over and now look at other pools of assets we have as well and make sure, one of the perils of group depreciation is that you are not necessarily motivated or incentivized to be looking at the assets once they are on the books. In this case, I think we have to look at that, because they do attract cost. Do we have a lot of buildings out there along the network that maybe we don’t need any more, structures that again attract maintenance cost, they attract electricity costs, they attract property assessments, those are like one area we might look at, we have seen our coal franchise shrinks considerably. Do we have surplus assets in coal that we need to re-examine and re-look at. So we are asking these questions as a team, the team is open-minded about it, and I think, again, you see in the first quarter some evidence of that.

The next question is from Ravi Shanker of Morgan Stanley. Please proceed with your question.

Thanks. I just wanted to follow up on the discussion about the incremental margins when volumes do come back. You have a pretty illustrative cost structure slide on slide 22 of your deck. It’s really helpful, which shows that you have a pretty variable or semi-variable cost structure, which should help you on the way down. But, I mean, how does that not become an impediment to incremental margins on the way back up again, given that we just by very nature if it’s more variable, a lot of those cost need to come back?

Well, we do expect to be able to hold the line on many of the costs within our cost structure, as volumes return and there lies the operating leverage in the model. Now, certainly, we will have some volumetric expense increases with volume on the way up as is the case on the way down. But the key will be to hold the line in terms of additions to the asset and resource base as much as we possibly can. We know we can do that and ride that wave of volume upsurge, which should generate rapid and significant operating ratio improvement and bottomline growth.

Okay. And as a follow-up, how would you characterize the competitive environment in the east, I mean, obviously, we know what’s happened in the truck side, but just more with your rail competitor?

Yeah. Trucks are very competitive right now. Those are the opportunities for us that is supported by our -- strength of our franchise and those are the service products that we are developing right now is to help our customers and as they deal with changes in their supply chain and we are working on near-term solutions and long-term solutions. I have noted we got wonderful merchandise franchise with broad exposure to the U.S. economy. We have got a great intermodal franchise, the best in the east and we have got an outstanding service product. And just within intermodal, you can go back three years, go back four years, you go back five years and you can see that Norfolk Southern and our customers have paced the growth in the entire industry during that time period. You can go all the way back to recovery from the great recession in 2010. So it’s -- as I have talked about before, we are making decisions in the long-term best interest of our shareholders. That includes our market approach and our willingness to partner with our customers to support their growth over the long-term.

The next question comes from Ken Hoexter of Bank of America. Please proceed with your question.

Hey. Good morning. And great job in the -- on the cost side and the locomotive move. Mike or Jim, just an interesting move in shutting the yards and some of the other steps you are taking during this volume downturn. Maybe can you talk a bit about what move you could see becoming more permanent, are there some examples that you can talk to. I know you talked a little bit about the blending of the trains, but just want to understand as the business comes back, what are the steps that you are taking, you see, could be a bit more permanent?

Yeah. Sure. Thank you. As you have noted, we have been looking at our term loan yards for long-term since a great recession, we have either idled or converted five of our top terminals, we did two of them last year and we are continuing to look at that and those are long-term structural cost reductions and you will see more of that as we go forward. I would also note that we have talked about we have shutdown a lot of our smaller outline yards, brought that traffic in and consolidated it. And as Mark noted, those are assets over time that will go away and take less cost. But we continue to look at it and find out what we can live without and we have got a lot of opportunities out there that we are looking at, more to come and you will hear more about it as we go forward. But yeah, those are things we are looking at and are going to do.

Okay. Alan, maybe just, I appreciate your competitive comment before when you were talking about the competitive market. But just looking at coal being down 60% this past week and really taken a beating lately. How do you plan for this, are you looking at the business structurally disappearing, is it something that’s just a mild winter and you expect it to come back as the export and domestic markets come back, maybe just talk about your views on that market a bit?

Ken, we understand that our utility coal or the nations utility coal franchise is in a secular decline. And so what you see from us is, a response and working with our customers on ways to promote coal dispatch relative to natural gas, but also we are adjusting our franchise as well. You saw that and so with short line activities, you saw that idled of Ashtabula just this quarter you saw in the sale of our Pocahontas Land Corporation assets. Stockpiles in the utility coal franchise right now are incredibly high. They are at about 125 days. Coal burn in March was at a new national record low at 29 million tons. And so, I think, coal is -- our utility coal franchise is going to be pressured for a considerable amount of time. We need to get the economy back running. So industrial and commercial load comes back and we are also going to need to see an overall increase in energy prices, prices in the PJM are in the teens right now for electricity and that is not going to promote coal burn.

The next question is from Chris Wetherbee of Citi. Please proceed with your question.

Hey. Great. Thanks. Good morning. Maybe, Mark, if you could drill in a little bit more specific around some of the CapEx comments, I think when you outlined or when the company outlined the plan, the PSR plan locomotives were kind of decent size chunk of the 16% to 18% CapEx spend over time. I think it seems like some of the actions you guys have taken recently have the potential to really rationalize that, even just obviously this year, but potentially in 2021 and 2022. Is that the right way to think about it or could there be other puts and takes that might drive that number back up into that sort of longer term rate. Just want to make sure I understand that this is sort of a spin that that likely is going to come down relative to maybe what you thought it was a year and a half ago or so?

Yeah. Thanks for the question, Chris. I am going to tag team this with, Mike. But the reduction in the CapEx is really little bit across the board, not so much on the locomotives, but in other areas, whether it’s IT, a little bit of our maintenance, we have really taken a look at all the various categories and try to bring it down a notch even some of the terminal spends, especially given the volume pressures that we have. So it really went across the board and we know though, like I mentioned earlier, we are going to have pressure to raise from here. But I want, Mike, maybe you can talk a little bit about locomotives and cat 1 versus cat 1 on the ops stuff.

Sure. Yeah. On the locomotive DC to AC conversions, we are committed to that revitalization, because we have got some DC locomotives out there that upgrading to the AC is really cost efficient from a capital standpoint and been really pleased with the reliability from this. So that project will continue on going forward over the next couple of years, it’s the right thing to do and what we did push out, we had taken some opportunistic additional DC to AC conversions that we were looking at this year, we are pushing those out, we are not going to do those. Some rebuild of our yard and local fleet we have pushed out. So the DC to AC conversions will continue at the pace that we have talked about in the past. Relative to the capital expenditures, we are very fortunate that we have got some great technology in our company, particularly on the engineering side. We are making sure that we are putting our rails, ties and ballast in the right locations. We have got technology these days that are they are using machine vision to determine whether ties are good or not. They are even doing X rays internally. So we are making sure that when we put ties in, we will put them in the right place at the right time, same thing with rail where we are using predictive analytics to determine where the rail needs to be replaced at and that’s allowing us to really pinpoint our asset replacements. And we are really comfortable with the fact that we are doing the right thing for maintaining this railroad in a long-term, both on the locomotive reliability front, as well as the track infrastructure.

Got it. Okay. That’s very helpful. I appreciate the color. And then maybe a quick follow-up, Alan, would you think about the truckload market. I think there is a building sense that coming through this downturn when volume comes back, we could be coming into a somewhat tighter truckload market than what we sort of exited. So can you talk about sort of how that kind of plays into the strategy on the intermodal side and what the opportunities might be there for you?

Yeah. Chris, it’s that’s very similar to what you saw in 2009 and 2010, isn’t it, where you saw some pretty considerable supply reactions on the truckload side to a steep downturn and spot prices. And so for us it means continuing to collaborate with our best-in-class supply chain partners, our channel partners on how we give them an exceptional service product, how we look for new opportunities, new lanes for them to grow into and then it’s also selling the things that are going to be pretty darn valuable post-COVID-19, which is capacity, a lower cost structure than truck, its service and its ESG and we have got the best intermodal franchise in the east. So we are in great shape there.

Got it. Thanks for the time. Appreciate it.

The next question is from Justin Long of Stephens. Please proceed with your question.

Thanks and good morning. Maybe to follow-up on that last question, regarding domestic intermodal, obviously, one thing that’s changed is the fall off in fuel prices. So I was wondering if you could comment on the gap in pricing between contractual intermodal pricing and contractual truckload pricing in your network today. And as you think about domestic intermodal going forward, do you feel that it is still a GDP plus growth business, whenever things recover even if fuel prices hang out around the current levels?

Hey, Justin. The gap has certainly closed. The real pressure is coming from that spot truck market. And at some point, as the economy starts to improve and as there are supply of ramifications throughout the truckload market, that’s going to particularly affect the spot market. So it’s important for us to maintain that vision as we are approaching the market and not chase the spot truck. You have heard me talk about that before. That’s not within the long-term best interests of our corporation. So we are focused on what we can deliver and that is a great service product, a great, intermodal franchise that has allowed our customers to outpace the industry and growth over any number of years.

Okay. And maybe looking bigger picture at the volume performance of the business, obviously, it’s weak across the Board right now, but there is a pretty substantial difference in the year-to-date volumes at in as procedure eastern competitor. I am curious if you could just comment on that gap, if there have been any major market share losses this year that are driving that is, it’s a function of mix? And as you look at that gap, how should we be thinking about the actions you are taking to close that gap and the timing around that going forward? Thank you.

So, Justin, it’s one of the things that I had talked about is, the utility coal franchise, which is last year was 60% of our volume utility -- of our coal volume in the first quarter is down 44%. So that’s having an impact on us. The ethanol markets whether that’s inbound, feedstocks such as corn or outbound ethanol is having an impact on us. Frac sand, we have talked about the energy impact integrated steel mills is having an impact on our franchise. And frankly, the spot trucking market is having an impact on intermodal and we saw an impact on international intermodal in Asia business in February and so all of that contributes to tougher year-over-year comps, as I noted. We are still riding or comparing against pretty elevated volumes of last year. We will get through that in week 20, in which our volumes were at the highest level of last year. And just overall, we understand the markets and we are pretty confident in our knowledge of the markets and we are very confident in our ability to price, to the value of our product and the value of our franchise and make the best long-term decisions for our shareholders and you see that an RPU and revenue per revenue ton-mile trends not just this quarter but over the last three plus years.

Okay. Thanks. I appreciate the time.

The next question is from Jon Chappell of Evercore ISI. Please proceed with your question.

Thank you. Good morning, everyone. My first question for you, it’s been a lot of time on the CapEx changes. Any comment on capital returns, should we assume that given bit more of a disciplined manner in CapEx that you keep pressing the pause button on the buyback program and give us a little bit more clarity on coming out of this?

Yeah. Thank you, John. Certainly, we were -- we continued full steam in Q1 on the share repurchase activity. Now, obviously, as we do see the markets are contracting significantly, we are going to take a more conservative approach to looking at share repurchase, while maintaining flexibility for when depending on the depth of decline but also the pace of recovery. So, I think, we will certainly take a more muted approach here.

Okay. Thank you. And then, follow-up from Michael really quickly, you guys talked about the locomotive plan and a lot of the service metrics that have been taken. But -- and you look at the PSR implementation from say May 1st relative to where you were sitting on February 1st. What are some of the other adaptations you have made to the plan for 2020 given the precipitous fall on volume?

Well, I think, the thing that it is beneficial for us is that, that we are able to adapt quickly, right? As volumes come out, we have been able to take the -- take the -- our crew starts out, you saw that in my slide, I will note that in April so far, we have pretty much matched the volume decline against with the crew start decline that’s around 30%, so which matched it pretty well. So the thing that we have come out of this with is a really nimble organization that can adapt quickly to volume changes. Well, that’s on the downside, like, we have shown or on the upside when it occurs and we are going to get a lot of leverage when that happens because of it.

Thank you, Michael. Thanks, Mark.

Thank you.

The last question comes from Thomas Wadewitz of UBS. Please proceed with your question.

Yeah. Good morning. I wanted to follow up a little bit on train starts and leverage, maybe if I can refer Mike to your slide, I think, it’s slide 11. So, you are improving on all the metric that gets the weight expansion or probably moving with train length has been more muted, obviously, a function of tough volume backdrop. So how do you think about coming out the other side what the ratio might be or how rapidly you might need to bring back train starts or is there a period of a couple of quarters where you just really see that metric expand a lot and you don’t have to add train starts back used to run longer trains?

It really will depend on and where the traffic comes back and what type of traffic it is, obviously, if it’s full both you are going to get more of an incremental train starts. But if it’s just across the Board, we have got capacity still in our train lengths to add train lengths before we have to do a lot of train starts. We have got capacity in the terminals as well with both the road crews, the local service crews and the yard crews to handle the capacity. So, we have got a while before we have to make train start deduct or increases. So we are still going to continue to get the upside leverage as this things pulls up, it’s in a great place.

But you think there could be we win volumes, I mean, obviously, just looking out to the other side, but you think you could actually run without adding trains for a while, where you see positive volumes?

Correct. Yes. We know where the traffic comes from and that’s our plan. That’s our plan. That’s our goal and that’s the ability of this organization to do that.

This concludes the question-and-answer session. I will now turn the call back over to Mr. Jim Squires for closing comments.

Thank you for your questions this morning. We look forward to talking to you again next quarter. Stay safe everyone. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today’s teleconference. You may now disconnect your lines and have a wonderful day.