Union Pacific Corporation (UNP) Q2 2012 Earnings Report, Transcript and Summary

John J. Koraleski - Acting Chief Executive Officer and Acting President Eric L. Butler - Executive Vice President of Marketing and Sales Lance M. Fritz - Head of Operations and Executive Vice President of Operations - Union Pacific Railroad Company Robert M. Knight - Chief Financial Officer and Executive Vice President of Finance

Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division William J. Greene - Morgan Stanley, Research Division Scott H. Group - Wolfe Trahan & Co. Justin B. Yagerman - Deutsche Bank AG, Research Division Brandon R. Oglenski - Barclays Capital, Research Division Ken Hoexter - BofA Merrill Lynch, Research Division Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division Christopher J. Ceraso - Crédit Suisse AG, Research Division Christian Wetherbee - Citigroup Inc, Research Division H. Peter Nesvold - Jefferies & Company, Inc., Research Division Walter Spracklin - RBC Capital Markets, LLC, Research Division Anthony P. Gallo - Wells Fargo Securities, LLC, Research Division John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division David Vernon - Sanford C. Bernstein & Co., LLC., Research Division Salvatore Vitale - Sterne Agee & Leach Inc., Research Division A. Brad Delco - Stephens Inc., Research Division

Greetings, and welcome to the Union Pacific second quarter conference call. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Jack Koraleski, CEO for Union Pacific. Thank you, Mr. Koraleski. You may begin.

Good morning, everybody, and welcome to Union Pacific's Second Quarter 2012 Earnings Conference Call. With me here in Omaha today are Rob Knight, our Chief Financial Officer; Eric Butler, Executive Vice President of Marketing and Sales; and Lance Fritz, Executive Vice President of Operations. Union Pacific achieved an all-time record quarter, generating an earnings milestone of $2.10 per share, an increase of 32% compared to the second quarter of 2011. Best-ever quarterly operating revenue and operating income drove our record operating ratio performance and bottom line results. We're clearly delivering on the strength of our diverse franchise. Volume growth across many of our market sectors allowed us to offset the 17% decline in coal volumes. When combined with solid pricing, efficient network operations and continued productivity gains, the net result was our best-ever quarter by nearly every financial measure. We're continuing to focus on providing safe, efficient, high-quality service that creates value for our customers and increased financial returns for our shareholders. So with that, we'll get started this morning. I'll turn it over to Eric.

Thanks, Jack, and good morning. Let's start with a look at customer satisfaction, which came in at 93 for the quarter. That's 1 point better than a year ago, and it matches the record we set in the first quarter this year. We appreciate this recognition from our customers and we're committed to continuing to provide them a strong value proposition. Second quarter volume was a little better than flat against last year, as strong growth in Automotive and Chemicals and solid gains in Industrial Products and Intermodal were offset by continued weakness in coal. Excluding the impact of coal, combined volume in the other 5 groups grew 5%, despite a softer ag export market. Core pricing improved 4.5%. All 6 groups posted gains, but the overall improvement was impacted again this quarter by the fall-off in coal volume, where much of our legacy repricing has occurred. The improved pricing, along with about 2% from increased fuel surcharge revenue, resulted in a 6% improvement in average revenue per car. Together, the slight increase in volume and improved average revenue per car resulted in the 7% increase in freight revenue to a record $4.9 billion. Let's take a closer look at each of the 6 business groups. Let's start with Coal, which we used to report as Energy. To avoid confusion with the fast-growing shale energy markets that are driving growth in Chemicals and Industrial Products, and other energy markets from wind to ethanol, going forward we're going to call this group Coal. This is just a renaming of the old Energy line of business. There is no change in what's included in the results. In the second quarter, Coal revenue declined 9%, as the 10% improvement in average revenue per car wasn't enough to overcome the 17% drop in volume. Coal demand remained weak, as historically low natural gas prices reduced coal's share of electricity generation and mild winter weather sent coal stockpiles soaring. Powder River Basin stockpiles are estimated to have grown 70% from their low point last August, swinging from 7 days below normal at that time to nearly 20 days above -- 24 days above normal this April, before dropping back some in the past 2 months. The tough market conditions and the ongoing impact of a couple of contract losses last year led to an 18% decline in Southern Powder River Basin tonnage. Colorado/Utah tonnage grew 4%, overcoming the weak domestic demand with a 135% increase in export tons. Seasonal strengthening boosted overall coal volumes toward the end of the quarter and the recent upward movement in natural gas prices has been an encouraging trend, but the chart in the upper left shows we're still tracking well below last year and the comps get tougher in the second half. Ag Products revenue was up 1%, as volume declined 2%, but average revenue per car improved 2% despite the negative mix impact. With improved world supply, grain exports have declined as expected, down 32% from last year's strong volumes. Reduced U.S. soybean crush drove a 6% decline in soybean meal shipment. DDGs declined 13% as more product was fed locally, reducing rail demand, and lower gasoline consumption was reflected in the 3% reduction in ethanol volumes. Partially offsetting those declines was an 8% growth in domestic grain shipments and a 3% growth in Food & Refrigerated carloads. Automotive shipments grew 13%, which combined with an 8% improvement in average revenue per car, drove a 25% increase in revenue. As a reminder, last year's results were softened somewhat by the impact of the disaster in Japan on the Automotive supply chain. With Global Insight's current full year forecast at 14.2 million vehicles, the Automotive industry's continued recovery was reflected in solid year-over-year growth in sales. Improved credit availability is releasing pent-up demand to replace aging vehicles with new, more fuel-efficient and technologically equipped vehicles. For the UP, that translated into 14% growth in finished vehicle carloadings, while parts shipments grew 17%. Chemicals revenue grew 14%, as a 12% volume increase combined with a 1% improvement in average revenue per car. Petroleum shipments increased 92%, driven by continued growth in crude oil shipments originated in the Bakken and Eagle Ford Shale plays and moving to UP-served terminals at St. James, Louisiana and Galveston and Houston in Texas. Plastics volume was up 7%, with increased demand and new business. Industrial chemicals, LPG and most other Chemicals segments also posted gains. However, fertilizer was an exception, with volume down 15%, as demand for potash remained soft. The decline in fertilizer also had a negative impact on average revenue per car. Industrial Products grew 6%, which, combined with an 8% improvement in average revenue per car, produced a 14% revenue increase. UP's franchise is well-positioned to link new sand origins in the upper Midwest to new destination facilities in the oil-rich shale plays. Combine that with the continued conversion of rigs from vertical to horizontal drilling technology, now sand carloads continue to grow even as overall drilling activity was flat, driving a 28% increase in nonmetallic mineral shipments. Increased demand for rock into the Eagle Ford Shale play, along with increased construction activity in the Houston area, led to an 18% growth in rock traffic and an 8% increase in cement. As housing starts climbed, lumber carloadings increased 8% to their highest level since 2008, although they are still well below prerecession volumes. Offsetting some of the strength in Industrial Products markets was a 55% or 11,600-unit decline in hazardous waste, as ramp-down of government funding has impacted our uranium tailings business in Utah. Intermodal revenue grew 10%, as 3% growth in volume combined with a 7% improvement in average revenue per unit. Although the pace of recovery is slow, continued strengthening of the economy drove international Intermodal volume up 3%. Growth was dampened slightly by the continued impact of the contract loss last year, the effect of which we finally wrapped at the beginning of May. Continued success in converting highway business to rail drove 3% growth in domestic Intermodal. That wraps up the second quarter, so let's take a look ahead at what we see for the second half of 2012. Our current outlook is for the economy to continue its slow improvement, although that's far from certain with ongoing problems in the Eurozone and fast approaching U.S. budget and tax policy challenges. No matter what the economy does, we'll continue to focus on our strong value proposition, attracting new customers and supporting our existing customers as they continue to work to grow their business. Clearly, continued weakness in Coal presents a sizable challenge as we look at the rest of the year. While seasonal strengthening of coal shipments is already driving a stronger run rate sequentially, against the tougher comp, the third quarter volume decline is expected to be in the low to mid-teens. In ag, the prolonged and widespread drought conditions have moderated our earlier optimism about opportunities with the fall's harvest. Recent corn yield estimates have dropped back to last year's levels, likely eliminating any upside potential. World demand for U.S. soybeans still looks strong for the fall. The good news is for -- our diverse franchise gives us a wide range of opportunities to offset the challenges and drive growth. The biggest of those opportunities is continued strength in shale energy, delivering inbound materials as well as outbound crude oil. While the slowdown in natural gas drilling and the slower-than-expected ramp-up of customer facilities has shale energy-related carloads a little off their expected pace, we still expect it to contribute about 2 points to overall growth for the year. Shale energy will continue to be the largest growth driver in Industrial Products and Chemicals, with other segments of those 2 businesses expected to continue as they did in the first half. Forecasted improvement in housing starts and growth in nonresidential construction in the South should boost lumber, rock and cement in Industrial Products. While global markets may challenge some chemical manufacturers, low-cost feedstocks are keeping U.S. plants competitive, and facility expansions also provide us with opportunities. We anticipate strength in plastics will continue and industrial chemicals should track with the economy. We expect continued success converting highway business in domestic Intermodal and international Intermodal should pick up, tracking ahead of last year, as a slowing-growing economy is expected to produce a positive but somewhat muted peak season. Auto manufacturers expect sales growth to continue and that should be good for our finished vehicles and auto parts business. Put that all together and we expect to overcome the challenges in Coal, with the anticipated volume growth combining with price gains to drive revenue growth. With that, I'll turn it over to Lance.

Thanks, Eric. And good morning. Starting with safety. For the year-to-date period, we came very close to achieving an all-time record performance in our reportable personal injury rate. The second quarter reportable rate increased 9% compared to 2011, offsetting the year-over-year improvement in the first quarter. More importantly, a fatal incident that occurred in Goodwell, Oklahoma at the end of June took the lives of 3 Union Pacific employees. It was a terrible reminder of how unforgiving our industry can be, and it underscores why we are relentless in pursuing the goal of 0 safety incidents. With respect to rail equipment incidents to derailments, our year-to-date reportable rate improved 4%, and we are even more favorable in including all derailments, not those meeting -- not just those meeting the FRA reportable threshold. In public safety, the grade-crossing incident rate increased 22% in the year-to-date period, continuing the trend we saw in the first quarter. The combined effects of our robust growth in the South, which has a higher grade-crossing density than our overall network, and growth in commercial traffic has increased our grade-crossing accident exposure. We continue to focus on community support and driver behavior to address this increased risk. Our safety strategy helps keep our network strong and resilient, and as a result, our network remains fluid and is operating at very efficient levels. Weather was friendlier to our operation in the second quarter compared to last year, which helped, but that wasn't the whole story. In addition to milder weather, the operating team adapted the T-plan, locomotives and crews to manage ships and mix from Coal to growing manifest and premium volumes in the South. In Texas and Louisiana, we are effectively utilizing the existing infrastructure while we build new capacity, which I'll talk more about in a minute. As a result, velocity improved 2% to 26.6 miles per hour. Compared to 20 -- 2010, average speed was up 1% despite a 4% growth in our 7-Day volumes. Our service scorecard illustrates UP's customer value proposition. The local operating teams continue to provide great service as reflected by Industry Spot & Pull, which tied an all-time quarterly record of 95%. The second quarter Service Delivery Index, a measure of how well we are meeting overall customer commitments, also improved from 2011 levels. While the UP team is successfully managing the continued carload surge in the South, we continue to have capacity for growth in other parts of the system, with about 420 employees furloughed and around 900 locomotives in storage. Moving on to network productivity. Slow order miles were down over 20% from last year, which was a second quarter record for us. Our network is in excellent shape, reflecting our investment in replacement capital. Moving to the upper right, our car utilization metric improved year-over-year and reflects the improvement in network velocity and fluidity. In the lower left, gross ton-miles per employee declined 4% versus 2011, which includes the headwind of 700 additional employees working on capital projects and positive train control, driving about half the decrease. It also reflects the 17% decline in coal volumes, which is one of our heaviest commodities. Increased premium and manifest traffic, including local train starts, also amassed productivity gains. While not shown on the graph here, productivity gains were also achieved on the Intermodal side, as train lengths grew to an all-time quarterly record of 173 boxes per train, improving 3% on a 3% increase in Intermodal volumes compared to 2011. Lastly, our team is leveraging the robust volume growth in the South, using UP's extensive terminal infrastructure to generate a 1% improvement in the number of cars switched per employee day. To expand a bit more on the progress we're making in the South, second quarter volumes in the South were up 7% versus last year and up 6% from first quarter levels. In fact, we're pretty much back to prerecession volumes. During the first quarter call, we talked about the initiatives underway to handle this robust growth efficiently. Our results demonstrate the great progress we've made advancing them in the second quarter. Benchmarking against the first quarter, you can see the improvement made in terminal dwell, on-time train departure and car connections, despite volume growth of 6%. We've realigned resources, adjusted car routings to leverage available terminal capacity and modified train starts to maintain fluid operations and to increase local service frequency. In addition, the capital investments we're making in the South are beginning to have a positive impact in supporting both volume growth and improved service levels. Our targeted 2012 capital spend is still around the $3.6-billion mark. Spending for service growth and productivity will total over $1.3 billion. It's important to note that all of these projects have a positive safety impact. Capacity, commercial facilities and equipment are the primary drivers. The major projects include additional double track on the Sunset Corridor and the Blair project, work on the Santa Teresa, New Mexico facility and various projects in the South. Our capacity expansion plans in the South are estimated at around $200 million this year, increasing threefold from spending levels in 2011. The map shows current and future investment plans. Late in the second quarter, we cut over new capacity in West Texas that will help us serve inbound and outbound loads for the Permian Basin. In the second half of 2012, we'll be cutting over additional new capacity across the system, including projects to efficiently deliver growth in crude oil moves to St. James, Louisiana. Most encouraging is that new capacity investments are generating an excellent return, while supporting our diverse book of business, including increased shale-related volumes, growing Mexico and Intermodal business, as well as export grains to the Gulf. So with that, we remain positive on our operating outlook for 2012 and our ability to achieve network improvements on various fronts. A more mature Total Safety Culture, stronger relationships with local communities and improved infrastructure position us well to achieve our goal of another record safety year. We will provide customers with a value proposition that supports growth with high levels of service, and we are well positioned to react to dynamic shifts in volume while generating productivity and to invest a record amount of capital that generates attractive returns by increasing capacity in high-volume corridors. With that, I'll turn it over to Rob.

Thanks, Lance, and good morning. Let's start by summarizing our second quarter results. Operating revenue grew 7% to an all-time quarterly record of $5.2 billion, driven by core pricing gains and improved fuel surcharge recovery. Operating expense totaled $3.5 billion, increasing only 1%. Lower fuel prices this quarter helped offset other cost increases after 9 consecutive quarters of higher year-over-year fuel prices. Operating income totaled $1.7 billion, a 24% increase and a best-ever quarterly performance. Other income totaled $21 million, down $5 million compared to 2011. Interest expense of $135 million was also lower, down 9% versus last year. Income tax expense increased to $608 million, mostly driven by higher pretax earnings. Quarterly net income exceeded the $1-billion mark for the first time in our history. It was up 28% versus 2011. The outstanding share balance declined 3%, reflecting our share repurchase activity. These results drove a quarterly earnings record of $2.10 per share, a 32% increase versus last year. Turning now to our top line. Freight revenue grew 7% to a best-ever quarterly record of $4.9 billion. Volume growth was up about a 0.5 points. The mix impact was flat this quarter, unlike the first quarter, where it was a large positive driver on a year-over-year basis. Growth in Intermodal traffic and shorter length-of-haul moves such as stone, offset the growth impact of higher average revenue per car moves, such to shale-related activities. Fuel surcharge revenue added 2% to our top line growth, driven in part from the positive lag impact of our fuel surcharge programs. The continued benefit from our recently negotiated legacy contracts generated a meaningful step-up in fuel surcharge coverage, contributing over 1% in freight revenue growth and roughly $0.05 in earnings per share compared to 2011. In addition, we achieved solid core pricing gains of 4.5%. However, pricing gains this quarter were impacted by the 17% decline in coal volumes. The combination of solid core pricing and fuel surcharge coverage gains reflect the value of Union Pacific's service offerings and contributed to the record profitability this quarter. Moving on to the expenses. Slide 23 provides a summary of our compensation and benefits expense, which was down 1% compared to 2011. Consistent with our recent guidance, more moderate inflation drove only a 1.5% increase in costs. Positives in the quarter include mild weather conditions versus last year's Midwest floods; lower new hire training costs; and generally, more efficient operations. As you know, wages for our union employees will increase effective July 1, which will drive inflation costs higher in the second half of the year to roughly 2.5%. Workforce levels increased 2% in the quarter compared to 2011, driven entirely by increased capital activity, including positive train control. Excluding growth on the capital side, we still expect workforce levels to increase for the full year, but not at a one-for-one rate with volume growth. Slide 24 shows fuel expense, which totaled $882 million, decreasing $22 million versus last year. The average diesel fuel price was $3.21 per gallon, which declined 2% year-over-year. The mix shift of lower coal volumes and growth in manifest and premium traffic drove a 2% increase in our fuel consumption rate, partially offsetting the impact of lower fuel prices. Purchased services and material expense increased 5% to $542 million, driven in part by higher subsidiary contract expenses relating to the 17% growth in subsidiary revenue reflected on our Other Revenue line. Engineering, locomotive and freight car repair expense also increased this quarter, driven by increased material usage and inflation costs. Overall, our year-over-year comparison was a bit easier due to the $10 million in flood-related expenses that we incurred last year in this expense line. Other expenses came in at $190 million, down $6 million compared to 2011, driven by lower personal injury expense. Our recent actuarial study resulted in a larger reduction to our estimate for prior year activity, compared to last year. Conversely, equipment and freight damage costs increased roughly $15 million, while property tax expense was also up compared to last year. For the third and fourth quarters, we expect the other expense line to be more in the range of what we saw in the first quarter of this year, barring any unusual items. Slide 26 summarizes the remaining 2 expense categories. Depreciation expense increased 8% to $433 million, mainly driven by increased capital spending. Looking at the full year 2012, we expect depreciation expense to be up around 8% to 9% compared to 2011. Equipment and other rents expense totaled $299 million, up 6% from 2011. Growth in Automotive and Intermodal volumes drove an increase in short-term freight car rental expense, which was partially offset by lower locomotive lease expense. Bringing revenue and expenses together, Slide 27 reflects our operating ratio performance. This quarter, we achieved an all-time quarterly best of 67 operating ratio, improving 4.3 points compared to last year, and more than 1 point better than our previous record set in the third quarter of 2010. Lower fuel prices contributed to about 1 point of the improvement versus 2011. For 2012, we've tightened our guidance a bit and we are now targeting a sub-70 full year operating ratio, which would be a first-ever in our history. Our incremental margin, after adjusting for fuel price and last year's flood impact, was a notable 78% for the quarter, highlighting the positive impact of core pricing gains, improved fuel surcharge coverage, operational efficiencies and growth in attractive new businesses. That said, it's also likely to be the high mark for the year. Union Pacific's record earnings drove solid free cash flow in the first half of the year, but below 2011 due to a 37% increase in capital spending and a 54% increase in our cash dividend payments. While cash from operations improved year-over-year, earnings growth was masked by more than $600 million in higher cash tax payments. Much of that was driven by the 100% bonus depreciation program in effect last year, which significantly reduced our tax payments in 2011. Although the impact of bonus depreciation will still be a net benefit to free cash flow this year, it will result in a headwind compared to 2011, due to the catch-up of prior year's programs and a lower bonus depreciation rate in 2012. Our balance sheet remains strong, supporting our investment-grade credit rating. At June 30, 2012, our adjusted debt-to-cap ratio was 40.6%. We continue to make opportunistic share repurchases, which play an important role in our balanced approach to cash allocation. Union Pacific's increasing returns over the last several years have enabled us to drive greater shareholder value. In the second quarter, we bought back 3.8 million shares totaling $415 million at an average purchase price of around $110 per share. Combining dividend payments and share repurchases, we returned over $1.4 billion to our shareholders in the first half of 2012, up more than 40% versus last year. Looking ahead, we have 20.2 million shares remaining under our current authorization, which expires March 31, 2014. That's a recap of our second quarter results. Looking forward, our quarterly financial comps become more challenging, but we still expect to achieve record earnings and a sub-70 operating ratio in 2012. In addition, we're still forecasting volumes to be on the positive side of the ledger for the full year. Continued growth in domestic Intermodal, energy-related shale moves of crude oil, frac sand and pipe, in addition to strong Automotive and Chemical shipments, should offset the Coal decline. We're committed to achieving real pricing gains, driven by the increased value of our service offerings and solid demand in many market sectors. Our prospects for 2012, supported by Union Pacific's strong value proposition and the strength of our diverse franchise, should result in greater profitability and allow us to grow shareholder returns. With that, I'll turn it back over to Jack.

Thanks, Rob. Looking ahead to the second half of the year, the global economic outlook has become more uncertain and coal volumes are certainly going to remain a challenge. However, we're going to continue to take advantage of the opportunities provided by our diverse franchise to drive record financial results. I want to emphasize a point that Lance made. Union Pacific's commitment to employee and public safety is our #1 priority. That has not and will not change. We'll continue to focus on providing efficient service that adds great value for our customers. We're well positioned for upside, while remaining agile in today's changing environment. That said, we still believe in our prospects for growing profitability, generating improved returns and increasing shareholder value this year. So with that, let's open it up for your questions.

[Operator Instructions] Our first question is from Tom Wadewitz of JPMorgan. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Let's see, I wanted to see if you could give a bit more commentary on the Coal view. Your slide shows that in absolute loads, it seems like things have bottomed, but you do have more difficult comparisons in the second half. So how would we think about year-over-year? I think you had some stockpile comments. I didn't catch them all, and then I don't know if you want to comment on natural gas within that. And then do you think the broader -- a little more detail on your outlook for Coal in the second half.

Okay, Eric?

Yes, Tom. In terms of our Coal outlook, as we said earlier, our run rate is increasing as weather increase in load. Coal load demand increases also as natural gas prices increase. Our coal utility providers become more competitive in terms of using coal versus natural gas. As we said, in the third quarter, we will continue to have some tough comps as you saw on the slide, even as our volumes sequentially improve, which is why we said that third quarter will be down, again, in the low -- in the second half. The third quarter, we said, will be down in the low to mid-teens.

If I could just to add, Tom. To your point on the trough, what that slide shows is that our low point was in the second quarter -- on an absolute basis. Forget the year-over-year for a second. On an absolute basis, we did trough out on our coal in the second quarter, and that was at a low, on a PRB basis, of around 23 trains per day, and we have sequentially grown to where we're running at around, call it, 30 trains per day PRB today. So we clearly have come out of that trough. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Okay. And, Eric, you -- I think you might have mentioned this. I just didn't catch it. What was the stockpile level that you -- days in stockpiles you think you're at today?

We did -- I don't think we actually mentioned the absolute number, there. The report comes out this afternoon. We are expecting a reduction in the stockpiles with the report that comes out today or tomorrow. It will be around the low 20s, we think, above normal -- in terms of days above normal. So we are seeing continued, and expecting, particularly with this kind of weather that you're seeing across the country, a reduction in what the stockpile report will show.

Tom, I'm a little skeptical of that reported information. It's going to go and show, as Eric said -- the last report that came out said 23 days of available stockpile. Our customer base is not expecting or is not behaving like they have 23 days of excess coal supplies. They are ordering more coal. They are bringing more coal sets on service. So that is a generalized number and I think it involves all Powder River Basin shipments throughout the United States. I think in our served territory, we might actually be in somewhat better position than what that average stat might indicate.

Yes, as Rob mentioned, we are seeing our run rate sequentially improve. Thomas R. Wadewitz - JP Morgan Chase & Co, Research Division: Okay, that's very helpful. I mean, for the second question, if I could -- there is so much focus on legacy contracts this year. I don't think I've heard you talk much about legacy in 2013, but you've shown charts, I believe, $350 million in legacy business in 2013. Can you give us a sense of the timing of that? Is that all skewed to the beginning of the year, so you'd see kind of a full year benefit? And is that all coal? Or is there some other stuff in it?

Tom, I would refer you and others to the chart that you've seen us use in the past, that kind of lays out the pie chart, if you will, of legacy, where we show in 2013, there's about $350 million of legacy renewals up in 2013. And most of that is front-end loaded, and we haven't broken out precisely, but as you know, the bulk of what's still in front of us is Coal-related.

Our next question is from the line of Bill Greene of Morgan Stanley.

Just -- Rob, I want to just to follow up on a comment that you made, which is that the decline in Coal affected core price. Do you know roughly how much that would have affected it if it had just been, say, flat?

Yes, roughly, it's -- if you recall, Bill, in the first quarter, we said about a 0.5 points of our pricing was hurt, if you will, by the fall-off in Coal. That was even worse in the second quarter because Coal was down more. So it was more than 0.5 points.

On core price?

On price, yes.

Okay, got it. Okay. And then the -- I realize that there's a lot of moving parts here and there's uncertainty, but I think -- correct me if I'm wrong. Usually, the third quarter is typically your best OR quarter, and Coal, at least sequentially, looks like it will be a little bit better. So I sort of look at kind of the sub-70s target and I say, well, given where the first half was, the second half should be better. So that feels like a pretty modest guide. Or is there a part here that we have to remember just in terms of a cost metric or something, as we model the second half?

Go ahead out there [ph], Rob. Go for it. We're going to fight over this one.

Bill, I mean, we're -- there's a lot of uncertainty out there in the world, so we're -- I would just say this, that we're not going to solve for the 70. Just like all the previous targets we've set, we're going to get there as efficiently as we can and do it the right way, and that's through a combination of good service, safe service, pricing it right and running it efficiently. So don't look at the 70 as a solve-for number. We're going to get there as efficiently as we can, but there's a lot of uncertainties in front of us.

No, that's fair. That's fair. Just one last detail. I think in the past, you tried to estimate a market size for some of the shale play. Can you just remind us sort of what numbers you've thrown out?

Eric?

I'm not sure we've thrown out any absolute total market size numbers. What we have said in the past is that we would kind of double our volumes this year. And what we've said today is that, as we look at the outlook, our current outlook, that's about a 2% impact on our volume growth. I'm not sure we've given an ultimate market size impact of the shale play in the past.

I think, Bill, one of the things we've said in the past was we expected our shale business, when you add it all up together, to be somewhere close to 400,000 carloads this year. And as Eric reported, there's a couple of customer facilities that are a little slower coming online. We're probably going to fall a little bit short of the 400,000, but not too terribly much.

Our next question is from the line of Scott Group with Wolfe Trahan. Scott H. Group - Wolfe Trahan & Co.: So, Rob, I just wanted to follow up on the yields, and you talked about how mix was kind of a neutral in the quarter after a big positive in the first quarter. How should we think about mix in the back half of the year? And then just to follow-up on the point about Coal, as the coal volume declines moderate, is it fair that we should think that the same-store pricing increases a little bit, relative to that 4.5% in the second quarter?

I'm not giving guidance on the mix. But as you know, Scott, it really is dependent upon the -- what actually moves. So we saw a fairly dramatic shift from first quarter to second quarter on that mix, which is a result of, as I pointed out, worse Coal, more Intermodal, more manifest, lower ARC moves. We're not troubled by that, by the way, because what we're focused on -- whatever the business is that we move, we're focused on doing it, handling it right and generating strong returns, as we proved in the second quarter, even without the benefit of mix. So I can't give you guidance on the mix, other than it's not an excuse for us to turn in less attractive margins, and we'll continue to approach it that way. And in terms of your question on the core pricing, yes. I mean, just generally speaking, again, we're not giving pricing guidance, but to your point, as Coal strengthens, we should achieve the benefit of some of those renegotiated contracts as that business picks up. Scott H. Group - Wolfe Trahan & Co.: Okay, that's great. And then, just want to understand your thoughts on grain, given what's going on in the Midwest and the drought conditions. When you talk about eliminating the upside corn potential, does that mean you guys are now thinking about grain volumes being flat, going forward, starting in third quarter? Or is there still a chance that we get positive grain volumes, given the comps being easy and what still look like strong wheat production and wheat exports?

Yes, if you look at -- or if you go back a couple of months and look at the USDA projections, they projected this year to be almost a bumper year, one of the best years, one of the best 3 or 4 best years in terms of crop yield, crop production. That clearly has come down with the current drought conditions. I think the latest USDA projections are it's going to be relatively flat versus last year in terms of crop yield, crop production, and so our outlook in our ag business is probably relatively similar to that.

We actually have -- I think, Scott, if you look at it, we have somewhat easier comparisons in the third and fourth quarters, so we're hopeful that at least, if it doesn't get any worse than what they're currently talking about, we're hoping that we could still do a little better from a volume perspective in the second half than last year.

Our next question is from the line of Justin Yagerman of Deutsche Bank.

I was curious, as we look at Coal and kind of trend out through the remainder of the year, at this point, if you were assuming normal weather, when do you get to normal stockpiles that your utilities serve? And then, how do you think about, directionality, 2013 volumes? I know this is difficult, but just curious, I mean, from your standpoint, how you're thinking about next year and -- in terms of flat, down or up.

Justin, you're right. This is really difficult. If the kind of weather pattern that we see right now persists through the end of year, we should reach a point where we'll be okay with the stockpiles and our Coal business should be coming back to a more normal kind of a run rate for us. That's a pretty big "if". We've seen the weather change dramatically off and on. So you've been with us a long time. You've seen that happen from year to year. If the stockpiles stay where they are, come in on a normal range, we'll have a pretty good year next year in our Coal business, and hopefully it won't have the aberrations. We'll see. And then the other swing factor is what's going to happen with natural gas prices. Will they act the way the forward curve is kind of looking and continue to edge their way up? If that happens, we'll have a better prospect for a good year next year. If they crater on us and fall back down again, it will be a little more difficult.

So you still see Western coal, I mean, as solidly baseload. You haven't seen permanent switching that you think would impair that growth rate, looking out over the next couple of years.

That's right. We do not see anything happening right at the moment that causes us to think the growth rate is impaired.

Okay. And then on the export side, there's been a little bit of news with you guys and Peabody. Just curious where you guys are trending right now in terms of exports, and how you think about that business on a go-forward basis.

Last year, we moved about 5 million tons of export coal. We think we're on a track run to increase that 60% to about 8 million tons this year, with the recent announcement, as we continue to look for other opportunities for port capacity to export.

Our next question is from the line of Brandon Oglenski with Barclays Capital.

Jack, when we go back to your Analyst Day a couple of years ago, when you guys laid out the strategy to get to 65 or 67, I don't think anyone envisioned that you'd be getting to numbers close to that this quickly. So could you just talk about some of the risks? I mean, obviously, we've seen Coal come down. It hasn't had much impact. But what could get in the way of achieving that maybe a little bit faster than was anticipated a couple of years ago?

Brandon, I think as we laid that out in terms of the 67 to 65, the thing that I would put into perspective for you is, we have no intention of stopping there. If we get there sooner rather than later, then the goal just drops below the 65 at some point in time. We're going to continue to look at that. Certainly right now, when you look at what are the things that could get in the way, there's a wide assortment of those things, all of which we're up to the challenge of managing. You have the U.S. economic situation that will -- taking place. Of course out here, everyone, there's a lot in the press about the financial cliff that's approaching, depending on how the tax bills and things get settled out. That's certainly a risk to us. There's always a concern about what happens with fuel prices, long-term and near-term. We're watching carefully the global positioning of the global economy. When you look at anywhere between 30% to 40%, in any given quarter, of our business originates or terminates in another country, certainly what happens in China, what happens in the Eurozone and all those things can represent risk. Interestingly enough, they can also represent opportunity for us. So as the economic climate of Europe becomes more unstable, that raises the prospects in the United States of possibly moving some of that manufacturing to our economy, and particularly if we continue to see a positive impact on energy prices as a result of shale and shale development and those kinds of things. So there's a whole variety of things that -- up to and including weather. As we're seeing this year, weather can be a friend; weather can be an enemy. All of those things kind of play their role. But that being said, the path may be a little saw-toothed in getting there, but we will get there. And when we get there, we'll reassess where we're headed and we'll keep our direction on providing the most efficiency and productivity, while adding great value for our customers.

All right. And maybe one for Eric, as well, on Intermodal, which has actually seen some pretty favorable growth, a little bit above the economy here. How's your Mutual Commitment Program rolling out through the year?

We're excited about our Mutual Commitment Program. We think it is a strong leverage value for us in the opportunity -- in the marketplace. We're seeing a number of our customers adopt it, as they're recognizing the value of it. And throughout this year, in terms of the volumes that we're seeing that have gone through our MCP program, we -- they're aligned with what we expect and what we have planned, and we're excited about the continued upside opportunity.

Our next question is from the line of Ken Hoexter with Merrill Lynch.

I guess, Rob, just to clarify, you're not in any way kind of talking down second half with the sub-70 OR. Are you just looking at that? And I guess, to that point, I guess, on the employee cost side, you mentioned that you were looking at it to go up, I guess, or union wages were going up. It was -- I guess on a per-employee basis, costs were down 3% this quarter. Should we be looking for that to spike back up on a year-over-year basis in the back half?

Yes, Ken, a couple of points. And I am not saying things are going to get worse in the second half. What I'm simply giving is the record guidance of operating performance on a full year basis. And remember, that long-term target of 65, 67 is a full year number. And as I pointed on my comments, we've never in our history had a sub-70 operating ratio for a full year, and we're focused on doing that. But again, we're not going to solve for 70. We're going to get there as efficiently as we can. And if we get sub-70 -- the more sub we can get, the better. In terms of the point I was making on the cost side, just simply calling out that the inflation rate will go up a little bit in the third quarter as a result of the labor agreements. In -- I think I pointed out in my comments that, that labor line inflation will look more like 2.5% rather than the 1.5% that it was in the second quarter.

So we could still -- assuming if it was down 3% on a per-employee basis, if you add a point, you could still see that aiding results then, right?

Yes, Ken, that is -- you're exactly right. Those are still very good efficiency and productivity numbers from a cost standpoint.

All right, great. And then, Jack, is there any expectation for an update or proposed rulemaking, or anything out of the STB following last summer's hearings that you would expect in the back half?

You know, Ken, the STB has made some comments that would lead us to believe they are going to have some sort of announcement, pronouncement, finding or something. We don't know what that is yet, nor do we know the timing of it. So the answer to your question is I just don't know.

Okay. So there's nothing that's heating up, at least you've heard, behind the scenes or anything to lead you to believe that something is more imminent than not.

No. No change.

Our next question is from the line of Jason Seidl of Dahlman Rose. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Two lines of questioning, one on the Intermodal front, the other on pricing. You mentioned that you're up to a record 173 boxes per train. I was wondering sort of where you think you're going to max out. In other words, how much capacity do you have left in the Intermodal network?

Jason, I'll take the -- this is Lance. I'll take the capacity question. We've said this before that we've got plenty of upside in terms of productivity and train size. And specific to the Intermodal business, it's corridor-specific, but I think historically, we've said we could go -- we could see getting to a "200 boxes per train" kind of number. But again, it just depends on where the growth is, but we've got upside potential on virtually every corridor where Intermodal is, and we're investing to enable future growth as we speak. So candidly, I just don't see a limit at this point. Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: Okay. My other question is around the pricing. And the comment was made, just so I understand it, 4.5% is in the core. Coal hurt you by more than 0.5%. My question is, what percent of the business right now is sort of tied to inflationary indexes? And how do you think that, kind of, was calculated into the mix? Is that -- did that hurt that core pricing number a bit?

So what we've historically said is that about 75% of our business is -- and that is in contracts, long-term contracts. If you look at the percent of our business that's related to ALIF [ph] or RCAF increases, that's been -- we've historically said that's about 17% of our business.

And that number was only 1.5% in the second quarter, so... Jason H. Seidl - Dahlman Rose & Company, LLC, Research Division: It would have a negative impact on the core pricing number that you gave.

Yes, to some extent.

Our next question is from the line of Chris Ceraso of Crédit Suisse Group. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Some questions as it relates to Coal and pricing. Can you give us an idea -- outside of legacy, I know you mentioned the $350 million of legacy for next year, but outside of that, maybe contracts that have turned over more recently, what percent of your Coal business is going to reprice in 2013? And what should we expect if we assume -- let's say we assume natural gas is in the $2.50 to $3 range, do you anticipate that pricing can be steady? Or is it going to have to come down? What's your view if we make that assumption?

Rob, do you want to handle the legacy...

Yes. Let me just say this, Chris, in terms of your question, we don't give the specifics in terms of how much business we're negotiating. But just rest assured, we're in constant negotiations across our entire book of business daily. I mean, we talk a lot about the marquee, if you will, legacy renewals, but we don't give specific guidance numbers beyond that, so -- it's just a constant part of our business and a constant part of what we do in our marketing and sales team.

Yes, let me talk about the second part of your question on -- it sounded like you were asking, do we address our prices based on natural gas prices? We absolutely price to the market. We don't adjust our prices based on commodity prices. We believe we have a strong value proposition, and we believe the marketplace is recognizing our service and value proposition, and we're continuing to price to that value proposition across our entire book of business, including Coal. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Right, yes. I wasn't suggesting it was tied directly to the price, but more in line with your comment about the market. If natural gas is in the $2.50 to $3 range, what is the market for PRB coal? Is it competitive and you would expect, therefore, that prices are okay?

Yes. I think there is a number of different kind of public assessments that suggests that for PRB coal, $2.50, $3 natural gas price is about the place where PRB coal becomes more competitive versus gas for many of our serving utilities. Christopher J. Ceraso - Crédit Suisse AG, Research Division: Okay. And then just as a follow-up, the yields in the Chemicals business were a little bit weak. I'm sorry if I missed the reason for that. Was it a mix issue? Or what was going on there?

Mix. Christopher J. Ceraso - Crédit Suisse AG, Research Division: What specifically?

Well, as you know, our fertilizer business was down, as we talked about in our comments. And also, I think we talked about last quarter in terms of the tremendous growth that we have in our crude oil business, in our crude oil franchise. We talked about last quarter, I believe, that some of that business is shorter haul, so there's a downward mix impact associated with that.

Our next question is from the line of Chris Wetherbee of Citigroup.

Maybe a question on the Intermodal side. Eric, just on the -- can you give us a pricing update? I just want to get a sense of what kind of the current dynamic feels like right now. We've had fuel prices come in a little bit on the domestic side. I'm just kind of wondering with the dynamic is with truck, and kind of how you're feeling about that market.

Yes. That's a good question. I think if you look at our results for the quarter, you could see that we're getting strong pricing in the quarter. Truck costs are going up. There is a competitive environment out there, and the Intermodal business, as you know, is historically competitive with truck. But we are seeing a pressure on the costs for truck providers, and we've had a pretty good results in the quarter in terms of our growth in Intermodal pricing, as you've seen.

So the recent move we've had, which I know has kind of bounced off of the bottom recently on fuel, hasn't necessarily had much of an impact from a market share perspective.

We still see there's strong opportunity for pricing out there. Certainly, as you go through any period of time, you might see a period of time where a trucker wants to price something on fuel, but that doesn't change our strategy and we're continuing to drive our value proposition.

So we have not seen much of an impact.

Okay, that's helpful. And then just a little bit bigger picture as far as some headlines we've seen recently about the potential for East Coast labor issues, I'm just wondering how much does that get involved in conversations you have with customers as you're thinking about kind of the midsummer, kind of late, early fall type of a peak discussion? Does it come up at all? Are people thinking about it?

Customers are thinking about it. We have not seen much of an impact to date. Certainly, if there were an East Coast labor impact, customers are saying that they would use West Coast options. But to date, we haven't seen much of an impact.

And from a mutual commitment perspective, does that give you just one more kind of, a little bit more leverage in those discussions? Or is that not yet kind of on the table?

To date, we're not really seeing that being much of an impact.

Our next question is from the line of Peter Nesvold of Jefferies & Company. H. Peter Nesvold - Jefferies & Company, Inc., Research Division: I think most of my questions have been addressed. And maybe just a quick one on velocity. So velocity continues to improve here. Is there any way of thinking about that on an apples-to-apples basis? I suspect with coal volumes down, that's going to help velocity, all else equal. And then I guess what I'm trying to think about is, as volumes start coming back at some point, are you going to be able to hold the velocity gains that you're putting up right now as a result of the capital projects? Or should we assume that some of that starts to revert to the mean again?

Yes. So the way to think about velocity, the way we look at velocity, we believe, given the profiles that we've got looking forward, we can maintain the kind of velocity we've got right now. Our capital programs target where we have constraints in the network, and so we -- presuming we're effectively attacking those constraints, which we have been, that -- those really won't get in the way too much. What might be a risk to go-forward velocity is if growth happens in a rapid, unexpected fashion, somewhere where we're highly constrained, that can be a negative. But even this year, we've shown that where we get a significant growth in the South, where we are highly constrained, we've been able to manage through that largely and still put up good numbers.

If you're looking year-over-year, Peter, the one thing to remember is that last year, we were hurt very badly by the drought in the South and the flooding situation in terms of our overall velocity, so...

That's right.

Year-over-year, our current operating environment is much more favorable.

Our next question is from the line of Walter Spracklin of RBC Capital Markets.

All my questions have been answered, except one. I just wanted to touch in here on the peak season. I know one of your competitors in the East, earlier this week, talked about a little bit more of a muted peak season and I think yours, sort of, was around that same line. I think you mentioned positive but muted. I think that's where we were last year. I'm just curious as to whether that comment was relative to last year. Or are we looking at kind of the same thing as you saw last year?

Yes. I mean, when we talk about peak season, we typically talk, rough numbers, 10% to 12% improvement in volumes for the peak season vis-à-vis the period of time before the peak season. This year, our current outlook is probably 5% to 8% improvement in volumes, which will be muted from what we typically see, but we think it will be a little stronger than what we've seen last year.

Our next question is from Anthony Gallo with Wells Fargo.

The question is around the shale business. I think in aggregate, we think about it as a potential 400,000-carload business. Can you walk us through the length-of-haul dynamics in there? I heard you say crude was a shorter haul, but I think frac sand is long. And then right now, what's the mix of, say, unit train businesses versus manifest?

Okay, Eric?

Yes. There is a variety of locations. There's a balance there, some longer-haul business, some short-haul business. As you know, a sizable position of our crude oil business is joint line business with the BN and the CP out of the Bakken. So that has an impact. The crude oil business coming out of the Eagle Ford Shale, going to St. James, that's a shorter distance. So there's a number of ins and outs in terms of length of haul, depending on where the business is flowing from and where the sand business is flowing from.

Okay. And then unit train versus manifest?

The vast majority of our crude oil business is unit train business. Historically, our sand business has been manifest business, but we're driving more unit train opportunities with the current volumes. I think our current outlook in terms of the percent of unit trains in our sand business will be about 15%.

Okay. And then a follow-up, somewhat unrelated, but the Intermodal peak you just referenced, does the uptake in MCP smooth that peak? I'm just trying to separate what's happening in the economy versus how the MCP might smooth your peak, round it off [ph]...

Yes. Again, if you recall the MCP, the intent of that was to smooth our year-round volumes. The peak driver really is market drivers, and to the extent someone does not have an MCP agreement with us, they would have to try to get boxes and service on a peak spot-price basis.

Our next question is from the line of John Larkin of Stifel, Nicolaus. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: We talked a little bit about labor inflation earlier on. Rob, could you give us an outlook for, overall, maybe inflation x fuel for the second half, and then through 2013? And then how much of that inflation you believe the company might be able to offset through a continuation of its productivity enhancements?

Yes, John. Overall inflation, I'd say, is in the 2% to 3% range overall for us. And as you -- which is down as you know from last year. And our going-in position -- we haven't finalized our 2013 numbers. But I can just tell you this, that our going-in position, just at it is every year, is to offset -- we challenge ourselves to offset inflation with productivity. And there's lumpiness in there and mix will play a role in that, but that's the way we approach it. And if we hit half of that, let's say, that's doing pretty good. And if you look historically, we've achieved above that half, offsetting inflation with productivity. But we'll go in with that kind of mindset. John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division: That's great. And then as a follow-on, on the 4.5% core price improvement year-over-year, if you backed out the impact of the legacy repricing that's taken place over the last 12 months, what would the core pricing have been in that case?

John, this is Rob again. Roughly 1.5 points of the 4.5% was legacy, and again, that was held back because of the lack of volume in Coal that we talked about. But rough numbers, I'd say about 1.5 points of that.

Our next question is from the line of David Vernon of Bernstein Research. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Just 2 questions: one on petroleum, one Intermodal. For the petroleum business, it ramped pretty substantially, 28.8 to 55.2 on the carload side. Is that a good run-rate number? Or are you guys still in the process of bringing on more destinations and facilities? And where do you think that run rate will sort of level out over the next 6 months?

We're still in the process of bringing on more destinations and facilities. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: And do you -- can you give us a sense for how much more that will ramp? Obviously, the 92% growth is probably a little high.

Yes. We're expecting additional growth. It will probably sequentially not be as high as the growth that we've seen, but we are expecting additional growth. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: Okay. Can you give us any kind of direction, like 10, 20, 30, 50?

David, this is Rob. No is the answer to that. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: All right. I just figured I ask. And then for the Intermodal business, the volume decline, you seem to have sort of offset the prior weakness and the pricing on it. At least the reported RPU number is down. Are those things independent? Or have you guys taken the throttle off a little bit on pricing in Intermodal to offset some of that share loss?

I'm not sure I understand the question. Would you say that again? David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: So in the last couple of quarters, you have been getting to double-digit RPU gains in Intermodal and volume declines in Intermodal. This quarter, you got a 3% gain in Intermodal volume and a 6% gain in Intermodal RPU. Are those independent? Or are those -- or are you -- or have you guys taken the throttle off a little bit on pricing aspirations in Domestic Intermodal?

Yes, I think those are independent. I think if you look in the previous quarters, we basically were able to renegotiate some legacy things and get fuel where we had not historically gotten fuel. So that's where you see that. In terms of the volume improvement that you see this quarter, we think that, that's really market-related-driven. We are still focused and maintaining our price strategy and are excited about the results of that. David Vernon - Sanford C. Bernstein & Co., LLC., Research Division: So market-driven from a domestic or international standpoint?

Yes, in -- the international business has strengthened a little, stronger than what we expected in our earlier outlook. And our domestic business, in terms of highway conversions, are also coming very strong.

Our next question is from the line of Jeff Kauffman of Sterne Agee. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Sal Vitale on for Jeff. Just a quick question on the fuel surcharge side. So fuel surcharge increased coverage accounted for roughly 1% of revenue growth this quarter. I think it was also similar, roughly 1%, last quarter. How sustainable is this? So at what point will this start to tail off? I mean, what percentage of your overall book of businesses currently have -- currently -- do you currently assess fuel surcharge on?

Okay, Rob?

Yes. Sal, well, you've probably heard me say that we're not going to sleep at night until we have 100% of our book of business with adequate fuel surcharge recovery mechanisms in place, and we're not there yet. But we did take a big step forward with the big legacy renewals that we talked about that were both at the end of 2011 and early 2012, and that's what you're seeing the continuation of, here in the second quarter. So I would not expect that once we lap these legacy renewals, that you'll see as big a step forward as you saw in the second quarter. But we would expect it to still move directionally in the right direction because we're not ,at 100% to where we want to be. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: And also, you said you start to lap that in the third quarter. Or is it the fourth quarter?

No, it would be fourth quarter. End of fourth quarter is when some of that started. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay, understood. And then just -- if I could just revisit the labor cost side. That was very impressive labor performance. So you're saying that the labor inflation for the second half should be about a point higher than it was in the second quarter. So would it be fair to assume that your labor expense per employee would be down on a year-over-year basis in the second half or flattish?

We've got capital employees in there as well, including the positive train control. So I mean, directionally -- I can't give an answer, but that's probably not directionally off, Sal. Salvatore Vitale - Sterne Agee & Leach Inc., Research Division: Okay. And then just the last question, if I could. What are you currently playing -- paying for fuel? What is your current fuel price?

Over -- just slightly over $3 right now, and going up, slightly going up.

Our next question is from the line of Brad Delco of Stephens Inc.

Eric, I guess this is for you. A little bit more on the Intermodal pricing. It seems as if IMCs are expecting, or commented that pricing was a little bit weaker, and I thought maybe I could get an update from you on how many boxes you have parked, what your expectations are in the back half of the year. And would you expect your domestic Intermodal pricing to be maybe decelerating on a year-over-year basis in the back half of the year versus what we saw last year?

Yes, I don't think we've publicly talked about how many domestic boxes we have stored. We view that as a competitive -- internal competitive information. We, as you know, are focused on price. We're focused on our value proposition, and we certainly understand the value of our services and that's where we're pricing them at. I can't speak to other IMCs and others in terms of how they are pricing their services, but we are pricing ours based on our value proposition, and our results in the quarter demonstrate that. And we're not changing our strategy in the future.

Okay. Well, if I ask it another way, would you say your value proposition is as strong this year as it was last year?

We are as highly confident of our value proposition. As I said -- as you said, you've seen what some of the IMCs have reported and what they have said. I would just say we have a strong belief in our value proposition and if the business is not re-investable, if the business we don't believe is supportive of our value proposition, we're okay not getting every piece of business.

At this time, I would like to turn the floor back over to Mr. Koraleski for closing comments.

Well, great. Thank you, everyone, for joining us on the call this morning. And we're looking forward to speaking with you again in October.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.