csx (csx) earnings report: q4 2015 conference call transcript · csx (csx) earnings report: q4 2015...

CompanyName:CSXCorpCompanyTicker:CSXSector:ServicesIndustry:T ransportat ion

EventDescription:Q42015EarningsCallMarketCapasofEventDate:23.11BPriceasofEventDate:22.35

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

Csx(CSX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingCsxconferencecalltookplaceonJanuary13,2016,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DavidBaggs;CSXCorp;VicePresidentTreasurerandIROfficerMichaelWard;CSXCorp;ChairmanandCEOFrankLonegro;CSXCorp;CFOFredrikEliasson;CSXCorp;ChiefSalesandMarketingOfficerCindySanborn;CSXCorp;COO

OtherPart icipants

KenHoexter;BofAMerrillLynch;AnalystBrandonOglenski;BarclaysCapital;AnalystBrianOssenbeck;JPMorgan;AnalystChrisWetherbee;Citigroup;AnalystTomWadewitz;UBS;AnalystAllisonLandry;CreditSuisse;AnalystRobSalmon;DeutscheBank;AnalystAlexVecchio;MorganStanley;AnalystJasonSeidl;CowenandCompany;AnalystMattTroy;NomuraSecurities;AnalystCherilynRadbourne;TDSecurities;AnalystBenHartford;RobertW.Baird&Co.;AnalystDavidVernon;SanfordC.Bernstein&Co.;AnalystJohnLarkin;StifelNicolaus;AnalystBascomeMajors;SusquehannaFinancialGroup;AnalystJeffKauffman;BuckinghamResearch;AnalystScottGroup;WolfeResearch;AnalystJustinLong;StephensInc.;AnalystCleoZagrean;MacquarieResearchEquities;AnalystKeithSchoonmaker;Morningstar;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheCSXCorporationfourth-quarter2015earningscall.

(OperatorInstructions)

Foropeningremarksandintroductions,IwouldliketoturnthecallovertoMr.DavidBaggs,VicePresident,Treasurer,andInvestorRelationsOfficerforCSXCorporation.

DavidBaggs (VicePresidentTreasurerandIROfficer):




Thankyou,Carlos,andgoodmorning,everyone.Andagain,welcometoCSXCorporation'sfourth-quarter2015earningspresentation.Thepresentationmaterialthatwe'llbereviewingthismorning,alongwithourquarterlyfinancialreportandoursafetyandservicemeasurements,areavailableonourwebsiteatCSX.comundertheinvestorsection.Inaddition,followingthepresentation,thewebcastreplaywillbeavailableonthatsamewebsite.Thismorning,ourpresentationwillbeledbyMichaelWard,theCompany'sChairmanandChiefExecutiveOfficer;andFrankLonegro,ourChiefFinancialOfficer.Inaddition,CindySanborn,ourChiefOperatingOfficer;andFredrikEliasson,ourChiefSalesandMarketingOfficer,alongwithClarenceGooden,ourPresident,willbeavailableduringthequestion-and-answersession.

NowbeforeIturnthepresentationovertoMichael,letmeremindeveryonethatthepresentationandotherstatementsmadebytheCompanycontainforward-lookingstatements.YouareencouragedtoreviewtheCompany'sdisclosureontheaccompanyingpresentationonslide2.Thisdisclosureidentifiesforward-lookingstatements,aswellastheuncertaintiesandrisksthatcouldcauseactualperformancetodiffermateriallyfromtheresultsanticipatedbythesestatements.Inaddition,attheendofthepresentation,wewillconductaquestion-and-answersessionwiththeresearchanalysts.Withnearly30analystscoveringCSXandoutofrespectforeveryone'stime,includingourinvestors,Iwouldaskasacourtesyforyoutopleaselimityourinquiriestoonequestionandifnecessary,aclarifyingquestiononthatsametopic.Andwiththat,letmeturnthepresentationovertoCSXCorporation'sChairmanandChiefExecutiveOfficer,MichaelWard.Michael.

MichaelWard (ChairmanandCEO):

Wellthankyou,David.Goodmorning,everyone.Yesterday,CSXreportedfourth-quarternetearningsof$466million,or$0.48pershare,down2%fromthesameperiodin2014.Revenuedeclined13%inthequarter,asstrongpricingwasmorethanoffsetbytheimpactoflowerfuelrecovery,a6%volumedecline,andthecontinuedtransitionintheCompany'sbusinessmix.Expensesalsodecreased13%,primarilytheresultoflowerfuelprices,lowervolume-relatedcosts,andefficiencygains.Asaresult,operatingincomedecreased12%to$791million,whiletheoperatingratioimproved20basispointsto71.6%.Inaddition,CSXremainsanindustryleaderinsafety,andservicemeasurescontinuetoprogresswellasweenter2016.Infact,Chicagooperationshavenowbeenfluidfornearly12straightmonths.

Nowturningtothenextslide,I'lldiscussfull-yearperformance.Overthepastfiveyears,CSXhastransformeditsbusinesstocontinuedeliveringsolidresults,despitetheglobalenergytransition.Asyoucanseeontheleftsideofthechart,duringthatperiod,CSXcoalrevenuealonedeclinedfrom$3.7billionto$2.3billion,acumulativereductionof$1.4billion.CSXhasovercomethatlossbysignificantlydiversifyingitsmarketmix,improvingservice,andinvestinginlong-termgrowthopportunities.Asaresult,in2015,coalrepresentedonly19%ofCSX'srevenue,downfrommorethan30%in2011.Duringthatsameperiod,shareholderreturns,includingdividendsandrepurchases,havecontinuedtorewardtheownersofourCompany,reflectingthesteadygrowthinearningspershare,whichreached$2in2015.

Our2015performancewasachieveddespitethechallengesintheenergymarket,lowcommodityprices,andastrongUSdollarthatimpactedmanyofourmarkets.Revenueof$11.8billionreflectedgrowthinintermodal,automotive,andminerals,thatpartiallyoffsetthecontinueddeclinesincoal.Improvingservice,aligningresourcesandcostsagainstalowerdemandenvironment,anddrivingefficiencygainsofmorethan$180millionhelpedgenerateoperatingincomeofnearly$3.6billionandourfirstsub-70full-yearoperatingratioat69.7%.Thoseresultsreflecttheemployees'relentlessfocusonsafetyanddeliveringservicethatsupportsstrongpricingandever-increasingoperationalefficiency,aswellasthebenefitoflowerfuelprices.Wewillcontinuetoleverageourcorestrategy,superiornetworkreach,anddiversemarketmixtocreatelong-termvalueforourshareholders.

Now,I'llturnthepresentationovertoFrank,whowilltakeusthroughthequarterlyresultsandfuture




outlookinmoredetail.Frank?

FrankLonegro (CFO):

Thankyou,Michael,andgoodmorning,everyone.Letmebeginbyprovidingsomemoredetailonourfourth-quarterresults.AsMichaelmentioned,revenuewasdown13%,or$411millionversustheprioryear.Thiswasdrivenmainlyby$198milliondeclineinfuelsurchargerecoveriesandabout$175millionfromtheimpactoflowervolume.Atthesametime,corepricinggainsweremorethanoffsetbytheimpactofnegativebusinessmix.Volumedecreased6%fromlastyear,withcoaldrivingthemajorityofthedecline.Lownaturalgasprices,coupledwiththeimpactofsignificantfloodinginSouthCarolina,impacteddomesticcoalvolumes,whilelowcommoditypricesandthestrongUSdollarchallengedexportcoalinmanyofourmerchandisemarkets.Wecontinuetoseestrongcorepricing,whichforthefourthquarterwasup4.1%overalland4.5%excludingcoal.

Otherrevenueincreased$19millionfromlastyear,drivenprimarilybyunfavorableadjustmentstorevenuereservesintheprior-yearperiod.Expensesdecreased13%versustheprioryear,drivenmainlyby$117millioninlowerfuelprices,$107millioninlowervolume-relatedcosts,and$59millioninefficiencygains.Inordertofurtherdriveefficiencies,weclosedtwofacilitiesinourcoalnetworkandcompletedanewunionlaboragreementinthefourthquarter.Asaresultoftheseactions,weincurreda$48million,or$0.03EPSimpactinthequarter.Theseshort-termrestructuringcostswilldrivefuturebenefitsaswegaingreaterworkforceflexibilityandcontinuetoadjusttolowerdemandinourcoalmarket.Operatingincomewas$791millioninthefourthquarter,down12%versustheprioryear.

Lookingbelowtheline,interestexpensewasupslightlyfromlastyear,withhigherdebtlevelspartiallyoffsetbylowerrates.Aswehighlightedonourlastearningscall,apropertysaleclosedinthefourthquarterforagainof$80million,ora$0.05benefittoearningspershare.Thisgainwasassociatedwithanonoperatingpropertyandwasbookedbelowthelineinotherincome.Andfinally,incometaxeswere$275millioninthequarter,withaneffectivetaxrateofabout37%.Overall,netearningswere$466million,down5%versustheprioryear,andEPSwas$0.48pershare,down2%versuslastyear.

Nowletmeturntothemarketoutlookforthefirstquarter.Lookingforward,weexpectvolumestodeclineinthefirstquarter.Weexpectachallengingfreightenvironmenttocontinueastheheadwindsassociatedwithcoal,lowcommodityprices,andastrongUSdollarmorethanoffsetthemarketsthatwillshowgrowth.Automotiveisexpectedtogrowconsistentwithlightvehicleproduction,andespeciallyincomparisontoayearagowhentheautonetworkexperiencedweatherandservice-relatedcongestion.Mineralswillbenefitfromcontinuedhighwayandnonresidentialconstructionactivityandnewbusiness.Intermodalisneutral,ascontinuedseculardomesticgrowthandourstrategicnetworkinvestmentsthatsupporthighwaytorailconversionareessentiallyoffsetbycustomerlossesininternational.Agriculturalproductsisunfavorableduetolowcornprices,coupledwithweaknessinexportgrainandimportsourcingandethanol,drivenbyastrongUSdollar.Whilecorechemicalsisexpectedtoagainbeflat,theoverallchemicalsmarketisexpectedtobedown,asenergymarketscontinuetoresettoanenvironmentmarkedbylowcrudeoilpricesandchallengingspreads.

Domesticcoalwillcontinuetobeunfavorablyimpactedbylownaturalsgaspricesandaninventoryoverhangduetomildweather.For2016,weexpectdomesticcoalvolumetobearound19milliontonsperquarter.ExportcoalwillcontinuetobepressuredbythestrongUSdollarandglobaloversupply.Ourfull-yearoutlookforexportcoalvolumeisaround20milliontonswithsomedownsidesensitivity.Metalsisunfavorable,asthestrongUSdollarandhighlevelsofimportscontinuetonegativelyimpactsteelproductionlevels.Overall,despiteaslowgrowingeconomy,thefreightenvironmentcontinuestohavepronouncedchallengeswithlowcommodityprices,lownaturalgas,andastrongUSdollar.

Turningtothenextslide,letmetalkaboutourexpectationsforexpenses.Overall,weexpectfirst-quarter




expensetobenefitfromthelowfuelpriceenvironment,aswellascontinuedproductivityandvolume-relatedcostsavings.Lookingatlaborandfringe,weexpectthefirst-quarteraverageheadcounttobedownapproximately2%onasequentialbasis,drivenprimarilybythestructuralchangesinourcoalnetworkthatweannouncedinthefourthquarter.Thisreflectsabouta10%reductionfromtheprioryear.Weexpectlaborinflationtobearound$25millionperquarterthroughout2016,inlinewiththelevelsseenhereinthefourthquarter.

LookingatMS&Oexpense,weexpectinflationtobeoffsetbyefficiencygainsandvolume-relatedsavings,inlinewiththetrendswehaveseeninthesecondhalfof2015.Inaddition,thefirstquarterwillreflectashiftinourNorthernOhiocoaloperations.HerewetookactionearlyinthefourthquartertoconsolidatefreightfromafacilityinAshtabulatoCSX'sToledodocks,whichfurtherstreamlinesourcoaloperations.Fuelexpenseinthefirstquarterwillbedrivenbylowercostpergallon,reflectingthecurrentpriceenvironment,volume-relatedsavings,andcontinuedfocusonfuelefficiency.Weexpectdepreciationinthefirstquartertoincreasearound$15millionversustheprioryear,reflectingtheongoinginvestmentinthebusiness.Finally,equipmentandotherrentsinthefirstquarterisexpectedtostayrelativelyflattolastyear,withhigherfreightcarratesoffsetbyimprovedcarcycletimes.

Nowletmetalkaboutourcapitalinvestmentplanforthisyear.In2016,CSX'stotalcapitalinvestmentwilldeclineover$100millionfromthe2015levelto$2.4billion,whichincludes$300millionforPTC.Similarto2015,weexpect2016corecapitalinvestmenttobehigherthanourlong-termguidanceof16%to17%ofrevenueduetoourlocomotivepurchasecommitment.Thisinvestmentinnewlocomotivesexpandsourabilitytorunlongertrainsandwewillcontinuestoringolderlocomotivestomaximizetheefficiencyofthefleet.

Lookingatourcapitalallocationfor2016,youcanseethatoverhalftheinvestmentwillbeusedtomaintaininfrastructuretohelpensureasafeandfluidnetwork.Themajorityofour2016equipmentinvestmentisfocusedonupgradingourlocomotivefleet.Wetookdeliveryof200newlocomotivesin2015andexpecttoreceiveanother100newlocomotivesin2016,whichwillcompleteourexistinglocomotivepurchasecommitment.Inaddition,wewillcontinuetofocusonstrategicinvestmentsthatsupportlong-termprofitablegrowthandproductivityinitiatives.Hereweareprioritizingtheseinvestmentsinourintermodalbusiness,infrastructureprojectsthatsupportnetworkfluidity,andtechnologyinitiativestoenableproductivity.Finally,lookingatourinvestmentinPositiveTraincontrolwehaveinvested$1.5billionthroughtheendof2015andweplantoinvestanadditional$300millionin2016.CSXiscommittedtomeetingthenewlegislativetimelineforPTC.AswelookatthepathtoachievingthisgoalandwithPTCnowextendingoveralongerperiodoftime,wenowbelievethetotalcostofPTCimplementationwillbeabout$2.2billion.

Nowletmewrapuponthenextslide.Overall,CSXdeliveredsolidfinancialperformancein2015,despitesignificantmarketchallenges.Full-yearEPSincreased4%fromtheprioryear,whileouroperatingratioimproved180basispointsto69.7%.Revenuein2015waslowerthanweinitiallyexpected,withvolumedeclining2%forthefullyear.Butourcontinuedfocusonpricingfortherelativevalueofrailservice,drivingefficiencygains,andaligningresourcestothesofterdemandenvironmenthelpedtooffsetthosevolumeheadwinds.

Lookingahead,weexpectthecoalheadwindstocontinuein2016.AsImentionedearlier,domesticcoalvolumein2016isexpectedtobearound19milliontonsperquarter,whilefull-yearexportcoalvolumeisexpectedtobearound20milliontons,again,withsomedownsidetotheexportestimate.Inaddition,forthefullyear,wewillbeoperatinginamorechallengingfreightenvironmentthanwesawin2015.Naturalgasandbroadercommoditypricesareexpectedtoremainatlowlevels,andthestrengthintheUSdollarisexpectedtopersistduringtheyear.Furthermore,in2016,wewillbecyclingacouplelargeitemsthatbenefitedour2015results.Namely,wereceivedabout$100millioninliquidateddamagesandhadan$80millionpropertygainin2015,whicharenotexpectedtorecurin2016.Asaresult,wecurrently




believethat2016earningspersharewillbedownfromlastyear.

Lookingatourexpectationsfor2016,wewillcontinuetorightsizeresourceswithlowerdemandandpursuestructuralcostopportunitiesacrossournetwork.Inaddition,weexpecttodeliverproductivitysavingsofaround$200millionin2016,whichbuildsonthe$184millionofproductivitythatweachievedin2015.Overall,weremainintenselyfocusedthisyearondeliveringaserviceproductthatmeetsorexceedsourcustomers'expectations,achievingstrongpricingtosupportreinvestmentinthebusinessanddrivingefficienciesacrossourentirecoststructure.

Withthat,letmeturnthepresentationbacktoMichaelforhisclosingremarks.


Well,thankyou,Frank.CSXhascontinuedtodeliversolidresultsforitsshareholders,despitethetransformationaldeclineintheenergyenvironmentandthechallengingmarketconditions.Theeffortsofourdedicatedemployees,combinedwiththediversifiedbusinessmixandthepremiernetworkintheeast,havehelpedusovercomethesignificantlossesincoal.

AsFrankmentioned,2016willbeamorechallengingyear.Volumeinthefirstquarterandforthefullyearwilldecline,asgrowthinsomemarketscontinuestobeoffsetbythesignificantimpactofcontinuedcoaldeclines,lowcommodityprices,andastrongUSdollar.Wearetakingnecessaryactionstomanageourbusinessinthatenvironment,includingmakingstructuralandnetwork-widechangestomatchresourcesandcostswithbusinessdemand,drivingfurtherefficiencygains,andremainingfocusedonstrongpricingthatreflectsthevalueofCSX'sservice.Inresponsetothefurtherchallengesexpectedin2016,we'vealsodecreasedthecapitalbudgetbymorethan$100million.Weexpecttoinvest$2.4billionthisyearasweremaincompetitivetopreservingsafety,service,andefficiencyforcustomersandcommunitiesalike,whilepositioningCSXforthefuture.

Aswelooktothefuture,thisCompanywillcontinuetotransitionitsbusinesstowardlong-termprofitablegrowthopportunitiesinthemerchandiseandintermodalmarkets.Inthatregard,weremainfocusedonachievingamid-60soperatingratiolongerterm,asweexecuteourcorestrategyofmeetingorexceedingcustomerneedstosupportstrongpricingforthevalueofourrailserviceandcontinuouslyimprovingoperationalefficiency.

Withthoseefforts,weareconfidentthatCSXwillcontinuetobeapreferredserviceproviderforcustomerswhofaceagrowingpopulation;amoreintegratedglobaleconomy;andtheneedformorereliable,moresustainablesupplychains.

Now,wewillbegladtotakeyourquestions.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

KenHoexterfromMerrillLynch.


Goodmorning,Ken.

KenHoexter (Analyst-BofAMerrillLynch):

Hi.Goodmorning.Michael,goodjobinadifficultenvironment.IfIcouldjusttalktoyouabouttheoutlook




here?

Whenyouthinkaboutearningsgoingdown,canyou--doyouhavecomfortwhenyoulookattheeconomyputtinganyscaleonthat?

Andwithinthat,itseemedlikecoalandintermodalratedeclineswereover8%.Iunderstandfuelandmixwereabigpartofthat.

Butcanyoutalkaboutthecompetitivelosses?Isthatsomethingwhereyou'reseeingincreasingpricepressurewiththat?Areweseeingthecompetitionincreasetheirfocusonpricingtowinsomeofthoseintermodalcontractsthatyounotedhadbeenlost?Becauseitseemslikethevolumeoramountofthosehadbeenaccelerating.Maybeyoucouldjusttalkalittlebitaboutthatandtheoutlook.


Good,broadquestionthere,Tom.Ken,I'msorry.SoFredrik,maybeaddresssomeofthemarketconditions.

FredrikEliasson (ChiefSalesandMarketingOfficer):

Sure.Intermsofthepricingforthequarter,asyousaw,ourex-coalpricingactuallyimprovedfromthethirdquarter,wentfrom4.4%inthethirdquarterto4.5%hereinthefourthquarter.All-inwentdown,andtherereallyisareflectionofwhatwedidinexportcoalmarkethereaswe'renowinapositiontoactuallyhavesomesurplusasset.Again,aswegetthenetworkrunningalotbetterandverystrongserviceperformance,wedohavesomeexcesslocomotives.

We'veseentheexportmarketdeteriorate,andasaresultofthat,wefeltthiswasatimewhenwewentbackandrevisitedwhatwecoulddotooptimizeourbottomline.Thisisonemarketwhereweactuallydon'thavefuelsurchargein,andasaresult,thisfuelpricehasdeclinedthroughouttheyear.

Wedidfeelthattherewasstillanopportunitytodoalittlebitmorethereandstillmakemoneyonthat.Whatyou'reseeingonthepricingsideintheall-inisreallythereflectionofwhatwe'redoingintheexportcoalmarket.Thecorepricingactuallysequentiallyimprovedquarteroverquarter.


Frank,youwanttoaddresssomeofthe--

FrankLonegro (CFO):

Yes,Ken,ontheEPSfortheyear,you'reright,wedidguidetoEPSbeingdownonareportedbasisversustherecord$2asharethatwedeliveredin2015.Wetriedtogiveyouguidanceintermsoftheone-timeitemsthatwe'recyclingintermsoftheliquidateddamagesandthepropertysale,thecontinuedtransformationintheenergysector.Soweupdatedthecoalguidancebothonthedomesticsideandtheexportside.

Andthentriedtogiveyousomeviewintothebroadereconomy.Andclearly,thoseareontheindustrialsidebeingsuppressedbyacombinationoflowcommoditypricesandthestrongUSdollar.

ButthisCompanyhasremainedrelentlesslyfocusedondrivingthethingsthataremostwithinourcontrol.Asyousawourperformancethisyear,or2015Ishouldsay,intermsoftheright-sizingthatwedidandtheefficiencygainsthatwedeliveredin2015andtheprojectionsof$200millionaswegetinto2016,we'vegotanimprovingserviceproduct.

Fredrikjustmentionedthestrongpricingforourshareholders.It'slikelygoingtobeauniqueyearforus




in2016,andafterthat,wefullyanticipateEPSgrowthtowardthatpathofmid-60slongerterm.


AndthenKen,inthisoneverybroadquestionthatyouasked,I'llcomebacktotheinternationallossesthatwereferredto.We'vehadseveralnowoveraperiodoftimethatwillbewithusthroughout2016.Andaswethinkaboutwhereweare,we'regrowingwithourexistingcustomersverywell,buttherehasbeensomecustomersthatwelost.

Andclearly,fromourperspective,wefeelthatwehaveaverystrongserviceproductrightnow.Wehavewhatwethinkisasuperiornetworkreach.Sotheonlythingwecanassumeisthattherearefactorsoutsideofourcontrolthathasallowedustolosethattraffic.

KenHoexter (Analyst-BofAMerrillLynch):

Great.Appreciatethetimeandinsight.Thankyou,guys.

Operator :

BrandonOglenskiofBarclays.


Goodmorning,Brandon.

BrandonOglenski(Analyst-BarclaysCapital):

Goodmorning,everyone.Thankyoufortakingmyquestion.Andsimilarly,prettygoodresultsinthedifficultenvironment.Socanwetalkmorebroadlyaboutwhatcouldbecomeamanageablelevelofvolumedeclinewherewecouldthinkearningsgetbacktoflat,wecangetbacktooperatingratioimprovement,ormaybeyou'renotevensuggestingyoucan'tgetoperatingratioimprovementthisyear.Butcanyoutalktolevelsinthenetworkwhereyou'dfeelcomfortablesayingourcostperformanceandourefficiencyplancangetearningstorightsize,ifnotevengoupalittlebit?


Ithinkona2016basis,obviously,asImentioned,it'sgoingtobeabitofauniqueyear,continuingresetsintheenergyenvironment.Andontheoperatingratioquestionfor2016,obviously,it'sgoingtobedifficulttosustainasub-70performance,especiallygivenwhatwe'recyclingandthecoalprojectionsthatwe'vegivenyouandtheuncertaintyintheindustrialeconomy.

Butthenagain,it'sJanuarythe14th.It'sthemiddleofthefirstmonthoftheyear.We'vegotagreatnetwork,asFredrik'smentioned.We'vegotatrackrecordofsuccess.Wehaveimprovingserviceproducts.

Sowe'regoingtoberelentlessintermsofourfocusonthethingsthataremostwithinourcontrol.Andsothosearethethingstakegiveusconfidencethatthefuturebeyond2016isapositiveone.


Isthereanywaythoughtoquantifyforfolksonthecalljustatabroadlevel,ifvolume'sdownlowsingledigitsormidsingledigits,doesthatbecomemoreproblematic?I'mtryingtoquantifyforfolkswherethelossinearningscouldstop.





Brandon,nottoberepetitive,butobviously,theonetimers,clearlythosecouldbeeasilydefined.Ithinkwe'vegivenverystrongguidanceastowhereweseethecoalmarketthisyear.Obviously,alittlebitofpotentialdownsideintheexport.It'salittlehardtogaugethisearly.

Ithinkprobablythewildcardistherestoftheeconomy,anditisveryearlyintheyeartotrytogaugethat.Obviously,Ithinkifyoulookatmostprognosticators,they'resayingthefirsthalfoftheyearprobablylooksweakontheindustrialside,butpotentially,itrecovers.Andwedon'treallyhaveabettercrystalballthanthatacoupleweeksintotheyear,andthat'sprobablythewildcardintheentirething.

We'regoingtodrivetheefficienciesover$200million.Wewilltakeactionstoalsoreflectthelowervolumes,whichwillbeinadditiontowhatwedoontheproductivityside.AndIthinkwiththoseparameters,itshouldbeabletogiveyousomerelativeideaofwhattheexpectationscouldbe.


Okay,guys,thankyou.

Operator :

BrianOssenbeckofJPMorgan.


Goodmorning,Brian.

BrianOssenbeck(Analyst-JPMorgan):

Goodmorning.Thankyoufortakingmycall.Iwascurious,inthe19milliontonsperquarterguidanceyouhaveindomestic,whatlevelofdestockingfrominventoriesdoyouhavereflectedinthere?

You'veoutlinedsomedownsiderisktoexportcoal.Iwasjustwonderingwhatyourthinkingisonthedomesticsidefromtheutilitystockpileandalsowhatlevelyouthinknaturalgaswouldbe?


Obviously,wedon'tforeseenaturalgasreboundingsignificantthanfromwhereitistoday.Andasaresult,mostlikelyfortherestoftheyear,weexpectourcoalplantsthatweservetobedispatchedlast.Weareseeingobviouslyexcessstockpilesrightnow.Ifwelookatwhereweare,we'reprobablyinthe110sorsointermsofthesouthandmoreinthe80rangeinthenorthernpartofournetwork.Weshouldprobablybeinthe55to70range.

Soaswethinkaboutthat19millionofdomesticcoal,itreallybreaksdownintotwocomponents.Oneisthatutilitycoal,whichisabout14milliontonsandsteelindustrial,about5milliontons,tomakeupthe19.Wedidabout13.6hereinthefirstquarter.Andsowe'reessentiallysayingwewillcontinuethatrunrate.

Weexpectsomedestockingtooccurovertheyear,buthowmuchreallywillbedependentontheweathersincewenowaredispatchedlast,we'reessentiallypeakers,sowe'reverymuchweatherdependent.Ifyouhavefavorableweatherconditionsfromarailroadperspectiveorutilityperspective,thenyoucanseeamoresignificantdestocking.

Ifyouhavecontinuedthesortofweatherpatternwesawinthefourthquarterwhereheatingdegreedayswereactuallyoffbyabout25%to30%offnormal,thenthatwillbemuchmorechallenging.Buthopefully,wewon'tseethatandwewillseesomedestockingoccurwithintheguidancethatweprovided.





Okay,thankyou.Andtheotheronerelatedtogas,thatwouldbecoaltogasswitching,difficulttotellbutfromastructuralperspective,arethereanypocketsinthenetwork,perhapsinthenorthneartheMarcellusandUticaShalewhereyouwouldexpecttoseesomemoregasplantsbeingbuiltthatcouldperhapsprovidealittlebitofincrementalpressureontheresttothenetwork?


No,IthinkthatalltheswitchingthatcanoccuralreadyoccurredbackinMarchorApriloflastyear.Whatwehaveseenisinsomeinstances,weareseeingsomeofthecoalburnersactuallynowburningsomenaturalgasinconjunctiontocoalfiringitwithnaturalgas,thathashadalittlebitofanincrementaladditionalnegativeimpactonus.Butalltheswitchingthatcanoccurhasalreadyoccurred,andwearebeingdispatchedlastortheutilitiesthatweservearebeingdispatchedlast.


Okay.Thankyouforyourtime.

Operator :

ChrisWetherbeefromCiti.

ChrisWetherbee (Analyst-Citigroup):

Thankyou,goodmorning.Wantedtoaskaboutthecoalnetworkandwhereyouareintermsofpotentialstructuralchangesthatyou'redoing.Yousaidsomeactionsinthefourthquarter.I'mcuriouswhatelsecanbedoneasyoumoveforwardthrough2016giventheoutlook.

Andthenmaybehowthattiesintoproductivityandbenefitsthatyou'regettingandthegreatrunrateinthefourthquarter.I'mcuriouswhatyoucouldpotentiallybetheupsidetothat200numberin2016.

CindySanborn (COO):

Okay,Chris.Goodmorning,thisisCindy.Asfarasstructuralcosts,youdidmentiontheactionsthatwetookinthefourthquarter.AndasItalkedinourthird-quarterrelease,everythingisonthetable,notjustinourcoalnetworkbutalsoinourbroaderfootprint.Andouropportunitiesthatwe'relookingforaretodrivedensity,maximizeassetutilization,anddriveoutcost.

Facilitiesarestill--maybesomeopportunitiesthere.Ithinklinesegmentswilltakealittlebitmoretime.Theyinvolvecustomersandotherconstituenciestherethatmakethosealittlebitmorelongerterm,butwearelookingatallofthese,andaswefindopportunitiesandmakeannouncements,we'llobviouslysharethatpublicly.Butwehavenotgivenuponcontinuingtofindwaystomakeourfootprintmuchmoreconsistentwiththedemandthatisputonit.

Andyouaskedanotherquestionaboutproductivity.CouldIaskyoutorepeatthat.


Sure,justwantedtogetasenseofmaybehowthecoalnetworktiesintotheproductivity,the$200millionofproductivity?Andthengiventherunratethatyouhadinthefourthquarterwhichwasabitabovethatlevel,howdoyouthinkaboutmaybepotentialupside?Istheremorethatwecouldseefromproductivityin2016?Thankyou.

CindySanborn (COO):




Sothinkingaboutproductivity,we'vesaidwe'regoingtobeabletoachieve$200millioninproductivitysavingsinadditiontotheright-sizingactionsthatwe'retaking.Ithinkwhenyoulookatthe$200millionofproductivity,about$100millionisalready--thoseinitiativeshavealreadybeencompleted,andwefeelreallygoodaboutthat.Andtheotherinitiativesareinflightandwefeelgoodaboutthat.

Thereisn'tnecessarilyatieornon-tietothecoalnetwork.It'sall--it'sbroad-basedandit'severywhere.Andasfarastheright-sizinginitiatives,justI'llcommentonthat,eventhoughit'snotnecessarilyyourquestion;itmightbesomethingyou'rethinkingabout.Thewaytothinkaboutthatisthefourthquarteristhepastis[prologue].Wewillberelentlessondrivingoutcoststhatarevolume-relatedasweseedemandgodown.Andthenintheopposite,asMichaelmentioned,asweseeopportunitieswheredemandcomesback,wewillbeabletobringbackthoseresources.


That'shelpful.Thankyouforthetime.Appreciateit.

Operator :

TomWadewitzfromUBS.


Goodmorning,Tom.

T omWadewitz (Analyst-UBS):

Yes,goodmorning.Wantedtoaskyouhowmaybetrainstarts,justabrieffollow-ononthat.Andmaybeonpricing,Idon'tknowifyouwanttogivemeatwoforoneornot.

Thetrain,Cindy,justaquick,howmuchweretrainstartsdowninfourthquarterandmaybewhatthatcouldbein2016?Andthenonthepricing,Idon'tknowifyouansweredthisone,Kenwasonearlier,butdidyougiveusasenseofwhatcorepriceorsame-storepricemightbein2016oristhatsomethingthatyoucancommenton?Thankyou.


Letmejusttakethepricingquestion,becausethat'sprobablythesimplestone.Wereallydon'tforecastpricing.We'regoingtoprovideyoueachandeveryquarterwherewecomeout.Thekeythingisthatyoushouldknowthatwe'realwaysfocusedonpriceandmakingsurewegettheappropriatevaluesowecontinuetoreinvestinourbusiness.

Aswethinkaboutourpricingrightnow,wehaveanincrediblystrongserviceproduct.It'simprovedsignificantlyoverthelastsixmonths,aswenowhavetheresourcesinplace.There'salotofcontractsthatwestillhaven'tbeenabletotouchsincereallythestep-functionchangethatoccurredinearly2014.

Thecontractsideonthetruckingsideisstillholdingupokay,eventhoughthespotmarketisverysoft.Andtheykeythingforourteamistocontinuetosellthroughthisdowncycleandmakesureweprovidevaluetoourcustomersbysellingalonger-termcommitmentintermsofmakingsuretheyhaveaccesstoournetworkandsothatweworkthroughthisdowncyclerightnowandsellforthelongterm.

CindySanborn (COO):

Tom,onstarts,Iwouldsayprobablyabout1,000startsperweekthatarescheduledstartsareout,andobviouslystartswillcomeoutthatarevolumerelatedmoreontheunittrainside.





Canyougivethatatpercentagechange,likewhatpercenttrainstartsweredownmaybeinfourthquarterandwhattheymightbein2016?

CindySanborn (COO):

Idon'thaveapercentagerightinfrontofmethere,Tom,butIcantellyouthatourtrainlengthinitiativeshaveobviouslydrivenalotofthisopportunityand--

FrankLonegro (CFO):

Fromwhat,fromthebeginningoftheyear,Cindy,about15%.

CindySanborn (COO):

Forthetotalyearof2015they'reup8%,from2014versus2015,andinthefourthquarterthey'reup14%fromthefourthquarterof2014tothefourthquarterof2015.


Thedeclinesyearoveryearintrainstartsyou'resaying?

CindySanborn (COO):

I'msayingtrainlengthsintermsof--


Trainlengths,okay,gainintrainlengths.Okay,sorry.

CindySanborn (COO):

Whichthentranslatesinto1,000startsperweekwhichwetalkedabout.Soitgivesyouapercentageandgivesyousomesenseofwherewestandonapercentagebasis.


Okay.Yes.Thosearestronggains,especiallygiventhevolumeheadwinds.Okay.Allright.Thankyouforthetime.

Operator :

AllisonLandryfromCreditSuisse.


Goodmorning.

AllisonLandry(Analyst-CreditSuisse):

Goodmorning.Thankyou.SogivenallthedebatesurroundingM&Aandbothoftheeasternrailstalkingaboutgettingtoa65ORoverthenextfewyearsandsomeotherssaying60shouldbethebogie.First,couldyouhelptobookendatimeframeforwhenyouthinkyoucanachievethe65?Andwhat,ifany,yourplanisfromalonger-termperspectivetoclosethegapwithyourpeerstoultimatelyachievea60OR?




FrankLonegro (CFO):

Hey,Allison.It'sFrank.Obviously,wecan'tcommentonwhatotherrailroadsareprojectingintothefuture.Butthechallengingenvironmentthatweseein2016doesnotinanywaydiminishourconfidenceintheabilitytodeliverthemid-60soperatingratiolongertermthatwehaveguidedyoutowardinthepastandagaintoday.Asyouknow,we'vegotanawfullygoodnetwork,aworld-classnetworkintheeast,andyou'veseenoursuccessovertime,bothintermsofdeliveringmarginimprovementandthecosttakeoutthatCindyreferenced,inadditiontotheoperatingsideontheG&Aside.

Theeffortsthatwe'retakingnow,especiallyinanimprovingenvironmentinthefuture,isgoingtohelpusimprovemarginsinameaningfulbasisasthatimproves.Butaswesitheretoday,basedontheforwardviewof2016,itjustseemsalittleinappropriateforustoguideonaspecifictimeframerightnow.


Okay.Andjustaclarificationquestion,doyouthinkthatatsomepointinthefuture,isthereanythingstructuralthatwouldpreventCSXfromachievinga60OR?

FrankLonegro (CFO):

Wedon'tseeanythingstructuralthatwouldimpedeusfromgettingtothemid-60sandthroughthemid-60s.Obviously,it'sgoingtodependonawholehostofthings.Andagain,asMichaelsaid,thecrystalballisalittlecloudyin2016,andobviouslyasthatclarityimproves,we'llbeabletogiveyoumoreguidancearoundthat.


Great.Thankyouforthetime.

Operator :

Thankyou.ThenextquestionwillbecomingfromRobSalmonfromDeutscheBank.


Goodmorning,Rob.

RobSalmon (Analyst-DeutscheBank):

Hey,goodmorningandthankyouforthequestion--Thankyoufortakingmyquestion.Fred,ifIcouldtakeitbacktotheintermodaldiscussion.Youhadalludedtoinsomeinternationalcontractlossesthathavehappenedthroughtheyear.

Intheguidanceit'simplyingaroughly70,000-unitsequentialdecline,whichismuchmorethannormalwewouldseeinQ1versusQ4.Wasthereanincrementalcontractlossinthefourthquarterorareyouguyscontemplatingadditionalinventorydestockingthatweshouldbethinkingaboutinthefirstquarter?


I'mnotsurewhichguidanceyouarelookingat.Wehavethefactthatwehavetheintermodalbusinessflat,isthatwhatyou'rereferringto?


Yes,it'saninaggregate,intermodalcarloadsbeingroughlyflat.Iwasjusttakingaflattishnumberand




comparingthatsequentiallytothefourth-quartercarloadsthatwesawandjustcuriouswhat'sdrivingtheworse-than-normaldropoffinQ1,whetherit'sanincrementalinternationallossorsomeinventorydestockingthatyou'vegotcontemplatedorsomethingyou'rehearingfromcustomers?


Sequentially,fourthquartertofirstquarterisaverydifferentstory,obviouslywiththepeakthatwe'reseeinginthefourthquarter,especiallyaroundsomeofourpartialbusinessandsoforth.Ithinkthat'smoreofanormalthing.

Ifyouthinkaboutourintermodalbusiness,there'stwocomponentstoit.We'vetalkedabouttheinternationalsidewherewehavehadsomecompetitivelosses,andyou'regoingtocontinuetoseethatthroughout2016.However,onthedomesticside,wearehavinggoodcontinuedsuccesswithourH2Rinitiative,andwe'realsoseeingsomeadditionaloutsizegrowthhereoverthelastprobablysixmonthsandwillprobablycontinuethefirsthalfofnextyear.

Wehaveonedomesticcustomerthatiscontinuingtoshiftadditionaltraffictous,whichisreallyadecisionthattheyhavemade;there'snothingthatwehavedonetoincentivizethat.Theyseemtohavewantedtodiversifytheirportfolio.Andasaresult,wethinkthedomesticbusinesswillcontinuetobestrong,atleastforthefirsthalfoftheyearandprobablybeyondthat.Westillthinkthere'sopportunitytogrowevenifthatshiftsubsides.


Gotit.Andasafollow-up,whendoyoulapthefinalpieceoftheinternationalcompetitorlosses?ShouldIthinkaboutthatasQ4of2016orearlier?


Yes,thatiscorrect,Q4of2016.


Andisthattheendorbeginning?


No,no,sowewillhaveoneaccountthatwe'rejustreallykickinginandhavinglosthereinthefirstquarter,soyouwillseeit[thewhole]throughallof2016.


Okay,thatmakessense.Thankyouforthetime.

Operator :

Thankyou.ThenextquestionwillbecomingfromAlexVecchiofromMorganStanley.


Alex,goodmorning.

AlexVecchio (Analyst-MorganStanley):

Goodmorning,thankyoufortakingthetime.Myquestioniswithrespecttotheguidanceforearningstobedownnextyear.Youhadcalledoutabout$180millionoftailwindsin2015frompropertygainsand




liquidateddamages,whichisroughly$0.11to$0.12ashare.Somyquestionisifweweretonormalizeforthosenumbers,wouldyoustillexpectyourcore,ifyouwill,EPStobedownin2016orwoulditberoughlyflatifweweretonormalizeforthosefigures?

FrankLonegro (CFO):

SoIthinkwegaveyouacoupleotherdatapointstolookat.Clearly,wegaveyounewcoalguidancetodaythatisdownfromwhatwehadtelegraphedonthethird-quartercall.Sothat'sclearlysomethingtothinkthrough.Andthenonthebroadermerchandisesidewiththeindustrialsectoralittlesluggishhere,sothat'ssomethoughts.

Butthenagain,ontheotherside,continuedstrongpricingforanimprovedserviceproductandtheefficienciesandright-sizing,sothere'sgoingtobesomeplusesandminusaswegoforward.Butintermsofyouroriginalwayofthinkingaboutit,youdohavetonormalizeit,andthenreallylookattheplusesandminusesfromthere.


TheotherthingIwouldaddtothat,Alex,isobviouslyoverthelastcoupleyears,we'vebeenaabletogrowourothermarketstooffsetthetimethedeclineincoal,sowe'regoingtohavecontinuingdeclineincoalhereandanuncertainindustrialeconomy.Soagain,that'sthepiecethat'sleastclear,butIthinkitreallydependsonwhathappenswiththerestofthatmarket.

Weknowwe'llgettheproductivity.Weknowwe'llcontinuetonetworksizeproperly.Weknowwe'lldothepricing.Soreallythewildcardinthatquestionwouldbewhatdoestherestoftheeconomydo.


Thatmakessense.That'shelpful.Justaquickfollow-uponthefirst-quarterguidance.Canyoumaybehelpusquantifyalittlebithowmuchofayear-over-yeartailwindyou'dexpectthelowerincentivecomptobeonthelaborexpenselineinthefirstquarterandmaybethrough2016?

FrankLonegro (CFO):

Yes,soobviouslyontheincentivecomp,theplanresetsatthebeginningofeveryyear.Sowehadfavorabilityinthebackhalfof2015astheyearplayedoutdifferentlythanwehadoriginallyprojected,andwedisclosedthattoyouonaquarterlybasis,sobeonthelookoutforthatone.

IntermsoftheQ1EPS,obviouslybasedonthecyclingofthe$100millioninliquidateddamagesandadifferentdemandenvironmentofthefirstquarterof2015versusthefirstquarterof2016,especiallyincoal,that'sgoingtoimpactus.Andthenthedemandenvironmentthatwetalkedabout.Again,you'regoingtohavetolookattheimprovedserviceandtheright-sizingandtheefficienciesandthepricingperformance,andthatwillultimatelyhelpsusgivesomeguidanceintermsofhowfarquarteroneof2016willbedownversusreported2015.


Okay,that'makessense.Helpful.Appreciatethetime.Thankyou.

Operator :

JasonSeidlfromCowen.





Goodmorning,Jason.

JasonSeidl(Analyst-CowenandCompany):

Goodmorning,gentlemen,howiseveryone?


Great.


Fred,IwanttogobacktosomethingIthinkyoucommentedabout,yourtruckcompetitivepricing.Youmentionedthatalthoughtruckspotpricingwasdown,contractwasholdingup.Ifcontractstartstorollovertomeetwherespotis,howmuchpressureisthatgoingtoputonintermodalpricing?Howshouldwelookatthat?


Idothinkthatweareholdingupokay.It'sclearlygottensofterthroughouttheyear,evenonthecontractside,andintermodalsideiswherewedoseemostofthatdirectpressure.Now,youknowthatstillwehaveaprobably10%to15%gapbetweenwhatthetruckpricesareandwhereourpricesare.

Oneofthekeythingsintheintermodalspaceisastrongserviceproduct.Andaswethinkaboutourserviceproductherethisyearenteringinto2016,itisclearthatit'sverydifferentthanitwasayearago,andthatisalsogoingtobeveryhelpfulasweapproachcontractseasonandweputnewcontractsinplace.


Okay.Butintermsofifyoujustsayyoumakesomeserviceimprovementsandyouseethetruckpricingtakeastepdown,isitgoingtobetoughertomaintainyourpricing,evenwithasuperiorserviceproduct?


Ithinkit'stooearlytotell.Ithinkwe'vetriedtostayawayfromforecastpricing,butdirectionally,you'reright.Obviously,thelongerthissoftnessisthere,theharderitisgoingtobetomaintain.

Thekeychallengeforourteamistomakesurethatourcustomersareawarethatwhilethere'sasoftnesshererightnowin2016,Ithinkallofusstillknowthatthemacrodriversthatwetalkedaboutforalongtimearestillprevalent.

Aswethinkaboutsomeoftheproductivitychallengesthatthetruckingindustrywillfaceaswegetto2017withtheelectroniclogs,asunemploymentcontinuestocomedownit'sgoingtobehardertoretainthedriverswithoutsizedincreasesindriverpay,sowearefacingasoftness.Ithinkalsothough,ourcustomersareacknowledgingthatisprobablytemporary,assomeofthesemacrofactorswillcomebackintoplay.


Fantastic,andmyfollow-up,Michael,giventherecentcommentsbytheSTBonmergersandalsotheproposedmergerorthetalkedaboutmergerbetweenCPandNS,what'sthelikelihoodthatyouseethatthecurrentBoardwouldapproveacombination?





That'saverytimelyanddifficultquestiontoanswer,Jason.Asyouknow,therehasn'tbeenanymergersunderthecurrentregulatoryenvironment.Thatisareallycomplicatedquestion;it'sprobablybetteraddressedbytheSTB.Butasyousawbytheirletterlastweek,they'regoingtobeveryfocusedon,one,thepublicinterestofthepotentialmerger,potentialdownstreameffects.AndIthinkthethingthat'sprobablythemostuncertain,butprobablygoingtobethereforsure,thequestionofextent,iswhatregulatorycostswillbeputonthismerger.


Okay.Iappreciatethetimeasalways,gentlemen.

Operator :

MattTroyfromNomuraSecurities.


Goodmorning,Matt.

MattT roy(Analyst-NomuraSecurities):

Thankyou.Goodmorning,everyone.Justwantedtoaskwithrespecttopricing,obviouslyrailsperipherallyortangentiallytiedtothecommoditiessupercycle,whichiswindingdown.You'vegotsomemorebearishpeopleouttheretalkingaboutrailpricingbeingvulnerable,anecdotesofcarrierscuttingpricetoincentvolume.

Ijustwantedtohearfromyouorconfirmwithyouthatyoustillremaincommittedtoinflationplus[type]pricing,consistentwithsimilaryearsandthattherehasn'tbeenachangeinthoughtorphilosophythatperhapspricemightbealeveryoumightusetoincentvolumein2016.


Ithinkourphilosophyisstillthere,hasn'tchangedintermsofmakingsurethatwedovaluepricingthatreflectsthevaluepriceofourcustomersandbeingabletocontinuetoreinvestinourbusiness.Attheendoftheday,itgoesbacktowhatisthesecond-bestoptionforourcustomers,fromaserviceandapriceperspective.Aswethinkthrougheachoneofthem,westillthinkthatwehaveanopportunitytocontinuetomakesurewegetthepricingthatweneedtocontinuetoreinvestinourbusiness,whichbenefitsbothourshareholdersbutalsoourcustomers,aswecontinuetostrengthenourinfrastructure.

Thereisonemarketwherewehaveconsistentlysaidthatitmakessenseinthiscommoditydownturntobeflexible,becausewe'veseenwe'vegotadditionaldemandbydoingsoandthat'sourexportcoalmarket.Andwe'vetakensomeadditionalactionhereinthefourthquartertoreflectthevery,verydifficultandchallengingenvironmentforthem.

Butintherestofthemarkets,weworkwithourcustomersinpartnershipandtrytofigureoutwhatthebestserviceproductis.Andatthesametime,alsomakesurewegettheappropriateprice.SoIwouldsaythatnothinghaschangedintermsofthephilosophythatyou'veseenherefromCSXformorethanadecade.


Greatanswerandthankyou.Andmyquickfollow-upwouldbetheintermodalgrowth,obviously,youspokeatlengthaboutthelossininternational,butthedomesticup14%wasafantasticnumber.Youhaveataleoftworailroads.Whenyoulookataveragevolumesinfourthquarter,youwereupmidsingledigits,yourcompetitorsweredown.Soobviously,domestic,youalludedtoacontractmovingoveronits




own,notyouincentingit.

Justwonderingifyoucouldtalkaboutthat14%,reallyhighleveldirectionally.Howmuchofthatgrowthwouldbethatsingularcontract,whichyou'veseenshiftandhowmuchofitwouldbewhatI'drefertoasmoreorganichighwaytorailconversion?Thankyou.


Itisasignificantportionofthatgrowth.Ithinkthatpriortolastyear,we'vebeengrowingourdomesticintermodalbusinessabout7%,andwe'veguidedlongtermtoabout5%to10%.Andwiththesoftermarket,we'reprobablyatthelowendofthatrange,ifyouexcludethiskindofshift.

Butnothinghaschangedintermsofouropportunitytoconvertwhatwe'vesaidisover9millionunitsinournetworkterritorythatwethinkovertimecanbeconvertedtorail-basedsolutioninpartnershipwithourtruckers.Andsowethinkit'ssofterrightnow,butasIsaidtoprevious--answertopreviousquestion,themacroenvironmentstillfavorsarail-basedsolutionlongerterm.


Allright.Thankyouforthetime,everybody.

Operator :

CherilynRadbournefromTDSecurities.


Goodmorning,Cherilyn.

CherilynRadbourne (Analyst-TDSecurities):

Thankyouverymuchandgoodmorning.Myfirstquestionisonyourvariabletrainschedulinginitiativeandjusthowmuchofanimpactthathadontheincreaseintrainlengththatyousawandwhatinningyouthinkwe'reintermsofrealizingthewholebenefit.

CindySanborn (COO):

Goodmorning,Cherilyn.Ithinkasfarasthevariabletrains,whichthatappliestoourmerchandisenetwork,Ithinkwe'veseenthebiggestincreaseintrainsizeinthemerchandiseside.Sointhefourthquarter,wesawincreasesintrainsizeof23%.

SoIthinkwhatthevariablescheduledoesforusgoingforwardisasweseesofterdemand,weareabletoright-sizethatnetworkmoreeffectively.Intermsofwhatthecomponentsareofvariabletrainthatareinplace,weprettymuchgottheminplace,butitdoesallowustocontinuetoshift,andexpand,andcontractonamoreeffectivewaythanwe'vebeenabletodointhepastinourmerchandisenetwork.


You'redoingalotmoreinthebulk.

CindySanborn (COO):

Yes,wellwearealsocontinuingtrainlengthinitiativesonthebulksideaswell.We'veseenincreasesintrainlengthacrosscoal,grain,andothersinthe5%to10%rangealsooverthequarter.

Soit'snotjustamerchandise--trainlengthisnotjustamerchandiseinitiative.Italsofollowstherest,but




merchandisehasseenthebiggestbenefits.


Great,andthentotheextentthatyouexpectearningstodeclinein2016andseesomevolumeuncertainty,canyoujustcommentonwhetherthatwillhaveanyimpactonthepaceatwhichyouexpecttoexecuteonyoursharebuybackprogram?

FrankLonegro (CFO):

HeyCherilyn,it'sFrank.Yousawusrepurchaseninemillionsharesinthequarterforjustunder$260million,whichwasessentiallythesameratethatyousawusinthethirdquarter.It'sconsistentwiththe$2-billionprogramthatweannouncedbackinApril,andwecurrentlyexpecttocompletethatprogramratablyoverthenextfivequartersusingbalancesheetcash,freecashflow,anddebt.SoIthinkyou'regoingtocontinuetoseeus,basedonwhatweseenow,tocontinueonthatratableprogram.


Thankyou.That'smytwo.

FrankLonegro (CFO):

Thankyou.

Operator :

BenHartfordfromBaird.


Goodmorning,Ben.

BenHartf ord (Analyst-RobertW.Baird&Co.):

Goodmorning.Justaquickquestionontheexportcoalside.Inyourmind,whatistherisktofurtherdownside?Youobviouslytalkedaboutsomedownsiderisktothe20milliontonsnumberthisyear,butwhatprovidesanysortofcomfortthatyouhadlineofsighttoafloorandthatweshouldn'tbethinkingabouttheearly2000slevelsofanumberlessthanhalfthisguided2016number?Orevensomethingaboveandbeyondthe2002,2003levels.

Isthereanywaytoframeit?Obviouslythemarket'suncertain,butisthereanywaytoframeupthelikelihoodofa50%orevendeepercuttotheexportcoalnumberoverthecourseofthenextfewyears?


Sure.Ithinkthatoverthelastcoupleyears,asweprovidedyouguidanceatthebeginningoftheyear,we'vebeenactuallyvery,veryclosetothosenumbers.Andwhiletheseareuncharteredterritoryintermsoftheunderlyingcommodityprices,bothonthethermalsideandthemetside,wedoworkverycloselywithourcustomers,bothontheproducersideandalsowithsomeoftheagentsthatsellforusandreallytrytogooverandunderstandthemarketsthemselves.

Andaswethinkabout2016rightnow,outofthe20million,weprobablyhaveabout6millionthatwehaveverygoodvisibilityto,probablyalittlebitlowerthanyounormallywouldhaveatthistimeoftheyear.Butwestillthinkthatthere'sanopportunitytogettothatabout20milliontonsfortheyear.Andoneofthedrivershereisalsothatyoudohavesuchalargeexcesssurplusofdomesticcoalwheretheproducersareveryeagertopushthatoutintotheworldmarket,andthatishelpfulaswellaswemove




through2016.


Okay.That'shelpful.We'lljustwatchhowthatdevelopsthroughtheyear.Frank,sharebuyback,whatisthethoughtprocesstherethisyear,andthenIwanttoconfirmsomethingontheCapExside,the$307millionfromthe113locosthatwerepurchasedlatelastyear,isthatinthe2016CapExbudgetof$2.4billion?

FrankLonegro (CFO):

Theanswertoyourlastquestionisyes.Andonthebuybacks,it'sthesameratablemethodologythatyou'veheardustalkaboutpreviously,andsothe$2billionprogramwasintendedtobeoveratwo-yearperiod.Andaswecurrentlyseethings,we'llcontinuetodoitatabout$260[million]aquarter.


Okay.Thankyou.

Operator :

Thankyou.ThenextquestionwillbecomingfromDavidVernonfromBernstein.


Goodmorning,David.

DavidVernon (Analyst-SanfordC.Bernstein&Co.):

Goodmorning,andthankyoufortakingthequestion.Fredrik,maybejusttoputsomemorenumbersontheissuearoundutilitycoalpricing.Ifyoulookbackoverthelastcoupleyearswhenyou'veseentheutilitybusinessgetcutbyhalforso,canyoutalkaboutthetrendyouguyshaveseeninyourdistanceneutralrateperton?

Hasthatbeenmovinguporhaveyouseensomeweakeryearswhenbecauseofthelowergasprice?LikeI'mjusttryingtoputsomenumbersaroundtheutilitycoalpricing.


Soclearly,inmidpartoflastdecade,therewasasignificantopportunitytotouchlegacypricing,andthatprobablylastedfrom2005to2011orso.Thensincethen,it'sbeenmuchmorenormalizedpricing.

Asnaturalgaspricesnowhavecomedownasmuchastheyhave,therereallyisn'tmuchthatwecandotoincentiveizeincrementalburn.Welookateachandeverycontractwhentheycomeuptoseeifthereareopportunitiestooptimizethebottomlinebybeingmoreflexibleinpricing.Ifthereis,we'lldothat.Butgenerally,atthesenaturalgasprices,thereisn'treallyanythingwecandotoimprovetheburnrate,withmaybeoneortwoexceptions.


Okay.Andthenmaybe,Frank,justasafollow-upontheproductivity,canyoutalkalittlebitabouthowdependentthelevelofproductivityyou'regettingrightnowisontheCapExbudget?Itsoundslikesomeofthenewlocomotivesthatyou'regettingarenecessarytorunthelongertrains.I'mjustwonderingabouthowmuchmoreupgradingofthefleetmayberequiredoverthenextfewyears,andwhenthatCapExnumbercangetdownto16%,17%.




FrankLonegro (CFO):

Right,David.Soonthelocomotivepiece,obviously,we'llcompletethedeliveriesin2016,asCindyhasorwillmention,we'vecertainlylookedatright-sizingthefleetandtakingoutthebadactorsandthehighfuelburnlocomotives.Soitcertainlyhelps,butyou'retalkingabout300enginesona4,000enginebase.

OnyourtiebetweenproductivityandCapEx,there'salwayssomeintheCapExbudgetthatrelatestoproductivity,andit'sreallyI'dsayadog'sbreakfast,right.You'vegotstructuralchangesinthecoalnetwork.You'vegotG&Arestructuringanddownsizing.You'vegotterminalefficiencies.You'vegottrainlength,whichgivesyoulowercrewstarts.Aswe'vementionedearlierinthecall,you'vegottechnologyinitiatives,whicharefundedthroughtheCapExprocessthatrelateintosomeoftheproductivityinitiatives.

SoIthinkyou'relookingatalotofthingsthatwedidin2015thatwillcarryoverinto2016,andthenthereisalittlebitofatiebetweenCapExandproductivity.Butit'ssmallinthegrandschemeofthings,David.

Intermsoflong-termandgettingbackdownto16%to17%,ifyouweretojustnormalizethisyear'scapitalbudgetforthe$300millioninlocomotivepayments,you'dbeatthatrangenow.Soit'scertainlysomethingthatonalong-termbasiswe'regoingtocontinuetolookat.Fuelsurchargesthat'scomedown,hasobviouslybeenabitofaheadwindforusinthepastaswelookatthat16%to17%.


Asashortfollow-uptothat,inthenumberofthe300locothatyou'vetakenagainstthe4,000fleet,ifyouhadacapitalunconstrainedworldandyouwantedtogoandpushtrainlengthsinotherpartofthebusiness,wouldtherebeopportunitiestogoaheadandcontinuetoupgradethatfleetandoperationallyfindopportunitiestorunlongertrainsinotherpartsofthenetwork?Orareyounearingtheendoftheabilitytogetthatextraproductivityfromtrainlength?

CindySanborn (COO):

David,thisisCindy.Thetrainlengthconstraintsreallyarenotlocomotivebased,theyaresidingcapacitybasedinthesouthernpartofournetwork.Andintermsofcapital,wearelookingatthosetypesofinvestmentsgoingforwardtoallowustounlockthevalueoflongertrains.Soit'sreallynotlocomotivebased.


Excellent.Thankyoualotforthetime,guys.

Operator :

JohnLarkinfromStifel.


Goodmorning,John.

JohnLarkin (Analyst-StifelNicolaus):

Thankyou,Mike.Thankyoufortakingthequestion.Wantedtodigalittlebitmoreintothestatedobjectiveofproducinganother$200millioninproductivitysavingsin2016.Canwetalkalittleabouthowthatmightbespreadovertheyearandhowmuchofthatistiedtotherationalizationofthecoal




network?Andwhethertherationalizationofthecoalnetworkalsowouldenvisionpotentialabandonmentsand/orsalestoshortlinesonsomelighterdensitylinesinthecoalnetwork?

CindySanborn (COO):

Goodmorning,John.ThisisCindy.Sofromaproductivityperspective,the$200millionis,again,asIsaid,initiativebased.$100millionis--prettymuchthoseinitiativesareinplace.Twoofthoseareoneareathatwe've--that'sincludedistheactionsthatwetookthefourthquarteronthereductioninvolumeacrossthe[irlingn]gatewayandtheclosureoftheCorbinlocomotivefacility.

Sototheextentthoseareobviouslyinthecoalfield,thatisanimpacttoproductivityin2016aroundbothfacilities,reductioninfacilitiesandheadcountreduction.That'sbasicallythewayIsee2016lookingwithproductivity.

Asfarascontinuedrationalizationinthecoalfields,asI'vesaid,we'regoingtolookatthatnotjustinthecoalfieldsbutbroadly,whetherit'sfacilityrelatedand/orlinesegment.Thelinesegmentstakealittlebitlongertoworkthrough.Theyinvolvecustomers.Theyinvolveotherconstituencies.Soaswemakethosedeterminationsandmakethosedecisions,we'llbeverypublicwiththatinformation,butthat'smorelongerterm.


Sothe$200millionwillbefoldedinprettymuchevenlyacrossallfourquarters,isthatawaytothinkaboutit?

CindySanborn (COO):

Yes,Iwouldsayit'sratable,John,yes.Iwouldsaythat'sprobablytheeasiestwaytothinkaboutit.


Thankyouverymuch.

Operator :

ThenextquestionwillbecomingfromBascomeMajorsfromSusquehanna.

BascomeMajors (Analyst-SusquehannaFinancialGroup):

Goodmorningandthankyouforthetimehere.Iwantedtotakeadirectionallookatthemarginprofileofthecoalbusiness.Itlookslikeonyourguidancetonnageisgoingtobe--ifyou'reatyourguidancefortheyear,tonnagewillbedown45%orsofortheentirebusinesssince2011.

Canyoujusttalkalittlebitaboutthebalancewithinthesegmentofthemarginprofilebetweentheexportbusinesstodayafterthepricecutsyou'vetakenovertheseveralyears?Andthedomesticbusiness,whereyou'vetransitionedtothefixedvariablecontractstructure?

Andalsomorebroadly,whereiscoalcompingversustherestofthebooktoday?Isitstillyourpremiumbusinessuptherewithchemicalsorhastheprofilefallendowntheladderabitastherevenueshavefallen?Thankyou.


Sure.SothisisFredrik.Backin2012orso,weusedtosaythatourexportandutilitybusinesswasaboutthesamelevelofcontributionandonamarginbasis.Butsincethen,aswehaveadjustedtheexportratessignificantlydown,ourutilitybookofbusinesshasahighermarginthantheexportbusiness.




Ifyoulookattheoverallportfolioofcoalversustherestofthebusiness,Iwouldsaythatit'sstillclearlymoreprofitablebecauseofthefactthatit'ssuchanefficientwayforustomovethecargo,heavytonnage,justunittrainbackatforthit'svery,veryefficientforustooperatethatway.It'sstillatthehighendofourbusiness.


Thankyouforthat.Asmyfollow-uphereandmaybeforMichaelorClarenceifhe'sintheroom,Iunderstandyouguysarerailroaders,you'renoteconomistshere.Butjustlookingatthevolumedeclinesyou'reseeingtoday,boththedepthofthemandthebreadth,haveyoueverseenanenvironmentlikethisinyourbusinessorcareersoutsideofarecession?


ThisisMichael.I'llanswerthat,althoughClarenceishere.Ifyoutakeouttherecession,no,we'venotseenthesekindofpressuresinsomanydifferentmarkets,becauseyouhavemultipleaspectsworkingagainstyou,thelowgasprices,thelowcommodityprices,thestrengthofthedollar,allthreeofthosetogetherarereallypushing.Andinsomeways,Ithinkyoucanalmostthinkofitasafreightrecession,exceptforsaymarketslikeautomotiveandhousingrelated,you'reseeingpressureonmostofthemarkets.Soclearlyoutsideofarecession,thisisonewherewe'reseeinglotsofpressureinlotsofdifferentmarkets.


Allright.Thankyouforthetimethismorning.

Operator :

JeffKauffmanfromBuckinghamResearch.


Goodmorning,Jeff.Jeff?

Jef f Kauf fman (Analyst-BuckinghamResearch):

I'mhere.I'mhere.I'mhere.Goodmorning,Ihadyouonmute.Firstofall,congratulations,justaverydifficultquarter.Ithoughtyouguysdidagreatjobonthecostside.

Iwantedtozeroinonthechangeincoalguidancefornextyear.IfIlookatwhat'schanged,Ithinkyouweretalkingarounda21million-tondomesticrunrategoingdownto19million,sothat'saboutan8million-tonchange.Butitreallylookslikealmosthalfofthatdropwasonthecokingcoalanddomesticmetside.

Sotwoquestions.Numberone,whenIlookatdomestic,howmuchofthatchangeisyourviewonutilityversusyourviewonotherdomesticcoal?AndwhenIlookattheexports,youdidabout31millionthisyear;theguidanceisfor20million.CanIlookatendmarkets,andcanwethinkaboutitthatwayintermsofwherehastheincrementaldemandebbedforyourexportcoalgeographically?


Sure.Soyes,you'reright,ifyougobacktothethird-quarterguidancethatwedidatthecall,weessentiallysaid21milliontonsperquarterofdomestic,whichwas15ofdomestic--ofutilityand6ofsteelandindustrial.Andwhatwesaidthenaboutourexportwasabout6milliontonsaquarterfor24intotal.




We'veessentiallyseenadeteriorationinallofthosethreemarketsbyabout1milliontonsaquarter,andthat'sreallyareflectionofthefactthatnaturalgaspricesandtheverymildfourthquarterontheutilitysidehasdampenedourexpectations.

Onthesteelandindustrialside,it'sthereflectionofthefactthatwhenwelookatthesteelindustryrightnow,youhaveautilizationofabout60%versus75%ayearago,andwesawitdeterioratethroughoutthefourthquarter.Andontheexportmarket,isalsojustareflectionofthefactthattheunderlyingcommodityindexesaretellingusthatthemarkethasgottensofterasglobaloversupplycontinues.

Sointermsofwheretheexportmarketisgoing,wedidabout60/40splitherebetweenmetandthermal.Itwillprobablybealittlebithighernextyearwouldbemyguessatthispointintermsofprobablyone-third,two-third,two-thirdsinfavorofmet.

Andtraditionally,overhalfofourbusinessgoestoEurope,andIwouldsaythatsplitisprobablygoingtocontinueintermsoftheendmarketaswell.AndsoIthinkit'sjustproportionalbetweenthemarkets,andIthinkyou'regoingtoseerelativelyproportionalcutintermsoftheendmarketsaswell.

Jef f Kauf fman (Analyst-BuckinghamResearch):

Okay.That'smyone.Thankyou.


Thankyou,Jeff.

Operator :

Thankyou.ThenextquestioniscomingfromScottGroupfromWolfeResearch.


Goodmorning,Scott.

Scott Group(Analyst-WolfeResearch):

Hey,thankyou.Goodmorning,guys.SoFredrik,justwantedtoaskaboutthecoalyields.Ithoughtthatthefixedvariablewassupposedtohelpinenvironmentslikethiswhenvolumesaredownsomuchandhelptheyieldsout.Whyaren'tweseeingthat?


Yes,andinthethirdquartertheywereveryhelpfulactually.Theywerestillhelpfulhereinthefourthquarterbutnotasmuch,becausesomeofthisalsodependsonwhoyou'reactuallyshippingto.

Andthebigdriver,though,inthecoalyieldswasreallythefactthatwehaven'tmadetheseaccommodationsontheexportsideandfurtheradjustedourratesdownwardtoreflecttherealityoftheunderlyingmarketandatthesametimetryingtooptimizeourbottomline.


Okay.AndthenMichael,Ijustwanttoask,soalot'schangedinCSX,certainlyalot'schangedinthemarketfromayear,yearand-a-halfago.DoesyourvieworappetiteonM&Achangeatall,orhasitchangedatallinthatyear,yearand-a-half?





Notreally,Scott.Ifyouthinkaboutit,Ithinkourpositionisthesameasitwasayear,yearand-a-halfago.Wethinkthere'stremendousopportunityforshareholdervaluecreationwithourexistingportfolio.

Andifyouthinkaboutanymergers,there'sgoingtobesubstantialregulatorycost,someofthesynergieswillbeverylimitedbecausethey'reend-to-endmergers.Soifyou'regoingtooffsetthoseregulatorycosts,you'vegottohavecompellinginterfacesandsynergies,andIreallyhaveahardtimeenvisioningwherethatwouldbeinanyrailmerger.


Sothechallengesofthemarketdon'tchangeyourviewonthat?


No,sir,Ithinkwe'vedonewellinpriordownperiods.Wethinkwewillinthisoneaswell,andwethinkthelong-termfuturewithourexistingcustomerbase,two-thirdsofthepopulationweserve,pressuresonthetrucking,theserviceimprovementswecontinuetomakeinthepricingallowsustocreatelotsofvaluefortheshareholdersovertheintermediateandlongterm.


Thankyoualot,guys.

Operator :

Thankyou.ThenextquestioniscomingfromJustinLongfromStephens.


Goodmorning,Justin.

Just inLong (Analyst-StephensInc.):

Thankyouandgoodmorning.Soyoutalkedaboutcyclingthebenefitsfromliquidateddamagesandgainsonsalethisyear,andjusttakingthoseitemsouttosomeone'spointearlier,yougettoamid-single-digitEPSdeclinein2016.Alongwithanticipatedvolumedeclines,mixheadwinds,yourcommentarythatitwillbedifficulttoimprovetheOR,isitfairtosaythatEPSshouldbedownatleastdoubledigitsorlowdoubledigitsthisyear?

FrankLonegro (CFO):

Allwe'repreparedtotalktoyouabouttodayisthedirectionalpiece.Whatwetriedtodoistogiveyousomeclarityaroundthemovingpartsthatwehave,obviouslycertaintyonthecyclingpieceandwehave,wethink,goodinsightsintothecoalsector.

It'sreallywhathappensintheindustrialspaces,especiallyaswegetoutintothesecondhalfoftheyear.Andagainit'sreally,reallyearlyintheyearinanuncertainenvironmenttoprojectafull-yearEPSwithspecificity.

Atthesametime,asyoulookatthethingsthatwe'redoing,thepricingperformance,theproductivity,theright-sizing,theserviceimprovements,allofthosethingsarethethingsthataremostwithinourcontrol,andthosearethethingsthatyou'regoingtoseeusberelentlessabout.


Okay.Fairenough.Andasaquickfollow-up,IwantedtoaskaboutPTC.Youmentionedthe$300million




ofanticipatedspendingthisyearand$2.2billionintotal.Butofthattotalamount,what'sremaining?What'sremainingafter2016?Andafteryou'vefullyinstalledthetechnology,doyouanticipateanyincrementalmaintenancecostassociatedwithPTCthatwouldbeongoing?

FrankLonegro (CFO):

SoletmegiveyouthefactsandthefiguresonPTC.So$1.5billioniswhatwespentthroughtheendof2015.We'vegivenyouthe$300millionguidancefor2016,sothatwouldtakeyouuptothe$1.8billionthroughtheendofthisyear.

Ourprojecttakesustoahardwarecompletiondateof2018andfullyoperationalby2020.Ithinkyou'llseethemajorityofthedifferencebetweenthe$1.8billionandthe$2.2billionbeingspentbetweennow--excuseme,theendof2016andtheendof2018.

IntermsofthetailonOpExandsomerefreshedCapEx,we'restillworkingthroughthat.Obviously,there'sapiecethat'sembeddedwithindepreciation,aswellasindepartmentaloperatingexpenses,andthat'sstillbeingworkedonrightnowasweunderstandthesupportagreementsthatwillgoalongwiththehardwareandthesoftware,aswellastheusefullifeonthosepiecesofequipment.


Okay.Great.That'shelpful.Thankyouforthetimetoday.

Operator :

CleoZagreanfromMacquarie.


Goodmorning,Cleo.

CleoZagrean (Analyst-MacquarieResearchEquities):

Goodmorningandthankyouforyourtime.Sotofollowupontherecentconversation,let'simagineourselvesthistimenextyearafterthelowerearningsbasesetby2016.I'mnotaskingforguidance,butconceptually,howdoyouseetheyounewgrowthtrend?Canweseedouble-digitsustainableEPSgrowth?Orshouldwethinkofmaturingintoapatternoflowergrowth,maybemoredistributionsforshareholders?

Becausewe'vebeentalkingaboutthisstructuralchangesnotinaso-calledrecessionsuchaslowprofitabilityfromcoal,consumerspendingshiftingmoretowardsservices,probablysustainablestrongdollar,sluggishindustrialeconomy.Sowhatisthenewnormalandhowcanyougrowinthat?Thankyou.

FrankLonegro (CFO):

Thankyou,Cleo.FromjustanEPSdirectionalthinkingbeyond2016,wesee2016as,again,auniqueyear.Andclearly,weshouldbeabletoprovidestrongEPSgrowthoffofa2016baseandallowFredriktocommentonsomeofthecommercialitemsofyourquestionintermsofwheresomeofthevariouslinesofbusinessmightbegoing.


Soaswegothroughthisyearandcyclesomeoftheseheadwindsthatwe'regoingtobefacing,clearlyforthefirsthalfofthisyear,andwelookatwherethemacroeconomicindicatorsareandprojectionfortheUSdollar,Ithinkwe'llstartseeingthingsstabilize,normalize,andwecanstartseeingyear-over-year




growthaswemovethroughhopefullylatein2016andclearlymoveinto2017.Basedonwhatwe'reseeingrightnow.

AsFrankIthinkhassaidmanytimesthroughoutthecalltoday,Michaelaswell,thekeythingforusrightnowistofocusonthethingsthatwecontrolthemost,andthenthemacroheadwindsaregoingtobewhatevertheyare.Andthekeythingforusistoadjustourinfrastructuretoreflecttherealityofwhattheyprovideus.


Thankyou,andasafollow-up,canyoutalktousabouttherateatwhichyouseeinvestingingrowthopportunities?Andmaybewhatitwouldtakeforyoutoconsiderahighersustainabledividendyieldtoappealto,morebroadly,todividend-focusedinvestors?Thankyou.

FrankLonegro (CFO):

Onthecapitalside,clearlythere'saportionofourcapitalbudgeteveryyearthatisgearedtowardgrowthinvestments.Themajorityofthatoverrecentyearshasbeenfocusedonourgrowthengine,andthat'sontheintermodal,especiallyonthedomesticintermodalside.Soyou'llcontinuetoseeusfocusinthatarea.

Intermsofdividends,I'dsaycurrentlywhereweare,wehaveaveryhealthyyield.Wehaveguidanceoutthereintermsofwhatwe'rewillingtopayoutonatrailing12-monthsbasis,andthat'sinthe30%to40%oftrailing12-monthsearnings.Andsowelookatthateveryyear,generallyspeaking,afterthefirstquarter,andwe'llcontinuetodothatandlookatwhereweareagainstthebroaderenvironment.


Thankyou.Appreciateverymuch.

Operator :

ThankyouthelastquestionwillbecomingfromKeithSchoonmakerfromMorningstar.Yourlineisopen,sir.


Goodmorning.

KeithSchoonmaker (Analyst-Morningstar):

Goodmorning.Yourexpectationsforautomotivewereascarcebrightspot,aswereactualautoshipmentslastyear.Couldyoupleaseaddsomecolortothisgrowthexpectation,maybeparticularlocationswhereyou'reseeingsomestrengths,aswellasperhapscommentongeneralshiftsofproductiontoMexicoandhowthataffectsyournetwork.Thankyou.


Sure.SoifwelookattheNorthAmericanlightvehicleproduction,Ithinkwe'reendingupabout17.5herein2015,andtheprojectionisfor18.2nextyear,sothatprovidesusgoodgrowthopportunities.USsalesalsobasedontheprojectionsthatwe'reseeingindicategoodgrowth.

TheMexicoshiftisclear,sotheNorthAmericanlightvehicleproductionnumbersareprobablyskewedalittlebitmoretowardsMexico,whichwedon'tcaptureasmuchofbutwestillcapturesomeofthat.Andsometimesthatisactuallyalengthofhauladvantageforus.Sothatishelpful.




Sooverall,ifyougobackinhistoryoverthelast30,40years,I'msurethatyou'llfindthatourcorrelationstoNorthAmericalightvehicleproductionisprobablyinthevery,veryhigh95%,98%.Sowefollowwhattheproducerstellusandthenweadjustourfleetandserviceaccordingly,andrightnow,itlookslikewe'regoingtohaveanotheryearofgrowth.Butnotanywhereclosetowhereit'sbeensince2009,butstillnicegrowth.Andespeciallyinthissortofenvironment,weneedthesesortsofgrowthopportunities.

KeithSchoonmaker (Analyst-Morningstar):

Thankyou.


Thankyoueveryoneforjoiningusandwewilltalktoyouagainnextquarter.Thankyou.

Operator :

Thankyou.Thisconcludestoday'scall.

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