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Thank you for accessing Union Pacific Corporation's 2026 Second Quarter Earnings Conference Call held at 8:45 a.m. Eastern Time on July 23, 2026, in Omaha, Nebraska. This presentation and the accompanying materials include statements that contain estimates, projections or expectations regarding the company's financial results and operations and future economic conditions. These statements are forward-looking statements as defined by the federal securities laws. Forward-looking statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The materials accompanying this presentation include more detailed information regarding forward-looking information and these risks and uncertainties. In addition, please refer to the company's website and SEC filings for additional information about our risk factors.
Greetings, and welcome to the Union Pacific Second Quarter 2026 Earnings Call. 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. Jim Vena, Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may begin.
Thank you, Rob. Really appreciate it. A pretty special day here today. Great day to be putting our results out for the second quarter. And it's my wife's birthday, so it's a double win. She would have complained big time if this quarter wasn't good. Let me just highlight how we are moving forward. She might have been mean to me today. So why don't we get started? Here with me today in Omaha is our Chief Financial Officer, Jennifer Hamann; our Executive Vice President of Marketing and Sales, Kenny Rocker; and our Executive Vice President of Operations, Eric Gehringer. Good day, railroad out there. Weather's good, little storm coming in, but nothing we can't handle, right, Eric?
Yes.
Perfect. Now let's review the highlights on Slide 4. This morning, we reported record financial results driven by strong execution and 2% volume growth. Net income totaled $2 billion and earnings per share after we adjust for merger costs grew to $3.41. There was a lot of ins and outs as we compare our performance against last year. Fuel was a big driver of both surcharge revenue and expense this year, and we had some one-timers we called out last year. But what's really important is, when we remove all of that, we see solid core improvement in our results with growth in revenue and operating income, and we were about 10 basis points better on our operating ratio. Now the team will walk you through the quarter in more detail, and then I'll come back and wrap it up before we go to Q&A. I'm very excited this morning on the Q&A. Looking for some great smart questions from our smart analysts, owners. We'll start with Jennifer and the second quarter financials. Jennifer?
All right. Thanks, Jim, and good morning, everyone. Let's begin with our second quarter income statement on Slide 6, where operating revenue of $6.9 billion increased 12% versus last year, and freight revenue also grew 12% to $6.5 billion. Breaking down the drivers of freight revenue: volume growth added 225 basis points; fuel surcharge revenue added 750 basis points and increased roughly $460 million, reflecting the impact of higher year-over-year fuel prices and volume. Solid core pricing combined with business mix drove 175 basis points of freight revenue improvement. Importantly, our quarterly pricing dollars continue to exceed inflation dollars as we compete and win business at levels that reflect the value of our rail service. I also want to call out that second quarter business mix was a slight headwind in the quarter as growth in domestic intermodal outpaced expectations and offset the mix benefit of less international intermodal traffic. Wrapping up the top line, other revenue increased 11% to $346 million as higher volume drove increases in both subsidiary and accessorial revenue. Turning to expense, our appendix slides provide more detail as total operating expenses increased 13% to $4.1 billion, primarily from higher diesel fuel prices. Compensation and benefits expense improved 1% against last year's reported results, which included the final brake person buyout agreement of $55 million. Excluding that agreement, second quarter cost per employee increased 7% and was driven by higher wage and benefit costs. A key driver to offsetting wage inflation is workforce productivity, and we have delivered eight consecutive quarters of record results. Although we're confident we'll continue that productivity trend, we now expect full year compensation per employee to increase around 6%. Fuel expense grew 63% on a 60% increase in average fuel price and 2% higher gross ton miles. Year-over-year, our price per gallon grew from $2.42 to $3.86 and added 120 basis points to our operating ratio. Purchased services and material expense increased 10% due to merger-related costs as well as higher intermodal and subsidiary expenses. Despite increased volume, fewer operating equipment leases and record second quarter cycle times drove a 7% reduction in equipment and other rents. Other expense grew 13% on higher casualty costs. Income tax expense increased 29%, reflecting last year's one-time $115 million deferred state tax benefit and higher pretax income this year, partially offset by some favorable state tax developments in 2026. Put it all together, we had a record quarter with reported earnings per share of $3.36; adjusted for merger costs, our earnings per share totaled $3.41 and operating ratio was 59.2%. Turning to cash and returns on the balance sheet on Slide 7, our strong financial results carried forward into cash from operations of $5.5 billion, up 21% versus last year. Free cash flow totaled $1.8 billion after we invested in our network and returned an industry-leading dividend to our shareholders. We also paid down $1.5 billion of long-term debt in the first half of the year, resulting in an adjusted debt-to-EBITDA ratio of 2.5x. Turning to our outlook on Slide 8, we have delivered a very strong first half 2026 as we execute on our strategy and deliver improvement in safety, service and operational excellence, leading to carload growth. From that focused approach, we have generated reported earnings per share growth of 6% year-to-date, in line with our January outlook. Looking to the remainder of the year, we are raising our 2026 outlook to reported EPS growth in the high single-digit range as we continue to efficiently move increased volume on our network. We also expect to continue delivering operating ratio improvement and maintain our position of industry leadership even against ongoing margin pressure from fuel. Fuel prices remain volatile, and our recent purchases have been over $4 a gallon. Overall, a strong first half of 2026, coupled with an improved outlook, highlight our ability to grow volumes, deliver for customers and manage costs, a strategy that delivers value for all of our stakeholders. With that, I'll turn it over to Kenny.
Thank you, Jennifer, and good morning. We had a very strong second quarter as freight revenue grew 12% to $6.5 billion. If you exclude fuel surcharge, freight revenue grew 4% to $5.5 billion; both were best-ever records. Let's walk through the key drivers on Slide 10. Starting with our bulk segment, revenue was up 7% compared to last year on a 1% decline in volume. Grain and grain products had double-digit volume growth in the second quarter, driven by strong export demand, facility expansions and growth in renewable fuels and associated feedstocks. That resulted in record second quarter volume and revenue. Meanwhile, coal volume was challenged by weaker natural gas prices, mild weather across our served locations and customer downtime. These factors adversely impacted overall demand. Shifting to industrial, revenue was up 8% on a 3% increase in volume. When you exclude fuel surcharge, strong core pricing gains delivered record freight revenue and average revenue per car. Petrochemicals growth was driven by improved demand and new business. In Metals & Minerals, volumes rose on higher domestic steel production and business development wins, more than offsetting the ongoing weakness in the export soda ash market. Premium revenue for the quarter increased 21% on a 4% increase in volume and a 16% increase in average revenue per car, reflecting higher fuel surcharge, core pricing and improved business mix. Domestic intermodal delivered its fourth consecutive record quarter in both volume and revenue. It's evident our outstanding service set the foundation to grow the business, and that's exactly what we're doing. In the second quarter, private asset, rail asset and parcel volumes were all up double digits, benefiting from constrained truck capacity and share gains. Our buffer resources allowed us to respond quickly to increase customer demand. International intermodal volume was down 14% versus last year; however, we saw improvement as we closed out the quarter, driven by stronger West Coast import volumes. In automotive, results were positive despite market softness due to strong business development results. Looking ahead on Slide 11, grain and grain products is positioned for further second half growth driven by strong export demand, ongoing business development and new facility openings. I'm excited about AGP's new export facility that opens next week in Grays Harbor, Washington. We also see continued upside from growing renewable fuels and feedstock markets supported by greater policy certainty. In coal, elevated inventory and lower natural gas prices will make for a challenging second half. We will continue to watch this market closely, but Eric and his team have proven they can quickly flex to handle shifts in volume. Business wins are also helping to offset some of the market-driven declines. Moving to industrial, we still see a soft housing market but we remain firmly focused on winning new business and outperforming industrial production. We expect continued strength in metals from industrial development efforts and increased petrochemicals from customer wins like the startup of CP Chem that I mentioned last quarter. Wrapping up with premium, we expect domestic intermodal to continue to perform very well, supported by over-the-road conversions and our service product. International intermodal will fully lap last year's tariff volatility in August, and we expect volume to be positive in the second half. For automotive, we expect new business to offset market weakness. So while we're proud of the record second quarter, the team is focused on capturing the opportunities ahead. Our approach does not change: price the service we provide, invest for growth and keep winning new business. With that, I'll turn it over to Eric.
Thank you, Kenny, and good morning. We delivered record second quarter operating performance, ran a fluid network and improved safety, all while handling 2% more volume. It all starts with safety: both employee and derailment rates improved versus their respective three-year rolling averages, highlighting the team's dedication to critical safety rule compliance and human factor prevention initiatives. Moving to Slide 13, we provided exceptional service as freight car velocity increased 5% to 231 miles per day and set a second quarter record. Train speed increased 3% and terminal dwell improved 7% as we tied our first quarter record of 19.7 hours, our third straight quarter below 20 hours. Both the intermodal and manifest service performance indices finished at 95%, demonstrating our ability to execute on the fundamentals and effectively utilize our buffer of resources. This enabled the team to support double-digit domestic intermodal growth at very high service levels. Remember, this bar only gets harder for us as it resets based on monthly best, which we achieved in 2025. Opportunities remain to improve, and we are committed to providing consistent, reliable service while growing with our customers. Moving to Slide 14, our key efficiency metrics reflect our commitment to operational excellence, as we delivered record workforce productivity, record train length and record fuel consumption metrics. The team is relentlessly focused on identifying opportunities to further enhance service, productivity and efficiency across the network by first executing on the fundamentals, then implementing new technologies and finally investing prudently back into the railroad. Locomotive productivity of 142 improved 1% as the average active fleet decreased 1% against 2% higher gross ton miles. We successfully onboarded incremental volume by leveraging existing train starts, demonstrating strong asset utilization and efficiency. Our fuel consumption rate improved 1% as we continue to benefit from fuel conservation initiatives and locomotive technology and modernization investments. Workforce productivity increased 5% on 2% higher volume. Our active train engine and yard workforce decreased 2%, demonstrating our discipline and remaining more than volume variable. Finally, train length grew 2% versus last year, driven by continued optimization of the transportation plan and reduced train starts. Closing the quarter, we delivered on the fundamentals while growing volumes and effectively serving our customers. We have the capacity to grow while continuing to improve safety and service. As Kenny's outlook has improved, we've been agile and reexamined our base resources and buffer, aligning both to support growth. We are also continuing to make strategic capacity investments, including the Houston complex, Pacific Northwest siding extensions and Sunset double track projects. The operating team is demonstrating daily that we are ready to grow with our customers while delivering the service we sold them. With that, I'll turn it back over to Jim.
Thank you, Eric, Kenny, Jennifer. Before we get to your questions, I'd like to quickly summarize what you've heard and provide an update on our merger with Norfolk Southern. As the team walked through, we had a very strong second quarter as volumes, pricing and operational efficiency drove record financial results. The network continues to be very fluid and our buffer of resources is supporting broad-based growth. Looking ahead, we are prepared to meet increased customer demand with best-in-class safety, service and operational excellence. For our 2026 outlook, we are raising to full year reported EPS growth in the high single-digit range. As to the status of our merger with Norfolk Southern, first, we met a very important milestone and the Surface Transportation Board accepted our application as complete on May 28. On Monday, we will meet another important milestone when we complete the supplemental information asked from the Board. As you'll see when you read it, we've carefully answered each of the Board's questions. We've also taken the opportunity to further improve the competitive nature of our merger through an expansion of committed gateway pricing among several other voluntary commitments. This is in addition to the merger benefits of seamless single-line service, better reliability, lower cost and greater competition against trucks and other railroads. Also, yesterday, we announced that we reached a merger settlement agreement with the railroad I used to work for, Canadian National. I said from day one that our merger will create a stronger rail industry that delivers better service for customers. Our agreement with Canadian National reinforces those commitments. Our merger is unprecedented and deserves a careful review. We've done our homework since we first announced our plans to merge, and we have even more conviction that our transaction is in the public interest and will deliver benefits for our stakeholders, especially our customers. The case for our transcontinental railroad is clear, and we're ready to go. With that, Rob, we're ready to take questions.
分析師問答
And the first question is from the line of Ken Hoexter with Bank of America.
I guess a two-parter. One, a little confusion on the $0.14 fuel gain. Is that just all upside from fuel and the pricing? Maybe if, Jen, you could delve into that a little bit? And then if you can expand on the commercial agreement with Canadian National, the access to the EJ&E, maybe talk about what that gives you and what you're giving up on the network down south?
Yes, Ken, on the fuel piece, we were just calling out the fact that it did have the 120 basis point headwind to our operating ratio mathematically. But then when you look at the difference between expense and surcharge, the benefit there was the $0.14.
Okay. On the Canadian National announcement yesterday, it was in two parts. The one part was something that we knew we needed to address when we looked at the merger, and we said it right from the start: we never wanted to take control and get over 50%. We called meetings at the TRRA and some other railroads didn't show up. At the end of the day, the nice part about the deal is that it clears up ownership around the Kansas City terminal and TRRA. It also allows Canadian National to come over between St. Louis, just east of St. Louis, and Kansas City and gives optionality to customers in the area because we would have ended up with two rail lines that we use directionally, and we would have had another one. So we thought it was prudent for us not to be too concentrated. Ken, that was the only part of the company where we had a significant overlap, and that was a pretty small area when you take a look at the entire railroad. So with Canadian National, we've got an MOU that takes care of that. We also talked about access into Mexico. Canadian National asked if they could figure out a way to get into Mexico to be able to move traffic and use a priority location they find better. We worked out a deal where they get improved access; we get better access through Chicago, east-west. Sometimes people look at things in the short term and they don't understand. I've worked in Chicago and at Canadian National, where it took us longer to get a train from the north side of Chicago to the south side of Chicago where our terminal was than it did to run it from Prince Rupert to the northern part of Chicago. So any time a railroad can figure out a way to run much more seamless east-west and make interchange connections or run-through trains, that's beneficial. It's a win-win: it's a win for Union Pacific and a great position for Canadian National. I think it's a deal that will help both of us increase traffic because of what we're able to take off the roads and move more on the rail. Maybe you didn't want that much detail, but I just gave it to you.
Our next question is from the line of Chris Wetherbee with Wells Fargo.
Sticking on that topic, I wanted to see if you could expand a little bit on how you think this plays out from a revenue synergy perspective. I recall that in the initial merger agreement there were concessions baked in, several hundred million dollars of potential concessions. How are you thinking about the agreement you constructed with Canadian National and how it may influence revenue synergies and concession numbers? And more broadly, is this the first of what could be multiple arrangements like this? How do you feel about receptivity from the rest of the rail industry?
Chris, I won't get into too much detail of other discussions we've had. But if people are reasonable, we are willing to engage, and this one is a reasonable expansion for Canadian National and great for Union Pacific. As far as the impact, we knew we were going to have to do something in this area. We see this as a growth story for both of us, not a limiting factor on business. This will not negatively impact what we're doing. Remember, we're still going to have them operate on our railroad to get to Mexico; we're not giving away our network. What this does is make them much more competitive against Canadian Pacific Kansas City, enabling them to originate out of Canada and sell a direct link. We see that as allowing them to grow business and not be less competitive, and we should be able to get more revenue on trackage or whatever else we finalize. So it's a real positive, Chris.
A big part of it, which addresses the 3-to-2 and 2-to-1 concerns as well as access into Kansas City, was part of what we anticipated we'd need to address, so it was part of our thinking.
The next question is from the line of Walter Spracklin with RBC.
When you were talking to CN, does this open the avenue now for more cooperation with them? Or is this something where you've addressed this player and now we move on to other railroads? Just curious if you see this as one player we've addressed and now move on, or if this creates an avenue for further opportunities with CN?
Fundamentally, we would never have been able to get to this kind of deal with Canadian National if it wasn't because of going through the merger. Making a deal with another railroad or company is pretty tough. The merger drove this, and it was something that helped both of us; it's truly a win-win. I'm not sure what the next step is. We do not have a lot of overlap beyond the areas we've addressed. We've basically dealt with our 2-to-1 and 3-to-2 customers; there isn't a lot else to give up. We are always open to discussions, and if something happens, we'll consider it. I like our relationship with Canadian National; they're tough negotiators and smart, and that's what you want to move deals forward. If there's something else we can do with them, we'll do it, but I don't see a whole bunch of items left on the platter. By the way, my wife's birthday is today and I mentioned that earlier.
McDonald's is not on the menu. Got it.
We're in Omaha. It should be a nice steak from Omaha. I'm looking forward to it tonight.
The next question is from the line of Jonathan Chappell with Evercore ISI.
Jennifer, you raised the EPS guide versus three months ago while also raising the outlook for your most important cost line item with cost per employee. Can you help reconcile where the majority of the upside is coming from? Is it volumes running better than expected, surcharge tailwinds, more productivity or other line items?
Jonathan, it's a number of different things. When you hear Kenny talk and look at his outlook in terms of how the business is performing and what we see for the second half of the year, it's stronger than we thought coming into the year, which is great news, and we feel very bullish about that. Eric and his team are handling that increased volume very efficiently and giving a great service product to support our customers as they're growing their business. It's all of those things together, and we feel great about it. It's a great setup for a strong second half.
The next question is from the line of David Vernon with Bernstein.
I'll try to squeeze two in here. First, on the outlook for the second half: Kenny, you sound pretty positive about everything except coal. Are you seeing any broadening of industrial demand outside of data center construction or related areas that would tell you a broader industrial recovery is building? Second, on the Falcon service, how does this agreement change that? Will CN be running some of its own trains, or is that separate from today's announcement?
On the first question, we look at car orders and we are fulfilling 100% of those; they are up slightly. If you look broadly at car orders across the board, there is some slight uptick. You're also seeing that in the momentum we discussed. On the industrial side, a lot of our industrial business is showing strong results and record average revenue per car. That's encouraging as we move into the second half. We're also winning new business that supplements macro demand — for example, the AGP facility and wins in automotive. So there's a little macro improvement and supplementing wins from business development. On your Falcon question, our Falcon product with CN is going well. The service product is strong and Eric has helped us make that successful. As we look at Mexico, we've done well there and we expect that to continue.
We talked about open gateways and the fact that we have no problem making sure other railroads come to our network and move the way customers want it to move.
When we think about the Falcon, it is independent of this agreement. Our commitment as part of the merger, which is unchanged, is full access to all active interchange points. Many underestimate how many interchange points there are; every single day there are about 260 interchange points across the Union Pacific network as we sit here today. So we're committing to keeping those open just like yesterday and the month before. Our partnerships with all the other railroads are incredibly important: about 40% of our volume every day is interchange to or from another railroad.
The next question is from the line of Stephanie Moore with Jefferies.
Big picture question: with industrialization and more domestic manufacturing over the next five to ten years, how is the network positioned to handle what could be a significant medium-term theme?
Kenny, why don't you talk about what you see with construction and new customers, and Eric can talk about how the railroad is positioned.
Stephanie, you're really asking about our industrial development pipeline where we're expanding at plants or locating new customers on our network, and that pipeline has remained strong. We've seen many new customers come onto our network. I mentioned AGP; we've also seen projects like Hyundai Steel bringing new production into the Gulf. That pipeline is strong and shows up in RFIs and other indicators. We're converting opportunities at a great rate and are bullish on it.
As far as the railroad's ability to handle growth, we remain poised to handle it. We showed last year, with a 33% increase in international intermodal, that we could handle large swings and do so well. We've also handled the domestic intermodal growth exceptionally well while maintaining or improving key metrics. For example, 50 days into summer we haven't seen the typical degradation in car velocity; we've increased car velocity. That demonstrates that the fundamentals are strong. On the capacity side, we invest prudently: more than $125 million invested in the Houston complex, continued double-tracking of the Sunset route, and siding construction and extensions across the Pacific Northwest and Iowa. We will maintain a buffer so when unexpected growth comes, we can say yes immediately to customers.
One last point: we have been talking about our pipeline of industrial projects and RFIs. We currently have about 200 RFIs in the pipeline, which is a very strong pipeline, so we feel very bullish about our opportunity to continue to grow that business.
The next question is from the line of Tom Wadewitz with UBS.
Congratulations on the deal with CN. Could you give any framing on the 3-to-2 and 2-to-1 customers in the St. Louis to Kansas City area — how large is that group? Also, with CN's access to your line from Memphis to Eagle Pass, do you expect CN to compete with you on business to and from Mexico, or is this more about Eastern Canada to Mexico?
The deal is focused on Canada to Mexico; it's not competitive with us. It's good for both of us and allows them to sell a product that helps both parties. Regarding the number of 2-to-1 and 3-to-2 customers: it's in the application. Out of thousands of customers, we're talking about a couple handfuls. Jennifer, do you want to add?
The 2-to-1 is three or four customers and the 3-to-2 is in the low 30s.
That's it — it's a small number relative to our customer base. We said we'd fix the 2-to-1s and provide remedies for the 3-to-2s. This is a growth deal; it helps move trucks off the road and is more fuel efficient. We believe the deal is in the public interest and will close. Thanks for the question.
Do you think you'll announce some shipper agreements as well, or not for a while?
We talk to our customers all the time and have private commercial discussions. We won't announce private deals broadly, but yes, we have been talking to many customers. I sent a letter to our top 50 customers offering to explain the benefits directly, and we've had positive private discussions.
Next question is from the line of Brian Ossenbeck with JPMorgan.
A couple quick ones. Jennifer, comp per head is up 6%. Typically you have good visibility on that. What drove the move higher? Jim, you mentioned voluntary enhancements to gateway pricing and other items we may see on Monday — can you preview any of that? And also, yesterday's STB decisions on reciprocal switching and trackage rights — does that set any precedent for the merits review?
On the STB decisions, they were prudent. They made clear that you can't automatically ask for access on someone else's property without compensating or addressing reasonable concerns. We're happy with the decision overall. There are parts we don't like — some requests for detailed employee information are difficult — but overall it's a clear outcome that supports our position. Jennifer, can you address comp per employee?
Brian, the comp per employee increase is driven by wage inflation and benefits. On the health and welfare side we've been a little hotter than we expected coming into the year. Wages we expected: remember we had a 4% increase for the first half of the year and effective July 1 we have a 7.5% increase for union wages. So the increases are healthy and that is the driver.
To build on that, while we're running hot on comp, we've seen continued progress on productivity. For example, we've increased train length and car velocity and reduced recrew rates significantly, and those are ways we offset wage inflation. Terminal dwell and run-through dwell improvements also help offset costs. Our team is focused on finding opportunities to offset inflation wherever possible and our track record demonstrates that.
On the supplemental filing, we have more detail in the application on responses to the Board's questions. We've expanded some commitments based on customer feedback to increase optionality — which we believe will drive growth and is positive. We'll release the supplemental information on Monday, so you'll see the specifics then.
Next question is from the line of Jason Seidl with TD Cowen.
Congrats on a good quarter. Eric, how much ability do you have to take on additional freight without adding much headcount or expenses, particularly on intermodal, both near term and longer term as you look at merger-related forecasts? Kenny, how should we think about pricing on intermodal as it flows through your network for the remainder of the year and into 2027?
When we put in our application, we said there would be incremental union employees to handle identified revenue synergies. But you don't start by adding lots of people; you first look for latent capacity within existing train starts. Over the last several years we've done an exceptional job utilizing latent capacity. From there, incremental volume may require added train starts. Those train starts typically relate to long-haul routes such as between Los Angeles and Chicago. We'll ensure appropriate staffing but in a volume-variable way; we will add the right number of people to run the railroad safely and effectively without overstaffing.
We're coming from a position of strong momentum: fourth consecutive quarter of record volume. With the faster box turns and strong service, we can have pricing conversations with customers and BCOs want to align with us. We're seeing price uplift now on spot moves and will see a bigger opportunity in the next bid season. Private asset providers are quoting new rates and pulling containers out of storage. The spot business is a small percentage, but we are seeing price uplift today and expect more in the next bid season.
Thanks for the question. We are mindful of adding resources but will do so where necessary. The sauce that makes this work is our people and how we utilize assets and capacity.
The next question is from the line of Ari Rosa with Citigroup.
Yes or no: was there any discussion with the STB prior to reaching the agreement with CN? And can you give any color on how it came together, whether you approached CN or they approached you?
No, the answer is no with the STB. I don't know who made the first call; it was probably me.
The next question is from the line of Brandon Oglenski with Barclays.
With truck availability and spot rates so volatile and elevated, doesn't this embolden the case for transcontinental rail mergers? Congrats on CN; do you need to do more like that to win over more hearts and minds? Is this going to close, Jim?
This merger will close. It's compelling for the country; splitting an efficient network up would hurt customers and the country. The deal will close with limited impact because it's end-to-end and it makes rail more competitive against trucks.
The next question is from the line of Jordan Alliger with Goldman Sachs.
With many moving parts on yield between fuel, mix and core price, how should we think about revenue per carload for the third quarter or second half, taking into account core price, mix and fuel impact?
If you remove the noise, we actually had a 58% operating ratio. That's another way to see the underlying performance of the railroad when you strip out the fuel volatility and one-time items.
We look at revenue excluding fuel. Service has been strong and our pricing reflects the value of the service we provide. This shows up in average revenue per car depending on mix. With the service, assets and the truck market dynamics, we'll price to the value proposition.
One quick comment on mix: it was a slight headwind in the second quarter because domestic intermodal strength came later in the quarter. As we look to the second half, domestic intermodal will likely stay strong and international may recover, so we may see a bit more mix pressure, but it's a great business and we're handling it well.
The next question is from the line of Bascome Majors with Stephens.
Looking ahead to Monday when you release the supplemental information, where do you think we land on the procedural schedule for when we get a formalized list of demands from opponents and the hearings? Does the CN agreement change the tone or impact the process materially?
The deal with CN clears up some things we knew we needed to resolve, and that is helpful. On timing, the statute is fairly clear: once they accept the application, there's a year for their review. We expect the clock started when they accepted the application. The next step is public comments. We're looking forward to people putting factual comments in so the process can proceed. We want to get this done as soon as reasonably possible.
The next question is from the line of Madison Pasterchick on for Ravi Shanker with Morgan Stanley.
How does fuel impact seasonality into the third and fourth quarter, and how should we think about the opportunity on operating ratio?
Fuel will likely continue to pressure operating ratios in the near term. We're currently paying a little north of $4 per gallon. Even with that, we are confident we will make margin improvement through volume opportunity, continued productivity gains and efficiency. We'll be nimble and aim to become more fuel efficient. We're already more fuel efficient than truck, which is a competitive advantage. That said, prolonged high fuel could influence overall consumer demand, which would be a separate risk; we haven't seen that impact so far.
We prefer lower fuel prices because a stronger consumer environment is better for volumes. So while fuel surcharges help near term, lower fuel is better for long-term demand.
The next question is from the line of Jeff Kauffman.
Kenny, the volume environment feels strong, partly due to truck driver shortages. Some of that may be temporary and some more structural. Can you talk about what appears sticky versus temporary, and beyond intermodal, what other commodity areas are benefiting from trucking dynamics?
We are winning business, not just benefiting from truck availability. Our strong service product and options — rail box, private assets, IMCs — give customers choices. We're winning over-the-road conversions and private asset volumes are up. Other markets benefiting include petrochemicals and grain, where we've invested in storage and export facilities. Eric and the operations team can flex to different markets; last year was strong in Mexico, this year some strength in the Gulf and P&W. Coal remains the wildcard, but overall demand dynamics look constructive.
Next question is from the line of Harrison Bauer with Susquehanna.
On rail assets you're deploying: are private assets constrained right now? How does that affect your ability to capture more economics, whether through peak season surcharges or pricing into the next bid season?
We price to the market and to the value we provide. We aim to drive faster turns so we can use fewer assets while handling more volume. We have chewed into our buffer, but we still have capacity and will price and be smart to continue moving product. Kenny, do you want to add on private assets?
Private asset providers have capacity and are supporting new business. We are selective and judicious in how we supplement containers to IMCs. We focus on dwell and have tough conversations with parties that hold boxes too long. We will use surcharges where appropriate for a limited amount and ensure customers that value service pay appropriately.
Last question is from the line of Richa Harnain with Deutsche Bank.
Can you clarify the intermodal commercial strategy around partnering with other IMCs? You said private assets have capacity, but some IMCs struggle with drayage drivers. How has your strategy changed and how does this influence your ability to address demand? Also, TransCon intermodal trends are competitive — how are you getting pricing?
Operations and marketing work closely every day to optimize asset turns and get assets moving faster so we can use fewer assets. Jennifer ensures capital is deployed prudently. The team is focused on local decision-making and reacting quickly to keep turns high and manage drayage challenges.
We're careful about how we deploy capital and containers to IMCs. We distinguish partners with higher dwell from lower dwell and have frank conversations about performance. Where customers value our service, we're able to secure price uplift, especially as we enter the next bid season.
Kenny explained it well. Our teams at the terminal level make local decisions to improve turns and service. That local empowerment is part of our culture and enables us to respond quickly to customer needs.
On transcontinental pricing and margins, we've put surcharges in place earlier than usual on our private assets. Demand is strong and our service product is strong; we are not providing discounts into that strengthening market.
That was the last question. Quick wrap-up: we're excited about the results and the improved outlook — raising guidance to high single-digit reported EPS growth. We're focused on executing the business and moving the merger process forward because we believe it's in the public interest. I'm proud of the team who makes my job easy. Thanks, everyone, and have a great day.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.