Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started with the next presentation. It's a pleasure for us to have Union Pacific here. I don't think that they really need an introduction, but we'll mention their names nonetheless. So Jim Vena, Jennifer Hamann and Eric Gehringer. So we have the CEO, CFO and Head of Operations. I think they have a couple of slides that they're going to provide and some initial comments, and then we will jump into the fireside chat. Just as I've mentioned before, if you have any questions along the way, we're happy to take those questions if you raise your hand and there's a mic, also can send in with the QR code, send in something to me on the iPad. But Jim, Jennifer, Eric, thanks so much for joining us. Let me hand it to you.

Great. So listen, 5 slides, let's pound through them real quick, looking forward, Tom this morning, and a beautiful morning here in Florida. So a little nicer weather than what we have back home in Omaha. But you only invited me for 1 day. Otherwise, I'd say a few days down here.

Now you're welcome to stay on if you want.

My assistant for some reason, filled my schedule up somewhere else, but I'm really good. And listen, the reason I have Eric with me. I think everybody knows Jennifer real well. Eric is the -- leads our operations. Him and the team have done a fantastic job. They're a key part of who we are and what we're doing. So I think it's time for him to get a little more exposure. People get to know him a little bit better, and that's why he's here. So -- and away we go and you'll see him present some of the slides. At the end of the day, anything we say for people that aren't in the room or people that haven't seen it, it's available on our website, please go there and take a look at it. We're very proud of what we've been able to accomplish this year. How we've been able to handle the traffic changes, the flow changes and the surprise that we've had. So at the end of the day, I think we're in a good place at Union Pacific. We like where we are. And this last slide, I'll come back and talk a little bit about it. So why don't I pass it over to Eric, and Eric take us through you and Jennifer over the next few slides, please.

Thanks, Jim, and good morning. So we've been very consistent throughout the entire year that service is what we sold to our customers and operational excellence is how we deliver that service. What you see here is a good summary of the primary metrics that reinforce the progress that we've made this year, which has been truly exceptional performance. If you look at the top right, freight car dwell, you could see every single quarter improvements. That's driven by 2 primary things. First, it's process improvement. At UP, we talk about the fundamentals, focusing on the fundamentals, boots on the ground, being in the terminals, all the way from our frontline leaders to me looking for those opportunities. And if we were talking 6 years ago, we would have been looking for opportunities that are worth 5 hours of dwell. Now we're focused on minutes. When we think about even time between cut on the top of humps. If today, it takes us 42 minutes in Inglewood, how do we make that 36. That's the work of the hundreds of frontline leaders every day to improve that and they're getting those results. Freight car velocity. Biggest opportunity in our freight car velocity is the work that we've been able to capitalize and run through dwell as an example. That's a measure of how long does it take for us to stop a train in a terminal, do a crew change, do a fuel and inspect and get it going. 24% improvement year-to-date on that, and there's still more opportunities on that. You can also look at car touches. We talk a lot about car touches. Our job at Union Pacific is to get the car from origin to destination in the fastest possible way. So we have different tools, different processes we employ where if a car would normally touch 3 terminals, how can we take one of those out? How can we bypass that terminal? We've taken out thousands of car touches this year, and I still see opportunities of thousands of more in '25 and beyond. Most importantly, I want to point out that we buck the trends that other railroads have not. Typically, when railroads have more volume, which we've been able to deliver this year, you see the inverse relationship with their car velocity, not at Union Pacific. As we've been able to grow the volume, we've been able to improve our car velocity. That's what operational excellence truly is. Workforce productivity, while doing everything I mentioned, we're delivering record workforce productivity. That's through automation. And it's also through as we think about terminal operations and other activities inside our terminals. It's also in our engineering and mechanical teams. So I'm very proud of what the team has accomplished. They've done a hell of a job this year. Next slide, please. Now let's talk about investing for growth, specifically on the capital side. Any time you talk about growth, you've got to talk about the 5 critical resources and we talk a lot inside Union Pacific about how we manage all 5. Remember that, that's mainline capacity, terminal capacity, locomotives, crews and railcars. We're in a great position on all 5. And yet, as you see here, we're making investments on mainline capacity and terminal capacity while maintaining our buffers on our locomotives, our crews and our railcars. These investments take 3 forms. We'll start with the ones that are in green. These are mainline capacity investments. Within that, these are siding extensions, the construction of new sidings or the installation of double track. Some that are most important. You see in the Pacific Northwest, quite a few green dots. Those are all siding extension and siding construction projects that support the business development wins that Kenny has already brought to the railroad and will continue to bring to the railroad specifically in soda ash and export grain. The green dots in the Southwest, that's our Sunset and Nogales lines. Those really focused on the intermodal side. Part of that is continuing to double track our Sunset route. And on the Nogales line, the one that runs north and south out of Tucson, you see two dots. Those are siding extension and a siding construction to support our continued growth out of Mexico. The yellows are our manifest terminals, and these are incredibly important. As we think about the next 3 years, and as Kenny sees the world and the business development wins that are in the pipeline, we're going to make additional investments in our manifest terminals. Now these investments have a lot of different forms. The construction of departure tracks, receiving tracks, the installation of Mobile NX, the extension of bull tracks and the list goes on and on. The bottom line is we're putting the resources where we need to put in our manifest terminals to support the growth, specifically down in that Southeast portion in our Houston and Gulf Coast territory. And on the intermodal side. If we were looking 4 years ago at this map, you'd probably see a few more blue dots. That's because over the last 5 years, we've added 1 million lifts of additional capacity in our intermodal network. These investments focus on things like the construction of a new terminal in Kansas City and the completion of some expansions like our facility in Lathrop. And we'll talk a little bit more about the intermodal terminals here later on. Jennifer?

Okay. So when you look at driving growth, that is really the culmination of the work that we want to do in terms of our strategy of being industry leading in safety, delivering on that service product that we sold to our customers, doing it operationally in excellent manner that's going to deliver growth for us. And we go about pursuing growth across a number of different things. One thing is through an expansion of our service offerings. Eric was talking about the investments that we've made in Intermodal from a physical footprint standpoint. But also, we have done things to change the services that we're offering to our intermodal customers, understanding what their needs are in different lanes and then working to do that. Importantly, I'll just point out a couple. One is the removal of 2 days of transit from L.A. to Chicago. That's a premium route for us. It goes across our Sunset corridor, which is a great corridor for us that we have put tremendous investment in, going from L.A. to Chicago and taking out those 2 days of transit was critical to bringing new customers on to our railroad. We also want to highlight the Falcon and Eagle Premium. Those are our services going into and out of Mexico, where we partnered with the FXE railroad as well as Canadian National, serving our customers end to end to make sure that we can provide them that growth product that we know that they're after in the marketplace. If you look over at extending our network reach, when you think about a railroad, we do have definitive endpoints. And so for us to be able to grow with our customers, we need to find ways to reach beyond that. If you look at our portfolio today, about 40% of our business either originates or terminates on another railroad. So those partnerships, like I just mentioned with FXE and CN or with short lines are critical to being able to serve our customers and meet their needs and give them that through transportation product. Another thing that we're doing, and we highlighted this actually at our Investor Day down in Dallas, is with industrial parks. So it's one thing to extend the network end to end. It's another thing to bring customers on to our railroad and attract them to put their facilities onto our network. Industrial parks are a great way to do that. Prime Pointe has been a great success story for us, and it's not the only one on our railroad. It's the one that we highlighted. But if you look, we have 29 other what we call focus sites around the network that we're working to develop. One I'll highlight there is in San Antonio. We've engaged a third party to help us attract and put together a footprint where we can bring some new customers to our railroad. In San Antonio, I think it's the 7th fastest-growing or 7th largest city in the U.S. and very fast growing. So meeting again those customer needs in those critical markets. We mentioned expanding SIT facilities. SIT stands for storage and transit. It's not a very, I'll call it, sexy concept, but it's critical for our petrochemical customers to be able to fulfill that supply chain need that they have of being able to store their intermediate chemicals. I can go on, but the key point there is, and it kind of ties back into what Eric just showed on his prior slide, we're willing to invest to do the things that our customers need from us to be able to meet their service needs and to help them support growth. Anything you want to add, Eric?

No, that investment also continues into our customer experience. Now when you think about customer experience for us, it has lots of different forms. Some of the investments are literally in the technologies that our customers use. But one of them that I focus the most on is just car order fulfillment. This is a measure of when a customer requests a certain number of cars, what percent of those cars do we deliver and the evolution over the last year that we've made, we used to accept 95% success rate that, that was good. Now we're at 99%. We've sustained 99%, and it's because the experience for the customer cannot be, I'm waiting on cars. The experience should be, we already have cars there for them. Even if they get a volume surge, there's still buffer cars for them to use. You can also see that in the investments we've made in our containers with GPS now, RailPulse, that's all focused on providing transparency to our customers so that within their own supply chains, they can make the best decisions. And the list really goes on and on. Doing a lot of great work in that area.

Yes, absolutely. I want to go to the next slide then. So you take all of that work that we're doing. You take the strategy that we implemented about 1.5 years ago when Jim came on board and you couple that with the UP franchise. We very much think that those things are a combination that really come together to be very successful for us going forward. And we believe we're already seeing some good early proof statements of the success of that strategy. In the third quarter, we had about 6% volume growth, and that was against a headwind of 2 points from coal. Right now, quarter-to-date in the fourth quarter, our volumes are up about 4%. Coal continues, unfortunately, to be a headwind of about 3 points. So we are overcoming some of those challenges that we have in the secular marketplace relative to coal and driving growth with our customers through an excellent service product, through providing a good, safe service product and doing it in an operationally excellent way. The other part of the top line story that's important is price. And we know that investors are very interested in the price part of the story. So we've got the volume growth layering on the price. And that's an opportunity that you have seen us be very consistent with over the past many years. We have consistently said and performed in terms of being able to yield price dollars that exceed our inflation dollars. But the story isn't over yet. In fact, when you look at the pie chart there, you see the mix of business that we have. So on an annual basis, we can touch about half of our portfolio from an active pricing standpoint. The other half is in multiyear contracts. Since 2022 when inflation really started to pick up on us, we've repriced about 75% of those multiyear contracts. So there's still fully 25% of our multiyear contracts that we've not actively touched since you saw inflation really run up. And I think it's also important to point out that when you think about the part that we have repriced, I think we've learned a lot about what's happened with inflation over that time period. It's stickier than what I think we originally appreciated. And so when you think about some of those early renewals in the 2022 time frame, I believe there's still opportunity to bring some of those contracts, I'll call it, up to market when you consider what's happened from an inflationary standpoint. And we know that with the intermodal part of our business, which is a critical part where we've seen good growth and expect to see further growth, with the truck market being what it is and with some of the index-based contracts that we've entered into, that has been at a very depressed level. So as the trucking market recovers, we expect additional opportunities on the price side there as well. So a very good setup for us going forward on that top line. And then obviously, doing all we can to bring that to the bottom line through productivity.

Perfect. So there's a lot of talk always. And when companies come out and talk about how they're doing, they like to put in a whole bunch of words. Yes, the words are good. But like Jennifer said, we're not trying to be a sexy company. You know what we are trying to be? We're trying to be the best in the industry. And this is metrics that we think show where we are so far. This is third quarter year-to-date 2024. So numbers that we've announced and we've scoured the rest of the industry to see where we sit. And I think operating revenue is real important, and we're #1, the most, including our big competitor in the West. So I'm not going to label which railroad is there to our right, but that's where we are. We think operating ratio is very important. It's a good indicator of how well you are dealing with the mix of traffic and what's -- how efficient you are in the railroad. And I love our improvement year-to-year, and I think there's more of an improvement. In fact, I don't think it. I know there is. I've been doing this for way too long to be -- at my experience and guessing about what's going to happen. So we're leading the industry in operating ratio, and we're leading it pretty good. And that's our goal. So operating income, very important for any investor and for us in the company, and you can see where we are, we're #1 and substantially better than anybody else. And net income that drives the bottom line, free cash flow and what we have for cash at the end of the day, a real good indicator. You can see in billions of dollars where we are against the industry. So this is great. It's nice to have. It's a nice position to be. We said we want to be the best in safety. We said we want to have service that at a very high level that does not impact us when we look for pricing dollars and how we move the traffic. And I think we've got a great service product. We're delivering at a very high level and we showed it when we had a 30% increase in intermodal that we did not slow down as that first slide showed that Eric had up and spoke. And the final piece is, are we delivering operationally and financially for the owners of this company, and do we see that we can continue to improve and continue to deliver at a real high level? I think it's there. Our goal next year, and I don't see anything stopping us from delivering, is we said at our Investor Day, we're going to be high single-digit or low double-digit EPS growth. We're going to continue to have a -- and improve our dividend. We look at it every year. We just announced, okay, that we increased it last quarter. And this quarter, we already announced what we're going to do and maintain that number. So you put those 2 things together, I'll even start with the low -- sorry, the high single digit and a dividend that's over 2%. I think it's 2.21% this morning, and we'll continue to see that stay up there, I think you can take a look at what and who we are and how we're going to improve. Let's just talk one a little bit, Tom, because this is really important. Listen, we're never happy, we're never comfortable. I've sort of tried to instill that in the company. I don't get up. The best way to win is when you're winning and you're worried that somebody wants to pass you. It's, you have a different goal when you're last or you're the worst and you're trying to get up the ladder. What we want to be is we want to be the railroad that is first and we want to continue to stay first, and that's who we are, that's what we're here for. That's why I came back to work and I love the team I have. I push them hard, they push. We have fun, but at the end of the day, let's go deliver. So with that, Tom, maybe you don't have any questions after that great presentation. I'll give you floor and we'll give you the time for it.

I like the bar charts. That's a nice set of 4 charts there. Great. Well, thanks so much for those comments. It's great to have the 3 of you here. I assume Kenny is not here because he's going out selling business, right? I know he wants to do that. So that's a good thing, too. The -- maybe quickly on 4Q, how do you think our -- kind of your markets and your volumes coming in roughly like you would think? Are there -- kind of you had some mix headwinds with the surge in International. Maybe how do we think about kind of the way volume and mix are coming in versus your expectations in 4Q? Any thoughts on that?

Yes. I mean I would say 4Q is coming in very much in line with what we were expecting when we talked back in October at our earnings day. We are still seeing very strong international intermodal volumes, up 20-plus percent. So not quite at the 30-plus percent level that we saw in third quarter, but still quite strong. We also are starting to see domestic intermodal come back a little bit, in part driven by those volumes coming through the West Coast port, and we're seeing more of that transload opportunity. Grain continues to be good for us. Grain products, 2 areas that have been good growth areas for us here in 2024, the petrochem market continuing to be strong. Continuing to see weakness, though, as I mentioned earlier, on the coal side of the world. Unfortunately, that hasn't abated. In fact, I think fourth quarter is looking just a tad worse than third quarter was. Also continuing to see some pressure in some of those key industrial markets. Think about construction, think about metals, some of those areas, just not seeing the level of activity that we'd really like to see there.

Okay. So kind of puts and takes, but not much different in terms of overall?

No, very close to what we were expecting coming in.

Okay. The metrics would indicate the network is running really well in 4Q. Is that -- is it anything we should be aware of on the kind of the way the network is running or the cost side or outdoor sports, yes.

It's okay.

It's okay.

Yes, I'll answer the first piece, it's okay. Eric?

I thought Eric said it was running great.

That's the problem, Tom. I don't want anybody to feel that it's great. It's okay.

Yes. Yes.

There's more there. And Eric...?

It's the mindset of perpetual dissatisfaction. That's what we do at UP, right? We look and we say, even when things are running well, how can you find another level to go to?

And the reason I say that, it's not because I'm a tough guy. I'm an easy guy. I'm a pussy cat at work. You can ask everybody at work. But at the end of the day, the way I look at it is like this is there's more velocity. There's better terminal time. There's better car handlings. There's better car touches. There's better ways to use the network to be able to be the best and be able to move products from L.A. to Dallas and from L.A. to Chicago in a better manner. And our traffic changes a little bit, right? You get a slight change, more intermodal, less coal. And in some of those subproducts, the 100 different big products that we move, it affects the network. So if you ever wake up as a railroader at Union Pacific as an operator and you ever tell me that, listen, we're 100%, we're perfect. That's the day I take the company plane and I fly in to come and take a look at it to see that what's left and it's there. So that's what it's all about, Tom, okay?

Opportunity to do better, right?

Absolutely.

Let's see. Okay. That's helpful. I appreciate that. How do you think about the -- obviously, kind of recent a couple of weeks ago, we get the election results and you get a fair bit of news flow and commentary on tariffs and things like that. So I guess, how do you think about the customer response so far? And is there some increase in enthusiasm for the -- you have a result from the election, that uncertainty is behind you. Now you can invest more, be more optimistic. Is that coming through somewhat? Or how do you think about that as a component? And then also a second piece would just be how do you think about tariffs and if there are significant tariffs on Mexico and Canada, is that a meaningful impact to you? So 2 different things.

Well, there's a transition. Anytime you have a President, a new President come in and a new administration, plus the changes that are happening -- happened and it looks like we have a Republican small majority in both the House and the Senate, plus a Republican President. Now absolutely, you need to pay attention to what you think that they're going to do. So there's a lot of things that I've heard is there are some things that would be very positive normally under a Republican-led administration, and there are some things that I've said that we'd say, listen, we need to deal with it. The question of tariffs, and a lot of people have asked me the question of the tariffs. And I just read a great article this morning of what the average tariff actually is today and what sort of proposed and we think that with all the multitude of products and whether we can originate them in the U.S., instead of other places. Or other countries that we think that we can go through that and handle that change. We also think that if the regulations are changed, so it makes us easier to implement some of the technology that we have that's ready to go to make us safer and make us more efficient with the change in regulation is a real positive for us and the industry. So it's really puts and takes. And it happens every time you have an administration change in the U.S. or -- and we know that in 2 years, it could change again as far as who has control of the House and who has control of the Senate. I don't lose a lot of sleep over that. We just have to be ready for everything that could happen. So we're looking forward to see how the administration when the -- in January when the turnover happens and what the effect is at Union Pacific. If it slows down, we have the capability to remove a lot of costs, because they're variable. And that's real important for us to be able to deal with that, and that's how we're set up and I like where we are. But also, I think if there's opportunity, because corporate taxes changes or depreciation changes or how we can capitalize, then it's an opportunity for us to be in the right place. I love where we are, and I'm not real worried about anything. I've seen this for too long. I've been railroading for 47 years and if I haven't seen this game before -- I'm telling you, it's been there before, and there's no reason for this company, maybe other companies might want to worry about it, but for us, I like where we are. We're going to get through anything that's thrown at us. And that's the result of the slide that is still up there is, is we want at the end of the day, find the way to be the best in the industry.

If you build a plant in Monterrey or San Luis Potosi or wherever you're doing in Mexico. It's not like you can easily move that, so one framework could be that, okay, there can be some additional friction, but the customer response could easily be that, okay, now it's kind of a cost, but I can't change where the plan is based on that. So ultimately, there's some risk, but more likely not to be a big impact. Do you think that's reasonable? Or is it just like, hey, it's hard to take much of a view right now, and we just see what happens?

Listen, if the level of -- sometimes the numbers that are thrown out against where the average amount of tariffs coming in, China is a little higher if you look at it over 10% overall for -- if you put all the products in the mix. The rest of the countries that bring products into the U.S. are less than 10%. So if it goes to 10%, less of an impact. If it truly goes 100% like the President said, listen, we're all going to be affected and things will have to happen quicker. And whether they -- people that are producing things in other countries can do them and still want to be able to sell and the consumer buys them. I think those numbers start to affect the U.S. economy way too much for people to end up there, and it's a negotiation. But listen, I've seen all sorts of things with the government. We've been trying to get some regulations changed that allow us to be safer with our signal system and how we look at it or the track. And we've been waiting 5 years for an answer. So I'm hoping that we get some of those regulations changed this time with new administration and new people leading the FRA and the STB.

So we actually had -- Patrick Fuchs was here yesterday and Ian Jefferies as well. We had some -- did some -- we split a spot with those 2. And we talked about some of the regulatory things. I think there is some optimism certainly that there can be a different approach with a new FRA leader. And that maybe some of the technology that you've developed that can be used more aggressively. How do we -- I think in particularly on the maintenance side, right? So how should I think about what needs to change at FRA? And if it does change, then is that you need fewer maintenance people to inspect track and cars? Or what's the kind of flow of that or the impact if it plays out in a constructive way at FRA over a couple of years?

At the end of the day, the STB, we have the exact same goals. We want to provide good service at a good price for our customers so that they win in the marketplace and we win and we can grow with them. That's what it's all about. So that's the same result that the STB wants, and that's what we want. Listen, back in '22, we did not do very well as an industry and at Union Pacific. We made some mistakes. We were caught with how fast and what happened after COVID, the big V spike that came back. But at the end of the day, I think we've shown that we have the buffer and how we're handling it. With the FRA, same thing is, is we have technology that we could implement. And we have the same goal. We want to be safer. This is not a head count discussion to say, how do we remove 500 people. It's, we figured out a way to be able to inspect our track using the latest technology on locomotives, on cars, high rail. We've been able to figure out how to implement with the money that we put into the signal system so we can remotely look at our system is working right and we don't have an issue. Would that mean some productivity gains? Absolutely. But that's not our key goal is to always look for ways to remove people out of the system. But will it? Absolutely. So I think we're aligned. I think there's some great -- the STB, the 4 members that are there right now are smart. They're on it. I'm sure they wish we moved faster sometimes, and I wish they moved faster and the same thing at the FRA. And what I'm hoping is, is that we have the leadership at both those that say, listen, we want to move faster. We want to make the product better. Because the way the railroads win is, is that we deliver a faster product, a safer product, and we affect our communities, and we let our customers win, and we all have the same goal. So sorry for the long answer, but I think that's really important in the relationship with the FRA and the STB.

Sure. And actually, one of the things we heard yesterday in the discussion I mentioned was setting clear deadlines and then meeting those deadlines from the regulators. So seemed pretty constructive commentary.

You bet. I saw -- I heard what Patrick said, and I love that when he said clearly at rail trends, and it sounds like he repeated it is we expect the railroads to deliver in certain time lines and the STB should do the same thing. Like, listen, I think Patrick is on it, and the rest of the members are on that same page of let's get going. Because we've got a great industry. We work together to win. We want to move more products by train than truck. Let us be efficient where we need to be efficient. Let us grow the business. Let us show that we can be real safe, which we are. And I'm telling you, it's a win-win for the country. We move things away from highways. We put more on trains. We're very efficient. I'm telling you this keeps up and I might wake up tomorrow morning being real happy. Big smile on my face instead of looking at what dirt can I find on the railroad that's not operating the way it should, as Eric could tell you about the text I sent him this morning.

Yes.

There you go. So how do we think -- I want to talk a little bit about 2025. How do we think about you need to plan in advance from a T&E headcount perspective. Let's say, it's a 6 month, I don't know, I asked CSX, they said really 6 to 9 months in terms of kind of actually getting people into training from a conductor perspective and then getting them out on the system. So presumably, you already have new hires coming in to reflect a certain expectation for '25. Are you optimistic? Are you hiring so that you can handle stronger volume growth for next year? Are you taking kind of a cautious approach that says, hey, we'll match attrition, and we'll keep headcount flat? Or how do you think about the kind of planning for '25 and then what kind of baseline view or base case, I should say, I know there are multiple scenarios. But what do you think about for a base case view on '25 and how you plan for that?

If the business stays flat, you can expect us, even though we have to implement some of the items from the last contracts that we signed, that we're carrying some more people than we normally would as a minimum. But I'm very comfortable that in '25, if the business doesn't grow, which I think it will grow, but if it doesn't grow, because I think that's the question you're asking, what we do with the headcount. I don't see us increasing headcount for the amount of work that we have out there. So -- and that's real important for us is to make sure that the amount of people that we have -- and you see it in our attrition and productivity. If we went back a couple of slides, that productivity number is really important. We've been able to improve our productivity overall, and we expect to improve our productivity again next year. And that will help us deliver that -- the high single-digit EPS to low double-digit EPS. That's the way we look at it. And they'll react. Every month, Tom. This is not a 6-month discussion. We look long term, but we know how long it takes us to hire and to put them as people to operate trains. And we also hired a lot of engineering people, a lot of mechanical people. Everybody wants to talk about those locomotive engineers. And I used to be one, okay. That's because they're the highest paid. All in, they're making about $180,000 to $200,000 with benefits on the railroad plus free tuition, they get a college degree at Union Pacific, plus employee share participation plan. So that's a pretty good job. But there's a lot of other people that do their job every day that we need. And we've got it down path. We look ahead, we look at where the business is. We always have a buffer that says we can handle the normal fluctuation that's going to happen. In that way, we don't have to be perfect every month. And every month, we decide what we're going to do. It's complicated, but we've been doing it for a while, and I'm very comfortable. And overall, flat business should mean a drop in headcount as we're moving ahead.

Do you think -- like are you still a little bit overstaffed today? I mean you mentioned the union agreement and how that's a little bit of a constraint, but is there still some level of kind of overstaffing, if you will?

Well, in those variable locomotive engineer conductors and yard people that switch box cars, we are, because we have some contracts the way we have to work through on the time off pieces that we've agreed to. But the rest of them, we have a little bit of buffer, but we're not sitting there carrying a whole bunch of extra people on the engineering department or on the mechanical side or at headquarters, on the management side. And in fact, you've seen us drop our management headcount, and I think we'll continue to do that. We haven't hired management people since I've got there for 16 months, and I don't see us hiring for the next 16 months. We need to -- and we're doing that because we want decisions to be made faster, much more of a company that's got less layers and a company that's ready to make a decision. If you make a mistake, let's not make the mistake again and move ahead because I think that's a winning formula. So that's where we are with headcount.

How do you think about where the network is at, where the culture is at? You were the Chief Operating Officer, 2019, 2020. Made big changes. You've been what is it, I don't know, 15 months this time around something like that. And so more pretty quick responsiveness. Is -- what's left to go, right? Like there's a continuous improvement, so you're always going to do better. But are there any areas that you say, oh, this is a little more -- a little bit of a bigger opportunity for the network to run better for our asset utilization to be stronger. Is any of that left? Or is it just like continuous improvement?

Listen, if I've done my job properly when I showed up in January of 2019, and I led the operating department in the right way, which you go back and take a look, stock price was at $136 January 7 when they announced me and today, where it is. Our headcount is down substantially. The way the railroad operates and the operating metrics are substantially better. We're faster, less touch points. So yes, that's where those were. Are we at the same place? Tom, that would have meant I didn't do my job. In fact, the Board should be calling me after this discussion if they're listening in and say, Vin we need to fire you because you didn't do a very good job. You saved it all for when you came back as CEO. So it's much more of what's left. And I see that there's a lot left. We can operate better. Now is it a 30% improvement in productivity in the mechanical side? No. But do I see another 5%, 10%? Absolutely. Engineering department the same way. The way we operate trains. We're working hard to see how we can be more efficient with the number of cars. And you could see that year-over-year, we're high single-digit better on the number of cars we handle per employee when we're switching, that nobody sees because we don't put that number out. But that's what's driving. When you look at our headcount, when you look at what we've been able to do year-over-year, that's what really counts. And on the culture, don't let me answer it. Why don't let these 2 because they've been pretty quiet for the first piece, because I've taken it all. So Jennifer, like, where is the culture?

Well, certainly, I think you alluded to it with the culture of wanting to improve and really trying to pursue what's possible. In the past, we used to talk about, well, this was our best ever, or this was our best month. This was our highest speed. We don't talk about that anymore. We talk about what could it be? What should it be? What does it need to be to be able to meet the needs of the customer? And so culturally, that's a very different conversation to have, and it moves you in a very different place when you're talking about the productivity initiatives that you're pursuing, when you're talking about the technology changes that you're pursuing. It's a very different conversation. And the speed at which you're trying to get to that is also much different. There's a greater sense of urgency in terms of for us to be able to deliver on the promises that we set forth at Investor Day and to deliver to the promises that we've made to our customers, we can't wait a month, 2 months, 6 months to act on something. We need to make that action today. And that's historically, in addition to the knock in the industry being that we don't improve when volume grows, it's that we're slow, that we're slow to react, that we're slow to change. And so that's another very big cultural change that we're working through is we need to be much quicker, much easier for our customers to do business with so that they want to come to us with their problems, they want to come to us with their business.

Yes. So Eric, why don't you talk. We just had results about with the survey, employee survey and some of the sort of indicators and -- that we're receiving from everybody. Where are we with that?

So we do an employee survey every single year. There's lots of metrics that we collect. But the ones that are most important to us are managerial effectiveness. Is the leader of that organization at the different levels within the company, leading their teams well. And we got significant improvement from last year, which was an improvement on top of the year before that. What that's telling us is that the message and the strategy that we've instilled is getting deep into the organization, and it's being applied. Now there's no finish line to that. We have to continue to do that work. And largely, that work is reinforcing to our employees, the value proposition that we as a company provide to them, and Jim mentioned a number of those examples earlier. And number two, that growth is everybody's job. It's not the job of just marketing and sales. So this year, and we will do it again next year, we've embarked on how we win together, where every single employee in Union Pacific goes through a 4- to 8-hour class depending on which craft they're in, where we do exactly this. Jim's message is the way we started, and then we personalize it into this specific department that, that employee or a group of employees works in. That's how we're pushing cultural change.

So we're actually at time, but I want to ask like just one last quick one, Jim. Are you optimistic about growing volume next year? I mean you're running the network well, you've got a lot of initiatives. Hard to tell what markets do, but are you optimistic that you're going to see some volume growth next year?

This year, we were able to grow our volume. And I don't look at the subsections of our business and say, we can't control this. Where is the lumber? Where is housing? Where is auto? Where's chemicals? Where is LPG? Where is the fuel? What the heck? Like you could go crazy trying to manage all of 100, but this is what I see per Union Pacific. I see us growing our business. That's what Kenny is out there doing this morning and his entire team. We're going to increase the amount of revenue we get in that business, okay. Mix might have an impact when you take a look at the whole quarter, but we've done a pretty -- a real good job, and we expect to do the same thing in 2025, so that we see an improvement on the amount of revenue that we're making. And if you look at it, so far this year, our revenue ex fuel has been really good for the volume that we've had, okay, and the mix. So that's a win, and it's there. And then fundamentally underneath, it's all about how efficient can we be. How can we move the extra business in the most efficient manner, so you don't increase cost dollar per dollar and what you're coming in. I'm very, very proud of the team and very -- hopefully, they don't hear this. Very happy with what we're doing. And I think next year, we're going to continue to show an increase in business and an increase in value to our shareholders and how the company is operating. So Tom, that's where we are.

Excellent. Jim, Jennifer, Eric, thank you so much for joining us. I really appreciate it.

Well, listen, Tom, I appreciate the invitation. Thanks for having me and the hospitality and great questions and looking forward to communicating as we move ahead and taking this great company forward and winning in the marketplace. Thank you.

Okay. Great. Thank you. Thanks for joining us.