Union Pacific Corporation (UNP) Earnings Call Transcript & Summary

Thank you for accessing Union Pacific Corporation's 2026 Third Quarter Earnings Conference Call held at 8:45 a.m. Eastern Time on October 22, 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 Union Pacific's Third Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Offer for Union Pacific. Thank you, Mr. Vena. You may begin.

Thanks, Rob. Sorry, I'm rather fast this morning. I'm ready to go I overstep yes. So hopefully, I don't do that to everybody today. No, I hope I am. We're ready to go here. So why don't we take a step back and think about where we are as a company and what we're doing. So this morning, my wife for whatever reason got me up a little early, okay? So I had a little more time to look at the railroad real close. And the first thing I look at is what's happened into the railroad weather-wise. And bottom line is, this is my favorite time of the year at railroad. And Eric will tell you the same thing. Engineering programs are in a different place. The railroad is well set up. You don't have the extremes too much of an extreme of weather. It is a beautiful morning here in Omaha, absolutely gorgeous. I'll tell you, it's a great place to live in a wonderful spot. But so the railroad is good. Now the range of temperature we have is from the low 30s to the high 80s. But that's who we are. And we have thousands of employees out there right now, okay? Yesterday, we had 2.31 billion GTMs a product that we moved in this railroad and all the people out there, and I got to congratulate them on the quarter that we had. So very excited to share with all of you who we are, what we're doing. And 1 thing we're not changing is the key pillars that we have. Safety for us is the foundation, and Eric will take you through some of the detail, but where we are this year on an injury rate improvement from last year, where we are in the derailment rate, significant improvement from last year that continues all the work we've done is very exciting as a foundation of everything that we do. And listen, safety for us is more than just a number. It's about people going home exactly the same way as they showed up when they came to work. And it's the movement of the goods that we have for America. We are moving products across the Western states and pretty soon across the entire country. That just helps the economy and helps businesses move ahead. So I love where we are at safety, and I know Eric's got some more detail on that as we move ahead. And service, absolutely, I love where our service is, is we're delivering what we sold the customer and what we agreed to. And operational excellence I see numbers in detail that I had a chance this morning to spend probably half an hour. Usually, it's 5 minutes on that show me that the number of cars that missed their plan, that we call 32-hour cars is like 15% lower with business up, the number of locomotives we have out there running and operating don't match the amount of business increase, meaning we have way less locomotives operating. So much more efficient with them. The way the cars are turning, the car velocity is exactly the same as it was last year at this time with increase in business to show the resiliency of our buffer and how we handle traffic. So I guess if I don't stop there, I might well just tell everybody to keep quiet, and we'll just go to question and answers. But let me real quick tell you who's here with me, our Chief Financial Officer, of course, Jennifer is with me every quarter. I love Hamann here, she's next to me. Kenny Rocker, Executive VP of Marketing and Sales, always in the right spot right there to my right, and across the table, Eric Gehringer, our Executive Vice President of Operations, and I can't be prouder of what the team has done. If we can turn to Slide 4 and quickly review. So this morning, Union Pacific reported record financial results as net income totaled $2.1 billion, and our adjusted earnings per share grew 15% to $3.53. The Union Pacific's third quarter results demonstrate our ability to safely deliver the service we sold to our customers while efficiently handling 6% volume growth. Higher fuel prices were a big cost driver, but when we take out the impact of fuel price and merger costs, our core operating ratio improved 110 basis points from last year. Now I'll let the team walk you through the results in more detail, and then I'll come back to talk about the Q&A and maybe a quick wrap-up before we get into -- before we finish the call. And Jennifer, all yours with some of the details on the financials, please.

All right. Thank you, Jim, and good morning, everyone. I'll begin with our third quarter income statement on Slide 6, where operating revenue of $7.2 billion increased 15% versus last year. Digging into the components of our growth further, freight revenue totaled $6.8 billion up 15% on 6% volume growth. In addition, higher year-over-year fuel prices and the related fuel surcharge added 900 basis points to freight revenue. . Although our quarterly pricing gains continue to exceed our inflation dollars, that contribution from price was masked by business mix as nearly 75% of our quarterly volume growth was from domestic and international intermodal traffic. Wrapping up the top line, other revenue increased 21% to $384 million as higher intermodal volume contributed to increases in both accessorial and subsidiary revenue. Turning to expense. Our appendix slides will provide more detail as our total operating expense increased 15% to $4.3 billion, primarily from the higher diesel fuel prices. Compensation and benefits expense increased 4% as cost per employee was up 5%, driven by higher wages, incentive compensation and training costs. Offsetting some of that cost pressure was a 1% decrease in head count against that 6% volume growth, enabling us to generate our ninth consecutive quarter of record workforce productivity. Fuel expense grew 69% on a 64% increase in average fuel price and 4% higher gross ton miles. Year-over-year, our price per gallon increased from $2.56 to $4.21 and added 140 basis points to our operating ratio. Purchase services and materials expense increased 9%, as a result of inflation, intermodal related costs for our loop subsidiary and the railroad as well as cost to add surge locomotives to the active fleet. These increases were partially offset by lower year-over-year merger costs. Equipment and other rents declined 3% versus 2025 as we more than offset the impact of volume growth with lower car hire and operating lease expense. Putting it all together, we had a record quarter with reported earnings per share of $3.49. Adjusted for merger costs, earnings per share totaled $3.53 and our operating ratio was 58.8%. Turning to cash returns on the balance sheet on Slide 7. Our record financial results translated into 18% growth in cash from operations to $8.3 billion. Free cash flow totaled $2.4 billion after we reinvested in our network and increased our third quarter dividend 3%. The 20th consecutive year providing our shareholders with an annual dividend raise. We finished the quarter holding $3.1 billion between cash and short-term investments and with an adjusted debt-to-EBITDA ratio of 2.4x. We will continue growing our cash reserves in anticipation of closing the Norfolk Southern merger in the second half of 2027. Looking out to the remainder of 2026 on Slide 8, we are affirming our outlook of reported EPS growth in the high single-digit range versus 2025s reported EPS of $11.98. And as a quick reminder, that $11.98 included $0.30 from a fourth quarter land sale. We are also affirming our ability to continue improving our core operating ratio in 2026 and leading the industry. Our 2026 reported operating ratio remains challenged by higher fuel prices as we are currently expecting prices to average around $4.85 per gallon in the fourth quarter. We're also updating our capital spend to $3.5 billion for 2026, as we invest for growth and pull ahead some of the capital work planned for 2027. Overall, we're delivering strong financial results in 2026 as we consistently execute on the 3 key levers for our railroad success volume, pricing and productivity. I'll now turn it over to Kenny to provide an update on the markets.

All right. Thank you, Jennifer, and good morning. We delivered a record revenue quarter with freight revenue increasing 15% and to $6.8 billion. Excluding fuel surcharge, freight revenue grew 6% to a record $5.6 billion. That's the result of our team at Union Pacific winning in the marketplace pricing to the value of our service product and executing for our customers every single day. Moving to Slide 10. Let's talk about the key drivers for each of our business groups. Starting with our Bulk segment, revenue was up 10% compared to last year on flat volumes. Grain & Grain products was driven by strong export grain demand and continued growth in renewable fuels, ethanol and feedstocks. These gains were partially offset by lower wheat shipments resulting from a softer harvest. Coal & Renewables volume declined 3% as lower natural gas prices and elevated inventories weighed on demand. Moving to Industrial. Revenue was up 14% on 6% higher volume. Our strong service product and business development efforts led to record industrial carloads and freight revenue, excluding fuel. We saw growth in all of our major commodity segments. Metals & Minerals growth was driven by our construction project wins located in Louisiana and Texas. We also benefited from sustained strength in our domestic steel production. Energy and Specialized markets growth was driven by business development wins across petroleum, nonmetallic minerals, government and waste markets. Petroleum products benefited from refinery utilization that remain at near record levels. Premium revenue for the quarter increased 21% on a 9% increase in volume and set a record for freight revenue and freight revenue, excluding fuel. Domestic Intermodal delivered its fifth consecutive record quarter in both volume and revenue. Our foundation of service, combined with strong business development and the deployment of buffer resources enabled 13% volume growth. International intermodal volumes improved 8% versus last year, driven by strong West Coast import volumes and business wins. In Automotive, business wins offset continued market softness. We saw strength in auto parts driven by growth with our current OEMs as well as over-the-road conversions with parts suppliers. Looking ahead to Slide 11. A Grain & Grain products is positioned for further growth driven by strong export grain demand and our ongoing business development efforts. We're also seeing a positive impact from new facilities, including Bunge and Bartlett both in Dalhart, Texas, our industrial development pipeline in this market remains strong. In fact, I recently took part in the groundbreaking of CHS' new crush facility in Evansville, Wisconsin, which we will serve. We also see continued upside from renewable fuels and feedstocks supported by further policy certainty. In Coal, lower natural gas prices and elevated inventory will continue to be a challenge. Our pricing discipline and business wins are helping to offset some of the market-driven declines. Moving to Industrial. We are focused on winning new business and outperforming industrial production. In metals, we expect continued strength from our construction projects and domestic steel production. In petrochemicals, we are excited to see the Golden Triangle Polymers plant in Texas continue their commissioning and startup activities towards full operations. Concurrently, export demand for plastics is strong as customers respond to disruptions in global supply. Overall, we expect continued momentum supported by our strong service product and the investments we've made in the Gulf. And wrapping up with premium. Domestic Intermodal is on track to deliver its third consecutive record volume year supported by over the role conversions and our service product. International Intermodal has fully lapped last year's tariff volatility, and we expect volume to grow double digits in the fourth quarter. And for automotive, we expect business wins to continue to offset market weakness. While we delivered a record third quarter, our focus is to build upon that success we remain committed to pricing to the value of our service product and capturing new opportunities across the network. And with that, I'll turn it over to Eric.

Thank you, Kenny, and good morning. The team operated at a consistently high level, safely supporting 6% volume growth while providing strong service for our customers. By remaining agile and strategically deploying resources, we overcame weather-related and seasonal network challenges and improved network fluidity. Importantly, we continue to be disciplined and committed to personal injury and development prevention efforts as our employee safety and derailment rates both improved against our 3-year rolling average. Moving to Slide 13. The majority of our key operating metrics improved in the quarter of 2026, even as carload volume increased 6%, reinforcing the importance of maintaining surge resources and highlighting the resiliency of our network. Freight car velocity increased 1% to 228 miles per day, driven by a 2% improvement in terminal dwell. This marks our fourth straight quarter of terminal dwell below 20 hours demonstrating our ability to run an efficient network while handling higher demand. We delivered the service we sold to our customers. Intermodal service performance index finished at 92% as intermodal volume grew 11%. We responded quickly to capitalize on the improving freight market by unstacking containers and utilizing our buffer of resources. Manifest service performance index finished at 93% against best-ever industrial carloads. While these results reflect solid execution, we continue to see opportunities to perform even better. We know what is possible, which is why our service performance index is set to continually challenge the team by setting the threshold at our best monthly performance. Moving to Slide 14. Operating discipline and consistent execution of the fundamentals drove another quarter of record workforce productivity, record train length and record fuel consumption. Locomotive productivity of 140 gross ton miles per horsepower day was even with last year's record third quarter. The active locomotive fleet increased 2% to handle 4% higher gross ton miles, demonstrating strong asset efficiency. Additionally, we continue to benefit from our ongoing locomotive modernization investments and fuel conservation initiatives as our fuel consumption rate decreased 2% and set a new quarterly record. Workforce productivity improved 5% as our active train engine and yard workforce increased 1% against 6% higher carloads. We remain diligent in our hiring approach, aligning resources with demand while delivering for our customers. And finally, we continue to safely increase train length, which improved 2% to nearly 10,000 feet. This remarkable progress is supported by technology improvements and mainline capacity infrastructure investments that enhance network efficiency. These results are a testament of our unwavering focus on safety, service and operational excellence. The team is well positioned to serve our customers and empowered to raise the bar in what's possible. With that, I'll turn it back over to Jim.

Thank you, Eric. Thanks, everybody. Great presentation on who we are and what we're doing. So listen, before I tidy this up and get to the questions, which is the part I'm looking forward to is the real smart questions we're going to get this morning. I'd like to talk about Jennifer, my favorite CFO and the person that's been on my side since I came back as CEO. I've known Jennifer and I met her first in 2019 and then when she took over as CFO in 2020. And she is grounded, tough, sweet, tough, delivers, listens and tough. So I find that to be a perfect mix and she has delivered for this company for many years. And I have to thank her for extending their stay a year longer than -- then when I came back to work, she was going to stay for a couple of years and then the part, and she's been with me for 3 years, and we'll finish off early next year. So I can't be more pleased that she's going to go enjoy yourself and do things with her and Kipp and enjoy life a little bit. I know she's going to miss me and she's going to miss this railroad. And who knows it's just October. So we'll leave it at that. But Jennifer, thank you very much for everything you've done.

Thank you, Tim, for the very kind words. .

No, no. I speak true. If you were off, I would have just said, thank you very much, where you go enjoy yourself and don't watch the door as it hits you in the back.

Gone by now. .

So listen, Jennifer. All seriousness you've done a spectacular job for this company, seeing all the things that it's been through, and you've been very helpful on the merger and everything else we've done. So congratulations to you. But I wouldn't mind real quick, just -- before I get to the question, summarize what you've heard and make sure that everybody is clear on and provide a quick update on the merger with Norfolk Southern. Our third quarter results reflect the strength of our franchise and our ability to execute at a consistently high level. 6% volume growth and 110 basis points of core operating ratio improvement don't just happen. It's a result of a long-term execution of our strategy and that has enabled record financials and reinforcing our position as industry leader. Year-to-date in 2026, we delivered reported earnings per share growth of 9%, exactly in line with our outlook of reported high single digit growth. We are focused on what's possible delivered at the highest level and winning even more business. As to the status of our merger with Norfolk Southern, the Surface Transportation Board published a procedural schedule, based on the schedule, we should be reporting our first earnings as a merged company a year from now. We also have requested for the second time, ex-parte communications, that's lawyer talk. Jim Vena talk is, we are more than willing to have open discussion with the STB for any information they need or if anybody at the STB or others want us to take through all the detail in those 8,000 pages because there is a lot of benefits for the country, for our customers, for our employees and for the movement of goods seamlessly at a faster rate that's in that 8,000 page detail that we've given. So we're hoping that they accept the ex parte and we're able to stop any of this that we're trying to hold back any information. This is the second time we've done that, and it's really important to think that we have always been open and willing to talk about. And we can hardly wait to see the November 18 openness from anybody who wants to put comments in about who we are and what we've been doing with the merger. Now we're very confident in the merger application and the information we provided are the most extensive and transparent merger record ever submitted, and it demonstrates through facing analysis, the best way to enhance the U.S. freight supply chain is through the UPNS combination. Our merger, as I said before, but I'd love to repeat myself on this, will deliver substantial measurable benefits by strengthening the supply chain it will lower transportation costs and provide faster, more seamless rail service options that enable our customers to compete and help keep goods affordable for American customers -- consumers. And you can see it every day, even with the latest announcements from some of our competitors, they know they have to up their game and be better to be able to compete against this railroad when we get the merger approved. And with that, Rob, let's go to question and answers. Thank you very much.

Thank you, Mr. Vena and best wish is Jennifer. [Operator Instructions] Our first question is from the line of Chris Wetherbee with Wells Fargo.

Congrats, Jennifer. I don't want to imply we're getting old, but I think you and I have been talking for a very long time, so well deserved in your retirement. So I wish you all the best. I think I wanted to start maybe big picture on the M&A side, Jim, just where you kind of left off, I guess. How do you think about sort of the receptivity? I know in mid-November, we'll get some commentary from all the folks who want to sort of weigh in on the merger. And it'll probably be incremental to some of the stuff we've heard already from some of the other railroads. You obviously were very successful getting the agreement with CN. How do you think about potentially sort of saving off some of the other potential asked by further agreements? I don't know if there's any receptivity that you're sort of seeing out there from competitors or other folks in the industry, want to get a sense of how you're thinking about sort of discussions that may be going on in the background with other folks in the industry?

Yes, Chris, listen, I appreciate the question, and I can't believe you and Jennifer think you might be old, okay? I don't know I woke up this morning, I was ready to run over anybody that was in my way coming in the office, and I'm a lot older than all of you guys, but that's okay. But let's get through the whole M&A. So I think sometimes we have to make sure that we understand what it is that we're doing. This is an end-to-end attachment between the 2 companies that give the extend the possibility of how people want to move. This is not a big overlap. We knew we had to fix some of the areas, a very small piece, the St. Louis, Kansas City and with Canadian National, listen, we have a deal that should be announced finalized completely right away with all the Ts crossed and the eyes dotted and Tracy and Robinson and her team have done a spectacular job of protecting Canadian National, and we've done a good job of protecting Union Pacific. That deal is just about done, so I love it. But given that, really, there isn't a lot of opportunity to say, what do we trade? Are we willing to trade benefits for the industry? Sure. But there is not a lot of competitive benefit that we can -- that we need to fix within the merger and what we're going to deliver. And listen, I've seen what people have asked for the very first 1 without the detail. And hopefully, there's nobody has their kids on this. I hate to tell people there is no Santa Claus okay? So it's not a freebie by that you get the goal in front of Santa Claus and wish for something that's going to happen on December 25, that gave in the morning and you get it delivered down the chute, okay, the fireplaces most places don't have real fire places anymore. So it's fake. So what they're putting in their dream is off. It needs to be fact based on what the impact is, and it's pretty hard for anybody in this industry other than being selfish for themselves or trying to get something for free. And this is going to be a long answer, even some of the unions that are against us that are part of the coalition. I would ask the unions that are in the coalition, if they've asked their partners, the railroads to guarantee a job for life for every employee like we have, okay? So the benefits of what we're doing is across the board for consumers, for the nation, for our employees. And I don't think we're going to have a lot that we have to move. The STB was pretty clear when they approved the Canadian Pacific and Kansas City merger, they handed out no concessions to other railroads because there was no big overlap in movement. The pattern is set, and that's why I'm looking forward to go through this process, Chris. Sorry for the long answer. Hopefully, I answered it.

Always appreciate the perspective and best wishes Jennifer. Take care.

Thanks, Chris.

Our next question is from the line of Jonathan Chappell with Evercore ISI. Mr. Vena, may have lost his line. I'll move on to our next question will be from Ken Hexter with Bank of America.

Jen, congrats. It's definitely been a long time since we met back in 2002. So thanks for all your help along the way and best of luck in your next phase. I guess if I jump into, I guess, looking forward, right, volumes are trending at double digits quarter-to-date. So it looks like you've accelerated a bit, kind of good job there. But maybe, Jen, dig into the outlook a bit for upper single-digit growth you're raising your CapEx $200 million. You noted you used your surge resources. So if that growth sustains, maybe thoughts on investments or capital going forward ability to beat the targets and sustain given you need to increase the investment and keep pace. And if you're using surge resources, do you have some left on the side if you continue to get this strong growth.

Yes, Ken. Thanks for the question, and thanks for the well wishes. Yes, we feel very confident that we have sufficient resources that we can deploy and continue to handle the growth seamlessly and continue to put up the great numbers, the record results that we have done so far. But we're wanting to make sure we maintain that search buffer. And so that's what I was referencing in the comments around purchase services is we've put more locomotives into service to handle the growth, still hitting record locomotive productivity, but we want to maintain that buffer because if we get another leg up on the growth, we want to be ready for it. Same with hiring. I think we've got, call it, 300-plus folks in training right now because we want to make sure we have those crew resources available. But we are getting to your point, great volume leverage, and that's what gives us confidence that we're going to be able to finish the year in a very strong manner, putting up high single-digit earnings per share growth. It's just been a great year. The thing that's been the variable that we weren't anticipating coming into the year is the high fuel prices. And certainly, that has an impact on our results, weighs on our margins, but the team is doing a great job in working with that when you think about our fuel conservation efforts and really the fact that rails are so much more fuel-efficient than truck, that's actually enabling us to win even more business and bring it on to the railroad. In terms of the capital, we look at capital over a multiyear period and some projects you can accelerate, some projects stall a little bit depending on permitting and all the variables that go into it. We had an opportunity, and I'll let Eric weigh in here to pull some things forward and certainly, we have the cash resources to do it, and it just made sense to do that this year.

Yes. When you think about kind of where we made those adjustments, Jennifer mentioned the locomotives, that's an important one. You know that we've been in multiyear contracts and our modernization, overhaul of locomotives, and we saw some opportunity because of how well the railroad continues to operate to pull some of that forward, and that's a down payment in the future growth that Kenny's bring into the railroad. And then the others were some infrastructure-related opportunities that, again, because the railroad is running so well, we saw the opportunity to pull some of those projects ahead. So -- and I'm just going to reiterate Jennifer's point, when we said used, we didn't say used up. We utilized some of our buffer of resources, of which we have many buffer resources still left across the board.

I think you had 589 locomotives this morning.

That is correct. 289 stores sitting there wondering what the heck you're going to do with them, and the other 1 is ready to go if we had bulk go up or HGRs or we had an issue. So Ken I like where we are, gets pretty exciting right now, a good question though, I love it. .

The next question is from the line of Scott Group with Wolfe Research.

I echo those comments to Jennifer. Tim, do the comments from [ closer ] change your view at all of deal approval, what you need to do to get deal approval? And then just separately, Kenny, just the yields ex fuel were flat, and I know there's mix, but I think there's an expectation that with better volume, rising trucking rates that rail pricing is going to accelerate, is that a reasonable expectation? And when do you think we start to see that? .

Yes. Let's Listen, I think you were asking me about the 1 of the 4 STB members that put out a separate note after they accepted the application and moved it forward. Is that right? Is that what you were asking, Scott, sorry?

Correct.

Yes. Okay. Bottom line is if you take a look at what's in the application there is benefits across the board and part of how we enhance competition, how we enhance the product for our customers, how we're going to be able to make it less expensive. If we're faster, if we remove touch points, every customer that uses our railroad that used to have to hand it off to somebody else is going to have a reduction in supply chain costs. It is like automatic. It's basic business. We see that every day when -- and we see that every day, even today, when we go hand off to a short line or hand off to somebody else versus the mileage and what we charge to be able to handle it on our own railroad. So that's a given. So listen, I always take people's position, and I read it and I said to myself, I wonder if he used AI to summarize the 8,000 pages and all the detail or what, but he's a smart guy. So he has the position and we're clear, and we'd love to have the ex-parte discussion with the Board to take them through what the benefits are. It's up to them if they want to have that or not, but we're clear on what our case is, Scott. It is a benefit for this country. And I don't know how many times I have to say it, and I'm not trying to say it to make sure people hear me other than to say it's fact. Canada has 2 railroads that go across the entire nation. There's a reason for that, and they're not split up, even though some of them don't like it, 1 of them doesn't like us to have the same thing here. And at the end of the day, it's a benefit, and we are able to provide a better product to our customers, and that's what it's all about. And that's why this is going to be approved, 99.999 sure that it's going to be approved. Kenny, do you want to take the second half? You're ready to go.

Yes, yes. So first of all, I mean, we don't want to lose sight of the fact that we had a record revenue year ex fuel for Union Pacific, and we've done that in just 1 area in a couple of places that you heard in my comments. It's a dynamic market. When we're going out there, it's a price. Every day, we're competing against barge. We're competing against sourcing options. We're competing against truck. There is a lot of competition out there that we have to compete against. And Eric has and the team have provided us an excellent service product. And that's what we stand on. And so we're going to price to what the market can support. We want our customers to win. We want to win too, but we want our customers to go out there and win with the excellent service product that we have. So as a service product supports it, we're going to keep price into what the market can support.

Our next question is from the line of Jason Seidl with Cowen.

And I'll jump on the train for a congratulations to Jennifer. And thanks for putting up with guys like me for the past almost 25 years. Wanted to talk a little bit sort of about now that we're in the merit phase, and we're coming up along the comments period. Jim, can you talk to maybe some of the ongoing discussions to get more people on the side of supporting the mergers, whether they be customers or some of the unions that may not be supporting right now. Is this something that's ongoing? And could we expect some more sort of letters of support? Or is this something that we're just going to have to wait for the comments, and we're going to look forward from there? .

Well, I think it's important that we wait for the comments and see what everybody puts forward. And let's talk about the union piece because you raised it. Bottom line is no one has given a guaranteed job for life for any employee, unionized employee in the railroad industry ever, every employee and it's amazing. So what are we supposed to give? What else is there to give? We're going to grow the business, so there's more employees that work because we're going to have a much more efficient railroad. And the rail unions that understand that benefit signed up real quick. And I don't need them to sign up because for me, it's more important on our employees. And sometimes, I wonder whether the union at the highest level is worried about their employees or worried about the employees, they are our employees that are unionized or they're worried about their union. The teamsters listen, trucking is really important to them, and it's truly amazing that we have them part of the against coalition with railroads that have not guaranteed jobs. And in fact, some of them have been cutting people left and right over the last few months, and they still think that's a better model than being. So I don't know how you make a deal there. And the merits will show that we have a great plan for our employees. We care about our employees, and we want them to win. So that's where I'm at with it. So I don't see us making a deal with anybody. Now if it gets reasonable, if people want to talk, I'm good. On the customer side, we have over 500 customers that have written letters of support across the spectrum of and we don't have very many, if any, just a little number of people that have actually gone into the STB and said, we're against it. We have a lot of customers that we've met that say, we want to go through and understand through the process, and I'm good with that. That's a smart move for some of them. But we also just had in the last 2 weeks, customers that are in the chemical industry that put a letter of support for us. And they're actually single origination with us in Texas because they see the benefit of that handoff of not happening when we closed the deal with Norfolk Southern. So sorry for the long answer, but I think from the customer side, big support. From the union side, our employees understand it. We just finished a survey of our employees, and the feedback is about as good as it's ever been because they understand what [ providing ] think about it. We hire an 18-year-old because that's who we like to hire to be 1 of our people in repairing locomotives on the track, operating locomotives, tech people, everything else, and we say to them, you're unionized. You've been with us for 1 day, you have a job for life and the average pay at Union Pacific, all-in with benefits is $160,000. I'm not sure about anybody else, but unless it's a rich cats that might be all on this call, okay? There's a lot of benefit for that for everybody that works for Union Pacific. I'm not ready to hurt that. Kenny, you got your hand up but will you go -- Kenny, he's excited. He wants to correct something I said or what Kenny.

Look, we had about 30 of our customers that are excited about the merger. They're going to be helping us with the integration process and the feedback is that they're looking forward to this happening.

Yes, I forgot that, Kenny. That's why I got Kenny and Eric. Okay, Jennifer with me I go on and I forget. So I'll try to shorten the answer because otherwise, we're going to be here until lunchtime, okay? The way we go

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

Jennifer echo as well, congrats on the retirement, wish you all the best. Perhaps this is for Kenny. When we look at your intermodal volumes, they've been very good. We're focused a little bit here on some of the items that both you and Jennifer had mentioned on truck-to-rail conversion opportunity. Can you buy -- or maybe trifurcate here between how that volume growth is coming in, whether you're seeing it mostly in economic, general economic coming out of the freight recession type of driver. Is it business wins? Or is it that truck to rail conversion. Just if you could size it for us in order of magnitude in those 3 buckets or if there's other buckets, I'm not mentioning here, but I appreciate if you could give that kind of color.

Well, this is great. I appreciate that question. I'm getting excited that I get to trifurcate the volume growth. Just take a step back, remember, this volume growth has happened before we saw the inflection and the acceleration of these diesel prices. So -- and I said it in my comments, it's our fifth quarter of record growth. Over the last couple of quarters, we've seen some things happen with the fuel. So yes, that has helped us go out and win some business. But before, like I mentioned, the service product is what has helped us go out and win that business 5 quarters ago. And then lastly, you look at some of the investments that we made over the last couple 3 few years they are paying off as we thought, Twin Cities, Phoenix, modernize in Kansas City, Inland Empire, having that capacity to grow the product with a strong service product has helped. We talked a little bit about resources and Jim and Jim and I debate this all the time, what's the right buffer for our [ UP ] rail fleet. We have it. We're 100% on our mutual commitment program for customers on our rail box. But then on the boxcar side area, we're 100%, near 100% on car order. So you put it all together, it's all of it, but it starts with the foundation of a strong service product, the investments we've made in the network.

You tell everybody what our strategy is completely, Kenny. Okay, just like that.

Next question is from the line of David Vernon with Bernstein.

Jennifer, congratulations and best of luck on the next chapter here. Kenny, I wonder if you could help us understand what's going on with the intermodal business in terms of profitability. It looks like the RPUs came in maybe a little bit lighter than we would have expected just given where -- what's happening in the truck market. I'm not sure if that's a mix on an underlying basis. It also looks like accessorials are elevated, purchase services a little bit up. So if you could kind of give us a sense for how the business is performing from a profitability standpoint and how you expect it to perform into 2027 as you get around to maybe the contracts resetting some of the index-based pricing starting to respond to what we're seeing in the truck market catch up on fuel, that kind of thing.

Yes. So remember, David, we saw a transition and what's gone on with the truck rates and truck capacity really over, I'll call it, spring to summer when much of the bid season was pretty much baked now, we're going to have an opportunity as we move forward here, end of the year, first several months of 2027 to have a better opportunity with our service products that we have to support the inflection that occurred in the summer. So looking forward, you would expect a better position, a better environment for stronger pricing.

Yes. And then, David, just on your question tying in the purchased services, I did reference intermodal volumes. So we've got our loop subsidiary. So as intermodal volumes grow with them, we tend to see an increase in some of the drayage costs. That was part of it. You certainly -- when you think about our intermodal ramps, they're primarily operated by third-party contractors as we're putting more volume through those ramps, you see some elevation there. But I think it's also important to point out that on the other revenue line, you saw a 21% increase growth year-over-year there. That really is intermodal-driven as well because that's the revenue that you're seeing come through on that subsidiary side as well as some of the assets associated with our containers. And 1 thing to recall for everybody is that's what I think is a big differentiator for UP is not only do we have strong is with asset-based IMCs. We also work with the nonasset best guys because we have our own intermodal box fleet. And that's what Kenny was referring to when he said we've got all the players on the field. But that's been a big plus for us this year.

The next question is from the line of Stephanie Moore with Jefferies.

Appreciate it. Maybe taking this into a different conversation and first, Jennifer. Thank you very much for all the help and working with you over the years. So I guess maybe starting out, investors, I think, are obviously slicing and dicing a lot of the freight data right now, and I think they're trying to form a broader view on the economy. You've obviously called out some pretty broad-based strengths across industrials. And I think maybe beyond data centers, what are you hearing from customers about demand through the rest of the year? And then on the other side of this, given the -- what we've seen just as of late in the food and beverage side maybe being a little bit softer, do you think that's idiosyncratic? Or do you think at maybe you're seeing something early on in terms of just the broader consumer. So any color on the volume environment would be great.

Stephanie, so let me start and then pass it off to all 3 of you that want to comment. But bottom line is it's nice that we see strength in the industrial market. And industrial for us goes across products that Americans use to build things, to move things to tidy things up, whether it's steel, you name it, is there, including our premium business. And our bulk business is pretty good, right? So the movement of all that. So all that goes across the section. And we have not seen or any indicator of the consumer slowing down that the consumer spans. Is there parts of the economy that are probably based on the higher inflationary pressure? Absolutely, there is. But there's a big piece still that are spending money and going out and buying, and that's what we see. And Kenny, you want to have or any of the rest of you give more detail?

I just want to really more or less talk mindset in the results. I mean we don't come in and say, hey, the economy is tracking that 1 way and well as we want to outperform the macroeconomic indicators, industrial production up 1%, industrial team up 6%; automotive, down 1%. You've seen the finished vehicles in part up in the positive. Same thing with the [ Halcon stars ] . They haven't been where they want, where we like them to be, but we're going to outperform the macroeconomic indicators. So yes, we want to pay attention to it, but our goal is outperforming. .

The next question is from the line of Jordan Alliger with Goldman Sachs.

Yes, just to come back to fuel in light of the energy volatility, maybe talk a little bit more about what you can do around fuel efficiency, ability to improve on that. And then in light of the volatility, any impact on the third quarter, drag. Can you maybe talk to how you're thinking about the fourth quarter and the fuel impact.