Union Pacific Corp (UNP) — Q2 2018 Earnings Call Transcript

Thank you, and good morning, everybody, and welcome to Union Pacific's second quarter earnings conference call. With me here today in Omaha are Beth Whited, Chief Marketing Officer; Cameron Scott, our Chief Operating Officer; and Rob Knight, our Chief Financial Officer. This morning, Union Pacific is reporting net income of $1.5 billion for the second quarter of 2018 or $1.98 per share. That is an all-time quarterly record for Union Pacific, even without the benefit from corporate tax reform. This represents an increase of 29% and 37% respectively when compared to 2017. Total volume increased 4% in the quarter compared to 2017. Premium and industrial carloadings both increased 6%, while agricultural products and energy volumes were both down 1%. The quarterly operating ratio came in at 63.0%, which was up 1.1 points from the second quarter of 2017. Higher fuel prices had a 1.1 point negative impact on the operating ratio. Strong top-line growth was offset by an increase in volume-related costs and higher spending due to lingering network inefficiencies. Network performance improved significantly for the first two months coming out of the first quarter. However, service interruptions from a tunnel outage in our Western region and challenges caused by localized train crew shortages created a significant headwind in the month of June. The tunnel disruption is now behind us and operations should continue to improve as graduates from the training pipeline enter productive train service in the coming months. I am confident that we have the right plans in place to drive improvement in our operation and a better service experience for our customers. The team will give you more details on the second quarter starting with Beth.

Thank you, Lance, and good morning. For the second quarter, our volume was up 4% driven by strength in our industrial and premium business groups with offsets in both agricultural and energy. We generated positive net core pricing at 2% in the quarter with continued pricing pressure in our coal and international intermodal markets. The increase in volume and the 4% improvement in average revenue per car drove an 8% increase in freight revenue. With that let's take a closer look at the performance of each business group. Ag products revenue was up 5% as the 1% volume decrease was more than offset by a 6% average revenue per car increase. Grain carloads were down 4% driven by weakness in wheat due to a low-quality crop and reduced US competitiveness in the world export market. This was partially offset by strong corn and soybean shipments both domestically and for export. Grain products carloads were up 6% due to continued demand for ethanol exports and other biofuels, coupled with strength in animal feed products as a substitute for soybean meal. Fertilizer and sulfur experienced a 5% decrease in shipments as a result of new local production capacity. Energy revenue increased 5% for the quarter on a 1% decrease in volume and a 6% increase in average revenue per car. Coal and coke volume were down 10% driven primarily by a contract change and retirement, coupled with lower natural gas prices. Natural gas prices fell 10% versus the second quarter of 2017 and PRB coal inventories continue to be below the 5-year average. Sand carloads were up 24% due to increased crude production from major shale formations and favorable crude oil prices. Furthermore, the favorable crude oil price spread also drove increased crude oil shipments, which was the primary driver for the 19% increase in petroleum, LPG, and renewable carloads for the quarter. Industrial revenue was up 8% on a 6% increase in volume and a 2% increase in average revenue per car during the quarter. Construction carloads increased 8%, primarily driven by rock and cement due to pent-up demand and dry weather in the South. Metals volume increased 18% for the quarter driven by strong pipe demand in West Texas and Oklahoma for shale drilling. In addition, strong industrial production drove growth in various other commodities, including industrial chemicals, plastics, and forest products. Premium revenue was up 14% with a 6% increase in volume and an 8% increase in average revenue per car. Domestic intermodal volume increased 7%, driven by continued strength in parcel and stronger demand from tight truck capacity. We also saw an acceleration in price per load in this segment during the quarter. Auto parts volume growth was driven by over-the-road conversions and growth in light truck demand which minimizes the impact of lower overall production levels. International intermodal volume was up 7%, as new ocean carrier business wins began to ramp up in the second quarter. Finished vehicle shipments were up 1% due to stronger second quarter sales, increased production at UP's serve plant, and strong production and shipments from Mexico. As we look ahead at the second half of 2018, our Ag products group will continue to face challenges in the export grain market from high global supplies, foreign tariffs, and a low-protein wheat crop. However, we are seeing positive indications in a market due to crop uncertainty in South America. We anticipate continued strength in ethanol exports driven by value as an octane and oxygen enhancer. We also expect growth in food and beverage shipments due to Cold Connect penetration tightening truck capacity and continued strength in import beer. For energy, we expect favorable crude oil price spreads to drive positive results for petroleum products. But tougher year-over-year frac sand comparisons coupled with an emerging local sand supply will continue to generate a level of uncertainty. We expect coal to continue to experience headwinds in the third quarter with natural gas prices. And as always, for coal, weather conditions will be a key factor for demand. For industrial, we anticipate upside in plastics as production levels increase, as well as continued strength in industrial production driving growth in several commodities. For premium, over-the-road conversions from continued tightening in truck capacity will present new opportunities for domestic and auto parts growth. Despite challenges within the international intermodal market, we anticipate year-over-year growth for the remainder of the year resulting from new business opportunities. The US light vehicle sales forecast for 2018 is 16.9 million units, down about 2% from 2017. However, production shifts in some new import business will create some opportunities to offset the weaker market demand. With that, I'll turn it over to Cameron for an update on our operating performance.

Thanks, Beth. And good morning. Starting with safety performance, our reportable personal injury rate was 0.76 flat compared to the first half of last year. With regards to rail equipment incidents and derailments, our reportable rate improved 3% to 2.93. In Public Safety, a grade crossing incident rate increased 19% versus 2017 to 2071. While this is disappointing from a year-over-year standpoint, we did show incremental improvement from first quarter to second quarter. We’re optimistic that our continued partnership with communities will improve our Public Safety numbers. Moving onto network performance. As reported to the AAR, velocity declined 3% and terminal dwell increased 4% compared to the second quarter of 2017. During the first two months of the quarter, we made excellent progress working through our operational challenges, improving our network fluidity and associated service metrics. The tunnel on I-5 corridor in Oregon collapsed in late May, filling it with dirt and rock, which required extensive repairs. Traffic was rerouted through Salt Lake City, incurring additional transit time of 4 to 5 days, which negatively impacted our network performance. With the tunnel disruption now behind us, service metrics are starting to rebound and we should continue to see further improvement going forward. The tunnel outage meant more cars spending additional time on the network, thus consuming greater locomotive and crew resources. From a locomotive perspective, our surge capacity gave us the flexibility to meet both the network challenges and increased demand. At quarter end, we had about 200 high horsepower road units in storage. Going forward, we are confident we have ample resources to continue improving service and keep pace with demand. On the TE&Y front, a PNW reroutes, peak vacation season, and holidays made June a challenging month. But we continue to maintain a strong recruiting pipeline to meet current and future TE&Y requirements. Our TE&Y workforce is at 8% when compared to the second quarter of 2017, primarily driven by an increase of approximately 900 employees in the training pipeline. We graduated about 225 individuals in July and plan to graduate approximately 250 trainees per month in August and September. While crew supply has been fairly tight this summer, it should improve later in the quarter as we realize the benefits of our recruiting and hiring initiatives. Although we have made substantial improvements in our operations, we are not where we need to be on achieving productivity. As we right-size our resources, we have a significant opportunity to reduce train crew costs and maintenance spending associated with the larger locomotive fleet. We will also refocus our efforts on driving fuel efficiency across our network. Train size performance, however, continues to be a bright spot. We achieved best-ever results in our grain category and a second quarter record in our manifest network. In productivity and other areas like renewable capital projects remain strong. While setbacks happen, they have not stopped us from working as hard as we can to bring service back to normal levels. As service improves, we will continue to optimize our network and adjust resources accordingly. Our goal is to generate solid productivity savings and operational efficiencies that provide an excellent service experience for our customers while driving margin improvement. With that, I'll turn it over to Rob.

Thanks and good morning. Let's start with a recap of our second quarter results. Operating revenue was $5.7 billion in the quarter, up 8% versus last year. Positive core pricing, increased fuel surcharge revenue, and a 4% increase in volume were the primary drivers of revenue growth for the quarter. Operating expense totaled $3.6 billion, up 10% from 2017. Operating income totaled $2.1 billion, a 5% increase from last year. Below the line, other income was $42 million compared to $50 million in 2017. Interest expense of $203 million was up 13% compared to the previous year, and this reflects the impact of a higher total debt balance partially offset by lower effective interest rates. Income tax expense decreased 39% to $429 million. The decrease was primarily driven by a lower tax rate as a result of corporate tax reform and was partially offset by higher pre-tax earnings. Our effective tax rate was 22.1%, which came in lower than we were anticipating. Tax rate reductions were enacted in two states during the second quarter, resulting in a reduction in our state income tax liability. For the full year, we expect our effective tax rate to be closer to 24%. Net income totaled $1.5 billion, up 29% versus last year while the outstanding share balance declined 5% as a result of our continued share repurchase activity. These results combined to produce an all-time quarterly record earnings per share of $1.98. The operating ratio was 63%, which was up 1.1 percentage points from the second quarter last year. The combined impact of fuel price and our fuel surcharge lag had a 1.1 point negative impact on the operating ratio in the quarter compared to 2017. And fuel had a neutral impact on earnings per share year-over-year. Freight revenue of $5.3 billion was up 8% versus last year. Fuel surcharge revenue totaled $412 million, up $178 million when compared to 2017 and up $59 million versus the first quarter. The negative business mix impact on freight revenue in the second quarter was almost a full point. Growth in sand volumes was offset by an increase in lower average revenue per car intermodal shipments. Core price was 2% in the second quarter. Coal and international intermodal continue to be a challenge from a pricing perspective. However, if we set coal and international intermodal aside, our core price increased to 3% in the quarter. For the full year, we still expect the total dollars that we generate from our pricing actions will well exceed our rail inflation costs. Turning now to operating expense, slide 19 provides a summary of our operating expenses for the quarter. Compensation and benefits expense increased 3% to $1.2 billion versus 2017. The increase was driven primarily by volume-related costs, network inefficiencies, and increased TE&Y training expenses, partially offset by lower management costs as a result of our workforce reduction program that we initiated last year. For the full year, we still expect labor and overall inflation to be under 2%. Total workforce levels were flat in the second quarter versus last year. This was driven primarily by a 10% decrease in employees associated with our capital projects. Employees not associated with capital projects were up around 1%, driven primarily by an increase in the TE&Y training pipeline. Offsetting a portion of this increase was a decrease of more than 500 management employees. Fuel expense totaled $643 million, up 48% when compared to last year. Higher diesel fuel prices and a 4% increase in gross ton miles were the primary drivers of the increase in fuel expense for the quarter compared to the second quarter of last year, our average fuel price increased 36% to $2.30 per gallon. Our fuel consumption rate also increased during the quarter by about 6%. While there were some adverse impacts from mix, the predominant driver of the increased consumption rate was the service-related challenges that we experienced. Purchased services and materials expense increased 6% to $630 million. The increase was primarily driven by volume-related costs, higher freight car repair expenses, and increased locomotive repair costs associated with maintaining a larger active locomotive fleet. Turning now to slide 20. Depreciation expense was $546 million up 4%, compared to 2017. The increase is primarily driven by a higher depreciable asset base. For the full year 2018, we estimate that depreciation expense will increase about 5%. Moving to equipment and other rents. This expense totaled $265 million in the quarter, which is down 3% when compared to 2017. The decrease was primarily driven by lower locomotive and freight car lease expenses and higher equity income mainly driven by the lower Federal Tax Rate implemented in 2018. These decreases were partially offset by higher car rent expense due to volume growth and slower network velocity. Other expenses came in at $248 million, up 13% versus last year. The primary driver was an increase in property taxes and other expenses, partially offset by a decrease in personal injury expense and reduced casualty costs. For the full year 2018, we expect other expense to be up about 10% compared to 2017 excluding any unusual items. On the productivity side. Productivity savings yielded from our G55 + 0 initiatives were entirely offset by additional costs as a result of the continued operational challenges. We estimate the impact of these operational challenges totaled about $65 million in the quarter. The $65 million of additional costs were spread somewhat evenly across cost categories of compensation and benefits, purchased services, fuel, and to a lesser extent equipment rents. Looking ahead, as Cam just mentioned, we will be focused on eliminating network cost inefficiencies as quickly as possible so that we can once again begin generating the productivity savings we need to drive margin improvement. Looking at our cash flow. Cash from operations for the first half totaled $4 billion, up about 17% when compared to last year. Higher net income and lower federal tax payments were partially offset by payments made to our agreement workforce in the first quarter. Taking a look at adjusted debt levels. The all-in adjusted debt balance totaled $25.4 billion at the end of the second quarter, up about $5.9 billion since year end 2017. This includes the most recent $6 billion debt offering that we concluded in early June. We finished the second quarter with an adjusted debt to EBITDA ratio of about 2.4 times. As we mentioned in our Investor Day, our new target for a debt to EBITDA is up to 2.7, which we will achieve over time. Dividend payments for the first half totaled $1.1 billion, up from $980 million in 2017. This includes the effect of a 10% dividend increase in the fourth quarter of 2017 and an additional 10% increase which occurred in the first quarter of this year. We repurchased a total of 42.5 million shares during the first half of 2018 including 33.2 million shares in the second quarter. This total includes the initial 19.9 million shares received as part of a $3.6 billion accelerated share repurchase program that we began in June. We expect to receive additional shares under the terms of the ASR, as the program reaches completion later this year. Between dividend payments and share repurchases, we returned $7.8 billion to our shareholders in the first half of this year. Looking ahead to the second half of the year, we are raising our volume guidance and now expect full-year volumes to be up in the low to mid-single digit range. With positive full-year volume and positive core price, we should continue to see solid top-line improvement for the remainder of the year. On the expense side of the equation, we're working hard to improve our operations and eliminate inefficiency costs within the network. And we still expect to achieve an improved full-year operating ratio in 2018. So with that, I'll turn it back to Lance.

Thank you, Rob. As we discussed today, we delivered record second quarter earnings per share driven by strong volumes and solid top-line revenue growth. While I'm disappointed we did not drop more of that revenue growth to the bottom line, I am encouraged by the strength of the economy and the positive impact on most of our business segments. Looking to the remainder of the year, we expect the strong business environment to continue while we regain our productivity momentum and improve the value proposition for all of our stakeholders. So with that, let's open up the line for your questions.

Yes. Good morning. I wanted to ask you about the, I guess, obviously, the tunnel impact and there were some constraints on crew. And you identified that $65 million, how would you think about that number in the second half? I mean it seems like the velocities improved in the last couple of weeks and you've got a better crew position. Does that number come down a lot in the third quarter or is that kind of a gradual thing where you still have meaningful, I guess, service costs in the third quarter?

Tom, this is Lance. So I'll start and then let Rob kind of put details around it. So you got that exactly right. What we said was coming into the second quarter, we were making good progress on improving the service levels, decreasing congestion and starting to move some of those costs out. We had that incident on the I-5 that was very impactful, particularly when it comes to a network that was already a little bit fragile. As we're exiting the second quarter coming into the third, we're getting our feedback under us. We see improvement. I don't see any reason absent some other catastrophic event that we don't get right back on the path and start making those same kinds of improvements. Rob?

Yes, I would just add, Tom, it won't go away in the third quarter. There will be some lingering costs but yes, we are all about reducing those aggressively and dramatically, and if you just do the math for us to improve our operating ratio year-over-year, that implies that we will make good progress on the productivity front in both the third and fourth quarter.

Okay, that's helpful. I appreciate it. On the pricing topic, I mean, I guess excluding, I think, international intermodal and coal. I think there was a little tick up to the 3% you identified, but when you look at the total core price at 2%, I think this is the fourth quarter in a row you've been at that level. I would have expected more of a pickup in that. How do you think we ought to look at that going forward? Is that something that just kind of stay - stuck at 2% and that's just kind of the coal international intermodal headwind continue or do you think it's reasonable to expect that kind of a total coal price to pick up if we look at the next two quarters?

Well Tom, it's Beth. The challenges with coal and international intermodal are ongoing, but we're optimistic about the truck markets. The ELD has certainly made an impact. We're seeing tight capacity across all transportation modes, which provides us a good opportunity to adjust our pricing. Just to remind you, we address about a third of this every year, and since we're halfway through the year, we're feeling encouraged.

So it seems reasonable to expect some improvement in broader price momentum, even though it’s hard to predict exactly what the price will do.

You are right. We really don't predict what pricing is going to do. Like I said we're encouraged by what we see out there, but we do still have some headwinds that we're still dealing with.

Hi. Thanks, good morning. I appreciate you taking the question. I guess going back to the operating ratio. Can you quantify what the actual impact was in the quarter from the crews? I guess more specifically the tunnel collapse could have shown some improvement from that just having a hard time getting to run rate into the second half that would give you full-year improvements on 2018?

Yes. Let me take a shot at that, Brian. The tunnel and direct cost was about $6 million to deal with that about half operating expenses have capital. So just kind of size the tunnel itself. But it had clearly a residual impact on the efficiency of the network. And so breaking out exactly what impact the tunnel had beyond the direct cost is really kind of a difficult task. It definitely contributed to the inefficiencies much broader across our network that led to the $65 million of cost. In terms of what we have to get them without giving a precise number we clearly have to get and can expect to get back on the drag. Again as I said earlier there'll be some lingering costs in the third quarter but we're aggressively going to reduce from the $65 million daily cost that we had in the second quarter and that's what is going to take to improve the operating ratio year-over-year.

Thanks, operator. Thanks for taking my questions, guys. Rob on the core pricing growth. That 3% ex coal international intermodal that you highlighted any help on where that was on an apples-to-apples basis maybe in early 2015, so we can just give a sense of where we are in the pricing cycle so to speak, ex those kind of specific headwinds and how much room there is versus the prior peak? Thanks.

Yes. I don't have that number offhand. I will tell you that mix would come into play. But I would just tell you that three is up from roughly 2.75 earlier this year. So we're feeling good about that number. When you add it all in, I don't have a reference for 2015.

I mean, okay. Just a quick follow-up to that. Do you think based on the pricing environment that you see today on the volume environment obviously getting a little better? Do you think the trajectory of core pricing should be up or do you think kind of given the guys calculated kind of flat at these levels are better way to think about it?

Well, I would just reiterate what Beth said earlier. We're not going to give the precise answer that you're asking. But as Beth said earlier we’re feeling pretty good about the environment and that if we're able to achieve real pricing going forward that will show up in our yield calculation.

Thanks. Good morning, guys. So first, can you just clarify what operating ratio you're using for the full-year 2017? And then, I just want to follow up on that last question sort of about CSX and comparison versus you. We've heard the last few quarters you talk about, well, we're watching and seeing what other rails are doing and other companies are doing, but it sounds like what we heard today is a part of the six-year is adding more headcount. CSX just took 11% headcount out. I mean, it's clearly working there. I guess, the question is, why aren't we talking about a real sort of change in strategy here to more sort of fully embrace sort of this precision railroading concept that seems to be working at? Maybe you said, again, we're earning from other things. Is there anything that you see that you're actually implementing that can give us some sort of confidence in the trajectory of the productivity and margin improvement?

Yes. Sure Scott. I'll take that and then I'll let Bob talk about what 2017 full year operating ratio we're using as a comparator. So we discussed this last quarter and also at Investor Day. There are a number of things that we're already doing that we've learned from somebody else whether it's the CSX or the CP, CN. One of them is we've reduced our low horsepower fleet by one-fourth over the course of the last three years. That has been a fundamental underlying productivity driver even as in 2015 and 2016 our volumes dropped to 12% 13%. We maintained operating ratio. So that's an example. We talked about the blend and balance pilot that we ran up in the Pacific Northwest that a fair portion of is still in place. We're right now in the process of continuing to blend and balance our network that is deconstruct specialized networks and reconstruct them as shared networks so that we can balance out our resource consumption whether it's crews and locomotives. The thing that's frustrating Scott isn't that there's no activity on good ideas to generate more productivity it's that we really value the service product to our customers. And first and foremost we're going to give them an excellent service product. And we've got a very big broad franchise which is a strength of ours. We think in the end that's going to generate if you will winning in the marketplace to do that we've got to generate that excellent service product and experience. And we're not telling you that we need to add more crews over and above volume that much different. We're saying we've got to get our crews right so that we can get that service product back. That is happening as we speak. And even so in this quarter volume was up 4% and our crew base was up, mostly in the training pipeline, and the active crew base that was basically flat. So we see productivity as being able to happen. We think it is merely masked right now. And yes, there are other initiatives that we've got teed up that we can do and will do.

And Scott, the comparison on the OR that we're using for 2017 full year is 62.8. So to your point, we reported a 63 OR, the pension impact in 2017 was about 0.2. So adjusted is 62.8 we're comparing ourselves to. And by the way, the pension impact for us this year would be negligible, call it a 10th headwind for us. But again, our commitment is to improve the OR year-over-year against the 62.8.

Thanks. And good morning. Just to start with a couple of modeling questions, I was wondering if you have a ballpark expectation on the level of share buybacks you're planning to complete in the second half of this year? And then, on coal, I think I heard you mention a contract change. Any additional color you could provide on that and the impact?

Justin, I would say that I don’t have any more to tell you on the share buyback. I mean at this point the ASR that we did, the rest of opportunities would be opportunistic in the marketplace. And remember that we've set out a $20 billion buyback over the three-year period or so, but it's not going to be a straight line each quarter. So we'll be opportunistic.

And Beth?

So on the coal contract, we called that a couple of things. We have some retirements and we also have contract change. And those were about equivalent in size, in terms of millions of tons that we saw leaving us. I don't think we're going to give you any specifics on that. But I guess that's all I've got to say about it.

Could you speak to what coal volumes would have looked like excluding both of those items, that headwind from the retirement of the contract change?

I would call the combination of the two less than 10%.

The southern region, Allison, has been performing very well in the second quarter. We do see volume coming online from some of the new plant expansions that Beth has mentioned in the past. And with some of our new inventory management tools, we've put in place, we think the southern region will stay solid stepping into the second half of the year.

Okay. Thank you.

Thank you, operator. Good morning, team. Quick question. When I'm looking at your volume outlook in the second half and I'm comparing that to the first quarter numbers. It looks like automotive sales is the one that kind of flipped it went from a negative to a question mark. I was wondering if you can elaborate a little bit on that.

So in the second quarter we did see a little bit of strengthening in auto sales. I think you got in June like a 17.5 SAR which was pretty high compared to what we've been seeing in the earlier part of the year. A forecast that we've seen from the OEMs as well as from some of our business development efforts appear to make that more of a neutral for us where we thought it was a bit of a negative question mark earlier. I don't think we're going to see massive growth there or anything, but it feels a little stronger than it felt earlier in the year.

You had petroleum products as a positive and market for you. Can you just give us a little more detail on how you are looking at the Permian opportunity? How attractive that can potentially be and kind of what you will need to see some of the producers before you get more active there?

So the Permian is an interesting place right now. We are definitely starting to see some reduction even in crude output because of the lack of takeaway capacity. So that's maybe the first time we've seen that in 18 months or so. And there is, as you referenced, an emerging opportunity to haul crude by rail out of there say over the next 18 months while the next pipelines get built. Like I said we do think it's a short-term situation. So we will not invest to support that. But as we have capacity in our network, we are working closely with the producers to see what we can bring to rail. And I do expect we'll see some results from that in the third and fourth quarter.

Sure. I'll start by saying we are actually better than the others although CSX just produced a very good second quarter. So I'm not sure I want to go backwards to join the rest of the pack. But having said that, there are some very specific cost elements that are in the way right now that we are actively getting out of the way. And I'll let Cameron speak to those and what we're doing about it.

Yes, so that the $65 million that we called out is kind of excess recovery cost in the network this quarter. That's entirely over time and kind of inefficient use of crews, incremental cost of maintaining locomotives as Cameron just outlined, a rate that's both impacted by all the locomotive fleet as well as inefficient use for those locomotives. And then a handful of other Nits and Nats and which is mostly kind of like car hire for excess inventory. All of that is addressable. And when we remove that we have a much more attractive second quarter and not only that but that doesn't count the productivity initiatives that that's retarding from accelerating even further. So we're very confident in the 60 by 2020.

Hey. Good morning, everyone. Rob, could you clarify what you expect the tax rate to be in the back half of the year?

Yes. For the full year, we're projecting it's going to end up being around somewhere 24-ish. So I think it's reasonable to assume it's going to be around that 24 in the back half.

Thank you very much. Good morning, everyone. I would like to revisit the topic of pricing, but I don't want to leave out coal and international intermodal. Instead, I want to ask a more general question based on the feedback I've received from investors. Rather than providing specific guidance on pricing, I'm hearing that due to the inclusion of international intermodal and coal, along with the competitive landscape with BN, it may be suggested that you cannot achieve core pricing that exceeds or even reaches half of what other railroads can achieve. If this is the case, please correct me and clarify where this perspective regarding your pricing might be inaccurate.

Yes. We need to correct that assumption or statement which is we can never achieve pricing the same as any other competitive railroad. Our dynamic and pricing is just that it's dynamic right? So the competitive forces change. They change over time. Sometimes they change quickly. Right now we love the environment that we're pricing into when it comes to truck competitive product. And there are some other markets that we're pricing into that are facing different pricing competitive dynamics. Those aren't set in stone. It's not like that's a law of nature. Those will and do shift. And I anticipate we're going to continue to price appropriately for the value that we represent and generating a really attractive return.

So is it just the basics of a cycle we're in where mix is not going your way but it is going the way of the others that are getting the 4% to 5% pricing? It's just a bad timing. Is that what you're saying?

What I'm saying is that we price for the value, aiming for an attractive return and considering competitive dynamics, which can fluctuate. Currently, it’s a favorable market for pricing. Additionally, we have discussed how we approach pricing by focusing on yield and absolute yield dollars relative to our total business. This provides us with a conservative and consistent measure of the yields we achieve, and we feel optimistic as we look ahead to the second quarter.