CSX Corporation (CSX) Q2 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the CSX Corporation Second Quarter 2017 Earnings Call. As a reminder, today's call is being recorded. During this call, all participants will be in a listen-only mode. Following the presentation, we will be conducting a question-and-answer session. [Operator Instructions] For opening remarks and introduction, I would like to turn the call over to Mr. David Baggs, Vice President, Treasurer and Investor Relations Officer for CSX Corporation.

Thank you, Marcella, and good morning everyone. On behalf of the management team, I would like to welcome you to our quarterly earnings call, and also thank you for your interest in CSX Corporation. Our presentation, our quarterly financial report and our press release which conveyed our results expanded buyback program and reaffirm 2017 guidance are all available on our website at csx.com in the investor section. In addition later today, a webcast replay of this presentation as well as our 10-Q will be posted on that same websites. This morning CSX is being represented by its Chief Executive Officer, Hunter Harrison; our Chief Operating Officer; Cindy Sanborn; our Chief Marketing Officer, Fredrik Eliasson; and our Chief Financial Officer, Frank Lonegro. On Slide 2 is our forward-looking statement disclosure. Any statements about the future made during presentation or during Q&A should be taken in the full context of this disclosure. Turning to Slide 3 is our non-GAAP disclosure and while CSX files all of its financial in accordance with U.S. GAAP, we are providing certain non-GAAP measures to give you a more wholesome understanding of the business. These measures should be taken in the full context of this disclosure and with the understanding that they are not a substitute for GAAP. Finally, we are close to 30 analysts covering the CSX. I would encourage everyone to limit their questions to one primary and one secondary question. And with that, it is my great pleasure and privilege to introduce our President and Chief Executive Officer, Hunter Harrison. Hunter?

Thank you, David. Welcome everyone. It's nice to be here with you some beautiful downtown Jacksonville. I'm going to limit now the remarks this morning and let Frank and Fredrik should be take the heavy load initially, and I'm sure we are going to have a vigorous Q&A session, and I'll let most of my remarks or observations during that period. I would say this I trusted you with the press release. I hope you will read the same one. I thought we had a hell of a quarter, four months, we have been after this and a lot of has been done, a lot of has been accomplished. Directionally, I am very pleased with the direction the organization has taken. Although, I think maybe certainly in some quarters, and I understand that, your expectations were pretty high, which used to be -- I'll talk a moment you don't even make the cut anymore. So, I'm going to be interested obviously in some of the Q&A and I do think that, as a result of this to some degree, I think we are going to change the format of how we announce earnings in the future. And I think we will go more to the conventional approach of releasing our earnings ahead and the call effectively simultaneously because I think it does create some awkwardness in that some of you still remember the night before. You have questions we have able to respond to some of those questions or you might get all of them. We didn’t talk to anybody last night and I just kind of mopped the tears up a little bit and there is all. So, I think it will put us in a situation where you not having to make observations in the dark and it will make our work here much easier in distributing this information to the shareholder, which is really the important thing we're dealing with here. So with that said, let me return this over to conductor, Frank, and let him proceed with the presentation.

Good thanks. Good morning, everyone. Thanks Hunter. Slide 7 reviews our safety service and efficiency performance year-over-year. You can see our train accident performance improved slightly while our personal injury frequency index rose to 1.14, reflecting a slight increase in injuries in a significant fleet to fewer number of man hours. The safety of our employees is paramount and our commitment to them is unwavering.

And let me jump in, Frank, even though we express injury performance in numerical terms on the slide, safety is always about returning employees home at the end of their tour duty. Tragically, we had two employees who were killed in an accident that occurred in Washington D.C. in the quarter. Our condolences go out to the family of Stephen Deal and Jake LaFave as we mourn the loss two of our colleagues. It is a stark reminder that even though railroads are one the safest industries in North America, they can also be very unforgiving one and our commitment to safety remain.

Thank you, Cindy. Service and efficiency measures are turning well year-over-year due to train length reflects two initiatives that offset one another in the quarter, both are integral to Precision Scheduled Railroading. The first is balance. We have expanded the days of service on most trains to seven days per week, which is instrumental to improving cycle time and after utilization, but negatively impacts train length. The second is unit train conversations into the scheduled merchandized network, which reduces both asset and resource intensity, and increases train length. Going forward, you should see train length increase sequentially. Dwell and velocity of both improved and reflect the early success of Precision Scheduled Railroading. These improvements are particularly noteworthy given the rapid pace of change we're driving. Balancing the train plan, merging unit trains into the scheduled network and converting for flat switching has reduced handlings, improves transit times and improve velocity, and allowed us to idle 26,000 freight cars and 900 engines. Cindy can certainly provide more color during the Q&A on those items. Fuel efficiency has also improved year-over-year with 900 fewer engines and service and a more fuel efficient active fleet. Turning to Slide 8, we’re encouraged by the financial results driven by the early implementation of Precision Scheduled Railroading. Revenue was up 8% driven primarily by core pricing gains of 3.7% all in and 2.2% excluding coal, volume growth of 2% and higher fuel recoveries. We also had liquidated damages of 58 million in the quarter, which reflects the resolution of a longstanding dispute. It is recorded in the other revenue line and drives the year-over-year variants. GAAP expenses were up 6% and down slightly excluding the restricting charge. Efficiency savings of $90 million more than offset the impact of inflation in the quarter. Looking at the detail, labor and fringe was favorable reflecting 2,200 fuel resources. As Hunter discussed on the first quarter call, we have also begun to address the size of our contractor workforce with savings following through the MS and other line. On that line, we also concluded a decade plus condemnation proceeding, resulting in $55 million of favorability. Fuel expense was higher reflecting a 15% price increase. Strong revenue gains combined with cost control drove very strong incremental margins. Reported EPS was $0.55 with the 67.4 operating ratio. Adjusting for the restructuring charge, EPS was $0.64 for the 63.2% operating ratio. The reconciliation of GAAP to non-GAAP is in the appendix with these materials. Slide 9 illustrates that our free cash flow generation continues to improve, given in large part by three things. Strong top line gains, cost control and reduce to capital intensity. Our success in generation free cash flow has enabled us to increase our shareholders distributions year-over-year with over 750 million of share buybacks year-to-date, including nearly 500 million in quarter two. And you can also see the effect of our recent $0.02 dividend increase. The Company's improved financial performance is reflected in our trailing 12-month ROIC of 10% nearly a four point better than last year. Finally, adjusted EBITDA ratio remains stable as higher earnings offset the impact of additional debt. Turning to Slide 10, the third quarter volume outlook shows nearly three quarters of our business is expected to be favorable and neutral. Export coal demand remains strong and we now expect to ship around 30 million tons for the year. The revenue per unit will moderate sequentially as the global benchmarks come down. Consumer sentiment remains positive driving intermodal growth in the third quarter. As a reminder, in August, we will cycle the shortfall domestic interchange loss we've mentioned previously. We expect continued economic growth as well as a tightening truck market, which should support growth in several of our merchandize markets. On the left side of the ledger, a few of our markets will experience year-over-year volume declines in the third quarter due to market specific headwinds you're very familiar with. Auto shipments will be impact by softening production, as reflected in the forward views of North American light vehicle production. Crude oil trends have essentially gone to zero more than offsetting the growth we expect in the core chemicals markets. And domestic coal remains challenged due in large part to the impact of the shortfall competitive loss as of January the 1st. Before I wrap up on Slide 11, two housekeeping items, one our fiscal year will now tie to the calendar, as a result the third quarter of 2017 will have one more day than the third quarter of 2016. In the fourth quarter of 2017, we will have one more day than the comparable 13-week fourth quarter of 2016. Also a result of a recent state tax law change, our effective tax rate for the third quarter will be between 39% and 40%, as we revalue the deferred tax liability for that particular state. Now to Slide 11, we're up to a good start to 2017. Our first half performance provided this team with continued confidence in our full-year expectations and we are reaffirming that guidance today. Excluding restricting and assuming no weak genomic or coal related disruptions, we are on track to deliver a mid-60s operating ratio, record efficiency gains, EPS growth of around 25% and free cash flow of around $1.5 billion. With that backdrop, the CXS Board of Directors has authorized a 500 million increase to the share repurchase program, bringing the total authorize program to $1.5 billion. We are continuing to evaluate the optimal capital structure and cash performance strategy for the Company and are committed doing investment grade profile. We are excited to host our 2017 Investor Conference on October 29th and 30th at Palm Beach and look forward to sharing with you our multiyear strategy and associated financial partners. With that, we would be delighted to take your questions.

Thank you. We will now begin conducting a questions-and-answer session. Our first question, one moment, our first question will be from Brian Ossenbeck of JP Morgan.

So, you mentioned in the press release that, there is some impairments on PTC about $10 million or so. So I just wanted to get, if there is opportunity to talk more probably about that system. How you stand right now, if you’re seeing any implementation effects and why you took the impairment? And overall, what sort of OpEx you’re running through the P&L this year? And how you expect that to progress over the next couple of years?

Hi Brian, it's Frank, thanks. In terms of the impairments about half of the 10 million impairments were in positive train control. The others were in literally smattering of technology projects that are necessarily consistent with Precision Scheduled Railroading and so we stop those. Back to the PTC, half of the equation, that was really divided into two parts. As we’ve reduced the locomotive fleets and don't have plans to bring those back, some of the labor side that did on those engines for PTC won’t be necessary. And therefore, we have to pull it out of the capital plan and roll it through the P&L. The other part was some signal design work that we did on portions of the railroad, based on the traffic flows that we anticipate as well as the THI flow that we anticipate. We won’t necessary be upgrading those to PTC so we had to roll those through as well. We’ll continue to look at things obviously impairments are somewhat unusual. We don’t have those on a routine basis. But as we look at the capital plan, don’t follow, and as we look at the PTC footprint going forward and then maybe some, I don’t know with any right now but there may be some. In terms of your OpEx question, I know there has been a lot of commentary on that recently based on some statements by CN this year in the UP. Let me tell you where we are from an OpEx perspective. Our OpEx on PTC has been ramping up for several years. Our full year 2017 will be a $150 million. Now that is the cumulative impact of a ramp up since about 2009 on the OpEx side. And the cash piece of that is about one-third, the depreciation piece of that is about two-thirds. When you look at the cash piece, it’s really as our corporate phone bill goes up because it’s a very heavy communications type system that phone bill keeps going up. So, we’ve got some piece of that in hardware, software and maintenance and support, as we go forward would be the other part with cash piece. We likely will have a terminal run rate in 20-20 of around $200 million to $250 million. And again, I think that's split between depreciation and cash expenses will be roughly the same. And Cindy can talk about where we are on the project.

Yes, we’re about 40% of our PTC miles are in service at this point. We feel very comfortable that we’ll have a majority of our -- certainly our commitment by 2018 to be hardware complete and continued implement of subdivisions, as we progress from this year and next year and into the 20-20.

Thanks frank. I know you’ve spent a lot of time on PTC in the prior role. So just to confirm it 200 to 250 kind of annual rate split between OpEx and D&A, so it’s kind of an all-in expense costs given the network?

And Brian just to tell you, it's kind of a terminal run rate and like 2020 or 2021.

Right, right. Okay. Great. And then just a quick follow-up on the high level market view. We’ve seen the U.S. dollar on a trade-weighted basis basically declined ever since the beginning of the year. I think it’s down almost 7% or 8%, as we stand right now year-to-date. So, Fredrik, what -- what are you seeing in terms of the various puts and takes after the obvious in export coal? When does that decline start to become more of a benefit and start to show up and grabs some more exports and probably fewer disruptive imports?

Yes, I think we’ve been encouraged to see other fact that IDP to begin with is showing a little bit of strength versus what we've seen in the last couple of years. And clearly part of that is also the dollar has helped some of the U.S. exporters. You paid on the export coal side clearly a weaker dollar helpful there. And I think as we look at some of the other markets, we will see some of those benefits. I don’t think we’ve seen a lot of it yet, but anytime we have a little bit of weaker dollar, it does help them. So, I do expect to see that as we move forward.

Chris Wetherbee of Citigroup. Your line is open.

Hi, great. Thanks. Good morning. Hunter, I want to touch a little bit on sort of expectations and maybe cadence of improvement. Your points earlier were well received in terms of peoples. The expectations that what we might see this quarter, but maybe you could help us sort of understand a little bit, how some of the changes that you’ve been implementing early on in the process here. Ultimately, play out sort of in the physical world in terms of closing hump yards, obviously working with the employee group and generating that productivity. Just wanted to get a sense of maybe how we can start thinking about that, as we move into the second half of the year?

I appreciate your question, Chris. That’s good question, I was going to raise -- you have raised the question. One, you should think about sensitivity of your plan. When we make a operating decision to reduce expense or change the operation, say maybe in early April, we might not see the benefit net-net in the P&L still in August or September, depending on collective bargaining agreements, and depending on the tax treatment, and all those various things coming to play. So, we can take certain actions and we know exactly when those benefits will start kicking in. It’s a little difficult and it’s kind of for me here it’s a learning experience. It’s kind of different everywhere you go, but the trust of what we have talked about that we are trying to do, it hasn’t changed at all. We’re down -- and look after, I’m not restricting my numbers to second quarter. This is just kind of where we stand today or where we see ourselves to return. We’re down about 900 locomotives now it’s certainly not over and probably clearly go to a 1,000. I’m not sure where it’s going to stop. We’re now depending on the way you look at the way you whether you include store or not, but the way I look at it if you look at the active inventory, we’re down about 60,000 freight cars from where we were earlier in the year of 200,000 again to 135,000 or 140,000. I think that we have emphasized that we -- this is more of the team and me, but I think from hump standpoint, I think we started off somewhere I think 12. The number is quite about some round. Humps and I think, we think we’re going to end up probably within the next year. We’ll end up with three, it could be two or it could be four, but in that range a significant drop in the number of humps. And I would add to that is that look, those humps that we’ve taken had a service hump, doesn’t mean we have to sell all the land and throughout the year and I'd hope t hat on day post-Harrison that this company is going. But we’re going to see growth in the merchandise side where we did and maybe there be a time into the future. So you know we are going to keep hope on. We’re not -- we’re not having a dry sale here. I think that as result of some of those things, the capital spend over the next several years unless there is opportunity to come up and at this point I am aware of that we will come down pretty significantly from what has been in the plan forward. I think this year we are going to be down $500 million or so. Yes, there will be $100 million this year, when you look at year-over-year basis versus where we end up last year we close for $600 million. Somewhere in that neighborhood and I would expect, that’s going to -- the reason that we’re going to be able to take that all day obviously on locomotives, rolling stock and lot of things that going to support that. That’s going to help obviously free cash flow, pretty significantly, which I think -- I think my personal view is, we should certainly have some influence on the board when they make the decision to authorize the additional buyback that if some will be done, financed internally and with operating expense reduction. Yes, we’ll basically with one exception, all the operating metrics are trending and hitting in the right direction, very, very encouraging. If you are a headcount person, I think the headcount as we are seeing today -- I am not doing this quarter-over-quarter, but we stand today about I think 2,300 -- again that’s now somewhere we are trying to set some record with, but I wouldn’t be surprised if before the years that is a lot things come together that could be 3,000. So, when I look at that, I look at my past experience in this business, and I’m just saying that’s hell of course. I hated these amount of people, but I'd say that’s all I guess and but there is other opportunities that we will for us. And the team is coming together, and clearly you’re going to ask this question, so I’ll try to address. What’s the bigger challenge that we get? One of the bigger challenges we have is what I was talking to you about before and it’s the change, it’s the change, it’s the cultural change, and that’s difficult for organization to go further. And we are having a little bit there ourselves. And at all levels, you saw that, this was right prior to my arrival. So, I think I should refer that our friends in either way. I'm a neutral with just a 1,000 people, but I did take note that they were -- I think effectively all management people. There were no Indians if you were Indianan so we didn't take away from what was being done to the business plan. And I think our view going forward will put us in a position we don’t have to replace those. Now, on the operate side, do we have a few guess, yes. If that's the address, yes, I think our human resource group along with Cindy and others here in the team are sensitive to that. I think we've recruited -- they know better than I, but 15 or so people that we think are top notch, high potential, very honest from various background and various locale. And so I think that there's something we can solve and deal with. And there's a lot of things in the bucket, so if I let with that, this is back and review and had a look at second quarter I got to be pretty excited and I got to be excited about third and fourth and three or four years out. You know the other plan, the live plan on this report is, you all said I couldn't get it done in four years and now you owe me because I can get it done in four months, so the bar's been raised here but I'm ready for the challenge.

Sure enough, that's a very comprehensive and helpful answer, I appreciate that. You know the follow-up would just be in terms of initial customer reactions and sort of how you might think about the business from the volume standpoint, as you also progress through that sort of cost and operational efficiency efforts, as we go through the rest of the year. Have you been surprised? Has it been more negative or sort of more expected in terms of the reaction from customers? And sort of what you've been sort of pushing off the network potentially, as maybe some stuff has potentially moved competitively or otherwise? Just want to get a sense of how customers are sort of viewing that initial changes at the Company?

Well, let me comment and then I'll let Frederick comment. This is not -- it's not a lot different what I expected. You know customers are like other people, a lot of them don't like change. I've spent some time with them myself, it's hard to find with them on the telephone and face-to-face. And I've tried to explain to them where we're going, why we're going there, what's important about it. And to get there we have to go through this change. And so there's going to be a little pain and suffering. I don't know frankly how to get there without some busting road. This is not just something you could try to switch on. So, I think most of them, by far the majority are pretty sympathetic, I heard that some not bow out with them and look. We look forward to this changes coming in and we limited to suffer a couple of bruises along the way. Just don't bruise us up too much and I think with -- with a couple of exceptions, it's been typical of what you might think and expect. Look, nobody loves them okay, so we’re going to have people out there in dollar and second guess, but I don't -- when the bottom-line comes to end, I don’t think anybody is going to change businesses, plus or minus, they're doing that. They're going to do it, yes. If we provide this service, we talk about. If we make the improvement that we’ve made, we’ll be rewarded. If we don’t, we won’t and it’s the way it works. I am not asking, we're not asking anybody going in the business just because we need it. We’re going to work hard to earn it and I think we can -- I don’t think any of those issues our instruments.

No, I mean I would say that I noticed about transit time and it’s about reliability. And if we look at transit time as an example, if I look at the scheduled merchandized network and coal network and in all network, if I compare transit time here in the second quarter versus the fourth quarter, they’re all improved and clearly will go through a lot of change. Cindy and my team are working through that with customers where we are impacting them specifically and trying to fine tune the operating model, and making sure that ultimately we reach with what Hunter, as we're clear about that we’re going to get a better service product for our customer because, not only is that better for the customers, but it is also better for CSX.

Next, we will take a question from Tom Wadewitz from UBS. Your line is open sir.

Yes, great. Good morning. So, Hunter, I just wanted to get a sense. Do you refer that I think all the metric to move in the right way except one. I don’t know if the one you’re referring to is well timed. But when I look at the dwell time at some of the yards, I see numbers that are kind of 40 to 50 hours which to me is unusual. You know, I normally think 20 to 30 hours kind of typical dwell time. I know you made pretty dramatic changes in converting hump yards to flat twitching. So, how would you characterize kind of the progression, you know. April and May were really good. June seemed to be a little bit of a pause. Are dwell time numbers that concern and how should we look at things in third quarter? Does that -- those numbers come down, so if you can just help us with the forward look and also what’s happening in the dwell time, I would appreciate it? Thank you.

Sure. Tom, there's a lot of people who don't understand the dwell time in my view. In this model of ours scheduled precision railroading, the challenge is not to get the dwell time as well as we can go. It's the planned dwell time and you hit the place, so you don’t hurry up and wait. Spend money you don’t need to spend just to create some dwell 18 hours instead of 20, if there is no real through safest opportunity there. So, this is not how well you can go, this is look, let's just say, we're at 20 forward today or 5 and it was our -- but let’s just say that, as we run all this plan out and say how should the cars dwell at these various tunnels, that continue to exist for example. And you say what kids dwell time need? Should it be 21 hours? Should it be 19 hours? What is the dwell time? Now, what some people on the outside looking indoor and saying, as they look at and say, the dwell time is up an hour, god, that’s a horrible trend. So, wait a minute we’re going through one terminal instead of three. So, we do really go through three terminals at 26 hours or one at 27. All they said, we're late and get in it and that's the dwell understanding. That's why we're trying to answer your question. So, now, as we said that, a lot of things as they dwell, if we have too many cars in inventory and if it's slow period business wise or if it’s a holiday period. What happens to the cars? They dwell because there is not -- there is not a need, a demand for it. That’s a little bit our fault by having maybe too many cars in supply chain to pipeline, whatever you might want to call it. But all those things effect dwell, so look there is going to be 4th July, although we would like people to work 365, they don't do it. We do. Can you imagine if the railroads did? We're going take every Saturday and Sunday off like normal people, and we’re going to have our time off -- we're not at the work every day. The impact that it will have economically to this continent, I am telling you, I've seen numbers and that's enough to put us in a depression. I'll tell you that. So, we’re going to have period with holidays. So, the dwell time as a gross number, we've known from 26 to 25 doesn't a concern me. Now, if I see, Tom, what you have mentioned 40 or 50 hours is certainly worth of the second load to be sure that we know why that is existing. Is it because of service failures? Is it because of operations that we're not doing? What we need to do? And then we will get in with those terminals and correct them. But when we get these the hump stop that’s doesn’t mean that the whole yard is going to close down. But I mean significantly may a place we're working 12 or 15 assignments, will go to two or three plus the fact that we don’t have to replace the equipment and a lot of things that busted the humping operation. You will see the dwell time come down and that will come down because we can take the product down consistently. So, we're giving three days service and we do those things and we get to two and the dwell time will change to the standard of two, not what it was before. So that a little commentary of dwell.

Okay, thank you. And second question would be on the -- I guess a full-year guidance when you consider the upside in second quarter -- if you including the $0.64, it seems that it's a conservative expectation for second half. I mean, assuming, just kind of putting some revenue numbers in, I get a, call it, 67 OR in second half, maybe 66.5, 67, which seems that it implies you wouldn't have much sequential improvement. I know there is seasonality, but I'm just wondering is it appropriate to say maybe there's some element of conservative in the full-year guide? Or is it appropriate to say, well, it just take some time to see the OR improve and don't expect a lot of sequential improvement in the second half?

Well, I think you have to be real sensitive to the timing. Now, I just kind made a case that a lot of actions we took in the second quarter, we haven’t seen come to the bottom lines yet. But they are going to come to the bottom line in third and fourth quarter, and they are not in that headline. So, one of the things I think we're all doing, and I've done at everyone's turnaround is that, for lack of a better turn, we're dealing with the leap of faith. Because I am saying to the team when you do one thing, and they are saying we have never done it before, show me. So, we are going through that phase. And I'm pretty comfortable and I know Frank is shifting hips over here on as I start to say this. I'm very comfortable -- have I ever been wrong, I've been wrong before not many times, but I've been wrong. Then I think, if I know exactly where I guided to then we are going to be somewhere around -- if you talk about clean quarter then we could talk about all that. We are going to be in the range mid 60s, which could be 66, could be 60 forward. I think we are going to be in plus free cash flow. I think the earnings are going to be pretty damn good year-over-year. So, I think it's pretty realistic. What I do think is this I think we are all and me including short selling ourselves a little bit because we are really not seeing these recruits and some these cultural change. We are not really giving all the credit there. And those I mean we have brought a couple of people in. We think in this organization is -- but I'm telling you they have made huge different one individual, huge. Million dollar of difference, now you don’t run upon it every day, okay, there is not a Michael Jordan on every street corner in Chicago or North Carolina. But if you can get more into that there, it really helps think I suppose to set up a group of player.

Your next question is from Allison Landry of Credit Suisse.

I just wanted to follow up on the headcount. Hunter, you mentioned earlier you are taking -- today you stand at a reduction of about 2,300 employees. Does that include the 1,000 management positions that were --?

Yes.

And then Frank, on the contractors, could you -- how many do you guys currently have employed?

Well, we haven’t published that number yet, but let me give you a sense of what we are going to do and then let me give you a sense of where we are. What we are looking to do and Hunter's given some really good guidance on this one is to, look at what can be in sourced economically and being able to absorb that over the existing employee population or do some sort of conversion factor two to one, three to one something like that where we can take two or three contracts out for every employee that we might add. So, you obviously see that flow through on the MS&O line. And then you may also see, I'll call it lesser degree of comp for employee takeout or comp for workforce takeout on the MS&O line, and then you might see on the labor line. What Hunter said on the first quarter call was, we would be down an incremental 1,000 in addition to the 1,000 that we did through the management restructuring. And that second 1,000 that we mentioned was going to be accommodation of management, union, and contractors, I would tell you that we are through that. We've made great progress and the Hunter's point around making him about a 3,000 number by the end of the year against the 2,300 where we are now. I mean we'll continue to work on all three of those elements through converting contractors. We'll look at the resources that we need in the field to run the operating fine, and we'll certain look at continuing to manage attrition as tightly as we can. So, I think all of those things continue to see sequential improvement in account. And as we get to a point where we had good year-over-year comparables for you on the contractors and consultants, we'll begin to publish that one, and it could be as early as the Investor Conference, but certainly be as of the first in the year.

Okay, let me in fact just add a little comment and context to that. And what I'm trying to encourage and organization is trying to do to absorb the business. If I go back one of our proudest moments was at Illinois Central. And we after some financial engineering and I became CEO, we settled in and we had a little railroad that had 3,000 employees in an 80 operating ratio. And two years later, we had 3,000 employees and we had an operating ratio of 62. The issue is this, it's not that it then people would say, what had you do there, what was it different? We allowed those 3,000 people to create value. We gave them opportunities and that's what that's a much better story. It's much better bottom line if you can say, look this is not about stripping heads out, it's just taking valuable people and allowing them to add value to the organization in the most effective, efficient way it can be done, by doing it with internal people, have to get in the buyouts and all this other stuff. So, that's kind of the road we hit in down.

Okay, that makes a lot of sense. Hunter, you also made some comments earlier, which I think were alluding to long-term share gains in merchandise. So I guess should we be thinking about that similar to where CP is now? In other words, does CSX eventually shift from a cost improvement story to a top-line growth story? And do you expect those share gains to come primarily from truck or are there any opportunities that you see for CSX to take share in merchandise from your competitor?

That's a hell of a question. Number one, yes, we want to see CSX for a while. Number two, one of the levers that'll help us grow is low cost and efficiency. So, there's going to be a continual drive and a hopefully compatibility between those two numbers. So that if we lose the sense of our cost, we lose the ability into -- we've to go to business as effective as we like. Where can we gain the all share, clearly in my views off the house. There is something in the competition and these folks remember better than I know more about that. But look, the focus is not at least in my view at this point, not the rail competition, it's the highway, okay. We kind of although we let jealousies getting here from times to time, we go to Canada and you said the three words depending on what part of country you in and people just go nuts. They're emotional about it. But the big opportunity is on the highway. We will have -- I think with those I just described is jump all business without competitors. They don't have railroads. Their good railroad is just competition and we will have non-compete. That’s where I guess a good capital system thereabout. But the key is that we really and really gotten this service factor. We have to understand that. We have to appreciate that. We have to understand that it's difficult people change in to some degree. It's going to take along, but that’s where a railroad the last 40 years, as last the big market share, that’s the most probably all in, some of the most profitable business we have. And I'm not trying to say to you that, we are going to see some rapid growth over the next 15 or 16 months. And a lot of this will probably happen in the post-Harrison era. I think, if we do our job today in laying the foundation, there will be a lot of opportunities to grow.

We have our next question from Amit Mehrotra of Deutsche Bank. Your line is open, [ma'am].

Wanted to get a sense of the performance I guess in the quarter relative to your own expectations. You have kept full-year guidance unchanged. There's maybe over $100 million of benefit in the quarter that may be considered extraordinary in nature. If you could just talk a little bit about that in terms of maybe how your near-term assumptions have changed, if at all. And then as it relates to the second half, it looks like the guidance implies something like $300 million of year-over-year incremental profit improvement in the second half year over year, despite revenue that looks to be flat or down. Can you just offer some color there in terms of one, your confidence in delivering that, and then maybe what the drivers are? Thanks a lot.

Sure, so a lot of the questions last night really asked us, at least implicitly, did we know about these things? And when you're dealing with the 10-year plus condemnation litigation, that’s coming to a conclusion you know about it. When you have a liquidated damages dispute, that’s coming to a conclusion, you will know about it. The exact timing that we know which quarter it was going to follow in and I know that we know whether it was going to be 2017, we thought so. But we want to 100% sure, so all of these or in contemplation. We are probably experiencing a bit more inflation this year than we were originally expecting the tax rate probably little bit higher than we were expecting. Fuel price solution, the first half of the year was probably higher than we were expecting. So, there is a bunch this happening, just like every quarter and every year there is lots of moving parts. So, all of this was in contemplation as we thought about the guidance and one of the reasons why we gave you a range of guidance was because you never know which way the pluses and the minuses are ultimately are going to go. Turing to the second half, I think which you're going to see is an improvement in sequential productivity, when you think about a $90 million in Q2 and you look at the record productivity guidance and you given you again that against the $427 million that we delivered in 2016 when you do the math real quick you realize that we got to be at least as good in the second half, if not better in order to hit that target and obviously we have a lot of confidence and our ability to do that, so you should see sequential ramp and productivity between Q2 and Q3. And again Fredrick and his team are doing everything on the customer side to bring in more prices and to price it appropriately. So our teams are going to run the railroad better and better on a quarter over quarter basis, so looks like about second half.

Right. But just quick follow-up on that. I guess the productivity, the way I think about it, is it shows up on the bottom line when revenue and volumes are a little bit more cooperative. They certainly were in the first half, partly due to easier comps and then some tailwinds on the coal side, too. In the second half, you don't really have those tailwinds. Hopefully you will, but it doesn't seem like you will in the second half. So can those productivity savings actually drop to the bottom line when revenue growth is zero or negative in the second half?

Yes.

Okay. Okay, I will leave it there. One quick question on the capital structure. You have caveated your comment by saying that you want to keep the balance sheet investment grade. Can you just give us a sense on what actually constitutes investment grade? Is it two times growth or net debt to EBITDA? So if we could get a sense of maybe the firepower the Company has, I guess, to optimize the balance sheet, which is I assume what you are trying to do for the benefit of shareholders. Thanks.

Sure, obviously we go with the same Moody and S&P ratings that you all follow very closely, you know where those ranges are. Really what we did was took a fresh look at the balance sheet, we took a fresh look at leverage in the implicit ratios based on the free cash flow for the year are going forward basis. We got obviously new CEO and Hunter, we constituted board, we got the shareholder vote behind us or lot of things really said, time to take a look at the capital structure and we want to provide the maximum flexibility for the management team and the board to way in on those issues. So we though like it was appropriate during this period of revaluation, I'm sure that we won’t tie to anything specifically.

Given the momentum you have on the profit growth and the cash flow growth, I mean is there any has other agencies told you or given some guidance around what perimeters, maximum perimeters if you're willing to accept in terms still keep it investment grade.

They have.

Can you share those with us please?

No, you know where the ratios are, you know where the boundary lines are and obviously we're currently rated triple B plus, AA1. You know, what is that one step down looks like, what two steps down look like, all of those are in contemplation, so we report back to you on that one as we make those decisions and it could be as early as the investor conference or certainly as we turn the page into calendar 2018.

Ravi Shankar of Morgan Stanley. Your line is open.

If I can just maybe follow up to that last response. And Hunter, not to steal your thunder, but can you just help us frame the topics of discussion in terms of the broad agenda for the investor day? What can we expect to hear? What do you expect to learn or are going to progress through between now and then that you can share with us at the event?

What do you want to hear? We'll give you a menu. No, seriously look, we'll spend a lot of time in then. I tell you it’s not going to be a restatement of all the number you heard today. We’re going to peel back the onion a little bit. We’re going to start taking that while our hump yard had worked today like we used 50 years. We’re going to talk you that, that your economy of scale with that. We’re going to talk you about while we’re able to use locomotives more objectively than some others and some of the techniques. And I guess, it’s kind of hopefully a restatement obtain, we have no a little bit of that over doing here. We got a pretty good track record and we’re going to try to reinforce would be. And at the same time have a little fun and enjoy ourselves and that’s the objective. And I’m sure that each time, we’ve done this. I’d say they have been rather successful couple of puts and takes and now were change a little bit, but it’s too late for that. But I think they have been very helpful in new representatives of our shareholders. For example when they ask you, I don’t understand this why, if they closed hump yard in order to buy that's a good deal or what that you had some knowledge and understanding and appreciation for that. And so that’s our intent, but I would certainly say to you that, if you have to request that you like us to consider of addressing, we’d love to hear them. David, I am sure would love to hear it. We’ll try to address those things.

But it sounds like a great event. But would you have made enough progress by then to give us like longer-term OR targets and balance sheet targets?

Yes. Certainly, the trends will be there. You can see what we're doing. I don’t know, you won’t have wait and say, we're going to have a validation meeting, but you think it is. When you all are going to satisfy that everything is validate, it would be hard as bleach.

Understood. Just as a follow-up, just an end-market question on autos. You guys clearly identified that as a market with a negative near-term outlook for obvious reasons. Can you just help us understand kind of the puts and takes behind decremental margins? And what you can do on the order side if SAR were to decline sharply from here?

I think historically we’ve been moving very much in line with the automotive production as done and obviously it’s been a great seven or eight years here, we’re righting enough and here we’ve seen a little bit of softening as expected. And then we will monitor that very closely as going forward. We do have the opportunity as this part of our scheduled merchandise network to monitor that and make appropriate changes to plan and see certain areas where tailings gets impacted. So, like any other part of our business, Cindy and team, and Hunter has an operating plan that is flexible enough to be able to address that’s make sure, we don’t lose any of the productivity gains that we have gotten so far and that we’re contemplating the future.

Next we have a question from Ken Hoexter of Merrill Lynch. Thank you, sir.

Hunter, I just want to clarify or may be just Frank, just including the two gains. Should we reassess reducing the second half targets? Or Frank, were you suggesting before that, that this was in your kind of originally thoughts and the implied savings in the second half should continue to scale?

Yes and yes.

Okay. So, yes, no I got that. So when you say yes to that first one, you are reducing second half or you are not reducing second half?

No, I mean what we were thinking at the beginning of the year, yes, was to change our internal view of the second half, no, while we continue to see productivity accelerate and gains et cetera continue in second half, yes.

Okay.

You can appreciate where we are. I mean I didn’t know about them. So, if you don't know them, you can't figure them in. But this is what I saw this is what gets us into that leap of faith there, okay. And look, I appreciate that Frank and others in this organization, there needs to be some checking balances. I just don’t mean by checking need, but there are some issues internally of saying and we get there. And we make it and there is a tendency, and you all have accused us of this before and I don't think that we were guilty of being conservative or sandbagging or whatever. I am telling it that my numbers that you hear me talk, not official guidance, let's put in those terms. We don’t determine whether the quarter is clean or not, clearly speaking, there is principles, there is GAAP, there is rules and regs that says, you get to check, you got report to check. Now, it's not like we got draw again -- I used to accuse the CFOs of having a left-hand bottom drawer and they get down there anytime they needed and they could come up with miracle. You learned that but it's not like that. But I think that what I said to you to more of the questions, it’s more of the operating metrics. I am not a big, well, it’s easy comp, what the hell with the comp, the comp has gone it's none. We got a number that says we have to be it that gross tons, miles available horsepower, no matter what it was last year. If it was over the last year we look better but our standards says our be 100% better I am not being influenced, I am not going to be influenced but easy comps, be influenced that’s something else but I think there’s a little bit of just planned if known here and look if we keep precise and hit this thing right on the return, thumbs are on.

Appreciate that. If I talk a follow up on the maybe the competitive environment a little bit. You talked your thoughts on where things, but any competitive response from your peers in response to your cost cutting or may be strength in the truck market, are you seeing any strengthening in the pricing on the intermodal, if you can talk about the competitive market response?

Let me comment and then I'll turn on Fredrik to be the expert here. My statement is a little -- I've been all over this continent and I go here and I get here and I say what's the competition doing having the kamikaze pricing, they're killing the market, they're putting us under, and I leave and I go over there and they said what are those guys doing you left, ah kamikaze pricing so given this way I don’t know so I don't know where we are there. I do know that you know back to my point about competition. Look, then I go lay down to those where I can laid into this. We're going to be as aggressive as we can be and I say that as we can be because we're going to be disciplined. Cause we're going to you know, a lot of companies can get it to the top-line. That's not the hard part. The hard part is getting into the top-line and there'll be something there we can get to the bottom. So we're trying to you know fulfill both of those and Frederick is much more qualified than I to talk specifically about those markets and competition, so Frederick why don't you.

Sure, so I mean all our customers had options so ultimately it goes back to the fundamental thing that we're trying to do, system scheduled railroading which is to make sure we improve our transit time and improve our reliability, and we are in early stages of that specifically right now to competition I think the key thing it's been a tough transportation environment for several quarters now in terms of pricing to their market and generally this is about truck competition, there is a lot of excess truck competition. Fortunately though as we look at the market over the last few months and we've seen some signs of tightening capacity. I think the combination of tightening capacity environment does move into the second part of this year and early 2018 coupled with what we are expected to do from a service perspective should lead to a 2018 that is good from a top-line perspective and as I said ultimately this is all about providing a service to our customers that they want to use day-in and day-out. Because if we do that I think it's less relevant what our competition either on the rail side or the truck side is doing.

Brandon Oglenski of Barclays.

Hey, good morning everyone and thanks for getting my question on. Hunter you know earlier in the call you talked about challenges inside the organization to change and how you know you have seen that at your prior leadership position. Can you talk about how that progresses and how you brought your team together and you know how that plays out from a financial perspective as we go through over the next year or two.

Well, one of the things we did as a group is convince me and they did not me that we got to do some hard camp. People really got to understand what we're trying to do and do it awful fast and that's very important component here. To be very-very frank with you, we have just had said people you have to change, you got to get things that maybe you didn’t expect on doing in the past, but you got to get with it and if you can't get with it then we got to do something different and we'll try to treat you in the most humane manner possible, but look we got a responsibility to the shareholders and our customers and our other employees with this, we can't carry this way. If I have got to do their job, if I've got to do their part and that's a tough assignment for a leader to do and what we are talking to talk about leadership. One of the things I talked about as the hardest part for a great leader to do and where they fail and what makes the real difference is the ability to make a tough decision. Nobody likes to call in [indiscernible] and say that you can’t use it anymore. I know anybody that plays around that and enjoys it. It’s hard, it’s difficult somebody has got to do it. So we have been very honest and straightforward with the people about what the expectations are. We try to display and add the appropriate amount of patience with people knowing that look I’m not saying which strategy this company has had over the years was right along. You know except a lot of different mergers, people have been exposed to a lot of operating philosophies and it’s just confusing to them. So you know yes its flexible. You know I learn that early on in my career, get a new team and new leader and he comes in and we are going to play this game different and blow up a little bit and then put to you and you can make than change, you get to stay and be a player [indiscernible] and so you make a change. So I think we try to be honest with people and I think they know what is expected of them. But they also know with understanding that its difficult and that’s what I think is the difference in organization. Look, you know if you look at the real business, we all get the same locomotives and same gauge and same signal [indiscernible] all the things in similar markets. Nobody gets some huge handle in the market. What is different about the organization is people and leadership, and how they respond and how lead people and you know that’s why in spite of the fact that we have been criticized, maybe I shouldn’t say we have been, I had been criticized for creating cultures of fear or whatever. And that’s not what we are trying to do, that’s not part of the mission and in spite of this people are saying why are you approaching all my people. And I’m saying a lot of the more come over here, if we get this culture fear and we are so demanding and unreasonable why would they ever want will leave that lovely level of yours and come to mine, maybe you have to look at your whole part. I’m not into the specific about anybody, I’m just saying that we have no one to my knowledge working at CSX that can’t get released. If there are some, they’ve got some hands cuffs on, I don’t know that, I got the key to the hand cuffs. So if they don’t want to work here, I don’t need them. If they want to go to someplace else, that’s where they are able to go. It’s kind of a free market, [indiscernible] is about except when you get into the non-compete and have expert there if you need any advice, so that’s kind of where we are there.

I appreciate that insight Hunter and if I can respectfully ask the question on top-line, because like it or not, there is a perception among investors and maybe some of your prior colleagues that you worked with that, your focus is not really on the customer and you have mentioned it a couple of times today, the post Hunter era you hope CSX grows a little bit more. But I’m trying to line that up with Fredrik’s comments about next year and you guys, I think did win some contracts this quarter. How do we think about the focus on top-line, is that part of the plan over the next couple of years Hunter or should we just be thinking we got to get service and cost in the right place, then we can grow beyond?

So, I think, Fredrik, [Indiscernible] to join in the different here. Look, to be successful we have got to hit top-line growth to get you always recall. When people can make mark with us in the late 90s and why was our operating ratio was to be here in Eastern Canada. So well when they saw that we were price increase, they should keep both operating wise and it suppose to be [Indiscernible]. So I learned early on, that this a balancing act between cost and service. I have got in all respect in one of the places that’s still on I think, that goes back to days when I was first being taught about controlling calls and it was amount of sales that shows one side service, once side cost. You got to keep that in balance, if you spend too much and providing this premium service it’s a market they don’t want to everyone pay for, you won’t make any money and vice versa. So to be honest with you, I get a little sensitive about my remarks. Going back to the track record, I went to being - there they didn’t have a great representation about service and they didn’t have to pay their bills, but they have good reputation about service. Look at what had the top-line grew, I guess in spite all of their actions with customers through top-line pretty good. I don’t think is anywhere we have been that we get to see top-line growth and I look at some of the places that I have come to and I aint seen anybody that’s had any crazy outperformance of top-line growth. I just think that’s something that you know if at all they don’t like you, they don’t listen anything, [indiscernible] well, they are not sensitive to customer and I was talking to [Indiscernible] and I think this is right, I have never had anybody say, who it was, when it was, where it was, it’s just the perception you still like customers. I don’t buy into that so I don’t think any of that when in spite of the fact they might not like me. Even in spite of that when this company puts best service out there at the right cost structure we will get the business, this is not like the old days and you can argue that’s just relationship spending - days that where the relationship is that all made dollar for you. So Fredrick.

I'll just add I think ultimately there is actually nothing in consistent with precision scheduled railroading and being customer focus is what is challenging in short-term is just a change and that’s what our team is out there selling right now. Because there is a lot of change so this un linear in terms of the improvements that we have seen. If all be although we still have seen improvement in terms of transit by first quarter to second quarter. And ultimately as we go through change, we feel confident and we have seen some early signs of it that we will have a superior service product to sell thought we have before that’s why I don’t see - and I talked about our customers over the last six months or so that have had precision scheduled railroading experience. And ultimately the feedback is almost consistent from all of them, which is that once you get through the period of change we get to better service products. Then I think while Cindy and I are very much focused and aligned around that as where our team is out there selling to our customers as well.

Yes, I would echo that more of a core tenants of our model here is do what you say you are going to do. And that is 100% focused on the customer. I think Fredrik you mentioned we are going through some transition here that is problematic, but looking at the model how it works I'm extremely confident that this model will work well, it will work well for this company and it will drive not just cost production it will drive superior customers as well.

Our next question will come from Cherilyn Radbourne of TD Securities.

Thanks very much and good morning. Wanted to dig into one of the changes to the train plan has been mentioned which is incorporating committee unit train business into the car loads network, can you give us an examples of what commodities that’s been appropriate for and talk about how that influence same link service and balance and go forward?

So let me go back a little bit to drive some context. So you recall variable train scheduling, merchandise business that was really just our scheduled network and we drove train links as a result of that. And as Hunter came along and we talked about precision scheduled railroading and we look that opportunities where we had overlap on the same sub division where we had a rock train, maybe a metals train, occupying that same territory and generally speaking the quarry or loading facility did not load a full train and very few number of hours they were loading a portion of the train in a different line. And so as we looked at the opportunity to incorporate that in the merchandise network then that allowed us to go to seven day train operation, incorporate those commodities into that merchandise train and drive train links that way with very consistent service and then as you mentioned and talk of that then alone as another layer onto the concept of how do we make sure we have the same number of trains going east and west or north and south depending on where we are to allow even more efficiencies in terms of locomotives and full utilization of our people. So that’s an example of where and types of commodities that has worked for us, and we see pretty good progress with that. And I think its driving some good efficiency and Fredrik can comment on the impact.

Yes, and I think there are certain where we have been very successful in that and has improved the cycle time for the customers and there are some places where we have yet to improve the cycle time. And we are still working through the customer to make sure we get the operating model I call fine tuning operating model to make sure that we provide a level of service that is needed and there are certain places where we are not there yet but we're relentless of trying to get there.

Great that’s helpful color. Wanted to ask a quick one on coal RPU which was relatively stable versus the first quarter, notwithstanding some likely sequential moderation in the export coal rate. Can you just dig into some other moving parts on coal RPU for us?

Yes, I think in the first quarter we mentioned, we had a plethora of things that was all moving in the right direction especially on the mixed side within both domestic side and the export side that all create a positive mix. As we think about the coal part for you components here in the second quarter, export prices is the biggest driver there albeit probably not to the same degree we saw in the first quarter and we don’t have as much mix improvements as we saw and that’s just luck of a draw so to speak, in each and every quarter its different depending on who, which utility wants more coal and where do we go in terms of different export terminals. So really the key driver for coal RPU this quarter was clearly the export pricing.

Thank you. That’s all for me.

Thank you. Scott Group of Wolfe Research. Your line is open.

Thanks good morning guys, just a few quick ones. Frank can you just clarify, do you have any liquidated damages in the guidance for the back half for the year or anything else unusual.

No. If one comes up we will certainly lets you know but no.

Okay I would say always helpful to let us know in advance that would be great. Fredrik just on that coal yield, do you have any view on how much of the sequential drop we should expect in the third quarter and then just on the merchandize intermodal pricing number. Do you think that continues decelerate the back half for the year before, I guess you say we accelerate in 2018.

When I look at my general counsels here, I'm going to make sure that I state that we never forecast price, but more important though, if you go to the coal side clearly it is a commodity market that is very volatile and we have made a decision strategically to align ourselves with the producers to go up and down with that curve, partly because what a level road and rail road's is much as possible. Benchmarks have gone way in the export market but instead lot of index is set out there, that there are customers are we're using to determine, what sort of price we should use and I think you can follow those quite they are well top at size, so there is an opportunity to see what they will do and they will be based on what we're seeing right now obviously some impact. On the merchandize and intermodal network as I said before, it has to be in the tough market for numerous quarter for year and half, two years now in terms of pricing and as that said, as I see the truck market tightening up which there are clear signs that it is and we go through this change period and really start improving the service product the way we expect, I think as you get through 2018 you have an opportunity on both merchandize and intermodal to turn this got a sequential decline around.

Okay that’s helpful and then lastly for Hunter, I know you have got the Analyst Day coming up some, I don’t know if you want to get too specific, but it felt like last quarter, on last quarter’s call you sort of blast a low 60's operating ratio next year and 50's may be even mid 50's longer term. Anything three months later change in your mind on that directionally those kind of numbers.

No, I felt very confident in, and I'm a four months out here so, but I feel even more confident than I did then, given that I've seen these additional four months of potential [indiscernible]. I think the numbers is just doing solid.

Okay. Thank you guys.

Thank you. Jeff Kauffman of Aegis Capital, your line is open sir.

Thank you very much. Just one brief question, Hunter as you have gotten deeper into the details, what have you found that you have been able to make greater traction on maybe then you would had anticipated coming in, and what have you found is going to be a bit of a longer haul or more complex process in terms of getting done the things you are looking to do?

Well, clearly Jeff, I think nothing pretty obviously, but clearly this cultural change you call it what you want of the kind of a shift in strategy and at the same time I will go with the just turn my best on the obvious. There are some people that they are more pleased with this change, they more pleased with what we went through with the proxy fight, I tried to please with people during that time, that it's hard to fight one day or one week and then we also wanted one for all the next week. So, we determine here with the best chemistry is [indiscernible] we are all in this together type thing. So, we've got some open wounds there, so that's a key because if we don't have the right leadership, driven the right way we are not going to get these things done, and the first part of the question was more of the opportunities that are even more than I thought initially well, obviously I didn’t think or obviously I didn't, there was more opportunities with the up yards and I felt - I just had this general feeling about railroads that I've been associated with a lot of them in North America that had too many hubs. So I think that that's the opportunity although it's not real easy to get to, was more than I had thought, we have an opportunity and I hadn’t had a chance to spend a lot of time on this personally, but we need to improve our engineering productivity particularly on the capital side which impacts the capital spending more which people don't recognize, but I would rather put another tie and then I would have inefficiencies and not productivity in labor. And I guess the other one that was not on my list at all, because I just was not familiar with the collective bargaining issues and so forth was to go in from the land dispatching officers to one central location. And I think to be confounded on just a minute, but I think the plan is to have that number first quarter of 2018.

That's correct.

Which is that's all grade B from most and so I guess just some observations there Jeff.

All right. Cindy, Hunter thank you and we will see in October.

Thanks Jeff.

Thank you. We have a question from David Vernon of Bernstein. Your line is open.

Hi. Good morning. And thanks for taking the time. Fredrik, are there any metrics on sort of customer satisfaction around service availability that you can share the couple of dimension is. And are there any segment in particular of it standout as is either being more or less happy with some of the changes that are happening at the customer touch points that are enabling some of these changes in this schedule?

I mean I think we try to work through all parts of our network here in a very rapid pace in terms of making sure that we provide the service we want, with the cost structure that we want long-term. So, as we are encountering challenges from one customer group or one specific customer, we are trying to be as responsive as it possibly as can, as quickly as we can with Cindy. We use JD Power to look at customer service and customer responsiveness and we continue to monitor that. We normally don’t talk too much about that externally, but that is a gauge for us, just. But ultimately this comes down to reliability in transit time. And that’s what we are trying to go through right now. And there will be pain points, we know that and we have communicated that to our customer, but the key thing is the responsiveness from Cindy and team that try to address whatever challenges that we see as quickly as it possibly can.

And can you help us dimensioned some of the changes in these metrics. Obviously I know you are not going to share your internal customer satisfaction scores. But I’m just kind of struggling to trying to dimension how unhappy or unhappy this could be and where the source of revenue risk could be within the top-line?

No, the specific competitive information we try to stay away from talking about that, but clearly what is the strange thing somebody service from unit train to schedule merchandize or when you go out and you change the network as significant as we changed in a very short period of time whether it’s intermodal or merchandizes customers, there is going to be pain points. And the key thing is that we are asking our customers to hang with us, and see what is ultimately on the rise and we look at the new schedules that should allow for better transit time, better reliability, but in the short-term we are out there on a daily basis out to our customers and kind of working through those changes and make sure they see where the light is at the end of the tunnel.

All right. I guess thanks for that. And Hunter, one of the broader questions we get asked a lot is, is what is the company being to do to make this precision railroading less just of Hunter Harrison competency and more of a CSX competency. If you think about the next sort of couple of years on the contract that you have with the company and which are going to be doing. What are the two or three tangible things that you think you need to do make sure this precision were already model becomes a CSX competency and is not as tied to you as it seems to be at the early going?

Well, let me make this observation first, I mean this is not the first place that schedule precision railroads have been prior to exercise. It has a pretty good, not me it schedule precision railroading has a pretty good track record and its left pretty path. If you look at Illinois Central prior to bankruptcy doing whatever now that was a just a little small regional that ran down here with coals of so we don’t count that. And when you go to Canada the product does not need also went along with and it had a big positive influence on Canadian National and I would say this, it's still hanging out, because I think to the best of my knowledge, [indiscernible] certainly from an operating side, they were looked by a lot of people, rightfully so it was may be still the top railroad out there [indiscernible] and I think they continue to go pretty well from what I read. So this is not the first place that is being tried. Now I think, what I would say to you is the key is this, is how well we teach if you will here and so the better job we do of teaching, coaching, measuring, development let the people understand it and understand really the whys and ins and out. Which you know a lot of people just don’t - and I don’t mean this disrespectfully, just don’t have an appreciation for it. I mean you know some of you have probably heard your whole carrier about unit train efficiencies and I can tell you that unit train efficiency was a biggest factor to ever just remember. It's not unit trains are on average way more costly, okay. You were unbalanced in a lane which is what you want to do, because if you don’t have balanced, you don’t know when that imbalance is coming and there is lost cost associated with it. And you are balanced and here comes the grain, a grain train. So you have to dig and you don’t have a source to supply there to get the load to train. You get the loaded the train after you deadhead it and you run the train to the port. Well they dumped it but it takes three or four days and so there is no empties to move back, So you deadhead the crew back because there nothing form them to do. Well three or four days later now the train is empty and it’s time to run it back, so you run four train instead of two and everybody says what a beautiful operation. And we don’t do it like that and I think to may be to Cheril’s question earlier about this change is with the rock train and the merchandize doubled. We have grain trains that we were running with 56 cars, unit grain train. Other railroads are running 130, we were running some in a 115, can you imagine that the incremental cost is different is basically few. If you are investing money at 56 cars in a unit and you double it to 112 which is big, then you will really make a lot of money. So there are real questions raised there. So I think that I made it and I sit down with people and start to go through this thing like that and they kind of look at me like god [indiscernible], well why are we running unit train. Well that’s because somebody one day taught some statistics that’s the way you do it. And so everybody evolved into their systems. So the more time and we are going to get a good feel for this next week for the first 10 because the people they are going this time are little different than what we have done before. He is going to be operating people and is going to be basically transportation operating people which is where we need the help the quickest. So it’s going to get specialized force with handpicked individuals from the existing team because people said to me here, we don’t have people that are able to and I don’t believe that. Where we have just moved is got a lot of smart people that want to make itself from the part to do well is just our job to find them. So I think that will be the key is to have what we do in this development at every level. And that we are consistent from a price running to the price yard. We used to talked about it in early my career, we come in for staff meeting and then talked about three things, cost, service and they just need service to get all of this. And we believe you go home and every morning they talk to is about cost. The only time they talked about service and safety is when we came back from another quarterly meeting. They talk about the best service cost and safety. What you think will react to it, cost so that’s what we heard. So those people re understanding what you want will give it you, you can say it but if they don’t know and you just say you know not down in target want and they don’t know why or whatever. If that’s not the right strategy they don’t know the alternatives or what to do. So the better I do , we do collectively as a group developing these people most successful it’s going to be get ahead of some of the competition. Now whether that’s [indiscernible] but competition.

Mr. Vernon was that all?

That’s it.

Thank you. And our next question is John Larkin of Stifel.

Hey good morning and thank you for taking my question. We haven’t talked a lot about intermodal today but I thought it was a good topic to bring up especially given that CSX historically has had a relatively unique intermodal strategy with what I call the regional sortation centers like the one in North West Ohio, the one that maybe planned in North Carolina perhaps is the third one in the long-term plan for somewhere in the Alabama area. Allows you to serve much larger number of origin destination pairs but does take a little away from the truck load like service potential. Just wondering how that plan looks relative to the overall precision rail roading emphasis and whether that will survive as envisioned or whether you planned to adjust that to make it more compatible with the overall precision rail roading operating strategy?

So, Fred and I will both comment. John, whatever works - the challenge that we have with intermodal is price, there is no doubt about it. But at the same time, I would say to you that we are pretty this company I am new to is pretty disciplined in their approach, cost control. So I don’t think right now all intermodal practice. And if you believe any of our numbers of what we had improved on so we are going to see our margins improve the number 8%, 10%, well that really gives us the opportunity to be even more aggressive and going after growth. That’s where I think John some people miss it, the cost control or controlling expenses, so paramount in this effort to grow the business. We have - my last episode like this with the - CSX, last time I did this, the group invited me in a week before I got there, and took our largest customer and signed a 10 year deal. And then said, they know what you make money out of this business. That’s tough, so and they were down about 267 on margin length, which meant there was no free cash flow. But I’m proud to report to you that 18 months later, they were in the top five, they were in the top five, because the team had been able to take the number which was 29 down to 17 and hold 10% more total and now what was the [Indiscernible] no price difference to the customer just internal controls made us be able to play that market. So I think to some degree that will offer some opportunities for us to continue and I’m not sure I don’t stand totally the recent strategy, but that strategy and others that Fredrik and his team might want to pursue.

Yes and I think the key thing is and you have heard Hunter talk about the opportunity because it did grow the business, because that’s ultimate opened up what we need to do. Traditionally intermodal has been a key growth market for us, we have been able to grow this base domestic at 5% to 10%, then we don’t see any reason why that should change, but it’s always about converting traffic of the highway system and what Hunter is focus on in addition to intermodal is also to convert things the highway into our merchandise network by significantly improving that service product. The key thing for us in intermodal has been and it could be to make sure that we drive productivity and we have always been focused on that terminal, train lengths, making sure we are pricing it appropriately and clearly with a new balance train plan we have taking train length in even greater level and that’s going to be helpful. In the short haul kind of area that we are in, being able to connect the dots in the way that we can do with - how has really allowed us to grow that part of our network in a way that we haven’t been to do historically. So I think being able to connect the dots efficient like we have is critical. So every piece of business has to carry its own length and when we look at [Indiscernible] what we do there, it is carrying its own life and has been great success and we've post our seven times and I think that's the business model that we think will continue and make sense.

Thank you, maybe just a quick question on the international side of intermodal now that the third set of locks has been opened for quite some time in Panama, have you noticed any increased volumes on East Coast ports and now with the Bay on bridge completed do you see that as an opportunity for metal business.

If you go back to 2010 70% of our international and modal business came through the East Coast today it’s 80% and it is slightly higher than that so we've seen this go on for the better part of a decade in terms of the more and more of our traffic coming into the East Coast ports and if you just look at the growth numbers by the East Coast port versus the West Coast ports you see that that trend generally seems to be continuing. So the good news is that we have the infrastructure in place to be able to solve that and I know that very hard on the sort of thing that you said that New York is doing, Savannah is expanding their capabilities, Charleston is expanding their capabilities, Norfolk as always been in the forefront of that as well so all of the ports and [indiscernible] all of the ports are preparing for additional growth and we are well positioned to capture that as we see additional cargo coming into the East Coast ports.

That's terrific, thanks very much.

Thank you, next we have a question from Bascome Majors of Susquehanna.

Yes, thanks for fitting me in here. So Frank you gave us considerable detail on the restructuring charges that you broker out of the labor expense line and the quarter, but there is any way, is there a way you can help us quantify some of the other costs you incurred during the quarter you know related to the closing of hump yards and other changes to the operating plan, your net-net just trying to get at what a reasonable run rate expectation could be for the non labor variable expense lines like MSNO and rates look like as we head into the second half of the year.

Okay, in terms of the restructuring charge Bascome the only thing that we're putting in there are things associated with the management restructuring that we did as well as some of the dialogue that we were having between Maple Ridge as an act to the shareholder and the company and so those are the things that we're putting in there in terms of the restructuring charges going forward you should see the very minimal restructuring charges in Q3 and Q4. Now to your point about run rate expenses if you want to just take it down to labor and fringe side obviously you saw significant efficiencies there offset by inflation, incentive comp and things of that nature, if you were thinking about looking forward on labor and fringe year-over-year should be favorable on labor and fringe for both Q3 and Q4. If you want to talk about MSNO obviously we were down 29 million year over year and down 77 million sequentially or 22 million if you want to back up a combination gain. So if you look at Q2 versus Q3 sequentially, ex-condemnation you should see MSNO lower, and then just as you know Q4 had the real estate gain in Q4 of last year so you got to pull that one out as you think about run rates for MSNO. You know fuel when we jump to fuel real quick if you think about where we were in fuel, price is the big driver of the year over year change in expense in Q2, I think you should probably think about Q3 as a set of brackets depending where price ends up going. It's probably on the expense side, up year over year due to price but likely down sequentially because of the continued improvement on the efficiency side so that will give you a range there. On the rents that line move a heck of a lot. You saw the re-class that we called out in that particular line. And so I don’t think, we are going to see a lot of move that’s because car hard to calm down is part of line as you take the lower to second times improve in the second half of the year.

I appreciate all the detail there. Just one follow-up for Cindy or Hunter here. Just you mentioned some of the talent capture, you are having some success feeling on the operating team. Where those left and when do you expect to field them and just curious where you are finding these people that you are seeing pretty excited about to adverse the FX team? Thanks.

Well, I think as we change operating model and culture to goes with that the Hunter is pulled upon. I think it is a big part, maybe the biggest part of implementing, we are working on implementing. So we have pretty gone external in terms of attracting people through our normal channels to attract people and some other railroads excited about the opportunity here. I think we have a huge opportunity here and I think the folks that are coming in there as well.

Thank you.

We will move on to Jason Seidl of Cowen.

Good morning Jason.

Jason Seidl, did you have a question?

Yes, guys. Sorry, I was on mute. Fredrik, first question for you. Given that we have seen some strength in the truckload marketplace and the looming ELD mandate. Customers on the intermodal and maybe some of the competitive merchandise lanes come to you guys and talked about capacity on the railroad for next year?

Well, I think those, so sort of compensations that we are in the early stages of having and pretty recent that we seen the stock market move up in a sustain passion, we have some good starts in the past, but the stock market is moving up. So as people are trying to get into planning for [indiscernible] needs for 2018, I expect those dialogues to occur much more frequently. And that’s where some of our encouragement is coming from.

Okay. Fair enough. And I guess the last one is for Hunter. Hunter, you talk a little bit about how there is changes obviously, when you come to this organization and some people are happy about and some people might not be. Could you talk a little bit about the changes and how you are handling and even for the people that are happy that are there and does the dynamic change much between operations and sales and any communication in gaps, but there may be and should we see, I guess of a ramp up of things just running smoothly as we run throughout the year?

Well, I don’t want to pacific, all the, so I’m looking problems. But clearly, we are trying to take a team approach for this. We are into kind of three free lane [indiscernible] where we don’t really have that place we kind of [indiscernible]. I think that there is a lot to be determined yet on how the organization will eventually end up. And I’m not sure what things going to be and that plan is going to be [indiscernible] and others will have a big part to play, where we end up there. I think the, some of that's creating some anxiety with people, that we've tried to say that's not an issue, that's not something that you should necessarily worry about. we're trying to do you know Fredrick and I've tried this before, and then real success we are making it work that I think they are talking about maybe given some commission sales in certain areas, I would certainly encourage that, that we do some things differently that we throw some letter in the wall differently, I think Cindy has given her comments, clearly I think she's got certainly grasp on where we're strong and where we're a little weak, where we need help and the varied way to deal with. We've created different places, although I'm not a big advocate of consultants, we have two or three people that I've worked with over the years, that are in retired capacity, that are out doing some basic work today where we have some very hard working confident managers but we can [indiscernible] them up a little more by giving them some help. So, I think all of those things are very important to us, going forward - you have been building a room of team players and it does take you long when walk in that room you get a sense of the forming of the [indiscernible] happy no matter what their mass is. I mean we have get to people that have got prettier smiles, but if you pull them back they've got the ugliest smile and we got to be able to read some of that. So I mean just trying to put that chemistry that is [indiscernible] pull together, it's tough enough, pulling together, when you pull in part, it really makes you difficult and hopefully I can be as I told you my first time on the [indiscernible] I am a short timer here, I am an interim person that's been trying to get this company the next step, that foundation, I'm a active shareholder, I'm want to see this organization do well and I don't want to be used getting in people’s way and careers and that's not my role, that's not my purpose. I had a very some very best named dialogues, some of the Board members about but I felt like I had to do or didn't do for the organization I think that's clearly spelled out, I think most of the team here knows pretty well where I'm coming form and understand the agenda and so far we've been successful and people had been [indiscernible] and so I feel pretty good about what is taking place here.

Thank you for the color and thank you for the time.

Sure.

Thank you. Next we have a question from [indiscernible] of Morningstar.

Yeah. Thanks. Hunter, some investors have questioned the ability to achieve results on par of the Canadian Rails due to CSX operating in more populated regions and configured in the less linear design. What structural object obviously those have you found that could constrain some aspects of performance maybe velocity, operating ratio or customer service or some other aspects of performance asking about structural obviously?

A lot, I don’t know that there are any particular – there are some but I mean we have to deal with them. I’ll tell you quick story and answers at this way, but I went to Canada and CEN has made some pretty low changes mostly around by scenic or engineering it takes a lot of people out. And one of their statement was public was known ever aspect but Canadian railroad to be contained with U.S. numbers it’s just not structurally in the car, okay. Except when CEN became the load of operating ratio, the U.S. road did that every aspect we are going to improve the U.S. and we expect that to get to see in the imagine standard, it’s just not the car, well I have been on both sides of the board and I vote for CSX headquarters over Calgary was [indiscernible]. Healthcare is an issue that that’s obviously France and healthcare knowledge makes it much better in Canada, but we got some weather in Canada, it doesn’t make it pleasant to be there and some mountain although we get some mountain here to people forget about this mountain to be even Tennessee and so forth. And so, I don’t think that there is any structural issues. I think we got a plane field that we do our job and we have got a plenty of opportunity [indiscernible]. I think something the way that did I, I would say what is going to come up with the like this make some sense and I don’t know what it is. I haven’t heard a good answer yet. First 40 years I didn’t hear that structured, but all was certainly was big impairment structural and then left one away particularly what we found out that the, I don’t see much of all that that except the two can be forces at the same consultant that against the development of this fall that is structural issue. So, let me I think there is a maybe no one placing. Let me ramp something up and okay start there is going to be something a little bit. Let me start, there is been obviously we have talked a lot today and around this issue of playing order and where we are going to be in. So, let me say this to you, this is going to be challenging going forward, because mostly we haven’t talked about that we are in a position that this organization is going to develop the amount of U.S. whole lot of free cash from the real estate market. And not unlike what we experienced at my last employer. For example, I’m not an expert on this but I think I am right about, we set at different locations in Jacksonville. Next year we will be in two, five location, willing to be sold, get out of the lease, whatever the take might be. We are moved or ahead of our training center in Atlanta, also very pretty expensive piece of property there. And all those done, there is a lot of money in there. Now we debated in terms of how much, and I am always precise, internally it’s all to half way, I think be in plus. And my point is this, I can’t tell you how the real estate market is going to move over the next two or three years, I can’t tell you exactly what the interest rates will do, I can’t exactly tell you what the timing of the some of the things are, but when they are concluded, they are concluded. And you can call non-recurring, although they have 24 straight months, all we can do is do our job of running and operating. And then when we do something with real estate our other assets that are made available as a result of these operating changes, so that’s something that we should think about and then you should think about and consider as we go forward. I thought back last night, not the first time I have done this and I have been CEO for 20 years or so, maybe longer, a little break in there but and I said have you ever seen a clean board, I mean clean, clean board, squeaky clean board, no. well how I do describe the clean board. But with these results, I look back to some degree earnings then I looked at trends, productivity improvements, those type things, let’s say what this organization is potentially in the future and size. So sorry for [indiscernible].

Next question please?

Certainly. Thank you. Walter Spracklin of RBC. Your line is open sir.

Yes, thanks for squeezing me in there. I guess Hunter when I talk investing opportunity you are proposing I think no one questions really that there will be significant change. I think really the question comes around how fast and how significant. So my two questions are around that. You have kind of addressed both. But we will start with the how fast. When you did what you did at CN it was a little bit over a longer period of time I think you are building a team, you are applying a precision railroad model that, you used once before but over a larger network. When you went to CP it was much faster and I think part was you brought over a team that knew in depth of how precision railroading worked. Are you building, rebuilding a team, I know you said you are pulling people, you are using a few experienced, those experienced in precision rail, but overall is this a longer process because you are kind of rebuilding the team or is this you have done now three or four times and you can hit the ground much quicker than before.

Well I mean I think when we hit the ground it all factors in each case it was kind of this. So the team here did a lot about this good bad and different and get to see every day the results of the Friday night side and what they were and what it might be and do a little research and I think maybe somewhat we are saying here this might be a good opportunity that the others were looking at a different way. But that quickly came to a conclusion here that we have at the senior level I don’t think we have here any efficiencies like that and maybe prescribe at this middle managerial level. So as I told you some kind of interim step there and then the board which is part of is now and we file another assistance will likely be the selection for you have got to leave this company on that and that’s important. I think that then I would be able to interrogate I think once they heard a little bit from me and then when we heard, they understood to some degree that it’s a good match and we had some good people at the wrong spots without the appropriate amount of expertise and knowledge and some of that was their fault and some of them not. And so that’s when we kind of where that do this and we brought couple of people in that were actually kind of lock star attach to them. And then we rub each other of bringing I guess the volume in about – and I think that maybe is all the risk to do even in what we do in the camps and given that they install in the place but if it’s not you know what to do then. I don’t think that’s going to be, where you have got – this is top most and we have got some restrictions from the last employer to the retirement party that gave me but it seems to have until I could retire anybody from there. Well that’s another story, and then so there is all kind of restriction out there about who get higher who and so forth and I’ll be proud to say that we don’t have anybody. One of the things that Cindy encouraged and we have done is that we really to a large standpoint were behind and perhaps with this. I don’t believe the Indians are like more into [indiscernible] and that’s what we had and we had well and have good conductors and engineers that didn’t want to take this job, they like to cut it. So that’s wrong, that’s people that don’t know how to value car mover on new railroad. So I don’t think that’s going forward will be a continuation. I just think the issue is kind of to your question [indiscernible] now if we go through - what I have never been through a time where this country is like its politically ever, I never dreamed of the time like this. So I don’t know what is going to happen in Washington and I don’t think they got the view. So we follow one time where we think about turn for no other reason, freight and made in America, a lot of things, infrastructure, well I don’t know where it’s going then. But if we had if there is such thing in normal without any geopolitical interruptions I think it’s very reasonable to say that we can get this done in the timeframe we talked about which is I guess 2020 we will have it done by then, I think it’s very reasonable. But if we miss three, four months or you are going to choose, or the shareholders not going to love us, that has pretty good run anyway. So I think we are going to get there, I admit one yet [indiscernible].

So on the second question on the impact again I don’t think many doubt your ability to drive you alone down of the range. You mentioned is what revenue showing through that. Those views out there they were, call that perhaps will be some service disruptions. My question to you is and when we look at the data we do see a contraction in, we see your volume level tracking below peers that could be kind of reasons for that, now touch on that but we are also seeing pricing come down on the rate of growth, my question are you right now seeing volume share losses on account of those disruptions or are you having the price lower to keep that volume because of the perceived volume disruptions, service disruptions, I guess your view as to when that will smoothen out if it is happening?

Walter this service disruption, there has been adjustment which we have many, I have got the numbers, 400, 500 customers do 90% business, a lot of customers. We have had two that might make the case, major disruption. And one case the major disruption was back to where they were then you have heard and it was a result of some labor actions pushed back some way and we had to take a few names and pass another pressure. So that is really not in my view effected any top-line. I don’t know that there has been anything pricing wise that’s affected the bottom that we have made any desperate moves in. We have got a couple of, you all know this is no secret I’m not a big not right to advocate, I think it’s not in anybody’s interest but others see it differently. You go out two, three five years and so forth. But we got a couple of big ones over the next 18 months that are coming up. And you know look part of the alignment you get here is when you walk in and let’s say the new one is off the block. If you don’t do me a cut, if you don’t do this for me I’m going to say you are not sensitive to the customer and I’ll get you to use this and when I get criticized about this I don’t, I’m not worried about it, somebody said you don’t want to – well I did and that’s some business we get apart. I don’t think that and to this earlier what we said to the customer is we are going to say what we say we are going to do. You know you go to one way or around and they say you don’t have any chance. So you get that service, you got another area and put schedules in and now you have not been insensitive to customer. I mean how would you like to go and call somebody to book the flight on the – and then say what time you want to leave? And then you believe it’s their time to file service for them. Well I don’t think that people united will think that it’s necessary. All that being said, the service and the operating metrics and all those things is only going to improve and then it improve service and add to the lower cost and you have got a double effect here, you got a download there. So I don’t see anyhow and you know what I’d love, I’d love to somebody to serve the public debate, okay to represent the shippers and I will debate in Times Square and about this issue of who, where, when came about. So I’m not, I think that’s all about it.

Fair enough, just an housekeeping for Fred and maybe for Frank as well. Frank did you say 39 was the tax rate for the rest of the year or is that the new tax rate going forward?.

What I said was 39 to 40 in Q3. I think it would probably be somewhere in the 38to 38.5 in Q4 and then obviously we’ll take a look at next year.

Okay. And Freddie did you update on the export coal, I missed it but did you give any update your guidance on the export call I think you were at 30 million tons or high 20s.

Yes Frank in his prepared remarks, we said about 30 million tons in export pull market for the year with a declining rate structure and those slightly based on what we are seeing in terms of indexes.

Okay. Thank you very much for your time.

All right, thanks so much.

Thank you. Yes, we have one more question. Justin Long of Stephens.

Good morning. And thanks for setting me in. So Hunter maybe the follow-up on the point you made a little bit earlier on real estate. Are you factoring in those real estate gains when you talk about the potential for a low 60s OR next year and something in the 50s longer term or would the real estate gains be incremental to the objective?

It’s incremental.

Okay. Great. And then.

Anything real estate, we did achieve these numbers.

Okay, that’s helpful to clarify. And then secondly I wanted to ask about coal, and how that’s influencing some of the changes you are making in the network today? When you think about your coal business, what is your assumption on how that looks three to four years from now as you start to implement various structural and operational changes in the network as a whole?

I will comment. Fredrick has other comments. Look, I’m not going to buy a locomotive for coal, okay, I’m not [indiscernible] as assets 40 years of life and my personal view, I am not an expert on this point, almost got run out of hand that fossil fuels - that’s a long-term view, that will not happen overnight, it’s not going to be two, three years but it’s going away in my view with all those issues, environmental and so forth natural gas always in pressure, coal is not along current issue. And we will see what comes up with this commitment to coal and so forth. And so look having said that the right car load coal that shipped [indiscernible] now I don’t know if that’s 2020, 2030 or when, but we are not going to make long range and if something changes drastically at the end of market we are not going to go out and put going track in or buy locomotives or anything for coal.

And just to build on what Hunter just said and I think we have been pretty clear that over the long-term we think it will decline, and there will be periods that we are seeing right now where coal will be going up and we are trying to capture that value economically and so with our customers as their needs are increasing or decreasing. But overall it’s a good business for us and to Hunter’s point we want to be there the last [indiscernible].

Okay, makes sense. I know it’s been a long call. We really appreciate the time.

Thanks a lot. Thanks everybody for joining us. We appreciate it and I can’t hardly wait unit the third quarter call. Have a good day.

This concludes today’s conference call. Thank you for your participation in the call. You may disconnect your lines.