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CSX Corporation (NYSE:CSX)

Q2 2014 Results Earnings Conference Call

July 16, 2014, 08:30 AM ET

Executives

David Baggs - VP of Capital Markets and IR

Michael Ward - Chairman, President, and CEO

Clarence Gooden - Chief Sales and Marketing Officer

Oscar Munoz - COO

Fredrik Eliasson - CFO

Analysts

Rob Salmon – Deutsche Bank

Tom Kim – Goldman Sachs

Bill Greene – Morgan Stanley

Ken Hoexter – Bank of America

Keith Mori – Barclays

Chris Wetherbee – Citi

Allison Landry - Credit Suisse

David Vernon – Bernstein

John Larkin – Stifel, Nicolaus & Co.

Bascome Majors – Susquehanna

Jeff Kauffman – Buckingham

Scott Group – Wolfe Research

Jason Seidl – Cowen & Company

Ben Hartford – Robert W. Baird

Cherilyn Radbourne – TD Securities

Justin Long – Stephens

Cleo Zagrean – Macquarie Capital

Operator

Good morning, ladies and gentlemen and welcome to the CSX Corporation Second Quarter 2014 Earnings Call. As a reminder, today’s call is being recorded. During this call, all participants will be in a listen-only mode.

For opening remarks and introduction, I would like to turn the call over to Mr. David Baggs, Vice President of Capital Markets and Investor Relations for CSX Corporation.

David Baggs

Thank you and good morning everyone. And again welcome to CSX Corporation's second quarter 2014 earnings presentation. The presentation material that we’ll review this morning along with our quarterly financial report and our safety and service measurements, are available on our website at csx.com under the Investor section. In addition, following the presentation, a webcast and podcast replay will be available on that same website.

Here representing CSX this morning are Michael Ward, the company’s Chairman, President, and Chief Executive Officer; Clarence Gooden, Chief Sales and Marketing Officer; Oscar Munoz, Chief Operating Officer; and Fredrik Eliasson, Chief Financial Officer.

Now, before we begin the formal part of our program, let me remind everyone that the presentation and other statements made by the company contain forward-looking statements. You are encouraged to review the company’s disclosure in the accompanying presentation on Slide two. This disclosure identifies forward-looking statements as well as the uncertainties and risks that could cause performance to materially differ from the results anticipated by these statements.

In addition, let me also remind everyone that at the end of the presentation, we will conduct a question-and-answer session with the research analysts. That said, with nearly 30 analysts covering CSX, I would ask, as a courtesy to everyone, to please limit your inquiries to one primary and one follow-up question.

And with that, let me turn the presentation over to CSX Corporation's Chairman, President and Chief Executive Officer, Michael Ward. Michael?

Michael Ward

Well thank you, David and good morning everyone. Last evening, CSX reported record second quarter earnings per share of $0.53, up from $0.51 in the same period last year. CSX also generated record revenues of $3.2 billion for the quarter, up 7% on an 8% volume increase.

These results are evidence of the broad-based economic momentum across most markets and a transition in the energy markets that is largely behind us. We handled volume levels this quarter that exceeded our expectations, while maintaining stable operations and we're taking additional steps to return service to the high levels that our customers have come to expect from CSX over the last few years.

We're excited about the growth we are seeing and what it means for the future of this company and our shareholders. That's why we've added people and capacity including locomotives, freight cars and infrastructure. Oscar will discuss these initiatives in more detail later in the presentation.

Thanks for the efforts of CSX's 31,000 employees, the company produced record operating income of nearly $1 billion and delivered an operating ratio of 69.3%. As we look to the back half of the year, CSX is focused on improving service levels, leveraging the growth opportunities before us and generating modest earnings growth for the full year 2014.

Now I'll turn the presentation over to Clarence, who will take us through the topline results in more detail, Clarence?

Clarence Gooden

Thank you, Michael and good morning. The underlying macro-economy remains strong and our experience and the data suggest a positive outlook for growth. The Purchasing Managers Index held firm at 55.3 in June. A rating above 50 indicates that the manufacturing economy is expanding. This is the 13th consecutive month that PMI index has signaled expansion.

At the same time, the Customer's Inventories Index remained at 46.5. A rating below 50 indicates customer's inventories are low and suggests continued strength and demand for manufacturing output.

As a result, many of the customer's reserve grew at a robust pace and most of the key indicators we track including vehicle production, housing starts and agricultural output, point to continued expansion. Overall demand for rail service was very strong in the second quarter.

Now let's look at the results on the next slide. As you can see on the left side of the chart, total volume grew over 8% to nearly 1.8 million loads in the quarter with strong growth in merchandise, intermodal and coal.

Moving to the right, total revenue increased $198 million to over $3.2 billion in the quarter, reflecting overall volume growth and increased pricing across most markets. Merchandise and intermodal now account for over three quarters of CSX’s overall revenue.

Total revenue includes $11 million of liquidated damages related to contract shortfalls and coal shipment. We expect similar levels in the remaining quarters of this year. Looking forward, we'll be cycling $51 million of liquidated damages from the third quarter of 2013.

Next the average revenue per unit was down slightly. Here core pricing gains in our merchandize and intermodal markets were offset by the impact of mix and lower coal revenue per unit.

Finally, let's move to core pricing. Recall that same-store sales are defined as shipments with the same customer, commodity and car type, and the same margin and destination. These shipments represent 75% of CSX’s traffic base for the quarter.

On this basis, all-in pricing was a negative 0.6% in the quarter, reflecting continued rate pressure in export coal markets and the impact of fixed variable contracts and the domestic utility market where volumes are now increasing.

Since we continue to have greater variability in both our export and domestic coal business, reflecting global market conditions and our fixed variable contract structure and since our merchandise and intermodal markets are becoming a larger portion of our business, we have again provided you with the same-store sales pricing for these two markets on a combined basis.

At the bottom of this panel, you can see pricing for merchandise and intermodal average 2.6% for the quarter. This pricing gain is smaller on a year-over-year basis, but is flat sequentially and represents a solid spread over rail inflation.

That said, we remain confident that the value we create for our customers compared with the increasing demand for our service product provides a solid foundation for growth and pricing above rail inflation over the long-term.

Now let’s look at the individual markets in more detail, starting with merchandise. Overall, merchandise revenue increased 11% to nearly $2 billion in the quarter. Volume in the agricultural sector was up 5%.

Feed grain shipments, both domestic and export, increased sharply due to a strong 2013 harvest. In addition, ethanol shipments grew as lower corn prices resulted in higher ethanol production levels.

The construction sector grew 8% overall, reflecting a rebound in shipments after the winter weather subsided and the ongoing recovery of housing and construction activity. Finally the industrial sector grew 11% led by strength in the energy-related commodities including crude oil, liquefied petroleum gas and frac sand.

Moving to the next slide, let’s review the intermodal business. Intermodal revenue increased 6% to nearly $450 million. Total volume grew 7%, setting a new quarterly record for intermodal. Domestic volume was up 8%, driven by continued highway to rail conversions.

International volume was up 6% year-over-year reflecting continued economic growth catch-up from the first quarter and advanced shipments due to potential port labor issues.

Total intermodal revenue per unit declined 2% as continued core pricing gains and higher fuel recoveries were offset by unfavorable mix. Here volume associated with our door-to-door domestic business, which has higher revenue per unit declined.

Finally, we continue to grow our intermodal business by adding new service offerings and making strategic investments. These investments include the new terminal in Winter Haven, Florida, which opened early this quarter; the Montreal terminal, which will open later in the year. These two terminals together will add 350,000 in annual lift capacity. In addition the ongoing expansion of the Northwest Ohio facility will increase its capacity by 50%.

Moving to the next slide, let’s review the coal business. Coal volume increased 6% while revenue declined 3% in the quarter to $744 million. Domestic coal volume increased 15% with growth in both northern and southern utility shipments, reflecting higher gas prices, building of stock piles for the summer cooling season and a competitive gain.

Export coal tonnage declined 12% as global market conditions for both thermal and metallurgical coals remain solid. The API2 benchmark for thermal coal remained below $75 per ton, a level where the U.S. coals were challenged to compete.

The Queensland metallurgical coal benchmark has also remained at low levels with a rate of $120 per ton. Finally, total revenue per unit was down 9% with lower export pricing, fixed variable utility contracts and unfavorable domestic mix negatively impacting revenue per unit.

Now let me wrap up with the outlook for the third quarter. Looking forward, we expect a positive demand environment in the third quarter with stable to favorable conditions for 88% of our markets and unfavorable conditions for the remaining 12%.

Looking at some of the key markets, agriculture is favorable and will continue to benefit from last year's record harvest. We expect growth in chemicals as we continue to capture opportunities created by expanding domestic oil and gas industry. The automotive market will grow with North American light vehicle production expected to increase 9% in the quarter.

Strong intermodal growth will continue as our strategic network investments and improving service reliability support highway to rail conversions.

We expect domestic coal volume will grow in the third quarter at double-digit rates as utilities continue to rebuild inventories. Forest products is neutral as growth in buildings products due to the continued recovery of the housing markets will be offset by lower paper shipments.

Export coal volume is expected to be significantly lower in the third quarter and our best estimate of 2014 volume remains in the mid 30 million ton range, reflecting soft global market conditions, particularly in the thermal market. Overall, we expect high levels of demand for our service will continue into the third quarter.

Thank you. And now I’ll turn the presentation over to Oscar to review our operating results.

Oscar Munoz

Thank you, Clarence. It’s great news and good morning, everyone. As you know, we always start our operations review with a look at safety as it is our first and foremost priority. We are proud to report that CSX remains a leader in safety amongst the Class one railroads with the train accident and personal injury rates both improving year-over-year.

For the quarter, the train accident rate declined to 2.07 and the personal injury rate declined to 0.90, reflecting the company's and our employees continued commitment to community and employee safety.

Let let's turn to service performance on the next slide. System wide operating performance is still below the level customers have come to expect from CSX, especially across our Northern tier.

In the second quarter, the robust demand we experienced has led to a decline in on-time originations and arrivals as well as resource constraints in some areas of the network. In addition, line of road congestion has impacted train velocity and terminal dwell.

On Slide 15, I'll discuss service in a bit more detail. As you can see on the chart on the left, service levels began to decline at the beginning of the year due to the historic winter we experienced. For the end of the first quarter, we experienced a rapid surge in volume. Even with a significantly higher volume, service levels have stabilized albeit at a lower level.

If you look at the map on the right, much of that volume growth this year has been concentrated in the Northern part of our network. Traffic levels for the northern tier are up approximately 20% with certain areas experiencing even higher growth rates.

Turning to Slide 16, let's discuss some of the actions we are taking to support this continued growth in CSX's business. The map on the left shows four key areas where CSX has been marking strategic capacity additions.

You'll notice that many of these projects are along the northern tier and will help facilitate long term growth across this part of our network. In the Chicago area, the addition of the Elsdon Sub division provides CSX with additional double track miles. This allows us to operate a shorter, fast route for certain trains, diverting traffic away from other more congested routes in the area.

As Clarence mentioned, we're also extending the processing capabilities of the Northwest Ohio terminal, which we expect to be complete by the end of this year. Along the river line route in New York and New Jersey, we're adding more miles of double track to improve capacity along this growing and heavily travelled path from Chicago to New York.

Finally we are investing in a new coal unit train processing facility that will support the increased growth of coal coming out of the Illinois basin.

Now let's turn to the next slide and discuss crews and locomotive. The train and engine employee count is already up 200 since the beginning of the year and we expect it to be up approximately 400 by the end of the year. We also have some initiatives in place to enhance workforce levels in the near term including temporary transfers, vacation buyout and incentives to delay retirements.

On the chart on the right, you can see our available locomotive count has increased by 10% since September of last year as we pulled out units out of storage and taken on additional leases. Looking at the second half of the year, we expect our available count to further increase as we repair and reactivate approximately 100 more locomotives. These actions will help CSX gradually restore fluidity to the network and to support growth.

Turning to the next slide, let me discuss the cost base. Now Fredrik will provide more specifics about the cost impacts for this quarter and what to expect going forward, let me outline a few of the key drivers behind the $32 million of additional cost in the second quarter associated with our network performance.

On the chart on the left, the number of [released drivers] (ph) continues to be more than double of prior year levels. In addition, over time across the operating department also remains above prior year levels, although it has improved sequentially from the first quarter.

Now if I could, I would say a quick thank you to our employees for their continued hard work these past few months. I greatly appreciate your professionalism and dedication to serve customers.

I continue with the chart and moving down as I've discussed, our locomotive fleet has increased 10% since the beginning of the fourth quarter and 8% year-over-year in an effort to meet the growing demand.

With many of our additions coming from short term sources, lease expenses increased. In addition, maintenance expense is up due to the higher overall fleet count. Finally, average freight car cycle days were up 3%, reflecting the increase in transit time and leading to higher rental expense. Looking forward, these costs will subside as service levels improve.

Now let me wrap up on the next slide. Overall service has stabilized with this higher volume and are not at the levels our customers have come to expect from CSX. At a network level, the northern level, the northern tier has experienced strong double-digit growth and Chicago in particular has been challenged.

In response, we're working closely with our rail peers and taking near term actions to shift resources to these high growth areas. We have plans in place to further improve our infrastructure as well as add crews and locomotives to support ongoing growth initiatives.

Also an importantly, we've been in regular contact with our customers to provide them visibility and sincerely thank them for their patience as we work to increase their increased demand.

They, and you, should be confident that our dedicated operating employees remain fully committed to restoring service levels to what our customers have come to expect from CSX.

So with that, let me turn over the presentation to Fredrik to review the financials.

Fredrik Eliasson

Thank you, Oscar and good morning everyone. Let me begin by providing a summary of our second quarter results. Revenue increased 7% versus the prior year on 8% higher volume, driven by broad based strength across our merchandize, intermodal and domestic coal markets.

Expenses increased 7% versus last year, driven primarily by higher volume, the cycling of real estate gains and cost associated with network performance, which I'll discuss in more detail in the coming slides.

Operating income was $997 million, up 6% or $57 million versus the prior year. Looking below the line, interest expense was down $5 million versus last year driven by favorable interest rates on debt that was refinanced in 2013 and modestly lower debt levels.

Other income declined $21 million versus the prior year, primarily due to environmental charges for non-operating site and income taxes were $321 million in the quarter for an effective tax rate of 37.8%. Overall, net earnings were $529 million and EPS was $0.53 per share, up slightly from $521 and $0.51 respectively in the prior period.

With that, let’s turn to the next slide and briefly discuss how fuel lag impacted the quarter. On a year-over-year basis, the effect of the lag in our fuel surcharge program was unfavorable by $9 million.

This reflects $4 million of positive in-quarter lag during the second quarter of this year versus $13 million of positive in-quarter lag for the same period in the prior year. Based on the current forward curve, we expect the year-over-year fuel lag impact to be slightly favorable in the third quarter.

Turning to the next slide, let’s review our expenses. Overall expenses increased 7% in the quarter. I'll talk about the top three expense items in more detail on the next slide, but let me first briefly speak to the bottom two on this chart.

Depreciation was up 4% to $287 million due to a higher net asset base. Going forward, we continue to expect depreciation to increase sequentially a few million dollars per quarter, reflecting the ongoing investment in our business. Equipment rent was up 19% to $114 million driven by higher freight car rates, incremental volume and longer car cycles.

Now turning to the next slide, let's discuss our other expenses. Overall labor and labor and fringe, MS&O and fuel expense each increased versus the prior year, driven primarily by 8% high volume in the second quarter.

As Oscar mentioned earlier, we incurred $32 million of additional expense in the quarter, related to network performance. Of that amount, $14 million is attributable to labor and fringe, $9 is in MS&O and finally there was $9 million of impact in equipment rent expense.

This cost of network performance represents a significant improvement from the $90 million impact we experienced in the first quarter. Looking for to the second half, we expect these costs to remain relatively consistent with the second quarter levels, until we see meaningful improvement in network fluidity and service levels.

Now let me discuss the other drivers for each of expense categories beginning on the left with labor and fringe. Total labor and fringe increased 4% or $32 million versus last year. $25 million of this increase was related to incremental volume and $14 million related to inflation.

For the second half of 2014 we expect labor inflation to continue to be around $15 million on a year-over-year basis each quarter. The $21 million improvement in other labor and fringe is driven by lower incentive compensation and pension expense versus the prior year and is split about 50-50 between those two items.

Headcount was up about 1% versus our first quarter level as T&E employees increased to accommodate higher volume. Looking ahead, we expect overall headcount to gradually increase during the second half such that by year end our headcount will be up 1% to 2% versus the end of 2013.

Moving to the right on the slide, MS&O expense increased 11% or $61 million versus last year. This included the cycling of $36 million in real estate gains, $19 million of expenses related to incremental volume and $10 million of inflation.

In addition, there was $13 million of decrease in other MS&O spending multiple items none of which was individually significant.

Looking at the remaining quarters of 2014, we continue to expect higher year-over-year MS&O expense related to the inflation and volume growth and there are no further real estate gains to be cycled in the second half.

Finally, fuel expense increased 5% or $19 million versus last year as the impact of higher volume was partially offset by favorable price and efficiency.

Now that concludes the expense review, turning to the next slide, I’d like to highlight our core earnings growth and operating margins in the second quarter.

Looking at the second quarter financial results and excluding the $36 million of real estate gains from last year, the company generated $198 million of revenue growth that was partially offset by a $105 million of incremental expense.

This netted to an increase in core operating income of $93 million versus the prior year or an incremental operating margin of 47%. As a reminder, these results included the $32 million of network performance cost that I discussed earlier.

With a positive outlook across most of the markets in our portfolio, the core earnings strength of CSX's business is now becoming more evident. We expect the core momentum experience in this quarter to carry over the second half and produce modest earnings growth for the full year and double-digit growth starting next year.

This expectation is the foundation for the increase in capital that we're now planning for 2014 which I’ll discuss on the next slide.

Total investment is now expected to be $2.4 billion up from $2.3 billion we initially budgeted for the year. About $100 million of additional capital will be deployed for infrastructure and freight cars both of which will support long term growth.

As a result, our revised core capital budget is now $2.1 billion which is consistent with our guidance of 16% to 17% of revenue. In addition, we still expect to invest $300 million in positive train control this year

Now, let me wrap-up on the next slide. First, the core earnings improvement of CSX's business is becoming more apparent in our financial results. And we see broad base strength across our diverse business portfolio which will be key to drive sustainable long term earnings growth.

As a result, we are investing in infrastructure, crews and locomotives to effectively serve demand and gradually return service to the superior levels that our customer expects.

Looking forward, we expect third quarter earnings to be roughly flat versus the prior year as we cycle $51 million in liquidated damages and tax feasibility of $0.01 in EPS while continuing to incur network performance cost. We expect more meaningful earnings growth in the fourth quarter.

As I mentioned earlier we still expect modest earnings growth for the full year 2014 and we remain confident in CSX's ability to sustain double-digit EPS growth starting 2015 and operating ratio in the mid 60s longer term.

With that, let me turn the presentation back to Michael for his closing remarks.

Michael Ward

Thank you, Fredrik. As we discussed this morning CSX experienced substantial demand across nearly our entire portfolio and delivered record financial results for the quarter. Going forward, we see a strong economic environment that is expected to continue and operations that are stable and expected to gradually improve with the actions we are taking.

What's even more exciting is that in a reshaped energy environment and with intermodal and merchandise an ever growing part of our portfolio, the core earnings strength of this company is apparent and attractive. To those reasons we continue to expect double-digit earnings growth and margin expansion beginning in 2015.

Now we'll be glad to take your questions.

Question-and-Answer Session

Operator

Thank you. We will now be conducting the question-and-answer session. (Operator Instructions) Our first question comes from Rob Salmon from Deutsche Bank. Your line is open.

Michael Ward

Good morning, Rob.

Rob Salmon - Deutsche Bank

Hey, good morning guys. I guess to kind of follow-up with regard to the service discussion, could you give us a little bit of a sense in terms of the timeline of how the network fluidity should be improving with regard to some of the capital investments that you are making, particularly on the intermodal side where we basically have been seeing the velocity kind of come down since basically the May timeframe?

I am assuming this is related to the headwinds that you guys called out in the Northern region, any sort of incremental color and how we should be thinking about those costs coming out? It sounds like it's more of a probably 2015 story in terms of getting the velocity and the dwell down to the levels that you guys like.

Oscar Munoz

Yes Rob, this is Oscar. I think all you say is generally correct. I just would re-highlight what we talked about before is we do have a lot of plans to add to resources and are in constant communication with our customers across all areas.

Now assuming our demand remains as strong as we expect, which we do, the recovery will be gradual as we work through the challenges especially across the north. I can't provide a specific timeframe at this point for a lot of different reasons, but the recovery will not be necessarily linear.

And so that said, as you’ve seen in this quarter, even with this additional operating cost that we're seeing, our incremental margins are improving. So there is a lot of value and good things to look forward to.

Rob Salmon - Deutsche Bank

Okay. And then I guess Fredrik, with regard to a follow-up on the guidance for the third quarter, what sort of volume growth are you assuming in that guidance?

Fredrik Eliasson

Well, I think overall I think right now what we are seeing here over the last month or so, is in that mid single digit range that we're seeing volume growth. So I think that's probably good place to start.

Rob Salmon - Deutsche Bank

Okay. That's helpful. Appreciate the time guys.

Operator

Thank you. Our next question comes from Thomas Kim from Goldman Sachs. Your line is open.

Michael Ward

Good morning, Thomas.

Tom Kim – Goldman Sachs

Hi. Good morning. Could you provide a little bit more color on the incremental CapEx and where you are planning to be allocating it and your time as to when you anticipate revenue generation from that? Thank you.

Fredrik Eliasson

Sure. So about half of it is related to rolling stock that we think we will be able to put in revenue generation next year and about half of it is in infrastructure around the northern tier of our network and obviously as we put that into effect throughout the fall, that should generate incremental fluidity in that part of our network.

Tom Kim – Goldman Sachs

Okay. That's very helpful and then just with regard to intermodal and the capital reinvestment there, to what extent can you elaborate on how much spillover traffic you see sort of given the strength of demand and your network?

How much of the -- how much revenue do you anticipate [indiscernible] actually or do you sort of estimate is actually being lost there because you don't have the capacity and if you could just try to give us a sense of the ramp on the utilization of the two new facilities by year end, that would be helpful as well. Thank you.

Clarence Gooden

This was -- Thomas, this is Clarence Gooden. I think it's going to be very difficult for us to say as how much basis we lost or gained during that period of time that you are asking. On the facilities coming online, are you referring to Valley Fair and to Winter Haven?

Tom Kim – Goldman Sachs

Yes, that's right.

Clarence Gooden

Winter Haven is progressing along as we expect it to be. Most of the volume in Winter Haven now has moved out of our Orlando facility, which is part of the SunRail deal we had done earlier several years ago with the State of Florida. So it will be several years before we reach capacity -- full capacity in Winter Haven.

Valley Fair which will open up in the early fourth quarter, late third quarter we are in the process right now seeing just how big that market total is going to be on day one when we open, we expect we will be running initially a train in and a train out a day.

Tom Kim – Goldman Sachs

Okay. That helps a lot. Thank you.

Operator

Thank you. Our next question coming is from Bill Greene from Morgan Stanley. Your line is open.

Michael Ward

Good morning, Bill.

Bill Greene - Morgan Stanley

Good morning. Thanks for taking the question. Clarence, I wanted to take your pulse on something. So we are starting to see throughout transportation a lot of tightness and it's not just rails, but obviously you are seeing it in some of your markets as well.

When do we get to the point where capacity is tight enough that you’ve got to start looking at ways to meter out the scarce capacity of your network? In other words kind of using price as a way to sort of encourage the customers to get in line for access to that network. How do you think about where we are in that tightness on capacity?

Clarence Gooden

Bill, I think we're a long way from where we should be on the tightness on capacity from just a sheer standpoint of how much we can handle.

Remember that today we are essentially at 2007 volume levels. The problem that we have when the surge came fast and quick and furious on us and that's what's dipped our hand here. So we have plenty of capacity to meet the demand of our customers and our common carrier obligation now.

Bill Greene - Morgan Stanley

So when you look at your core pricing that you just reported, so all in down a little bit, is service and impediments to changing that direction even without coal, we've seen a deceleration. What sort of changes the direction in pricing in your mind?

Clarence Gooden

I think that the deceleration that you saw particularly on the merchandize side on a year-over-year basis was a result of a weakness in the economy that we had had in the previous years and some duration lingering effects of that contracts that were in place.

Going forward I think all modes of transportation have an opportunity to price up, price up significantly, particularly in this type of economic environment. When you couple that with what is happening in 2014 and you look at the projections for 2015, we are in a very robust pricing market in virtually all modes of transportation. So up is the way the direction looks to me.

Bill Greene - Morgan Stanley

Okay. All right. Thanks for the time.

Operator

Thank you. Our next question or comment is from Ken Hoexter from Bank of America. Your line is open.

Michael Ward

Good morning, Ken.

Ken Hoexter – Bank of America

Good morning. Clarence, just jumping back on to the -- looking at the revenue outlook there a bit for the quarter, domestic coal you mentioned double-digit growth for this upcoming quarter, but when you look at 2015, what are your thoughts in terms of volumes knowing that you still have that seven million tons that needs to be phased out or even move to others.

Is that why you are sourcing more to Illinois Basin? Does that make up for it? What are your thoughts as you're looking at 2015?

Clarence Gooden

Ken, I think 2015 for domestic utility coal is still going to be a robust year for multiple reasons. One, the stock piles now are way down. Two, as long as gas stays particularly for Illinois Basin above $3.50 for the Southeast, it makes coal competitive in the mix.

Three, is that we still don't know if we are going to have what will the winter of 2014's effect is going in. Four, I think the utilities are tended to lean more now to having sufficient stock piles rather than having insufficient stock piles to meet their customer's demand.

Ken Hoexter – Bank of America

That's good. So you are still seeing the outlook for growth as you move forward, not falling back to the continued annual declines.

Clarence Gooden

Absolutely, growth in coal in 2015.

Ken Hoexter – Bank of America

Wonderful and Oscar, just to follow-up with you on the service side, is there -- you mentioned the $32 million of internal cost and I know you were talking about velocity before, but with on-time originations down at 56%, what can you do to get back on track on those metrics? Is there anything that you need to do differently or kind of resell operations to get back to running fluidly?

Oscar Munoz

Yes Ken, as you might expect, we have pretty much pulled out every playbook and every plan in the playbook over the course of time. Service performance has such a large interrelated issues that we talk a lot about power and talk a lot about crews, but infrastructure is important in some of this growth in the Northern tier has caused a little bit of congestion.

We feel very confident in our process and we do have a really good playbook and feel really it is -- we are focusing on service and safety keeping in constant contact with our customers and getting this business moved. It's costing us a little bit and that cost will decline, but there is in a whole lot else to be done than what we've already outlined as doing.

Ken Hoexter – Bank of America

Appreciate the time, thanks.

Operator

Thank you. Our next question or comment is from Brandon Oglenski from Barclays. Your line is open.

Michael Ward

Good morning, Brandon.

Keith Mori – Barclays

Good morning. This is Keith Mori on for Brandon. Congratulations on the strong quarter. Just one question here on service Oscar, we saw $32 million in the quarter, can you may be help us split out what was needed for may be just returning metrics to after winter and how much of the cost were actually geared towards an increase in volume that we could think about going. How should we think about I guess those costs going forward to meet that rising volume Clarence was speaking to?

Oscar Munoz

Yeah, I think we've already bifurcated the volume oriented cost in that $30 million unfortunately is all related to sort of service impacts. I break that out between crew, cost, leased horsepower hours and the car hire that we're having to work through in those categories and that's roughly ran us above $10 million a month kind of split between the three components.

Keith Mori – Barclays

Or should we think that it could accelerate into the third quarter given that you're going to pick up a little bit here on labor and some other items that we didn’t speak to?

Oscar Munoz

Our plan is to decelerate. I am not sure how you are using that term. Our hope would be to reduce that cost as the additional crews and power come on.

Keith Mori – Barclays

Thank you.

Operator

Thank you. Our next question or comment is from Chris Wetherbee from Citi. Your line is open.

Michael Ward

Hey Chris.

Chris Wetherbee – Citi

Thanks, just touching on the volume outlook for the second quarter, just wanted to get a rough sense, it looks like the last three weeks or so we've seen some pretty elevated numbers, is there just sort of a blip that we're working through when we think about the full quarter?

Is mid single digits Fredrik to your point the sort of right number to use. Just want to roughly understand sort of what's going on now and may be how we see the next month or so playing out?

Oscar Munoz

Now the numbers you’ve been seeing in the last couple of weeks represent year-over-year comparison and July, which is normally a very down time of the year for us and fortunately has been a very positive time of the year for us. So that's a reason that you're seeing the numbers that you’ve seen in the last two weeks, but I think Fredrik's number of 6% to 7% going forward for the back half of the year is pretty strong.

Chris Wetherbee – Citi

Okay. That's helpful. And then when you think about the pricing outlook as we roll into 2015, you have a better -- you have good domestic coal environment.

You have a couple of other things working in your favor, but if you have sort of these trends continue, can you grow earnings double-digit if core pricing is flattish or do you needed to pick up and is that sort of inherent in your thoughts about growing double-digit? Just want to get a rough sense of how we think pricing might translate into 2015 with a still good volume environment?

Fredrik Eliasson

Well, this is Fredrik. I think the key thing for us that we follow is the spread between our cash and our pricing and so as Clarence indicated, we think that the pricing environment is favorable, is getting more favorable we are going to push price, but it's a spread that is the most important part of this thing and it is assumed that we will get inflation plus pricing as we think about next year and double-digit earnings growth.

Chris Wetherbee – Citi

Okay. That's helpful. Thanks for the time. I appreciate it.

Operator

Thank you. Our next question or comment is from Allison Landry from Credit Suisse. Your line is open.

Michael Ward

Good morning, Allison.

Allison Landry - Credit Suisse

Good morning. Thanks for taking my question. In terms of the resource additions, how do we think about the incremental margins in the back half of the year? And I am particularly curious to see if there was any parallel that we could draw thinking back to the second half of 2011 when you guys also had to add some additional resources to meet demand.

Obviously, we are in a much different volume environment, but I wanted to see if there was any consistent way to think about that relative to a couple of years ago?

Fredrik Eliasson

Yeah, obviously you're right. Volume environments look different and the mix of business is different, but the outcome in 2011 was positive as we added the resource, we got the fluidity back in at work and we got to a better place and that's essentially what we're trying to do here as well.

In terms of the incremental margins, we said longer term, we need to be in that 50% and above range and we expect that that will continue. We'll see here in the second half especially in the third quarter as we're cycling the liquidated damages and continue to have network performance rated cost.

It might not get all the way there, but longer term, our view is we should clearly especially in this sort of a robust environment being over 50% in terms of incremental margins.

Allison Landry - Credit Suisse

Okay. That actually was very helpful. And just sort of a housekeeping question, just given you’ve made some restatements to the prior year numbers, could you confirm what these 3Q 2013 EPS number was? Was it $0.43?

Fredrik Eliasson

The 3Q 2013 number was let me just make sure I have it, it was $0.45 last year.

Allison Landry - Credit Suisse

Okay $0.45. So the guidance for flat is relative to that. Okay. Thank you so much.

Fredrik Eliasson

Thank you.

Operator

Thank you. Our next question or comment comes from David Vernon from Bernstein. Your line is open.

Michael Ward

Good morning, David.

David Vernon – Bernstein

Hey, good morning and thanks for taking the question. Just on the question on the intermodal yields and you're developing there, the door to door intermodal product, is that a conscious choice you guys are making to de-market that door to door service or is that just sort of what's shaking out given the difficulty finding drainage and the market condition.

Oscar Munoz

The main factor was that the Transcon part of that door-to-door business is what declined and it carries a very high RPU. The Eastern core part of that business remained reasonably robust just as it requires higher RPU, as does Transcon.

David Vernon – Bernstein

And would you expect that to continue throughout the year or is sort of like a temporary thing associated with maybe some of the service issues coming East West?

Oscar Munoz

I would expect right now for the third quarter at least for it to continue.

David Vernon – Bernstein

Okay. And then Fredrik maybe just a longer term question, as you think about the model you need to get to that mid 60s or the high 50s -- high 50s incremental margin, what kind of topline growth assumption do you kind of think about as a longer term sustainable level of growth for you guys?

Fredrik Eliasson

The guidance we've given is that going forward we think it's going to be a little bit more balanced between volume inflation plus pricing and productivity than perhaps it's been in the last decade.

We like to think that a large part of our business can grow faster in the economy as a whole because of opportunities and the secular trends that we are seeing, but more specific than that, I think it's really hard to beat because it really depends on individual years and what sectors are doing well, but clearly we feel that the volume environment is much more robust going forward than it's been in the last decade after having gone through obviously the housing collapse, the recession that we saw and now this energy transition that we've seen over the last few years.

So we think the volume environment is going to be much more constructive going forward than it's been in the past.

David Vernon – Bernstein

And then the pricing stuff will obviously be suffering a little bit on some of the fixed variable stuff with coal though, would that also kind of go forward in terms of yield price for the next year and in fact some for the topline growth rate that's reasonable.

Fredrik Eliasson

I mean that the fixed variable, we'll have to see. We obviously have cash in terms of how much the utilities can grow within this current rate structure.

So as we go through this year, we will see what the impact is next year, but clearly right now, it's a big negative, but as part of the way that we look at this and we think that's the right strategic move on our part to make sure that we incentivize additional volumes.

And as we go through next year, it might be a little bit different. That's where they cycle some of these large gains. So I don't think that's going to be as big of a drive next year as it was this year at least.

David Vernon – Bernstein

All right. Great. Thanks very much for the time guys.

Operator

Thank you. Our next question or comment comes from John Larkin from Stifel. Your line is open.

Michael Ward

Good morning, John.

John Larkin – Stifel, Nicolaus & Co.

Hey. Good morning, gentlemen and thanks for taking my question. I had a question related to the surge in volume on the northern part of the network and how much of that was originating and terminating on CSX and how much of that is being delivered to you, or you are delivering to the Western railroads, where you’ve had perhaps even more congestion promise, particularly the BNSF.

Clarence Gooden

John, this is Clarence. I would say that most of the surge that we had on the Northern part of the railroad was interline business that came, the biggest part of our surge in the north was driven by crude, by rail and by our coal business, our coal business particularly was much higher than what we had expected it to be, primarily as a result of the gas prices, as a result of the colder winter and as a result the great lakes themselves for the utility lake coal closing naturally or due to the weather and opening much later due to the weather.

John Larkin – Stifel, Nicolaus & Co.

So is it safe to say that the recovery on service is at least partly a function of how soon Chicago cleans up its service act and how quickly some of the Western carriers return to normal service levels?

Oscar Munoz

John, its Oscar. No, I wouldn’t describe it to anything. Remember there is a lot of component pieces and all of us are having difficulty across that interchange. I think the heavy degree of volume concentrated in one area is a problem for all of us.

So I think as we all collectively get our stuff together. I think that will all improve.

John Larkin – Stifel, Nicolaus & Co.

Is there any possibility of a change in routing protocol to use perhaps other less congested hubs that could help us solve the problem?

Oscar Munoz

Absolutely and we are in active communication and conversations with almost every other carrier to do exactly that and we have some great options around that, that I think make sense both from a service perspective and also frankly economically as we see longer term growth coming through that same corridor.

John Larkin – Stifel, Nicolaus & Co.

Got it. Thanks very much.

Operator

Thank you. Our next question or comment comes from Bascome Majors from Susquehanna. Your line is open.

Michael Ward

Good morning, Bascome.

Bascome Majors – Susquehanna

Good morning and thank for the time. We should see new draft safety regulations from Pensum moving inflammable liquids by rail in a few weeks here and they are talking about an operational restriction taking crude trains down to 30 miles per hour, can you talk a little bit about how that could impact your business how you are moving that commodity today and whether and how that could spill beyond crude oil if they do decide to go in that direction?

Michael Ward

Yeah, this is Michael. I think you are quite right. We've heard as well. We've not seen the proposals, nobody really has yet, but we have heard as you have that 30 miles an hour is one of the options are considering. We think that would be -- severely limit our ability to provide reliable freight service to our customers and to support the timely passengers add communal service.

So there is all kinds of corollary impacts of this and I would hope as we look at this with the federal government, we can show them the modeling of how disastrous that could be to the entire fluidity of the U.S. rail system as well as the adverse impact that will have as trucks deliver on to the highway system.

So our view is that it would be very bad, but our view is also that cooler heads will prevail when they see the facts behind it.

Bascome Majors – Susquehanna

All right, well thanks for that. And are there any other parts of this rule making that you are watching very closely that could potentially impact your business and whether operationally or from a risk management standpoint?

Michael Ward

Actually we are quite excited about the potential for the new car design as well as the retrofits to the existing cars and I know that is part of the proposed rule making.

As you know, as a router, we've done a number of things to improve our already very good safety records to make it even more safe and we think the next big movement to make it even better is for a stronger car or new builds as well as retrofit to existing cars.

Bascome Majors – Susquehanna

All right, well thanks for the time this morning.

Operator

Thank you. Our next question or comment is from Jeff Kauffman from Buckingham Research. Your line is open.

Michael Ward

Good morning, Jeff.

Jeff Kauffman – Buckingham

Good morning, everyone. Thank you for taking my question. Mike, it's really great to hear you talking about coal being up double-digits and it may continue for a while. I was just kind of curious if export coal didn’t exist, give us a sense for kind of what's going on with the yield on the domestic product?

Clarence Gooden

Jeff, this is Clarence. If export coal didn’t exist, what is going on with the yield on the domestic coal? Well, I don't think export coal has any direct impact at all on what the yield is on our domestic coal as it currently exists. Our yield is very positive on our domestic coal. It is -- actually it's improving in our domestic coal business that's coming along.

The fixed variable contracts and the nature of them have been proved very positive to us. They cover a good percentage of our contracts now, especially in our Southern utility markets. There is coal that we are now moving and hauling that we would not have moved in haul have we not had the fixed variable contracts with the caps and obviously to help control how much that moves if that's right that we are handling now that we would not have handled. I don't know if that helps or not.

Michael Ward

Let me try a little bit and so if we just look at our domestic portfolio Jeff, so if I had to say, in general are those rates heading up where the answer is yes. So on the two thirds it's not on its variable, those rates are moving up.

On the one third that is fixed variable, the base there is a minimum and a maximum, that base is moving up of where they are in that range can have a fairly significant impact on overall RPU and coal. So all that has an upper bias, but the fixed variable make it confusing where they are in that scale that's allowed in the contract.

Jeff Kauffman – Buckingham

That's exactly what I was looking for. Thank you.

Operator

Thank you. Our next question or comment comes from Scott Group from Wolfe Research. Your line is open.

Michael Ward

Good morning, Scott.

Scott Group – Wolfe Research

Hey thanks. Good morning, guys. I had a couple few things on coal, one Clarence, do you have a view on coal yield sequentially from 2Q to 3Q they were pretty flat those quarters, a view there. Do you think that's one?

Next, do you think that the kind of that mid 30s export number for this year would you, you think that's a good bottom or do you think that can grow next year or do you see more risk to that and then just lastly, the seven million tons of coal that you guys have talked about that shutting next year? Is that number changing much this year meaning is that growing a lot with coal this year or is that not really seeing much movement?

Clarence Gooden

Well, it's going to reverse, its four million tons not seven and we don't see that number changing. It appears to be what it is and we think the other plants that remain open will burn at higher burn rates and it will be a non-event number essentially for us.

Number two was export rates for next year too early to tell. We'll revisit that in the fourth quarter…

Michael Ward

As compared to volumes.

Clarence Gooden

Volumes, it's still too early to tell. We'll know more about that in the fourth quarter and your first question was what on the…

Scott Group – Wolfe Research

Just clear yields sequentially from second quarter to third quarter. Should we think that they stay flat, I don't know if you made any additional pricing adjustments on the export side?

Clarence Gooden

Flat, you should expect them to be flat.

Scott Group – Wolfe Research

Okay. Great. And then just one other question Clarence, it wasn’t so clear to me that some of the questions on pricing earlier, are you starting to or thinking about and during somewhat like a de-marketing phase to push pricing a little bit more aggressively even if it means giving up a little bit of volume?

Clarence Gooden

No, we're not de-marketing, but we are aggressively pricing our products.

Scott Group – Wolfe Research

Okay. Great. Thanks for the time guys.

Operator

Thank you. Our next question or comment comes from Jason Seidl from Cowen. Your line is open.

Michael Ward

Good morning, Jason.

Jason Seidl – Cowen & Company

Good morning, guys. Real quickly, when you think about sort of the impacts of the service levels, obviously you talked about on the cost side, do you think you left any money on the table on the intermodal product in terms of your ability to take prices up, especially on the tighter curve market.

Michael Ward

Well, I tell our team that we are always leaving money on the table. So I mean I don't know what you want me to say, yes.

Jason Seidl – Cowen & Company

Okay. That's fair enough. And…

Clarence Gooden

…truck market changes, that we will respond to the marketplace.

Michael Ward

Absolutely.

Jason Seidl – Cowen & Company

Okay. That's what I want to hear. While I am thinking also about all the equipment that you are bringing on, obviously some of it's because service is down and some of it's because you are just getting more business. How much do you think you guys can start shedding in 2015 and assuming your service levels come back?

Michael Ward

In terms of really the locomotives, I think you are referring to predominantly?

Jason Seidl – Cowen & Company

Locomotives and even in terms of headcount, how should we start thinking about that because some of them seems like you're just trying to extend some people and put off their retirements a little bit.

Fredrik Eliasson

On the locomotive side for some reason if there is no need for those locomotives, the network fluidity comes back. We do have a fair amount of leases that we can turn back. So that's part of the safety levers so to speak. If the demand profile is not as strong as we currently think it is.

On the crews side, we're hiring, obviously for attrition, but also for growth and we always have the flexibility if we need to, to do for a little retention that something that we normally don't look at until unless that we think it's a longer more sustained more period of time that we don't need those crews because we do hire them and they are expensive too because you spend a fair amount of time and effort on them.

So you don't want to do that unnecessarily but we do have that ability if we are incorrect in our forecast that the growth will continue.

Jason Seidl – Cowen & Company

So Fredrik in terms of the total headcount for 2015, you would expect growth over 2014?

Fredrik Eliasson

I think that based on the current volume assumptions that we have, that continues to be robust. I think the answer is yes, I don't think it's going to be significant because I think the operating leverage is going to be especially as we get the network fluidity back, I think there is an opportunity to see great leverage there.

Jason Seidl – Cowen & Company

Well fantastic gentlemen, I appreciate the time as always.

Operator

Thank you. Our next question or comment comes from Ben Hartford from Baird. Your line is open.

Michael Ward

Good morning, Ben.

Ben Hartford – Robert W. Baird

Hey, good morning, guys. Fred, I just wanted to clarify the comments that you have made about the third quarter 2013 EPS, you had said that the number that you were referring to was $0.45 from a year ago, correct?

Fredrik Eliasson

That's correct.

Ben Hartford – Robert W. Baird

Okay. Good, and not to beat this pricing discussion, but I understand that you guys look at the spread between RCAF and price, but you are entering a bit of a unprecedented period with regard to pricing and the truck load rate growth contractual rate growth is accelerating and faster than what you guys are realizing within the merchandize and the intermodal product first time in at least a cycle.

And is it incorrect to look at core contractual truck load rates as setting the tone for both the intermodal business and even some of the merchandize business when you do set and re-price and an annualized basis.

So to the extent the truck load pricing growth continues to be above what you are seeing within those core segments, certainly above that 2.5% number that you saw this quarter that there can be upside or that you can't price to market you are not beholding to some sort of fixed spread internally between RCAF and what you feel like that the market can digest, correct?

Fredrik Eliasson

That's correct Ben. I think it's absolutely the right way to look at.

Ben Hartford – Robert W. Baird

Okay. Good. Thank you.

Operator

Thank you. Our next question or comment comes from Cherilyn Radbourne from TD Securities. Your line is open.

Michael Ward

Good morning, Cherilyn.

Cherilyn Radbourne – TD Securities

Thanks very much and good morning. I am just going to ask one and that relates to international intermodal, which for me was probably the biggest surprise in terms of the volume performance for you and for the industry in the quarter because it's been pretty tepid for a while.

So I just wondered if you could give some color on how much of the growth you think was catch-up from Q1, how much was a pull forward related to the labor contract expiry on the West Coast and how much you think was organic?

Clarence Gooden

Cherilyn, this is Clarence. I think it's difficult to segment into those three areas, but I would tell you this. Our customers told us that they shipped earlier this year significantly earlier in anticipation of ILWU work stoppages on the West Coast.

So all the ships out of Asia were fully profiled coming to the West Coast and via the canal in order to avoid that. So that certainly had an impact. There were some impact due to winter weather and we expect to see that international traffic in the low single digits going forward.

Cherilyn Radbourne – TD Securities

Okay. That's helpful. Thank you, Clarence. That's it for me.

Operator

Thank you. Our next question or comment is from Walter Spracklin from RBC Capital Markets. Your line is open.

Michael Ward

Good morning, Walter.

Unidentified Analyst

Good morning. This is [indiscernible] for Walter. I was just hoping to get some more color on the expansion of crude capabilities across your network. You saw some fairly strong growth and I was wondering where you see that business going forward and the timing of that coming online.

Clarence Gooden

Where do we see crude expansions? Is that's your question?

Unidentified Analyst

Yes.

Clarence Gooden

Well obviously there is expansions going all along the East Coast as we speak. They are predominantly in the Philadelphia area. Some are in the New Jersey areas where we are seeing the current expansions. We have two customers that are looking at expanding in New Jersey area rather than for obvious reason, so I won't mention their names, but that's where you are seeing the expansions occur.

Unidentified Analyst

Okay. And then this is all coming on your network at what sort of volume opportunity do you see from these engines?

Clarence Gooden

Well, right now we are averaging around for 2014 plus or minus 20 trains per week. We also could see some slight increase in that as we go forward. There is a finite capacity, number, both as you know from what the Bakken can produce and from what the refiners can consume.

Unidentified Analyst

Okay. Thanks very much for your time.

Operator

Thank you. Our next question or comment comes from Justin Long from Stephens. Your line is open.

Michael Ward

Good morning, Justin.

Justin Long - Stephens

Thanks. Good morning. Just wanted to clarify one thing quickly. Could you talk about the congestion related cost that you are assuming in your guidance for the back half of the year? Are you assuming it may stay pretty consistent with what we saw in the second quarter?

Fredrik Eliasson

Yes, well we said as a fair remark was that until we see meaningful improvement in the network fluidity and velocity, it is reasonable to assume that that run rate of about $10 million or so a period of $30 million a quarter is the right place to think about it.

Justin Long - Stephens

And you are not assuming that that fluidity improves until 2015?

Fredrik Eliasson

No, I am not saying that. I am just saying right now from what we're seeing, we're seeing if it doesn’t improve, it's the right place to be in terms of thinking about what the incremental cost will be.

If we see meaningful improvement here during the summer months, which is a possibility that that demand is a little bit lower during the summer as we go through the period here until Labor Day, there is an opportunity that we can see meaningful improvement and the cost can come down, but that's yet to be seen.

Justin Long - Stephens

Okay. Fair enough. That's helpful and as a second question, I was wondering if you could talk about what you are seeing in the intermodal pricing environment? Would you say that core pricing in intermodal is pretty close to that 2.6% average between merchandizing intermodal or is it a little bit more competitive and tracking below that level?

Fredrik Eliasson

I think you'll see intermodal is a little bit more competitive and tracking a little lower than that level that's in there right now.

Justin Long - Stephens

Okay. Great. I know it's been a long call. I'll leave it at that. Thanks for the time.

Operator

Thank you. And our last question or comment comes from Cleo Zagrean from Macquarie Capital. Your line is open.

Michael Ward

Good morning.

Cleo Zagrean – Macquarie Capital

Good morning and thank you. I have to follow-up on the prior question and some before it in terms of intermodal pricing? Can you help us with a little more detail on the split between door to door and what you would call your main business and the transfer price there and where do you see that going forward?

Clarence Gooden

You were fading on me there. The intermodal pricing on the domestic door to door and where do we see that going?

Cleo Zagrean – Macquarie Capital

Why did the share of door to door within your -- with your entire intermodal business, how come that had a significant -- such a significant impact on price or if you break up what you would call core intermodal pricing trends versus door to door?

Clarence Gooden

It's relatively small percent of door to door is of our overall pricing if that's what your question is.

Cleo Zagrean – Macquarie Capital

Okay. So therefore we can infer that intermodal pricing across businesses was relatively weak? In other words, the decline was broad based.

Clarence Gooden

No, I wouldn’t infer that at all. I would say that our intermodal pricing was somewhere in the range of around 2% little bit above that.

Cleo Zagrean – Macquarie Capital

Okay. The second question I had was in terms of the impact of business mix on margins as opposed to price, can you help us understand how mix you are playing to your aspiration to get continued strong incremental margins in that 50% range. Thank you.

Clarence Gooden

Well, the margin mix continues in terms of favoring more intermodal, but because of the work that we've done over the last few years to improve the profitability of that business segment, it is now at par with the rest of our merchandize business.

This quarter we saw an increase in some of our coal business, which is a welcome sign. So that's certainly helpful too and so as we think about the future and the guidance we have in place, I think we have the right mix thoughts there and I think we are in all our businesses profitable and we would like to grow all our business as much as we possibly can going forward.

So we are somewhat indifferent to the mix that we are seeing.

Cleo Zagrean – Macquarie Capital

Thank you very much. Really appreciate it.

Michael Ward

Well everyone, thank you for your attention. We'll see you next quarter.

Operator

This concludes today’s teleconference. Thank you for your participation in today’s call. You may now disconnect your line.

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