first quarter earnings release...1 1 first quarter earnings release april 22, 2010 jim young,...
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First Quarter Earnings Release April 22, 2010
Jim Young, Chairman & CEO
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Strong Start to 2010First Quarter Results
• EPS = $1.01, +40%
• Significant Volume Leverage
– Capital investments
– Process & technology
• Satisfied Customers
• Pricing Gains
• Best First Quarter Operating Ratio
• Strong Free Cash Flow After Dividends
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First Quarter Marketing & Sales Review April 22, 2010
Jack Koraleski, Executive VP – Marketing & Sales
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First Quarter 2010 Recap
Flat
-3%-5%
-12%
-21%-22%
-15%
-5%
+13%
Q1 Q3 Q4 Q1 Q2 Q3 Q4 Q1Q2
2008 2009 2010
Return to Quarterly Volume GrowthFreight Revenue Growth
Chemicals
Agricultural
Intermodal
Automotive
Industrial
Energy
TOTAL
+10%
+25%
+10%
+5%
+14%
+16%
+88%
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Agricultural ProductsRevenue $730M (+10%) Volume 228K (+8%) ARC $3,202 (+3%)
Quarterly Drivers
• Strong Gulf Wheat Exports
• Continued Export Demand for Soybeans and Meal
• Growth in Ethanol & DDGS
Grain Products
42%
Whole Grains 35%
Food/ Refrigerated
23%
Revenue Mix Export Whole Grains*
2009 2010
32.2
41.1+28%
Ethanol*
2009 2010
14.5
18.628%
*Volume in (000s) of carloads
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AutomotiveRevenue $305M (+88%) Volume 151K (+56%) ARC $2,022 (+21%)
Quarterly Drivers
• Increased Production Drives Growth in Vehicles and Parts
• Successful Negotiation of Last Legacy Contract
Finished Vehicles
76%
Auto Parts 24%
Revenue Mix Finished Vehicles*
2009 2010
51.4
85.9+67%
Auto Parts*
2009 2010
45.6
64.8+42%
*Volume in (000s) of carloads
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ChemicalsRevenue $587M (+14%) Volume 203K (+13%) ARC $2,893 (+2%)
Quarterly Drivers
• Improved Fertilizer Demand
• Growth in Industrial Chemicals
• Increased Export and Domestic Soda Ash
Plastics 19%
Industrial Chemicals
25%
Petroleum & Other
24%
Revenue MixFertilizer*
2009 2010
22.5
31.2+39%
*Volume in (000s) of carloads
Fertilizer 16%
Soda Ash 16%
Soda Ash*
2009 2010
20.324.2
+19%
Industrial Chemicals*
2009 2010
44.450.4
+14%
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EnergyRevenue $844M (+5%) Volume 516K (-1%) ARC $1,636 (+6%)
Quarterly Drivers
• Improving SPRB Trend
• Soft Demand for Colorado/Utah Coal
• UP Productivity Gains
Southern Powder River Basin
74%
Other 7%
Colorado/ Utah 19%
Revenue Mix Southern Powder River Basin*
2009 2010
45.0 45.3+1%
*Tons in Millions
Colorado/Utah*
2009 2010
8.07.7
-4%
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Coal Stockpiles
Source: Energy Ventures Analysis, Inc.
Feb
2010
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Industrial ProductsRevenue $598M (+10%) Volume 242K (+9%) ARC $2,474 (+1%)
Quarterly Drivers
• Significant Growth in Short-Haul Uranium Tailings Move
• Strength in Steel
• Increased Frac Sand for Drilling
Paper 14%
Government/Waste 9%
Metals 26%
Revenue Mix
Minerals/ Consumer
21%
Construction 14%
Lumber 16%
Non-Metallic Minerals*
2009 2010
23.328.0
+20%
*Volume in (000s) of carloads
Steel & Scrap*
2009 2010
30.739.2
+28%
Hazardous Waste*
2009 2010
3.1
16.9+445%
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IntermodalRevenue $691M (+25%) Volume 742K (+21%) ARC $930 (+4%)
Quarterly Drivers
• Growth in Imports
• Domestic Share Gains
• UMAX Equipment Program
International 49%
Domestic 51%
Revenue Mix International*
2009 2010
359402
+12%
Domestic*
2009 2010
256
340+33%
*Volume in (000s) of units
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Delivering Domestic Intermodal Opportunities
• No More Domestic Legacy Deals
• Service Offerings Focused on Highway Conversions
• Expanded Box Availability
• Faster Transit Times in 60 Lanes
• Joliet Intermodal Opening Late Summer 2010
Positioned for Growth!
Key Intermodal Lanes
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Customer Satisfaction IndexFirst Quarter
2008 2009
79
81
8787
20102007
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Second Quarter Business Drivers
7-Day Carloading Trends (000s)
2006 2007 2008 2009 2010*
160
180
200
140
January December
• Economic Stability
• Gains in Industrial Production
• Seasonality
• Strong Value Proposition
• Price Gains
*Through 4/19/2010
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First Quarter Operations Review April 22, 2010
Dennis Duffy, Vice Chairman – Operations
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Operating SummaryFirst Quarter 2010
• Safety Gains
• Continued Strong Network Performance
– Seasonal challenges
• Aggressive 1st Quarter Maintenance Program
• Solid Productivity
Good
SDI* & AAR Velocity
GTMs
Yard/Local Train Starts
+9%
+1%
Upside Leverage (2010 versus 2009)
Speed (MPH)
78
92 89
22.2
27.2 26.2
2008 2009 2010* Includes early deliveries
Thru Train Starts
Carloads +13%
-7%
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Upside Leverage
120
140
160
180
200
220NetworkCapacity
7-Day
Carloads
(000s)
Throughput Inventory Management
& Volume*
100
125
150
175
200
225
265
275
285
295
305
315
325
3357-Day Carloads
(000s)
Inventory (000s)
164.2
Current Level ~170
2006 2007 2008 2009 20102005 2007 2009 1Q
2010
• Inventory Management
• Train Design
• Terminal Productivity
• Locomotive Technology
– DPU
– TPA
– Fuel conservation
Key Initiatives
*As of 3/31/2010
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Growth Readiness – Working Resources
*As of 4/15/2010
Freight Car Utilization (Cycle Days)
2009 2010
9.1
8.8
GTMs Per Horsepower Day
2009 2010
115.1
121.7
GTMs Per Employee (In Millions)
2009 2010
4.6
5.3
Freight Cars Parked
Peak Current*
71,000
38,000
Locomotives Stored
Peak Current*
2,100
1,330
TE&Y Furloughs
Peak Current*
5,300
2,800
Productivity**Resource Status
**Productivity measures depict First Quarter 2010 versus First Quarter 2009.
Good
Good
Good
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Operating Outlook
• Continuing Safety & Performance
• Hardening the Rail Infrastructure
• Leveraging Network Productivity
• Improving Value Proposition for Our Customers
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First Quarter Financial ReviewApril 22, 2010
Rob Knight, CFO
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$ 3,965
2,977
988
1
(155)
(318)
$ 516
508.7
$ 1.01
$ 3,415
2,744
671
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(141)
(191)
$ 362
504.6
$ 0.72
First Quarter Earnings SummaryIn Millions (except EPS)
Operating Revenue
Operating Expense
Operating Income
Other Income
Interest Expense
Income Taxes
Net Income
Weighted Average Diluted Shares
Diluted EPS
2010 2009* %
16
8
47
(96)
10
66
43
1
40
*Certain prior year amounts have been adjusted for the retrospective change in accounting principle for rail grinding. See Union Pacific website under
Investors in the Earnings News Release/Financials section for the effects of the adjustments.
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Core Pricing Gains
Reported Core Price (Including RCAF Fuel Impact)Price Excluding RCAF Fuel Impact
Quarterly PricePrice Drivers
• Continued Pricing
Focus
• Trend Should Improve
Through 2010
• Better Domestic
Intermodal Fuel
Recovery2Q*
2010
1Q
2008
1Q
2009
1Q
2010
3%
6%
4%3.5%
6%5%
*Quarter to date estimate
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Compensation & Benefits First Quarter 2010 $1,059M, -1%
7-Day Carloads (000s)
Workforce Levels (000s)
182.1
2008
145.5
164.2
2009 2010
-10%
49.1
2008
45.042.1
2009 2010
-14%
Quarterly Drivers
• Reduced Workforce Levels
• Improved Labor Efficiency
– GTMs/Employee +16%
• Higher Agreement Health
& Welfare Costs
+13%
-6%
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Fuel ExpenseFirst Quarter 2010 $583M, +51%
• Higher Diesel Fuel Prices
Added $171 Million to
Costs
• Increased Fuel Efficiency
Saved $14 Million
$2.84
2008 2009
$1.51
330263
Average Fuel Price(Per Gallon Consumed)
2008 2009
Fuel Consumption (Million Gallons)
2010
$2.16
2010
252
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First Quarter 2010 Expense Review (In Millions)
• Increased Contract
Services
• Less Material
Usage
• Reflects Rail
Grinding Change
$475
2008 2009
$432
Purchased Services
& Materials
2010
$404
• 2009 Lease
Restructuring
• Lower Lease
Expense
• Increased Car Hire
$342
2008 2009
$290
Equipment &
Other Rents
2010
$317
• $45M One-Time
CSXI Payment
• Reduced Personal
Injury Expense
$242
2008 2009
$246
Other
2010
$226
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Volume Leverage Drives Results First Quarter
$2,744
$2,977
$2,806
20102009
Reported
Fuel Price
Adjusted*+2%
Operating Expenses (In Millions)
Revenue Carloads (000s)
20102009
1,847
2,082+13%
~20% Variable
*Operating expenses are normalized for First Quarter 2009 fuel price per gallon. See Union Pacific website under Investors for a reconciliation to GAAP.
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Record First Quarter Operating Ratio(%)
2006 2007 2008 2009
83.8
81.380.4
75.1
First Quarter*
81.6
2010
Negative Impact
• Higher Fuel Prices
• One-Time CSXI Payment
Positive Impact
• Volume Leverage
• Price Gains
*Certain prior year amounts have been adjusted for the retrospective change in accounting principle for rail grinding.
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Solid Financial PositionFirst Quarter - In Millions
($51)
2008 2009
$38
$12,639$13,694
Free Cash Flow After Dividends*
2008 2009
Total Debt* (Adjusted)
2010
$426
2010
$14,387
• Strong Free Cash Flow
– Improved first quarter earnings
– Lower cash tax payments
– Timing of capital payments
• Balance Sheet Strength
44.3%
48.1%
45.0%
Adjusted Debt to Capital
*Certain prior year amounts have been adjusted for the retrospective change in accounting principle for rail grinding. See Union Pacific website under
Investors for a reconciliation to GAAP.
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Second Quarter 2010 Drivers
• Expect Volume Growth & Leverage
– Labor cost pressures
– Diesel fuel prices
• “Real” Pricing Gains
• Improved Operating Ratio
• Generate Strong Cash Flows
• Deliver Increased Shareholder Returns
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First Quarter Earnings Release April 22, 2010
Jim Young, Chairman & CEO
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Solid Foundation for Growth and Returns
• Opportunities for Volume Growth in More Stable Economy
– Future visibility limited
– Staying flexible
• Strong UP Value Proposition
– Attracts business
– Supports pricing
• Reward Shareholders
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Cautionary Information
This presentation and related materials contain statements about the Corporation’s future that are not statements
of historical fact, including specifically the Corporation’s outlook regarding: economic conditions and growth opportunities in
2010; future safety and operating performance; and its ability to generate volume leverage, increase returns to shareholders,
and attract new business. These statements are, or will be, forward-looking statements as defined by the Securities Act of
1933 and the Securities Exchange Act of 1934. Forward-looking statements also generally include, without limitation,
information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Corporation’s and
its subsidiaries’ business, financial, and operational results, and future economic performance; and management’s beliefs,
expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not
necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-
looking information, including expectations regarding operational and financial improvements and the Corporation’s future
performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially
from those expressed in the statement. Important factors, including risk factors, could affect the Corporation’s and its
subsidiaries’ future results and could cause those results or other outcomes to differ materially from those expressed or
implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in
the Corporation’s Annual Report on Form 10-K for 2009, which was filed with the SEC on February 5, 2010. The Corporation
updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its
subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).
Forward-looking statements speak only as of, and are based only upon information available on, the date the
statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results,
changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one
or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with
respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience
and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by
reference herein.
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First Quarter Earnings Release April 22, 2010
Question and Answer Session