first quarter earnings release - up.com
TRANSCRIPT
1
1
First Quarter Earnings Release April 20, 2011
Jim Young, Chairman & CEO
2
First Quarter Results
Positives
• First Quarter Records– Earnings
– Operating Income
– Operating Ratio
– Free Cash Flow
– Customer Satisfaction
• Economic Growth
Challenges
• Fuel Price
• Weather Impact -
Nationwide
2
3
First Quarter Marketing & Sales ReviewApril 20, 2011
Jack Koraleski, Executive VP – Marketing & Sales
4
Customer Satisfaction
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
87 87
88 88
87
89
90 90
91GOOD
Overall Satisfaction
2009 20112010
3
5
First Quarter Recap
Daily 7-Day Carloads(000s)
Volume ARC Freight Revenue
Performance Improvement(Year-Over-Year Change)
Agricultural
Automotive
Industrial
Products
Chemicals
Energy
Intermodal
TOTAL
+4%
+9%
+4%
+4%
+4%
+5%
+10%
Volume Growth
+5%
+8%
+13%
130
140
150
160
170
180
1/8 1/22 2/5 2/19 3/5 3/19
6
Agricultural ProductsRevenue $807M (+11%) Volume 238K (+4%) ARC $3,386 (+6%)
Grain Products
35%
Whole Grains 37%
Food/ Refrigerated
28%
Revenue Mix
*Volume in thousands of carloads
Quarterly Drivers
• Strong Whole Grain Exports
• Increased Frozen Meat and Poultry Exports
15.4
26.0
Export Wheat*
2010 2011
+69%
2.8
3.8
Frozen Meat & Poultry*
2010 2011
+36%
4
7
AutomotiveRevenue $342M (+12%) Volume 157K (+4%) ARC $2,175 (+8%)
Finished Vehicles
76%
Revenue Mix
85.990.0
Finished Vehicles*
2010 2011
5%
64.867.3
Auto Parts*
2010 2011
+4%
*Volume in thousands of carloads
Quarterly Drivers
• Increased Production as Industry Recovery Continues
• Contract Price Increases
Auto Parts 24%
8
ChemicalsRevenue $664M (+13%) Volume 223K (+10%) ARC $2,974 (+3%)
Plastics 18%
Industrial Chemicals
24%
Petroleum & Other
26%
Revenue Mix
31.236.2
Fertilizer*
2010 2011
+16%
*Volume in thousands of carloads
Fertilizer 17%Soda Ash
15%
49.753.9
Plastics*
2010 2011
+9%
20.5
27.5
Petroleum Products*
2010 2011
+34%
Quarterly Drivers
• Strength in Petroleum Products
• Seasonal Demand for Fertilizer
• Improved Industrial Production Driving Plastics and Industrial Chemicals
5
9
EnergyRevenue $952M (+13%) Volume 538K (+4%) ARC $1,770 (+8%)
Southern Powder River Basin
76%
Other 7%
Colorado/ Utah 17%
Revenue Mix
45.347.4
Southern Powder River Basin*
2010 2011
+5%
*Tons in millions
7.77.3
Colorado/Utah*
2010 2011
-5%
Quarterly Drivers
• New Business Drives SPRB Gains
• Colorado/Utah Export Growth Offset by Reduced Eastern Demand
• Growth from Southern Illinois
10
Industrial ProductsRevenue $690M (+15%) Volume 263K (+9%) ARC $2,628 (+6%)
Paper 14%
Government/Waste 8%
Metals 27%
Revenue Mix
Minerals/ Consumer
25%
Construction 12%
Lumber 14%
*Volume in thousands of carloads
39.244.9
Steel & Scrap*
2010 2011
+15%
28.1
38.3
Non-Metallic Minerals*
2010 2011
+36%
Quarterly Drivers
• Energy-Related Demand and Strengthening Auto Industry Drive Gains
• Growth in Paperboard
16.2
19.6
Paperboard*+21%
2010 2011
6
11
IntermodalRevenue $793M (+15%) Volume 770K (+4%) ARC $1,031 (+11%)
International 48%
Domestic 52%
Revenue Mix
402.9425.5
International*
2010 2011
+6%
339.6344.2
Domestic*
2010 2011
+1%
*Volume in thousands of units
Quarterly Drivers
• Repriced Contracts
• Improved Consumer Demand
• Continued Highway Conversions
12
2011 Outlook
• Slow Economic Recovery Continues
– Uncertainties
Disaster in Japan
Housing and construction
Consumer demand
– Opportunities
Energy-related markets
International trade
Highway conversions
• Strong Value Proposition Supports Volume Growth Opportunities in All Groups
• Volume Gains, Combined with Improved Pricing, Drive Revenue Growth
7
13
First Quarter Operations ReviewApril 20, 2011
Lance Fritz, Executive VP – Operations
14
2009 2010 2011
3.03
3.29
2.96
2009 2010 2011
1.35
1.25
1.07
Operating Foundation, Safety FocusFirst Quarter
Employee(Reportable Personal Injury
Incidents Per 200,000 Man-Hours)
Customer(Reportable Derailment Incidents
Per Million Train Miles)
-14%
Public(Crossing Accidents Per
Million Train Miles)
2009 2010 2011
2.19
2.05
1.78
Good GoodGood
Best Ever
Quarter
Best Ever First
Quarter
-10%
Best Ever
Quarter
-13%
8
15
2009 2010 2011
27.2 26.2 26.1
92 89 87
Service Focus Drives ResultsFirst Quarter
• Strong Service Levels
as Volumes Increase
• Agility Demonstrated
with Resources and
Service Plan
• Resilient Network
• Leveraging Growth
Velocity* & Service
Good
2009 2010 2011
146
164172
7-Day Carloadings (000s) Good
Speed (MPH)
SDI**
**Includes early deliveries
*As reported to the AAR
16
Productivity Improvement Initiatives First Quarter
Manifest Train Size(Average Cars/Train)
2008 2009 2010 2011
92.1 92.1 92.4
94.3
2008 2009 2010 2011
79.0 79.5
85.487.7
Grain Train Size(Average Cars/Train)
*As defined by First Crew Starts
vs 1Q 10 Manifest Grain
Carloads 11% 9%
Train Starts* 5% 6%
Work Events per Day
Good
2008 2009 2010 2011
387352
338 330
9
17
Growth Readiness – Working Resources
Freight Cars Parked
66,000
26,000
Locomotives Stored
1,900
800
TE&Y Furloughs
4/15/09 4/15/11
4,500
820
4/15/10
2,800
1,330
38,000
4/15/09 4/15/114/15/10
4/15/09 4/15/114/15/10
GTMs per
Employee
GTMs per
Horsepower
Day
Freight Car
Utilization
18
Replacement Growth & Productivity
PTC
$1,812
$638
$89
$1,865
$1,085
$250
$160
20112010
2011 vs. 2010 Capital* ($ In Millions)
2011 Capital PlanReplacement, Growth & Productivity
• $3.2 Billion in 2011
• Safe and Resilient
Infrastructure
• Increased Capacity
Spending
– Sunset Corridor
– Blair Double Track
• 100 New Locomotives
• Increased PTC Spend
*Includes cash capital, leases and other non-cash capital
10
19
Operating Outlook
• Building a Total Safety
Culture
• Leveraging Network
Productivity
• Growing Value
Proposition for our
Customers
• Positioning for Growth
20
First Quarter Financial ReviewApril 20, 2011
Rob Knight, CFO
11
21
$ 4,490
3,353
1,137
15
(141)
(372)
$ 639
494.1
$ 1.29
$ 3,965
2,977
988
1
(155)
(318)
$ 516
508.7
$ 1.01
First Quarter Earnings SummaryIn Millions (except EPS)
Operating Revenues
Operating Expenses
Operating Income
Other Income
Interest Expense
Income Taxes
Net Income
Weighted Average Diluted Shares
Diluted EPS
2011 2010 %
13
13
15
F
(9)
17
24
(3)
28
22
Freight RevenueFirst Quarter (In Millions)
2010
Volume Core
Price
Fuel
Surcharge
2011
+ 5%
+ 4.5%+ 3.5% $4,248
$3,755
+ 13%
12
23
Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
58%60% 60%
48%45%
Q1 10 Q2 10 Q3 10 Q4 10 Q1 11
3.5%
5.0%
5.5% 5.5%
4.5%
Pricing Gains & Leverage
Core Pricing Incremental Margins
*
* Adjusted for fuel price & 2010 one-time CSXI payment. See Union Pacific website under Investors for a reconciliation to GAAP.
Year-over-year volume growth
+13%
+18%
+14%
+9%
+5%
24
Compensation & BenefitsFirst Quarter 2011 $1,167M, +10%
164.2171.7
7-Day Carloads (In Thousands)
Workforce Levels (In Thousands)
42.1
44.0
+5%
+5%
• Wage & Benefit Inflation
• Volume Costs
• Higher Training Costs
• Productivity
2010 2011
2010 2011
13
25
Fuel ExpenseFirst Quarter 2011 $826M, +42%
• Higher Diesel Fuel Prices
Added $200 Million to Costs
• Current Spot Price = $3.35
• Third Highest Quarterly
Fuel Price on Record
• Negative Fuel Price Impact
– 2.4 point Operating Ratio
increase
– $0.08 EPS reduction
$1.51
$2.16
Average Fuel Price(Per Gallon Consumed)
2009 2010 2011
$2.88+33%
2009 2010
252278
Fuel Consumption (Million Gallons)
2011
263
26
$341$367
$395
$404$432
$475
First Quarter 2011 Expense Review In Millions
• Increased Contract
Services
• More Locomotive
Materials Usage
2009 2010
Purchased Services &
Materials
2011
• Ongoing Capital
Spending
• Higher Rates – Volume
Driven
2009 2010
Depreciation
2011
14
27
$226$246
$188
$317$290 $302
First Quarter 2011 Expense Review (cont) In Millions
2009 2010
Equipment & Other
Rents
2011
2009 2010
Other
2011
• Higher Container Lease
Expense
• Increased Car Hire
• Lower Freight Car
Lease Expense
• „10 CSXI Payment
• Reduced Personal Injury
and Other Casualty
Expenses
• Higher Property Taxes
28
Achieving Record Operating RatioFirst Quarter
2008 2009 2010 2011
81.5 80.4
75.1 74.7
Operating Ratio(Percent)
• Record First Quarter Operating Ratio
• Year-Over-Year Drivers:
– Negative fuel price impact =
2.4 points
– „10 CSXI payment = 1.1 points
• Solid Pricing
• Leveraging Volumes
15
29
Solid Financial PositionFirst Quarter – $ In Millions
• Record First Quarter Free Cash Flow
• 38 Percent Cash Dividend Increase
• Maintain Solid Investment Grade
$426 $451
Free Cash Flow*
Total Debt *(Adjusted)
42.5%41.7%
* See Union Pacific website under Investors for a reconciliation to GAAP.
Adjusted Debt to Capital
$561$637 Before Dividends
After Dividends
2010 2011
$12,900$13,139
YE 2010 Q1 2011
30
Driving Strong Shareholder Value
Cumulative Share Repurchases(In Millions)
• First Quarter Activity
– Repurchases totaling
$248 million
– 2.6 million shares
– Increase shareholder
returns
• New Authorization
2007 2008 2009 2010 1Q 2011
25.2
47.4 47.4
64.166.7
16
31
Full Year 2011
• Continued Volume Growth
• “Real” Pricing Gains
• Ongoing Productivity
Focus
• Incremental Margin
Improvement
• Record Earnings Despite
Cost Headwinds
32
First Quarter Earnings Release April 20, 2011
Jim Young, Chairman & CEO
17
33
Positioned For Success
• Strong UP Value Proposition
– Price/Service
– Franchise
• Reward Shareholders
34
Cautionary Information
This press release and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically the statements regarding the Corporation’s expectations with respect to economic conditions and its growth opportunities; and its ability to provide value to customers and returns to shareholders through various operating initiatives. 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 2010, which was filed with the SEC on February 4, 2011. 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.
18
35
First Quarter Earnings Release April 20, 2011
Question & Answer Session