Union Pacific Corporation · NYSE:UNP
Union Pacific — Q3 2007 Earnings Presentation
34 slides from Union Pacific's earnings presentation, Oct 18, 2007
Slide 1: Third Quarter Earnings Release
Third Quarter Earnings Release October 18, 2007 Jim Young, Chairman and CEO
Slide 2: Third Quarter Results
Third Quarter Results Diluted Earnings per Share Quarterly Drivers + 30% • Record Operating $2.00 Revenue • Best Ever Operating Ratio $1.54 – Service Improvements – Productivity Gains • Safety Performance • Illinois Tax Law Change 2006 2007 2
Slide 3: Third Quarter Marketing & Sales Review
Third Quarter Marketing & Sales Review October 18, 2007 Jack Koraleski, Executive VP – Marketing & Sales
Slide 4: Third Quarter Overview
Third Quarter Overview Commodity Revenue $4.0 Billion, +5% Highlights ($Millions) • Record Quarter for Carloadings and Revenue Energy • Improved Average Revenue Chemicals $827 +8% Per Car $587 +9% Industrial • Year-Over-Year Improvement Autos Products in Customer Satisfaction $351 +7% $795 -4% Ag Pr
Slide 5: Third Quarter Carloadings
Third Quarter Carloadings Drivers Agricultural 2% • Market Softness Automotive 5% • Growth in Auto Parts Chemicals 4% • Strong Demand for Export Wheat Energy 3% • Continued Strength in Chemicals Industrial -8% • Supply Chain Delivers on Intermodal Flat Coal Demand TOTAL 1% 5
Slide 6: Agricultural Products
Agricultural Products Third Quarter Wheat* +74% 41 Quarterly Drivers • Record Gulf Wheat Exports 24 • Decline in Gulf Feed Grain Exports 2006 2007 • Continued Growth in Feed Grains* Ethanol/DDGS -9% 72 • Lower Food & Beverage 66 Volume 2006 2007 *Volume in (000s) of carloads 6
Slide 7: Energy
Energy SPRB Trains Per Day Third Quarter Record SPRB Tonnage 37.1 (Millions) Quarterly 36.1 Record +3% 50.3 48.6 33.9 CO/UT 23% July Aug Sept Quarterly Drivers • Record Tonnage • Network Efficiency 2006 2007 7
Slide 8: Intermodal
Intermodal Third Quarter Domestic Volume* +2% Quarterly Drivers 285 281 • Lackluster Market and Truck Availability Limit Domestic Growth • Mild International Peak 2006 2007 • Premium Segment Declines International Volume* +1% 593 589 2006 2007 *Volume in (000s) of carloads 8
Slide 9: Customer Satisfaction
Customer Satisfaction Customer Satisfaction Index 80 79 79 Good 75 74 70 69 67 66 63 60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 9
Slide 10: Volume Outlook
Volume Outlook Fourth Quarter Volume Carloadings (000s) • 2007 Volume 2,440 – Fourth Quarter: Flat to +2% 2,419 2,394 – Full Year: -1% 2004 2005 2006 2007 Est. 10
Slide 11: Third Quarter Operating Review
Third Quarter Operating Review October 18, 2007 Dennis Duffy, Executive VP – Operations
Slide 12: Third Quarter Operation Summary
Third Quarter Operation Summary • Continued Safety Improvement • Strong Service Performance • Capital Investment Progress – Maintenance and Capacity • Continued Productivity Gains – 5% Fewer Train Starts on 1% Volume Growth 12
Slide 13: Service & Productivity
Service & Productivity Third Quarter Best 26.2 3Q Car Terminal Dwell Good 25.2 Hours 2006 2007 Best 10.4 Ever Freight Car Utilization Good 9.8 Days 2006 2007 Fuel Consumption 1.26 Good Best Ever Rate 1.22 Gallons/(000) GTM 2006 2007 21.5 AAR Velocity 21.3 Good MPH 2006 2007 13
Slide 14: Coal Network Performance
Coal Network Performance • Record September in SPRB – UP Trains in a Day = 45 – Daily Joint Line trains = 68.7 • Record Quarter – SPRB Cars/Train = 129.6 – Total Tons/Car = 116.2 – Total Tonnage = 69.7 million 14
Slide 15: Performance Drivers
Performance Drivers Third Quarter $ “Iron “Iron in in the the • Capital Improvements Ground” Ground” t en Technology vem Technology • Decision Support Tools Initiatives Initiatives pro Im Organizational Organizational • Accountability / Operating Initiatives Initiatives Income Statement (OIS) Proces
Slide 16: 2007 Capital Update
2007 Capital Update Seattle Maintenance Eastport Portland Duluth • Peak Months – July & August Twin Cities Bill • Emphasis on “Red X” Green North Chicago River Platte Omaha • Reduced Slow Order SLC Oakland KC Delay Denver St. Louis Capacity & Commercial Memphis • SPRB / Central LA Corridor Calexico
Slide 17: Fourth Quarter Focus Areas
Fourth Quarter Focus Areas • Resilient Network • Positioned for Growth • Improving Productivity & Service Reliability • Winter Preparation • Continued Safety Improvement 17
Slide 18: Third Quarter Financial Review
Third Quarter Financial Review October 18, 2007 Rob Knight, CFO
Slide 19: Income Statement Summary
Income Statement Summary Third Quarter – In Millions 2007 2006 Pct Chg Operating Revenues $4,191 $3,983 +5% Operating Expenses Salaries and Benefits 1,112 1,161 - 4 Fuel and Utilities 802 821 - 2 Equipment & Other Rents 356 371 - 4 Depreciation 332 311 + 7 Materials and Supplies 180 178 + 1 Purchase
Slide 20: Revenue Drivers
Revenue Drivers Third Quarter Total Commodity Revenue (Millions) +5% $3,996 $3,802 • 1% Volume Gain $3,302 $2,944 • 5% ARC Increase – 6% Core Price Improvement 2004 2005 2006 2007 – Fuel Surcharge Timing Average Revenue Per Car ($’s) +5% – Negative Mix $1,584 • Energy / Industrial Products $1,515 •
Slide 21: Salaries, Wages & Employee Benefits
Salaries, Wages & Employee Benefits Third Quarter – In Millions • On Going Labor Productivity -4% $1,161 – -2% Workforce – +1% Volume • Lower Hiring & Training Costs $1,112 • Fourth Quarter Outlook – -3 % Year-Over-Year Quarterly Expense 2006 2007 21
Slide 22: Fuel & Utilities
Fuel & Utilities Third Quarter Fuel Price Dollars Per Gallon $2.27 $2.29 • Reduced Diesel Consumption – Record C-Rate Savings = $25 Million • Expected Cost Headwind 2006 2007 – Current Spot Price = Fuel Consumption $2.47/gallon Gallons (in millions) – Fourth Quarter 2006 = 341 $1.94/gallon 329 2006
Slide 23: Equipment & Other Rents
Equipment & Other Rents Third Quarter – In Millions -4% $371 • On Going Productivity – Reduced Car Hire Payments $356 – Lower Freight Car Lease Expense • One-Time Reduction – Fleet Vehicle Leases • Increased Locomotive Lease Expense 2006 2007 23
Slide 24: Purchased Services & Other
Purchased Services & Other Third Quarter – In Millions +4% $404 • 2006 Comparison – Insurance Settlement $389 – Casualty Expense Reduction • Fourth Quarter Outlook – +3% Year-Over-Year Quarterly Expense 2006 2007 24
Slide 25: Operating Ratio (%)
Operating Ratio (%) Third Quarter 86.1 • Continuous Improvement 81.1 – Operations Productivity – Service and Pricing 76.0 – Efficiency Focus – Safety Gains • One-Time Savings 2005 2006 2007 25
Slide 26: Full Income Statement
Full Income Statement Third Quarter – In Millions ($ Millions Except EPS) 2007 2006 Pct Chg Operating Revenues $4,191 $3,983 + 5% Operating Expenses 3,186 3,231 - 1 Operating Income 1,005 752 + 34 Other Income – Net 25 22 + 14 Interest Expense (124) (119) + 4 Income Before Income Taxes 906 655 +38 I
Slide 27: Share Repurchase Program
Share Repurchase Program • Third Quarter Purchases – 4.5 million shares 4.5 – $115.93 average price/share 3.6 • Year-To-Date – 10.2 million shares 2.1 – 51% of 20 million share authorization 1Q 2Q 3Q Shares Repurchased (000’s) 27
Slide 28: Capital Spending Update
Capital Spending Update In Millions $3,200 $3,100 +/- $2,685 $2,700 $2,600 +/- $2,242 2006 2007 2007 Actual Budget Outlook Cash Capital Long-Term Operating Leases 28
Slide 29: Fourth Quarter Outlook
Fourth Quarter Outlook Operating Ratio (%) +2.5 -3 to -3.5 79.6 78.5 – 79.0 • Volume = Flat to +2% • EPS = $1.90 to $2.00 4Q 2006 Fuel Price Operating 4Q 2007E Impact Income Growth 29
Slide 30: 2007 Outlook
2007 Outlook Full Year: • Volume Growth = -1% • Revenue Growth ~ ~ +5% • Operating Ratio ~ ~ 79% • EPS = $7.00 +/- • ROIC Improvement 30
Slide 31: Third Quarter Earnings Release
Third Quarter Earnings Release October 18, 2007 Jim Young, Chairman and CEO
Slide 32: A Look Ahead
A Look Ahead • Legacy Opportunities • Economic Uncertainty • Strength of Franchise Diversity • Fuel Price Challenge • Continued Productivity & Service Gains 32
Slide 33: Cautionary Information
Cautionary Information This presentation and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically statements regarding the impact of operating initiatives and capital investments on the Corporations operations and fina
Slide 34: Third Quarter Earnings Release Q&A
Third Quarter Earnings Release October 18, 2007 Q&A