Union Pacific Corporation · NYSE:UNP
Union Pacific — Q4 2004 Earnings Presentation
50 slides from Union Pacific's earnings presentation, January 2005
Slide 1: Union Pacific Corporation
Union Pacific Corporation Dick Davidson Chairman & CEO
Slide 2: Slide 2
Slide 3: Earnings per Share - Fourth Quarter
Earnings per Share From Continuing Operations – Fourth Quarter $1.28 $0.88* • Record Revenues Asbestos- Asbestos- Related Related • All-Time High Fuel Prices Charge Charge $0.58 $0.58 • Operating Inefficiencies $0.30 2003 2004 ** Excludes Excludes charge charge for for estimated estimated liability
Slide 4: 2004 Recap
2004 Recap Earnings per Share Operating Revenues From From Continuing Continuing Operations Operations In In Millions Millions $4.07 $12,215 $11,551 $2.89* Asbestos- Asbestos- Related Related Charge Charge $0.59 $0.59 $2.30 2003 2004 2003 2004 ** Excludes Excludes charge charge for for estimated est
Slide 5: Union Pacific Corporation - Rob Knight, CFO
Union Pacific Corporation Rob Knight EVP - Finance & CFO
Slide 6: Revenue Growth
Revenue Growth 2004 vs 2003 Fourth Fourth Quarter Quarter Full Full Year Year Industrial Industrial +17%* +17%* +11%* +11%* Agricultural Agricultural +12%* +12%* +6%* +6%* Intermodal Intermodal +11%* +11%* +8%* +8%* Chemicals Chemicals +11% +11% +8% +8% Automotive Automotive +2% +2% +2%* +2%* Energy
Slide 7: Commodity Revenue Growth
Commodity Revenue Growth Fourth Quarter – In Millions $3,070 +4% +3% $2,843 +1% 2003 Volume Yield Fuel 2004 Recovery
Slide 8: Operating Expense Challenges
Operating Expense Challenges 2004 vs 2003 – In Millions Fourth Full Quarter Year Fuel Price Increase $195 $416 Service Inefficiencies 35 199 Incremental Hiring & Training 24 99 Headquarters Consolidation 5 50 $259 $764
Slide 9: Salaries & Benefits Expense
Salaries & Benefits Expense Fourth Quarter – In Millions +5% $1,051 $999 • Incremental Hiring & Training • 6% Increase in Employees • Service Related Costs 2003 2004
Slide 10: Employee Trends
Employee Trends Average Annual Employees Total Total Employees Employees Train Train Crews Crews 46,371 48,295 2005 Outlook • Backfill Attrition • Improve Productivity 16,685 18,420 • 3% Wage Inflation 2003 2004
Slide 11: Income Statement Summary
Income Statement Summary Fourth Quarter - In Millions 2004 2003 Pct Chg Operating Revenues $3,217 $2,965 + 8% Operating Expenses Salaries and Benefits 1,051 999 + 5 Equipment & Other Rents 331 305 + 9 Depreciation 282 272 + 4 Fuel and Utilities 533 336 + 59 Materials and Supplies 129 108 + 19 Purcha
Slide 12: Fuel
Fuel Price per Gallon - Dollars 1.46 1.46 1.25 1.25 1.16 1.16 • Record Oil Prices 1.00 1.02 1.00 1.02 • Surcharge Recovery .88 .88 .90 .90 .89 .89 –– 54% 54% 44th th Quarter Quarter Recovery Recovery vs vs 2003 2003 –– 52% 52% Full Full Year Year Recovery Recovery Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 2003 2003 2
Slide 13: Fuel Outlook
Fuel Outlook Price per Gallon Full Year 1st st Quarter $1.30-$1.35 $1.22 $1.02 $.92 2005 Outlook: • Continued Crude Uncertainty • Surcharge Recovery Improvement 2003 2004 2004 2005
Slide 14: Income Statement Summary
Income Statement Summary Fourth Quarter - In Millions 2004 2003 Pct Chg Operating Revenues $3,217 $2,965 + 8% Operating Expenses Salaries and Benefits 1,051 999 + 5 Equipment & Other Rents 331 305 + 9 Depreciation 282 272 + 4 Fuel and Utilities 533 336 + 59 Materials and Supplies 129 108 + 19 Purcha
Slide 15: Purchased Services & Other
Purchased Services & Other Fourth Quarter - In Millions $687 $440* $356 • Asbestos Charge • Higher Contract Costs • Increased State & Local Taxes 2003 2004 ** Excludes Excludes aa $247 $247 million million pre-tax pre-tax charge charge for for estimated estimated liability related to unasserted asbe
Slide 16: Income Statement Summary
Income Statement Summary Fourth Quarter - In Millions 2004 2003 Pct Chg Operating Revenues $3,217 $2,965 + 8% Operating Expenses Salaries and Benefits 1,051 999 + 5 Equipment & Other Rents 331 305 + 9 Depreciation 282 272 + 4 Fuel and Utilities 533 336 + 59 Materials and Supplies 129 108 + 19 Purcha
Slide 17: Income Statement
Income Statement Union Pacific Corporation Fourth Quarter Full Year ($ ($ Millions Millions Except Except EPS) EPS) 2004 2003 2004 2003 Operating Income 204 589 1,295 2,133 Other Income - Net 22 46 88 78 Interest Expense (130) (134) (527) (574) Income Before Income Taxes 96 501 856 1,637 Income Tax
Slide 18: Capital & Equipment Leasing
Capital & Equipment Leasing Dollars in Millions Cash Capital & Capital Leases Long-Term & Flexible Leases $1,940 $1,940 $1,876 $1,820 $1,820 $1,876 $1,750 Flexible Flexible Lease Lease Financing Financing $1,750 $1,696 $1,696 Long-Term Long-Term Equipment Equipment Outsourcing Outsourcing $535 $535
Slide 19: Financial Performance
Financial Performance Free Cash Flow Debt-to-Capital After After Dividends Dividends –– In In Millions Millions Lease Lease Adjusted Adjusted -- As As of of December December 31 31 $536 $536 $524* $524* 54.7% 54.7% 51.6% 51.6% 48.4% 48.4% 44.8% 45.1% 44.8% 45.1% $241 $241 $214 $214 $215 $215 2000 20
Slide 20: Union Pacific Railroad - Jim Young
Union Pacific Railroad Jim Young President - COO
Slide 21: 2004 Recap
2004 Recap 7-Day Carloadings (000’s) 7-Day Carloadings (000’s) 2004 2004 2003 2003 Velocity (MPH) Velocity (MPH) 2004 2004 2003 2003 • Record Demand 25 25 24 24 • Strong Pricing 23 23 23 23 189 22 22 22 22 189 Environment 21 21 186 21 21 • Operational 183 186 Challenges 183 178 179 173 Q1 Q1 Q2 Q2 Q
Slide 22: Network Status
Network Status Velocity - MPH Western Region Northern Region 22.5 22.5 23.6 23.6 23.9 23.9 21.5 21.5 21.4 21.4 23.3 23.3 21.0 21.0 20.0 20.0 21.8 21.8 21.5 21.5 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Jan Jan '05 '05 Q1 Q1 Q2 Q2 Q3 Q3 Q4 Q4 Jan Jan '05 '05 Southern Region Central Region 19.9 19.9 21.6 21.6 22.0 22.
Slide 23: Velocity Improvement Strategy
Velocity Improvement Strategy Initiative Plan In-Progress Complete Locomotive Resources Tactical • Add Locomotives Crew Resources • Graduate TE&Y Employees Network Management Strategic • Manage Flows • Improve Yields • Process Re-Design
Slide 24: Velocity & Business Mix
Velocity & Business Mix 2004 Business Mix Based Based on on Commodity Commodity Revenue Revenue Train Speed MPH • Manifest 18.8 • Bulk 20.2 • Premium 25.9 Bulk Total 21.4 28% Manifest 41% • Network Complexity • Lower Average Speed Premium 31% • Price for Service
Slide 25: Network Management
Network Management Optimize Optimize Traffic Traffic Flows Flows Customer Customer Capabilities Capabilities Business Business Rationalization Rationalization Customer Focus Velocity & Service Improvement Operations Focus Reduce Reduce Congestion Congestion Resource Resource Productivity Productivit
Slide 26: 2005 Railroad Targets
2005 Railroad Targets • Revenue Growth – 5% to 7% • Operating Goals: First Half • Complete Complete Network Network Analysis Analysis • Implement Implement the the Unified Unified Plan Plan Operational • Continue Continue Yield Yield Progress Progress Recovery • Engineer Engineer Resource Resource I
Slide 27: Union Pacific Corporation - Jack Koraleski
Union Pacific Corporation Jack Koraleski EVP – Marketing & Sales
Slide 28: New Business Environment
New Business Environment Demand > Supply • Value of Our Capacity Has Increased • Every Carload Must Be Re-Investable • Choose Which Business We Can Handle • New Contracts Must Meet Requirements of the Changing Environment
Slide 29: Challenge/Opportunity
Challenge/Opportunity Match available demand with UP’s valuable capacity to create a book of business that optimizes yield and velocity.
Slide 30: Objective: Drive Yield Improvement
Objective: Drive Yield Improvement Commercial Strategy Must Evolve Yesterday Today • Leverage Economies of Scale • Leverage Demand • Lock in Long-Term Contracts • Contracts are Strategic • Legacy Expirations Bad • Legacy Expirations Good • Modest Pricing • Robust Pricing
Slide 31: Yield Strategy Action Items
Yield Strategy Action Items • Tariffs/Public Pricing – Ensure Maximum Flexibility – Optimize Traffic Flows – Reduce Administrative Burden • Contracts – Lock in Return on Investment – Metering Mechanisms – Price Escalators
Slide 32: Economic Outlook
2004 Economic Outlook 2005 Economic Outlook Base Case Pessimistic GDP + 3.6 % + 3.1 % Industrial Production + 3.5 % + 3.1 % Light Vehicle Sales Growth + 0.6 % - 2.4 % Housing Starts Growth - 5.7 % - 8.8 % Source: Source: Global Global Insight Insight Forecast Forecast
Slide 33: 2005 Revenue Outlook
2005 Revenue Outlook – Volume – 1% to 2% – Yield Improvement & Fuel Surcharge – 4% to 5% Total Total Revenue Revenue Growth Growth of of 5% 5% to to 7% 7% Agricultural Agricultural 0-2% 0-2% Energy Energy 10-12% 10-12% Automotive Automotive 2-4% 2-4% Industrial Industrial 4-6% 4-6% Chemicals Chemica
Slide 34: Union Pacific Corporation - Dennis Duffy
Union Pacific Corporation Dennis Duffy EVP - Operations
Slide 35: Safety
Safety Employee Public 47.6% 30.9% 1999 2004 1999 2004 Customer Derailment Frequency 39.3% 1999 2004
Slide 36: Key Areas of Improvement
Key Areas of Improvement • Network Solutions Plan lan – Transportation Plan Re-Design Doo Feedback – Terminal Processes / LEAN Check heck – Flow Management – Gateway Strategies Adjust djust • Resource Supply & Real Real Time Time Productivity Tactical Tactical Strategic Strategic • Quality, Executio
Slide 37: Network Solutions
Network Solutions Unified Plan Work Work Events/Train Events/Train (Scheduled (Scheduled Network) Network) Objectives 36% 36% 34% 34% •• Reduce Reduce Total Total Workload Workload 18% 18% •• Increase Increase Velocity Velocity 8% 8% •• Reduce Reduce Dwell Dwell 3% 3% 1% 1% •• Improve Improve Achiev
Slide 38: Terminal Processes / LEAN
Terminal Processes / LEAN Train Train Arrival Arrival Process Process 6.0/Hr. 6.0/Hr. Flow Flow Rate Rate in in Trains Trains per per Hour Hour Elements •• Work Work Flows Flows Hump Hump Process Process 1.5/Hr. 1.5/Hr. •• Production Production Rates Rates •• Constraint Constraint Identification Ide
Slide 39: Flow Management
Flow Management North Little Rock Daily Daily Car Car Switching Switching Before Before 2,000 After After Continuous Improvement •• Train Train Flow Flow Control Control Upper Limit 1,800 •• Dispatching Dispatching Effectiveness Effectiveness Cars per Day •• En En Route Route Work Work Events Events
Slide 40: Gateway Strategy
Gateway Strategy Objectives Eastport Eastport Gateway Gateway Terminal Terminal Dwell Dwell •• Increase Increase Throughput Throughput Hours Hours •• Increase Increase Velocity Velocity 7.5 7.5 53% •• Reduce Reduce Dwell Dwell 53% Approach •• Refined Refined Transportation Transportation Plan Plan •
Slide 41: Resource Supply & Productivity
Resource Supply & Productivity Crews Crews 2004 2004 11stst Half Half ‘05 ‘05 Trainmen Trainmen Grads Grads 4,979 4,979 1,000 1,000 Engineer Engineer Grads Grads 744 744 1,200 1,200 Locomotives Locomotives New New 393 393 297 297 Short-Term Short-Term Lease Lease Units Units 350 350 -- -- -- Freight
Slide 42: Quality, Execution & Accountability
Quality, Execution & Accountability Bridge Chart 1 Pager
Slide 43: 2005 Capacity Improvements
2005 Capacity Improvements Central Corridor Routes North-South Routes
Slide 44: Velocity Improvement Bridge
Velocity Improvement Bridge •• Network Network Solutions Solutions What’s Different •• Resource Resource Supply Supply & & MPH MPH Productivity •• Business Business Planning Planning Process Process Productivity •• Quality, Quality, Execution Execution & & •• Unified Unified Plan Plan Accountability
Slide 45: Union Pacific Corporation - Dick Davidson
Union Pacific Corporation Dick Davidson Chairman & CEO
Slide 46: 2005 Challenges & Opportunities
2005 Challenges & Opportunities • Operational Inefficiencies • Demand Exceeds Supply – Improve Yields – Control Volume • Fuel Price Volatility
Slide 47: 2005 Outlook
2005 Outlook First Quarter EPS • Revenue Growth 4% to 6% $0.25 to • Fuel Price (per Gallon) $1.30 to $1.35 $0.35 • Weather Impact $0.25 to $0.30 Full Year • Revenue Growth 5% to 7% • Fuel Price (per Barrel) $40 to $45 • Cash Capital (Billions) $2.0+ • Free Cash Flow (After Dividends) Positive
Slide 48: Union Pacific Is Committed To Be A Company Where
Union Pacific Is Committed To Be A Company Where Customers Want To Do Business Employees Are Proud To Work Shareholder Value Is Created
Slide 49: Disclosure Statement
Disclosure Statement This This presentation presentation and and related related materials materials may may contain contain statements statements about about the the Corporation’s Corporation’s future future that that areare not not statements statements of of historical historical fact. fact. Thes
Slide 50: Union Pacific Corporation - Building America
Union Pacific Corporation UNION PACIFIC BUILDING AMERICA“