Union Pacific Corporation · NYSE:UNP
Union Pacific — Investor Presentation (May 2018)
48 slides from Union Pacific's investor presentation, May 2018
Slide 1: Union Pacific Corporation
May 2018 Union Pacific Corporation 1
Slide 2: Cautionary Information
Cautionary Information This presentation and related materials contain statements about the Company’s future that are not statements of historical fact, including specifically the statements regarding the Company’s expectations with respect to economic conditions; its ability to generate financial r
Slide 3: Current Overview / Business Update
May 2018 Current Overview / Business Update 3
Slide 4: First Quarter 2018 Results
First Quarter 2018 Results Earnings Per Share Operating Ratio First Quarter First Quarter +27% $1.68 -0.6 pts. $1.32 65.2 64.6 First Quarter Record First Quarter Record 2017 2018 2017* 2018 * Certain prior period amounts have been adjusted for the retrospective adoption of Accounting Standard Update
Slide 5: New Commodity Group Mapping
New Commodity Group Mapping Agricultural Products Energy Industrial Premium Grain PRB Coal Construction Dom Intermodal Grain Products Other Coal Industrial Chem Int’l Intermodal Food & Beverage Frac Sand Plastics Finished Vehicles Fertilizer Petroleum & LPG Forest Products Auto Parts Renewables Spec
Slide 6: 2018 Business Trends
2018 Business Trends 2018 2QTD Volumes* 7-Day Monthly Carloadings (vs 2017) (000s) 210.000 Agricultural Products Flat 190.000 Energy +2% 170.000 2018 @167 2017 @167 2016 @164 Premium +6% 150.000 Industrial +7% 130.000 January December TOTAL +4.5% *Through May 19, 2018 6
Slide 7: Volume Drivers
Volume Drivers 2017 vs. 2016 compared to 2016 vs. 2015 (carloads) 59% 12% 6% 1% 2% Flat 1% Flat 1% -2% -3% -4% -6% -4% -6% -11% -20% -38% Shale-Related Coal Grain Chemicals Domestic International Automotive Construction Other (excl Crude) Intermodal Intermodal 2017 vs. 2016 2016 vs. 2015 7
Slide 8: 7-Day Volume Trends
7-Day Volume Trends Through April 30, 2018 26,000 Agricultural Products 50,000 Energy 24,000 2017 40,000 2016 2018 2018 2017 22,000 30,000 2016 20,000 20,000 18,000 10,000 Jan Dec Jan Dec 2018 YTD down 4% 2018 YTD up 5% • Grain Inventories • Natural Gas Prices • Export Market Fundamentals • Inventor
Slide 9: 7-Day Volume Trends (cont)
7-Day Volume Trends (cont) Through April 30, 2018 40,000 Industrial Premium 90,000 2018 85,000 35,000 2016 2018 80,000 2017 30,000 2017 2016 75,000 25,000 70,000 Jan Dec Jan Dec 2018 YTD up 3% 2018 YTD up 2% • Construction-Related Materials • North American Production & Sales • Housing Activity • Ov
Slide 10: Network Performance
Network Performance Velocity Terminal Dwell (As Reported to the AAR, in mph) Good Good (As Reported to the AAR, in hours) -4% +8% 25.7 33.0 32.1 32.3 32.5 31.7 25.0 24.8 24.9 24.9 25.1 24.8 24.7 24.8 30.6 30.6 30.3 24.4 24.4 30.4 24.1 29.7 29.2 29.6 1Q171Q18 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 1Q
Slide 11: Volume & Performance Drive Resources
Volume & Performance Drive Resources TE&Y (Full-Time Equivalent) +8% 15,098 • Reactivated ~650 HHP 14,015 Locomotives since Mid-2017 • Leasing Additional Locomotives 1Q17 1Q18 • Increased TE&Y Training • Volume TE&Y Furloughs • Expected Attrition (Employees at Quarter-End) 1,643 • Current Service Ch
Slide 12: Business Team Review
May 2018 Business Team Review 12
Slide 13: The Strength of a Unique Franchise
The Strength of a Unique Franchise Excellent Network Strategic Terminal Locations Broad Port Access Border and Interchange Coverage Business Mix 2017 Freight Revenue: $19.8 B Ag Premium Products 29% 22% Automotive Distribution Centers Intermodal Terminals Energy Manifest Terminals Industrial 23% 26%
Slide 14: Economic Outlook
Economic Outlook 2018-2020 Metric 2014 2015 2016 2017 Forecast Gross Domestic Product (%) 2.4 2.6 1.5 2.3 2.6 (avg) Industrial Production (%) 3.1 -0.7 -1.2 1.6 3.5 (avg) Light Vehicle Sales (Millions) 16.5 17.4 17.5 17.2 16.8 (avg) Housing Starts (Millions) 1.00 1.11 1.18 1.21 1.36 (avg) Imports (%)
Slide 15: 2018 Volume Outlook
2018 Volume Outlook Agricultural Products Industrial + Ethanol Exports + Plastics + Food and Refrigerated + Industrial Production ? Grain Energy Premium + Petroleum Products + Over the Road Conversions ? Frac Sand + New International Business – Coal Headwinds – Automotive Sales 15
Slide 16: International Trade
2017 Freight Volumes International Trade • Diverse Franchise Creates Domestic 61% Opportunity Other Imports • Off-shoring / Near-shoring 16% of U.S. Manufacturing Other Imports from Mexico Exports 6% • Demand for Grain and Food 12% Exports to Mexico • Low Natural Gas Prices Favor 5% International U.
Slide 17: Agricultural Products
Agricultural Products 2017 Revenue: $4.3 Billion Grain ExportsProduce Major Grain & Grain Products Dairy Region Produce Dairy Dairy, Poultry Cattle Cattle Mexico Cattle, Poultry Origination Domestic Markets Grain Mexico Export Markets Exports 17
Slide 18: Agricultural Products
Agricultural Products UNP Weekly Grain Carloads* (As reported to the AAR) 2017 Volume Mix 9,000 2016 2014 Food & Beverage 2018 7,500 18% Fertilizer 16% 6,000 Grain 4,500 2017 Grain 39% Products 3,000 27% 1Q 2Q 3Q 4Q U.S. Grain Stocks** (Bushels in Billions) • Grain Inventory Management 12.5 • Export
Slide 19: Industrial
Industrial 2017 Volume Mix UNP Monthly Volumes* Specialized Construction Soda Ash 12% 23% Construction Plastics Industrial Chemicals 7% Forest 50,000 Products Plastics Lumber 45,000 Construction 16% 11% 14% Products 40,000 37% Industrial Metals Chemicals 35,000 10% 18% 30,000 25,000 20,000 • Constru
Slide 20: Housing Trends
Housing Trends • Housing Market still well Below Lumber, Stone & Glass Historical Averages UP Wkly Housing Starts Carloadings* (mils) • UP Lumber, Stone & Glass 12,000 2.5 Business Correlates with 10,000 2.0 Housing Starts 8,000 • Housing also Drives 1.5 6,000 Appliances, Roofing, Rebar, 1.0 Aggrega
Slide 21: Chemical Opportunities
Chemical Opportunities North America Announced Expansions Seattle Eastport Duluth Portland Twin Cities Chicago 2015 – 2020 Omaha Ind. Chemicals - 14 Salt Lake City Fertilizer - 13 Denver Oakland St. Louis Plastics - 21 Kansas City Memphis LA Calexico Dallas El Paso Nogales Houston Houston New Eagle
Slide 22: Chemical Export Opportunities
Chemical Export Opportunities • North American Production Will Exceed Domestic Demand • Surplus U.S. Production Targeted for Export • UP Uniquely Positioned to Handle Expansion Related Growth Likely Export Flow Packaging Asia & Europe Asia Europe & South Africa America 22
Slide 23: Energy - Coal Trends
Energy - Coal Trends Powder River Basin Coal Stockpiles* UNP Weekly Coal Carloads* (Tons in MM) (As reported to the AAR) 2013 -17 Inventory 5-Year Average 120 35,000 80 77 66 11 25,000 40 2018 2017 0 15,000 2013 2014 2015 2016 2017 Mar 2016 2018 *Energy Ventures Analysis 5,000 1Q 2Q 3Q 4Q Electricit
Slide 24: Shale-Related Volumes
Shale-Related Volumes Frac Sand Volume* 3.3% of 2017 Total Volume (By Shale, 000s) Volume % of Total 253 246 % Incr 194 1Q 2018 (000s) (vs 1Q17) UP Volume 177 154 121 120 Frac Sand* 69 52% 3.2% 76 69 Crude 8 259% 0.4% Pipe 7 53% 0.3% 2010 2011 2012 2013 2014 2015 2016 2017 1Q18 Eagle Ford Permian Ni
Slide 25: Premium
Premium 2017 Volume Mix UNP Weekly Intermodal Carloads** (As reported to the AAR) 90,000 International 2018 Domestic* Intermodal 80,000 2017 51% 37% 70,000 Finished 2016 60,000 Vehicles 11% 50,000 Other 1% 40,000 1Q 2Q 3Q 4Q • Trans Pacific Market Challenges • Truck Capacity & Economic Outlook • Aut
Slide 26: Domestic Intermodal Growth
Domestic Intermodal Growth Comprehensive Network • Significant Domestic Truck-Load Conversion Opportunity • Truckload Opportunity Originating from Mexico Strong Value Proposition • Competitive Service at an Affordable Price • Environmental Friendliness Truck’s Traditional Advantage is Eroding • Regu
Slide 27: International Intermodal
International Intermodal • Transpacific Market Challenges • Retail Inventories • West Coast Port Advantages Prince Rupert, Canada 23 days via Vancouver Panama / 27 SEA/TAC days via Suez* NY/NJ Oakland Chicago Los Angeles Norfolk Houston Favors West Coast Ports East Coast Canal Neutral From Panama Su
Slide 28: Premium – Finished Vehicles
Premium – Finished Vehicles Seattle Eastport U.S. Light Vehicle SAAR* Duluth 17.4 17.5 17.2 16.5 16.9 16.8 16.7 Portland 16.5 Twin Cities Chicago Omaha 10.4 Oakland Salt Lake Denver City 2006 2009 2014 2015 2016 2017 2018E 2019E 2020E Kansas St. Louis City Los Memphis Angeles Dallas New Orleans Hous
Slide 29: North American Auto Production
North American Auto Production North American Light Vehicle Production Forecast* 20 16 12 Millions 8 4 0 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E United States Mexico Canada *Source: IHS Global Insight April 2018 29
Slide 30: Mexican Automotive Production Growth
Mexican Automotive Production Growth Mexico Auto Production* • 7th Largest Automotive Manufacturer (In Millions) • 4th Largest Automotive Exporter 3.9 4.1 4.1 3.4 3.5 • No. 2 Supplier of Vehicles to U.S. 2.9 3.2 1.6 '05 '13 '14 '15 '16 '17 '18E '19E * April 2018 IHS Global Insight New Finished Vehic
Slide 31: UP Positioned for Mexico Growth
UP Positioned for Mexico Growth Volume Growth (Carloads in Thousands) +33% 987 956 956 994 817 857 882 750 '10 '11 '12 '13 '14 '15 ‘16 ‘17 2017 Volume Mix (In Carloads) Ag Products 16% Energy Premium 6% 66% Industrial 12% 31
Slide 32: Operating Overview
May 2018 Operating Overview 32
Slide 33: Safety
Safety Employee Rail Equipment (Reportable Personal Injury Incidents Per (Reportable Derailment Incidents 200,000 Employee-Hours) Per Million Train Miles) Good Good 1.10 -13% -17% 2.95 3.18 0.85 0.89 2.86 0.75 0.74 2.65 2.76 First Qtr Record 1Q14 1Q15 1Q16 1Q17 1Q18 1Q14 1Q15 1Q16 1Q17 1Q18 Public (
Slide 34: Network Performance
Network Performance (000s) (MPH) • Dynamic Environment 200 28 26 • Strategic Investments 180 24 • Balancing Resources 160 22 with Demand 140 20 18 • Focus on Further 120 Improving Service & 16 Costs 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q
Slide 35: Rail – The "Green" Alternative
Rail – The “Green” Alternative Intercity Freight Transportation • Each train can take up to (Based on Ton Miles) 300 trucks off highways Other • Three times cleaner than trucks Freight Freight 26% RRs on a ton-mile basis 43% • Conversion of 10% long-haul Trucking truck freight would eliminate 31% mo
Slide 36: Positive Train Control (PTC) Status Overview
Positive Train Control (PTC) Status Overview • Approximately $2.6 Billion Invested through December 2017 • Total Estimated Investment ~ $2.9 Billion • Field Testing since October 2013 • By the End of 2018 UP will have PTC: • Installed on 100% of Required Rail Lines • Implemented on 75% of Required R
Slide 37: Pioneering Innovation
Pioneering Innovation Big “I”, Little “i”, The Internet of Things Mobile Work Order UP GO • Real-Time Work • Mobile Technology to Pre- Event Reporting Validate Gate Information • Provides More • Reduces Driver Gate Time Shipment Visibility and Improves Local • Improves Ramp Inventory Service Locatio
Slide 38: Financial Review
May 2018 BUILDING AMERICA’ Financial Review
Slide 39: Financial Performance
Financial Performance Operating Ratio EPS ROIC** 87.5% $5.79 $5.49 $5.07 14.3% -24.7 +18% +8.4 13.7% points CAGR points 12.7% 63.1% 63.5% 62.8% 7 Day 5.3% Volume 7 Day @ 184K Volume 7 Day @ 177K 7 Day Volume Volume $0.71 @ 165K @ 168K 2004* 2015 2016 2017* 2004* 2015 2016 2017* 2004* 2015 2016 2017*
Slide 40: Pricing Fundamentals
Pricing Fundamentals • Value is the Key to Balanced Revenue Portfolio Future Price Improvement Tariffs 30% • Balanced Portfolio Contracts > 1 Year Provides Flexibility for 40% Repricing as Value Contracts < 1 Year Grows 30% • Solid Core Pricing 40
Slide 41: Productivity Update
Productivity Update First Quarter Results: Initiatives & 1Q18 Results ($ in millions) ~$35 Million of Savings 4Q14: $438 ($20) Network and Slower velocity, TE&Y recrew, Overtime, and Train Ops Higher fuel consumption rate • Operational Challenges Resulted in ~$40 Million ($5) Equipment Active loco f
Slide 42: Capital Program Supported by Returns
Capital Program Supported by Returns Capital Program & Returns** (Capital in Billions) ROIC* • Profitability Drives Cash $4.3 $3.7 $3.6 $4.1 Flow $3.5 $3.2 $3.1~$3.3 $2.5 • Supports Investments that 16.2% must meet high return 14.3% 13.7% 12.7% hurdles 10.8% • Supports Core Pricing that 2010 2011 20
Slide 43: Strengthening the Franchise
Strengthening the Franchise Replacement, Growth & Productivity, and PTC 2018 Capital Plan: ~$3.3 Billion • Safe & Resilient Infrastructure ($ in Millions) Locomotives / Equipment $460 • Equipment Acquisitions Technology / • ~60 New Locomotives Other $240 • ~700 Freight Cars Infrastructure Replacemen
Slide 44: Cash Flow & Debt
Cash Flow & Debt $ In Millions Cash From Ops +1% $1,901 • Higher Net Income $1,883 • Increased Adj. Debt $570 2017 2018 Million since Year-End Adjusted Debt* 2017 $19,480 $20,050 $17,390 $17,878 $14,838 1.9 1.9 1.9 • Re-evaluating Optimal 1.4 1.7 Capital Structure 12/31/14 12/31/15 12/31/16 12/31/17
Slide 45: Delivering Value to Shareholders
Delivering Value to Shareholders Declared Dividend Per Share (cents) +8.3x 73 • Dividend Payout Target 66.5 50 55 60.5 of 40% to 45% 45.5 • 10% Dividend Per Share 39.5 34.5 30 8.75 Increase in 4Q 2017 & 1Q 2018 3Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2007 2012 2
Slide 46: Share Repurchases
Share Repurchases Cumulative Share Repurchases (In Millions) 351.2 360.4 314.8 • Repurchased ~33% of Shares 279.8 244.4 since 2007 • Continue Opportunistic Approach 2007-14 2015 2016 2017 2018 Cumulative Share Repurchases • Share Repurchase Program ($ In Billions) $24.4 • Four Years Beginning $23.2
Slide 47: 2018 Outlook
2018 Outlook Full Year • Low Single Digit Volume 4Q14: $438 Growth • Price Above Inflation • Goal is an Improved Operating Ratio Continued Focus on G55+0 47
Slide 48: Cautionary Information
Cautionary Information This presentation and related materials contain statements about the Company’s future that are not statements of historical fact, including specifically the statements regarding the Company’s expectations with respect to economic conditions; its ability to generate financial r