Union Pacific Corporation · NYSE:UNP
Union Pacific — Q4 2003 Earnings Presentation
48 slides from Union Pacific's earnings presentation, January 2004
Slide 1: Union Pacific Corporation
Union Pacific Corporation Dick Davidson Chairman & CEO
Slide 2: 4th Quarter Recap
4th Quarter Recap Union Pacific Corporation Earnings per Share Operating Income In In Millions Millions $2.12 +5% $589 $562 Overnite Overnite Earnings Earnings $0.84 $0.84 Overnite Overnite $1.41 Earnings Earnings $0.03 $0.03 $1.38 $1.28 Continuing Continuing Operations Operations 2002 2003 2002 200
Slide 3: Earnings per Share
Earnings per Share Union Pacific Corporation $6.04 Overnite Overnite $5.05 Earnings Earnings $0.95 $0.95 Overnite Overnite Earnings Earnings $0.27 $0.27 FAS FAS 143 143 $4.78 Impact Impact $1.02 $1.02 $4.07 Continuing Continuing Operations Operations 2002 2003
Slide 4: Union Pacific Corporation - Jim Young, CFO
Union Pacific Corporation Jim Young EVP - Finance & CFO
Slide 5: 4th Quarter Recap
4th Quarter Recap Union Pacific Corporation – Earnings Per Share $2.12 Overnite Overnite Earnings Earnings $0.84 $0.84 $1.41 Overnite Overnite Earnings Earnings $0.03 $0.03 $1.38 $1.28 Continuing Continuing Operations Operations 2002 2003
Slide 6: Other Income
Other Income Union Pacific Corporation 4th Quarter Full Year (Pre-Tax (Pre-Tax in in Millions) Millions) (Pre-Tax (Pre-Tax in in Millions) Millions) $108 $324 VTA VTA Sale Sale UTA UTA && $73 $73 VTA VTA Sale Sale $214 $214 $46* $35 $110 $78* 2002 2003 2002 2003 ** Includes Includes convertible conv
Slide 7: Average Revenue per Car
Average Revenue per Car Union Pacific Railroad – Fourth Quarter -$3 $1,204 +$10 +$11 $1,186 Q4 Fuel Price Mix & Q4 2002 Surcharge Other 2003
Slide 8: Salaries & Benefits Expense
Salaries & Benefits Expense In Millions +3% +3% $999 +2% +2% $972 • GTM’s Increased 5% $949 • Employee Count Down 1% • Service Cost Impact Q4 Q4 2002 2002 Adjusted* Adjusted* Q4 Q4 2003 2003 Q4 Q4 2002 2002 *Adjusted *Adjusted for for FAS FAS 143 143
Slide 9: Fuel
Fuel Price per Gallon 4th th Quarter Full Year $.89 $.92 2003 Recap: $.81 $.73 • Historically High Prices • $255 Million Incremental Cost • Nearly 45% Recovered 2002 2003 2002 2003
Slide 10: Fuel Outlook
Fuel Outlook Price per Gallon Full Year 1st st Quarter $1.00 $1.00+/- $.92 2004 Outlook: $.73 • Continued Crude Uncertainty • Recovery Improvement • 9% Hedged Via Collars 2002 2003 2003 2004
Slide 11: Purchased Services & Other Expense
Purchased Services & Other Expense In Millions $356 +$13 +$12 $321 +$10 $318 +$3 Co Ot Q4 FA S Adjusted Inte nt he Q4 rm C r r 2002 14 3 Q4 2002 Vol od os act 2003 um al ts ee
Slide 12: Cash Commitment Met
Cash Commitment Met Free Cash Flow After After Dividends Dividends -- In In Millions Millions $536 $524* • Cash From Operations +10% • Redeemed $1.5 Billion TIDES $241 • Rating Agency Upgrade • $100 Million Railroad Pension Payment • 30% Dividend Increase 2001 2002 2003 ** Excludes Excludes proceeds
Slide 13: Union Pacific Railroad - Ike Evans
Union Pacific Railroad Ike Evans President & COO
Slide 14: Looking Back . . .
Looking Back . . . Performance Trends Operating Revenue Productivity Billions Billions GTM’s GTM’s (Millions)/Employee (Millions)/Employee $11.6 $11.6 22.0 22.0 $11.2 $11.2 21.0 21.0 $10.8 $10.8 $10.8 $10.8 19.7 19.7 18.4 18.4 2000 2000 2001 2001 2002 2002 2003 2003 2000 2000 2001 2001 2002 2002 200
Slide 15: Leveraging the Yield Strategy
Leveraging the Yield Strategy New Product Offerings • Premium Products • Innovative Service • Premium Price • Asset Efficiency Premium Service Truck Conversion
Slide 16: Looking Forward . . .
Looking Forward . . . • Strong Economic Environment • Truck Conversion Opportunities – 225,000 Converted in 2003 – Marketing Approach • Integrated Service Offerings – Hours of Service Regulations
Slide 17: Service Reliability & Performance
Service Reliability & Performance Performance Measures Reduced Failure Costs Cost Cost of of Quality Quality -- % % of of Revenue Revenue Customer Satisfaction 13.9 78% 12.5 11.3 11.3 11.1 11.1 70% Service Delivery Index 2000 2000 2001 2001 2002 2002 2003 2003 2000 2000 2001 2001 2002 2002 2003 2003
Slide 18: Resource Planning
Resource Planning Employees Locomotives Freight Cars Track Capacity Terminal Capacity
Slide 19: Resource Planning
Resource Planning Employees . . . The Right People, Place & Time
Slide 20: Adding Value Yield Strategy
Adding Value Shareholders Yield Strategy Customers Employees
Slide 21: Union Pacific Railroad - Dennis Duffy
Union Pacific Railroad Dennis Duffy EVP - Operations
Slide 22: Network Status
Network Status Velocity Car Dwell MPH MPH Hours Hours 17.2 17.2 29.3 29.3 17.0 17.0 16.7 16.7 16.8 16.8 28.2 28.2 28.2 28.2 27.8 27.8 Oct Oct Nov Nov Dec Dec Jan* Jan* Oct Oct Nov Nov Dec Dec Jan* Jan* Recrew Rate 6.9% 6.9% 7.1% 7.1% 6.3% 6.3% 5.4% 5.4% Oct Oct Nov Nov Dec Dec Jan* Jan* ** January J
Slide 23: Work Force
Work Force • Remote Control • Non-Productive Starts – Recrews – Dead Heads – Network Balance • Innovative Labor Agreements
Slide 24: Locomotives
Locomotives Horse Horse Power/Trailing Power/Trailing Ton Ton 2.04 Miles Miles Between Between Failure Failure 2.04 1.99 1.99 1.93 1.93 1.90 1.90 • Fleet Strategy 26,866 26,866 • Velocity 24,273 24,273 22,669 22,669 • Terminal Dwell 20,154 20,154 • Predictive Maintenance 2000 2000 2001 2001 2002 200
Slide 25: Engineering & Capital Effectiveness
Engineering & Capital Effectiveness • Slow Order Reduction Per Unit Installation Costs • Maintenance Planning Wood • Asset Life Extension Down 3% Ties • Focused Capacity Improvements Concrete Down 10% Ties Rail Down 6% 2002 2002 2003 2003
Slide 26: Focused Capacity Improvements
Focused Capacity Improvements Central Corridor Routes North-South Routes Chicago Chicago Seattle Seattle Portland Portland Salem Salem Chicago Chicago Dexter Omaha Dexter Omaha Oakland Oakland SLC SLC Dallas Dallas LA LA Houston Houston Laredo Laredo Southern Tier Chicago Chicago Routes KC KC Memphi
Slide 27: Safety Improvements
Safety Improvements Three Aspects Employee Best Year Ever! Customer 10% Fewer Interruptions! Public 5 Years of Improvement!
Slide 28: Safety & Security
Safety & Security • Web-Based & Simulator Training • Health & Wellness • Wayside Detection Technology • Security Strategy
Slide 29: Organizational Effectiveness
Organizational Effectiveness • 6 Step Problem Solving Process • 80/20 Initiatives • 6 Sigma • “Lean Principles”
Slide 30: 2004 Operating Strategy
2004 Operating Strategy Reduced Failure Costs Cost Cost of of Quality Quality -- % % of of Revenue Revenue 13.9 Goals 12.5 11.3 • Improved Service Reliability 11.1 • Quality Operations 2000 2000 2001 2001 2002 2002 2003 2003
Slide 31: Union Pacific Railroad - Jack Koraleski
Union Pacific Railroad Jack Koraleski EVP – Marketing & Sales
Slide 32: Economic Recovery
Economic Recovery Carloads - 2003 vs 2002 First First Three Three Quarters Quarters Fourth Fourth Quarter Quarter Intermodal (1%) 9% Industrial 3% 7% Agricultural 0% 2% Energy 1% 1% Automotive 1% (2%) Chemicals (2%) (2%) TOTAL 0% 4%
Slide 33: Business Diversity
Business Diversity Fourth Quarter - 2003 vs 2002 Revenue Carloads Intermodal 13% 9% Industrial 9% 7% Energy 3% 1% Chemicals 3% (2%) Agricultural 2% 2% Automotive 1% (2%) TOTAL 6% 4%
Slide 34: Records
Records • Overall – Carloadings: 9.2+ Million – Commodity Revenue: $11 Billion • Commodities – Record Revenue: Energy Energy Intermodal Intermodal Automotive Automotive Industrial Industrial Products Products Agricultural Agricultural Products Products
Slide 35: Agricultural Products
Agricultural Products • 2003 4Q Drivers –– Strong Strong grain grain exports exports –– Business Business to to and and from from Mexico Mexico –– Strong Strong sugar sugar beet beet business business • 2004 Outlook –– Increased Increased ethanol ethanol production production –– Continued Continued
Slide 36: Automotive
Automotive • 2003 4Q Drivers – Continued sluggish finished vehicle sales • 2004 Outlook – Improved vehicle sales – New contract carryover – Truck to rail materials conversion
Slide 37: Chemicals
Chemicals • 2003 4Q Drivers – Continued high natural gas prices • 2004 Outlook – Improved industrial production – Continued pipeline service expansion
Slide 38: Energy
Energy • 2003 4Q Drivers – Continued strong demand – Record quarter for SPRB • 2004 Outlook – Continued strength in CO/UT – SPRB tonnage flat – Continued demand for western coal
Slide 39: Industrial Products
Industrial Products • 2003 4Q Drivers –– Continued Continued strength strength in in housing housing starts starts –– Low Low interest interest rates rates and and improving improving economy economy –– Favorable Favorable construction construction conditions conditions • 2004 Outlook –– Strong Stro
Slide 40: Intermodal
Intermodal • 2003 4Q Drivers – Strong international imports and impact of ILWU lockout in 2002 – Economic strength in domestic shipments – New UPS business lanes • 2004 Outlook – Continued strength in Asian imports – Domestic growth – Service improvement
Slide 41: 2004 Revenue Outlook
2004 Revenue Outlook Market 2 - 3% Price 1+% Penetration 1 - 2% TOTAL 4 - 6%
Slide 42: Union Pacific Corporation - Dick Davidson
Union Pacific Corporation Dick Davidson Chairman & CEO
Slide 43: 2003 Highlights
2003 Highlights • Record Revenue Year Debt-to-Capital • 60-Hour Transcontinental As As of of December December 31 31 Service 58.7% • Overnite Sale 58.7% CNW CNW && SP SP 56.9% 56.9% • Balance Sheet Strength Mergers Mergers 54.7% 54.7% • Dividend Increase 51.6% 51.6% • Strong Free Cash Flow 49.0% 49.
Slide 44: 2004 Outlook
2004 Outlook • High Energy Costs – Tax on America • Strong Revenue Growth Potential • Improving Service & Quality Commitment • Capital Discipline --- $2 Billion +/- • Continued Strong Cash Flow
Slide 45: First Quarter EPS Guidance
First Quarter EPS Guidance Union Pacific Corporation $1.67 Overnite Overnite Earnings Earnings $0.03 $0.03 • 4-6% Revenue Growth FAS FAS 143 143 30 - 40% • Current Fuel Prices Exceed $1.07 $1.07 Growth Last Year’s Peak • Excludes FAS 143 Impact & Overnite Earnings $0.57 Continuing Continuing Operati
Slide 46: 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 47: Disclosure Statement
Disclosure Statement This This presentation presentation and and related related materials materials maymay contain contain statements statements about about the the Corporation's Corporation's future future that that are are not not statements statements of of historical fact. These statements are,
Slide 48: Union Pacific Corporation - Building America
Union Pacific Corporation BUILDING AMERICA™