Union Pacific Corporation · NYSE:UNP
Union Pacific — Q4 2007 Earnings Presentation
39 slides from Union Pacific's earnings presentation, Jan 24, 2008
Slide 1: Fourth Quarter Earnings Release
Fourth Quarter Earnings Release January 24, 2008 Jim Young, Chairman and CEO
Slide 2: Fourth Quarter Results
Fourth Quarter Results Diluted Earnings per Share + 4% $1.86 Quarterly Drivers Record Fuel Price $1.78 December Carloads Weather Impact Economy Productivity Gains Core Pricing Strength 2006 2007 2
Slide 3: 2007 Recap
2007 Recap Return on Invested Capital* (%) Improved Safety + 0.5 pts 8.7 New Financial Records 8.2 Increased Customer Satisfaction Strong Shareholder Returns 6.4 2005 2006 2007 * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. 3
Slide 4: Fourth Quarter Marketing & Sales Review
Fourth Quarter Marketing & Sales Review January 24, 2008 Jack Koraleski, Executive VP – Marketing & Sales
Slide 5: Commodity Highlights
Commodity Highlights Fourth Quarter Volume 2007 Full Year (Millions) 2.4 FLAT 2.4 Volume, Down 1.2% Record Year in Energy & Intermodal 2006 2007 Average Revenue per Car, Up Average Revenue per Car $1,638 5.7% $1,547 6% Record Year in Every Business Group Revenue, Up 4.4% to $15.5 Billion 2006 2007 C
Slide 6: Customer Satisfaction
Customer Satisfaction 79 Improving Service Drives Satisfaction 72 Year-Over-Year Improvement Each Quarter 64 New Post-Merger Record 2005 2006 2007 6
Slide 7: Agricultural Products
Agricultural Products Fourth Quarter - $719 Million, +7% Fourth Quarter Revenue Mix Volume: +1% Food/ Average Revenue Per Car: Refrig. +6% 20% Whole Grains 40% Quarterly Drivers Grain Continued Strong Wheat Products Exports 40% Growth in Ethanol and DDGS Domestic Feed Grains, Cottonseed and Beer Vol
Slide 8: Automotive
Automotive Fourth Quarter - $374 Million, +4% Fourth Quarter Revenue Mix Volume: -2% Average Revenue Per Car: Auto +7% Parts 21% Quarterly Drivers U.S. Light Vehicle Sales Finished Soften Vehicles 79% Continued Success of New Detroit - Mexico Service 8
Slide 9: Chemicals
Chemicals Fourth Quarter - $584 Million, +12% Fourth Quarter Revenue Mix Volume: +5% Average Revenue Per Car: Petro & +7% Plastics Other 22% 23% Quarterly Drivers Fertilizer Export Potash Drives 13% Liquid & Dry Growth Chemicals 25% Soda Ash Contract Gains in Plastics 17% Market Shift in Caustic Sod
Slide 10: Energy
Energy Fourth Quarter - $818 Million, +8% Fourth Quarter Revenue Mix Volume: +2% Average Revenue Per Car: CO/UT +6% 23% Other Quarterly Drivers 8% SPRB Record Quarter for SPRB – 69% Up 4% Production Problems Hamper CO/UT Volume 10
Slide 11: Industrial Products
Industrial Products Fourth Quarter - $753 Million, +1% Fourth Quarter Revenue Mix Volume: -2% Paper Average Revenue Per Car: 15% Steel +3% 21% Consumer/ Gov’t/ Waste 11% Quarterly Drivers Lumber Non- 19% Softness in Lumber & Ferrous 16% Construction Panel Products Products 18% Shrinking Paper & News
Slide 12: Intermodal
Intermodal Fourth Quarter - $755 Million, +4% Fourth Quarter Revenue Mix Volume: -1% Average Revenue Per Unit: +5% International 56% Quarterly Drivers International Volume Premium Impacted By Soft Import Domestic 6% Market 38% Growth in Domestic Volume 12
Slide 13: Volume Outlook
Volume Outlook 2008 Carloadings (000s) -1% to +1% 2008 Legacy Repricing = 6% 9,852 of Revenue 9,733 Volume Growth Potential Opportunities (+) Neutral (+/-) Challenges(-) Energy Chemicals Autos Ag Intermodal Ind. Products 2006 2007 2008E 13
Slide 14: Fourth Quarter Operating Review
Fourth Quarter Operating Review January 24, 2008 Dennis Duffy, Executive VP – Operations
Slide 15: 2007 Operating Summary
2007 Operating Summary Continued Safety Improvement Improved Customer Service Enhanced Infrastructure Maintenance and Capacity Strong Productivity Gains 15
Slide 16: Productivity Update
Productivity Update Full Year Freight Car Utilization Days Good Record Tons per Train 11.0 10.5 SPRB Coal 9.8 Intermodal Manifest 2005 2006 2007 Reduced Starts Industry Spot/Pull Good 4% Fewer Starts Percentage 93 89 1% Lower Volume 81 Workforce Sizing 2005 2006 2007 16
Slide 17: Fuel Conservation Efforts
Fuel Conservation Efforts Full Year Fuel Consumption Rate Gallons per Thousand GTMS Fuel Masters Program Good Technology Improvements 1.30 Aiding Conservation 1.28 Automated Shut Down 1.26 Hybrid Switch Locomotives Fuel Conservation Speeds 21 Million Gallons Saved in 2007 2005 2006 2007 17
Slide 18: 2007 Capital Spending
2007 Capital Spending Capital Investment • Safety • Growth Portland • Service Hinkle • Productivity North Chicago Total Capital Plan* Platte $3.1 Billion Oakland Salt St. Louis ($ in Millions) Lake City KC Yuma Los Ft. Worth Locomotives Angeles El Paso $665 Tucson Shreveport Capacity Capacity $421 $
Slide 19: 2008 Operating Priorities
2008 Operating Priorities Safety Improvement Operating Productivity Volume Variable Service Reliability Invest for Future 19
Slide 20: Fourth Quarter Financial Review
Fourth Quarter Financial Review January 24, 2008 Rob Knight, CFO
Slide 21: Fourth Quarter Income Summary
Fourth Quarter Income Summary In Millions ($ Millions Except EPS) 2007 2006 Pct Chg Operating Revenues $4,197 $3,962 +6% Operating Expenses Salaries and Benefits 1,136 1,169 - 3 Fuel and Utilities 913 705 + 30 Equipment & Other Rents 344 346 - 1 Depreciation 337 315 + 7 Materials and Supplies 172 17
Slide 22: Revenue Drivers
Revenue Drivers Fourth Quarter Commodity Revenue Average Revenue Per Car (Millions) ($’s) +6% +6% $4,003 $1,638 $3,775 $1,547 $1,428 $3,455 2005 2006 2007 2005 2006 2007 22
Slide 23: Salaries, Wages & Employee Benefits
Salaries, Wages & Employee Benefits Fourth Quarter – In Millions $1,169 -3% Labor Productivity -3% Workforce $1,136 Flat Volume Fewer Train Starts Lower Training Expenses 2006 2007 23
Slide 24: Monthly Diesel Fuel Prices
Monthly Diesel Fuel Prices Price / Gallon Month 2006 2007 $2.75 2007 October $1.94 $2.44 November $1.90 $2.66 $2.50 December $1.98 $2.68 $2.25 $2.00 2006 $1.75 June July Aug Sep Oct Nov Dec 24
Slide 25: Equipment & Other Rents
Equipment & Other Rents Fourth Quarter – In Millions -1% Ongoing Productivity $346 Faster Asset Turns $344 Lower Freight Car Inventories Increased Locomotive Lease Expense 2006 2007 25
Slide 26: Purchased Services & Other
Purchased Services & Other Fourth Quarter – In Millions $446 -3% Casualty Accrual Reduction Insurance Settlement Increased Productivity $431 Lower Volume 2006 2007 26
Slide 27: Fourth Quarter Operating Ratio
Fourth Quarter Operating Ratio (%) +3.6 +0.4 -4.2 79.6 79.4 4Q 2006 Fuel Price Weather Operating 4Q 2007 Impact Impact Income Growth 27
Slide 28: Fourth Quarter Income Statement
Fourth Quarter Income Statement In Millions ($ Millions Except EPS) 2007 2006 Pct Chg Operating Revenues $4,197 $3,962 + 6% Operating Expenses 3,333 3,152 + 6 Operating Income 864 810 + 7 Other Income – Net 40 57 - 30 Interest Expense (125) (118) + 6 Income Before Income Taxes 779 749 + 4 Income Tax
Slide 29: Operating Ratio Improvement
Operating Ratio Improvement Full Year 86.8 Return Focus 81.5 Operating Productivity 79.3 Organizational Efficiency 2005 2006 2007 29
Slide 30: Full Year Income Statement
Full Year Income Statement In Millions ($ Millions Except EPS) 2007 2006 Pct Chg Operating Revenues $16,283 $15,578 + 5% Operating Expenses 12,908 12,694 + 2 Operating Income 3,375 2,884 + 17 Other Income – Net 116 118 - 2 Interest Expense (482) (477) + 1 Income Before Income Taxes 3,009 2,525 + 19
Slide 31: Cash From Operations
Cash From Operations Full Year (Millions) +14% Increased Profitability $3,277 Significantly Higher Cash Tax Rate +11% Supports Needs of $2,880 Business Capital $2,595 Dividends Share Repurchase 2005 2006 2007 31
Slide 32: Share Repurchase Program
Share Repurchase Program Fourth Quarter Purchases Shares Repurchased 2.4 million shares (Millions) 4.5 $305 Million 3.6 Year-To-Date 12.6 million shares 2.4 2.1 63% of 20 million share authorization $1.5 billion in total purchases 1Q 2Q 3Q 4Q 32
Slide 33: Total Debt Levels
Total Debt Levels In Billions $12.1 $1.2 Billion Total Debt Increase in 2007 $10.9 Maintain Investment Grade Rating Strong Cash Provides 43.6% Additional Capacity 41.6% Lease Adjusted Total Debt ($Billions)* 2006 2007 Lease Adjusted Debt to Capital* * See Union Pacific web site under Investor Relati
Slide 34: 2008 Full Year Outlook
2008 Full Year Outlook Full Year: Volume Growth = -1% to +1% Continued Productivity Fuel Price = +15 to 20% Operating Ratio Improvement EPS = $7.75 to $8.25 (+12 to 19%) ROIC Growth 34
Slide 35: 2008 First Quarter Outlook
2008 First Quarter Outlook 1st Quarter: Volume Growth = Flat to +2% EPS = $1.50 to $1.70 (+6 to 21%) 35
Slide 36: Fourth Quarter Earnings Release
Fourth Quarter Earnings Release January 24, 2008 Jim Young, Chairman and CEO
Slide 37: Expecting A Record 2008
Expecting A Record 2008 Safety Excellence Strong Operating Productivity “Best Ever” Customer Service Continued Price Improvement Record Financial Results 37
Slide 38: Cautionary Information
Cautionary Information This press release and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically statements of management regarding the challenges that the Corporation may face due to overall economic conditions and
Slide 39: Fourth Quarter Earnings Release
Fourth Quarter Earnings Release January 24, 2008 Q&A