Union Pacific Corporation · NYSE:UNP
Union Pacific — Q2 2006 Earnings Presentation
39 slides from Union Pacific's earnings presentation, Jul 20, 2006
Slide 1: Second Quarter Earnings Release
Second Quarter Earnings Release July 20, 2006 Jim Young, President & CEO
Slide 2: Second Quarter Results
Second Quarter Results Diluted Earnings per Share Operating Income In Millions +64% $1.44 +53% $717 $0.88 $468 2005 2006 2005 2006 2
Slide 3: Second Quarter Highlights
Second Quarter Highlights • Record Volumes – 7-day carloading record of 201,467 – May: Highest carloading month ever of 857,429 carloads • Record Revenue – Operating revenue of $3.9 B • Operating Ratio Improvement of 4.3 pts – Best operating ratio since 4th quarter 2003 3
Slide 4: Second Quarter Earnings Release
Second Quarter Earnings Release July 20, 2006 Jim Young, President & CEO
Slide 5: Second Quarter Financial Review
Second Quarter Financial Review July 20, 2006 Rob Knight, CFO
Slide 6: Income Statement Summary
Income Statement Summary Second Quarter – In Millions 2006 2005 Pct Chg Operating Revenues $3,923 $3,344 +17% Operating Expenses Salaries and Benefits 1,140 1,075 + 6 Fuel and Utilities 794 597 + 33 Equipment and Other Rents 371 340 + 9 Depreciation 308 292 + 5 Materials and Supplies 178 128 + 39 Pu
Slide 7: Commodity Revenue Growth
Commodity Revenue Growth Second Quarter - In Millions +5.8% $3,742 +6.5% +17.1% +4.8% $3,196 2005 Volume Yield Fuel 2006 & Mix Recovery 7
Slide 8: Salaries & Benefits
Salaries & Benefits Second Quarter – In Millions + $65 $1,140 $1,075 • Improved Productivity • Wage Inflation & Volume Costs Full Year Outlook • ~ ~ 2.5% Workforce Increase 2005 Change 2006 8
Slide 9: Fuel & Utilities
Fuel & Utilities Second Quarter Second Quarter Fuel Price Dollars Per Gallon $2.15 $1.67 • Fuel Surcharge Lag Hurts Recovery – Q1 recovery = 92% – Q2 recovery = 80% 2005 2006 Third Quarter • Q2 Earnings Impact ~ ~$0.13/Diluted Dollars per Gallon Share $2.20-$2.40 • Q3 Earnings Impact Expected $1.88
Slide 10: Equipment & Other Rents
Equipment & Other Rents Second Quarter – In Millions + $31 $371 $340 • Volume Related Costs • Locomotive Lease Expense • Productivity – Improved car cycle times 2005 Change 2006 10
Slide 11: Expenses
Expenses Second Quarter – In Millions Materials & Supplies $178 + $50 Category Cost Shift $128 • More In House Maintenance • Less Contract Cost Materials & Supplies 2005 Change 2006 • Inflation Purchased Services & Other • Increased Maintenance $444 - $29 $415 Purchased Services & Other • Lower Join
Slide 12: Operating Ratio Trend
Operating Ratio Trend 90.1% 86.0% 86.1% 85.3% 83.7% 81.7% Q1 Q2 Q3 Q4 Q1 Q2 2005 2005 2005 2005 2006 2006 12
Slide 13: Full Income Statement
Full Income Statement Second Quarter – In Millions ($ Millions Except EPS) 2006 2005 Pct Chg Operating Revenues $ 3,923 $ 3,344 +17% Operating Expenses 3,206 2,876 + 11 Operating Income 717 468 + 53 Other Income – Net 29 29 Flat Interest Expense (120 ) (128 ) - 6 Income Before Income Taxes 626 369 +
Slide 14: 2006 Capital Outlook
2006 Capital Outlook In Millions $2,860 $2,800 $2,300 $2,169 2005 2006 Estimate Cash Capital & Capital Leases Long-Term Operating Leases 14
Slide 15: Cash From Operations
Cash From Operations Six Months Ended June 30 – In Millions $1,233 $1,137 $1,057 $950 2003 2004 2005 2006 15
Slide 16: Balance Sheet Strength
Balance Sheet Strength Leased Adjusted Debt to Capital 51.7% 44.8% 45.1% 43.6% 41.2% 2002 2003 2004 2005 June 2006 * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. Prior year percentages are shown as of December 31. 16
Slide 17: Second Quarter Financial Review
Second Quarter Financial Review July 20, 2006 Rob Knight, CFO
Slide 18: Second Quarter Marketing & Sales Review
Second Quarter Marketing & Sales Review July 20, 2006 Jack Koraleski, Executive VP – Marketing & Sales
Slide 19: Second Quarter Overview
Second Quarter Overview 5% • Revenue – Record Quarter In All Six Business Groups • Average Revenue Per Car % 11 – Record Quarter In Agricultural, Energy, Industrial and Intermodal – Record Second Quarter in Chemicals • Year-over-Year Improvement In Customer Satisfaction % 17 19
Slide 20: Energy
Energy Second Quarter • $732 MM Revenue: +16% Revenue Mix • Volume: +9% • Average Revenue Per Car: +6% CO/UT 25% Other Quarterly Highlights 7% SPRB • All-Time Record SPRB Tonnage 68% • CO/UT Volumes Declined 7% Due to Continued Mine Interruptions 20
Slide 21: Intermodal
Intermodal Second Quarter • $694 MM Revenue: +16% Revenue Mix • Volume: +7% • Average Revenue Per Unit: +9% International 57% Quarterly Highlights Domestic • Continued Strength In Imports 36% Pushed International Volume Past Last Year’s Peak Level • Domestic Volume Down Slightly Premium 7% 21
Slide 22: Automotive
Automotive Second Quarter • $390 MM Revenue: +18% Revenue Mix • Volume: +7% • Average Revenue Per Car: +11% Auto Parts 19% Quarterly Highlights Finished • Finished Vehicle Shipments Vehicles Continued Strong 81% • Parts Growth Driven By New Business 22
Slide 23: Other Commodity Highlights
Other Commodity Highlights • Agricultural Products Growth Driven by Ethanol, DDG and Cottonseed • Continued Softer Demand for Export Potash, Offset by Strong Petroleum Products Shipments • Strong Commercial Construction Demand, But Slowdown in Lumber & Panel Products • Intentional Shedding of Low- M
Slide 24: Customer Satisfaction Index
Customer Satisfaction Index Good 70 69 67 66 63 60 Q1 Q2 Q3 Q4 2005 2006 24
Slide 25: Commodity Outlook
Commodity Outlook Commodity Revenue Growth 18% 17% Third Quarter Outlook • Volume Up 5% 11% • Revenue Up 17% Full-Year Outlook 6% • Volume Up 5% 4% • Revenue Up 16% to 17% 3% 2002 2003 2004 2005 Q1 Q2 Carloads 2006 2006 Average Revenue per Car 25
Slide 26: Second Quarter Operating Review
Second Quarter Operating Review July 20, 2006 Dennis Duffy, Executive VP - Operations
Slide 27: Safety - Incidents & Reportables
Safety - Incidents & Reportables Six Months Ended June 30 Employee Rail Equipment Per 200,000 Work Hours Good Per Million Train Miles Good 3.29 2.96 18.51 17.91 2.79 15.79 1.80 1.77 1.61 4.59 4.39 4.17 2004 2005 2006 2004 2005 2006 Incidents Reportables 27
Slide 28: Service Update
Service Update Second Quarter Velocity Average 7-Day Carloadings AAR Velocity Units MPH Good Good 194,281 21.2 21.2 184,734 2005 2006 2005 2006 28
Slide 29: Productivity
Productivity Second Quarter Carloadings Per Average Freight Car Inventory* Good 7.7 7.6 7.5 7.3 2003 2004 2005 2006 * UP Methodology 29
Slide 30: Productivity
Productivity Second Quarter Gross Ton-Miles Per Employee Freight Car Utilization In Thousands Good Days Good 5,385 11.4 5,327 10.7 5,191 10.5 2004 2005 2006 2004 2005 2006 Freight Train Miles Good Fuel Consumption Rate Per Mile of Road 1,263 Gallons per Thousand GTMs Good 1,219 1.33 1.29 1.27 1,172
Slide 31: Unified Plan
Unified Plan Work Event & Switch Rate Second Quarter Per Thousand Carloads* Good 28.5 1,463 9% 17 1,336 % 23.5 • Network Simplification • More Point-to-Point Trains 2005 2006 2005 2006 • Streamlined Southern * Excludes Energy Carloads Region Traffic Flows Industry Spot / Pull Good Percentage 88 • Re
Slide 32: Coal Productivity & Service
Coal Productivity & Service Second Quarter Average Trains Per Day Coal Cycle Performance Southern Powder River Basin Index Good Good 35.0 92.4 31.2 89.7 2005 2006 2005 2006 32
Slide 33: Intermodal Service Improvement
Intermodal Service Improvement Peak Season 2005 vs. Spring 2006 LA to Memphis Premium Offering Good Spring 2006 % of Deliveries Peak 2005 Chicago Kansas City Transit Time Memphis LA to Memphis Standard Offering Los Phoenix Angeles Dallas Good % of Deliveries New Tucson El Orleans Paso San Houston An
Slide 34: Capital
Capital South & West Second Quarter Highlights • Sunset Double Track – 11 miles cutover • LA Basin Improvements • Siding Addition between LA and Las Vegas North Chicago Salt Lake Platte Midwest City • 3rd Main on SPRB Joint Line Las Vegas • Iowa CTC Cutover Los Angeles Gulf Coast Tucson Ft. El Paso
Slide 35: Third Quarter Outlook
Third Quarter Outlook Peak Season Operations • Record Volumes • Fully Resourced • Increasing Productivity • Improving Service Reliability • Safety 35
Slide 36: Second Quarter Earnings Release
Second Quarter Earnings Release July 20, 2006 Jim Young, President & CEO
Slide 37: 2006 Outlook
2006 Outlook Third Quarter Full Year Commodity Revenue Growth 17% 16% to 17% Operating Ratio Improvement 4 to 5 pts 4+ pts Diluted Earnings Per Share $1.40 to $1.50 $5.50 to $5.60 Total Capital (in Millions) $2,800 Free Cash Flow* (after Dividends, in Millions) $450 * See Union Pacific web site unde
Slide 38: Second Quarter Earnings Release
Second Quarter Earnings Release July 20, 2006 Jim Young, President & CEO
Slide 39: Cautionary Information
Cautionary Information This presentation and related materials may contain statements about the Corporation’s future that are not statements of historical fact. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 19