Union Pacific Corporation · NYSE:UNP
Union Pacific — Q3 2008 Earnings Presentation
34 slides from Union Pacific's earnings presentation, Oct 23, 2008
Slide 1: Third Quarter Earnings Release
Third Quarter Earnings Release October 23, 2008 Jim Young, Chairman & CEO
Slide 2: Third Quarter Results
Third Quarter Results Diluted Earnings per Share Operating Income In Millions + 38% + 21% $1.38 $1 215 $1,215 $1 005 $1,005 $1.00 2007 2008 2007 2008 2
Slide 3: Third Quarter Highlights
Third Quarter Highlights Franchise Diversity Record Operating Revenue Moderating Diesel Fuel Prices Increased Customer Satisfaction Strong St Operating O ti Productivity 3
Slide 4: Third Quarter Marketing & Sales Review
Third Quarter Marketing & Sales Review October 23, 2008 Jack Koraleski, Executive VP – Marketing & Sales
Slide 5: Third Quarter Overview
Third Quarter Overview Freight Revenue Highlights $4.6 Billion, +16% ($Millions) Improved Average Revenue Per Car Intermodal Agricultural Best-Ever Revenue: $842 +9% $848 +27% Agricultural, Chemicals, Energy, Industrial Products & Autos Industrial $324 (7%) Intermodal Products $906 +15% Chemical
Slide 6: Third Quarter Carloadings
Third Quarter Carloadings Agricultural 5% Drivers -24% Economic Softness Automotive Gulf Hurricanes -6% Chemicals Continued Global Demand for Energy Energy 3% and Food Industrial Products -3% Intermodal -9% TOTAL -5% 6
Slide 7: Chemicals
Chemicals Third Quarter Volumes Volumes* Plastics Q Quarterly t l Drivers Di 19.1 18.2 Hurricane Impact on Gulf Coast Production Recovery On-Going 12.9 Softening g in Some Markets July August September Growth in Fertilizer Liquid & Dry Fertilizer 21.5 20.8 +6% 29.9 28.3 15.7 5 July August Se
Slide 8: Intermodal
Intermodal Third Quarter International Volume* -14% Quarterly Drivers 610 Economic Weakness Drives International Decline 524 Gains with Motor Carriers and Intermodal Marketing Companies Boost Domestic 2007 2008 Domestic Volume* Equipment Management P Program (EMP) 2% 310 Revitalization 303 200
Slide 9: Energy
Energy Third Quarter Quarterly Drivers SPRB Trains Per Day 38.4 Network Productivity & 37.9 Efficiency 36 9 36.9 35.7 Strong Demand CO/UT Production Problems ‘07 July Aug Sep SPRB Tonnage* S o age g CO/UT Tonnage* +7% -7% 54.1 11.7 10 8 10.8 50.3 2007 2008 2007 2008 *Millions of Tons 9
Slide 10: Customer Satisfaction Index
Customer Satisfaction Index Third Quarter Good 83 79 74 2006 2007 2008 10
Slide 11: 2008 Outlook
2008 Outlook Fourth Quarter Growth Energy 2008 Volume Potential (+) Fourth Quarter: ~ ~ -5% Agricultural Products Mixed Full Year: Demand Chemicals ~ ~ -3% Drivers (+/ ) (+/-) Industrial Products 2008 Core Price Domestic Intermodal Full Year: ~ ~ +6% Weak International Intermod
Slide 12: 2009 – A Look Ahead
2009 – A Look Ahead Volumes Flat to Down 2% Softer First Half with Some Second Half Strengthening Vehicle and Construction Markets Stay Soft Energy-Related Markets Stay Strong Opportunity for Highway Conversions Peak Season to Reappear in 2009 Pricing Plan Solid in the 5 to 6% Range
Slide 13: Third Quarter Operating Review
Third Quarter Operating Review October 23, 2008 Dennis Duffy, Executive VP – Operations
Slide 14: Network Improvement & Resiliency
Network Improvement & Resiliency AAR Velocity y - 2008 24.0 MPH MPH 2008 YTD Average: 23.0 MPH June Midwest Fl di Flooding Impact 24.0 23.0 Gulf Hurricanes Ike & Gustav 22.0 2007 Avg: 21.8 MPH 2006 Avg: 21.4 MPH 21.0 Week Ending 1/4 5/30 10/17 14
Slide 15: Network Efficiency
Network Efficiency Third Quarter AAR Terminal Dwell 26.2 Hours Good Unified Plan 25.2 24.4 Flow Control Best E Ever Customer Inventory 2006 Management System (CIMS) 2007 2008 AAR Inventory (000) Good Productivity 320 312 5% Fewer Train Starts 300 4% Fewer Yard/Local Starts Best 3% Lowe
Slide 16: Productivity & Service
Productivity & Service Third Quarter Freight Car Utilization Recrew Rate (Days) Good % Good 11.1% 10.4 9.8% 9.8 9.2 7.8% Best Ever 2006 2007 2008 2006 2007 2008 GTMs/Employee Customer Satisfaction Index (000s) Good Good % 5,429 83 5,383 79 5 265 5,265 74 2006 2007 2008 2006 2007 2008 16
Slide 17: 4th Quarter Operating Plan
4th Quarter Operating Plan Enhanced Safety Resourced & Resilient O On Target T t with ith Capital C it l Spending Continued Service & Productivity Improvement 17
Slide 18: Third Quarter Financial Review
Third Quarter Financial Review October 23, 2008 Rob Knight, CFO
Slide 19: Income Statement Summary
Income Statement Summary* Third Quarter – In Millions 2008 2007 Pct Chg Operating Revenues Freight Revenues $44,630 630 $33,990 990 +16% Other Revenues 216 201 +7% Total Operating Revenues $ 4,846 $ 4,191 +16% Operating Expenses Compensation and Benefits 1,123 1,095 +3% Fuel 1,135 786 +44% 44% Purch
Slide 20: Freight Revenue Drivers
Freight Revenue Drivers Third Quarter – In Millions -5% Carloads +16% Economic Softness $4,630 Gulf Coast Hurricanes $3,990 IIncreased d Fuel F l Cost C t Recovery +6.5% Core Pricing g Gains Positive Business Mix Adds +5% to Average Revenue Per Car 2007 2008 20
Slide 21: Compensation & Benefits
Compensation & Benefits Third Quarter – In Millions 4% Wage Increase in +3% National Contracts $1,123 Effective 7/1/08 $1,095 Labor Productivity Strong Productivity Outlook 2007 2008 21
Slide 22: Fuel Expense
Fuel Expense Third Quarter Average Fuel Price Per Gallon Consumed $3.70 Record Diesel Fuel Price +59% versus 2007 $2.32 Increased Fuel Cost Recovery E Expected t d Fourth F th Quarter Q t Diesel Price 2007 2008 ~ ~ $2.95 per Gallon F l Consumption Fuel C ti Gallons (in millions) 329 297 20
Slide 23: Purchased Services & Materials
Purchased Services & Materials Third Quarter – In Millions Flat +$11M $ Increased Costs for $479 $481 Hurricanes +$7M Freight Car Wheel Sets Rail Scrap Proceeds Reduced Locomotive Contract Maintenance 2007 2008 23
Slide 24: Equipment and Other Expense
Equipment and Other Expense Third Quarter – In Millions Equipment and Other Rents -5% $342 $326 Equipment q p Improved Asset Utilization Reduced Locomotive & Freight Car Leased Equipment 2007 2008 Other Expense +43% $218 Other $47M Casualty Expense Reduction in 2007 $152 2007 2008 24
Slide 25: Operating Ratio
Operating Ratio Third Quarter -11.2 Pts 86.1 Yield Gains 81.1 Core Price Improvements Fuel Cost Recoveries Strong Productivity 76.0 74.9 Safety Gains Project Operating Ratio 2005 2006 2007 2008 (%) 25
Slide 26: Full Income Statement
Full Income Statement Third Quarter – In Millions (Except EPS) 2008 2007 Pct Chg Operating Revenues $ 4,846 $ 4,191 +16% Operating Expenses 3,631 3,186 + 14 p Operatingg Income $ 1,215 , $ 1,005 , +21 Other Income – Net 23 25 -8 Interest Expense (130) (124) +5 Income Before Income Taxes 1 108 1,108
Slide 27: 2008 Capital Update
2008 Capital Update $Billions $3.1 $3.1+ +$80M Oregon Mudslide and Midwest Flooding ~ ~ $2.8 Equipment Lease $2.6 Financing $516M in 2007 $353M in 2008 2007 2008E Cash & Non Cash Capital Long g Term Operating p g & Capital p Leases 27
Slide 28: Share Repurchase Program
Share Repurchase Program Cumulative Shares Repurchased (Millions) $2.8 Billion Returned to Third Q Quarter Purchases Shareholders since January 2007 5.9 Million Shares 44.0 $445M Returned to Sh Shareholders h ld 38.1 31.8 2008 Repurchase 25.2 Summary 20.4 18.8 Million Shares 11.3 Repurchas
Slide 29: Total Debt Levels
Total Debt Levels Third Quarter - In Billions $12.7 $12.3 Issued $750M $750M, 10 year Notes on 10/7/08 Upcoming Debt Maturities $250M on 11/1/08 44.7% $250M on 2/15/09 44 3% 44.3% Maintain BBB/Baa2 Investment Grade Rating Adjusted Total Debt ($Billions)* 2007 2008 Adjusted Debt to Capital*
Slide 30: Strong Liquidity Position
Strong Liquidity Position Cash Balance at 9/30/08: $85 $857M $750M Debt Issuance 2008 Equipment q p Financing Completed $395M $1.9B $1 9B Undrawn Credit Facility 30
Slide 31: 2008 Outlook
2008 Outlook 4th Quarter: EPS = $$1.25 to $ $1.35 (+34 to 45%) Volume ~ ~ -5% Diesel Fuel ~ ~ $2.95/gallon Full Year: EPS = $4.50 to $4.60 (+30 to 33%) 31
Slide 32: Third Quarter Earnings Release
Third Quarter Earnings Release October 23, 2008 Jim Young, Chairman & CEO
Slide 33: Looking Ahead to 2009
Looking Ahead to 2009 Confidence in the Future Franchise Diversity Legacy Contract Opportunities +5 to 6% Core Price Continuous Productivity Gains Service Enhancements Strong Balance Sheet Low Double-Digit Double Digit Earnings Growth 33
Slide 34: Cautionary Information
Cautionary Information This presentation and related materials contain statements about the Corporation’s future that are not statements of historical fact, including specifically expectations regarding the Corporation’s fourth quarter earnings and statements of management regarding the Corporation’