Union Pacific Corporation · NYSE:UNP
Union Pacific — Q4 2005 Earnings Presentation
46 slides from Union Pacific's earnings presentation, January 2006
Slide 1: Union Pacific Corporation – Dick Davidson, Chairman
Union Union Pacific Pacific Corporation Corporation Dick Dick Davidson Davidson Chairman Chairman Union Union Pacific Pacific Corporation Corporation
Slide 2: Jim Young, President & CEO
Union Union Pacific Pacific Corporation Corporation Jim Jim Young Young President President & & Chief Chief Executive Executive Officer Officer Union Union Pacific Pacific Corporation Corporation
Slide 3: Fourth Quarter Results
Fourth Quarter Results Union Pacific Corporation +25% +25% $1.10 $0.88 • Kansas Washouts • 42% Higher Fuel Prices • Record Carloads & Revenue $0.30 • 18% Operating Income Growth* 2004 Adjusted 2005 2004* ** See See Union Union Pacific Pacific web web site site under under Investor Investor Relations
Slide 4: 2005 Recap
2005 Recap Union Pacific Corporation +18% +18% $3.41 $2.89 • Record Revenue • Yield Improvement • Operating Gains –– Recoverability Recoverability –– Productivity Productivity • Increased Profitability Adjusted Adjusted 2004* 2005* ** See See Union Union Pacific Pacific web web site site under under
Slide 5: Union Pacific Corporation Fourth Quarter 2005
Union Union Pacific Pacific Corporation Corporation Fourth Fourth Quarter Quarter 2005 2005
Slide 6: Rob Knight, Chief Financial Officer
Union Union Pacific Pacific Corporation Corporation Rob Rob Knight Knight Chief Chief Financial Financial Officer Officer Union Union Pacific Pacific Corporation Corporation
Slide 7: Commodity Revenue Growth
Commodity Revenue Growth Fourth Quarter - In Millions +7.1% $3,455 +5.9% +12.6% $3,070 -0.4% Q4 Volume Yield Fuel Q4 2004 & Mix Recovery 2005
Slide 8: Income Statement Summary
Income Statement Summary Fourth Quarter - In Millions Adjusted 2005 2004* Pct Chg Operating Revenues $3,621 $3,217 + 13 % Operating Expenses Salaries and Benefits 1,108 1,051 + 5 Equipment & Other Rents 353 331 + 7 Depreciation 300 282 + 6 Fuel and Utilities 753 533 + 41 Materials and Supplies 143 1
Slide 9: Operating Expenses
Operating Expenses Fourth Quarter – In Millions Salaries Salaries & & Benefits Benefits Equipment Equipment & & Other Other Rents Rents $1,108 $353 36% 11% $300 Depreciation Depreciation 10% $143 $753 5% 24% $431 Materials Materials & & Supplies Supplies 14% Fuel Fuel & & Utilities Utilities Purchas
Slide 10: Salaries & Benefits
Salaries & Benefits Fourth Quarter – In Millions Fourth Quarter Recap • Better Crew Productivity • Lower Training Expense • Labor Inflation $1,108 • Incentive Compensation 36% • Workforce up 1% Salaries & Benefits: +$57 or 5%
Slide 11: Workforce Levels
Workforce Levels Average Annual Employees 49,747 2005 Recap 48,329 • +2.9% Full-Year Workforce 2006 Outlook • Workforce Levels Linked to Volume & Productivity • 3% Labor Inflation • Options Expense 2004 2005 ** See See Union Union Pacific Pacific web web site site under under Investor Investor Relat
Slide 12: Equipment & Other Rents
Equipment & Other Rents Fourth Quarter – In Millions Fourth Quarter Recap • Increased Leasing of Locomotives & Other Equipment • Improved Car Cycle Times 2006 Outlook $353 • Additional Equipment 11% Leases • Improved Productivity Equipment & Other Rents: +$22 or 7%
Slide 13: Depreciation
Depreciation Fourth Quarter – In Millions 2006 Outlook • Growth Tied to Capital Program $300 10% Depreciation: +$18 or 6%
Slide 14: Fuel & Utilities
Fuel & Utilities Fourth Quarter – In Millions Fourth Quarter Recap • $2.08 Average Diesel Fuel Price • Improved Consumption Rate 2006 Outlook $753 24% • Crude Oil Price $60/Barrel • Current Diesel Price = $1.80 per Gallon Fuel & Utilities: +$220 or 41%
Slide 15: Materials & Supplies
Materials & Supplies Fourth Quarter – In Millions Fourth Quarter Recap • Larger Locomotive Fleet • Inflation 2006 Outlook • Continued Inflation • Larger Maintenance $143 5% Programs Materials & Supplies: +$14 or 11%
Slide 16: Purchased Services & Other
Purchased Services & Other Fourth Quarter – In Millions Fourth Quarter Recap • Partial Insurance Recovery • Increased Joint Facility Costs 2006 Outlook $431 • Productivity Drives Cost 14% Purchased Services & Other: -$9 or (2%)* ** See See Union Union Pacific Pacific web web site site under under In
Slide 17: Operating Ratio
Operating Ratio Operating Ratio (%) Adjusted Ratio (%)* (w/ (w/ Fuel Fuel @ @ 75¢) 75¢) 90.1 90.1 90 90 90 90 88.1 88.1 2004 89.1 89.1 2004 88 88 88 88 87.3 87.3 86.4 86.4 86.0* 86.0* 87.1 86 86 86 87.1 86 85.2 85.2 86.0 86.0 86.1 86.1 85.3 85.3 2004 2004 84 84 84 84 83.3 83.3 2005 2005 2005 2005 81
Slide 18: Income Statement – Fourth Quarter
Income Statement – Fourth Quarter Union Pacific Corporation Adjusted ($ ($ Millions Millions Except Except EPS) EPS) 2005 2004* Operating Revenues $3,621 $3,217 Operating Expenses 3,088 2,766 Operating Income 533 451 Other Income - Net 54 22 Interest Expense (120) (130) Income Before Income Taxes 46
Slide 19: Income Statement – Full Year
Income Statement – Full Year Union Pacific Corporation Adjusted* ($ ($ Millions Millions Except Except EPS) EPS) 2005 2004 Operating Revenues $13,578 $12,215 Operating Expenses 11,783 10,673 Operating Income 1,795 1,542 Other Income - Net 145 88 Interest Expense (504) (527) Income Before Income Taxe
Slide 20: Capital Spending
Capital Spending In Millions $2,860 $2,860 $2,700+ $2,700+ $2,402 $2,402 $2,169 $1,876 2004 2004 2005 2005 2006E 2006E Cash Cash Capital Capital & & Capital Capital Leases Leases Long-Term Long-Term && Flexible Flexible Operating Operating Leases Leases
Slide 21: Free Cash Flow
Free Cash Flow* After Dividends – In Millions $300+ $300+ 2005 Recap $234 $234 $215 $215 • Cash from Operations up $338 • Higher Cash Capital • Increased Cash Taxes 2006 Outlook • Higher Cash Tax Rate • Growing Cash from Operations 2004 2004 2005 2005 2006E 2006E ** See See Union Union Pacific Pacif
Slide 22: Debt-to-Capital
Debt-to-Capital Lease Adjusted – As of December 31 55.0% 51.7% 44.8% 45.1% 43.6% 2001 2002 2003 2004 2005 Lease Lease adjusted adjusted debt debt to to capital capital is is computed computed asas follows: follows: Total Total debt plus net present value of operating leases divided debt plus net pre
Slide 23: Jack Koraleski, EVP Marketing & Sales
Union Union Pacific Pacific Corporation Corporation Jack Jack Koraleski Koraleski Executive Executive Vice Vice President President Marketing Marketing & & Sales Sales Union Union Pacific Pacific Railroad Railroad
Slide 24: Fourth Quarter Highlights
Fourth Quarter Highlights • All-Time Record Revenue: –– Agricultural Agricultural Products, Products, Automotive, Automotive, Chemicals, Chemicals, Industrial Industrial Products Products and and Intermodal Intermodal • All-Time Record ARC: –– Agricultural Agricultural Products, Products, Chemicals,
Slide 25: Agricultural Products
Agricultural Products Fourth Quarter •• $558 $558 MM MM Revenue: Revenue: +18% +18% Revenue Mix •• Volume: Volume: (1%) (1%) •• Average Average Revenue Revenue Per Per Car: Car: +19% +19% Food/ Refrig. Whole 22% Quarterly Highlights Grains 39% Grain •• Continued Continued Strong Strong Demand Demand
Slide 26: Automotive
Automotive Fourth Quarter •• $352 $352 MM MM Revenue: Revenue: +8% +8% Revenue Mix •• Volume: Volume: (1%) (1%) •• Average Average Revenue Revenue Per Per Car: Car: +9% +9% Auto Parts 18% Quarterly Highlights Finished Vehicles •• Strong Strong Demand Demand for for Quarter-End Quarter-End 82% Finish
Slide 27: Chemicals
Chemicals Fourth Quarter •• $476 $476 MM MM Revenue: Revenue: +6% +6% Revenue Mix •• Volume: Volume: (6%) (6%) •• Average Average Revenue Revenue Per Per Car: Car: +13% +13% Plastics Petro & 21% Other 21% Quarterly Highlights Fertilizer Liquid & Dry •• Softer Softer Demand Demand for for Export Expo
Slide 28: Energy
Energy Fourth Quarter •• $629 $629 MM MM Revenue: Revenue: +6% +6% Revenue Mix •• Volume: Volume: +1% +1% •• Average Average Revenue Revenue Per Per Car: Car: +6% +6% CO/UT 25% Quarterly Highlights Other Other 8% •• 8% SPRB SPRB Volume Volume Growth Growth Restricted Restricted SPRB Due Due to to Jo
Slide 29: Industrial Products
Industrial Products Fourth Quarter •• $746 $746 MM MM Revenue: Revenue: +19% +19% Revenue Mix •• Volume: Volume: Flat Flat Paper Paper Steel •• Average Average Revenue Revenue Per Per Car: Car: +19% +19% Consumer/ Consumer/ 15% 15% 16% Gov’t/ Gov’t/ Waste Waste 11% 11% Non- Non- Lumber Quarterly Hig
Slide 30: Intermodal
Intermodal Fourth Quarter •• $694 $694 MM MM Revenue: Revenue: +14% +14% •• Volume: Volume: +5% +5% Revenue Mix •• Average Average Revenue Revenue Per Per Unit: Unit: +9% +9% International Quarterly Highlights 52% •• Continued Continued Strength Strength in in International International Volume Volu
Slide 31: Customer Satisfaction Index
Customer Satisfaction Index 2005 CSI & Average 7-Day Carloadings 190 188 185 180 67 66 63 60 Q1 Q2 Q3 Q4 Customer Customer Service Service Index Index Average Average 7-Day 7-Day Carloadings Carloadings (000s) (000s)
Slide 32: 2006 Commodity Revenue Outlook
2006 Commodity Revenue Outlook Pricing Opportunity Key Drivers % % of of Commodity Commodity Revenue Revenue • Volume: 3% • Revenue Growth in All 2007+ 2007+ Groups 32% 32% Repriced Repriced • Volume Growth in Industrial 55% 55% Products and Intermodal 2006 2006 • Significant Coal Volume and 13% 13%
Slide 33: Dennis Duffy, EVP Operations
Union Union Pacific Pacific Corporation Corporation Dennis Dennis Duffy Duffy Executive Executive Vice Vice President President Operations Operations Union Union Pacific Pacific Railroad Railroad
Slide 34: Network Operations
Network Operations 2005 AAR Velocity - MPH 23 23 Good Good Hurricanes West Coast Storm 21 21 PRB PRB Issues Issues Kansas Kansas Floods Floods 19 19 Blizzards Jan Jan Feb Mar Apr Feb Mar May Jun Apr May Jul Aug Jun Jul Sep Oct Aug Sep Nov Dec Oct Nov Dec Jan Jan ‘06 ‘06 MTD MTD
Slide 35: Coal Operations
Coal Operations Average Trains Per Day – Southern Powder River Basin 35.2 35.2 33.1 32.3 December Performance 30.1 • 1st st Half: 29.3 TPD • 2nd nd Half: 35.0 TPD Oct Nov Dec Jan MTD
Slide 36: Critical Resources
Critical Resources Improved Recoverability Crews 2004 2005 2006* Trainmen Grads 4,979 2,072 2,500 Engineer Grads 680 1,700 1,100 Locomotives 2004 2005 2006* New Freight 393 317 200 Freight Cars 2004 2005 2006* New or Leased Cars 5,000 4,200 2,700 ** Estimates Estimates
Slide 37: Productivity
Productivity 2004 vs. 2005 Freight Car Utilization Days Days 11.2 11.2 Principles 10.9 10.9 • Design for Achievability • Maintain for Reliability 2004 2004 2005 2005 • Drive Asset Utilization Fuel Consumption Rate • Leverage the Network Gallons Gallons per per Thousand Thousand GTMs GTMs • Transfer
Slide 38: Unified Plan
Unified Plan 2005 Performance Work Work Events Events Per Per 1,000 1,000 Carloads Carloads Switches Switches Per Per 1,000 1,000 Carloads Carloads Excludes Excludes Coal Coal 155 155 Excludes Excludes Coal Coal 29.3 29.3 -12% -16% 27.3 27.3 140 140 137 137 25.8 25.8 134 134 24.7 24.7 Q1 Q1 Q2 Q2 Q3
Slide 39: CIMS
CIMS Customer Inventory Management System • Pro-Active Inventory Control –– Production Production Performance Performance Portland –– Customer Customer Behavior Behavior • Asset Productivity Salt Lake City • Capacity Creation Roseville Kansas City Las Vegas • Improvements: –– Inventory: Inventory: 2
Slide 40: 2006 Capital Plan
2006 Capital Plan Major Projects Seattle Portland Portland Mason Chicago Chicago City North North Platte Platte Salt Salt Lake Lake City City Kansas Kansas St. Oakland Oakland Denver Denver St. Louis Louis City City Las Las Vegas Vegas Los Los Angeles Angeles Yuma Phoenix Tucson Dallas Dallas Fort F
Slide 41: 2006 Performance Outlook
2006 Performance Outlook •• Safety Safety –– Employee, Employee, Customer, Customer, & & Public Public •• Network Network Simplification Simplification –– Plan Plan Compliance Compliance • Customer –– Unified Unified Plan Plan Service –– CIMS CIMS • Asset •• Productivity Productivity Initiatives Ini
Slide 42: Jim Young, President & CEO
Union Union Pacific Pacific Corporation Corporation Jim Jim Young Young President President & & Chief Chief Executive Executive Officer Officer Union Union Pacific Pacific Corporation Corporation
Slide 43: 2006 Outlook
2006 Outlook First Full Year Quarter Commodity Revenue Growth 15%+ 10%+ Operating Ratio Improvement 3+ pts 2.5 to 3 pts Earnings Per Share $0.80 to $0.90 $4.60 to $4.80 Total Capital (in Billions) $2.7+ Free Cash Flow (after Dividends, in Millions)* $300+ ** See See Union Union Pacific Pacific web w
Slide 44: Union Pacific Is Committed To Be A Company Where
Union Pacific Is Committed To Be A Company Where Employees Are Proud To Work Customers Want To Employees Employees Do Business Shareholders Customers Customers Shareholder Value Is Created Safety of the Public and Our Employees is Our Top Priority Safety
Slide 45: 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
Slide 46: Union Pacific Corporation Fourth Quarter 2005
Union Union Pacific Pacific Corporation Corporation Fourth Fourth Quarter Quarter 2005 2005