Union Pacific Corporation · NYSE:UNP
Union Pacific — Q4 2009 Earnings Presentation
40 slides from Union Pacific's earnings presentation, Jan 21, 2010
Slide 1: Fourth Quarter Earnings Release
Fourth Quarter Earnings Release January 21, 2010 Jim Young, Chairman & CEO 1
Slide 2: Fourth Quarter Results
Fourth Quarter Results Revenue Carloads Diluted Earnings per Share (Year-Over-Year % Change) 4% -18% $1.31 $1.08 -3% -13% 2008 2009 October November December 2
Slide 3: Delivering Strong Results in a Recession
Delivering Strong Results in a Recession 2009 Year-End Review • Safety Records • Excellent Operations – Best ever service metrics – Customer service “bests” • Record Operating Ratio • Strong Balance Sheet • Positioned for the Future 3
Slide 4: Fourth Quarter Marketing & Sales Review
Fourth Quarter Marketing & Sales Review January 21, 2010 Jack Koraleski, Executive VP – Marketing & Sales 4
Slide 5: Fourth Quarter Recap
Fourth Quarter Recap Volume Revenue Agricultural 3% -7% Automotive 1% -1% Chemicals -2% -7% Energy -15% -22% Industrial -21% -28% Intermodal 5% -3% TOTAL -5% -13% 5
Slide 6: Agricultural Products
Agricultural Products Fourth Quarter - $738 Million Revenue Mix Quarterly Drivers • Strong Export Demand for Soybeans and Meal Food/ Refrigerated • Growth in Ethanol & DDGS Grain 21% Products • Record Unit Train Moves 40% 3 Whole Grains 39% -7 -10 Volume ARC Revenue (%) 6
Slide 7: Automotive
Automotive Fourth Quarter - $302 Million Revenue Mix Quarterly Drivers • Increased Production Auto • Parts Growth Parts 21% 1 Finished Vehicles 79% -1 -2 Volume ARC Revenue (%) 7
Slide 8: Chemicals
Chemicals Fourth Quarter - $539 Million Revenue Mix Quarterly Drivers • Weak Soda Ash and Petroleum Markets Fertilizer 14% Plastics 20% • Late Harvest Impacts Fertilizer Petroleum & Other • Export Plastics Growth 23% Industrial Chemicals 26% Soda Ash -2 17% -5 -7 Volume ARC Revenue (%) 8
Slide 9: Energy
Energy Fourth Quarter - $765 Million Revenue Mix Quarterly Drivers • Tough Year-Over-Year Other Comparison 8% • High Coal Stockpiles Colorado/Utah • 1/1/09 Southern Powder River 20% Southern Basin Contract Losses Powder River Basin 72% • Colorado/Utah Production Issues -8 -15 -22 Volume ARC Revenue
Slide 10: Industrial Products
Industrial Products Fourth Quarter - $513 Million Revenue Mix Quarterly Drivers • Major Segments Reflect Economic Weakness Metals 23% • Waste Shipments Grow Lumber Construction 16% Products 14% Consumer/ Waste/ Minerals/ Machinery -9 10% Consumer Paper 21% 16% -21 -28 Volume ARC Revenue (%) 10
Slide 11: Intermodal
Intermodal Fourth Quarter - $684 Million Revenue Mix Quarterly Drivers • International Weakness vs. Domestic Strength International • New Hub Business 49% 5 Domestic 51% -3 -8 Volume ARC Revenue (%) 11
Slide 12: Customer Satisfaction Index
Customer Satisfaction Index Full Year 88 83 79 2007 2008 2009 12
Slide 13: Legacy Opportunity
Legacy Opportunity Total Percent of Revenue 18+% To Re-Price 14% To Re-Price (As of 1/1/2009) (As of 1/21/2010) 2009 2% <1% 2010 3% 2010 4% 1% 6% 2011 Re-Priced 4% 2011 Re-Priced since 2004 2% 2012 since 2004 2% 2012 7% 2013+ 7% 2013+ Remaining Legacy Energy 67% Intermodal 29% All Other 4% 13
Slide 14: 2010 Outlook
2010 Outlook • Consumer Spending/ Economic Recovery • Volume Growth Opportunities in All Groups • Pricing Gains • Strong Value Proposition 14
Slide 15: Fourth Quarter Operations Review
Fourth Quarter Operations Review January 21, 2010 Dennis Duffy, Vice Chairman – Operations 15
Slide 16: 2009 Safety Performance
2009 Safety Performance Employee Customer (Personal Injury Incidents Per (Incidents Per Million Train Miles) 200,000 Man-Hours) -24% -26% 2006 2007 2008 2009* 2006 2007 2008 2009* Public (Crossing Accidents Per Million Train Miles) -26% 2006 2007 2008 2009* *Best ever safety performance 16
Slide 17: 2009 Service Metrics
2009 Service Metrics Full Year AAR Velocity Freight Car Utilization (MPH) (Cycle Days) Good Good 27.3 10.5 21.4 8.6 2006 2007 2008 2009* 2006 2007 2008 2009* AAR Terminal Dwell Service Delivery Index** (Hours) Good Good 92 27.2 24.8 69 2006 2007 2008 2009* 2006 2007 2008 2009* *Best ever service met
Slide 18: Performance Sustainability
Performance Sustainability Volume Service Upside Variability Excellence Leverage Furloughs/Stored*: Service Performance & Volume • Train Capacity and • 4,200 TE&Y Locomotive 100 225 7-Day Carloads Practices • 1,600 Locomotives • 44,000 Freight Cars 90 200 • Surge Capabilities 175 • Process Disciplin
Slide 19: 2009 Capital Achievements
2009 Capital Achievements $2.5 Billion Investment (In Millions) Portland Engineering “Red X” Replacement Chicago $1,675 Joliet Salt Lake Capacity/ City North Commercial Platte Facilities Oakland Denver Kansas $375 City St. Louis Locomotives & Equipment Technology $375 Los Angeles El Paso Ft. & Other
Slide 20: 2010 Operating Initiatives
2010 Operating Initiatives • Drive Toward “Best in Class” Safety • Service Excellence • Strong Infrastructure • Fewer Assets, More Carloadings • Resilient, Agile and Volume Variable 20
Slide 21: Fourth Quarter Financial Review
Fourth Quarter Financial Review January 21, 2010 Rob Knight, CFO 21
Slide 22: Fourth Quarter Earnings Summary
Fourth Quarter Earnings Summary In Millions (except EPS) 2009 2008 % Operating Revenue $ 3,754 $ 4,286 (12) Operating Expense 2,752 3,145 (12) Operating Income 1,002 1,141 (12) Other Income 23 25 (8) Interest Expense (153) (127) 20 Income Taxes (321) (378) (15) Net Income $ 551 $ 661 (17) Weighted A
Slide 23: Diluted Earnings Per Share Comparison
Diluted Earnings Per Share Comparison* Fourth Quarter $1.31 2009 Earnings Offsets $1.09 $1.08 • Casualty Costs +$0.04 $0.22 • One-Time Pacer Payment -$0.04 Business Summary • Price and Productivity Reported Fuel 2008 Reported Offset Volume Decline 2008 Surcharge Lag Impact Excluding Fuel 2009 and In
Slide 24: Continued Core Pricing Gains
Continued Core Pricing Gains Quarterly Full Year (2009) 7% 6% 6% 6% 6% 5.5% 6.5% 6% 5% 5% 5.5% 5% 5% 4.5% 4% 3.5% Q1 Q2 Q3 Q4 2006 2007 2008 2009 Price Excluding RCAF Fuel Impact Reported Core Price (Including RCAF Fuel Impact) 24
Slide 25: Compensation & Benefits
Compensation & Benefits Fourth Quarter – In Millions -8% $1,101 • 10% Workforce Reduction $1,018 • Improved Labor Efficiency – Volume variability – Less overtime 2008 2009 25
Slide 26: Fuel Expense
Fuel Expense Fourth Quarter – In Millions Average Fuel Price (Per Gallon Consumed) $2.46 $2.05 • Reduced Fuel Prices Saved $102 Million • -10% GTMs Saved $73 Million 2008 2009 • Impact of Fuel Conservation Fuel Consumption (Million Gallons) Programs and Technology 289 Investments 256 2008 2009 26
Slide 27: Purchased Services & Materials
Purchased Services & Materials Fourth Quarter – In Millions -8% $458 $421 • Decreased Contract Services Expense – Less crew transportation and lodging – Lower facility costs • Less Locomotive and Freight Car Material 2008 2009 27
Slide 28: Depreciation
Depreciation Fourth Quarter – In Millions +7% $377 $353 • Ongoing Capital Investments • Restructured Locomotive Leases 2008 2009 28
Slide 29: Equipment and Other Rents
Equipment and Other Rents Fourth Quarter – In Millions -17% $320 • Restructured Locomotive $266 Leases • Lower Volume & Increased Productivity – Less leased equipment – Reduced short-term car rents 2008 2009 29
Slide 30: Other
Other Fourth Quarter – In Millions -29% $181 • $30 Million Pacer Payment $129 • Reduced Casualty Expense • Lower Bad Debt Expense • Increased Equity Income • Other Miscellaneous Expense Reductions 2008 2009 30
Slide 31: Flexible, Efficient Cost Structure
Flexible, Efficient Cost Structure Carloads -16% 9,261 Key Drivers 7,786 • Project Operating Ratio 2008 2009 • Increased Xxx Operating Effectiveness Operating Expenses • Xxx (In Millions) • Total Cost of 13,895 -13% • Ownership xxx Focus 12,099 Fuel Price Adjusted* • Reduced Administrative 10,751 Re
Slide 32: Operating Ratio
Operating Ratio (%) Fourth Quarter Full Year 79.6 79.4 81.5 79.3 77.3 76.0* 73.4 73.3* 2006 2007 2008 2009 2006 2007 2008 2009 *Best ever quarterly and full year Operating Ratio 32
Slide 33: Full Year Income Statement
Full Year Income Statement In Millions (Except EPS) 2009 2008 % Operating Revenues $ 14,143 $ 17,970 (21) Operating Expenses 10,751 13,895 (23) Operating Income 3,392 4,075 (17) Other Income 195 92 F Interest Expense (600) (511) 17 Income Before Income Taxes 2,987 3,656 (18) Income Tax Expense (1,08
Slide 34: Strong Financial Position
Strong Financial Position In Millions Generating Balance Sheet Solid Cash Improvement Free Cash Flow* Total Debt* (Adjusted) $825 $13,934 $14,376 $515 47.4% 45.9% 2008 2009 2008 2009 Adjusted Debt to Capital *See Union Pacific Web site under Investor Relations for a reconciliation to GAAP. 34
Slide 35: Capital Update
Capital Update Full Year – In Billions Total Capital Spending* $3.1 • $200 Million for $2.5 $2.5 Positive Train Control PTC $2.3 • No Locomotive Base Purchases Capital • $150 Million Joliet Intermodal Terminal Completion 2008 2009 2010E *Includes Cash Capital, Leases and Other Non-Cash Capital 35
Slide 36: 2010 Drivers
2010 Drivers • Volume Growth – 2009 comparison – Economy dependent • “Real” Pricing Gains • Diesel Fuel Prices – Current spot price at $2.15+/gallon – First half 2009 fuel surcharge lag • Labor Cost Pressures – Agreement health and welfare • Drive Stronger Shareholder Returns 36
Slide 37: Fourth Quarter Earnings Release
Fourth Quarter Earnings Release January 21, 2010 Jim Young, Chairman & CEO 37
Slide 38: A View to 2010
A View to 2010 • Slow Economic Environment • Attract New Business with Excellent Service • High Customer Expectations • Regulatory Activity • Remain Focused on Margin Improvement – Cost efficiency – Pricing gains 38
Slide 39: 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 the Corporation’s outlook regarding economic conditions, future productivity, future safety and operating performance,
Slide 40: Question & Answer Session
Fourth Quarter Earnings Release January 21, 2010 Question & Answer Session 40