Jack Koraleski, CEO
Transcript of Jack Koraleski, CEO
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Fourth Quarter 2012 Earnings Release January 24, 2013 Jack Koraleski, CEO
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2010 2011 2012
$1.56
$1.99 $2.19
Tie All-Time Quarterly Record
Union Pacific Achieves 2012 Milestones
+10%
Earnings Per Share Fourth Quarter Positives
• Record Fourth Quarter and Full Year Financial Results
• Employee Safety • Customer Satisfaction • Franchise Diversity
Challenges • Coal & Grain Volumes
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Fourth Quarter 2012 Marketing & Sales Review January 24, 2013 Eric Butler, Executive VP – Marketing & Sales
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1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
87 89
90 90 91
92 91
92 93 93
94 93
164 169
178 175
172 174
180 180
172 175
181 176
Customer Satisfaction
GOOD
2011 2010
Customer Satisfaction 7 Day Carloadings
93 = Full Year Record
4th Qtr Record
2012
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Chemicals
Automotive
Coal
Fourth Quarter Recap
Volume ARC Freight Revenue
Freight Revenue Performance (Year-Over-Year Change)
Volume Growth
-2.5%
+4.5%
+2%
Revenue Mix
Agricultural 16% Autos
9% Chemicals
17%
Coal 20%
Industrial 17%
Intermodal 21%
Agricultural
TOTAL
Flat
+9%
-9%
-17%
+2%
-2.5%
+14%
Industrial Products
Intermodal
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Coal Revenue $990M (-7%) Volume 463K (-17%) ARC $2,141 (+12%)
Quarterly Drivers • High Coal Stockpiles • Global Demand for Western Coal
Southern Powder River Basin
74%
Other 13% 50.3
40.6
Southern Powder River Basin*
2011 2012
*Tons in millions
7.45 7.9
Colorado/Utah*
2011 2012
-19%
27,000
31,000
35,000
39,000
43,000
47,000
Volume Impact (Weekly Carloadings)
1Q 4Q
2011
2012
2Q 3Q
+6%
2013
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Agricultural Products Revenue $785M (-8%) Volume 215K (-9%) ARC $3,647 (Flat)
Quarterly Drivers • Limited corn supply in UP
territory • Reduced gas consumption
impacts ethanol • Growth in Food & Refrigerated
Grain Products
36%
Grain 37%
Food/ Refrigerated
27%
Volume Mix
*Volume in thousands of carloads and excludes equipment shipments
81.3 76.1
Grain Products*
2011 2012
-6%
85.1
66.2
Grain*
2011 2012
54.3 58.7
Food & Refrigerated* +8%
2011 2012
-22%
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Automotive Revenue $466M (+14%) Volume 187K (+9%) ARC $2,487 (+5%)
Finished Vehicles
59%
Volume Mix 103.4
111.0
Finished Vehicles*
2011 2012
+7%
68.0 76.5
Auto Parts*
2011 2012
+13%
*Volume in thousands of carloads
Quarterly Drivers • Pent-up Demand to Replace
Aging Vehicles • Improved Consumer Credit • Year-end Incentives
Auto Parts 41%
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Chemicals Revenue $834M (+15%) Volume 265K (+14%) ARC $3,146 (Flat)
Quarterly Drivers • Continued Crude Oil Growth • Strength in Industrial
Chemicals and Plastics • Export Soda Ash Demand
Plastics 23% Industrial
Chemicals 22%
Petroleum & LP Gas
29%
Volume Mix
Fertilizer 10%
Soda Ash 10%
Other 6%
48.3 52.0
Industrial Chemicals*
2011 2012
37.2
62.7
Petroleum Products*
2011 2012
+69%
56.6 60.3
Plastics* +7%
2011 2012
+8%
*Volume in thousands of carloads and excludes equipment shipments
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Industrial Products Revenue $835M (+3%) Volume 280K (Flat) ARC $2,978 (+3%)
Quarterly Drivers • Increased Construction Activity • Housing Start Growth • Hazardous Waste, Steel & Scrap,
and Export Ore Decline
Paper 10%
Gov’t/Waste 10%
Metals 18%
Volume Mix
Minerals/ Consumer
22%
Construction 30%
Lumber 10%
*Volume in thousands of carloads
22.9 26.8
Lumber*
2011 2012
+17%
55.8 63.8
Rock*
2011 2012
+14%
13.1
6.8
Hazardous Waste* -48%
2011 2012
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Intermodal Revenue $1,021M (+6%) Volume 831K (+2%) ARC $1,229 (+5%)
Quarterly Drivers • Weak International Peak
Season • Highway Conversions Drive
Domestic Growth
International 53%
Domestic 47%
Volume Mix 436.7 436.1
International*
2011 2012
Flat
380.6
394.2
Domestic*
2011 2012
+4%
*Volume in thousands of units
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2013 Volume Outlook Coal – High Stockpiles & Contract Loss + Export Demand Agricultural Products – Diminished 2012 crops + Food & Refrigerated Automotive + Auto Sales Growth Chemicals + Crude Oil + Most Other Markets Remain Solid Industrial Products + Housing & Construction, Metals,
Minerals – Reduced Government Spending Intermodal + Domestic Growth Continues, Stronger
International Peak
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Fourth Quarter 2012 Operations Review January 24, 2013 Lance Fritz, Executive VP – Operations
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2010 2011 2012
2.98 3.28 3.21
Operating Foundation, Safety Focus Full Year
Rail Equipment (Reportable Rail Equipment
Incidents Per Million Train Miles)
Public (Crossing Accidents Per
Million Train Miles)
2010 2011 2012
2.32 2.11
2.38 Good Good
2010 2011 2012
1.37
1.15
1.01
Employee (Reportable Personal Injury Incidents
Per 200,000 Employee-Hours)
Good +13%
All-Time Record
All-Time Record
-12%
-2%
All-Time Record
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2008 2009 2010 2011 2012
89 90 90 88 89
87 88
94 94 95
Network Performance Fourth Quarter
• Agility and Resiliency Demonstrated with Resources and Service Plan
• Mix Shift and Volume Growth in Southern Region
• Service Performance Accelerates
• Positioned for Growth
Service Delivery* and IS&P Industry Spot & Pull %
Good
* Includes early deliveries
2008 2009 2010 2011 2012
25.1 27.0 26.5 25.6
26.7
Velocity (as Reported to the AAR)
+4%
** Fourth Quarter Record
Tie 4th Qtr Record
**
Good
4th Qtr Record
Tie 4th Qtr Record
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151 165 166 171 174
151165 166 171 174
2008 2009 2010 2011 2012
82 83 88 88 88
2008 2009 2010 2011 2012
1,723
1,008 660 590
409
Network Productivity Fourth Quarter
Slow Order Miles Good
All Time Record
-31%
Intermodal Boxes
Manifest Cars
*
4th Qtr Record
Train Size (Average Units per Train)
* 4th Quarter Record
2008 2009 2010 2011 2012
8.95
8.40 8.47 8.85
8.42
Car Utilization (Days)
Good
-5%
All-Time Quarterly Record
Good • Hardening infrastructure and
reducing service failures
• Improving asset utilization
• Generating capacity with efficiency
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3%
5%
-2% Flat
Agility and Resource Readiness Volume Growth
4Q12 vs. 4Q11 FY2012 vs. FY2011 South Total South Total
• Volumes in South at Pre-Recession Levels
• Resource Realignment & Network Routing
• Improving Network Fluidity & Performance
Flat
-2%
-3%
9% South
North
West
TE&Y Active Workforce (FY2012 vs. FY2011)
Total
Active Locomotive Fleet (FY2012 vs. FY2011)
-1%
-1%
-8%
9% South
North
West
Total
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Capital Investment Supports Service & Growth 2013
• Safe and Resilient Infrastructure
• Continued Capacity Spending – Santa Teresa Facility – Southern Region
Projects
• 100 New Locomotives
• Increased PTC Spending
~$3.6 Billion Capital Plan (In Millions)
Infrastructure Replacement
$1,675
Locomotives/ Equipment
$610
Capacity/ Commercial
Facilities $670
Technology/ Other $195
PTC $450
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2013 Operating Outlook Safety, Service and Value
2012 • Improved Network
Performance / Agility & Resiliency
2013 • Carry Momentum
Forward • Drive Safety & Service
& Productivity • Remain Agile /
Resource Readiness
Engage
Empower
SupportStandardize
Celebrate & Repeat
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Fourth Quarter 2012 Financial Review January 24, 2013
Rob Knight, CFO
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Fourth Quarter Income Statement In Millions (except EPS)
Operating Revenues $5,250 $5,108 3 Operating Expenses 3,525 3,491 1 Operating Income 1,725 1,617 7 Other Income 43 54 (20) Interest Expense (128) (141) (9) Income Taxes (604) (566) 7 Net Income $1,036 $964 7 Weighted Average Diluted Shares 472.0 484.7 (3)
Diluted EPS $2.19 $1.99 10
2012 2011 %
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Freight Revenue Fourth Quarter (In Millions)
2011
Volume & Mix
Core Price
Fuel Surcharge
(Price & Lag Impact)
2012
-3% +4% $4,931
$4,829
+2%
+1% +0.5%
Fuel Surcharge (Improved Coverage)
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Compensation & Benefits Expense Fourth Quarter 2012 $1,135M, -2%
$1,155 $1,135
2011
Compensation & Benefits (in Millions)
2012
44,922 46,067
2011
Workforce Levels (Quarterly Average)
2012
+2.5%
• Lower GTMs • Solid Operations • Lower Payroll Taxes • Higher Training Costs • Moderate Inflation Costs
• Increased Workforce mostly Driven by Higher TE&Y Training & Capital (incl PTC)
-2%
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Fuel Expense Fourth Quarter 2012 $920M, -2%
• GTMs Decreased 5%
• Higher Diesel Fuel Prices Increased Expenses by $26 Million
• Consumption Rate Increased 1% driven by Lower Coal Volumes
252,686 238,898
2011
Gross-Ton-Miles (in Millions)
2012
-5%
$3.16 $3.25
Average Fuel Price (Per Gallon Consumed)
2011 2012
+3%
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$508 $533
Fourth Quarter 2012 Expense Review In Millions
2011
Purchased Services & Materials
2012
• Higher Subsidiary Contract Expenses
• Increased Joint Facility Expense & Locomotive Repair Costs
+5%
$413 $453 • Higher Depreciable Asset
Base from Growing Capital Programs
2011
Depreciation
2012
+10%
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Fourth Quarter 2012 Expense Review (cont) In Millions
• Higher Short-Term Freight Car Rental Expense
• Lower Locomotive Lease Expenses
$289 $302
2011
Equipment & Other Rents
2012
+4%
• Lower Equipment, Property & Freight Damage Expenses
• Lower Volume-Related Costs & Cost Control Measures
• Higher Personal Injury & Property Tax Expenses
$191 $182
2011
Other
2012
-5%
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Operating Ratio Performance
2008 2009 2010 2011 2012
73.4 73.4
70.2 68.3
67.1
Fourth Quarter (Percent)
2008 2009 2010 2011 2012
77.4 76.1
70.6 70.7
67.8
Full Year (Percent)
4th Qtr Record
All-Time Full Year Record
-1.2 pts
-2.9 pts
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Full Year Income Statement In Millions (except EPS)
Operating Revenues $20,926 $19,557 7 Operating Expenses 14,181 13,833 3 Operating Income 6,745 5,724 18 Other Income 108 112 (4) Interest Expense (535) (572) (6) Income Taxes (2,375) (1,972) 20 Net Income $3,943 $3,292 20 Weighted Average Diluted Shares 476.5 489.8 (3)
Diluted EPS $8.27 $6.72 23
2012 2011 %
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Cash from Ops
Investing Dividends
$5,873
($3,119)
($837)
$6,161
($3,633)
($1,146)
Strong Financial Position Twelve Month Period Ending December 31 ($ In Millions)
• Solid Free Cash Flow Larger Capital Spend 37% Cash Dividend Increase
• Strong Cash from Ops Higher Cash Tax Payments from Prior Bonus Depreciation Programs
• Strong Balance Sheet Investment Grade Credit Rating
Free Cash Flow*
Total Debt* (Adjusted)
40.7% 39.1%
* See Union Pacific website under Investors for a reconciliation to GAAP. Adjusted Debt to Capital
12/31/2011 12/31/2012
$12,753 $12,772
2012 2011 2012 2011 2012 2011
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New Locomotive Purchases/Leases
Investments and Returns
2008 2009 2010 2011 2012 2013
$3.1
$2.5 $2.5
$3.2
$3.7 ~$3.6
Total Capital Spending* (In Billions)
Base Capital
2008 2009 2010 2011 2012
10.2
8.2
10.8
12.4
14.0
Return on Invested Capital** (Percent)
Positive Train Control
* Includes cash capital, leases and other non-cash capital. ** See Union Pacific website under Investors for a reconciliation to GAAP.
Best- Ever
Record $3.15(excl PTC)
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Delivering Value to Shareholders
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
$0.38
$0.475 $0.475
$0.60 $0.60 $0.60 $0.60 $0.69
Declared Dividend Per Share
2011 2012
• Performance Drives Dividend Increases – Declared Dividend Increase of
15% in 2012 – Full Year 2012 Declared
Dividends grew 29% vs. 2011 – Achieved Payout Ratio of 30%
• Opportunistic Share Repurchases – 4Q 2012 = $248 Million @ Avg
Price of $121.81 – Full Year 2012 = $1.5 Billion – 15 Million Shares Remaining in
Current Authorization
+15%
Dividends & Share Repurchases ($ In Billions)
FY 2011 FY 2012
$2.26 $2.62
Dividends Share Buybacks
+16%
+58%
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A Look Ahead to 2013
Full Year • Cautious Outlook –
Potential for Slightly Positive Volume Growth
• Solid Core Pricing Gains • Leverage Diverse
Franchise • Record Operating Ratio
& Earnings assuming Economic Growth
• Increasing Shareholder Returns
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Fourth Quarter 2012 Earnings Release January 24, 2013 Jack Koraleski, CEO
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Union Pacific’s Prospects Going Forward
• 2013 Challenges in Coal & Grain Markets
• Impact of Domestic Fiscal Policies
• Maintain Successful Strategy – Remain Agile – Leverage Diverse
Franchise – Create Customer Value
• Generate Strong Shareholder Returns
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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 statements regarding the Corporation’s expectations with respect to general economic conditions and financial returns; its business strategy for the upcoming year; and legislative activity. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements also generally include, without limitation, information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Corporation’s and its subsidiaries’ business, financial, and operational results, and future economic performance; and management’s beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Corporation’s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Corporation’s and its subsidiaries’ future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Corporation’s Annual Report on Form 10-K for 2011, which was filed with the SEC on February 3, 2012. The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).
Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein.
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Fourth Quarter 2012 Earnings Release January 24, 2013 Question & Answer Session