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Third Quarter Earnings Release October 20, 2011
Jim Young, Chairman & CEO
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2009 2010 2011
$1.01
$1.56
$1.85
Best-Ever
Quarterly
Record
Third Quarter Results
Positives
• Best-Ever Quarter – Revenue
– Operating Income
– Earnings
• Record YTD Free Cash
Flow
• Franchise Diversity
Challenges
• Texas Drought
• International Intermodal
+19%
Earnings Per Share
2
3
Third Quarter Marketing & Sales Review October 20, 2011
Jack Koraleski, Executive VP – Marketing & Sales
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Customer Satisfaction
1Q 2Q 3Q 4Q 1Q 2Q 3Q
87
89 90 90
91 92
91 GOOD
Overall Satisfaction
2011 2010
3
5
Third Quarter Recap
Volume ARC Freight Revenue
Performance Improvement (Year-Over-Year Change)
Volume Growth
+1%
+14% +16%
Revenue Mix
Agricultural
17%
Autos
8% Chemicals
15%
Energy
23%
Industrial
18%
Intermodal
19%
Intermodal
TOTAL
+5%
+8%
-3%
-6%
+7%
+1%
+10%
Energy
Chemicals
Industrial Products
Automotive
Agricultural
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Agricultural Products Revenue $814M (+9%) Volume 223K (-3%) ARC $3,655 (+12%)
Grain Products
38%
Whole Grains 33%
Food/ Refrigerated
29%
Revenue Mix
*Volume in thousands of carloads
Quarterly Drivers
• Whole Grain Exports Weaken
• Growth in Grain Products
41.2
28.5
Export Whole Grains*
2010 2011
-31%
75.0 78.6
Grain Products*
2010 2011
+5%
4
7
Automotive Revenue $379M (+23%) Volume 160K (+10%) ARC $2,364 (+12%)
Finished Vehicles
77%
Revenue Mix
88.0 92.2
Finished Vehicles*
2010 2011
+5%
57.8
68.1
Auto Parts*
2010 2011
+18%
*Volume in thousands of carloads
Quarterly Drivers
• U.S. Auto Sales Up 6%
• Continued Recovery from Disaster in Japan
Auto Parts 23%
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Chemicals Revenue $720M (+14%) Volume 233K (+5%) ARC $3,087 (+8%)
Plastics 19%
Industrial Chemicals
25%
Petroleum & Other
28%
Revenue Mix
*Volume in thousands of carloads
Fertilizer 14% Soda Ash
14%
Quarterly Drivers
• Continued Growth in Crude Oil
• Stability Across Most Major Market Segments
23.6
31.8
Petroleum Products*
2010 2011
+35%
28.9 27.5
Fertilizer*
2010 2011
-5%
5
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Energy Revenue $1,112M (+21%) Volume 572K (+7%) ARC $1,945 (+13%)
Southern Powder River Basin
75%
Other 7%
Colorado/ Utah 18%
Revenue Mix
48.9 51.5
Southern Powder River Basin*
2010 2011
+5%
*Tons in millions
7.5
8.2
Colorado/Utah*
2010 2011
+9%
Quarterly Drivers
• New Business Drives SPRB Growth
• Improved Production and Export Demand Produces CO/UT Gains
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Industrial Products Revenue $863M (+24%) Volume 305K (+8%) ARC $2,832 (+15%)
Paper 13%
Government/ Waste 8%
Metals 27%
Revenue Mix
Minerals/ Consumer
25%
Construction 14%
Lumber 13%
*Volume in thousands of carloads
32.9
45.9
Non-Metallic Minerals*
2010 2011
+39%
5.7
11.4
Metallic Minerals*
2010 2011
+99%
Quarterly Drivers
• Ramp-up of Iron Ore Exports to China
• Drilling Demand Drives Non-Metallic Minerals and Steel
32.9 37.1
Steel* +13%
2010 2011
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Intermodal Revenue $948M (+8%) Volume 848K (-6%) ARC $1,119 (+15%)
International 47%
Domestic 53%
Revenue Mix
529.9
465.2
International*
2010 2011
-12%
374.6 382.3
Domestic*
2010 2011
+2%
*Volume in thousands of units
Quarterly Drivers
• Weak Imports and 2Q Contract Loss Impact International
• Domestic Volume Strengthens as Quarter Progresses
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Fourth Quarter Volume Drivers
• Challenges
– World Grain Supply Softens
U.S. Export Demand
– Weak Container Imports
• Opportunities
– Continued Momentum in
Automotive
– Energy-related Demand
– Strengthening Domestic
Intermodal
– Diverse Franchise
– Strong Value Proposition
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Third Quarter Operations Review October 20, 2011
Lance Fritz, Executive VP – Operations
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2009 2010 2011
3.13 3.15 3.38
Operating Foundation, Safety Focus 3rd Quarter YTD
Rail Equipment (Reportable Derailment Incidents
Per Million Train Miles)
Public (Crossing Accidents Per
Million Train Miles)
2009 2010 2011
2.08 2.18
2.04
Good Good
2009 2010 2011
1.49
1.36
1.15
Employee (Reportable Personal Injury
Incidents Per 200,000 Man-Hours)
-15%
Good
7% -6%
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15
0
200
400
600
800
1,000
1,200
Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2011 Slow Order Miles
Weather Challenges
• Recovery from Midwest
Flooding
• Severe Drought and
Heat in Texas
– Speed Restrictions
– Maintenance Curfews
– Returning to Normal
Operations
0
500
1,000
1,500
2,000
2,500
2006 2007 2008 2009 2010 2011
Historical Slow Order Miles (Annual Average)
Good
MTD
YTD
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23.5
27.3 26.2 26.1
24.7 24.3 24.8
86 89 93 94 94 94 94
Network Performance
7-Day Volumes
180
152
172 173 176
182 184
2008 2009 2010 1H
2011
Jul
2011
Aug
2011
Sep
2011
Industry Spot and Pull* & Velocity
2008 2009 2010 1H
2011
Jul
2011
Aug
2011
Sep
2011
Good
• Strong Service
Levels as Volumes
Increase
• Surge Resources
and Network
Resiliency
• Service Supports
Efficiency
Velocity**
*Percent Within Window ** As Reported to the AAR
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Operational Efficiency 3rd Quarter
• Maintained Productivity
Emphasis
– Workforce Flexibility
– Train Size
• Leverage Existing
Resources
2008 2009 2010 2011
5.43 5.06
5.52 5.51
GTMs per Employee (In Millions)
TE&Y Furloughs (Quarterly Average)
2008 2009 2010 2011
775
4,507
1,653
487
2008 2009 2010 2011
83 85 86
88 158 158
170 172 Good
Train Size (Average Units per Train)
Intermodal
Boxes
Manifest
Cars
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Operating Outlook
• World Class Safety
Results
• Complete Service
Recovery
• Leveraging Network
Productivity
• Positioned for
Growth
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Third Quarter Financial Review October 20, 2011
Rob Knight, CFO
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Third Quarter Earnings Summary In Millions (except EPS)
Operating Revenues $5,101 $4,408 16
Operating Expenses 3,523 3,007 17
Operating Income 1,578 1,401 13
Other Income 17 25 (32)
Interest Expense (142) (153) (7)
Income Taxes (549) (495) 11
Net Income $904 $778 16
Weighted Average Diluted Shares 488.1 497.7 (2)
Diluted EPS $1.85 $1.56 19
2011 2010 %
11
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Freight Revenue Third Quarter (In Millions)
2010
Volume
& Mix
Core
Price
Fuel
Surcharge
2011
+ 4.5%
+ 4.5%
+ 7.0% $4,836
$4,187
+ 16%
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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
58% 60% 60%
48% 45%
36%
41%
13%
18%
14%
9%
5%
3%
1%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11
3.5%
5.0%
5.5% 5.5%
4.5% 4.5% 4.5%
Pricing Gains & Leverage
Core Pricing Incremental Margins*
* 2011 adjusted for fuel price & one-time items. See Union Pacific website under Investors for a reconciliation to GAAP.
Year-over-year volume growth
12
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Operating Expense Recap Third Quarter 2011 vs. 2010 ($ Increase in Millions)
$308
$101
$41 $36 $29
$1
Fuel
• $516 Million Increase
• Drivers:
– Fuel Price
– Inflation/Depreciation
– Volume/Productivity
– Weather Challenges
– Training
Equip &
Rents
Comp &
Benefits
Other Depr Prch Srvs
& Materials
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Fuel Expense Third Quarter 2011 $916M, +51%
• Higher Diesel Fuel Prices
Added $260 Million to
Costs
• Conversion Spreads
Tripled Versus 2010
• Year-Over-Year Negative Fuel Price Impact of 1.7 Points
• GTMs Increased 5%
$2.24
Average Fuel Price (Per Gallon Consumed)
2010 2011
$3.18 +42%
261 277
2010
Fuel Consumption (Million Gallons)
2011
Barrel Price Conversion Spreads
+6%
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Compensation & Benefits Third Quarter
2010
Inflation Volume (Net of
Productivity)
Training
2011
+ 5.5% + 1.5%
+ 0.5% $1,193
$1,092
+ 9%
Drought-
Related
Resources
+ 1.5%
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Workforce Levels Third Quarter
2010
Base
Workforce
(Including Weather Impact)
Training Capital
Projects
2011
+ 2.5% + 1.5%
+ 1.0% 45,507
43,375
+ 5%
14
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$465 $506
Third Quarter 2011 Expense Review In Millions
• Higher Property Taxes
• Increased Costs for Damaged
Freight and Equipment
2010
Purchased Services & Materials
2011
• Increased Contract Services
• Locomotive & Freight Car
Materials Usage
• Crew Lodging & Transportation
Costs
$178 $207
2010
Other
2011
+16%
+9%
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$372 $408
Third Quarter 2011 Expense Review (cont) In Millions
• Ongoing Capital Spending
• Volume Driven - Higher
Expense
• Higher Container Lease
and Short-Term Car
Rental Expenses
• Lower Locomotive Lease
Expense
2010
Depreciation
2011
$292 $293
2010
Equipment & Other Rents
2011
+10%
Flat
15
29
Operating Ratio Performance Third Quarter
2008 2009 2010 2011
74.9 73.8
68.2 69.1
Operating Ratio (Pct) Third Quarter
• Solid Pricing
• Modest Volume Growth & Leverage
• Year-Over-Year Negative Fuel Price Impact of 1.7 Points
Full Year
• Improvement Excluding
Fuel Price Impact
Fuel Price Impact
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Solid Financial Position Nine-Month Period Ending September 30 ($ In Millions)
• Record Cash from Operations and Free Cash Flow
• 39% Cash Dividend Increase YTD
• Targeted Dividend Payout Ratio of 30%
• Maintain Solid Investment Grade Rating
$1,009
$1,486 $438
$607
Free Cash Flow*
Total Debt* (Adjusted)
42.5% 41.4%
* See Union Pacific website under Investors for a reconciliation to GAAP.
Adjusted Debt to Capital
$1,447
$2,093 Before Dividends
After Dividends
9/30/2010 9/30/2011
YE 2010 9/30/2011
Dividends
$13,139 $13,095
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Delivering Value to Shareholders
2007 2008 2009 2010 1Q 2Q 3Q
$1.46
$2.98 $2.98
$4.23 $4.48
$4.84
$5.27
Cumulative Share Repurchases ($ In Billions)
2011 Activity
• Opportunistic Share Repurchases
– 3Q 2011 = $428 Million
– YTD 2011 = $1.04 Billion
• 31.7 Million Shares Remaining in Current Authorization
2011
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2011 Outlook
Continued
Volume
Growth
“Real”
Pricing
Gains
Ongoing
Productivity
Focus
Record
Earnings
Improved
Shareholder
Returns
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Third Quarter Earnings Release October 20, 2011
Jim Young, Chairman & CEO
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Union Pacific’s Prospects Remain Positive
• Continued Economic Uncertainties
• UP’s Prospects Remain Positive
• Confidence in Fundamental Strategy
– Enhance UP Franchise
– Provide Increased Value to Customers
– Improve Financial Returns to Shareholders
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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 its ability to generate returns for shareholders; current and future economic conditions; and its ability to enhance its franchise, provide value to its customers, and improve financial returns. 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 2010, which was filed with the SEC on February 4, 2011. 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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Third Quarter Earnings Release October 20, 2011
Question & Answer Session