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BB&T Capital Markets Transportation Services Conference Rob Knight, CFO February 13, 2013 2 Cautionary Information This presentation 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, future trends in commodity markets, and financial returns; its business strategy for the upcoming year and drivers for growth; and its plans to improve productivity with capital investments. 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 2012, which was filed with the SEC on February 8, 2013. 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.
Transcript
Page 1: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

1

BB&T Capital Markets Transportation Services Conference Rob Knight, CFO – February 13, 2013

2

Cautionary Information This presentation 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, future trends in commodity markets, and financial returns; its business strategy for the upcoming year and drivers for growth; and its plans to improve productivity with capital investments. 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 2012, which was filed with the SEC on February 8, 2013. 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.

Page 2: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

3

Portland

Los Angeles

Calexico

Seattle

Brownsville

Houston New Orleans

Twin Cities

Nogales El Paso

Duluth

Oakland Omaha

Denver Salt Lake City

Kansas City

Chicago

Memphis

St. Louis

Fastest Growing States

Ports

Borders & Interchange

C

To/From Asia

Portla

Oaklala

To/From Asia

To Europe, South America

and Africa

Industrial 16%

Agricultural 19%

Chemicals 15%

asosEagle Pass Laredo

Dallas

Eastport

a

Industriri lllallll 16%

Agricuuuuuuultltltltltlturuuuuuuu al19%

ChChChChChChChChCChChChChChChChemememememee iciciccccicicicalaallaaaaallaalsss15%

Intermodal 20%

Coal 20%

Autos 9%

Industrial 18%

Agricultural 17%

Chemicals 16%

Freight Revenue $19.7B in 2012

• Diverse Business Mix • Fastest Growing States • Broad Port Access • Interchange Traffic &

Border Crossings

The Strength of a Unique Franchise

4

2004* 2012 2004* 2012

Successful Track Record 2004 to 2012

Operating Ratio 87.5%

67.8%

#1 – Industry Improvement

2004* 2012

EPS

$1.42

$8.27

ROIC

5.3%

14.0%

+25% CAGR

* 2004 adjusted for asbestos charge of $247.4 million.

-19.7 points

+8.7 points

Page 3: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

5

Core Pricing & Leveraging Productivity Gains

• Taking on Business that fits the network at the Right Price

• Value-driven, Reinvestible Pricing

2007 2008 2009 2010 2011 2012

6% 6%

4.5% 5% 4.5%

Core Pricing Gains

4.5%

-30%

-20%

-10%

0%

10%

20%

30%

2006 2007 2008 2009 2010 2011 2012

GTMs

Train Speed

Network Performance

24%

(11%)

• Productivity Initiatives in All Areas • Focus on Unit Costs / Volume

Variability • Positioned to Leverage Future

Economic Growth

6

Diverse Portfolio – Volume Drivers

*Through February 4, 2013

Chemicals

Intermodal

Coal

Ag

TOTAL

-4%

+7%

-11%

-23%

+6%

-3%

+13%

Industrial Products

Automotive

YTD 2013 Volume Growth*

• Crude Oil up 100%+

• Strong Intl & Domestic

• Pent up Vehicle Sales

• Lower Hazardous Waste, Softer Steel & Scrap Markets

YTD Drivers

1st Quarter • Ag volumes down in high

single digit range

• Coal volumes down in mid-teen range

• Impact of 2012 Leap Year

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Coal Trends

Current Drivers • Above average stockpiles • Low natural gas prices • 2013 contract loss

(10+ million tons) • Low river levels

Southern Powder River Basin

74%

Other 13%

27,000

31,000

35,000

39,000

43,000

47,000

Volume Impact (Weekly Carloadings)

1Q 4Q

2011

2012

2Q 3Q

2013*

Longer Term Drivers + New Domestic Business + Growing Exports from

~8M tons in 2012 to 16M tons by 2017

+ Potential Backfill to Eastern Markets

Uncertainties - Plant Retirements - Natural Gas Prices

*Through February 2, 2013

8

Agricultural Trends

Whole Grain (Year-over-Year Volume Change, -10%)

1Q12 2Q12 3Q12 4Q12

16% 13%

-7%

-22%

-39% -32%

0%

-16%

Export Domestic

Grain Products (Year-over-Year Volume Change, -3%)

1Q12 2Q12 3Q12 4Q12

3% 0%

-2%

1% 3%

-6%

-16% -19% Ethanol &

DDGS

Other Products

Grain Products

37%

Grain 31%

Food/ Refrigerated

32%

2012 Revenue Mix

• Continued drought impact on corn supply in UP territory

• Reduced gas demand & high corn prices impacts ethanol

• Food & Refrigerated up 7% in ’12 • Long term opportunity to meet

growing world food demand

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0.0

0.5

1.0

1.5

2.0

2.5

0

2,000

4,000

6,000

8,000

10,000

12,000

2005 2013* 2007 2009 2011

UP Wkly Carloadings

Housing Starts (mils)

Housing Trends

*Through February 2, 2013

• Housing represents ~7% to 8% of current UP volumes

• Lumber, Stone & Glass down 3,000 carloads a week, a 2% overall volume impact

• Housing also drives appliances, roofing, rebar, aggregates, and cement demand

• Including IP, Chemicals & Intermodal, return to normal could add volume growth opportunity of ~5%

Lumber, Stone & Glass

4Q 2012 Lumber up 17%

‘04

10

UP Positioned for Mexico Growth Opportunities Strong Investments – Foreign and Domestic

Ferromex (FXE) KCSM Ferrosur (FSRR)

UP Interchange Points

New Industrial Investment

'05 '06 '07 '08 '09 '10 '11 '12

708 764 776 743

600

750 817

857

Volume Growth (Carloads in Thousands)

+5%

Ports

2012 Business Mix (In Carloads)

Audi - $1.3B

Agricultural 14%

Autos 45%

Intermodal 24% Industrial

10%

Chemicals 6%

Coal 1%

+9%

Page 6: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

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Portland

Los Angeles

Seattle

Houston New Orleans

Twin Cities

Duluth

Oakland Omaha

Denver Salt Lake City

Chicago

Memphis

St. Louis

Borders & Interchange

Industrial 16%

Agricultural 19%

Chemicals 15%

Dallas

Eastport

Industrial 17%

Agricultural 18%

Chemicals 15%

• Increased Mexico automotive production

• Foreign Direct Investments

• Connections with FXE and KCSM

• Comprehensive U.S. market coverage

• Efficient routes • Equipment investment

and supply

Distribution Centers/Ports (UP Owned/Leased and Private)

Assembly Centers (UP served and in Mexico)

Kansas City

Union Pacific Connecting NAFTA Markets Mexico Automotive

12

Permian Basin

Marcellus

Eagle Ford

Niobrara

Bakken

Canadian Oil Sands

Current UP Origins Current UP Destinations Connecting Railroad Origins

Utica

Haynesville Barnett

$116 Brent

$116 Brent

$116 Brent

$117 LLS

$90

$87

$96

$105

Crude prices as of 2/5/13

Union Pacific Crude-by-Rail

Page 7: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

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• Substantial oil industry investment in rail – $1 + Billion in rail terminals

– 20,000 new tank cars in service

• Rail advantages – Market flexibility – Faster transit time – Faster permitting and construction – Scalable with lower capital cost

Shale Energy and Rail Sustainability

• Shale production will continue to exceed pipeline capacity

14

Shreveport

Ft. Worth

Dallas

Houston New Orleans

San Antonio

Brownsville

Ethylene Plants New Plant/Expansions

Expanding Chemical Franchise Texas/Louisiana Investments

Formosa Plastics Corp. • >$1.7 Billion investment in cracker

and additional capacity projects. • Cracker capacity: 800,000 mt/year • Estimated completion in 2016

Dow Chemical Co. • $1.7 Billion investment in cracker

and additional capacity projects. • Total capacity: 1.5 million mt/year • Estimated completion in 2017

Chevron Phillips Chemical Co. • $5 Billion investment in cracker &

additional capacity projects. • Total capacity: 1.5 million mt/year • Estimated completion in 2017

k

Gruppo Mossi & Ghisolfi • Investment in new PET & PTA plants. • Capacity: 1.0 & 1.2 million mt/year • Estimated completion in 2014

Source: Public Announcements

Exxon Mobil Corp. • Investment in steam cracker. • Total capacity: 1.5 million mt/year • Estimated completion in 2016

Page 8: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

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Growth Driver: Highway Conversions

• Comprehensive & Integrated Intermodal Network

• Strong Value Proposition: – Competitive Service at an

Affordable Price – Innovative Solutions – Environmental Friendliness

• Truck’s Traditional Advantage is Eroding – Regulations & Rising Costs – Highway Congestion &

Infrastructure

• Capacity Available for Growth

Domestic Volume (Qtr-over-Qtr Volume Growth)

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

1% 0%

2% 3%

6%

3%

1%

4%

2011 2012

16

Investment Supports Intermodal Growth

Utilizing a systematic, structured approach to add capacity and improve service

Recent Intermodal Terminal Investments

5 New Terminals Completed 3 Terminal Expansions 1 New Terminal Under Construction 1 Interchange Gateway

Over $1.2 Billion Intermodal Terminal Investment since 2000

on

Terminal Investment since 2000

Page 9: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

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2007 2008 2009 2010 2011 2012 2017

79.3 77.4

76.1

70.6 70.7

67.8 190

180

152

172 176.5 176

Raising the Bar – “Sub 65” Operating Ratio

Operating Ratio (Percent)

Sub-65

Now Targeting Sub 65% FY Operating

Ratio by 2017

Achieve high end of 2010

guidance sooner

than 2015

2010 Guidance: 65% - 67% FY Operating Ratio by 2015

7-Day Volume (000s)

18

2008 2009 2010 2011 2012 2013 Est

$3.1

$2.5 $2.5

$3.2

$3.7 ~$3.6

10.2%

Capital Investments Supported by Returns

• Improved Profitability Drives Strong Cash Flow

• … Supports Investments that must meet high return hurdles

• … Supports Core Pricing that Drives Continued Investment

• Capital Spend to ~16% - 17% of Revenue for 2013 - 2017

ROIC*

Investments* & Returns** (Capital in Billions)

12.4%

** See Union Pacific website under Investors for a reconciliation to GAAP.

14.0%

New Locomotive Purchases/Leases

Base Capital

Positive Train Control

* Includes cash capital, leases and other non-cash capital.

$3.15(excl PTC)

Page 10: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

19

Future Allocation of Growing Cash

2013E – 2017E

Replacement Capital &

PTC

Return Driven Capital Dividend Growth Excess Cash to

Share Repurchase

Replacement Capital &

PTC

Cash Returns

Growth Capital

Cash Returns

2008 – 2012 ($24.5 Billion)

Growth Capital

2012

20

Union Pacific – A Promising Future

• Market-Based Pricing at Reinvestible Levels

• Focus on Productivity, Efficiency, and Innovation

• Leverage Strengths of Diverse Franchise

• Invest to Strengthen and Enhance Network

• Drive Increased Profitability & Shareholder Returns

Page 11: BB&T Capital Markets Transportation Services Conference › up › investors › attachments › presentations › ... · Twin Cities Duluth Oakland Omaha Denver Salt Lake City Chicago

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BB&T Capital Markets Transportation Services Conference Question & Answer Session


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