second quarter earnings release...1 1 second quarter earnings release july 21, 2011 jim young,...
TRANSCRIPT
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1
Second Quarter Earnings Release July 21, 2011
Jim Young, Chairman & CEO
2
2009 2010 2011
$0.92
$1.40
$1.59
Best-Ever
Quarterly
Record
Second Quarter Results
Positives
• Second Quarter Records
– Revenue
– Operating Income
– Earnings
– Cash from Operations
– Customer Satisfaction
• Franchise Diversity
Challenges
• Midwest Flood Impact
• Intermodal Volumes
• Fuel Price
+14%
Earnings Per Share
2
3
Second Quarter Marketing & Sales ReviewJuly 21, 2011
Jack Koraleski, Executive VP – Marketing & Sales
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Customer Satisfaction
1Q 2Q 3Q 4Q 1Q 2Q
87
89
90 90
91
92
GOOD
Overall Satisfaction
20112010
Best-Ever
Quarterly
Record
3
5
Second Quarter Recap
Volume ARC Freight Revenue
Performance Improvement(Year-Over-Year Change)
Industrial
Products
Automotive
Chemicals
Agricultural
Energy
Intermodal
TOTAL
+4%
+11%
+2%
-1%
+4%
+3%
+11%
Volume Growth
+3%
+13%+16%
Revenue Mix
Agricultural
19%Autos
8%
Chemicals
15%Energy
21%
Industrial
17%
Intermodal
20%
6
IntermodalRevenue $909M (+13%) Volume 819K (-1%) ARC $1,108 (+14%)
International 48%
Domestic 52%
Revenue Mix
459.4 451.7
International*
2010 2011
-2%
367.5 367.9
Domestic*
2010 2011
Flat
*Volume in thousands of units
Quarterly Drivers
• Contract Loss in International
• Repriced Contracts Drive Yield Gains
4
7
Agricultural ProductsRevenue $849M (+22%) Volume 237K (+11%) ARC $3,580 (+9%)
Grain Products
36%
Whole Grains 35%
Food/ Refrigerated
29%
Revenue Mix
*Volume in thousands of carloads
Quarterly Drivers
• Improved Demand for Export Whole Grains
• Import Beer Gains
• Continued Ethanol Growth
26.3
41.5
Export Whole Grains*
2010 2011
+58%
8.4
10.7
Import Beer*
2010 2011
+28%
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AutomotiveRevenue $381M (+14%) Volume 165K (+4%) ARC $2,321 (+11%)
Finished Vehicles
78%
Revenue Mix
93.497.5
Finished Vehicles*
2010 2011
+4%
65.867.3
Auto Parts*
2010 2011
+2%
*Volume in thousands of carloads
Quarterly Drivers
• Industry Recovery Continues at Slower Pace
• Impact from Disaster in Japan
Auto Parts 22%
5
9
ChemicalsRevenue $703M (+19%) Volume 233K (+11%) ARC $3,024 (+7%)
Plastics 18%
Industrial Chemicals
25%
Petroleum & Other
27%
Revenue Mix
27.3
33.2
Fertilizer*
2010 2011
+22%
*Volume in thousands of carloads
Fertilizer 16%Soda Ash
14%
50.653.5
Industrial Chemicals*
2010 2011
+6%
22.0
28.8
Petroleum Products*
2010 2011
+31%
Quarterly Drivers
• Growth in Crude Oil
• Strong Demand for Fertilizer
• Continued Strength in Industrial Chemicals
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EnergyRevenue $950M (+14%) Volume 496K (+2%) ARC $1,916 (+11%)
Southern Powder River Basin
75%
Other 7%
Colorado/ Utah 18%
Revenue Mix
43.144.2
Southern Powder River Basin*
2010 2011
+3%
*Tons in millions
7.16.8
Colorado/Utah*
2010 2011
-4%Quarterly Drivers
• New Business Drives SPRB Growth
• Colorado/Utah Export GrowthOffset by Lower Domestic Demand
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Industrial ProductsRevenue $803M (+16%) Volume 297K (+4%) ARC $2,697 (+11%)
Paper 13%
Government/Waste 7%
Metals 27%
Revenue Mix
Minerals/ Consumer
25%
Construction 14%
Lumber 14%
*Volume in thousands of carloads
31.3
41.8
Non-Metallic Minerals*
2010 2011
+34%
4.9
10.2
Metallic Minerals*
2010 2011
106%
Quarterly Drivers
• Ramp-up of Iron Ore Exports to China
• Strong Drilling Demand
• Growth in Packaging Paper
18.1
20.2
Paperboard*
+12%
2010 2011
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2011 OutlookSecond Half Opportunities
• Agricultural
– Ethanol
– Plant to Port
• Autos
– Higher vehicle sales rate
– Recovery from Japan disaster
• Chemicals
– Shale development
– Seasonal fertilizer demand
• Energy
– New coal-fired unit near Waco
– CO/UT production increases
• Industrial Products
– Energy-related markets
– Iron ore exports
• Intermodal
– Peak season
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13
Second Quarter Operations ReviewJuly 21, 2011
Lance Fritz, Executive VP – Operations
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2009 2010 2011
2.89
2.58
2.34
Operating Foundation, Safety FocusSecond Quarter
Customer(Reportable Derailment Incidents
Per Million Train Miles)
Public(Crossing Accidents Per
Million Train Miles)
2009 2010 2011
1.89
2.25
1.98
Good Good-14%
-10%
Record
Second Quarter
Improvement
vs. 2010
2009 2010 2011
1.551.41
0.95
Employee(Reportable Personal Injury
Incidents Per 200,000 Man-Hours)
-33%
Good
Best Ever
Quarter
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Flood Challenges
Current Flood outage
Flood threats addressed
• Central Corridor
Preserved
• Falls City and River
Sub Outages
• Response Actions
– Engineering
Mobilization
– Contingency
Planning
– Reroute Schedule
KansasCity
Chicago
St. Louis
NorthPlatte
Omaha
16
14
16
18
20
22
24
26
28
100
120
140
160
180
200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Consistent Network Performance
• Agility Demonstrated
with Resources and
Service Plan
• Focus on Service Reliability
• Resilient Network
• Positioned for Growth
7-Day Carloads Velocity *
(000s) (MPH)
20102008 2009
2010 Average
Velocity *
*As reported to the AAR
2011
9
17
156
149
164168
2008 2009 2010 2011
82 82
86
90
Productivity Second Quarter
Good
2008 2009 2010 2011
5.284.59
5.36 5.32
GTMs per Employee(In Millions)
Train Size(Average Cars or Boxes per Train)
Good
Intermodal
Boxes
Manifest
Cars
• Resource Metrics
Challenged
– Adverse Flood
Impact
– Surge Capability
• Productivity
Emphasis Maintained
– Train Size
– Customer Service
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Maintaining Service Performance
Industry Spot & Pull(Percent within window)
2008 2009 2010 1Q11 2Q11
86 8893 94 95
Local Customer Satisfaction(Index - 0 to 100)
2008 2009 2010 1Q11 2Q11
8690 90 92 92
Service Delivery Index(Includes early deliveries)
2008 2009 2010 1Q11 2Q11
8492 90
87 89
Good
Good Good
• Flood Response and
Containment
• Focus on Process and
Fundamentals
Best Ever
Quarter
Record
Second Quarter
10
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Operating Outlook
• Building a Total Safety
Culture
• Continued Flood
Prevention Efforts
• Leveraging Network
Productivity
• Growing Value
Proposition for our
Customers
• Positioned for Growth
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Second Quarter Financial ReviewJuly 21, 2011
Rob Knight, CFO
11
21
$ 4,858
3,466
1,392
26
(148)
(485)
$ 785
492.4
$ 1.59
$ 4,182
2,903
1,279
19
(152)
(435)
$ 711
506.5
$ 1.40
Second Quarter Earnings SummaryIn Millions (except EPS)
Operating Revenues
Operating Expenses
Operating Income
Other Income
Interest Expense
Income Taxes
Net Income
Weighted Average Diluted Shares
Diluted EPS
2011 2010 %
16
19
9
37
(3)
11
10
(3)
14
22
Freight RevenueSecond Quarter (In Millions)
2010
Volume
& Mix
Core
Price
Fuel
Surcharge
2011
+ 5.5%
+ 4.5%
+ 6.0% $4,595
$3,956
+ 16%
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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
58%60% 60%
48%45%
36%13%
18%
14%
9%
5%
3%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
3.5%
5.0%
5.5% 5.5%
4.5% 4.5%
Pricing Gains & Leverage
Core Pricing Incremental Margins
*
* Adjusted for fuel price & one-time items. See Union Pacific website under Investors for a reconciliation to GAAP.
Year-over-year volume growth
*
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Operating Expense RecapSecond Quarter 2011 vs. 2010 ($ Increase in Millions)
Fuel
• $563 Million Increase
• Drivers
– Fuel Price
– Volume & Inflation
– Casualty Costs
– Training
– Flood Prevention
Equip &
Rents
Comp &
Benefits
Other Prch Srvs
& Materials
Depr
$296
$115
$74
$44$33
$1
13
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Fuel ExpenseSecond Quarter 2011 $904M, +49%
• Higher Diesel Fuel Prices
Added $276 Million to Costs
• Conversion Spreads more
than Doubled versus 2010
• Negative Fuel Price Impact
(vs. 2010)
– Operating Ratio (2.0) points
– EPS ($0.02)
• 2% Consumption Rate
Improvement
$2.29
Average Fuel Price(Per Gallon Consumed)
2010 2011
$3.29+44%
2010
265
Fuel Consumption (Million Gallons)
2011
257
Barrel Price Conversion Spreads
26
Compensation & BenefitsSecond Quarter
2010
Inflation Volume (Net of
Productivity)
Training
2011
+ 5.5% + 2.5%
+ 0.5% $1,166
$1,051
+ 11%
Flood-
Related
+ 2.5%
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Workforce LevelsSecond Quarter
2010
Base
Workforce
Training Capital
Projects
2011
+ 2.5%
+ 2.5%+ 1.0%
44,971
42,571
+ 6%
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$472$516
Second Quarter 2011 Expense Review In Millions
• Higher Personal Injury
and Other Casualty-
Related Expenses
• Higher Property Taxes
2010
Purchased Services &
Materials
2011
• Increased Contract Services
• Flood-Prevention Expenses
• Locomotive Materials Usage
• Crew Lodging &
Transportation Costs
$122
$196
2010
Other
2011
15
29
$368$401
Second Quarter 2011 Expense Review (cont)In Millions
• Ongoing Capital
Spending
• Volume Driven -
Higher Expense
• Increased Other Rent
Expenses
• Lower Freight Car and
Locomotive Lease
Expenses
2010
Depreciation
2011
$282 $283
2010
Equipment & Other
Rents
2011
30
Operating Ratio PerformanceSecond Quarter
2008 2009 2010 2011
79.7
77.4
69.471.3
Operating Ratio (Pct) Second Quarter
• Solid Pricing
• Modest Volume Growth & Leverage
• Year-Over-Year Negative Fuel Price Impact of 2.0 points
Full Year
• Improvement excluding
Fuel Price Impact
Fuel Price Impact
16
31
Solid Financial Position$ In Millions
• Record Cash from Operations and Free Cash Flow
• 38% Cash Dividend Increase YTD
• Maintain Solid Investment Grade Rating
$755$900
$272$374
Free Cash Flow*
Total Debt *(Adjusted)
42.5% 40.9%
* See Union Pacific website under Investors for a reconciliation to GAAP.
Adjusted Debt to Capital
$1,027
$1,274 Before Dividends
After Dividends
1H 2010 1H 2011
$12,684
YE 2010 6/30/2011
$13,139
Dividends
32
Delivering Value to Shareholders
1Q 2Q 3Q 4Q 1Q 2Q
$0
$466
$1,026
$1,249
$1,497
$1,857
Cumulative Share Repurchases($ In Millions)
1Q 2Q 3Q 4Q 1Q 2Q
$0.27$0.33 $0.33
$0.38 $0.38
$0.475
Declared Dividend Per Share
2010 2011
2010 2011
+25%
• Performance Drives Dividend Increases
– Second Quarter Declared Dividend Increase of 25%
– Targeted Payout Ratio of 30%
• Opportunistic Share Repurchases
– 1Q 2011 = $248 Million
– 2Q 2011 = $360 Million
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33
2011 Outlook
Continued
Volume
Growth
“Real”
Pricing
Gains
Ongoing
Productivity
Focus
Record
Earnings
Improved
Shareholder
Returns
34
Second Quarter Earnings Release July 21, 2011
Jim Young, Chairman & CEO
18
35
UP Gaining Momentum
• Strong UP Value Proposition
– Price / Service
– Franchise
• Positioned for Growth
• Remain Proactive
• Reward 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 economic conditions and its performance for the rest of the year; and its ability to leverage volume growth and improve pricing and 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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Second Quarter Earnings Release July 21, 2011
Question & Answer Session