2005 Analyst Meeting - Union Pacific Railroad...2005 Analyst Meeting 2005 Analyst Meeting Marketing...

2005AnalystMeeting

2005AnalystMeeting

Jack KoraleskiEVP Marketing & SalesUnion Pacific Railroad

Jack KoraleskiEVP Marketing & SalesUnion Pacific Railroad

New Business Environment

• Value of Our Capacity HasIncreased

• Every Carload Must BeRe-Investable

• Choose Which BusinessWe Can Handle

• All Business Must MeetRequirements of theChanging Environment

Demand > Supply

165

170

175

180

185

190

195

200

S03

N J04

M M J S N J05

M M*

7-D

ay

Ca

rlo

ad

ing

s

Sustained Demand

Secular Drivers

• TranspacificTrade

• PopulationGrowth

• HighwayInfrastructure

• Crude Oil

* As of May 20th

Last 21 Month Volumes

Previous Record Volumes – Any Year

Flood Embargo PRBIncidents

Growth In Key Corridors1998 - 2004

Challenge/Opportunity

Match Available Demand With UP’sValuable Capacity to Create a Book of

Business That Optimizes Yield andVelocity.

Commercial Strategy GoingForward…

• Drive HigherReturns

• Drive VelocityImprovement

• Maintain Focus onCustomerRelationship

Drive Higher ReturnsCore Price Improvement

1.0% 1.0% 1.0%

3.0%

4.3%

1Q 2Q 3Q 4Q 1Q

2004 2005

Drive Velocity ImprovementPhoenix

Economic Drivers

• Population Up 29% Since 1998

– 15% growth projected 2005-10

• Housing Starts Up 17% In 2004

– Projected to grow 20% by 2010

UP Volumes

1998 1999 2000 2001 2002 2003 2004

Up 44%Up 44%

Drive Velocity ImprovementPhoenix Inventory Control

PhoenixTempe

Mesa

McQueen

Gilbert

Magma

Dock

West Chandler

Chandler

Pipeola

Tolleson Campo

Buckeye

Arlington

• Improve ServiceReliability

• Daily Review of PhoenixYard Inventories

• Work Jointly withCustomers to ReduceInventory or ControlInbound Flow

• Avoid Having InventoryOverwhelm Resources

Drive Velocity ImprovementPhoenix Inventory Control

• Improve ServiceReliability

• Daily Review of PhoenixYard Inventories

• Work Jointly withCustomers to ReduceInventory or ControlInbound Flow

• Avoid Having InventoryOverwhelm Resources

2005

Two-Day Old Cars

0

100

200

300

400

500

600

2/14 3/16 4/15 5/15

Profitability

1 2 3 4 5

Focus on Customer RelationshipSatisfied Customers Drive Results

Revenue Growth

Dissatisfied/

Neutral

Somewhat

Satisfied

Very Satisfied

Gro

wth

Rate

Overall Satisfaction Rating

Pro

fita

bilit

y In

dex

Focus on Customer RelationshipCustomer Satisfaction Survey

• Monthly TargetsEstablished

• Causes of VarianceIdentified

• Corrective Action PlanImplemented

• Follow-up WithIndividual Customer onAll DissatisfiedResponses

OverallSatisfaction

Velocity(MPH)

J02 J03 J04 J05

Our Message to Customers

• Unified Plan Will Drive Velocity Improvement

• Lean Management and Other Initiatives WillImprove Productivity

• Capital Investment Will Provide AdditionalCapacity

• Velocity, Productivity and Capacity Will AllowUs to Handle Future Growth

• Price Improvement Needed to Improve ROI toSupport Needed Capital Investment

2005AnalystMeeting

2005AnalystMeeting

Marketing & Sales Wrap-Up

200

300

400

500

Q1 Q2 Q3 Q4

Agricultural Products Overview2004 Revenue = $1.7 Billion

WholeGrains

41%

GrainProducts

37%

Business Mix

Food/Ref.22%

Revenue Growth Trend

• Ethanol/Co-Products

• More Productive Forms ofService

– Shuttle/Unit Train Focus

– Express Lane

• Mexico

• Price to Support Reinvestment

($ Millions)200520042003

20%

200

250

300

350

Q1 Q2 Q3 Q4

Automotive Overview2004 Revenue = $1.2 Billion

AssembledAutos80%

Materials20%

Business Mix

Revenue Growth Trend

• Well Positioned with GrowthCompanies

• New Plants/Products

• Parts Growth

• Leverage Premium Network

• Price to Support Reinvestment

($ Millions)200520042003

(3%)

200

300

400

500

Q1 Q2 Q3 Q4

Chemicals Overview2004 Revenue = $1.7 Billion

Fert16%

L&D28%

SodaAsh17%

Business Mix

Plastics 24%

LPG/Petr15%

Revenue Growth Trend

• Energy Market Favors NorthAmerican Production

• Limited Plant ExpansionOpportunities

• Selective Business Growth

• Price to Support Reinvestment

($ Millions)200520042003

12%

2005 Revenue Outlook• Volume – 1% to 2%

• Yield Improvement & Fuel Surcharge – 7%+/-

Agricultural 6-8%

Automotive 1-2%

Chemicals 3-5%

Energy 13-15%

Industrial 9-11%

Intermodal 7-9%

Total Revenue Growth of 8% to 9%Total Revenue Growth of 8% to 9%

Drive Higher ReturnsBusiness Model - 2005

Letter

Quotes

34%

Tariff

17%

Contracts

49%

Letter

Quotes

34%

Tariff

17%

Contracts

49%

Priceto

Market

LimitedPrice

Flexibility

2005 3-5

Past Outlook Years

Market 0-2% 1-2% 2%

Price 1%+ 7%+/- 3%+

Penetration 2-3% (1)-0% 0%+/-

TOTAL 3-5% 8-9% 5%+

Key Drivers of Growth

2005AnalystMeeting

2005AnalystMeeting