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Third Quarter 2013 Earnings Release October 17, 2013 Jack Koraleski, CEO
2
2011 2012 2013
$1.85
$2.19
$2.48 Best-Ever Quarter
Third Quarter 2013 Record Results
+13%
Earnings Per Share Third Quarter Positives
• Best-Ever Quarter – Operating Revenue – Operating Income – Operating Ratio – Earnings
• Franchise Diversity
Challenges • Grain Volumes • Coal Volumes • Colorado Flooding
3
Third Quarter 2013 Marketing & Sales Review October 17, 2013 Eric Butler, Executive VP – Marketing & Sales
4
Chemicals
Automotive
Coal
Third Quarter 2013 Recap
Volume ARC Freight Revenue
Freight Revenue Performance (Year-Over-Year Change)
Volume Growth
Flat
+5% +5%
Freight Revenue Mix
Agricultural 15% Autos 10%
Chemicals 17%
Coal 21%
Industrial 18%
Intermodal 19%
Agricultural
TOTAL
-1%
+8%
-4%
-7%
+3%
Flat
+9% Industrial Products
Intermodal
5
Agricultural Products Revenue $771M (-2%) Volume 210K (-4%) ARC $3,679 (+2%)
Quarterly Drivers • Limited Corn Supply • Replenishment of Low Ethanol
Inventories • Reduced Import Beer
Grain Products
36%
Grain 37%
Food & Refrigerated
27%
Volume Mix
73.2 75.2
Grain Products*
2012 2013
69.9 63.8
Grain*
2012 2013
-9%
58.7 56.1
Food & Refrigerated*
2012 2013
*Volume in thousands of carloads and excludes equipment shipments
+3%
-4%
6
Automotive Revenue $512M (+17%) Volume 195K (+8%) ARC $2,620 (+9%)
Finished Vehicles
56%
Volume Mix 104.5
110.2
Finished Vehicles*
2012 2013
+5%
76.5 85.3
Auto Parts*
2012 2013
+12%
*Volume in thousands of carloads
Quarterly Drivers • Continued Replacement of
Aging Vehicles • Production Stabilized at Key
Assembly Plants
Auto Parts 44%
7
Coal Revenue $1,082M (+2%) Volume 468K (-7%) ARC $2,312 (+10%)
Quarterly Drivers • Contract Loss & Mild Weather • Soft Demand and Colorado
Flooding Impact CO/UT Coal • Growth from Other Regions
44.7 41.1
Southern Powder River Basin*
2012 2013
*Tons in millions
8.4 7.0
Colorado/Utah*
2012 2013
-8%
-17%
Volume Impact (Weekly Carloadings)
Southern Powder River Basin
74%
Other 13%
1Q 4Q
Southern Powder River Basin
74%
25,000
29,000
33,000
37,000
41,000
45,000
2011
2012
2Q 3Q
2013 (19%) Flat
(7%)
WY Blizzard
8
Industrial Products Revenue $975M (+11%) Volume 325K (+9%) ARC $2,998 (+2%)
Quarterly Drivers • Drilling Activity – Frac Sand • Increased Construction Activity • Housing Start Growth • Growth in Iron Ore and Energy
Related Metals
Paper 9%
Gov’t/Waste 12%
Metals 19%
Volume Mix*
Minerals/ Consumer
19%
Construction 32%
Lumber 9%
**Volume in thousands of carloads *Beginning in 3rd Quarter 2013, Shipments of Salt, Carbon Black, Rubber and Magnesium Chloride are reported under Gov’t / Waste.
93.8 104.1
Construction**
2012 2013
51.0 61.7
Non-Metallic Minerals**
2012 2013
+21%
42.0 40.3
Gov’t / Waste**
2012 2013
+11%
-4%
9
Intermodal Revenue $1,027M (Flat) Volume 848K (-1%) ARC $1,211 (+2%)
Quarterly Drivers • Port Transloading Impacts
International • Highway Conversions Drive
Domestic Growth
International 52%
Domestic 48%
Volume Mix 469.9
444.1
International*
2012 2013
-5%
387.3 404.2
Domestic*
2012 2013
+4%
*Volume in thousands of units
10
Chemicals Revenue $883M (+5%) Volume 282K (+3%) ARC $3,134 (+2%)
Quarterly Drivers • Improved Industrial Chemicals
Markets • Strength in Petroleum Products • Narrowing Crude Spreads Impact
Short-haul Moves **Volume in thousands of carloads * Beginning in 2013, Fertilizer includes Phos Rock and Sulfur; Soda Ash includes
Sodium Products; Crude Oil separated from Petroleum & LPG
Volume Mix*
Plastics 21%
Industrial Chemicals
23%
Petrol. & LP Gas
14% Fertilizer 18% Soda Ash
10%
Crude Oil 14%
21.6 23.8
Petroleum Products**
2012 2013
60.1 65.7
Industrial Chemicals**
2012 2013
+9%
40.5 38.5
Crude Oil**
2012 2013
+10%
-5%
11
Union Pacific Crude-by-Rail
FY 1Q 2Q 3Q 4Q 1Q 2Q 3Q
36.7
22.0
33.7
40.5 41.3 45.6 46.9
38.5
Crude Oil Carloads (000s)
2012 2013 2011
• Dynamic & Evolving Marketplace
• Spreads Impact Crude Flows
• New Destination Facilities Being Developed
• Long-term Fundamentals Remain Solid
St. James
12
Fourth Quarter 2013 Outlook
Agricultural Products + Fall Crop / Grain shipments Automotive + Auto Sales Growth Chemicals + Most Markets Remain Solid ? Crude Oil Spreads Coal – Contract Loss ? Weather Industrial Products + Shale Drilling - Frac Sand + Housing & Construction Intermodal – International + Domestic Highway Conversions
13
Third Quarter 2013 Operations Review October 17, 2013
Lance Fritz, Executive VP - Operations
14
Dedicated Focus on Safety Third Quarter YTD Employee
(Reportable Personal Injury Incidents Per 200,000 Employee-Hours)
Rail Equipment (Reportable Derailment Incidents
Per Million Train Miles)
Public (Crossing Accidents Per Million Train Miles)
2010 2011 2012* 2013*
1.37 1.15
1.04 1.05
Good
2010 2011 2012* 2013*
2.98
3.28 3.35 3.26 -3% Good
2010 2011 2012* 2013*
2.32
2.11
2.34 2.18
Good -7%
All-Time Annual Record
• Continue to Strengthen Our Safety Culture
• Infrastructure Investment & Focus on Human Factor Incidents
• Align Public Safety Activity to High Risk Areas
+1%
* January-September
All-Time Annual Record
All-Time YTD
Record
15
2010 2011 2012 2013
90 87 89 89
94 94 95 96
Network Performance Third Quarter • Sequential and Year-Over-
Year Improvement • Colorado Flooding Impact • Agility & Resiliency
Demonstrated with Resources & Service Plan • Strategic Investments Aid
in Recovery & Add Capacity • Positioned for Growth
2010 2011 2012 2013
25.7 24.6
26.1 26.3
Velocity (as Reported to the AAR)
Service Delivery* and IS&P Industry Spot & Pull % Good
* Includes early deliveries
**
** Best-ever quarterly record
+1%
Good
16
Network Productivity Third Quarter
2010 2011 2012 2013
990 958
623
384
Slow Order Miles Good
3rd Qtr Record
-38%
Locomotive Productivity (Gross Ton Miles per HP Day)
Flat
+1%
-2%
+3% South
Agility & Resource Readiness (vs 3Q 2012)
North
West
Total
Volume Active TE&Y
3%
Flat
-1%
-2%
+3%
(Gross Ton Miles per HP Day)
2010 2011 2012 2013
120 118
120 121 Good +1%
* All-time quarterly record
Nbr of Cars Switched
Y&L Employee Days
Cars Switched* (per employee day)
+1.5%
Flat
+1.5%
Manifest Growth Impact (vs 3Q 2012)
17
Full Year 2013
• Safety, Service and Network Productivity
• Resource Agility
• Effective Capital Deployment
• Well Positioned for Growth with Excellent Service
18
Third Quarter 2013 Financial Review October 17, 2013
Rob Knight, CFO
19
Third Quarter Income Statement In Millions (except EPS)
Operating Revenues $5,573 $5,343 4 Operating Expenses 3,611 3,557 2 Operating Income 1,962 1,786 10 Other Income 28 28 - Interest Expense (138) (137) 1 Income Taxes (701) (635) 10 Net Income $1,151 $1,042 10 Weighted Average Diluted Shares 464.2 475.2 (2)
Diluted EPS $2.48 $2.19 13
2013 2012 %
20
Freight Revenue Third Quarter (In Millions)
2012
Volume & Mix
Core Price
Fuel Surcharge
2013
+1.1%
+3.5% $5,250
$5,019
+4.6%
Flat
21
$1,188 $1,196
Compensation & Benefits Expense Third Quarter 2013 $1,196M, +1%
2012
Compensation & Benefits (in Millions)
2013
46,205 46,605
2012
Workforce Levels (Quarterly Average)
2013
+1%
• Inflation Costs • Higher Training Costs • Productivity Gains • Flat Volume
• Increased Workforce
– TE&Y Training – Capital (including PTC)
+1%
22
Fuel Expense Third Quarter 2013 $866M, -2%
• Lower Average Diesel Fuel Price
• GTMs down 2% compared to 2012
• 1% Consumption Rate Increase
$3.19 $3.17
Average Fuel Price (Per Gallon Consumed)
2012 2013
245,415 241,350
2012
Gross Ton-Miles (in Millions)
2013
-2%
-1%
23
$542 $588
Third Quarter 2013 Expense Review In Millions
2012
Purchased Services & Materials
2013
• Increased Locomotive & Freight Car Repair Costs
• Joint Facility Maintenance • Logistics Management Fees
+8%
$447 $447 • Higher Depreciable Asset
Base • New Equipment Rate Study • Timing of Asset Purchases
and Project Work Completion 2012
Depreciation
2013
Flat
24
Third Quarter 2013 Expense Review (cont) In Millions
• Container Costs - Contract Arrangement
• Higher Freight Car Rental Expense
$300 $309
2012
Equipment & Other Rents
2013
+3%
• Higher Property Tax Expense • Increased Freight Damage
Costs • Moderately Lower Personal
Injury Expense
$200 $205
2012
Other
2013
+3%
25
Operating Ratio Performance
2011 2012 2013
69.1
66.6
64.8
Third Quarter (Percent)
-1.8 pts
Best-Ever Quarter
Best-Ever Quarter
• Solid Core Pricing
• Productivity Gains & Network Efficiencies
• Flat Volumes
Reiterate Full Year Sub-65 Operating Ratio
Goal by 2017
YTD Operating Ratio = 66.5%
26
$12,753 $12,772 $13,025
Cash from Ops
Investing Dividends
$4,366
($2,866)
($860)
$4,881
($2,596)
($968)
Strong Financial Position Nine Month Period Ending September 30 ($ In Millions)
• Solid Free Cash Flow of $1.3 Billion ‒ Strong Cash from Ops ‒ 13% Cash Dividend
Increase
• Strong Balance Sheet ‒ Investment Grade Credit
Rating
Free Cash Flow*
* See Union Pacific website under Investors for a reconciliation to GAAP. Adjusted Debt to Capital
2013 2012 2013 2012 2013 2012
Total Debt* (Adjusted)
40.7% 39.1%
12/31/2011 12/31/2012
38.5%
9/30/2013
27
Driving Strong Shareholder Value
• Repurchase Activity ‒ 3.7 Million Shares in 3Q ‒ 9.6 Million Shares YTD
• Cash Returned to Shareholders in Dividends and Share Repurchases up 15%
• 5.4 Million Shares Remaining in Current Authorization
Dividends & Share Repurchases ($ In Billions)
Quarterly Share Repurchases ($ In Millions)
1Q 2Q 3Q 4Q
$433 $415 $378
$248
$394 $463
$575
2013 2012 2013 2012 2013 2012 2012
2012 YTD 2013 YTD
$2.09 $2.40 Dividends
Share Buybacks +15%
28
Closing out 2013 and Looking Ahead to 2014 2013 • Modest Volume Growth in
the 4th Quarter • Full Year Record Earnings 2014 • Modest Volume Growth
Assuming Economy Cooperates
• Continued Real Core Pricing Gains but Lower than 2013
• Growing Returns • Increased Shareholder
Value
29
Third Quarter 2013 Earnings Release October 17, 2013 Jack Koraleski, CEO
30
Potential of the UP Franchise
• Well Positioned for Economic Recovery – Capitalize on
Opportunities – Navigate through
Challenges
• Reinvestible Pricing
• Leverage Capital Investments
• Grow Customer Value & Shareholder Returns
31
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 future economic improvement and its ability to capitalize on any future economic improvement; provide safe, efficient and reliable service; maintain agility; and generate value for its customers and shareholders. 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.
32
Third Quarter 2013 Earnings Release October 17, 2013 Question & Answer Session