fourth quarter earnings release - union pacific...1 1 fourth quarter earnings release january 19,...
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1 1
Fourth Quarter Earnings Release January 19, 2012
Jim Young, Chairman & CEO
2 2
2008 2009 2010 2011
$1.30
$1.08
$1.56
$1.99
Best-Ever
Quarterly
Record
Union Pacific Achieves 2011 Milestones
Positives
• Record Financial
Results Achieved in 4th
Quarter and Full Year
• Employee Safety
• Great Service
• Customer Satisfaction
• Franchise Diversity
+28%
Earnings Per Share 4th Quarter
2
3 3
Fourth Quarter Marketing & Sales Review January 19, 2012
Jack Koraleski, Executive VP – Marketing & Sales
4 4
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
87
89 90 90
91 92
91 92
164
169
178 175
172 174
180 180
Customer Satisfaction
GOOD
2011 2010
Quarterly
Record
Quarterly
Record
Customer Satisfaction
7 Day Carloadings
92 = Full Year Record
3
5 5
Fourth Quarter Recap
Volume ARC Freight Revenue
Performance Improvement (Year-Over-Year Change)
Volume Growth
+3%
+13%
+16%
Revenue Mix
Agricultural
18%
Autos
8% Chemicals
15%
Energy
22%
Industrial
17%
Intermodal
20%
Agricultural
TOTAL
+7%
+10%
-3%
-5%
+8%
+3%
+10%
Energy
Industrial
Products
Chemicals
Automotive
Intermodal
6 6
Agricultural Products Revenue $854M (+2%) Volume 236K (-5%) ARC $3,630 (+7%)
Quarterly Drivers
• Weaker Grain Exports Partially Offset by Domestic Growth
• Strength in Biofuels
Grain Products
38%
Grain 34%
Food/ Refrigerated
28%
Revenue Mix
*Volume in thousands of carloads
41.5
50.6
Domestic Grain*
2010 2011
+22%
60.3
34.4
Export Grain*
2010 2011
-43%
19.4 22.9
Biofuels*
+18%
2010 2011
4
7 7
Automotive Revenue $408M (+26%) Volume 171K (+10%) ARC $2,378 (+13%)
Finished Vehicles
79%
Revenue Mix
90.6
103.4
Finished Vehicles*
2010 2011
+14%
63.7 68.0
Auto Parts*
2010 2011
+7%
*Volume in thousands of carloads
Quarterly Drivers
• Industry Sales Continue to Gain Momentum
• Improving Vehicle Inventory Levels
Auto Parts 21%
8 8
Chemicals Revenue $728M (+18%) Volume 232K (+10%) ARC $3,131 (+7%)
Quarterly Drivers
• Continued Growth in Crude Oil
• Strong Plastics Market
• Solid Performance Across All Major Market Segments
Plastics 19%
Industrial Chemicals
23%
Petroleum & LP Gas
23%
Revenue Mix
*Volume in thousands of carloads
Fertilizer 15% Soda Ash
14%
25.5
37.2
Petroleum Products*
2010 2011
+46%
52.8
56.6
Plastics*
2010 2011
+7%
Other 6%
5
9 9
Energy Revenue $1,070M (+21%) Volume 558K (+8%) ARC $1,917 (+12%)
Quarterly Drivers
• New Business Drives SPRB Growth
• Solid Production and Export Demand Produces CO/UT Gains
Southern Powder River Basin
77%
Other 4%
Colorado/ Utah 19%
Revenue Mix
47.2 50.3
Southern Powder River Basin*
2010 2011
+7%
*Tons in millions
6.7
7.4
Colorado/Utah*
2010 2011
+10%
10 10
Industrial Products Revenue $810M (+24%) Volume 281K (+7%) ARC $2,878 (+16%)
Quarterly Drivers
• Strong Energy Drilling Demand
• Ramp-up of Iron Ore Exports to China
Paper 13%
Government/ Waste 8%
Metals 27%
Revenue Mix
Minerals/ Consumer
25%
Construction 14%
Lumber 13%
*Volume in thousands of carloads
29.9 32.5
Steel*
2010 2011
+9%
35.2
49.2
Non-Metallic Minerals*
2010 2011
+40%
5.9
10.2
Metallic Minerals* +73%
2010 2011
6
11 11
Intermodal Revenue $959M (+13%) Volume 817K (-3%) ARC $1,175 (+16%)
Quarterly Drivers
• Weak Imports and 2Q Contract Loss Impact International
• Record Domestic Volume
International 47%
Domestic 53%
Revenue Mix 471.7
436.7
International*
2010 2011
-7%
369.6 380.6
Domestic*
2010 2011
+3%
*Volume in thousands of units
12 12
2012 Economic Outlook
Metric 2010 2011 2012E
Gross Domestic Product (%) 3.0 1.8 2.0
Industrial Production (%) 5.3 4.1 2.8
Light Vehicle Sales (Millions) 11.6 12.8 13.5
Housing Starts (Millions) 0.58 0.61 0.73
Imports (%) 12.5 4.8 3.2
Exports (%) 11.3 6.9 4.0
Unemployment (%) 9.6 9.0 8.8
Source: Global Insight – January 2012
7
13 13
Slow to Negative
• SPRB Coal
• International
Intermodal
• Paper
• Government /
Hazardous
• Biofuels
• Food & Beverage
• Refrigerated
• Food Grains
• Export Grain
Solid
• Minerals
• Petroleum
• Domestic
Intermodal
• Finished Vehicles
• Auto Parts
• CO/UT Coal
• Metals
• Lumber
• Fertilizer
• LPG
2012 Volume Growth Potential
Moderate
• Domestic Grain
• Grain Products
(ex. Biofuels)
• Industrial Chemicals
• Plastics
• Soda Ash
• Construction
14 14
Fourth Quarter Operations Review January 19, 2012
Lance Fritz, Executive VP - Operations
8
15 15
2009 2010 2011
3.17 2.98
3.28
Operating Foundation, Safety Focus Full Year
Rail Equipment (Reportable Derailment Incidents
Per Million Train Miles)
Public (Crossing Accidents Per
Million Train Miles)
2009 2010 2011
2.11
2.32
2.11
Good Good
2009 2010 2011
1.45 1.37
1.15
Employee (Reportable Personal Injury
Incidents Per 200,000 Man-Hours)
-16%
Good
10%
-9%
All-Time
Record
All-Time
Record
All-Time
Record
16 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 Q3 Q4
Consistent Network Performance
• Agility and Resiliency
Demonstrated with
Resources and Service
Plan
• Recovered from Weather
Challenges
• Positioned for Growth
– 1,030 Employees Furloughed
– 600 Locomotives Stored*
7-Day Carloads Velocity **
(000s) (MPH)
2010 2008 2009
**As reported to the AAR
2011
*Excludes locomotives on hand to manage day-of-week loading cycles.
9
17 17
2008 2009 2010 2011
89 90 90 88
87 88
94 94
2008 2009 2010 2011
82 83
88 88
Service and Efficiency 4th Quarter
2008 2009 2010 2011
5.20 5.22
5.52 5.62
GTMs per Employee (In Millions)
151
165 166 171
Train Size (Average Units per Train)
Intermodal
Boxes
Manifest
Cars
Service Delivery* and IS&P Industry Spot
& Pull % Good Good
Good
2008 2009 2010 2011
1,723
1,008
660 590
Slow Order Miles
Good
*Includes early deliveries
Best-Ever
Quarter
4th Qtr
Record
** **
** 4th Quarter Record
-11%
+2%
18 18
2011 Growth Trend
Manifest Volume Growth Increase in Carloads vs. 2010 (in Thousands)
Cars Switched per Man-Day
2008 2009 2010 2011
16.8 16.9 18.2 18.6
• Strong Manifest
Franchise Growth,
Especially in South
• Leverages Terminal
Infrastructure
• Capital Plan Aligned,
Preserving Long-Term
Strategies
West South North
41
89
55
10
19 19
Replacement Growth & Productivity
PTC
$1,908
$1,084
$224
$1,920
$1,345
$335
$160
2012 2011
2012 vs. 2011 Capital* ($ In Millions)
2012 Capital Plan Replacement, Growth & Productivity
• $3.6+ Billion in 2012
• Safe and Resilient
Infrastructure
• Increased Capacity
Spending
– Santa Teresa Facility
– Southern Region Projects
• 200 New Locomotives
• Increased PTC Spend
*Includes cash capital, leases and other non-cash capital
2012 2011 2012 2011
20 20
Operating Outlook
• World Class Safety
Results
• Excellent Service
with Growth
• Productivity / Volume
Leverage
• Capital Effectiveness
• Critical Initiatives
11
21 21
Fourth Quarter Financial Review January 19, 2012
Rob Knight, CFO
22 22
Fourth Quarter Earnings Summary In Millions (except EPS)
Operating Revenues $5,108 $4,410 16
Operating Expenses 3,491 3,097 13
Operating Income 1,617 1,313 23
Other Income 54 9 F
Interest Expense (141) (142) (1)
Income Taxes (566) (405) 40
Net Income $964 $775 24
Weighted Average Diluted Shares 484.7 496.3 (2)
Diluted EPS $1.99 $1.56 28
2011 2010 %
12
23 23
Freight Revenue Fourth Quarter (In Millions)
2010
Volume
& Mix
Core
Price
Fuel
Surcharge
2011
+ 5%
+ 5%
+ 6%
$4,829
$4,171
+ 16%
24 24
2010 1Q11 2Q11 3Q11 4Q11
57%
45%
36%
41%
59%
13%
5%
3%
1%
3%
2010 1Q11 2Q11 3Q11 4Q11
5.0%
4.5% 4.5% 4.5%
5.0%
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 carload growth
Reported Core Price (Including RCAF Fuel Impact) Incremental Margins*
13
25 25
Compensation & Benefits Fourth Quarter 2011
$1,112 $1,155
2010
Compensation & Benefits (in Millions)
2011
43,462 44,922
2010
Workforce Levels (Quarterly Average)
2011
+3%
+4%
• Base Business Activity and
Increased Capital Work (incl PTC)
Each Drove Half of the
Increase
• Labor Inflation of 4.5%
• Volume-Related Expenses
Offset by Productivity
26 26
Fuel Expense Fourth Quarter 2011 $935M, +36%
• Higher Diesel Fuel Prices
added $199 Million to
Costs
• Conversion Spreads More
than Doubled versus 2010
• GTMs Increased 5%
$2.46
Average Fuel Price (Per Gallon Consumed)
2010 2011
$3.16 +28%
270 286
2010
Fuel Consumption (Million Gallons)
2011
Barrel Price Conversion Spreads
+6%
14
27 27
$467 $508
Fourth Quarter 2011 Expense Review In Millions
• Higher Property Taxes
• Lease Buy-Out Expense
2010
Purchased Services & Materials
2011
• Increased Contract Services
• Locomotive & Freight Car
Materials Usage
• Crew Lodging & Transportation
Costs
$173 $191
2010
Other
2011
+10%
+9%
28 28
$380 $413
Fourth Quarter 2011 Expense Review (cont) In Millions
• Ongoing Capital Spending
• Volume Driven - Higher
Expense
• Higher Short-Term Car
Rental Expenses and
Container Leases
• Lower Locomotive Lease
Expense
2010
Depreciation
2011
$278 $289
2010
Equipment & Other Rents
2011
+9%
+4%
15
29 29
Operating Ratio Performance
2008 2009 2010 2011
73.4 73.4
70.2 68.3
Fourth Quarter (Percent)
0.8 pts
2008 2009 2010 2011
77.4 76.1
70.6 70.7
Full Year (Percent)
Fuel Price Impact
1.7 pts
30 30
Full Year Income Statement In Millions (except EPS)
Operating Revenues $19,557 $16,965 15
Operating Expenses 13,833 11,984 15
Operating Income 5,724 4,981 15
Other Income 112 54 F
Interest Expense (572) (602) (5)
Income Taxes (1,972) (1,653) 19
Net Income $3,292 $2,780 18
Weighted Average Diluted Shares 489.8 502.9 (3)
Diluted EPS $6.72 $5.53 22
2011 2010 %
16
31 31
Solid Financial Position Twelve-Month Period Ending December 31 ($ 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
$1,415
$1,917 $602
$837
Free Cash Flow*
Total Debt* (Adjusted)
42.5% 40.7%
* See Union Pacific website under Investors for a reconciliation to GAAP.
Adjusted Debt to Capital
$2,017
$2,754 Before Dividends
After Dividends
12/31/2010 12/31/2011
12/31/2010 12/31/2011
Dividends
$13,139 $12,753
32 32
Locomotive
Purchases/Leases
Investments and Returns
2008 2009 2010 2011 2012
$3.1
$2.5 $2.5
$3.2
~$3.6
Total Capital Spending* (In Billions)
Base
Capital
2008 2009 2010 2011
10.2
8.2
10.8
12.4
Return on Invested Capital** (Percent)
Positive Train
Control
* Includes cash capital, leases and other non-cash capital. ** See Union Pacific website under Investors for a reconciliation to GAAP.
All-Time
Record $3.3
(excl
PTC)
17
33 33
Delivering Value to Shareholders
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
$0 $466
$1,026 $1,249
$1,497
$1,857
$2,285
$2,667
Cumulative Share Repurchases (In Millions)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
$0.27 $0.33 $0.33
$0.38 $0.38
$0.475 $0.475
$0.60
Declared Dividend Per Share
2010 2011
+58%
• Performance Drives Dividend Increases
– Declared Dividend Increase of 58% in 2011
– Targeted Payout Ratio of 30%
• Opportunistic Share Repurchases
– 4Q 2011 = $381 Million @ Avg Price of $98.16
– Full Year 2011 = $1.4 Billion
– 27.8 Million Shares Remaining in Current Authorization
+26%
2010 2011
34 34
A Look Ahead to 2012
Full Year
• Top Line Growth Opportunities
• Real Pricing Gains
• Value Proposition
• Productivity Focus
• Targeting Record Operating Ratio & Earnings
18
35 35
Fourth Quarter Earnings Release January 19, 2012
Jim Young, Chairman & CEO
36 36
Positioned for Success in 2012
• Expect Slow, Continued Growth despite Economic Uncertainties
• Confidence in Strategy
– Investments Supported by Higher Returns
– Provide Increased Value to Customers and Shareholders
– Targeting Improved Financial Results in 2012
19
37 37
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 take advantage of growth opportunities and generate returns for shareholders; future economic conditions; and its prospects for future performance. 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.
38 38
Fourth Quarter Earnings Release January 19, 2012
Question & Answer Session