UNP - Earnings call transcript Q1 2007 | Union Pacific Corporation

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Jason Seidl

Well, good morning, everybody. I'm Jason Seidl. I'm Cowen's Trucking, Rail and Logistics Analyst and welcome to Cowen's 12th Annual Global Transportation Conference. There's, obviously, lots of questions I think investors have in the transportation space and the overall global macro right now and I can't think of a better company to kick off than Union Pacific. We're honored to have them back once again. to Financial presentation Officer. Pacific Knight, is Union Chief their representing give today the Rob And

So, over to further Rob. without ado, I'll turn it

Rob Knight

a Mike is our good will here we Vice President, Rocker remind after Thanks, and be With prepared Sales; Executive our up remarks couple and Head subject and are I IR. then before sitting joining stage everyone And to and like me Kenny is of are on Jason, my here Marketing folks: making Miller morning. statements today start, will uncertainties. me forward-looking would Kenny Q&A. I statements some and be that for of these risks to

risk It refer very UP So to factors. a filings is website Pacific the for has of unique SEC a our about business. franchise. please and Union foundation our additional information

stretching customers. route balanced supporting states Our differentiator XX,XXX over four miles, the includes marketplace. of diversity franchise in country, mix across network the the X/X a a as Western We this XX key view and of groups XX,XXX in business

in us markets broad us a allows of compete footprint position that markets in in participate We have to wide a and a tomorrow. geographic puts of to great variety the

our across for business growth. strategically located to and are to terminals provide convenient access network customers Our our support

border addition, have at six crossings with best all to unparalleled to the access access Gulf gateways. In Mexico, we industry's Coast and the major

new reliable, with with provide Over profitably of and the and to us range long wide a service customers consistent a opportunities product, existing term, coupled diversity continue penetrate with franchise efficient will to our markets. grow

down XX% double-digit strength truck to and XX% in year-over-year, carloads. quarter global gas decreases volume XX% petroleum by positive as more up lower a weaker offset uncertainty. well are driven increase XX% the coal products year, X% a product intermodal business, partially and by The are and volumes currently fertilizer quarter-to-date, and in Premium shipments increase are in down shipments X% less grain by volumes a is Now as construction category the down related coal carloadings, food and volumes. increase international more X% shipments. carloads note, third X% sand down in Energy are than X% domestic products beverage quarter-to-date. industrial turning trade decrease in On pricing offset this partially are plastics offset and carloads as compared driven natural primarily quarter in drivers carloadings. Agricultural by lower driven metals shipments, is in demand X% capacity shipments to decrease by excess forest and a products our in a by XX% fewer to X% in last

indicators. Next, I'd like you to Unified key on Plan XXXX our performance update

by earnings July result flooding most our second on the metrics during efficiency network direct was As our second a we service improving network challenged the weather, But focus the and quarter. discussed significant improved of our on This reliability. relentless call, was year-over-year. even of quarter with

us, our behind are the with KPIs issues the significant to in quarter, continuing Now weather third improve.

has metrics are we are the our behind August disruptions us. car aren't is freight minimizing train finalized, yet levels. improvement July X% of decreased experiencing network the XXXX. And, year-over-year velocity on compared focus dwell July as although, terminal from led car July asset utilization car XX% and classifications X% second but and in freight improvement in in from a Our to improvement further the right direction to speed the trending quarter

to Turning network XXXX now improve. locomotive slide our to July continues productivity improved as X, XX% versus performance

and is locomotives August measured XX, FTE, positive quarter. June. in up of as daily miles momentum about second Workforce had As finished where the stored, July we increase X,XXX car we of productivity, just per from the July an XXX continuing X% of -- year-over-year as since

consolidating Oregon; to delivering Antonio of trip a and fluid plan first to the also team. great curtailed have network of Plan Yard Arkansas; importance better network equal terminal in compliance of beyond issues. Kansas service half move Kansas And City. have Car City, Proviso XXXX. productivity, to in by Chicago. was a name of XXXX, operations in the that that improve as X Slide cars efficiency humping as In highlights network now rationalization have product to handled Hinkle, weather made improving a than we made Des is service Wisconsin Moines, we From our more the July while increase a yard reflecting at cars are in in standpoint, Denver, complexity some we've out Unified addition our we we previously and San reduced X Pine to stopped just at -- improve changes traffic We've switched challenges and Bluff, few. Iowa part facility, locations Armourdale points

operations as Chicago intermodal was simplify we well to Street the plan have facility underway Container in III Global our Depot. idled Our Canal also and

continue expect the which to to rationalization terminal increased on January opportunities. additional improvement forward right. undoubtedly on to reduce we graph And we're will product of length initiatives, as to look we with on touches for the continued train putting excellent this illustrated the lead year we year fewer and ways length will our making By train car Going our progress as see since trains, on network, progresses. XX% more

utilization service the of efficiency. While a been reliability, us and bold of of and are lot evident, have a number network further opportunities ahead are taken there asset steps results to improve

adjusted first levels, ratio to cash rate $X.X half flow an look cash Free before to and a second flow first totaled debt finished debt-to-EBITDA billion balance XX% of XXXX as cash X.X from adjusted income debt to of $XX.X half of times. of all-in the Turning year. quarter the billion, this flow, dividends for strong at $X.X net we the of Taking continue in with adjusted free in totaled billion. equal generate cash X, operations resulting slide we conversion

half of we BBB+ eight line a July. dividend of payout we As five Dividend consistent and no maintaining with of our up $X XX% credit increase than to this a our and earnings, In in billion for guidance, more $X.X for to the target a while debt-to-EBITDA target debt for payments totaled in previously XXXX lower just total billion first a X.X the quarter of a range offering BAAX. dividend have XX% than announced marks the past mentioned, we quarters. third is rating of completed times, XXXX. increases This XX% with

little first are our part of XX.X first And previously the plan these share by repurchases total a repurchase repurchased during At half announced totaling this also shareholders share XXXX. We billion more of with $XX.X than the million XX% quarter, of plan returned the $XX repurchases year. of to our shares $X.X three-year complete Between XXXX. end in of the dividend billion. billion we shares the repurchases, the second half share to payments was and of approximately

quarter ahead, third volumes anticipated. softer have than been Looking

now our the versus is result, a As down will current for XXXX. thinking be that second digits mid-single volume half

confident dollars strategy it from We the continue it represents still while least service as gives XXXX. pricing value to generates our remains the the And million costs at ensuring we our we remain our us in our marketplace, yield pricing that will to the price we well appropriate of However, initiatives, unchanged an product will that positive again our productivity this momentum productivity confidence, deliver net initiatives exceed rail in year. $XXX from inflation return.

look ratio for sub-XX% half an productivity our Importantly, second operating early a XX% with us guidance in XXXX. basis of up, year our Furthermore, full year, ratio ability to improving the achieve operating year's margins in remains next at of in on line a an gives the XXXX below confidence intact.

that unwavering. volumes, the where hand play it committed we're to that we're when achieving to and our have is financial dealt We to targets comes

back So to will for Jason, you with I questions. any that it turn

Jason Seidl

Fantastic.

for on you here. down come So I'll wait to

So, out going time. a and negatives there well? any short jumping both of you are through as not three implementation, so, the surprised railroads there's you together is if first period has to What the there in railroad but positive obviously do during PSR,

Rob Knight

Yes.

there's organization. of that team will was have And base leadership previously Let me surprise and I would do the well. marketing that, the Jim by And and It's inning you and proven me this pace within Canadian also and some our you to our continue out. knew to on in pleasant But got operating because runs talk confidence would think on National PSR Jim tell lot think to with as are customer in all roll I more the that team to perspective will with I good. working not Operating and have Jim I is leader. we to knows surprised the while everyone think obviously Kenny brought his front entire daily in team absolutely is taken outstanding think is Jim see been PSR Union good team a with that the team that, general and marketing you my direct our with have the then as I we implementation and I He been success. Chief who a customer impressed said still of the tell that, start been Vena the from again have closely a the what and start the very think a sales and early Kenny what off as and interface and operating and success with now. I operating And with and as pleasantly an is has Jim make then had then us and bull we Pacific. Jim horns I a Officer buy-in obviously work I'm comments, within I base initiatives has the have positive closely our I the now it opportunity we about

Kenny Rocker

surprised Yes. comments tell you that the brief. I'll that customers. my I'll our with the me way thing the is pace work and we make

And years now. the our to of people look is, proactively changed. the us with exactly but been to the at same we car now, few customers most a They it's would out. compliance our thought true, and at what's Those think trip worked approach for we've to and our metrics really know bulk to We most a break them you you metrics and several done our the best what's business, is I if manifest glass the our intermodal communicate build then helped were change. lot be going business. it's is backup. plan look of in if And what

we growth reliability lot in approach that the a marketplace. and how of dividends of will So, terms pay

Jason Seidl

care, are the And it's terminal not are? at, did. right? dwells mean, that's you getting the like else just compliance, cars you really I look or everything what you speeds it's train say the They and when here shippers

Kenny Rocker

know, velocity business. when customers, sit for plan down trip global car We but about talk just train less size. level, personalize their we a not and business, You those about compliance for we at and train our with we their speak it specifically and

Jason Seidl

Rob, guidance it's OR is obviously, talked little for the guidance hand the that's put you having and you're to you about despite, aptly down bit XXXX so volume the Now, dealt. because a it intact playing come

So, than probably clearly cost what's expected bit would than on side? I better better the are PSR. cost with Talk expected from the a imagine going some little side, on things about

Rob Knight

question tell we'd rather great a That's Yes. volume. have would the you I and

And so…

Jason Seidl

understand. I

Rob Knight

there's only Kenny a have one easier a is frequently is PSR obviously volume and team not question optionality from thinking is, -- we the And softer for environment. PSR. and I more opposite. if We with volume PSR I frankly, more easier more the think or would the be rather And in shrinking implement you that softer in team but the there it's to rather with …we'd just it operating operating get say a or be Jim some income, implementation people volume, easier optionality, and to and harder will, environment? than would successful volume the

holding credit continued continuing volume with have as been that along now, what commented, yes, of dollars been the that, a think the say marketing this productivity. the had the we're OR specific we than in been But and confidence yes, that pricing, guidance, would improved inflation soft softer gives to implementation operating just stronger with continued drive the on And dollars I shows this have and productivity as our still team to well what it expectation I your might I them. above what the confidence to volume, fact initiatives. implementation question is $XXX for combination break with year. us OR and I successful volume again, service, the is even productivity their with million-plus with environment speaks is even So maybe at think, year working of greater, pricing have but dollars, the to sub-XX% we our it initiatives That the

So here collection a or -- base all-in. gives confidence. It's there. no of successful not it's implementation single productivity kind hit really PSR or of of the run just that home us It's that

Jason Seidl

And term, about the we headcount UNP PSR longer as how for should think progresses?

Rob Knight

our You this know, to year. guidance we better to the time we end be Jason, year, year the headcount at and expect finish as was this that continues year-over-year by XX%-ish,

that half year. that of the first midyear for So the by number implies, because X% was

did is second the we second that that first than on So the expect year half be easier half belief. was first XX% greater on again, weather in a the half to measure case should full that And we to our implies even than all make in which continue and the with progress half is floodings. basis the

that's it's the of but of it, So part momentum the implementation. also PSR

one, putting headcount squeeze volume we'd but As go to That variable. don't continue that I there you on as number look say we one even to beyond, where growth, believe grow or those moving out come think I as XXXX longer will able up, line. that specific we'll opportunities into and some it, reductions was be and headcount back without that productivity there's okay were we but function this to we’re headcount on on capitalize there'll with would back with step in those not our see We're year. I volume continued volumes volume repeat term, like our areas because for a

of for or efficiency but grow the one some folks increase, will of of that who one Plan So not PSR volume the the trains variable were we folks headcounts XXXX. the will driving those like likely again, Unified because TE&Y

Jason Seidl

intermodal to the a Interesting. I'll and you a merchandise Talk how the too? turn of the lost about you. probably especially little side bit that much there trucks back bit with business question you Kenny think on competition little

Kenny Rocker

Yes.

everyone rates is So truck the what spot happened has and of aware there.

is don't don't because is time, with have many At low. it are that have of you the some many of Jason, lost some to so have go business. it and as the compete just as same been add-backs we business, have contracted rates on And wins to opportunities spot able some

probably such So great position. a product, be worse weren't be service if be probably in in we to wouldn't have to we able able would a position a --

you tell when happens that on out I’ll rather So product selling. of marketplace we now this depending what did we the have a that's than have you're service the what past in with coming much I'd

to we I happens with confident product what about as see we’ll strong feel we're sell. pretty very and markets the rates, change, fact truck upbeat the that So but a those really have

Jason Seidl

to holding your cost price inflation an number. that's should we're going means still And holding we're confident just to price. our comes in position the probably your you're some comment, opposed slashing across-the-board above to Obviously you're analysts, pricing that? I and That that you're trying as get read of said Rob as very that rates to in fact to rail probably but beyond it it back better a so, get more

Kenny Rocker

to price here. several commercial few for adjustments. for of then be the consistent some going is we're service we had years value we that proposition Jason. Yes It expectation the us the and team we’ve a the not -- have team say best to that for I'd to in have prudent with would make

the terms we going at look we're to the stay how market. in of So course

Jason Seidl

and Rob's day don't you on or that's comment, ravels or I in I puts mind, a everybody's by out some up item mentioned, think comes that mean, obviously news been trade don't that sense. wake market goes we new Makes question. where tweet to opening And everyone some the new

gets when UNP the issues? you? couple and of you back say, biggest that's seeing Two, point your impacts in a volume them you at are come of if impacting So as how well? will can that's telling wise to and terms this that are what settled, Like where plus Like one, this customers you trade questions.

Kenny Rocker

Yeah.

is the the bigger grain ag side, area -- big larger that So, side, -- the soybeans on the get exported. of where one on the

on soybeans I'm eye think heading harvest I into to And keep that If to up the so of back provides able the be go and late soybean, we'll we've tweet U.S. We're -- supply I'm they third that the we'll were the for all clearly certain so there. pull happens. year, sure hit see in that about today, chains what a a China, not time. that not an that. will started a been last positive

so an on And eye keep we'll that.

The on area intermodal business. other our international specifically business, our is Premium

late are saw in ahead the one. but peak compressed place. it a So, we're seems still season, year. we also inventories And still last expecting pull there start like We're very some expecting

that So, how see plays too. out we'll

Jason Seidl

the on crop, was of expect to we always going other out that of do on and one right? the soybean different that as number to now Actually find route and you go multiples number think sort to buyer, more But Should Gulf the the Obviously, PNW? China just the is far going of by two. the a buyers? they're

Kenny Rocker

up the built the They longer trade around about longer grain fact get seem -- this issue are have feel there to a have a have becomes They infrastructure chains we then concern. have a not permanent the any Brazil that seem we good that again, that. so lot buyers to be person out, that China. permanent been from there's doesn't Yeah. of does the right talked as that the do from. I've supply But different of to buyer they as a that -- purchasing It buyers now. a purchase several there

Jason Seidl

you Right. Mexico to more We'll there, -- have how looking? business great Obviously, a positive been trade from issue. switch access how's the guys Mexico, and such

Kenny Rocker

solid. year. seeing There We'll a pretty to for us. continue been USMCA. -- a could It's happens this We'll continues into to with yet get growth about that our it be chance We're strong see that. is look going Mexico, we're but very what positive at business done engine

Jason Seidl

I see.

the a feedback turn found me with you success ask been and over Transportation bit. Surface to Board? Let early you interaction from you Obviously, and PSR. What's back the little the

Rob Knight

close pay as we the mean, this I'd I guilty customer. in me conscious, we invested attention. we're Yeah. communicate. they today, of with primarily, you we under-communicating say heard say consciously, before discussed I And here knowingly close we've attention, to pay Kenny's Jason, not mean, saying, be let's organization consciously

Let's over-communicate.

So, of helps. energy to I a we think that And time and Kenny's leadership that. put lot under do

typically we So, representatives sit down his Kenny the and organization from will somebody the operating and customer. with have

-- change in So, get it going they're why doing. not that buy-in their or waking a -- that's of case, every not -- it's looking so celebrating, to tomorrow. happen. to what's know -- coming the been They what's we're or not communications. being, applauding not least they're doing standing, all up on the with We service and wire and and that service point we're what understand their hopefully has what a note comes across changes get they and know that but at There

that. the has that Transportation has I Board So heard And Surface helped. think

that well. think has I So played

on. to make has STB, sure with communicate understand been involved what's those very the Kenny being we're they we in communications. also going personally cognizant that Now, and

time. customers of that So you've scale we notorious some some being be that can not other the but plan driving versus we there. of done utilization a that good organization only size happened continuing time impact we customer making of for are same and same when about changes asset improvements implementation, that for some like our good got happened issues us, good think customers possibly on in cycle down But turns examples the as what's there'll and maybe have mindful what's in very are and the job, open We're still honest our are we that though feel as that. mode base we efficiency or at feel good we -- a and forthright at we

continue communication we'll also will that, aggressive over-killing So, the the to base. with be be but customer in doing

Jason Seidl

and audience more, might over one on before have longer-term, I PSR have of I to about Talk turn impacts what outlook? here. the the sort CapEx CapEx

Rob Knight

I of spending. the walked capital proud been, over last I'm we have capital guidance efficiency terms spending, say, we've our current the the leading of years league Yeah. where several Yeah. to that would in in our down it

our We have just capital we revenue. XXX,XXX-ish. at back And that XXX,XXX have have of the expect than as not say that capital. years got build success build on mean, given we because the with that of off guiding and we for you our already that's running, revenue, what don't then that if kind spending we and of we've backing further I example the would year community. an as seven-day -- Brazos this, plan. we're look we with XXXX spending capital. in network now, we've the handled right buyers our it say will we call I confidence, But continued Plan how you a road, less to from look a is is And on be entire capital our we is XX% downward as for on that we've Unified average. it's handled that seen light several carloadings our tell spending of the and I ago, I down that sold investment we that

as it's a still of years it locomotives. train said. be more was buying my but you few that There parts some got where we network. free what efficiencies free -- capacity we'll doubt with Number We've We've in X,XXX the capacity. any are is will, parts Unified fact in stored one So spending got seeing two up we I in rest excess the lifetime factor. control, I've That's Plan if up with don't. are ago. less we locomotives far have XXXX my positive of than our

guidance that revenue. now the bias So XX% downward but on I right than horizon planning you is think our is spending, of the all the less over add up,

Jason Seidl

future some you out to will? and the think for if automation be there to the shift is going of Do into more spending spend going is you

Rob Knight

think shift. there I will Well be a

year, network more shift announced we our our if Brazos, parts fact, will. with were of drive we mean to on us Unified other that deficiency backed they In we're when the kind help this that PSR-friendly spending XXXX. shifted Plan we you and some off I returns the need going to of

spending year So stayed did some our total there. capital this around $X.X billion, shifting but we

will technology going the the revenue it's had It's the relatively metric think you if curve change spending more an the I locomotives dollars us. think been to than buying example. of see But small technology. industry XX% and as than compared out no more seeing probably in I I go a case in past. that and our of kind for our of maybe company you're see towards entire more spending There's fleet doubt you don't more in think less this you'll to

Jason Seidl

turn don't have ask questions Why Oh, is here. back right have no the great UNP. around done with mic somebody question a Well here think can you Exactly. no opportunity and Correct. in job I audience. a there We'll such we we questions. walk you've to one the

Unidentified Analyst

just overhauling but success or have your seen part buying talk is because about confidence about not eligible are your with You buying any kind is a a of modernizing? guys this you think percent can to you more of so fleet locomotives years? the about you from give What locomotives, quantification of modernization you're not I and that what and demodernized kind over are modernizing benefits seeing of And lot new lot of recent initiative? your percent

Rob Knight

had Union rather overhaul. a I at but locomotives mean numbers and have investment don't that Yes. a specific it's mean is the it part Pacific your to program smart just of we've keep yes I just and current that you to would new. question, It's I not confidence. not tell always I modernization than

necessary and locomotives. maintaining always to if We been attentive have overhauling

continue will to do we So that.

that our So of that not the what buy mechanical got say metrics. locomotives know new career with that combination kind the but Plan we fact won't team me that. it And any success of my even gives we got of maybe we're of confidence of do comes the they we to I have what can rest always we done well more the rest available. the life, have my overhaul confidence, is we doing, does very when XXXX and really a X,XXX us that gives good that's that more Unified again but not locomotives But over got --

is that as bring volumes a fact will necessary, to able XXXX. of a over up the be more X,XXX to way, handle volume. big positive in we'll turn able from hopefully, we Unified that than So back in happy number. if -- Plan to leverage some locomotives But be of locomotives efficiencies to we're the success those And X,XXX back online

Jason Seidl

or you'll you do think think need them there's do hold ever Rob, a... to back you

Rob Knight

I will mean see. -- need We will the... I them mean see. is We'll we the all back ever? question

Jason Seidl

that. love You'd

Rob Knight

love that. We'd Yes. Yes.

So we will see.

Jason Seidl

Okay.

the from here in So any UNP? questions audience other the corner please. Over for

Unidentified Analyst

couldn't those reach of any your compliance trip there reason competitors? leading your why car Is structural

Rob Knight

reason no different But Kenny? another, car a it. but that of think most oil that no of length -- difference obvious besides are I'd numbers railroad mix the issues can one make I that our issues haul issue. or structural say or there's a little couldn't, mean I structural trip we there's no why can that bit Any elaborate different between compliance I -- maybe mean railers on no there's Kenny -- structural

Kenny Rocker

to the We're Yes. there. And let than Clearly, and be back of confuse kind where up We're expectation the not would numbers me are. celebrating to much anybody. better the celebrating I don't want we improvement. be

don't celebrating confuse are today. endgame where in that is I to want we thinking this So the anybody we're

Rob Knight

Yes, good point.

Jason Seidl

lot a of there's to So improve? room

Kenny Rocker

it improve. expectation the No. that There will is

Rob Knight

It Yes. will.

Jason Seidl

No. the Perfect. audience? Is other Rob questions everyone Well please in me there thanking any Kenny. join from and

Rob Knight

you. Thank

Union Pacific (UNP) 4 Sep 192007 Q1 Earnings call transcript