UNP - Earnings call transcript Q1 2018 | Union Pacific Corporation

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Operator

Greetings and welcome to the Union Pacific First Quarter 2018 Conference Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.

As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. and Union President Chairman, Fritz, CEO Pacific. for Lance you, Mr. Thank Fritz.

begin. You now may

Lance M. Fritz

today $X. Beth first you and a XX% (sic) quarter is income by in shipments, of offsetting Products, Chief Conference record while X%, Quarter of quarterly here everybody, ratio Total good the the [Chief Call. came Agricultural compared in XXXX. Omaha to me $X.X carloadings. to both Officer; from Knight, Thank of Cameron driven Financial XXXX. per morning, First to primarily improved Industrial over a Marketing welcome Officer] increase and Chief first and XXXX. Scott, Operating frac net our Whited, sand XX. premium increased Operating when Chief Union (XX:XX); XX XXXX, The X%. was Pacific's Officer. XX%, driven This With a in Officer are the lower grain for and volume the represents reporting Partially the quarter first This Energy and Rob operating compared little morning primarily of in volume for volume Union an Pacific share. billion quarter increase increased at quarter increased X.X point X% decline carloads by respectively, X%, which Earnings

for quickly service effort Our work better. solid been first congestion have by efficiency. doing levels we're regain network forth put tremendous entire encouraged superior of reflection were our and I'm a the quarter the even not some results it of by workforce, had to and direct been would

you with the give some of more Our on starting the Beth. first quarter team details will

Elizabeth F. Whited

morning. and Lance, good you, Thank

of revenue car by and volume markets. our in increase in in increase Agricultural average up X% X% our pressure and X% offset drove Energy, pricing freight coal the per positive generated the first X% by volume net with quarter in a pricing revenue. was core improvement For continued Premium quarter, Products, we The Industrial a driven in

and business a a down decrease group. due a were closer revenue Energy X% increased from demand XX% take inventories natural continue X% increased mining below contract products each carloads both into on volume coupled revenue in line prices partially by XX% demand Oklahoma. for performance to crude rock, weather and with and in five-year in with a and and Products gas grain global LPG average volume fertilizer down due were in as were service shipments. driven in coal Texas. exports and X% primarily with XX% of up primarily high per X% revenue coke Fertilizer car impacts Petroleum, and XX% volume versus with partially for by due the major east due gas potash shale the carloads Ag quarter, by to favorable up supplies, reduced by crude export fell Let's oil crush. domestic to were shipments offset prices. an exports long-haul primarily offsetting growth volume average to quarter. first was robust biofuels look and West lower flat OCTG driven prices. in other increase quarter, decreased for business. Construction was increase during at for increased Grain per quarter driven strong pipe Metals car up X% XXXX were and increase. to carloads Sand coupled the average. by increased in strong driven to strength X% change, a XX% carloads X%, in weakness a carloads continued X% increase a increase grain meal Grain formations and X% markets. due experienced by sulfur offset renewables ethanol eastern production the shipments car. Texas the per crude a Industrial the from Coal oil PRB increase a on and to revenue quarter revenue on average pipe revenue increased Natural XX% X% be the X% the

demand average Our specialized Premium deployments shipments parts and continued X% was Auto in per XX% driven volume markets and levels. which truck overall volume X%, transloading new West shipments Domestic decreased vessel as project was the in growth. growth minimized tight to down were and by with car. production inventories. as changing driven conversions truck demand by overall, strong rotations truck driven traffic call. over-the-road shipments lower a ports result levels continued of offset revenue waste driven military out volume up Mexico. X% intermodal from a a X% partially increased in increased and volume by by to X% of vehicle SUV intermodal training import stronger light revenue International due and growth well X%, Coast in Finished of production These reductions and increase in shipments volume remediation impact capacity. and of strength increased by strength and due was increase lower as high parcel

to America. low-protein for export face are global wheat South Agricultural while market a continued in the to in we some challenges ethanol crop indicators potential high We in tariffs supplies, and anticipate exports. grain ahead, Products, resulting strength uncertainty see from starting crop, positive Looking from continue we

in beer. growth Cold Connect shipments in We expect to also penetration, due and capacity and beverage truck import tightened strength food continued

viability due oil crude year-over-year XXXX. uncertainty comps anticipate to in positive For sand the We Energy, sand. we local addition to products drive continued concerns of in frac around in favorable tougher results petroleum spreads to for expect

headwinds quarter as always for We expect conditions to demand. a in be for natural will key coal to experience prices. continue gas And coal, with second weather the factor

strength as Industrial looking Industrial well new plastics as anticipate we production. online, continued For in forward come expansions and as in strength facilities

forecast year opportunities auto parts the for XXXX and tightening from down from business over an demand. offset of Premium, growth. capacity present continued import new from sales create within market new challenges that, on new domestic about we turn business Production it update opportunity anticipate resulting Despite market, X% the for the will international The units, will and weaker intermodal opportunities. U.S. I'll shifts the vehicle road to our For conversions for With the to is million some for XX.X performance. light operating Cameron growth remainder truck year-over-year over in XXXX.

Cameron A. Scott

Beth, morning. the equipment we our incidents Thanks, safety, public rate reportable quarter is rate first derailments, on. year our and have to increased with reportable performance, was improvement and to With public regards XX% safe XX% progressing injury or improved X.XX. our rail versus to continue to In safety been compared a driver rate safety awareness initiatives grade last good personal we'll XX% But campaigns X.XX, a crossing to Starting our XXXX result using and to behavior. reinforce given incident all partner efforts communities disappointing This with record. X.XX.

network on to performance. Moving

As velocity our to the declined and terminal increased affecting reported Multiple the fluidity. network of to X% first XXXX. dwell AAR, are quarter factors X% compared

however, to are manifest some region. the of experiencing volumes at Sequentially, we are Also contributed key making operating execution plan metrics. record has terminals degradation our Southern improvement. transportation of our our in We

meaningful weeks, decreased regions by Systemwide, improvement. the past dwell consistently increased X%. several Over terminal has with velocity our has all showing three

down inventory car STB freight total as reported to the X%. is Our

service place which improve XX% operating on our facilities excludes focused importantly, over customer XX,XXX the stored levels, intently cars we're that that results. have placed is More to plans We're or its in to high continuing cars confident at are we better quarter. in inventory, solid down or since achieve first and

high-level Let me you service at provide look recovery with our a initiatives.

prompt southern our levels primarily We're key are monitoring railroad. aggressively reduce to inventory of car at congestion. We the at Railcars end This terminals. are being excessive identified handling. managing inventory prioritized is and with closely dwell terminal for targeted

Pacific Southern to plan We scheduled, cars terminals remain or balance also our transportation help our of the region extent effectively some and that more which the flows volume resulted we locomotives that within on with now more to the And in between per shifting being to route adjustments T-Plan disciplined continue of the the the including running This we're pilot, areas and while network. adjustments maintaining of California. in to some implemented, we as more week balanced. manifest trains T-Plan the Northwest piloted possible. seven-day congested positive in network. running discontinuation aspects We're complete crews around T-Plan Northern car through We're adjust

of out tackling at basic We and This effectively. and of in is are getting blocking improving key cars efficiency our terminals. the yards

cars at once have serving to manner yard. local the us frequency to they facilitate pull our they This quickly enables also customer in We train customers spotting local reach timely released. increased are from a after cars facilities

to plan put recovery put pressure progress up, I jobs, over have as yard improvements resources. us These operating more going we car reducing When in enabled place, service terminal have inventory continue freight that am make confident our with all We to service will yard have decline our added month. see our some past steady this fluidity. also we efficiency. significant forward, the port to add metrics, you operating and coupled changes in has in on and the

the continue in since we we units On as fleet active high-horsepower the stored our since XXX locomotive needed to XXX support have reactivated we locomotives mid-XXXX, XXX high-horsepower have more about including remaining high-horsepower efforts. locomotives Currently, service into early front, approximately bring and February. than locomotives to will road improvement storage,

These a approximately Additionally, agreement for like in short-term additional capacity locomotives. entered provide event an units unexpected we XXX surge hurricane. have lease case a into of will

back to new recalled all the handle have furloughed employees to to TE&Y employees continue attrition. expected we On service front, and hire

successfully more currently our was XXX labor bonuses some driven to to up We trainees we markets, by these used month between in primarily attractive, plan compared tool productivity not graduate mean, is approximately increase XXX first initiatives. of the challenging an XXXX, that now of the In on have more which does and in July. to quarter the a make past. Our given workforce approximately TE&Y when have we however, per up jobs offering This are pipeline. of employees we the signing training X%

continues how our Although part fabric in the in metrics of driving velocity our productivity integral to certain decline an daily GXX+X still are negatively our elsewhere. work. terminal be respect to impacting are approach productivity we with we dwell areas, and

system continue engineering are to our were functions. we solid recovering able our while and For generating both mechanical fluidity, productivity example, in we

achieved our train quarter. category also intermodal performance also businesses. best-ever manifest, length The team first and during records achieved size the We grain automotive train first our quarter train in in

expect as return we to to continue we Looking service our network fluidity normalized recovery ahead, more efforts. levels,

continue we specific company assured that sense provide improvement. with be normalized please can urgency a there and teamwork entire that I as you a While the operations, working isn't making date reach we before is of

you Train Next, I provide Control. progress is have our of a Union already PTC network, we plan PTC. implemented to would like installation with to two-thirds Positive update an for comprehensive and complete and implementation Pacific's nearly on on

going As part and the system of operational Administration railroad the the the The ongoing enhance Pacific discussed will But not and of install can testing of this in to to occur, previous capital maintain Rob phased PTC. will while there revised to years, system will couple schedule as change minimizing plan, We an file operating with health and alternative schedule over so estimate issues. in billion the to be next expense maintain implementation do has order that $X.X Federal the anticipate the additional required of be Railroad network. solving and remaining course, intends investment occasions, on the Union implement forward. materially required problem schedule

it Rob. I'll with So that, to turn over

Robert M. Knight, Jr.

morning. good and Thanks

was in bond previously revenue with disclosed a was increase negatively from other $X.X totaled a X% totaled filing a compared up revenue quarter, in $X.X of the quarter. negative $XX were year. the billion, revenue X% was an recap income primary as Operating to And million Below for Operating the impacted billion, million pre-tax in with $X.X associated first price, in income charge by early line, the up quarter other of $XX an XXXX. and the billion our of positive X% X-K Positive Let's fuel non-cash, XXXX. last results. surcharge a core April million increase X, $XX we versus on X% an redemption. year. drivers income start a last volume expense increase increased in Operating from

about last of totaled Excluding $XX pre-tax in $XX keep impact income redemption, quarter. less last mind, also would year. real other totaling early which recorded have than estate first year's million the in or the million, had bond But $XX we a we favorable gain million

large the Interest effective This expense million tax items $XX the to out by million. total by as of of from corporate flat compared expense primarily last reflects up tax tax reform debt was rate. previous $XXX lower and was one-time earnings. of you essentially if other income Income and both impact decrease year, to interest X% offset $XXX balance, partially The So offset net higher rate by decreased this a million. at year a driven XX% the was lower was pre-tax higher partially result year.

of Our rate would in effective a the XX% income to totaled year, to share produce percentage as $X.XX. billion, year. X% expect rate quarter in to operating the result were rate first the In first of declined future up improvement XX% share periods, ratio of XX% tax tax activity. our earnings XX.X%, Net $X.X came combine was These XX.X% The that than quarter repurchase little be of continued last a balance per we results lower our we an last record XX% from X.X effective points anticipating. share outstanding the versus range. while

million, freight positive. quarter business had in totaled of products, first on of Freight impact price to $XXX have of XXXX, The year. our the and on in X% increase the a was XXXX of share year million points revenue we growth a for versus $X.X grain international of Fuel shipments. impact the slightly we $XXX shipments about fourth auto website first the lumber to quarter metals adoption And positive million versus surcharge lower perspective. the and year-over-year. $XX accounting when decrease point quarter, in earnings full reported Core lag first fourth to pension the billion in an the and revenue up last to Please retrospective new in and quarter intermodal be handouts in revenue the up compared from year. compared Investor parts UP per last quarter was The the fuel upward the accompanying release, by had in quarter section earnings of $X.XX operating ratio adjusted standard. XX.X% the operating negative was for X.X As restatement impact reference X% ratio this combined a pricing mix petroleum year. carloadings, intermodal offset Coal ARC XXXX. impact fuel the Year-over-year footnoted XXXX on quarter. was a in sand, up from continue surcharge the financial and price up X.XX% last X.X and a challenge fuel the

and However, if we quarter. first aside, intermodal about set our core was the coal in international X.XX%

full our the expect exceed we our well actions the still from generate total year, costs. dollars to inflation we pricing For that rail

during primarily versus TE&Y quarter, for offset the by operating to GXX Compensation driven slide X% of now incurred our expenses, was the costs, benefits by expense volume-related quarter. initiatives. productivity and partially expenses operating XX and a expenses $X.X provides increased to billion Turning increased summary training workforce efficiencies The our networking increase XXXX. and

overall versus year, full and X%. in by the decreased capital Total X%. under still were labor employees with expect year. This primarily to up the X% inflation last we with was associated of about associated first about decrease a not For capital levels Employees XX% projects. be workforce projects driven quarter inflation

miles repair X%, program services with rate the active reduction fuel fuel $X.XX locomotive the the last gallon. consumption XX% that leased XXX XX% about costs, Compared Higher up increased ton costs volume-related to primary car increased year. average increase Fuel Our to X% last and expense of materials year, and driven X% our the in the totaled employees, cars, Purchased drivers was expense compared prices while increased increase year. larger the quarter higher of related $XXX primarily increased to expense million, expense to by price associated repair and This our return increase diesel freight a we to locomotive per million. fleet. down first by fuel driven $XXX of management were quarter. workforce in fuel a was employee last primarily count for initiated gross when

depreciation primarily depreciable The $XXX Turning a to slide to by asset driven X% XX, higher million, compared XXXX. is increase up expense base. was

full XXXX, depreciation we year increase that expense about estimate For will the X%.

driver $XXX and this The casualty costs. in expenses, was and an to was $XXX rents, in totaled equipment expense XXXX. state in X% at taxes car The quarter, and local lease other compared decrease locomotive was primary down last and million, million versus personal expense year. driven which Moving freight expenses decrease to lower by Other offset expenses. partially the by other reduced X% primarily came up in and a injury increase

For XX% to expect other versus continue we XXXX. around the XXXX, increase year expense full to

On yielded $XX operational coming net during in We This well that initiatives anticipated of GXX+X the below year. operational the the quarter, estimate and cash we services, million comp the $XX The a headwinds productivity rents lesser purchased we of side, the in of the evenly fuel. across first into approximately was first our of spread the $XX these totaled million experienced that year. quarter. productivity about is to benefits, challenges the extent cost what categories million equipment and impact

million some improvement year full we than less a productivity ago, While given will in goal the current seeing discussed minute be operating as to original our our challenges. $XXX Cam of our $XXX million metrics, are

$XXX payments. adjusted for Taking flow quarter the our $XX.X first in in payments was leverage all-in workforce year-end labor accordance to the ratio around higher levels. recently with and of In are the ratio Looking quarter, The to cash end the at since XXXX. contracts ratified tax target $X.X billion our from X.X and structure. timing debt last of debt-to-EBITDA balance We quarter flow. the by agreement our capital a offset the optimal up Higher up year. we of debt mostly with of compared at net of first earnings the when tax generate about from finished an billion, income reevaluating the light we first times. terms expect adjusted the cash process that adjusted of operations million totaled and at Cash to look totaled slightly made reform,

an perspective, As our a enables Union before, still we while reform rating. strong quarter totaled payments you we Omaha. XXXX. May will capacity up million, for we believe have in Pacific for at Investor tax first declared credit $XXX Dividend $XXX two timing share. stated for for greater includes retaining scheduled a have in investment-grade debt XX XX% per the This From our update in dividend Day from million increases recent

increase the was fourth of first first in increase this the in of occurred and year. The effective XXXX, quarter second the quarter

XXXX billion $X.X in also over In XX% totaling in payments dividend our period. income represents $X.X terms XXXX. about represents dollars our of quarter increase XX% compared net a back which we addition XXXX. million represents to increase X.X This to shareholders shares quarter, billion the share cash shareholders dividends, Between returned the to quarter of of and returned for repurchases. share XXX% over spent in during bought first This we the first of a the repurchases, same first to

year Looking volumes up expect single-digit the ahead to low in XXXX, full we to range. still be

top positive areas. As have should in lead and line with XXXX. Positive volume Beth some year we're the solid several business improvements commented, core just in price other for our uncertainty to categories of optimistic full but

the expense term. will equation, in operating to the near the headwind of be side our challenges expenses current a On operational

in given will challenges a And we that now operating on XX% year are our we We're XX% target to it still that plus just achieve not lost service XXXX, likely time and year improved ultimately XX% and ratio. the is unlikely achieve experiencing is to next operating year. minus, a ratio, year, by XXXX. ratio, a goal basis to full still respect targeted next full committed with operating have Our we that achieving clearly some ratio operating an or

details with you May. of on upcoming outlook more at end We our our Day will the Investor at provide

back to it So over I'll with Lance. turn that,

Lance M. Fritz

you, Rob. Thank

results today, weeks, experiencing the the we've with despite As in building we in improvement place we We're continue plan difficulties. to first already we discussed confident in have operational delivered progress made. are quarter we that recent pleased we've on and seen solid the

our from With up that, benefit growth With segments, the favoring core the well your gains. market economy of volume for number of open to another solid we're let's and line positioned pricing a questions. year positive

Operator

Suisse. (USA) Thank Allison you and question. Securities from line Credit the Thanks my M. for of comes Allison our - Landry Good question Credit first morning. LLC Landry Suisse taking with

I in thinking we you translate And wanted then price of give us you know about the gains in of with could cycles, in second think with up truck don't course what behind And think do that about should frame and or guidance, the above that if core start adjusted for hoping half? some step pricing pricing what's but that you've to you help pricing, another ultimately seen be if happening into So I directionally drivers to prior number for then, QX you legacy? could that? that are

Lance M. Fritz

do handle to want Beth, you that?

Elizabeth F. Whited

Allison, volume gives we but onto as be bringing to also by market the you truck what railroad. us in pricing volume for, gains, more very gains encouraged seeing indicate, that the both and opportunities the we're that continue Sure.

activity rebuild months think Texas you or Securities we pressure LLC to you And out your really do you truck be three you in How markets. in competitive to to given expectations for and continue (USA) places that see plastics traffic international the opportunities seeing highlighted. M. markets the Okay. opportunity labor. switching thinking the have like Landry capture in will more - and perhaps even playing constraints, market competition to Again, Do about of ago? thought? maybe initially intermodal feel just We Where maybe than Credit there's in that equipment our six tight coal Suisse trucking the like and export opportunity versus all and Allison continues the we're

Elizabeth F. Whited

we're degree. going to a pretty plastics handle optimistic to that business I think always significant that we've been the

and be means the Gulf onsite will a won't case using packaged as in end intentionally for West original United you. And from Some are to at opportunity of first Coast of will an facilities that Pacific producers the to are we Suisse producer, if that which to like their facility in those have warehousing, Union to participate. of But open LLC But percentage opportunity will, produced on that we it right we're at plastics on substantial States. the you cars exit quarter believe that developing we be adjacent hopper track a that. this in KTN Dallas Allison least participate our in the Excellent. that's packaging intermodal facility first third up plastics - in M. the partner Securities one year. for do to with think we'll Okay. us And of great export going still will we hope participate give Thank late our that that will (USA) packager Landry this their then Credit a shipments, certainly move. there

Lance M. Fritz

you. Thank

Operator

Wetherbee Our with next Chris question comes from line Citigroup. the of

Chris Wetherbee

Good guess, guys. to the year. you can you Wanted and but what challenges the $XX thoughts to productivity, it's I the estimates million to Thanks. the you look of progresses? us going that be probably degree? the give diminish be year network a to Yeah. net morning, like from some going I of When there might first number rough quarter, think as it's on some for about the your think around come back said

Lance M. Fritz

over detail. fill Let turn I'm some Rob me going in to it to then to start and

more amount are and of And quarter mentioned problem, made those the too generating, into of excess the operating can carloads to... that half had service deployed, of be started still in right, But, second to standpoint to the of a we resources now terms car reasons. myriad worse. second as it Ultimately, were there that done challenges, from our there. mentioned So quarter coming spent of having move network want into us we a the – operating the going the and you with part that for work Rob a so last us culminated good on year getting first still we cars we that the many really year in Rob, exacerbated inventory in in headwind there's that face which do that We've product we're get right. the of

Robert M. Knight, Jr.

be Yeah, not would think we seen going recall tell sequential quarter. to is slides in on those the just improvements. that's fine you we point are to Cam's Chris, – locomotives hand I where just bringing we on all I But We've the congestion we number add we're will that what there. making one are improvement second cost going that good. highlighted and additional on

$XX our faced out total that. million you we're all have first add you add even that turn So that we what when in in of dollar it tuned. quarter, million that reduce exactly was a still also in positive the But terms up, if on amount And We're all productivity $XX challenges to would that aggressively getting with will. second might quarter, reported. back, that focused as can that be I of looking I we'll just at to stay the

Chris Wetherbee

Okay.

helpful. benefit that's there, So was the still net

Robert M. Knight, Jr.

right. That's

Chris Wetherbee

improve, previously. think the a maybe has perspective, bit of pricing's year to think Seems goal of a I puts better, you is gotten takes about when OR, little the at core from about less the How and now I some which statement, been assertive like volume maybe think okay. there? And full a and do a guess, is you than least

feeling one or a another improvement maybe different previously? the different are around OR a potential what move were to there now are the than they that this trying might Just if needle that the dynamics sense So there's get year? way of maybe

Robert M. Knight, Jr.

that were it's feel pretty we is positive we would and feel price, as productivity. same then levers good which, volume, still about; Beth the Yeah, that say about; Chris, which I talked about, before. there positive good pretty And

ratio might of are So improvement yeah, the year. this were cost. And frankly same. if with fixated you congestion operating convicted the gotten have around levers we a more and bit the challenged improving margin, are But we little the will, that on what facing

Lance M. Fritz

we're ability have has way And, network to both that Rob, confidence what productivity these we productivity we plan to any not improvements to some opportunity of excess That the that I think in around note right. the that the fact make have. get diminished the game plan important through of the game and the it's masking resources the

Chris Wetherbee

helpful. time. for Thanks it. that's Okay, Appreciate the

Operator

Our with line question. the Justin next Stephens. of proceed from Long with is Please question your

Justin Long

be Thanks core rate what pricing way and I appreciate so good wanted in Would than you to how prior about ask others, that morning. average and compares quarter? quarter you report renewal is willing renewals. I this to you saw the the to the different share

Elizabeth F. Whited

really would that, on capacity. tell is I feel to get just don't about we in We you again Justin. the truck are truck competitive encouraged pricing by our tightening those What good markets. we opportunity comment And

Justin Long

then this. Has what in January? that the maybe what's just was guess, OR can want changed thought And back more say up a year that confidence it that the we're And improve the in back following that, some improving in be commentary. challenging to of Is half? not change on reading language. to into to I bit too to OR follow-up your this all? you the OR could clarify Okay. There much And that fair I relative little at on the

Lance M. Fritz

front the the back take question, Rob me let with opportunity So the that then give deal of to half. half I'll

a we to side. that our And in a of boost, have what we are financials, proud in I'm that capable they knowing when improving terms of we confidence we mentioned confident also it's made quarter, a confidence better. that, And we more could the it's have of in year. liked comments, disappointment Rob? of little this in OR our quarter. we're see the In our would improving achieving. been OR, a first have and Clearly, had bit But on solid progress

Robert M. Knight, Jr.

Yeah, we you Justin, know, was the But OR quarterly as OR. don't last reported year XX%. on the give remember guidance

got affects Of pension course the you've that that. adjustment

not I might if improvement that that incurred talked room given the more air, still just costs that's the fair year-over-year. marker. you year, will, we to been bit it's say improvement yes, on costs. challenging that than about, those So for is have focused we this a make think it we're But making the to And, had little

Justin Long

Great, Okay. helpful. that's

Operator

with from is Amit the Deutsche Our next of Bank. line question Mehrotra

Amit Mehrotra

Thanks, operator. bit probably a the relative I'm be backdrop at guys commentary taking laid OR the targets that surprised out, Thanks the I prospectively least by to my given question. better. everyone. you for couldn't Hi, guess

guess want But good, I are lowered to the obviously incremental real levels It's the around I Chris's accelerating the quarter. piggyback getting a pricing's to really is really And question are understand in actually just better which margins, So mid to have in bit pricing volumes term. prospectively, question. certainly better. near little a been and service that

the at the some also what's years, that adding puts costs, several and targeted so given X.X or that I over puts to to there's You're takes have incremental guys you XX% least and margin expectation target those margin right understand relative incremental takes? quarters there. But XX% next now,

Robert M. Knight, Jr.

XX% And might to you're call back Yeah, reported to assume XX% Amit. I on of is out XX-ish. that it was you think But referring the incremental a we that. on mean, the way all first to I mid-XXs. – get plus doing to minus, over around that year. calling focused that XX%, by commentary, to the margin you're would just I XX% Absolute, if XX%, closer next the say to would surprise it, long-term the still at fair in we're like And or fuel and I we was have in guess, to the in OR average, quarter I the adjusted I still range. a say basis need looking it.

Amit Mehrotra

Yeah.

Robert M. Knight, Jr.

OR mind to we're giving we and that year, from achieve to that revisit next XX% meet that this to that's was but at when unlikely at we What But mean, that's a now going are that of that and the our May. there – end a Yeah. where the not just down guidance focus, taking are by hit next XX%. I a We're just we is, basically XX% in is unlikely we're saying on today saying our up time. we're between year.

Amit Mehrotra

optimal there Day. cost just Because us want us it? I bit of some can Analyst length of discuss if at you this But how you know you're on terms premium a preview – May about follow-up to par. a capital big then trading structure. little retiring thinking that's end you're question, And the sure don't I going in I Okay. reevaluating the out the give to and in one debt could, – to high now, help just at of are you've got I'm

probably doesn't So make sense that to buy back.

a repurchases. your to like about, very sheet amount is So me doing disproportionate correct wrong, of terms when announced of doing optimizing buy prudent way in back structure, stock, I'm leveraging to certainly start their share thinking a balance the up Norfork going is capital I'm in that about think really they're if accelerating just CSX it. what I

from approaching in think balance So of is you're capacity about to terms right analysis playbook a perspective? the how sheet this that how

Robert M. Knight, Jr.

mean, we But then I we both the if publicly in will, grade that additional and previous, the way reform. but of we and is as have you're Investor are going operations into tax that. investment to light with to detail it, I from we are on at about said capacity. mean, the And a more ongoing cash turbo But strong our and we're Yeah. I've this come thinking May right, that, around capacity Conference. think guiding we agencies rating get rating, this result think our gives charged, you and the us solid a more working by additional

Amit Mehrotra

it one think – you about territory. go well that? still How safe Is and want stay two But you're above say to territory? but below to notches grade five do that or even investment grade maybe investment we investment into well, grade four notches

Robert M. Knight, Jr.

into And that here, I not a investment mean, of sort that. we're to on I'm that light. is going well grade guiding today. get but solid again, right, come you're above details to rating More again,

Amit Mehrotra

Appreciate Thanks my very questions. Okay, taking it. much for great.

Operator

The next question. question proceed comes from Wolfe the your line Please Research. Group of Scott with of

Scott H. Group

guys. Morning, thanks. Hey,

Lance M. Fritz

Morning.

Scott H. Group

to place? like up year, So feel are step only big volume issues? got these TE head we having a that that be they we X%, service It there's get back, were pressuring up Volumes doesn't growth count you've should up last did and network? the picture, take this to how I X% much try want X%. Why are

Lance M. Fritz

Scott. Yeah,

kind issue. So targeted a of it's an It's not issue. more aggregate

that we out. keeping deconstructed of We And then capacity. most things of We're up Northwest. congestion you of that of good we was the our in specifically that We've if and implementation carload for a visited thought that congestion our with get in the type our network, and road there Control year, down done tremendous we've were ion bit of in unintended terminal created And little go most productive. half occurrence, T-Plan, our other number product last and piece of confident on consumes couple in region. specifically second down a highlighted back did that you terms was Pacific parts Train in basically that that. other constrained significant So about a reducing and feel Southern to of the Positive our part south, is the network, Part of of experimenting that we've which with We've the congested growth, network that of us, very stops. a manifest started things of in the seen work yard some squeezing the part us dwell.

we car can way crews to so So when out together, network you that toward on of And as operating all customers that run over-resource to wait move inventory you we and our of to increased the for That our in added is toward actually interchange. out Cameron out, wait don't because so as don't and demand. locomotives. you get changed that that put congestion in the of in and terminals you cars for starts transportation plan order pointed

locomotives than we would our is XX% car an is or There's we be back more dwell more an need in and improvement than we All We work you get there, steady once achieved of also you steady $XX,XXX appetite for seeing need that's put and and improvement paying us you into approach to see to with velocity. why you steady-state, but more TE&Y start as it, operating storage reduction that should reduce. inventory, would dividends. in as locomotives a done going And that, mentioned, in our state crews state. or

Scott H. Group

then guess ratio operating I wanted sense. you that side, Okay. And again, I one other on ask the makes to guess. just,

you operating guess us U.S. are they're for you as that like So having yards of can I go demurrage we a hump the things to all think to what just any I of but there quarter, a we're is, year be changes rails works they're that working hey, replicate so think or see we'll CSX that a some going sure replicate to best I'm and about doing ratio we management said had that if back and I I'm asked it, maybe things to doing and applies you well. rail? to doing quarter so or any about and the that wanting rail, there. to have back well you at best now a that, it's and what, we'll they're the year want ago, some guess, we hey, OR first asking, things replicate they get when watch seems that later that it

Lance M. Fritz

Yes.

can answer we yes. learning the that, like both that experiment doing that railroads short businesses the other candidly, We is Northwest. Pacific learn the other see in and We other did with unpacking industrial businesses, do and the So we things CSX from.

elements to generate that profit and and and very continue we're to that Some proud can and operating market of the able the product We're and up. operating we we ratio term elements I record that stand experiment innovate while long and to into grow didn't, areas providing to we'll attractive drive and a excellent on improving so our and think keep going service that return sound some being of find of worked, continue over ratio.

holding running accountable employees customers So and ourselves holding and are accountable the how and our nothing and fundamentally communities has looking And shareholders we're in the at business really us us we're what changed terms for for. for of and what business.

Scott H. Group

Okay, thank the guys. for time, you

Lance M. Fritz

Yes.

Operator

Ken from Hoexter Our questions. Lynch. is with line next Merrill the proceed of with your question Please

Ken Hoexter

yard Unified that crews you and I the problems just running so you overhaul, then a locomotives XXXXs, you we can another In Does so that Good neutralizes the it you overhaul. Lance, talked Cam on from just launched really on follow that if that when Plan, just look fluidity that issues, fix the bit, itself? talked can of require this that I as of if the back network guess to area new one about network? adding took get in some you oversupply yard Great. or up Or morning. did it was network just could don't you is early with and the services at it maybe a days this about, XXXX Southwest push the highlighted. XXXX the if

Lance M. Fritz

Yeah, Ken.

inventory about we getting transportation it of the getting have the making that it. available really the handle of fixed is mix right right the sure right think and plan, amount I right capacity to

our that up we the component have in us large, in saw that's business the a were is handle announce Texas. firing right modern terminal we Brazos You which capacity key Texas, to sure middle network earlier of that of a making

don't team But both in see that. deconstruct making Cameron we think opportunity and are entirely the see don't and that entirely continue we're and manage of increase that all our to network. and ability that. We other in have We plan. find game productivity, that to investments road our we have over carloads capital reconstruct fluidity area clearly, I area and the will how how in over down that we to the handle in the we manage to terminals,

Ken Hoexter

on I the just to can to the it's rebounding is maybe handle to getting and just, gets whether range? to from on XX% bring now over-hiring bleed, this needs get XXs. this this the then network rolled view the out to the the Or you gone slow that where to then my growth or I operations, continue – just it XXs in to technology kind of Is have is follow-up this if run You've don't So as pricing a can mean, resources? order and XXs peak? would so low the improve that comes? those operate, rail keep you low

Lance M. Fritz

way stand will identify opportunities can on not look still think a mark in that. terms that we make ratio, you We believe our that and you this of to do choice have in there's that we We that opportunity run to Yeah. operating a think continually for there's ratio. that to business low-water for reduce a operating

and focus manage Return ratio note running thing solely very use the a don't We the look other invested measure is at prudent we decisions. KPIs. on our one sure capital of that I network. our a important to a to make how for we're metric, we very business operating KPIs our we're making service metric is important course, KPIs right. with on mean, investment is The that quality efficiently and, safety

that operating all first the we we be of job at we think had. the EPS, increase fair of that more that accomplish same income, time. did year. to improvement, in there's quarter can solid mean, ratio and operating shown believe So record a We of this in I we've

that the in great get quarter, back masked a service to of product. network had in we some the resources And to excess was first because

Ken Hoexter

Appreciate the time and insight. Thanks.

Lance M. Fritz

welcome. You're

Operator

Our next line Susquehanna. Bascome proceed Majors Please from of question with with questions. comes your the

Bascome Majors

you from upside of any in outside year January digits. going you what can the or unchanged a about of to mean, with I feel time already put – officially volume good frac this that curious, quarter about out kind I'm And I risk Yeah, single lot highlight We there? your maybe under think are spent you out we one sand to shape how worse volumes your was at belt? should on guidance you which low of better, point is downside morning. just OR. do

Elizabeth F. Whited

coming going was because with us. question on little makes the would say there intermodal which something mind, year. still, happens have all as globally we always us do It just what I the bit was say side to for good that are looks slipped quarter. first like mark markets economy uncertainty Ag We very sand public the are else was that's production to We've throughout the progress some pretty a say is strong some on indicated, the us. good. frac of of stay feels I in strong uncertain international the capacity oh, Industrial had my And that wins with Bascome, that I'd to a coal, feel you locally.

So been about optimistic kind our certainly, year. guidance we're that this has volume not a point. But at nice We're of low-single-digit. having changing

Bascome Majors

on of And I sheet makes At do another just that maybe is and return probably UP that? more do is balance sense Thank one Rob conversation on certainly you level, for at It round reduces for to sustain the that. high the you. down you mean, a you tradeoffs optionality a board into How was consolidation sheet. about it having? from also we from being balance think able equity about the level, if rail standpoint, but a Lance, road. talked I thinking your have about get leverage

Lance M. Fritz

Bascome, discuss capital constantly our structure. Yeah. so we

You in dry know, looking we're future. our have we our capital us as conservative at look pretty structure. historically, We for now that sure the powder and make the what-ifs we into

we disclosing not aggregate to now, to and Right we in ability tell level, have. both also board you and leverage anything of we us a So cash think would to our leverage the increase income generate operating that's opportunity discussion. at I the discuss gives and reform amount reevaluate tax constant incremental

Bascome Majors

Thank Appreciate time. you. the

Operator

Our next comes from line Bernstein. your question David with Vernon the with questions. proceed of Please

J. David Scott Vernon

to get the XXXX again, talk of back right. you the we're to issue, to little get there's wanted same how of number? the business sort target, that just about off that I walking operating in Rob, leverage do you a XX% confidence enough Hey. bit, If

Robert M. Knight, Jr.

pull got mean, our if But date speedbump, here. XX%. our the as that belief believe, while there's don't that put this that a we finite have you on and as Cam of change a to we little throughout commented more and we don't this haven't And we've Lance others just numbers conviction morning, know, be gained lot know hit I to Yeah, doesn't you out will, and continue thin to cooperate. times, XX%. you We as yeah, you've behind, plans inflation we've to confident get high a to real but in continue XX%. to a to to real be action drive we heard get our we that we're air, to above to at ability many performing there, price to action getting economy plans me ultimately need need speak level, And behind need

J. David Scott Vernon

the here controversy be you business? confidence potential Investor dots. Day is Like that I Like how I do is May? here this in a is part margin how hears primary do or those guess when the connecting the you around issue – But mean, going help of to the of market the primary inside give XX%, agenda

Lance M. Fritz

going a envision David, conference. point, to that I can back the mean that as I rebuild possibly will I and hear the soon investor pushback. the speedbump this that and to on fair our Yeah, would little road, message and we We've understand. I be need we talking to hit we clear base. track. at in here And the as get we're But get that in I investor the confidence

J. David Scott Vernon

guys. Thanks, right. All

Operator

Goldman proceed comes next The questions. the Reustle Sachs. from question your Matt line Please of with with

Matthew Reustle

for question. Yes, my taking thanks

sure, you from peer opportunity you're match mean, make Are to just would you balance a and to from peers? where specifically like opportunities, sounds additional it both Just lot you that want at reform seems still to you also wanting one looking where like on those specifically a leverage you capacity sheet quick is? debt than tax one capacity. see referencing again it some group I I your of reform. have more capacity of the are are keep your and better tax considering

Robert M. Knight, Jr.

But directionally Yeah. think turbocharged have We at tax the conference. both. is this benefits we the Investor more I Matt, I package. mean, that talk say by the right. We'll again, is and detail it's would Rob. you're debt capacity from

as working we're So what of it things at the with that's rating looking and we're through combination a agencies. those

Matthew Reustle

Rob. all Thanks, for That's Okay. me.

Operator

with question of questions. UBS. from with the line proceed Please comes Tom next your The Wadewitz

Thomas Wadewitz

evidence changes you covered of guess, pretty that? potential acceleration you've room core there's kind Yeah. I so stability Good price. already, talk we about it. do think ground good How from seen morning. in UPS. in you've if price other is just Apologize to with think call pretty any about But have pricing this I railroads seen in overlapping topic of and conference fertile

you think a and a dynamics that's the how So whether in market how while for intermodal market more of and do is terms that from where challenges? your changing business international in you effect little have big and coal pressure, identified about

Elizabeth F. Whited

Yeah.

international they and price yes, You're in But, questions couple intermodal. somewhat coal see already, Tom. similar. we right, continue We've pressure had a to and are

are the We we're seeing Rob truck and optimistic earlier. that pricing. by about And our certainly competitive talked in very encouraged truck markets tightening. strong

out, took we coal are at international X.XX% you intermodal If and pricing. about

strong. So the truck opportunity markets it and we'll going competitive there there in is be after out

Thomas Wadewitz

So it in you you're to there's think looking the in first seeing? what of be acceleration of is kind results is for Or what you're the case what room think quarter forward? might that reasonable do seeing representative

Elizabeth F. Whited

advantage we is convert going Well, see to and All opportunity not really tightening only we to don't try I while rail predict the like pricing, try that opportunity what's value. of to truck can to to every we the provide in for happen take highway that but to go tell to after us future. business the to you will

Thomas Wadewitz

Okay.

rates still this still book you this year? a Is So do have reprice business on bit year? to to opportunity there the fair up of get left

Elizabeth F. Whited

Yes.

business and partway year the progresses. opportunities bid a season over through the have about are and on intermodal converting of as side, We every are year we our pricing third we'll always

Thomas Wadewitz

Right.

you Okay. the for time. Thank

Lance M. Fritz

Sure thing, Tom.

Operator

Markets. RBC line question your with from with proceed Walter Please the Next questions. comes Capital Spracklin of

Walter Spracklin

to I'm Cameron. capacity And one Thanks back Lance very going really issues. furloughed pulled other mostly saw you guess, see or your capacity. your looking all just at we've I to workers. directed And question, at much. railroads I limit maybe some seen

you confidence you bit where Can that Or on Thanks that surges a your touched in the surge network for given I other you the still that that now? on had, we you in should remaining? capacity have brought side? prepared the any have some in capacity the as capacity what have any of rails your on touch issues storage – if But you You've can the on locomotive is employment give them? in XXX little reactivated some prepared you much. very addition side of some on And them. and or remarks. of know see to all touch you're locomotives Can locomotives do

Lance M. Fritz

Cam, Okay. you to want start?

Cameron A. Scott

Sure.

are a in It you as Southern excellent capacity from story regions and network when a region that perspective. rail one, at look Western Northern a truly network we're it's have Lance Our mentioned, capacity. to a is, we good standpoint, shape locomotives growth. region we bringing And And still locomotive we're appropriately will capacity picks with XXX evaluate our experiencing responding growth in storage. up From as tackle those that back network and investment in steam.

On through we going furloughed will anymore, forward, the XXX preparing hiring about anybody be fall. And the hiring. be employee a that are is have full. don't evaluating pipeline July full-service. It's side, we And for the employees month we'll in landing and

Lance M. Fritz

usually back you overload was. a when can the business either And plan Yeah. and Walter, where railroad like a that you to improvements volume you able it your takes need to can congested, want. long part be spare of to whenever answer capacity then, you that so means away. finally, run network is, that gets you you it the make volume get gut out, to And can again, enough get goes a Or time. long, network

that a some But have also We South of have want crew plus the of issue. a issue locomotive capacity in don't that spots capacity parts do in a we issue plus is capacity to is capacity and the what physical some rail just few a terminals line in a road.

in our I are hiring start locomotives and slowing in demonstrating locomotives. So million expect, we first pipeline. exactly, it We some that got this team improve clearly. areas dry million the we to continue as eye pipeline way quarter, But full. exactly, know productivity going place we've in And Cameron be storing Where towards to make costs fully an the Cameron down of more as that that's as is we have getting in us improvement, service product is, hiring and do we a get $XXX when we are that to can't do tell. of to those South, those because that over-resourced says, being able can tell happens can again our year. happens in the we're the where that the we what that $XXX we've powder

Walter Spracklin

end And did level? you at? touch on the your workforce you to workforce year that expect The

Lance M. Fritz

not. did we No,

Walter Spracklin

Do estimate there? an around you have

Robert M. Knight, Jr.

heard has us not our ends up many Walter, and as up view, So, that whatever is on you've say down times with And that, changed. it volume move will being.

look projecting it the to positive are be at of one. on But still for one We we achieve that side the ledger. count. volume to We head productivity going be expect the is will as

Walter Spracklin

gross XXX the I guess. is a So per number, month

extent, be won't that it to You'll be there, attriting so obviously.

Robert M. Knight, Jr.

right. That's right. That's

Walter Spracklin

more you just question, know it. Okay. if I And then of final don't one mentioned a housekeeping.

you by on into that it Did from with below going other we can labor forward? item. a move regards what The the quarterly expect to on expense guidance shifting line that cadence give around

Robert M. Knight, Jr.

on pension? talking about You're the

Walter Spracklin

Yes.

Robert M. Knight, Jr.

Like X.X of percent a impact on the OR.

Walter Spracklin

Right.

my That's Thanks much. Okay. all very questions.

Operator

proceed with from of Barclays. Brandon comes the question next Please questions. Our with your Oglenski line

Brandon R. Oglenski

for question. Hey. taking everyone, my Thanks,

want – one, guys of we've the hasn't a advantage XXXX. about the maybe like take And but able really at few leave been a really but look your with have Rob really you and long Because that maybe top line – looking specifically industry Beth, want or economics a time you weren't where talk meeting network forward Lance I back can you just the your at from the what to that I'll growth the to very just we to terms for company? have underperformed perspective think last growth. in don't maybe of decade about hearing market, a years if materialized the level you I from or volume it any but analyst highway. leverage expand versus you maxed growth high back but So looking that thunder steal this And unique at out really

Lance M. Fritz

operating cash, what Yes. on Brandon, we start industry-best income really saying by we focus and I'll which do. is generating

what with Rob. volume consider to we available turn and is attractive not of top part or return. and I'll that us from But happening some can line Beth in whether it on would get that, market And what's at what's over and appropriate we the the predicated to

Elizabeth F. Whited

But be think seeing you Yes. but – had I wholeheartedly pretty about for are agree particular, earlier I this Lance's we going us. think us some questions to what year with from a is solid year comments. I in it's growth,

some feel in intermodal are markets We good are, international public. said, The having like to wins that us. I

exposure Coast industrial, We and the to have the plastics. happening that's Gulf great growth in chemicals in

much just my we echoing returns, Lance's service industry-leading comments, that. provide is do is getting doing that value So our focused margins provide for team on focus we really that on and very the and so

continue And in that a pipeline. regard. put we we're good business up to have great We going ensure development to numbers that

Brandon R. Oglenski

you. Thank

Operator

is next the proceed question of questions. Brian Our with your JPMorgan. from line Please with Ossenbeck

Brian P. Ossenbeck

Good Hi. my Thanks morning. for question. taking

into So with and energy about given crude oil, because of Beth, the further in you see could gateways LPG into you products pretty the earlier mentioned on reform were comment petroleum that opportunity changes the call the export the but serve wanted if all Mexico, strong to you to refined country?

Elizabeth F. Whited

Yes.

reform LPG opportunity. fuels, We volumes. solid have shipments. It's diesel long-term. and that with growth the market. that Gulf I key year over quarter, did then significant serve started substantial we in Mexico for the that in a nice a first gasoline we and energy finished And both But KCSM partnership with last to from first in pretty in the been Coast continue see It markets pursue will Mexico participating refinery down opportunities call consuming us wouldn't carload and we're it into into in participating FXE. complex potential the the and market

Brian P. Ossenbeck

private complications does on the network when any have effect through freight Thanks on most moving. of on after trying to of these the to of network. of here the was, North Okay. and volume about American lot add pretty The specifically you that think any but into to But that car that lot follow-up for details points? cars little the did continue type operations from there on Cam. freight the that understand it'll been get of read a the you anything inventory It's pinch the talked a mix already, relates I And across if Is you of do you're a for high the more some maybe to you're out? that. system? reset

Cameron A. Scott

and both are topic I of rationalize progress well remainder and the continue we the the of to very good throughout Beth team and the year. car that try to think We're customers expect progress working inventory. and making operating very together that private freight

Brian P. Ossenbeck

Okay.

on quick everybody's and a that just demurrage in it that, to get potentially keep best with way? are Just you incentivize to even up to or follow-up rates or fluidity able interest is the it lower

Elizabeth F. Whited

You know customers product, move same are really make money thing the motivated we to their which and do are, that right. is

in customers freight on from of the behavior the they rational based cars that terms network see. times very to adding see we cycle So

we that slow then added pull making like time as network. freight So with cars make the customers the those that down, decisions were additional did the some rational customers back I cars. conversations cycle feel and which freight our them we and causing improvements have to off is about increased

us. sort long-term for being a issue of don't see systemic I So that any

Brian P. Ossenbeck

Cam, for it. your Beth, thanks Okay. Appreciate time.

Operator

concludes This closing turn question-and-answer back I you. for will Thank the Lance comments. the over call session. now Fritz to

Lance M. Fritz

Yes, with Omaha on May XX. in Day you all thank Thanks. you forward talking questions. our at look for to we Investor And your

Operator

And This wonderful today's disconnect now and time, gentlemen, and may this does participation. lines Ladies your for your you have thank teleconference. day. at a conclude you

Lance M. Fritz	Union Pacific Corp.
Elizabeth F. Whited	Union Pacific Corp.
Cameron A. Scott	Union Pacific Corp.
Robert M. Knight, Jr.	Union Pacific Corp.
Allison M. Landry	Credit Suisse Securities (NYSE:USA) LLC
Chris Wetherbee	Citigroup Global Markets, Inc.
Justin Long	Stephens, Inc.
Amit Mehrotra	Deutsche Bank Securities, Inc.
Scott H. Group	Wolfe Research LLC
Ken Hoexter	Bank of America Merrill Lynch
Bascome Majors	Susquehanna Financial Group LLLP
J. David Scott Vernon	Sanford C. Bernstein & Co. LLC
Matthew Reustle	Goldman Sachs & Co. LLC
Thomas Wadewitz	UBS Securities LLC
Walter Spracklin	RBC Capital Markets
Brandon R. Oglenski	Barclays Capital, Inc.
Brian P. Ossenbeck	JPMorgan Securities LLC

Union Pacific (UNP) 26 Apr 182018 Q1 Earnings call transcript