Cautionary Information

Transcription

1 November 2018 Union Pacific Corporation 1 Cautionary Information This presentation and related materials contain statements about the Company s future that are not statements of historical fact, including specifically the statements regarding the Company s expectations with respect to economic conditions; its ability to generate financial returns, improve resource productivity and use innovation to enhance customer experience; implementing corporate strategies; and providing excellent service to its customers and returns to its shareholders. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of Forward-looking statements also generally include, without t limitation, information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Company 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 Company 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 Company 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 Company s Annual Report on Form 10-K for 2017, which was filed with the SEC on February 9, The Company 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 availableon, thedatethe statements were made. The Company 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 Company does update one or more forward-looking statements, no inference should be drawn that the Company 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. 2

2 November 2018 Current Overview / Business Update 3 Third Quarter 2018 Results Earnings Per Share Third Quarter Operating Ratio Third Quarter +43% $2.15 $1.50 All-Time Quarterly Record Flat * 2018 * Certain prior period amounts have been adjusted for the retrospective adoption of Accounting Standard Update related to the presentation of the components of net periodic pension and other postretirement benefit costs. See Union Pacific website under Investors for the adoption impact. 4

3 New Commodity Group Mapping Agricultural Products Energy Industrial Premium Grain PRB Coal Construction Dom Intermodal Grain Products Other Coal Industrial Chem Int l Intermodal Food & Beverage Frac Sand Plastics Finished Vehicles Fertilizer Petroleum & LPG Forest Products Auto Parts Renewables Specialized Metals & Ores Soda Ash Business Trends Energy Agricultural Industrial Premium QTD Volumes* (vs 2017) -9% -6% +3% TOTAL +2% +8% January 7-Day Monthly Carloadings (000s) December * Through November 4,

4 7-Day Volume Trends Through October 31, ,000 24,000 26,000 Agricultural Products 40,000 Energy 22,000 20, ,000 20, ,000 Jan 10,000 Dec Jan 2018 YTD down 2% 2018 YTD Flat Dec Grain Inventories Export Market Fundamentals Food & Refrigerated Shipment Demand Natural Gas Prices Inventory Management Weather & Economy Frac Sand Demand Crude Oil Prices & Spreads 7 7-Day Volume Trends (cont) Through October 31, ,000 35,000 30,000 Industrial 95,000 Premium , , ,000 75, ,000 Jan 70,000 Dec Jan Dec 2018 YTD up 6% 2018 YTD up 6% Construction-Related Materials Housing Activity U.S. Dollar Impact Plastics Demand Base Chemicals Remain Solid North American Production & Sales Over-the-Road Parts Conversions Intermodal Market Fundamentals Transpacific Market Challenges 8

5 November 2018 Business Team Review 9 Strength of a Unique Franchise 1H 2018 Revenue $10.4 B Agricultural 13% Automotive Distribution Centers Intermodal Terminals Manifest Terminals Ports Border Crossings, Gateways and Interchanges Premium 49% 1H 2018 Volume Mix Energy 18% Industrial 20% 10

6 Gross Domestic Product Industrial Production 1.5% 2.3% 2.8% 2.8% 1.9% Housing Starts (millions) % 1.6% 3.8% 3.4% 2.1% Light Vehicle Sales (millions) Stronger U.S. Economy Economy Gaining Momentum Strong Industrial Production Federal Tax Cuts Source: I.H.S. Global Insight (May 2018) New and Expanded Facilities Access to Prime Locations Agricultural Energy Industrial Premium YTD Track Projects Regional Experts Connecting Customers to the Network Maximizing the Franchise 12

7 International Trade Diverse Franchise Creates Opportunity Off-shoring/ Near-shoring of U.S. Manufacturing Demand for Grain and Food Low Natural Gas Prices Favor U.S. Plastics Production Impacts from a Strong U.S. Dollar Negative: Steel, Grain, Coal Positive: International Intermodal 2017 Freight Volumes Domestic 61% Other Imports 16% Other Exports 12% Exports to Mexico 5% Imports from Mexico 6% Other 6% Plastics 1% Soda Ash 2% Fertilizer 2% Food & Beverage 3% Grain Products 3% International Volumes (3.4M carloads) Coal 3% Grain 5% Mexico Intermodal 6% Vehicles & Parts 18% Intermodal (excl Mexico) 51% 13 Grain Export Produce Dairy, Poultry Produce Dairy Dairy Cattle Potash Cattle, Poultry Major Grain, Grain Products, & Fertilizer Region Cattle, Poultry Grain Products 28% Agricultural Products 1H 2018 Revenue $2.2 B Fertilizer 16% 1H 2018 Volume Mix Food & Beverage 19% Grain Export Grain Export Grain 37% 14

8 Agricultural Products Grain Inventory Management Export Market Fundamentals Food & Beverage Shipment Demand 9,000 7,500 6,000 4,500 3,000 UNP Weekly Grain Carloads* (As reported to the AAR) 1Q 2Q 3Q U.S. Grain Stocks** (Bushels in Billions) Q *Through November 3, 2018 Corn Soybeans Wheat **Source: USDA; As of September 1 st 15 Lumber, Paper Soda Ash Steel Industrial 1H 2018 Revenue $2.8 B Copper, Iron Ore, Salt, Lime and Other Minerals Pipe, Cement, Aggregates Lumber, Paper Soda Ash Specialized 11% Construction 23% 7% 1H 2018 Volume Mix Plastics 16% Forest Products 14% Network and Regional Manifest Terminals Major Transload Terminals Gulf Coast Infrastructure Metals 11% Industrial Chemicals 18% 16

9 Housing Trends Housing Market still well Below Historical Averages UP Lumber, Stone & Glass Business Correlates with Housing Starts Housing also Drives Appliances, Roofing, Rebar, Aggregates, and Cement Demand Housing related Shipments Represent ~ 5-10% of Current UP Volumes UP Wkly Carloadings* 12,000 10,000 8,000 6,000 4,000 2,000 Lumber, Stone & Glass *Through November 3, 2018 IHS Global Insight forecast Housing Starts (mils) Chemical Opportunities North America Announced Expansions Seattle Eastport Portland Duluth Twin Cities Ind. Chemicals - 14 Fertilizer - 13 Plastics - 21 Oakland Salt Lake City Denver Omaha St. Louis Kansas City Chicago Memphis LA Calexico El Paso Dallas Nogales Eagle Pass Coatzacoalcos, VL Laredo Houston Houston New Orleans Brownsville 18

10 Chemical Export Opportunities North American Production Will Exceed Domestic Demand Surplus U.S. Production Targeted for Export UP Uniquely Positioned to Handle Expansion Related Growth Likely Export Flow Packaging Asia & Europe Asia South America Europe & Africa 19 Petroleum LPG Coal Coal Shale Shale Shale Shale Shale Shale Shale Sand Petroleum LPG Sand* 18% Other Coal / Coke 16% Energy 1H 2018 Revenue $2.3 B Petroleum, LPG & Renewables 14% 1H 2018 Volume Mix PRB Coal** 52% * Sand includes Barites ** PRB includes SPRB and NPRB 20

11 Energy - Coal Trends 35,000 25,000 15,000 5,000 UNP Weekly Coal Carloads* (As reported to the AAR) 1Q Q 2017 Weather Impacts Demand Natural Gas Prices Coal Inventory Levels 3Q Q Powder River Basin Coal Stockpiles* (Tons in MM) Inventory 5-Year Average *Energy Ventures Analysis Sept 2018 Electricity Generation Market Share** 50% 18% 47% 25% % from coal % from natural gas 43% 28% 38% 38% 33% 31% 33% 18 37% 39% 29% *Through November 3, Q 07 3Q 08 3Q 10 3Q 12 3Q 14 **U.S. Energy Information Administration (EIA) 3Q 16 3Q Shale-Related Volumes 3.3% of 2017 Total Volume 2018 YTD* Volume (000s) % Incr (vs 3QTD17) % of Total UP Volume Frac Sand** % 2.9% Crude % 0.4% Pipe 22 46% 0.3% Total Shale % 3.7% Frac Sand Drivers Energy Prices Rig Counts Enhanced Fracking Technology White / Brown Sand Mix 76 Frac Sand Volume** (By Shale, 000s) YTD* Eagle Ford Permian Niobrara Marcellus/Utica Bakken Haynesville Other Crude Oil Volume (000s) YTD* 90 * Jan Sept ** Includes Barites 22

12 Premium 1H 2018 Revenue $3.2 B Domestic* 52% Automotive Distribution Centers Intermodal Terminals Key Intermodal and Automotive Ports Key Intermodal and Automotive Border Crossings, Gateways and Interchanges Other 1% Finished Vehicles 10% 1H 2018 Volume Mix International Intermodal 37% * Domestic includes domestic intermodal and auto parts moved in intermodal containers 23 Highway Conversion Growth Opportunities Cass Truckload Linehaul Index Mar 2018 Transportation Mode Water By Tonnage 5% Rail 11% Truck 84% Highway Conversion Opportunities in All Business Groups ELD Impact Tight Truck Capacity LOUP Growing Highway Congestion Source: Cass Information Systems, Index uses January 2005 as its base month, U.S DOT Bureau of Transportation Statistics 24

13 Extending Our Reach Beyond the Ramp L.A. / Long Beach Origin Drayage Chicago Store mattjak Destination Dray mattjak Ocean Transport Warehouse Transload 25 International Intermodal Transpacific Market Challenges Retail Inventories West Coast Port Advantages Prince Rupert, Canada Vancouver NY/NJ SEA/TAC Chicago Los Angeles Favors West Coast Ports Norfolk Houston East Coast Canal Neutral Panama Canal * ~30 days via Panama / ~35 days via Suez* From Suez Canal 26

14 Premium Finished Vehicles Seattle Eastport U.S. Light Vehicle SAAR* Portland Twin Cities Duluth Chicago Oakland Salt Lake City Omaha Denver Kansas City St. Louis E 2019E 2020E Los Angeles Dallas Memphis Borders & Interchange Distribution Centers/Ports (UP Owned/Leased and Private) Assembly Centers (UP served) Houston *Source: IHS Global Insight New Orleans 27 North American Auto Production 20 North American Light Vehicle Production Forecast* Millions E 2019E United States Mexico Canada *Source: IHS Global Insight 28

15 Mexico s Strong Automotive Sector 2017 Mexico production ~3.8M vehicles 9% increase vs Mexico Light Vehicle Production (Millions) Jan-Aug 2018 Mexico production ~2.6M vehicles Flat vs LY Mexico Kia Pesqueria Audi San Jose Chiapa Nissan Aguascalientes Mercedes Benz Aguascalientes BMW San Louis Potosi Toyota Guanajuato Source: AMIA / I.H.S Autoinsights 29 Calexico Mexicali Dallas Nogales Nogales Ciudad Juárez El Paso Guaymas Topolobampo Hermosillo Chihuahua Torreón San Antonio Houston Piedras Eagle Pass Negras Nuevo Laredo Laredo Brownsville Saltillo Matamoros Monterrey New Orleans Mexico 1H 2018 Revenue $1.2 B Ferromex KCSM Ferrosur Short Lines UP Intermodal Operations UP Offices Durango Mazatlán Aguascalientes Silao Guadalajara Manzanillo Lazaro Cardenas San Luis Potosi Toluca Querétaro Mexico City Altamira Tampico Salina Cruz Veracruz Puebla Coatzacoalcos Progresso Premium 64% Ag. Products 16% Energy 7% 1H 2018 Volume Mix Industrial 13% Ciudad Hidalgo 30

16 2018 Volume Outlook Agricultural Products?Grain + Biofuels + Food and Beverage Industrial + Plastics + Metals + Industrial Production Energy + Petroleum Products Frac Sand Coal Headwinds Premium + Over the Road Conversions + New International Business? Automotive Sales 31 November 2018 Operating Overview 32

17 Safety Employee (Reportable Personal Injury Incidents Per 200,000 Employee-Hours) Good Rail Equipment (Reportable Derailment Incidents Per Million Train Miles) % Full Year Record +8% Good FY14 FY15 FY16 YTD17 YTD18 Public (Crossing Accidents Per Million Train Miles) Good % FY14 FY15 FY16 YTD17 YTD18 Continued Focus on Safety Goal of Zero Incidents FY14 FY15 FY16 YTD17 YTD18 33 Unified Plan 2020 Precision Scheduled Railroading Tenets Shifting the focus of operations from moving trains to moving cars Minimizing car dwell, car classification events and locomotive requirements Utilizing general-purpose trains by blending train services Balancing train movements to improve the utilization of crews and rail assets 34

18 Key Performance Indicators * 7-day averages, as of October 24, 2018 Good Freight Car Velocity (Daily Miles per Car) % +/- Good Operating Inventory % +/- Good Cars per Carload (Operating Inventory / Daily Carloads) % +/- Sep 2018 Current* 2019 Year End Goal Locomotive Productivity (GTMs per Horsepower Day) Sep 2018 Current* 2019 Year End Goal Car Trip Plan Compliance (% Cars On Time) Sep 2018 Current* 2019 Year End Goal Workforce Productivity (Daily Car Miles per FTE) Good Good Good +5% - 10% +15 +/- pts. +10% +/ % 60% Sep 2018 Current* 2019 Year End Goal Sep 2018 Current* 2019 Year End Goal Sep 2018 Current* 2019 Year End Goal 35 Laser Focused on Resources Active Locomotive Fleet 7,505 Aug 1, % 6,878 Current* Removed Over 625 Locomotives Since August 1 TE&Y (Full-Time Equivalent) TE&Y Operating Leverage 15,751-2% 15,401 Aug '18 Sep '18 * As of October 24,

19 Operating Update Unified Plan 2020 Implementation Began October 1 st Recent Initiatives Mid-America Corridor Eastport Seattle Minneapolis/St. Paul Consolidating Regions & Service Units Closing South Morrill Locomotive Shop Terminal Rationalization Review Functional Realignment Encouraged by Early Results Oakland Los Angeles Las Vegas Sat Lake City Denver North Platte San Antonio Dallas Houston Little Rock Chicago Kansas City New Orleans Brownsville 37 Positive Train Control (PTC) Status Overview Approximately $2.6 Billion Invested through December 2017 Total Estimated Investment ~ $2.9 Billion Field Testing since October 2013 By the End of 2018 UP will have PTC: Installed on 100% of Required Rail Lines Implemented on 75% of Required Rail Lines Continue Implementing, Testing and Refining PTC in 2019 &

20 Union Pacific Technology Platform Forging The Future 300M Transactions / Day 30,000 Messages / Second Gateway Connect Transform Multi Protocol Multi Party Guaranteed Msg 3,000 Micro-Services Pioneering Innovation Big I, Little i, The Internet of Things Mobile Work Order Real-Time Work Event Reporting Provides More Shipment Visibility and Improves Local Service UP GO Mobile Technology to Pre- Validate Gate Information Reduces Driver Gate Time Improves Ramp Inventory Location Accuracy Hand Held Ultrasound Detects Subsurface Cracks in Wheel Tread Using Ultrasound Machine Vision High Resolution Images and Alert Generation 50,000 Images per Second vs 4 Hour Manual Inspection Process 40

21 November 2018 Financial Review 41 Financial Performance Expanding Margins and Driving Returns Operating Ratio EPS ROIC** 87.5% $5.75 $ % (24.7) points +18% CAGR +8.4 points 13.7% 63.5% 62.8% 7 Day 184K 7 Day 188K 7 Day 168K $ % 2004* * 2004* * 2004* * * 2004 adjusted for asbestos pre-tax charge of $247.4 million adjusted to exclude the impact of Corporate Tax Reform and to include the retrospective adoption of ASU ** See Union Pacific website under Investors for a reconciliation to GAAP. 42

22 Financial Performance Growing Cash Flow and Shareholder Returns Cash from Ops Dividends (Declared) Share Repurchases (Cumulative) Market Cap +9% CAGR $7.4B $7.2B +18% CAGR $1.91 $ M shrs $23B 5x $105B $108B $13B $2.3B $0.30 $ $18B Oct Pricing Fundamentals Value is the Key to Future Price Improvement Balanced Portfolio Provides Flexibility for Repricing as Value Grows Solid Core Pricing Balanced Revenue Portfolio Contracts > 1 Year 40% Tariffs 30% Contracts < 1 Year 30% 44

23 Third Quarter Productivity Update 4Q14: $438 Productivity Gains of ~$60 Million, Offset by ~$50 Million of Service Related Costs Focused on Eliminating Network Cost Inefficiencies 3Q18 Net Productivity by Category ($ in millions) ($20) $0 $30 Network and Train Ops Equipment (Loco and Car) Other Ops, Support, Sourcing, Mgmt & Admins Slower velocity, TE&Y recrew, Limos & Lodging, Overtime, and Higher fuel consumption rate Lease savings, offset by active loco fleet and car cycle time Engineering, Safety, Support, Supply, Joint Facilities $10 Net Results 45 Capital Program Capital Spending & Returns $ % $ % $ % ROIC** $3.1 ~$ % Return-Focused Capital Program Productivity Through G55+0 Initiatives * 2018 E 2019 Outlook: Capital < 15% of Revenue Positive Train Control Technology / Other Capacity / Commercial Facilities Locomotives / Equipment Infrastructure Replacement * Adjusted to exclude the impact of Corporate Tax Reform. ** See Union Pacific website under Investors for a reconciliation to GAAP. 46

24 Strengthening the Franchise Replacement, Growth & Productivity, and PTC 2018 Capital Plan: ~$3.2 Billion ($ in Millions) Infrastructure Replacement $1,790 Locomotives/ Equipment $475 PTC $160 Technology/ Other $210 Capacity/ Commercial Facilities $525 Safe & Resilient Infrastructure Equipment Acquisitions ~60 New Locomotives ~700 Freight Cars Positive Train Control Capacity Investments Brazos Yard 47 Dividends Dividend Payout Target of 40% to 45% 10% Dividend Per Share Increase in 4Q 2017, 1Q 2018 & 3Q 2018 Declared Dividend Per Share (cents) x Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

25 Cumulative Share Repurchases Cumulative Share Repurchases (In Millions) Repurchased ~37% of Shares since * Cumulative Share Repurchases ($ In Billions) $23.2 $19.1 $16.0 $12.6 $30.2 Share Repurchase Program Four Years Beginning January 1, Million Shares $3.6 Billion Accelerated Share Repurchase Program June * * Through September 30, Growing Margins 87.5% P Operating Ratio (Percent) 70.6% Project OR& G G % 62.8% 60% % * 7-Day Volume (000s) 2020 Target Goal * Adjusted to exclude the impact of Corporate Tax Reform and include the retrospective adoption of ASU

26 Drivers of Margin Improvement % Operating Positive Volume Ratio by 2020 Growth Volume (11%) Price $1.3 B Above Inflation G55+0 Opportunities Productivity $1 B Achieve Through Innovation & Efficiency Gains Growing Earnings & Cash Flow 51 Capital Structure Adjusted Debt / EBITDA * 2015* 2016* 2017* 9/30/ E 2020E Increased Leverage Consistent Financial Performance Tax Reform Free Cash Flow Growth Target Debt / EBITDA ratio: up to 2.7x Maintain Strong Investment Grade Credit Rating No Lower than Baa1 and BBB+ Dependent on Economy and Achievement of Financial Goals * at year-end 52

27 What This Means for Shareholders Return ~$20 Billion + Dividends to Shareholders Cash to Shareholdersh 2018 to 2020 Dividends: 40% - 45% Payout Ratio ~$20 Billion of Share Repurchases Over Next 3 Years Dividend Payout Ratio of 40% to 45% Share Repurchases ~$20 B 53 Financial Outlook 2018 Full Year 2019 Outlook 4Q14: $438 Low to Mid Single Digit Volume Growth Price Above Inflation Capex Reduction of $100 Million to ~ $3.2 Billion Risk to Improved Operating Ratio T t Target 2020 Volume and Pricing Gains Significant Benefits from G55 + 0, Including Unified Plan 2020 At Least $500 Million of Productivity in 2019 Operating Ratio Target of 60% by 2020 Capex Less Than 15% of Revenue 54

28 Growing Shareholder Value KEY DRIVERS Firm Economy Diverse Franchise Opportunities Positive Volume Growth Strong Value Proposition Real Core Price $ Above Inflation $ Volume + Pricing + Productivity 60% Operating Ratio by 2020 Return-Focused Capital Program Increase Cash to Shareholders Increase Leverage Strong Credit Ratings CapEx 15% of Revenue Share Repurchases: ~$20 Billion over 3 years Dividend Payout Ratio: 40% to 45% Debt / EBITDA Ratio: 2.70 Baa1 and BBB+ or Better 55 Cautionary Information This presentation and related materials contain statements about the Company s future that are not statements of historical fact, including specifically the statements regarding the Company s expectations with respect to economic conditions; its ability to generate financial returns, improve resource productivity and use innovation to enhance customer experience; implementing corporate strategies; and providing excellent service to its customers and returns to its shareholders. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of Forward-looking statements also generally include, without t limitation, information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Company 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 Company 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 Company 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 Company s Annual Report on Form 10-K for 2017, which was filed with the SEC on February 9, The Company 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 availableon, thedatethe statements were made. The Company 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 Company does update one or more forward-looking statements, no inference should be drawn that the Company 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. 56