May Union Pacific Corporation

Transcription

1 May 2018 Union Pacific Corporation 1

2 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 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 available on, the date the 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

3 May 2018 Current Overview / Business Update 3

4 First Quarter 2018 Results Earnings Per Share First Quarter $ % $1.68 First Quarter Record Operating Ratio First Quarter -0.6 pts First Quarter Record * 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

5 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 5

6 2018 Business Trends 7-Day Monthly Carloadings (000s) QTD Volumes* (vs 2017) Agricultural Products Flat Energy +2% Premium +6% Industrial +7% January December TOTAL +4.5% *Through May 19,

7 Volume Drivers 2017 vs compared to 2016 vs (carloads) 59% 6% 12% 1% 2% Flat 1% Flat 1% -4% -2% -11% -3% -6% -4% -6% -20% -38% Shale-Related Coal Grain Chemicals (excl Crude) Domestic Intermodal International Intermodal Automotive Construction Other 2017 vs vs

8 7-Day Volume Trends Through April 30, ,000 Agricultural Products 50,000 Energy 24,000 22, ,000 30, ,000 20,000 18,000 Jan 10,000 Dec Jan Dec 2018 YTD down 4% 2018 YTD up 5% Grain Inventories Export Market Fundamentals Food & Refrigerated Shipment Demand Natural Gas Prices Inventory Management Weather & Economy Frac Sand Demand Crude Oil Prices & Spreads 8

9 7-Day Volume Trends (cont) Through April 30, ,000 Industrial 90,000 Premium 35,000 30, ,000 80,000 75, ,000 Jan 70,000 Dec Jan Dec 2018 YTD up 3% 2018 YTD up 2% 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 9

10 Network Performance Velocity (As Reported to the AAR, in mph) Good Good Terminal Dwell (As Reported to the AAR, in hours) -4% % Q17 1Q18 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 +5% Freight Car Inventory (As Reported to the STB, cars in thousands) Good 1Q17 1Q18 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 Record Southern Region Manifest Volumes Performance Metrics Improving 1Q17 1Q18 W9 W10 W11 W12 W13 W14 W15 W16 W17 W18 10

11 Volume & Performance Drive Resources TE&Y (Full-Time Equivalent) 14,015 +8% Reactivated ~650 HHP 15,098 Locomotives since Mid-2017 Leasing Additional Locomotives 1,643 1Q17 1Q18 TE&Y Furloughs (Employees at Quarter-End) Increased TE&Y Training Volume Expected Attrition Current Service Challenges Q17 2Q17 3Q17 4Q17 1Q18 Tight Labor Markets in Some Areas 11

12 May 2018 Business Team Review 12

13 The Strength of a Unique Franchise Excellent Network Strategic Terminal Locations Broad Port Access Border and Interchange Coverage Business Mix 2017 Freight Revenue: $19.8 B Automotive Distribution Centers Intermodal Terminals Manifest Terminals Ports Premium 29% Industrial 26% Ag Products 22% Energy 23% Border Crossings, Gateways and Interchanges 13

14 Economic Outlook Metric Forecast Gross Domestic Product (%) (avg) Industrial Production (%) (avg) Light Vehicle Sales (Millions) (avg) Housing Starts (Millions) (avg) Imports (%) incl Petroleum (avg) Exports (%) (avg) Unemployment (%) (avg) Source: April 2018 IHS Global Insight forecast 14

15 2018 Volume Outlook Agricultural Products + Ethanol Exports + Food and Refrigerated? Grain Industrial + Plastics + Industrial Production Energy + Petroleum Products? Frac Sand Coal Headwinds Premium + Over the Road Conversions + New International Business Automotive Sales 15

16 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 2017 Freight Volumes Domestic 61% Other Exports 12% Other Imports 16% Exports to Mexico 5% Imports from Mexico 6% International Volumes (3.4M carloads) Impacts from a Strong U.S. Dollar Negative: Steel, Grain, Coal Positive: International Intermodal Grain Products 3% Other 6% Plastics 1% Soda Ash 2% Fertilizer 2% Food & Beverage 3% Coal 3% Grain 5% Mexico Intermodal 6% Vehicles & Parts 18% Intermodal (excl Mexico) 51% 16

17 Agricultural Products 2017 Revenue: $4.3 Billion Grain Exports Produce Dairy Major Grain & Grain Products Region Produce Dairy, Poultry Dairy Cattle Cattle Origination Domestic Markets Export Markets Mexico Mexico Cattle, Poultry Grain Exports 17

18 Agricultural Products 2017 Volume Mix Food & Beverage 18% Fertilizer 16% 9,000 7,500 6,000 UNP Weekly Grain Carloads* (As reported to the AAR) Grain Products 27% Grain 39% 4,500 3,000 1Q 2Q 3Q 4Q 2017 Grain Inventory Management Export Market Fundamentals Food & Beverage Shipment Demand *Through May 19, **Source: USDA; As of Mar 1 st U.S. Grain Stocks** (Bushels in Billions) Corn Soybeans Wheat

19 Industrial UNP Monthly Volumes* Construction Plastics Industrial Chemicals 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10, Specialized 12% Soda Ash 7% 2017 Volume Mix Plastics Construction Products 16% 37% Metals 10% Construction 23% Lumber 11% Industrial Chemicals 18% Forest Products 14% Construction-Related Materials Housing Activity U.S. Dollar Impact Plastics Demand Base Chemicals Remain Solid *Through April

20 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 May 19, 2018 Housing Starts (mils) April 2018 IHS Global Insight forecast 20

21 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 21

22 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 22

23 Energy - Coal Trends 35,000 25,000 15,000 5,000 UNP Weekly Coal Carloads* (As reported to the AAR) 1Q Q Weather Impacts Demand 3Q 2017 Natural Gas Prices 4Q Coal Inventory Levels Powder River Basin Coal Stockpiles* (Tons in MM) Inventory 5-Year Average 2014 *Energy Ventures Analysis 2015 Mar 2018 Electricity Generation Market Share** 50% 19% % from coal 47% 21% 36% 2016 % from natural gas 42% 29% 24% % 29% % 30% 11 *Through May 19, Q 08 1Q 10 1Q 12 1Q 14 **U.S. Energy Information Administration (EIA) 1Q 16 1Q 18 23

24 Shale-Related Volumes 3.3% of 2017 Total Volume Frac Sand Volume* (By Shale, 000s) 1Q 2018 Volume (000s) % Incr (vs 1Q17) % of Total UP Volume Frac Sand* 69 52% 3.2% Crude 8 259% 0.4% Pipe 7 53% 0.3% Total Shale 83 61% 3.9% Frac Sand Drivers Energy Prices Rig Counts Enhanced Fracking Technology White / Brown Sand Mix Q18 Eagle Ford Permian Niobrara Marcellus/Utica Bakken Haynesville Other 37 Crude Oil Volume (000s) Q *Includes Barites 24

25 Premium UNP Weekly Intermodal Carloads** (As reported to the AAR) 2017 Volume Mix 90,000 80, Domestic* 51% International Intermodal 37% 70,000 60,000 50,000 40,000 1Q Q 3Q 4Q Other 1% Finished Vehicles 11% Trans Pacific Market Challenges Truck Capacity & Economic Outlook Automotive Production & Sales **Through May 19, 2018 * Domestic includes domestic intermodal and auto parts moved in intermodal containers 25

26 Domestic Intermodal Growth Comprehensive Network Significant Domestic Truck-Load Conversion Opportunity Truckload Opportunity Originating from Mexico Strong Value Proposition Competitive Service at an Affordable Price Environmental Friendliness Truck s Traditional Advantage is Eroding Regulations & Rising Costs Highway Congestion & Infrastructure 26

27 International Intermodal Transpacific Market Challenges Retail Inventories West Coast Port Advantages Prince Rupert, Canada Vancouver SEA/TAC NY/NJ 23 days via Panama / 27 days via Suez* Oakland Los Angeles Chicago Norfolk *Water transit days at 19 knots from Shanghai Favors West Coast Ports Houston East Coast Canal Neutral Panama Canal From Suez Canal 27

28 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 New Orleans *Source: April 2018 IHS Global Insight forecast 28

29 Millions North American Auto Production 20 North American Light Vehicle Production Forecast* E 2019E United States Mexico Canada *Source: IHS Global Insight April

30 Mexican Automotive Production Growth 7 th Largest Automotive Manufacturer 4 th Largest Automotive Exporter No. 2 Supplier of Vehicles to U.S Mexico Auto Production* (In Millions) '05 '13 '14 '15 '16 '17 '18E '19E * April 2018 IHS Global Insight New Finished Vehicle Plants, VW Puebla Mazda Salamanca Honda Celaya Kia Pesqueria Mercedes-Benz Aguascalientes Toyota Guanajuato MEXICO FACTORIES *Sources: Ministry of Economy, Maquila Portal, El Economista and Financiero Newspaper, Pro Mexico, OICA GM San Luis Potosi Nissan Aguascalientes Audi San Jose Chiapa BMW San Luis Potosi 30

31 UP Positioned for Mexico Growth 750 Volume Growth (Carloads in Thousands) +33% '10 '11 '12 '13 '14 ' Volume Mix (In Carloads) 17 Ag Products 16% Premium 66% Industrial 12% Energy 6% 31

32 May 2018 Operating Overview 32

33 Safety Employee (Reportable Personal Injury Incidents Per 200,000 Employee-Hours) % Good Rail Equipment (Reportable Derailment Incidents Per Million Train Miles) % 2.76 Good First Qtr Record 1Q14 1Q15 1Q16 1Q17 1Q18 Public (Crossing Accidents Per Million Train Miles) Good +38% Q14 1Q15 1Q16 1Q17 1Q18 Goal of Zero Incidents Solid Employee & Rail Equipment Improvement 1Q14 1Q15 1Q16 1Q17 1Q18 33

34 Network Performance Dynamic Environment Strategic Investments Balancing Resources with Demand (000s) (MPH) Focus on Further Improving Service & Costs Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Day Carloads Velocity * *As reported to the AAR 34

35 Rail The Green Alternative Each train can take up to 300 trucks off highways Three times cleaner than trucks on a ton-mile basis Conversion of 10% long-haul truck freight would eliminate more than 10 million tons of greenhouse gas emissions annually Energy Consumption Four times more fuel efficient than trucks Can haul one ton of freight 456 miles on one gallon of fuel Intercity Freight Transportation (Based on Ton Miles) Other Freight 26% Trucking 31% Freight RRs 43% Transportation Greenhouse Gas Emissions Other Freight 17% Trucking 74% Freight RRs 9% Source: EPA, AAR 35

36 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 &

37 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 37

38 May 2018 Financial Review 38

39 Financial Performance Operating Ratio EPS ROIC** 87.5% points +18% CAGR $5.49 $5.79 $ % +8.4 points 12.7% 13.7% 63.1% 63.5% 62.8% 7 Day 184K 7 Day 177K 7 Day 165K 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 include the retrospective adoption of ASU ** See Union Pacific website under Investors for a reconciliation to GAAP. 39

40 Pricing Fundamentals Value is the Key to Future Price Improvement Balanced Portfolio Provides Flexibility for Repricing as Value Grows Balanced Revenue Portfolio Contracts > 1 Year 40% Tariffs 30% Contracts < 1 Year 30% Solid Core Pricing 40

41 Productivity Update First Quarter Results: ~$35 Million of Savings 4Q14: $438 Initiatives & 1Q18 Results ($20) Network and Train Ops ($ in millions) Slower velocity, TE&Y recrew, Overtime, and Higher fuel consumption rate Operational Challenges Resulted in ~$40 Million Headwind ($5) Equipment (Loco and Car) Active loco fleet, Car repair & rents, offset by lease savings Full Year Productivity Less Than Original $300 - $350 Goal $60 Other Ops, Support, Sourcing, Mgmt & Admins Support, Safety, Engineering, Supply, Joint Facilities 41

42 Capital Program Supported by Returns $2.5 Capital Program & Returns** (Capital in Billions) 10.8% $3.2 ROIC* $4.3 $4.1 $3.7 $ % 14.3% $3.5 $3.1 ~$ % 13.7% * 2018 E Infrastructure Replacement Locomotives / Equipment Capacity / Commercial Facilities Technology / Other Positive Train Control Profitability Drives Cash Flow Supports Investments that must meet high return hurdles Supports Core Pricing that Drives Continued Investment * Adjusted to exclude the impact of Corporate Tax Reform. ** See Union Pacific website under Investors for a reconciliation to GAAP. 42

43 Strengthening the Franchise Replacement, Growth & Productivity, and PTC 2018 Capital Plan: ~$3.3 Billion Infrastructure Replacement $1,970 ($ in Millions) Locomotives / Equipment $460 PTC $160 Technology / Other $240 Capacity / Commercial Facilities $445 Safe & Resilient Infrastructure Equipment Acquisitions ~60 New Locomotives ~700 Freight Cars Positive Train Control Capacity Investments Brazos Yard 43

44 Cash Flow & Debt $ In Millions Cash From Ops +1% $1,883 $1,901 Higher Net Income Adjusted Debt* Increased Adj. Debt $570 Million since Year-End 2017 $14, $19,480 $20,050 $17,390 $17, Re-evaluating Optimal Capital Structure 12/31/14 12/31/15 12/31/16 12/31/17 3/31/18 Adjusted Debt / EBITDA * See Union Pacific website under Investors for a reconciliation to GAAP 44

45 Delivering Value to Shareholders Declared Dividend Per Share (cents) x Dividend Payout Target of 40% to 45% 10% Dividend Per Share Increase in 4Q 2017 & 1Q Q Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Cash Returned to Shareholders (Share Repurchases & Dividends, $ In Billions) $5.8 $ % 118% $ % 132% $1.7 12/31/ /31/ /31/2017 3/31/2018 % of Net Income Returned ~$18.5 Billion of Cash to Shareholders since 2015 Averaged 124% of Net Income 45

46 Share Repurchases Cumulative Share Repurchases (In Millions) Repurchased ~33% of Shares since 2007 Continue Opportunistic Approach Cumulative Share Repurchases ($ In Billions) $23.2 $19.1 $16.0 $12.6 $24.4 Share Repurchase Program Four Years Beginning January 1, Million Shares

47 2018 Outlook Full Year Low Single Digit Volume Growth 4Q14: $438 Price Above Inflation Goal is an Improved Operating Ratio Continued Focus on G

48 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 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 available on, the date the 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. 48