Citi 2013 US and European Industrials Conference

Transcription

1 Citi 2013 US and European Industrials Conference Rob Knight, CFO September 18, Cautionary Information This presentation and related materials contain statements about the Corporation s future that are not statements of historical fact, including specifically the statements regarding the Corporation s expectations with respect to general economic conditions and business growth; its ability to provide safe, efficient and reliable customer service and increase customer value and shareholder returns. 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 Corporation s and its subsidiaries business, financial, and operational results, and future economic performance; and management s beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forwardlooking information, including expectations regarding operational and financial improvements and the Corporation s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Corporation s and its subsidiaries future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Corporation s Annual Report on Form 10-K for 2012, which was filed with the SEC on February 8, The Corporation updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC). Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Corporation assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Corporation does update one or more forward-looking statements, no inference should be drawn that the Corporation will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein. 2

2 The Strength of a Unique Franchise To/From Asia To/From Asia Seattle Portland Oakland Los Angeles Calexico Ports Nogales Borders & Interchange Fastest Growing States Salt Lake City Eastport El Paso Twin Cities Omaha Denver Eagle Pass Laredo Dallas Kansas City Houston Brownsville Duluth Chicago St. Louis Memphis New Orleans To Europe, South America and Africa Diverse Business Mix Fastest Growing States Broad Port Access Interchange Traffic & Border Crossings Freight Revenue $19.7B in 2012 Coal 20% Industrial Industrial 16% 18% Agricultural u Agricultural 19% 17% Autos 9% Chemicals Chemicals 15% 16% Intermodal 20% 3 Successful Track Record 2004 to 2012 Operating Ratio 87.5% EPS $8.27 ROIC 14.0% points +25% CAGR +8.7 points 7 Day 184K 67.8% 7 Day 176K 5.3% $ * * 2012 #1 Industry Improvement 2004* 2012 * 2004 adjusted for asbestos charge of $247.4 million. 4

3 Record First Half 2013 Positives First Half Records Earnings Operating Revenue Operating Income Operating Ratio Franchise Diversity Challenges Coal & Grain Volumes Earnings Per Share (June YTD) $2.89 $ % $ st Half Record Operating Ratio (%) 72.9 (June YTD) 68.7 (1.3) pts st Half Record First Half 2013 Volume Drivers vs. 1H 2012 (Carloadings in 000s) 52 Frac Sand +20% Crude Oil +66% % +4% +3% +14% 8 Carload Growth vs H Volumes (000s): , ,476 Variance (62) (1%) -33% -7% -20% -10% (6) (7) (32) (16) (91) Shale Related Base Chemicals (Excl Crude) Autos & Parts Lumber Hazardous Waste Steel & Ferrous Scrap Grain Coal Other (mostly Ag) 6

4 Coal Trends 47,000 43,000 39,000 35,000 31,000 27,000 Volume Impact (Weekly Carloadings) Other 13% (19%) Flat 1Q 2013 Contract Loss Weather Natural Gas Prices Mine Production Issues Electricity Consumption *Through September 7, 2013 Southern Powder River Basin 74% 2013* (5%) 3QTD 2Q 3Q Q $3.35 $ % 50% Natural Gas Prices* (NYMEX) $3.77 $2.30 $2.49 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec *NG1 Futures Price Electricity Generation* % from coal % from natural gas 48% 48% 47% 17% 20% 19% 21% 20% 2012 $ $3.64 $3.69 $3.41 $2.96 $2.92 Total U.S. Electrical Generation (thousand megawatt hrs/day) 38% 27% 40% 30% *U.S. Energy Information Administration (EIA) through August Agricultural Trends UP 2012 Volume Mix Est. U.S. Crop Production & Exports* (vs. 2012) Grain Products 34% Food & Refrigerated 26% 28% 67% Production Export Grain 40% -7% 9% 4% 4% Corn Wheat Soybeans -7% Grain (Year-over-Year Volume Change) Flat -16% -17% -20% -20% -22% Export 3Q12 4Q12 1Q13 2Q13 Domestic -29% Est. Corn Production by State* (vs. 2012) 24% 17% 53% -1% 38% 16% NE IA IL MN KS WI *Source: USDA, September

5 2013 Volume Drivers 7-Day Monthly Carloadings (000s) YTD 2013 Volume Growth* (vs YTD 2012) YTD * down 1% 176 Chemicals Automotive Industrial Products Intermodal +9% +3% +2% Flat Agricultural -8% 140 January December Coal TOTAL -9% -1% *Through September 8, Union Pacific Crude-by-Rail $116 Brent Canadian Crude $84 Bakken $98 TOTAL U.S. Crude Oil** (June 2013) BPD MM Consumption* 15.8 Imports 7.7 Production 7.2 Marcellus Niobrara $100 Utica $116 Brent $116 Brent West Coast (PADD 5)** (June 2013) BPD MM Consumption* 2.5 Imports 1.1 Production (excl. AK) 0.6 Alaska Production 0.5 Permian Basin $107 Barnett Eagle Ford $107 Cushing $111 $113 LLS Current UP Origins Current UP Destinations Connecting Railroad Origins Gulf Coast (PADD 3)** (June 2013) BPD MM Consumption* 8.3 Imports 3.8 Production 4.2 Crude prices as of 9/6/13 Sources: Plains Posting, Argus Research, Platts, North Dakota Pipeline Authority *Refinery & Blender Net Inputs **Supply & disposition categories not depicted. Adjustments and Inventory Changes 10

6 Shale -- It s More Than Just Crude Oil Union Pacific Frac Sand An average horizontal frac job uses between 30 to 50 railcars of materials per well Pipe for Drilling Each well uses between 3 to 5 carloads of drilling pipe Crude-by-Rail One tank car can hold ~650 barrels of crude oil 1H 2013 Vol (000s) % Inc Frac Sand Pipe 17.1 (4) Crude Oil % of Total Volumes Potential U.S. Economic Development Polyethylene Expansions More than $10B of investment announcements (many in the Gulf) Manufacturing Expansions Including Steel and Plastics Fertilizer Production Plant Construction/Expansions to potentially displace some imports Refined Petroleum Products Residual Fuel Oil & LP Gas Pipeline Construction UP participates in moving pipe shipments to build pipelines 11 Housing Trends Housing represents ~8% of current UP volumes Lumber, Stone & Glass down 2,600 carloads a week, a 1.5% overall volume impact Housing also drives appliances, roofing, rebar, aggregates, and cement demand Including IP, Chemicals & Intermodal, return to normal could add volume growth opportunity of ~5% UP Wkly Carloadings 12,000 10,000 8,000 6,000 4,000 2,000 Lumber, Stone & Glass Housing Starts (mils) * 07* 09* 11* 13* *Through September 7, YTD Lumber up 11% Sep 2013 IHS Global Insight forecast 12

7 UP Positioned for Mexico Growth Opportunities Strong Investments Foreign and Domestic 708 Volume Growth (Carloads in Thousands) % +9% '05 '06 '07 '08 '09 '10 '11 ' Business Mix (In Carloads) UP Interchange Points Ports Ferromex (FXE) KCSM Ferrosur (FSRR) New Industrial Investment Agricultural 14% Industrial 10% Autos 45% Intermodal 24% Chemicals 6% Coal 1% 13 Union Pacific Connecting NAFTA Markets Automotive Seattle Portland Eastport Twin Cities Duluth U.S. Vehicle Sales* (MM) Chicago 14.4 Oakland Los Angeles Salt Lake City Omaha Denver Dallas Kansas City St. Louis Memphis Avg E Borders & Interchange Distribution Centers/Ports (UP Owned/Leased and Private) Houston New Orleans Industrial Industrial 16% 17% Mexico Auto Production* (MM) Assembly Centers (UP served and in Mexico) E * September 2013 IHS Global Insight 14

8 Highway Conversions Comprehensive Network ~10 Million Domestic Truck- Load Conversion Opportunity ~3 Million Truckload Opportunity Originating from Mexico Truck s Traditional Advantage is Eroding Regulations & Rising Costs Highway Congestion & Infrastructure 6% -3% Volume Growth (Qtr-over-Qtr Volume Growth) 3% Domestic International 3% 1% 1% 4% Flat Flat 8% 3% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13-8% Strong Value Proposition Competitive Service at an Affordable Price Environmental Friendliness 15 Investments Support Intermodal Growth Santa Teresa, NM Supports Sunset Route from LA to El Paso Close proximity to Maquiladoras in Northern Mexico Strategic focal point for freight moving across the U.S. and the border 16

9 Raising the Bar Sub 65 Operating Ratio Operating Ratio (Percent) Targeting Sub 65% FY Operating Ratio by 2017 Sub H Day Volume (000s) 17 Capital Investments Supported by Returns Investments* & Returns** (Capital in Billions) Improved Profitability Drives Strong Cash Flow Supports Investments that must meet high return hurdles $3.1 ROIC* $2.5 $2.5 $3.2 $3.7 ~$ % $3.15 (excl PTC) Supports Core Pricing that Drives Continued Investment 10.2% 12.4% Capital Spend to ~16% - 17% of Revenue for Est Capital (excl Locos & PTC) New Locomotive Purchases/Leases Positive Train Control ** See Union Pacific website under Investors for a reconciliation to GAAP. * Includes cash capital, leases and other non-cash capital. 18

10 Growing Shareholder Value Q 2007 Declared Dividend Per Share (cents) Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Cumulative Share Repurchases $3.0 $3.0 4x + ($ In Billions) $4.2 $ $7.1 $ Dividends: 3Q 2013 Declared Dividend increase of 14.5% New Dividend Payout Target Range of 30-35% on a declared basis Share Repurchases: Continue Opportunistic Buying Approach 9.1 Million Shares Remaining in Current Authorization (as of June 30, 2013) Future Allocation $ H'13 19 Union Pacific s Future Prospects Leverage Strengths of Diverse Franchise Market-Based Pricing at Reinvestible Levels Focus on Productivity, Efficiency, and Innovation Invest to Strengthen and Enhance Network Drive Increased Profitability & Shareholder Returns 20

11 21 Question & Answer Session