2008 BB&T Transportation Conference

Transcription

1 2008 BB&T Transportation Conference February 14, 2008 Rob Knight, Chief Financial Officer

2 Cautionary Information This presentation and related materials contain statements about the Corporation s future that are not statements of historical fact, including specifically statements of management regarding the challenges that the Corporation may face due to overall economic conditions and higher diesel fuel prices; management s outlook on the strength of the economy and the opportunities for the Corporation, including improving operational efficiency and customer service; and the ability of the Corporation to overcome economic weakness and achieve record financial performance. 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: expectations as to continued or increasing demand for rail transportation services; expectations regarding operational improvements, including the effectiveness of network management initiatives that have been or will be implemented to improve operations, customer service, and shareholder returns; expectations as to increased returns, cost savings, revenue growth, and earnings; expectations regarding fuel price and our ability to mitigate fuel costs; the time by which certain objectives will be achieved, including expected improvements in operations and implementation of network management initiatives; estimates of costs relating to environmental remediation and restoration; proposed new products and services; expectations that claims, lawsuits, environmental costs, commitments, contingent liabilities, labor negotiations or agreements, or other matters will not have a material adverse effect on our consolidated financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to the Corporation s and its subsidiaries business, financial, and operational results, and future economic performance; and statements of 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 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 2006, which was filed with the SEC on February 23, 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 Web site 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.

3 Conference Topics Record 2007 Financials 2008 Business Outlook Regulatory Update First Quarter & Full Year Outlook 3

4 2007 Highlights Operating Revenue $Millions $15,578 $16,283 Net Income $Millions $1,606 $1,855 $13,578 $ Operating Ratio % Return on Invested Capital* % * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. 4

5 Increasing Shareholder Returns Dividend Increase 26% increase announced Nov 15, % increase in last 12 months Share Repurchase Program 12.6 million shares purchased $1.5 billion returned to shareholders 5

6 2008 Volume Outlook Carloadings (000s) 9,852 9,733-1% to +1% Volume Growth Potential Challenges (-) Autos Industrial Products Neutral (+/-) Chemicals Intermodal Opportunities (+) Energy Agriculture E 6

7 Automotive 2007 Revenue = $1.5 Billion UP Auto Franchise 2007 Results Volume: -1% Finished Vehicles -1% Auto Parts +6% 2008 Drivers Strong Auto Franchise Light Vehicle Sales Estimates -4% Auto Parts Growth Opportunities Facilities Assembly Centers & Facilities Volume Mix Auto Parts 37% Finished Vehicles 63% 7

8 Industrial Products 2007 Revenue = $3.1 Billion 2007 Results Volume: -8% Lumber -20% Stone -10% Cement -6% Steel -4% 2008 Drivers Consumer/ Gov t/waste 12% Paper 12% Housing Starts Estimates -20% Stone for Highway Construction Frac Sand and Pipe Steel for Drilling Volume Mix Steel 15% Non- Ferrous 13% Lumber 13% Construction Products 35% 8

9 Chemicals 2007 Revenue = $2.3 Billion 2007 Results Volume: +4% Fertilizer +11% 2008 Drivers Slower Economy Autos Housing Fertilizer Demand Domestic Export Reliable Service Liquid & Dry 27% Soda Ash 13% Volume Mix Plastics 24% LPG/Petroleum 17% Fertilizer 19% 9

10 Intermodal 2007 Revenue = $2.9 Billion 2007 Results Volume: Flat International +1% Domestic & Premium -1% Volume Mix International 64% 2008 Drivers Economy Truck Competition Consumer Spending Domestic 32% Premium 4% 10

11 Agricultural Products 2007 Revenue = $2.6 Billion 2007 Results Volume: -2% First Half -6% Second Half +1.5% Ethanol & DDGs +27% 2008 Drivers Continued Ethanol Expansion Corn Moves for Forward Ethanol Wheat Demand Adding 2 nd Produce Unit Train Ethanol Production Capacity On UP Volume Mix (Billion Gallons/Year) Whole Grains 39% Grain Products 44% Food & Beverage 17% 11

12 Energy 2007 Revenue = $3.1 Billion 2007 Results Volume: Flat Tonnage +1% In Train Wheel Repair SPRB Coal Train Size Cars/Train Volume Mix Drivers SPRB Tonnage +5% Strong Customer Demand Rising Appalachian Coal Prices Colorado/Utah Tonnage Flat Southern Powder River Basin (SPRB) 72% COLORADO /UTAH 17% Other 11% 12

13 Price & Performance Opportunities Core Price Improvements Legacy Pricing 5% 7% 6% 5-6% 2011: 6% 2010: 3% 2009: 3% 2008: 6% % Repriced 2004 thru % E 13

14 Productivity Initiatives Unified Plan Lean Technology Operating Income Statement Productivity Council Organizational Effectiveness 2007 Operating Expenses Salaries & Benefits 36% Fuel & Utilities 25% Equipment Rents 11% Purchased Services & Other 13% Materials & Supplies 6% Depreciation 10% 14

15 Drive Higher Returns As of December 31, 2007 Percent of Revenue Minimum Returns Not Yet at Minimum Returns Better Pricing Auto Industrial Industrial Products Products Intermodal Intermodal Energy Intermodal Efficiency Gains Autos Autos Focused Approach Chemicals Energy 15

16 Regulatory Update Proposed Rulings and Legislation STB Cost of Capital Methodology AAR calculated 10% for 2006 Replacement cost proposal Federal Rail Safety Improvement Act Rail Competition and Service Improvement Act Freight Rail Infrastructure Capacity Act 16

17 First Quarter Volume & Outlook Carloadings Through February 9 Agricultural Automotive Chemicals Energy Industrial 6% -9% 1% 2% -3% First Quarter Outlook Volume Growth = Flat to +2% January Fuel = $2.68/gallon EPS = $1.50 to $1.70/share (+6 to 21% growth) Intermodal TOTAL -3% -1% 17

18 2008 Another Record Year Full Year: Volume Growth = -1% to +1% Continued Productivity Fuel Price = +15 to 20% Operating Ratio Improvement EPS = $7.75 to $8.25 (+12 to 19%) Capital Plan = $3.1 billion ROIC Growth 18

19 2008 BB&T Transportation Conference February 14, 2008 Q&A