J.P. Morgan Aviation, Transportation & Defense Conference

Transcription

1 J.P. Morgan Aviation, Transportation & Defense Conference Rob Knight, CFO March 6, 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, future trends in commodity markets, and financial returns; its business strategy for the upcoming year and drivers for growth; and its plans to improve productivity with capital investments. 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. 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 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% Intermodal 20% Autos 9% Chemicals Chemicals 15% 16% 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 Network Performance Drives Productivity Full Year 1,922 Slow Order Miles 1, % Good 509 All Time Record 9.38 Car Utilization (Days) All Time Record % Good 8.58 All Time Record Good Intermodal Boxes Manifest Cars Train Size (Average Units per Train) * All Time Record * All Time Record Volume Growth 5% 3% -2.5% Flat South Total South Total 4Q12 vs. 4Q11 FY2012 vs. FY Volume Drivers Vs (Carloadings in 000s) +28% Frac Sand +3x 133 Crude Oil 85 Parts Vehicles 58 Int l Domestic % +13% +2% +12% +7% Carload Growth vs FY Volumes (000s): , ,072 Variance (24) -49% -14% -14% (33) (46) (10) (293) Shale Related Vehicles & Parts Intermodal Cement, Stone & Lumber Ind Chem & Plastics Hazard Waste Corn & Wheat Coal Other 6

4 Diverse Portfolio Volume Drivers YTD 2013 Volume Growth* YTD Drivers Chemicals +12% Crude Oil up 100%+ Intermodal +8% Strong Intl Intermodal Pent up Vehicle Sales Automotive Industrial Products -3% +2% Lower Hazardous Waste, Softer Steel & Scrap Markets 1 st Quarter Ag -10% Ag volumes down in high single digit range Coal -22% TOTAL -2% Excluding Coal, volume up 4% Coal volumes down in the high teens vs Impact of 2012 Leap Year *Through March 2, Coal Trends Volume Impact (Weekly Carloadings) Longer Term Drivers 47,000 43,000 39,000 35,000 31,000 27, * 1Q Other 13% Southern Powder River Basin 74% 2Q 3Q Q + New Domestic Business + Growing Exports from ~8M tons in 2012 to 16M tons by Potential Backfill to Eastern Markets Current Drivers Mild Weather 2013 Contract Loss (10+ million tons) Mine Production Inventory Management Uncertainties - Plant Retirements - Natural Gas Prices *Through March 2,

5 Our Strong Value Proposition Supports Growth Long-Term Growth Drivers Population Growth Recovery of Weak Markets International Trade Global Energy Demand Highway Conversions 9 Housing Trends Housing represents ~7% to 8% of current UP volumes UP Wkly Carloadings Lumber, Stone & Glass Housing Starts (mils) Lumber, Stone & Glass down 3,000 carloads a week, a 2% overall volume impact 12,000 10, Housing also drives appliances, roofing, rebar, aggregates, and cement demand 8,000 6,000 4,000 1QTD 2013 Lumber up 16% Including IP, Chemicals & Intermodal, return to normal could add volume growth opportunity of ~5% 2, * *Through March 2,

6 International Trade Diverse Franchise Creates Opportunity Throughout Economic Cycles Off-shoring/Near-shoring of U.S. Manufacturing Demand for Grain and Food Low Natural Gas Prices Favor U.S. Plastics Production Demand for U.S. Raw Materials 2012 Freight Revenue Domestic 69% Other Imports 12% Grain Products 4% Other Exports 9% Lumber 2% Plastics 2% Minerals & Ores 2% Fertilizer 2% Beer 2% Steel 3% Soda Ash 3% Wheat 3% Feed Grains 3% 5% Mexico Imports 5% Mexico Exports UP International Trade Revenue ($6B) Other 8% Coal 5% International Intermodal 44% Vehicles & Parts 17% 11 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) Autos 45% UP Interchange Points Ports Ferromex (FXE) KCSM Ferrosur (FSRR) New Industrial Investment Audi - $1.3B Agricultural 14% Industrial 10% Intermodal 24% Chemicals 6% Coal 1% Source: Public Announcements 12

7 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 Houston New Orleans Mexico Auto Production* (MM) 3.9 Borders & Interchange Distribution Centers/Ports (UP Owned/Leased and Private) Industrial Industrial 16% 17% Assembly Centers (UP served and in Mexico) E * February 2013 Global Insight 13 Union Pacific Crude-by-Rail Canadian Oil Sands $114 Brent Bakken $81 Niobrara $83 Utica Marcellus $114 Brent $114 Brent Permian Basin Barnett Haynesville $89 Crude prices as of 2/22/13 Source: Plains Posting & Argus Research Eagle Ford $102 $116 LLS Current UP Origins Current UP Destinations Connecting Railroad Origins 14

8 Shale Energy and Rail Sustainability Shale production will continue to exceed pipeline capacity UP Crude > 300K bpd in Feb 2013 Substantial oil industry investment in rail $1 + Billion in rail terminals 20,000 new tank cars in service Rail advantages Market flexibility Faster transit time Faster permitting and construction Scalable with lower capital cost 15 Expanding Chemical Franchise Texas/Louisiana Investments Dallas Chevron Phillips Chemical Co. $5 Billion investment in cracker & additional capacity projects. Ft. Worth Total capacity: 1.5 million mt/year Estimated completion in 2017 Shreveport Formosa Plastics Corp. >$1.7 Billion investment in cracker San and additional capacity projects. Antonio Cracker capacity: 800,000 mt/year Estimated completion in 2016 Gruppo Mossi & Ghisolfi Investment in new PET & PTA plants. Capacity: 1.0 & 1.2 million mt/year Estimated completion in 2014 Ethylene Plants New Plant/Expansions Houston Brownsville New Orleans Exxon Mobil Corp. Investment in steam cracker. Total capacity: 1.5 million mt/year Estimated completion in 2016 Dow Chemical Co. $1.7 Billion investment in cracker and additional capacity projects. Total capacity: 1.5 million mt/year Estimated completion in 2017 Source: Public Announcements 16

9 Intermodal: Highway Conversions Comprehensive & Integrated Intermodal Network Strong Value Proposition: Competitive Service at an Affordable Price Innovative Solutions Environmental Friendliness Truck s Traditional Advantage is Eroding Regulations & Rising Costs Highway Congestion & Infrastructure Capacity Available for Growth 1% 0% Domestic Volume (Qtr-over-Qtr Volume Growth) 2% 3% 6% 3% 1% 4% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Investment Supports Intermodal Growth Recent Intermodal Terminal Investments 5 New Terminals Completed 3 Terminal Expansions 1 New Terminal Under Construction 1 Interchange Gateway Utilizing a systematic, structured approach to add capacity and improve service Over $1.2 Billion Intermodal Terminal Investment since

10 Pricing Opportunity Strong Fundamentals Continue Value is the Key to Future Price Improvement Core Pricing Gains 6% 6% 5% 4.5% 4.5% 4.5% Value/Service Gains Support Narrowing Discount to Truck New Business Supports Margin Improvement Balanced Portfolio Provides Flexibility for Repricing as Value Grows Balanced Revenue Portfolio 2016 $100 Contracts > 1 Year 40% 2014 $100 Tariffs 30% Contracts < 1 Year 30% 19 Raising the Bar Sub 65 Operating Ratio Operating Ratio (Percent) Guidance: 65% - 67% FY Operating Ratio by Achieve high end of 2010 guidance sooner than 2015 Now Targeting Sub 65% FY Operating Ratio by 2017 Sub Day Volume (000s) 20

11 Capital Investments Supported by Returns Improved Profitability Drives Strong Cash Flow Supports Investments that must meet high return hurdles Investments* & Returns** (Capital in Billions) $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 ** See Union Pacific website under Investors for a reconciliation to GAAP Est Base Capital New Locomotive Purchases/Leases Positive Train Control * Includes cash capital, leases and other non-cash capital. 21 Delivering Value to Shareholders Declared Dividends Per Share +3x $2.49 $1.93 Stock Price Performance UP 118% $0.745 $0.98 $1.08 $1.31 3% /31/07 S&P 500 2/28/13 Cumulative Share Repurchases ($ In Billions) Future Allocation $5.8 $4.3 $2.9 $1.6 $

12 Union Pacific A Promising Future Market-Based Pricing at Reinvestible Levels Focus on Productivity, Efficiency, and Innovation Leverage Strengths of Diverse Franchise Invest to Strengthen and Enhance Network Drive Increased Profitability & Shareholder Returns 23 J.P. Morgan Aviation, Transportation & Defense Conference Question & Answer Session 24