January 25, Jim Young, President & CEO

Transcription

1 January 25, 2007 Jim Young, President & CEO

2 Fourth Quarter Results Diluted Earnings per Share + 62% $1.78 Operating Income In Millions + 52% $810 $533 $

3 Fourth Quarter Highlights 6 Point Operating Ratio Improvement to 79.6% Record Coal Tonnage SPRB Tonnage +14% Record Quarterly Operating Revenue Operating Improvement 3

4 2006 Recap Net Income In Millions + 77% $1,606 Return On Invested Capital pts 8.2% 6.4% 5.7% $1,026 $908 Reported 2005 Adjusted* Reported 2005 Adjusted* 2005 * See Union Pacific web site under Investor Relations for a reconciliation to GAAP

5 Fourth Quarter Earnings Release January 25, 2007 Jim Young, President & CEO

6 Fourth Quarter Marketing & Sales Review January 25, 2007 Jack Koraleski, Executive VP Marketing & Sales

7 Commodity Highlights Fourth Quarter Volume (000) 2,419 1% 2, Full Year Records Volume, Up 3% Record Year in Automotive, Energy & Intermodal 4Q Q-2006 Average Revenue Per Car 1,428 8% 1,547 Average Revenue per Car, Up 11% Record Year in Every Business Group Except Automotive 4Q Q-2006 Commodity Revenue 3,455 In Millions 9% 3,775 Revenue, Up 15% to $14.9 Billion Record Year in Every Business Group 4Q Q

8 Mexico Revenue Growth ($ Millions) 23% $1,372 $1,112 Calexico Nogales El Paso $974 Hermosillo Chihuahua Torreón Culiacán Aguascalientes Guadalajara Eagle Pass Monclova Saltillo San Luis Potosí Mexico Manzanillo City Lázaro Cárdenas Laredo Monterrey Querétaro Puebla Brownsville Tampico Veracruz Coatzacoalcos Salina Cruz Mérida $

9 Agricultural Products Revenue Mix Food/ Refrig. 21% Grain Products 41% Whole Grains 38% Fourth Quarter $670 MM Revenue: +20% Volume: +4% Average Revenue Per Car: +15% Quarterly Drivers Demand for Ethanol, DDGS & Export Feed Grains Mexico Markets: Strength in Feed Grains, Import Beer, Meals and DDGS 9

10 Automotive Revenue Mix Auto Parts 20% Finished Vehicles 80% Fourth Quarter $359 MM Revenue: +2% Volume: Flat Average Revenue Per Car: +2% Quarterly Drivers Finished Vehicle Shipments Declined 5% Automobile Parts Up 10% 10

11 Chemicals Fourth Quarter Revenue Mix Plastics 20% Petro & Other 18% Fertilizer Liquid & Dry 17% Chemicals 25% Soda Ash 20% $520 MM Revenue: +9% Volume: -1% Average Revenue Per Car: +11% Quarterly Drivers Weak Fall Fertilizer Season Slowdown in Construction Impacts Chemical Feedstocks 11

12 Energy Revenue Mix SPRB 68% CO/UT 24% Other 8% Fourth Quarter $757 MM Revenue: +20% Volume: +10% Average Revenue Per Car: +9% Quarterly Drivers SPRB Tonnage Up 14%, Setting New All-Time Record CO/UT Volumes Up 3% 12

13 Industrial Products Consumer/ Gov t/ Waste 12% Revenue Mix Non- Ferrous 15% Paper 15% Construction Products 17% Steel 19% Lumber 22% Fourth Quarter $744 MM Revenue: Flat Volume: -11% Average Revenue Per Car: +12% Quarterly Drivers Significant Downturn in Lumber & Panel Products Slowdown in Construction Market Also Impacting Stone & Roofing Granules Shedding Low Margin Paper & Newsprint Business 13

14 Intermodal Revenue Mix International 57% Domestic 36% Fourth Quarter $724 MM Revenue: +4% Volume: Flat Average Revenue Per Unit: +4% Quarterly Drivers Strength in Imports Softer Domestic Demand Premium 7% 14

15 Customer Satisfaction Index Good Q1 Q2 Q3 Q4 15

16 Commodity Outlook Revenue ($ Billions) +6-7% Volume: 2-3% Key Drivers Significant Volume Growth in Only Intermodal and Energy Yield Gains Revenue Growth in All Groups

17 Fourth Quarter Operating Review January 25, 2007 Dennis Duffy, Executive VP - Operations

18 Safety - Incidents & Reportables Full Year Ended December 31 Employee Per 200,000 Work Hours Good Rail Equipment Per Million Train Miles Good Incidents Reportables 18

19 Network Performance Update 2006 Avg. 7-Day Carloadings (000) 194 Good AAR Velocity MPH Q Good Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q AAR Terminal Dwell Hours Good Industry Spot/Pull Percentage Good Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 19

20 Productivity Update 2006 Q Freight Car Utilization Days Good AAR Inventory 325 (000) Good Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Train Plan Compliance Percentage Good Fuel Consumption Rate Gallons per Thousand GTMs Good Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 20

21 2006 Record Production Southern Powder River Basin Coal Trains Per Day Q1 Q2 Q3 Q4 Cars Per Train Coal Tonnage In Millions Q1 Q2 Q3 Q Q1 Q2 Q3 Q4 21

22 2007 Capital Spending Key Infrastructure Investments 2006 Progress Sunset Double Track Los Angeles Yuma Tucson Terminal Improvements Corridor Improvements Salt Lake City El Paso North Platte Denver Ft. Worth San Antonio Kansas City Chicago Shreveport Angleton St. Louis Iowa Signal Project Joint Line 3 rd Main Track San Antonio 2007 Highlights Sunset Corridor Double Track Terminals Texas & Pacific Route to Southeast San Antonio Intermodal Terminal Central Corridor Joint Line Complete Iowa Signaling 22

23 2007 Operating Areas Of Focus Safety Employee, Customer, Public Continued Service Improvements Resource Productivity Unit Costs Failure Cost Reduction Train Size Network Throughput Unified Plan & CIMS Inventory Management Capital Effectiveness Customer Service Asset Utilization Financial Performance 23

24 Fourth Quarter Financial Review January 25, 2007 Rob Knight, CFO

25 Income Statement Summary Fourth Quarter In Millions Pct Chg Operating Revenues $3,962 $3, % Operating Expenses Salaries and Benefits 1,169 1, Fuel and Utilities Equipment and Other Rents Depreciation Materials and Supplies Purchased Services and Other Total Operating Expenses 3,152 3, Operating Income $ 810 $

26 Commodity Revenue Growth Fourth Quarter - In Millions +6% $3,775 $3,455 +1% +2% +9% 2005 Volume Fuel Price/Mix 2006 Recovery 26

27 Salaries & Benefits Fourth Quarter In Millions + $61 $1,169 $1, Change 2006 Wage Inflation Larger Workforce Volume Costs 2007 Outlook Workforce Level Flat with 2006 Productivity Wage Inflation 27

28 Fuel & Utilities Fourth Quarter Fourth Quarter Fuel Price Dollars Per Gallon $ $ Moderating Fuel Prices Full Year Recovery = 90% 2007 Outlook Full Year Planning Assumption = $2.00/gallon ~ January Average $1.85/gallon Continue Recovery Improvement 28

29 Equipment & Other Rents Fourth Quarter In Millions $353 - $7 $346 Improved Car Cycle Times Lower Car Hire Payments 2005 Change

30 Materials & Supplies Fourth Quarter In Millions $143 + $28 $171 Inflation Increased Program Maintenance Category Shift from Purchased Services & Other 2005 Change

31 Purchased Services & Other Fourth Quarter In Millions + $15 $446 $ West Coast Storm Settlement Increased Casualty Expense Expense Shift to Materials & Supplies 2005 Change

32 Operating Ratio Improvement 90.1% 86.0% 86.1% 85.3% 83.7% 81.7% 81.1% 79.6% Q1 Q2 Q3 Q

33 Income Statement Fourth Quarter In Millions ($ Millions Except EPS) Pct Chg Operating Revenues $ 3,962 $ 3, % Operating Expenses 3,152 3, Operating Income Other Income Net Interest Expense (118 ) (120) - 2 Income Before Income Taxes Income Tax Expense (264 ) (171) +54 Net Income $ 485 $ Diluted EPS $ 1.78 $

34 Income Statement Full Year In Millions ($ Millions Except EPS) Adjusted* Pct Chg Operating Revenues $ 15,578 $13, % Operating Expenses 12,694 11, Operating Income 2,884 1, Other Income Net Interest Expense (477) (504) - 5 Income Before Income Taxes 2,525 1, Income Tax Expense (919) (528) U Net Income $ 1,606 $ Diluted EPS $ 5.91 $ * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. U = Unfavorable 34

35 Capital Spending In Millions $2,863 $2,729 $3,200 +/- $2,169 $2, Cash Capital & Capital Leases Long-Term & Flexible Operating Leases 35

36 Free Cash Flow* After Dividends In Millions $234 $ Recap $150M Voluntary Pension Contributions Increased Cash Taxes Cash Capital 2007 Outlook Growing Cash from Operations * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. 36

37 Increasing Returns Balance Sheet Strength Lease Adjusted Debt to Cap* Percentage Lease Adjusted Debt / EBITDA* x 2.9x 3.6x 3.1x x * See Union Pacific web site under Investor Relations for a reconciliation to GAAP. 37

38 2007 Outlook Full Year Revenue Growth = 6 to 7% Operating Ratio below 80 EPS Growth = 10 to 15% ROIC Improvement 1 st Quarter 2007 Outlook: EPS = $1.25 to $

39 Fourth Quarter Earnings Release January 25, 2007 Jim Young, President & CEO

40 Cautionary Information This press release and related materials contain statements about the Corporation s future that are not statements of historical fact, including statements regarding future operational and financial improvements and views regarding economic indicators and the Corporation s outlook regarding future performance and financial results. 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 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 that 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 include, but are not limited to: whether the Corporation and its subsidiaries are fully successful in implementing their financial and operational initiatives, including those plans and management initiatives to improve system velocity and network performance or otherwise improve operations; the outcome of claims and litigation, environmental contamination, personal injuries, and occupational illnesses arising from hearing loss, repetitive motion and exposure to asbestos and diesel fumes; the impact of a rail accident involving the release of hazardous materials, which we are required to transport under federal law; legislative and regulatory developments, including possible enactment of initiatives to re-regulate the rail industry; changes in labor costs, labor stoppages, and the availability of qualified personnel required for our operations; the impact of ongoing track maintenance, upgrades, and restoration work being performed in the Southern Powder River Basin of Wyoming; natural events such as severe weather, fire, floods, hurricanes and earthquakes; changes in fuel prices or changes to our ability to recover fuel costs, including any changes resulting from regulatory or legislative activities; adverse economic conditions affecting customer demand and the industries and geographic areas that produce and consume the commodities we carry; industry competition, conditions, performance and consolidation; legislative, regulatory and legal developments involving taxation, including enactment of new federal or state income tax rates, revisions of controlling authority and the outcome of tax claims and litigation; changes in securities and capital markets; the effects of adverse general economic conditions, both within the United States and globally; any adverse economic or operational repercussions from terrorist activities and any governmental response thereto; and war or risk of war. More information regarding risk factors and other cautionary information are available in the Corporation s Annual Report on Form 10-K for 2005, which was filed with the SEC on February 24, 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.