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RAIL EMPLOYMENT & NOTICES



Rail News Home Union Pacific Railroad

January 2012



Rail News: Union Pacific Railroad

UP's 4Q earnings conference: Higher capital spending, more traffic growth in 2012 also on the agenda



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On Jan. 19, Union Pacific Corp.’s senior team held a webcast and teleconference to review what they characterized as “outstanding” fourth-quarter financial results. Follow this link to read a news item on ProgressiveRailroading.com that summarizes the Class I’s results for the quarter and full year.


The senior execs also provided a deep-dive on the factors that impacted 4Q traffic and revenue growth in each of UP’s six business groups, reviewed the railroad’s safety and operational performance in the quarter, discussed the Class I’s capital spending plans for 2012 and shared their financial goals for this year.

Category by category
Executive Vice President of Marketing and Sales Jack Koraleski provided the business group overviews. Fourth-quarter agricultural products revenue rose 2 percent year over year to $854 million despite a 5 percent traffic drop to 236,000 units primarily because domestic grain growth partially offset weaker grain exports and the railroad registered strength in biofuels business, he said. Domestic grain volume jumped 22 percent while export grain volume fell 43 percent.

Automotive revenue soared 26 percent to $408 million and volume rose 10 percent to 171,000 units on a year-over-year basis. Propelled by improving vehicle inventory levels and a vehicle industry that continued to gain momentum, auto business reached its highest level since second-quarter 2008, said Koraleski.

In the chemical sector, revenue climbed 18 percent to $728 million and volume rose 10 percent to 232,000 units as UP registered continued strength in crude oil moves, posted strong plastics business and marked “solid performance” across all major market segments, he said.

Energy — meaning predominantly coal — revenue jumped 21 percent to $1 billion and volume increased 8 percent to 558,000 units, driven primarily by new southern Power River Basin (SPRB) coal business from Wisconsin utilities, and solid production and export demand associated with Colorado/Utah region coal mines, said Koraleski.

Meanwhile, strong industrial products business reflected an increase in inbound shale drilling materials, such as frac sand and pipe, and a ramp-up of iron-ore exports to China. Revenue climbed 24 percent to $810 million and volume rose 7 percent to 218,000 units.

In the intermodal sector, record domestic volume totaling 380,600 units, which rose 3 percent year over year, helped drive up revenue 13 percent to $959 million even though total intermodal volume dropped 3 percent to 817,000 units, Koraleski said. International volume dipped 7 percent to 436,700 units.

Safe and sound
Following Koraleski’s presentation, EVP of Operations Lance Fritz reviewed UP’s Q4 safety and operational performance. The employee safety ratio — which is based on the number of reportable personal injuries per 200,000 manhours — fell 16 percent to an all-time-best 1.15, said Fritz, adding that the railroad registered a steep decline in the number of severe injuries. In addition, the public safety ratio based on the number of grade crossing accidents per million train miles fell 9 percent to an all-time record 2.11. In 2011, UP closed 269 crossings, said Fritz.

In terms of operational performance, slow-order miles dropped 11 percent to a quarterly best 590, gross ton miles per employee rose 2 percent to 5.62, and average manifest train size matched a 4Q record of 88 cars while average intermodal train size increased to 171 boxes versus 166 boxes in fourth-quarter 2010. In addition, cars switched per man-day in 2011 reached 18.6 compared with 18.2 in 2010.

In addition to reviewing fourth-quarter performance, Fritz and Koraleski addressed the outlook for volume growth and capital spending in 2012. First, Koraleski provided an economic outlook for 2012 based on projections provided by Global Insight. Gross Domestic Product is forecasted to grow 2 percent versus 2011’s 1.8 percent growth; industrial production is expected to increase 2.8 percent versus 2011’s 4.1 percent growth; housing starts are projected to reach 730,000 compared with 2011’s 610,000; and the unemployment rate is anticipated to hit 8.8 percent versus 2011’s 9 percent. In addition, light vehicle sales are expected to reach 13.5 million compared with 12.8 million in 2011 and 11.6 million in 2010.

Koraleski then reviewed projected volume growth. In 2012, UP expects solid gains in minerals, petroleum, domestic intermodal, finished vehicles, auto parts, Colorado/Utah region coal, metals, lumber, fertilizers and liquefied petroleum gas, he said. Moderate traffic gains are forecasted for domestic grain and grain products, industrial chemicals, plastics, soda ash and construction materials; while minimal gains or traffic reductions are projected for SPRB coal, international intermodal, paper, hazardous materials, biofuels, food and beverage items, refrigerated products, food grains and export grain.

Capex will climb
In terms of UP’s capital spending plan for 2012, Fritz said the Class I expects to spend about $3.6 billion this year compared with $3.2 billion in 2011, with $1.9 billion devoted to replacing assets and $1.3 billion budgeted for growth and productivity initiatives. The railroad plans to acquire 200 new locomotives and about 1,800 rail cars, including hoppers, gondolas and auto racks. Capacity spending will increase to focus more dollars on several key projects, including double track on the Sunset Route, ongoing construction of an intermodal facility in Santa Teresa, N.M., and various work in the Southern Region concentrating mostly on energy exploration business, said Fritz.

In addition, UP expects to spend $335 million on positive train control (PTC) implementation this year compared with $224 million in 2011. Three years into the implementation plan, the senior team has a better handle on what UP’s likely total price tag will be come 2015’s end: about $2 billion, said Fritz, adding that the estimate had been $1.4 billion since the PTC mandate was established several years ago.

Wrapping up the webcast and teleconference, EVP and Chief Financial Officer Rob Knight and Chairman, President and Chief Executive Officer Jim Young touched on some of UP’s near- and long-term goals. Knight said UP’s profitability and general cost controls are driving down the operating ratio. The goal for the ratio: to fall to the 65-to-67 range by 2015, he said. For 2012, the railroad is targeting a record ratio as well as record earnings, said Knight.

Although the senior team is anticipating slow, continued growth in 2012 amid lingering economic uncertainties, financial performance in 2012 should improve upon 2011 results, said Young. Capital investments are supported by higher returns as evidenced by the 2012 capital plan, he said.

Jeff Stagl


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