Union Pacific Corporation

Greetings, and welcome to the Union Pacific fourth quarter earnings call. At this time, all participants will be in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded, and the slides for today's presentation are available on Union Pacific's website. It is now my pleasure to introduce your host, Mr. Lance Fritz, Chairman, President, and CEO for Union Pacific. Mr. Fritz, you may begin.

Thank you, Rob. Good morning, everybody, and welcome to Union Pacific's fourth quarter earnings conference call. With me today in Omaha are Kenny Rocker, Executive Vice President of Marketing and Sales, Jim Venna, Chief Operating Officer, and Jennifer Heyman, our Chief Financial Officer. This morning, Union Pacific is reporting 2019 fourth quarter net income of $1.4 billion, or $2.02 per share. This compares to 1.6 billion or $2.12 per share in the fourth quarter of 2018. Our quarterly operating ratio came in at 59.7%, a 1.9 percentage point improvement compared to the fourth quarter of 2018. This represents a fourth quarter record and the third straight quarter with an operating ratio that starts with a 59. That's a remarkable achievement given the volume challenges we experienced in 2019. Before we go any further, I want to recognize all of our employees for their remarkable service and productivity achievements in 2019. The women and men of Union Pacific are transforming our railroad. Step change increases in car velocity and trip plan compliance while using one-third fewer cars and locomotives takes ingenuity, initiative, and teamwork. And the team, through the implementation of Unified Plan 2020, is changing our network in fundamental ways. to be safer, more reliable, and more efficient. With that, I'll turn it over to Kenny to provide more details on our results.

Thank you, Lance, and good morning. For the fourth quarter, our volume was down 11% primarily due to declines in premium and the energy business groups. The decrease in volume partially offset by a 1% improvement in average revenue per car drove freight revenue to be down 10% in the quarter. Let's take a closer look at the performance for each of the business groups. Starting off with ag products, revenue for the quarter was down 2% on a 2% decrease in volume and flat in average revenue per cart. Grain cart loads were down 1% as fewer domestic shipments were partially offset by modest gains in exports. Volume for grain products was up 2%, driven by an increase in ethanol from the Midwest to East Coast markets. Fertilizer and sulfur carloads were down 13%, primarily due to weakness in export potash. Moving on to energy, revenue was down 25% as volume declined 20%, coupled with a 6% decrease in average revenue per car related to negative mix with the loss of long-haul sand volume. Sand carloads were down 53% due to the impact of local sand as well as a slowdown in market activity. Coal and coke volume was down 25% due to weaker market conditions resulting from lower natural gas prices and soft export demand. In addition, contract changes also impacted volume in the quarter. However, on a positive note, favorable crude oil price spreads drove an increase in crude oil shipments, which was the primary driver for the 19% increase in petroleum, LPG, and renewable car loads for the quarter. And we expect to see this positive trend for crude oil to continue in 2020. Industrial revenue, volume, and average revenue per car were flat for the quarter. Both construction and plastic shipments have been strong in all of 2019 and continue to be favorable in the fourth quarter as well. Construction car loads increased 5%, primarily driven by strong market demand in the south for rock shipments. Plastics volume increased 2% due to plant expansions but tempered due to soft domestic demand. Forest products volume decreased 8% driven by softness in the lumber and paper markets. Turning to premium, revenue for the quarter was down 14% on a 15% decrease in volume, while average revenue per car improved by 1%. Domestic intermodal volume declined 8%, primarily driven by an abundant truck supply, coupled with softer demand during peak season. International intermodal volume was down 23% during the quarter, reflecting weak market conditions related to trade uncertainty and a challenging year-over-year fourth quarter comp driven by accelerated shipments in 2018 seeking to avoid tariffs. And finally, finished vehicle shipments were down 13% for the quarter, reflecting weak year-over-year auto sales coupled with the GM labor strike. Fourth quarter U.S. auto sales were down approximately 1% from 2018. Strong light truck and SUV sales did not fully offset declining car demand. Going forward, we will begin to report on our three business groups, bulk, industrial, and premiums. For 2020, in our bulk segment, we expect coal to experience continued challenges with volume in the new year, and weather conditions will always be a factor for coal demand. However, on a positive note, we anticipate continued strength in advanced biofuel shipments and associated feedstocks due to an increase in demand. We also expect stronger beer shipments along with long-term penetration growth across multiple segments of our food and refrigerated business. In addition, with the recent signing of the Phase I trade deal with China, we expect to see those ag exports resume in the latter half of the year. For industrial, local sand supply will continue to further impact volume. However, we anticipate an increase in plastic shipments driven largely by plant expansions coming online this year, as well as continued strength in the construction market in the south. Additionally, we expect favorable crude oil price barriers to drive positive results for petroleum products. And lastly, for premium, the U.S. light vehicle sales forecast for 2020 is 16.7 million units, down between 2% to 3% from 2019. Consumer preference for SUVs over sedans will continue to partially offset the declining car demand. Domestic intermodal volume is sequentially strengthening, however, will continue to be impacted by truck competition in the first half of 2020. From where we sit today, we expect a more balanced supply-demand in the truck market by mid-2020, which supports intermodal competitiveness during the second half of the year. We expect international intermodal to return to normal seasonal flows, but faces tough year-over-year comparisons in the first quarter due to the accelerated shipments seeking to avoid tariff increases in early 2019. As we begin 2020, I feel really good about where we're headed. Our service product has improved significantly, and the table is set for us to grow and win business with our customers. I'm excited to see the benefits of an improved supply chain continue for our customers, and with that, I'll now turn it over to Jim for an update on our operating performance.