Union Pacific Corporation

Greetings, and welcome to the Union Pacific First Quarter Earnings Call. At this time, all participants are 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 and good morning everybody and welcome to Union Pacific's first quarter earnings conference call. With me today in Omaha practicing safe social distancing are Jim Venna, Chief Operating Officer, Kenny Rocker, Executive Vice President of Marketing and Sales, and Jennifer Heyman, our Chief Financial Officer. Before we discuss our first quarter results, I want to acknowledge the dedication and hard work of our employees. During this COVID pandemic, The women and men of Union Pacific continue to connect American businesses and communities to each other and to the world. Whether it's stocking a home pantry, supplying essential goods to healthcare providers, or moving critical building blocks for U.S. industries, they're getting the job done and they're not missing a beat. Their spirit shows up in so many ways. I see it in our health and medical team looking out for the safety of our employees. I see it in our operating team moving the goods that make a difference in people's lives. And I see it in our leaders, helping us work together, staying on point, and positioned for the future. Their dedication is inspirational and lays the foundation for better days ahead. Our rail network has never run better, and we continue to provide a safer, more reliable, and more efficient service product to our customers. I am so very proud of the entire Union Pacific team. Moving on to our first quarter results. This morning, Union Pacific's reporting 2020 first quarter net income of $1.5 billion, or $2.15 a share. This compares to $1.4 billion, or $1.93 per share, in the first quarter of 2019. Our quarterly operating ratio came in at 59%, a 4.6 percentage point improvement compared to the first quarter of 2019 and an all-time best quarterly OR. In addition to improving the efficiency of the railroad, we also made improvements in our safety results, which is always our top priority. For the quarter, our employee safety results improved 11% versus 2019. We also made progress in fuel consumption rate during the quarter. This reduces our fuel expense while also reducing our carbon footprint and the carbon footprint of our customers. which is a step in our commitment to address global warming. As I turn it over to the rest of the team, you're going to hear how our first quarter results have further strengthened Union Pacific to navigate the uncertainties that lie ahead. We'll start with Jim and an operations update.

Thanks, Lance, and good morning, everyone. As Lance mentioned, the railroad is healthy and operating smoothly as our customers have seen minimal rail service impact. We are taking every precaution to protect our employees. We are social distancing and using technology whenever possible to replace face-to-face interaction. Over the past few weeks, I've taken the opportunity to visit several field locations practicing good social distancing to talk with our employees. I could not be more proud of how they remain dedicated to safely and reliably operating the railway without disruption as they recognize the critical role they play in delivering goods needed throughout our country. Their dedication is to be commended. Overall, the team had a very strong quarter. Really, the results speak for themselves. You see the impact of all the changes we made at Union Pacific to become more efficient and provide a better service product to our customers. These changes drove an operating ratio of 59%, which was outstanding. And there are still many more opportunities ahead of us to further improve safety, asset utilization, and network efficiency. Now I'll turn into slide four. I'd like to update you on our key performance metrics. For the first time, we are seeing improvement across all of our metrics, and as a result, we are seeing a better service product for our customers. This is a direct result of our focus on improving network efficiency and service reliability as part of our operating model. Compared to the first quarter of 2019, freight car velocity improved 8%, driven by continued improvement in asset utilization and fewer car classifications. Freight car terminal dwell improved 11%, largely due to improved terminal processes transportation plan changes to eliminate car touches, and a decrease in freight car inventory levels. Building off our progress in 2019, we continue to implement changes in order to run a more efficient network that requires freer locomotives, which has led to an 18% improvement in locomotive productivity this quarter versus last year. As demonstrated by crew starts being down 13% in the quarter, which outpaced the 7% decline in car loads, we continue to take steps to deliver positive workforce productivity. Trip plan compliance is where our customers feel the benefit of our transformed operating model. The improvement in intermodal speaks for itself. With manifest and autos, we are holding ourselves to our higher standard as we tighten schedules and we'll see improvements as we move forward. We are off to a great start this year, and we expect to see continued improvement in our service product going forward. Starting next week, we will provide some additional operating statistics, in particular freight car velocity, which you've heard me say a number of times is my favorite one that I look at every morning, on our investors' website on a weekly basis to provide more insight to how our operations are running. Let's turn to slide five. It highlights some of our recent network changes. As a part of our continued implementation of position schedule railroading, we consolidated mechanical shops in the LA basin and Houston areas. In the LA basin, we've consolidated from three shops to one, while in Houston, we've gone from two shops to operating just one as well. Increasing train size remains one of our main areas of focus, and we are making excellent progress. At our recently completed Santa Teresa block swap facility, we are consolidating intermodal traffic, from our eastern ramps destined to port terminals in the Los Angeles-Long Beach area. This allows us to operate longer, more efficient trains across the sunset route and provide a better, more consistent service product to our customers. We also completed eight 15,000-foot sidings as a part of our 2020 capital plan to extend sidings in targeted locations. These sidings support our efficiency initiatives by increasing the number of long trains we can operate in each direction, thus reducing demand for cruise starts. By putting more product on fewer trains, we have increased train length across our system by 19% or over 1,300 feet since the fourth quarter of 2018 to approximately 8,400 feet in the first quarter of 2020. The capital we are investing to improve productivity as well as to maintain a safe, efficient network is critical to the long-term health of our railroad. Given the current business levels and uncertain economic environment, we are planning to trim back our 2020 spend by $150 to $200 million. To wrap up, we are committed to protecting our employees' health and safety while providing uninterrupted critical service to support the nation's supply chain. While we're early in the second quarter, so far we have been able to hold steady and maintain train length gains as volumes have dropped. We continue to evaluate our transportation plan, including yard and local schedules, in order to meet customer demands while balancing our resources and assets to meet current volumes. Since the latter half of March, as volumes declined more steeply, we stored additional locomotives and rail cars. However, those locomotives remain in at-the-ready status, and both assets are available to add back quickly as volumes return. We have also furloughed additional employees. However, we are increasing our auxiliary work and training status boards to be prepared should volumes come back quickly or in the event of an outbreak within a group of the employees. We have made great progress to this point. However, we will continue to transform our operations in order to further improve safety, asset utilization, and network efficiency. With that, I'll turn it over to Kenny to provide an update on our business environment. Kenny?