Union Pacific Corporation

Greetings, and welcome to the Union Pacific Second Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from 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 very much, Rob, and good morning, everybody, and welcome to Union Pacific's second 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, Chief Financial Officer. Before discussing our second quarter results, I must first recognize the continued dedication of the women and men of Union Pacific. As we navigate the COVID-19 pandemic, our employees are protecting themselves and their coworkers in order to provide our customers with a service product that's fluid and uninterrupted. Our rail network continues to operate at a very high level as we provide a safer, more reliable, and more efficient service product to our customers. As I reflect on what we dealt with and the results of the quarter, the true character of our organization was revealed, and it makes me very proud of the entire Union Pacific team. Moving on to the second quarter results, this morning, Union Pacific is reporting 2020 second quarter net income of $1.1 billion, or $1.67 per share. This compares to $1.6 billion, or $2.22 per share, in the second quarter of 2019. Reflecting the economic impact of the pandemic and the challenge of overcoming a 24% decline in revenue, our quarterly operating ratio came in at 61%. a 1.4 percentage point increase compared to the second quarter of 2019. Despite the distractions created by the pandemic, our employees made progress on safety in the second quarter. For the first half of 2020, our employee safety results improved 5% versus 2019. I am very appreciative of our employees' continued focus on safety. Our second quarter results represent an achievement by the entire UP team as we dealt with the challenge, unlike anything we've seen before. The women and men of Union Pacific answered the call to serve our customers, and the results provide further confirmation of the transformation our company has made through Unified Plan 2020. So with that, I'll turn it over to Jim to provide an operations update.

Thank you, Lance, and good morning, everyone. Let me start by echoing Lance's comments on how the UP team has performed throughout the pandemic. I'm extremely proud of the team's dedication to providing a safe and reliable service product to our customers. Our rail network remains fluid. I also want to commend the operating department on its performance over the past quarter. How the team managed through the rapid decline and eventual return of volume has been truly remarkable. The impact of all the changes we've made is evident in our results this quarter. There remain many more opportunities ahead of us to further improve safety, asset utilization, and network efficiency. Turning to slide four, I'd like to update you on our key performance indicators. Driven by continued improvement in asset utilization and fewer car classifications and car touches, freight car velocity improved 11% compared to the second quarter of 2019. Freight car terminal dwell improved 16%, largely due to improved terminal processes and transportation plan changes to eliminate switches and touch points. We continue to implement changes in order to run a more efficient network that requires fewer locomotives. In the second quarter, we achieved a quarterly record in locomotive productivity, a 12% improvement versus last year. Workforce productivity, which includes all employees, was flat versus last year. reflecting the impact of the steep decline in volumes in April. As we've adjusted resources, realized productivity gains, and seen volumes increase, this metric has rebounded strongly. In the quarter, the productivity improvements were boosted by reducing our train and engine workforce by 32%, which outpaced volume declines. TRIPAN compliance improved for both intermodal and manifest and autos during the quarter. This is a direct result of our focus on improving network efficiency and service reliability as part of our operating model. We had a strong first half of the year, and we expect to see continued improvements in our service product going forward. Slide five highlights some of our recent network changes. Increasing train size remains one of our main areas of focus, and we are making excellent progress. Capital investments to extend sidings allow longer trains to run in both directions and reduce the number of train starts. There are around 40 projects included in the plan, and we have made good progress. A 16-, 15,000-foot sightings have now been completed through the first half of the year. We plan to have another four completed by the end of this month. In addition, by putting more product on fewer trains, we have increased train length across our system by 23% to over 1,600 feet since the fourth quarter of 2018 to approximately 8,700 feet in the second quarter of 2020. This is a remarkable feat by the team to run longer trains with less volume while also making service gains. This indicates that we struck the right balance in prioritizing our actions during the quarter. We are continually modifying our transportation plan, including yard and local service, to be more efficient. This contributed to our productivity gains by allowing us to reduce our daily crew starts while continuing to meet customer demands. We continue to make progress on our redesign of the intermodal network, As we've discussed before, we are completely redesigning our Chicago operations. In the second quarter, we closed Global 3, and additional changes will be completed by year end. We are also redesigning the Houston area. Construction is underway at SETIGUS to consolidate our intermodal facilities into one location. In addition, we recently initiated construction at Houston Englewood Yard to expand switching capability and improve our ability to run longer trains out of that yard. Let me wrap up. We remain committed to protecting our employees' health and safety and providing strong service to our customers. As customers have resumed operations and volume has been increasing over the past month or so, the operating team has done a great job of balancing our resources while also providing superior service to our customers. With stored locomotives and railcars strategically placed, we have had the resources available when and where we need them. In addition, we are recalling employees from furlough to meet crew demand. However, We are leveraging our efficiencies and not bringing back resources on a one-for-one basis with volume. We have made great progress to this point, and we will continue to transform our operations in order to further improve safety, service, asset utilization, and network efficiency. And with that, Kenny, it's all yours.