Union Pacific Corporation

Greetings. Welcome to the Union Pacific third quarter 2020 conference call. At this time, all participants are in a listen-only mode. The brief question and answer session will follow the formal presentation. If anyone should require operator assistance during today's 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. Thank you, Mr. Fritz. You may now begin.

Thank you, Rob. Good morning, everybody, and welcome to Union Pacific's third quarter earnings conference call. With me today in Omaha are Jim Venna, Chief Operating Officer, Kenny Rocker, Executive Vice President of Marketing and Sales, and Jennifer Heyman, Chief Financial Officer. As I'm sure you all saw, on Tuesday we announced the transition that will take place in our operating department. Jim Venna will be transitioning his responsibilities over to Eric Geringer at the beginning of the year. while staying on until the end of June as a senior advisor. I'm excited to have Eric lead our operating department into the future. Eric has a track record of success at our company and will push the team to continue to think boldly as we pursue operational excellence. I want to express my deep appreciation to Jim for the leadership he brought to Union Pacific. Jim accomplished everything I could have hoped for and more. He brought a level of expertise and speed of decision-making that has been critical to our transformation. I'm very pleased that he's going to continue working closely with Eric and the rest of the team over the next several months to guide us through a smooth transition while seeing some key projects to completion. Thank you very much, Jim. Before discussing our third quarter results, I want to acknowledge the work of our dedicated employees. As we continue to operate our railroad through the pandemic, The women and men of Union Pacific are doing an excellent job keeping themselves and their families safe. As a result, they are able to provide our customers with a service product that is fluid and uninterrupted. Our rail network continues to operate at a very high level, reflecting the talent, commitment, and resilience of our Union Pacific team. Moving to third quarter results. This morning, Union Pacific is reporting 2020 third quarter net income of $1.4 billion or $2.01 per share. This compares to $1.6 billion or $2.22 per share in the third quarter of 2019. Our quarterly operating ratio came in at 58.7%, an all-time quarterly record and an 80 basis point improvement compared to the third quarter of 2019, despite moving 4% fewer carloads. Our third quarter results represent another step in our company's transformation. We demonstrated our ability to adjust to a sharp rebound in volume while continuing to provide a safe, efficient, and reliable service product to our customers. The results we are delivering, both operationally and financially, deepen our conviction that the changes we're making to transform our railroad are on track and on target. So with that, I'll turn it over to Jim to provide an operations update.

Thanks, Lance, and good morning, everyone. We had an impressive quarter to turn in the results you see today. We have to watch our asset utilization closely as we dealt with a sharp volume increase following the equally sharp volume decline of the second quarter as we continue to navigate the pandemic. And we have had some significant weather events in this quarter as well. In the face of those challenges, the team delivered strong productivity gains to the tune of $205 million and a total of $610 million year to date. All in all, a very strong quarter for the entire operating team. Turning to slide four, I'd like to update you on our key performance indicators. Driven by the team's relentless focus on asset utilization and reducing car touches, freight car velocity and freight car terminal dwell both improved 3%. These improvements, along with increased train length, which we'll talk more about on the next slide, demonstrate how our operating model is striking the right balance between service and efficiency. We continue to adjust our transportation plan to run a more efficient network that requires fewer locomotives. In the third quarter, we achieved a quarterly record in locomotive productivity, an 11% improvement versus last year, which is all the more impressive when you consider the mixed challenge of trading coal and sand volumes for intermodal volumes. Workforce productivity, also a quarterly record, improved 13% from third quarter 2019. Productivity improvements were led by the train and engine workforce, down 22% versus last year, which significantly outpaced the 4% volume decline. Our manifest service remained strong during the quarter, driving a five-point improvement in trip plan compliance for manifest and autos. Intermodal trip plan compliance decreased in the quarter, reflecting the impact seen across the entire intermodal supply chain from the sharp West Coast volume increase. Although we positioned equipment near the LA basin in anticipation of a surge, The resulting imbalances following the first wave of the freight as well as the sharp uptake and demand for both T and Y and terminal employees took a few weeks to work through the network. But the team responded quickly with resources and transportation plan changes, enabling us to exit the quarter with intermodal trip plan compliance back in the low to mid 80s. Our results have been strong this year and we expect to see continued improvement in the fourth quarter. Slide five highlights some of our recent network changes. Our focus on increasing train length and handling traffic efficiently remains strong. We were able to absorb the majority of the sequential volume increased by adding traffic to our existing train network. Compared to the fourth quarter, 2018, when we first began implementing our version of precision scheduled railroading, we have increased train length across our system by 28% or 1,950 feet to approximately 9,000 feet in the third quarter of 2020. We've completed 28 15,000-foot sidings through the third quarter, allowing longer trains to run in both directions and reduced the number of train starts. We plan to have another eight sidings completed by the end of 2020. We recently curtailed operations at the East Hump in our North Platte, Nebraska yard. This location was unique in that it previously had two humps. Going forward, the cars will either be processed at the still active West Hump or flat-switched. The redesign of our operations in Chicago and Houston remains on track. Chicago intermodal consolidation is set to be complete by year end. We are also making progress in Houston to consolidate our intermodal facilities into one location to expand switching capability and improve our ability to run longer trains out of the Englewood yard. Finally, we continue to make organizational changes to better align resources and responsibilities. During the quarter, we took an additional workforce reduction in the operating department and also integrated intermodal operations into the transportation department. We will continue to seek efficiency in all facets of what we do, and there remain many more opportunities ahead of us. To wrap up, we remain committed to protecting our employees' health and safety and providing strong service to our customers. We will continue to make structural changes to improve operational performance and efficiency. The changes we're making... Chicago and Houston will drive continued improvements in our intermodal service product, allowing us to be more competitive in those markets. We have made great progress in transforming our operations to this point. Our focus is unwavering as we will continue to improve safety, service, asset utilization, and network efficiency in order to provide customers with a service product that is competitive and provides value. Before I turn it over to Kenny, I want to make a few comments on Tuesday's announcement. I'm very proud of what we've accomplished during my time at Union Pacific. Really, the results speak for themselves. We've got the leadership team and culture in a great place to continue to flourish, and Eric is the right person to lead the team. He's a very talented railroader and brings a great skill set to the position. I know he'll continue to challenge the team to be relentless in their pursuit of efficiency. I'm going to stick around for a bit longer to make sure the transition is smooth and some key projects are completed. I'm very confident that this team won't back off on the progress we're making to produce an industry-best product for our customers. With that, I'll turn it over to Kenny to provide an update on the business environment.