Union Pacific Corporation

Greetings. Welcome to the Union Pacific second quarter 2021 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 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's 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, and good morning, everyone. Welcome to Union Pacific's second quarter earnings conference call. With me today in Omaha are Eric Geringer, Executive Vice President of Operations, Penny Rocker, Executive Vice President of Marketing and Sales, and Jennifer Heyman, our Chief Financial Officer. The team at Union Pacific continued to demonstrate their capability as we moved increasing volumes while dealing with challenging capacity constraints in some of our important supply chains. The result was the team delivered all-time record financial results. Our employees are making good on our strategy to serve, grow, and win together. Regarding our second quarter results, this morning Union Pacific is reporting 2021 second quarter net income of $1.8 billion, or $2.72 per share. This compares to $1.1 billion, or $1.67 per share, in the second quarter of 2020. While comparisons to the second quarter of last year are skewed by the COVID impact, a comparison to 2019 further demonstrates the impressive results we achieved during the quarter. Our quarterly operating ratio of 55.1% is an all-time record. In addition, we set quarterly records for operating income, net income, and earnings per share. These records highlight how the team is running the Union Pacific franchise to deliver results as we pulled all three profitability levers simultaneously, volume, price, and productivity. The second quarter also marked an important milestone in our quest to reduce our carbon footprint as we achieved a second quarter best fuel consumption rate. Locomotive fuel efficiency is the critical element to achieving our goal to reduce greenhouse gas emissions. and we're helping our customers achieve their ESG goals too, as they eliminated 5.7 million metric tons of greenhouse gas emissions in the quarter by using rail versus truck. While our financial results were impressive in the second quarter, our customers felt the impact of intermodal supply chain disruptions and costly rail equipment incidents. Within the intermodal space, we've taken numerous actions to mitigate the customer impact and are actively working with all parties in the supply chain. Even so, it's likely these issues will persist through the end of the year as the capacity to move boxes from our ramp to the final destination falls short of demand. Relative to rail equipment incidents, while the number and rate improved, their impact on the network was notable. We're redoubling our efforts to utilize best-in-class technology, training, and root cause analysis to keep our crews, our customers, and our communities safe.

To that end, we'll start with Eric and an update on our operations. Thanks, Lance, and good morning. I'd like to begin by thanking the entire operating department for their support, our customers, through the many transitory challenges we faced during the first half of this year. While we don't see these events impacting us long term, there's real work to be done to get past them. Moving to slide four, taking a look at our key performance metrics for the quarter. It's important to note that year over year comparisons are a little skewed. 2020 included a couple historically low volume months at the start of the pandemic. So as Lance did, we've provided a 2019 comparison to give a little more context to more normal seasonal volumes. Freight car velocity improved from 2019 due to the execution of PSR principles that reduced freight car terminal dwell and improved train speed. However, We still have work to do to return to running a more fluid network with the goal to return this metric back to the 220 to 230 miles per day range we achieved earlier this year. As you can see, our service reliability as measured by trip plan compliance has improved over the time in both service categories. However, current quarterly metrics do not meet our expectations or that of our customers. Disruptions in the international supply chains, especially in the intermodal space, have impacted our network significantly. At the expense of our own service metrics, we chose to help reduce port congestion by moving more assets into dock operations. But that West Coast port congestion has now moved east and is affecting some of our inland terminals, most notably in Chicago. We are working proactively with our commercial team and ocean carrier customers to address the congestion while continuing to sustain shipment volumes to and from the ports. To help alleviate the congestion and maintain fluidity, we also temporarily reopened Global 3 in Chicago for use as an inland storage. We are also working with our customers to develop additional storage and transportation options. We will continue to work with all members of the supply chain, our ocean carrier customers, beneficial cargo owners, port operators, chassis providers, and dray carriers to maintain the fluidity of international freight flows. During the first half, our network has been impacted by weather and costly rail equipment incidents as well. We have made good progress on reducing the frequency of rail incidents. However, the location of a couple of the incidents occurring on our east-west main corridor and our sunset route had a notable effect on both intermodal and manifest auto trip plan compliance measures. Ultimately, we recognize the importance of improving these metrics to support our customers and our long-term growth strategy. Turning to slide five, we continue to make good progress on our efficiency measures as both locomotive and workforce productivity improved in the quarter. Improvement in locomotive productivity was the result of running an efficient transportation plan that requires fewer locomotives. Workforce productivity was an all-time quarterly record, driven by an increase in daily car miles of more than 20%, while workforce levels remained flat. These improvements were also driven by our continued focus on growing train length, which has grown by 9% since the second quarter 2020 to just over 9,400 feet. Increasing and more consistent volumes provide the team with more optionality to adjust transportation plans. We will continue to focus on train length to run a more efficient and reliable railroad for our customers. Turning to slide six. One driver of the continued increase in train length is our siding extension program. Through the first half of the year, we've completed seven sidings and began construction or the bidding process on more than 20 additional sidings. Through growing train size, other productivity initiatives, and technology, our fuel consumption rate was a second quarter record, improving 3% compared to last year. The operating department understands the important role we play in achieving our long-term greenhouse gas emission goals. Wrapping up on slide seven, the entire team is focused on performing our work safer every day. Year to date, our safety results have been mixed. Rail equipment incidents have decreased, but personal injuries increased. To address personal injuries, we are maturing our peer-to-peer safety programs, which is a continuation and next level of our Courage to Care program. Recently, our network has been impacted by wildfires in Northern California. Our Dry Canyon Bridge north of Redding, California, sustained significant structural damage. The team is working around the clock to repair the bridge. Current projections have it reopening in late August. We are actively rerouting traffic in that area, which requires additional crew and locomotive resources, as well as adding transit time to those customer shipments. Ultimately, I have the utmost confidence that we will guide our network through these transitory challenges and return our service product to the level our customers expect and deserve. The team did an excellent job during the quarter in how efficiently we added volume to our network. PSR remains our guiding principle, and the improvements you've seen in our productivity and operating efficiency speaks to that commitment. Our ability to be far more volume variable with our cost structure is a testament to our employees who execute the plan every day. With that, I will turn it over to Kenny to provide an update on the business environment.