Union Pacific Corporation

Greetings and welcome to Union Pacific's first quarter earnings call. At this time, all participants are in listen-only mode. A brief question and answer session will follow today's 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 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, and good morning, and welcome to Union Pacific's first quarter earnings conference call. With me today in Omaha are Kenny Rocker, Executive Vice President of Marketing and Sales, Eric Geringer, Executive Vice President of Operations, and Jennifer Heyman, our Chief Financial Officer. Before we discuss our first quarter results, I want to reflect on Russia's invasion of Ukraine. The people of Ukraine have had their lives turned upside down and the UP family is holding them close in our thoughts and in our hearts. We've leveraged our resources to help with a $500,000 donation from our foundation and by matching two to one our employees' gifts to select charities that provide direct aid. I also want to recognize the Union Pacific team for more than their generosity. They are a team dedicated to serving our customers. But recently, our service product has not met our customers' expectations. You will hear from Eric, we have an action plan in place to recover, and it is starting to yield benefits. I'm confident in our long-term ability to grow while providing our customers a reliable service product. As they've proven time and again, no matter the challenge, our employees rise to the occasion. Turning to our first quarter results, this morning, Union Pacific is reporting 2,022 first quarter net income, of $1.6 billion, or $2.57 per share. This compares to first quarter 2021 results of $1.3 billion, or $2 per share. Our first quarter operating ratio of 59.4% improved 70 basis points versus 2021. Business development and a robust demand environment drove 4% volume growth in the quarter, coupled with strong pricing gains and a positive business mix. However, our service challenges are contributing to higher costs in the quarter. That performance is also having a real impact on our customers and their ability to serve their markets. We must improve to realize the volume growth we expect this year and into the future. So let me turn it over to Kenny first for an update on the business environment.

Thank you, Lance, and good morning. First quarter volume was up 4% compared to a year ago. Solid gains in both our bulk and industrial segments were more than offset by a decline in our premium business group from continued global supply chain disruptions. Freight revenue was up 17% driven by higher fuel surcharges, strong pricing gains, and a positive mix. Let's take a closer look at each of these business groups. Starting with bulk, revenue for the quarter was up 21% compared to last year, driven by a 12% increase in volumes. and an 8% increase in average revenue per car, reflecting higher fuel surcharges and solid core pricing gains. Coal and renewable car loads grew 29% year-over-year, driven by continued favorable natural gas prices and two new contract wins that started on January 1st. Grain and grain products were up 1% in volume due to the increased biofuels production, partially offset by fewer grain shipments. from longer shuttle cycle times. Fertilizer carloads were up 2% year-over-year due to strong agricultural demand. And lastly, increased shipments of import beer and canned goods were the main driver of the 4% increase in food and refrigerated. Moving on to industrial. Industrial revenue was up 16% for the quarter. driven by an 11% increase in volume. Average revenue per car also improved 5%, primarily driven by higher fuel surcharges and core pricing gains. Energy and specialized shipments were down 6% compared to 2021, driven by fewer petroleum shipments. Volume for forest products grew 7% year over year, primarily driven by strength in both lumber shipments and paper. Despite rise in interest rates, Housing starts continue to be strong, coupled with demand of corrugated boxes and scrap paper. Industrial chemicals and plastic shipments were up 14% year-over-year due to the increased demand and a favorable come from last year's Gulf storm that impacted production. Metals and minerals volumes continues to deliver robust year-over-year growth. Volume was up 25% compared to last year, primarily driven by growth in the construction materials, strong steel demand, and an increase in frac sand shipment. In addition, we had a favorable comp in our construction market from last year's storm that I mentioned earlier. Turning to premium, revenue for the quarter was up 14% on a 3% decrease in volume versus last year. Average revenue per car increased by 17% due to higher fuel surcharge revenues core pricing gains, and a positive mix in traffic. Automotive volume was up 6% driven by an increase in auto parts as demand recovers. Shipments for finished vehicles were down 3% as a result of ongoing semiconductor shortages. Intermodal volume was down 5% driven by a continued international supply chain disruption. However, domestic volume was up in the quarter, aided by business development wins, tight truck capacity, and continued strength in parcel shipments. Now, moving on to our outlook for the rest of 2022. At a micro level, we will be closely watching our markets to see how rising inflation and the global events in both China and Ukraine will impact our overall volume. But as it stands now, here is how we view the outlook across our business lines. Starting with our bulk commodities, we expect fertilizer to grow due to solid market demand, especially on the export side. For coal, we anticipate continued favorable natural gas prices to extend through the year. But when it comes to how much of that demand we can capture, that will depend on how quickly we recover our service levels. We are optimistic on growth with grain products from biofuel demand and business development wins. For grain, we have a tough comp to last year as exports were strong. And like coal, although we expect cycle times to improve, it is dependent on our service recovery. Moving on to industrial markets, we continue to be encouraged by the strength of the forecast for industrial production. This will positively impact many of our markets, like metals. Customer expansions and business development wins will drive growth in our industrial chemicals and plastics commodity groups. We do not expect to see petroleum shipments return to 2021 levels. And lastly, for premium, we expect domestic intermodal to continue its benefit from inventory restocking, retail sales strength, tight truck supply, and our business development wins. International intermodal is more uncertain with possible effects from ongoing supply chain challenges and pandemic shutdowns in China. For automotive, while we do expect the supply of semiconductor chips to improve throughout 2022, recent events in China and Ukraine may disrupt the supply chain for certain key components. We are keeping an eye on whether this will have an impact on production and stand in close contact with our customers. As I wrap up, I want to share a few insights on how the commercial team is navigating the current service challenges. First, all of our discussions have been centered around what actions we can take to improve service. Eric will provide insights on the levers we're pulling that are in our control. Likewise, the commercial team is asking our customers to help reduce rail car inventory While those conversations have been difficult, I am encouraged by the high level of engagement and transparency we're having with our customers. With that, I'll turn it over to Eric to review our operational performance.