Union Pacific Corporation

Greetings. Welcome to the Union Pacific second quarter earnings call. At this time all participants will be 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 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.

And thank you, Rob. And good morning, and welcome to Union Pacific's second 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. As we expected and shared back in April during our first quarter earnings call, the second quarter was a tough quarter. Our initiatives to restore fluidity, limited car loadings, and increased operating costs. Those actions are working. We made solid progress improving the network with increased car velocity, reduced car dwell, and reduced excess inventory. But before we get into that discussion, I want to recognize the Union Pacific team that is making it happen. Our people truly are special, and they're the foundation of our long-term success. Now, turning to our second quarter results. This morning, Union Pacific's reporting 2022 second quarter net income of $1.8 billion, or $2.93 per share. This compares to second quarter 2021 results of $1.8 billion, or $2.72 per share. Our second quarter operating ratio of 60.2% deteriorated 510 basis points versus 2021. Network recovery efforts and record high fuel prices were headwinds. However, fuel surcharge revenue, strong core pricing gains, and a positive business mix offset these pressures to produce operating income growth. As we discussed during the quarter, we understood that the actions we took to improve fluidity would impact our financial performance. Those actions were necessary to increase the speed of our recovery and be in a better position to handle customer demands. The improvements we've made since mid-April gives me confidence that we'll grow volumes as we continue to improve service in the third and fourth quarters. There's more to be done, but we're moving in the right direction. Let me turn it over to Kenny for an update on the business environment.

Thank you, Lance, and good morning. Second quarter volume was down 1% compared to a year ago. Growth in our industrial was more than offset by a decline in our premium and bulk business segments. To improve network fluidity, we made reductions to our active freight car inventory, and those efforts had a negative impact on all three of our business groups. In addition, our intermodal volume was down due to continued global supply chain disruptions. Freight revenue was up 14%, 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 10% compared to last year, driven by a 12% increase in average revenue per car, reflecting higher fuel surcharges and solid core pricing gains. Volume was down 1% year over year. Coal and renewable car loads grew 2% year over year, driven by continued favorable natural gas prices and two new contract wins that started on January 1st. Grain and grain products volume was down 4%, due to fewer grain shipments from longer shuttle cycle times, partially offset by increased shipments of biofuels. Fertilizer car loads were down 2% year over year due to reduced shipments of sulfur and domestic consumed potash. And lastly, food and refrigerator volume remained flat in the quarter as inventory reduction efforts limited car supply. Moving on to industrial. Industrial revenue was up 12% for the quarter, driven by a 6% increase in volume and a 7% improvement in average revenue per car due to higher fuel surcharges and core pricing gains. Overall, volume was up, although we certainly left demand on the table as we took actions to reduce car inventory to improve the network. Energy and specialized shipments were up 2% compared to 2021, driven by improvements across various markets partially offset by fewer petroleum shipments. Volume for forest products was down 2% year-over-year, primarily driven by our service challenges, although overall demand for forest products remained steady in the quarter. Industrial chemicals and plastic shipments were up 3% year-over-year due to new business winds and demand within the plastics market. Metals and minerals volumes continued to deliver year-over-year growth, Volume was up 3% compared to last year, primarily driven by growth in construction materials and increase in frac sand shipments and metals business development. Turning to premium, revenue for the quarter was up 19% on a 5% decrease in volume versus last year. Average revenue per car increased by 26% due to higher fuel surcharge revenue, core pricing gains, and a positive mix of traffic. Automotive volume was up 11% driven by auto parts, which increased 12%, and finished vehicles increasing 10%, both driven by strong demand against a software comparison. Intermodal volume was down 8%, primarily driven by service challenges and fewer international shipments from continued global supply chain disruptions. Domestic volume was up 1% in the quarter, aided by tight truck capacity and private asset growth offsetting weaker parcel shipments. Now, moving to our outlook for the back half of 2022. At a macro level, we will be closely watching our markets to see how rise in inflation and interest rates will impact our overall volume. But based on our conversations with customers, I'm excited about the opportunities that are in front of us. Let's start out with our bulk commodities. We expect biofuel shipments to grow due to solid market demand and business development wins. For coal, we anticipate continued favorable natural gas prices throughout the year. We know there is more demand available than what we've captured to date, so our opportunity is to better match our resources to that demand. And our outlook for grain is also dependent on our service recovery, where we expect cycle times to improve. But we have a tough comp in the fourth quarter as exports were strong last year. Moving on to industrial, our outlook has not changed. We expect our markets to be stronger than the current industrial production forecast. 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 are closely monitoring domestic intermodal demand and spot truck rates have softened. We expect to see improvement to international intermodal with the recovery from the supply chain challenges and pandemic shutdowns in China. However, we will continue to monitor and receive us to make sure we maintain fluidity throughout the entire supply chain, from the ports to the warehouses. In spite of elevated fuel prices and interest rate increases, We expect automotive growth in the second half of the year to be driven by improving supply of semiconductor chips and pent-up demand. Overall, I'm optimistic about the demand environment we see in the marketplace as we head into the third quarter. And you'll hear from Eric that we're seeing positive momentum in our service product. I want to thank our operating team and our customers for working together to recover our service levels. As we continue to improve the network, I'm confident that we can capture more growth in the back half of the year and into 2023. With that, I'll turn it over to Eric to review our operational performance.