Union Pacific Corporation

Greetings. Welcome to Union Pacific third quarter earnings call. At this time all participants are in 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. Thank you, Mr. Fritz. You may now begin.

Thank you, Rob, and good morning, and welcome to Union Pacific's third 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 discussing results for the quarter, I want to thank our employees for their tireless efforts over the past several months to improve service levels. I'd also note the dedicated service of our craft professionals throughout the recent, very lengthy labor negotiation. The new agreements, based on the Presidential Emergency Board recommendations, reward our employees for their hard work. And with roughly half of our union's ratifying agreements, we are looking forward to complete this process and move forward. Now, turning to our third quarter results. This morning, Union Pacific is reporting 2,022 third quarter net income of $1.9 billion or $3.05 per share. These results include the impact of a $114 million charge for prior period estimates related to the new labor agreements. Excluding that charge, adjusted net income is $2 billion or $3.19 per share. This compares to third quarter 2020 run results of $1.7 billion or $2.57 per share. Our adjusted third quarter operating ratio of 58.2% is 190 basis points higher than 2021. Costs related to higher inflation and ongoing network inefficiencies were offset by fuel surcharge revenue, volume growth, and strong core pricing gains to produce adjusted operating income growth of 13%. We made real progress during the quarter to increase network fluidity and better meet customer demands. And as you'll hear from the team, we're continuing to take steps in the fourth quarter to better meet that demand and drive costs from the network. While the year hasn't played out as originally planned, our volumes have outpaced our peers, demonstrating the growth mindset that we're instilling within our organization. So with that, let me turn it over to Kenny for an update on the business environment.

Thank you, Lance, and good morning. Third quarter volume was up 3% compared to a year ago as carloads increased across all three of our business segment. Although overall volume was up, we undoubtedly left demand on the table as we continued to improve service across the network. Freight revenue was up 18% driven by higher fuel surcharges and strong pricing gains. Let's take a closer look at each of these business groups. Starting with bulk, revenue for the quarter was up 16% compared to last year, driven by a 14% increase in average revenue per car reflecting higher fuel surcharges and solid core pricing gains. Volume was up 2% year over year. Coal and renewable car loads grew 5% year over year, driven by continued favorable natural gas prices and two contract wins that started on January 1st. Grain and grain products volume was up 3% with strong domestic feed grain and increased biofuel shipments for renewable diesel. Fertilizer car loads were down 7% year-over-year due to reduced shipments of export and domestic consumed potash. And lastly, food and refrigerated volume remained flat in the quarter. Moving on to industrial. Industrial revenue was up 15% for the quarter, driven by a 4% increase in volume and an 11% improvement in average revenue per car due to higher fuel surcharges and core pricing gains. Energy and specialized shipments were down 3% compared to 2021 driven by fewer petroleum shipments, primarily due to regulatory changes in the Mexico market. Volume for forest products was down 2% year-over-year, primarily driven by lower demand for corrugated boxes. This was partially offset by positive year-over-year lumber shipments. Industrial chemicals and plastic shipments were up 8% compared to 2021 due to new business winds, customer expansions, and market demand. Metals and minerals volumes continue to deliver robust year-over-year growth. Volume was up 7% compared to last year, primarily driven by an increase in frac sand shipments, growth in construction materials, and metals business development. Returning to premium, revenue for the quarter was up 25% on a 3% increase in volume. Average revenue per car increased 21% due primarily to higher fuel surcharge revenue and core pricing gains. Automotive volume was up 19% driven by strengthening production and inventory replenishment. Finished vehicles increased by 33% and auto parts increased by 11% against the software comparison from last year. Intermodal volume was flat. Domestic intermodal was down 3%. due to softening demand driven by a 16% decline in parcel shipment. However, international volume strengthened by 4% from ocean carriers, shifting more freight to inland terminals. Now, moving to our outlook for the rest of 2022. At a macro level, we will be closely watching our markets to see how inflation and interest rates will impact our overall volume. But here is where we sit today with our markets. Let's start out with our bulk commodities. We expect biofuel shipments for renewable diesel to continue to grow due to solid market demand and business development wins. For coal, we anticipate continued favorable natural gas prices to generate demand for both domestic and export shipments. However, the opportunity to capture demand is dependent on the available resources. And our outlook for grain is also dependent on our service recovery. But as we've mentioned before, we have a tough comp in the fourth quarter as exports were strong last year. Moving on to industrial, the forecast for industrial production is decelerating and demand is softening in forest products. However, we expect construction to be a positive due to strong project demand in the south. And lastly, for premium, we are closely monitoring domestic intermodal demand as spot truck rates fall and inventories climb. We expect parcel and truckload demand to remain soft as consumer preferences have shifted more to experiences versus goods. We're also watching the international markets closely, but we expect to be positive in the fourth quarter due to easier comps. And we expect growth in automotive to be driven by improving supply for parts and inventory replenishment. Overall, we still foresee a favorable demand environment for the fourth quarter. Crew availability continues to improve, which will help us capture more growth and support our business development wins as we had in the 2023. With that, I'll turn it over to Eric to review our operational performance.