Union Pacific Corporation

Greetings, and welcome to the Union Pacific first quarter 2023 conference 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 begin.

Thank you, Rob, and good morning, everyone, 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. The story of the past quarter for Union Pacific is one of resiliency, battling heavy snow, Arctic temperatures, flooding, and tornadoes, The team maintained service levels and exited the quarter on a positive trajectory. Persevering through those harsh conditions, our employees delivered for our customers, which demonstrates again that our people are the foundation for the great things that lie ahead. Turning to the first quarter results, this morning, Union Pacific is reporting 2023 first quarter net income of $1.6 billion, or $2.67 per share. This compares to first quarter 2022 results, of $1.6 billion, or $2.57 per share. Our first quarter operating ratio of 62.1% deteriorated 270 basis points versus 2022, driven by excess costs, inflation, and lower volumes. A series of weather events throughout the quarter had a real impact on our ability to capture demand, especially within our coal business, as well as added cost to the network. Through those events, our service products showed greater and greater resiliency, quickly rebounding each time as we were better positioned with crew resources to support our customers. And with April month-to-date freight car velocity at about 200 miles per day, we are operating a network that is positioned for consistent and reliable service. While a more difficult start to the year than expected, it doesn't reduce our expectations for 2023. As you'll hear from the team, All of our goals are still in front of us. Let me turn it over to Kenny for an update on the business environment.

Thank you, Lance, and good morning. Freight revenue for the first quarter increased 4% driven by higher fuel surcharges and solid pricing gains, partially offset by a 1% decline in volume. Bulk volumes were muted in the quarter as weather and service-related challenges impacted shipments. Weaker market conditions for premium also drove lower volume for the first quarter. However, our strong focus on business development and new business wins partially offset by some of that decline. Let's take a closer look at each of these business groups. Starting with bulk, revenue for the quarter was up 4% compared to last year, driven by a 7% increase in average revenue per car, reflecting higher fuel surcharges and solid core pricing gains. volume was down 3% year-over-year. Grain and grain products volume was down 1%, driven by weaker export grain shipments as world demand for U.S. grain has softened, coupled with drought impacts affecting supply in the UP third region. Fertilizer carloads were flat in the quarter. Strong export potash was offset by decline in phosphate volume from weather conditions delaying shipment. Food and refrigerator volume was down 6% due to reduced beer imports and weather conditions negatively impacting both fresh and canned shipments. And lastly, coal and renewable volumes was down 4% compared to last year, driven by weather interruptions and associated service challenges that impacted our locomotive and crew resources. Moving on to industrial. Industrial revenue was up 5% for the quarter. driven by a 5% improvement in average revenue per car due to higher fuel surcharges and core pricing gains. Volume for the quarter was flat. Industrial chemicals and plastic volume was down 2% year-over-year, driven by lower industrial chemical shipments due to challenged industrial production and reduced housing demand. 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 increased frac sand shipments, along with new business development wins. Forest products volume declined 19% year over year, driven by soft housing starts and lower corrugated box demand for non-durable goods shipments. However, energy and specialized shipments were up 6% versus last year, driven by strength in demand for LPG and petroleum products. These gains were partially offset by fewer soda ash shipments due to weather and service-related challenges. Turning to premiums, revenue for the quarter was up 3% on a 1% decrease in volume compared to last year. Average revenue per car increased by 5%, reflecting higher fuel surcharge revenue and core pricing gains. Automotive volumes were positively driven by strengthening OEM production and dealer inventory replenishment for finished vehicles. Domestic intermodal business winds were offset by a weak freight and parcel market driven by high inventories, increased truck capacity, and inflationary pressures. On the international side, despite weakened imports, more containers shipped inland versus the first quarter of last year, resulting in year-over-year growth. So now moving on to slide seven, here's our outlook for the rest of 2023 as we see it today. Starting with our bulk commodities, we expect rain to be challenged near term as export demand softens and supply tightens throughout this crop year. However, as we look ahead towards the next crop season in late fall, we're encouraged by the initial forecast. For coal, Low natural gas prices and a milder winter allow utilities to build more inventory. We are experiencing normal softening through the shoulder months. Looking further out in the year, demand will largely be dependent on natural gas prices and summer weather. Lastly, we expect biofuel shipments of renewable diesel and their associated feedstocks to grow due to solid market demand, new production coming online, and business development wins. Moving on to industrial, the forecast for industrial production is to shrink in 2023, and the demand is getting weaker in forest products. However, we expect to see continued strength in construction and metals with new business wins. And finally, for premium, we expect near-term challenges in the intermodal market from high inventory levels, inflationary pressures, and weak consumer spending as people shift back to spend more toward services than goods. We will be closely watching for a potential market uptick in the latter part of the year. In addition, we expect automotive growth to continue, driven by strong OEM production and dealer inventory replenishment. So to wrap up, we are facing economic uncertainty and a tough price environment in a few of our markets. we expect to see strength in some other commodity areas. Our diverse portfolio allows us to maintain our pricing guidance. To capture more demand, we are working closely with Eric and his team to be agile and have resources available in locations where we need them. I am confident that the team's relentless focus on business development will drive volumes to exceed industrial production this year. With that, I'll turn it over to Eric to review our operational performance.