Union Pacific Corporation

Greetings. Welcome to Union Pacific's fourth quarter 2024 earnings conference 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 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. At this time, it is my pleasure to introduce your host, Mr. Jim Venna. Chief Executive Officer for Union Pacific. Thank you, Mr. Avenda. You may now begin.

Thank you very much, Rob, and good morning, everyone. Pleased to have you with us this morning. A little bit of winter in some parts of our company, even lots of snow in the southeast part, but love the way the operating team has worked through it, and we are in way better shape already. So great recovery by everybody, but lots of hard work by the men and women of Union Pacific. Why don't we get started? So I'm joined here this morning in Omaha by Chief Financial Officer Jennifer Heyman, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Geringer. Let's dig into 2024. It was a very successful year for the Union Pacific team, and we really finished the year on a high note in the fourth quarter to put up an adjusted 58% operating ratio, removing the impact of a new regional break person agreement is really excellent work. It shows that the team is executing our strategy to lead the industry in safety service and operational excellence. Now why don't we move over to discuss the fourth quarter results starting on slide three. This morning, Union Pacific reported 2024 fourth quarter net income of $1.8 billion and earnings per share of $2.91, both 7% improvements. Fourth quarter revenue excluding the impact of fuel surcharge grew Our ability to generate strong volume growth and core pricing gains more than offset an unfavorable business mix. Reported expenses year over year improved 4%, while lower fuel prices led the way. The team demonstrated strong productivity utilizing 3% fewer employees to move 5% more volume. This led to operating income growth of 5% and the operating ratio outcome that I mentioned earlier. This is the result of the team's commitment to build a safer, more durable, and more efficient network. Just a fantastic way to end 2024. Throughout the year, we built momentum behind our strategy, and you see that in the financial results we delivered. While internally, we've already turned the page to work on further improvements in 2025, we need to pause and celebrate the team's success in 2024. We set a goal to achieve industry-leading results, and when the dust settles, I'm confident that's where we'll be. So with that, I'll let the team walk you through the quarter and the year in more detail and then come back for a wrap up before we go to Q&A. We'll start with a fourth quarter and full year financials. Jennifer, it's all yours.

All right. Thank you, Jim. Good morning, everyone. Let's begin with our fourth quarter income statement on slide five. Operating revenue of $6.1 billion decreased 1% versus 2023 against strong volume growth, while our fourth quarter freight revenue finished flat at $5.8 billion. Breaking down the drivers of freight revenue, increased volume in the quarter, added 525 basis points. Fuel surcharge revenue of $588 million declined $207 million as lower year-over-year fuel prices reduced freight revenue 450 basis points. Similar to our third quarter results, strong core pricing gains were more than offset by business mix, reducing freight revenue 100 basis points with our 16% intermodal growth driving that mix dynamic of significance. our price dollars met the long-term commitment of exceeded inflation dollars while also being accretive to fourth quarter operating ratio. Wrapping up the top line, other revenue decreased 7% as a result of lower accessorial revenue from the second quarter intermodal equipment sale and reduced revenue from the ongoing transfer of metro operations. As a reminder, we see offsets against this revenue decline in operating expense. Switching to expenses, our appendix slides provide more detail. But let me share some highlights of our strong cost control, as total operating expense declined 4% to $3.6 billion, against a 5% increase in quarterly volume. Looking closer at the expense line, compensation and benefits expense increased 8% compared to fourth quarter 2023, driven by the $40 million break person buyout agreement, which Jim mentioned, and wage inflation. This is the second break person agreement that we have reached in the last couple of years, both of which have enabled more efficient car handling. Quarterly, workforce levels decreased 3%. Our trained service employee workforce was flat against the 5% volume growth as we effectively handled the additional volume. All other workforce areas decreased 4%. These efforts resulted in record workforce productivity, demonstrating our strategic focus on delivering operational excellence. For 2025, we expect our all-in cost per employee to be around 4%, as we continue to find ways to be more productive with our workforce through process improvement, technology, and investment. Fuel expense decreased 23% on a 24% year-over-year falloff in fuel prices from $3.16 to $2.41 per gallon. Our fuel consumption rate improved 1% in the quarter, as we more than offset the impact of moving a less fuel-efficient business mix. Equipment and other rents expense increased 8% due to inflation and volume-related growth in our intermodal business. Finally, other expense declined 22%. As you'll recall, in the fourth quarter of 2023, we highlighted elevated casualty costs due to the catch-up of case backlogs. In the fourth quarter of 2024, we benefited from lower casualty expenses as well as a reduction in bad debt expense. Operating income improved 5% to $2.5 billion and was a fourth quarter record. Below the line, other income decreased $40 million on lower real estate gains, while interest expense declined 6% or 19 million as a result of lower average debt levels. Altogether, these results total a record fourth quarter net income of $1.8 billion and earnings per share of $2.91, both up 7% versus 2023. Our fourth quarter operating ratio of 58.7% improved 220 basis points year over year. And as Jim noted, when you adjust for the break person agreement, our quarterly OR came in at 58%, a great outcome reflecting very strong quarterly performance by the UP team as we work to safely and efficiently serve our customers. Moving to slide six, let me quickly recap full year 2024. Operating revenue of $24.3 billion grew 1%. on a 3% volume increase, core pricing gains partially offset by lower fuel surcharge revenue and business mix. Excluding fuel surcharge, our freight revenue grew 4% versus 2023. Operating income totaled $9.7 billion, a 7% increase, and our full-year operating ratio at 59.9% improved 240 basis points, both great indicators of how good railroading produces solid operating leverage and cost control. Earnings per share of $11.09 increased 6% versus 2023, while our return on invested capital improved 30 basis points to 15.8%. Let's turn then to shareholder returns in the balance sheet on slide seven. Full year 2024 cash from operations totaled $9.3 billion, up almost $1 billion from 2023. Our cash flow conversion rate improved to 87%, and free cash flow increased from $1.5 billion to $2.8 billion. These year-over-year improvements reflect the change in year-over-year labor agreement payments, as well as the growth in our operating income. We rewarded our shareholders, returning $4.7 billion in 2024 through dividends and share repurchases. Our adjusted debt-to-EBITDA ratio finished the year at 2.7 times as we maintain a strong balance sheet and continue to be A-rated by our three credit agencies. 2024 proves that our strategy of safety, service, and operational excellence leading to growth also generates strong cash returns for our shareholders. With that, let me turn it over to Kenny.