Union Pacific Corporation

Greetings. Welcome to the Union Pacific's first quarter 2025 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, please press star zero from your telephone keypad. As a reminder, this conference call is being recorded, and the slides for today's presentation are available on Union Pacific's website. At this time, it is now my pleasure to introduce your host, Mr. Jim Venna, Chief Executive Officer for Union Pacific. Mr. Venner, you may now begin.

Good morning, Rob, and thank you. Good morning, and thank you for joining us today to discuss Union Pacific's first quarter results. I'm joined in Omaha by our Chief Financial Officer, Jennifer Heyman, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Geringer. As you'll hear from the team, we had a solid start to the year. Our reported operating ratio was 60.7 flat compared to last year, even with a 90 basis point headwind from fuel and leap year. We delivered record first quarter operating performance. Further, we had the strongest car load growth of the class ones as we worked closely with our customers to meet their needs in an uncertain environment. Now let's discuss first quarter results starting on slide three. This morning, Union Pacific reported 2025 first quarter earnings per share of $2.70, which reflects a 19 cent or 7% headwind from fuel and leap year. Our reported 2025 first quarter net income of $1.6 billion was essentially flat versus last year. Reported first quarter 2025 operating income was flat. as 7% volume growth, robust core pricing gains, and strong productivity were offset by business mix, fuel, and the leap year. Freight revenue grew 1% versus last year, and if you exclude the impact from fuel surcharge, freight revenue increased 4%, both first quarter records. Looking to the rest of 2025, we will continue to execute our strategy that emphasizes safety, service, and operational excellence. Building on the strong foundation with our record first quarter operating performance, we are positioned to deliver. I'll let the team walk you through the quarter in more detail and then come back and wrap it up before we go to Q&A. With that, Jennifer, first quarter financials.

All right. Thanks, Jim, and good morning, everyone. I'll begin with a walkdown of our first quarter income statement on slide five. We're operating revenue of $6 billion, matched last year's level, even with lower quarterly fuel surcharge revenue, a reduction in other revenue, and the leap year comparison. Freight revenue of $5.7 billion increased 1% despite the roughly $70 million impact of having one less day in the quarter. Digging into the freight revenue drivers further, our strong volume growth in the quarter added 650 basis points to freight revenue. Fuel surcharge revenue of $565 million declined $100 million as the impact of lower year-over-year fuel prices more than offset the higher volume. reducing freight revenue 275 basis points. Core pricing was very strong and reached the highest quarterly level in the past 10 years. Further, pricing dollars net of inflation were accretive to our operating ratio. Despite these robust results, quarterly business mix combined with price for a 250 basis point drag on freight revenue. In addition to volume growth in our lower average revenue per car business line, such as intermodal and coal, we had the additional dynamic of lower volumes in our higher-arch businesses, like petroleum, sodash, and finished vehicles. Wrapping up the top line, other revenue declined 19 percent to $336 million. Included in the year-over-year change are several items, including some that we have discussed previously, such as last year's intermodal equipment sale and the metro transfer. Quarterly results were also challenged by reduced auto parts shipments at a subsidiary and lower accessorial revenue. And finally, you'll recall that first quarter 2024 included a one-time favorable contract settlement of $25 million. Switching to expenses, operating expense of $3.7 billion equaled last year as solid productivity gains and lower fuel costs offset volume-related costs, inflation, and depreciation. Digging deeper into a few of the expense lines, compensation and benefits expense improved 1% versus last year, as reduced workforce levels were partially offset by wage inflation. Record quarterly workforce productivity enabled us to limit first quarter cost per employee to only a 2% increase. First quarter fuel expense declined 8% on an 11% decrease in fuel prices from $2.81 to $2.51 per gallon. We also improved our fuel consumption rate 1% during the quarter as we continue to leverage optimization tools such as energy management systems on our locomotive fleet. enhancing train handling while reducing consumption. Purchase services and materials expense increased 3% versus last year, driven by inflation, volume-related costs, and a favorable 2024 item, partially offset by lower costs at a subsidiary. Equipment and other rents increased 12%, driven by increased car hire for automotive racks, inflation, and demand in intermodal and other traffic that utilizes foreign freight cars. Finally, other expense increased 1%, as higher costs associated with destroyed equipment were partially offset by lower bad debt expense and environmental remediation costs. First quarter operating income of $2.4 billion was consistent with last year. Below the line, interest expense declined 1% on lower average debt levels, partially offset by a slightly higher effective interest rate. First quarter 2025 net income totaled $1.6 billion, and earnings per share came in at $2.70. Both essentially flat versus 2024, despite the 19 cent EPS impact from fuel and leap year. Similarly, fuel and leap year had a 90 basis point unfavorable impact on our reported quarterly operating ratio of 60.7%. All in, the UP team produced a good quarterly performance and start to 2025. Before I go on, a couple housekeeping items I want to mention. First is that we now estimate our other revenue will total about $325 million per quarter, reflecting our expectations for lower accessorial and subsidiary revenue. And a reminder that in the second quarter of 2024, our results included a $46 million benefit in other expense from the sale of intermodal equipment, and we have now lapped that transaction. Turning to shareholder returns in the balance sheet on slide six, first quarter cash from operations totaled $2.2 billion. up 4% versus last year. In February, we initiated an accelerated share repurchase program for $1.5 billion. And through the quarter, we made open market purchases of an additional $220 million, as we more recently took advantage of very attractive share prices. That cash return plus our industry-leading dividend payout enabled us to return $2.5 billion to our shareholders in the first quarter. In the quarter, our net debt increased $1.7 billion as we issued $2 billion of long-term debt and paid maturities, totaling $350 million. And this resulted in our adjusted debt to EBITDA ratio of 2.8 times at the end of the quarter as we continue to be A-rated by our three credit rating agencies. Turning to the remainder of 2025 on slide seven, as we look to the next three quarters, it is likely going to be a bumpy ride. In preparation, we've worked through scenario planning and will remain agile. Importantly, we will continue executing our strategy and are maintaining the three-year targets set at our investor day last September. In particular, 2025 EPS growth will be consistent with attaining our three-year EPS CAGR view of high single to low double-digit growth. Similarly, our views on accretive pricing, industry-leading operating ratio, and ROIC, as well as capital deployment plans, still hold. Obviously, there's uncertainty in the marketplace, but the year is off to a good start, and we are delivering value for our shareholders. In fact, April volumes and service metrics were quite strong heading into the Easter weekend. Our focus on safety, service, and operational excellence prepares us for whatever lies ahead, and we're confident in our ability to perform. I'll now turn it over to Kenny to provide you an update on the business environment.