Union Pacific Corporation

Greetings, and welcome to Union Pacific's second 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 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. Jim Venna, Chief Executive Officer for Union Pacific. Thank you, Mr. Venit. You may now begin your presentation.

Thanks, Rob, and thanks, everyone, for joining us this morning. Another beautiful day in Omaha. A little bit of thunderstorms last night, but the skies are clear this morning and a wonderful day to be railroading. So good morning, everyone, and thank you for joining us today for Union Pacific's second quarter 2025 earnings call. 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 this morning, we are delivering on our strategy, and our results demonstrate our commitment to leading the industry as we set new standards for safety, service, and operational excellence. Now if we turn over to slide three, this morning Union Pacific reported 2025 second quarter earnings per share of $3.15. We had two unusual and offsetting items in the second quarter, a deferred tax benefit and the labor expense for accrued ratification agreement, both of which Jennifer will discuss in more detail. Excluding those items, our adjusted earnings per share is $3.03 up 12% versus last year's adjusted results. Volume growth, core pricing gains, and productivity improvements drove the solid results in the quarter. Our adjusted second quarter operating ratio was 58.1%, improving 230 basis points versus last year's adjusted results. Freight revenue excluding fuel surcharge grew 6% in the second quarter, setting best ever quarterly and year-to-date records in 2025. In addition, we set quarterly records in both quarters for workforce productivity, with second quarter ranking as the best ever. Importantly, we efficiently handled the first half volume growth while also improving our safety and service performance. I'm very comfortable with where we are and pleased with the level of execution I see across the company. Next, the team will walk you through the quarter in more detail, and then I'll come back and wrap it up before we go to Q&A. With that, Jennifer, second quarter results.

All right. Thank you, Jim, and good morning, everyone. I'll start with a walk-down of our second quarter income statement on slide 5, with operating revenue of $6.2 billion improved 2% versus last year, while freight revenue of $5.8 billion set a second quarter record and increased 4%. Breaking down the drivers of freight revenue, volume growth in the quarter added 375 basis points. Fuel surcharge revenue of $569 million declined 100 million, or 225 basis points. as lower year-over-year fuel prices reduced our freight revenues. Price combined with mix for a 200 basis point benefit to freight revenue versus last year as strong core pricing dollars more than offset the continued business mix impact. We are disciplined in our pricing, supported by a strong service product, and for the third consecutive quarter yielded price dollars net of inflation that were accretive to our operating ratio. Wrapping up the top line, other revenue declined 16 percent to $311 million. Included in the year-over-year change are the items that we've discussed previously, last year's intermodal equipment sale and the metro transfer. Also impacting other revenue in the quarter were lower accessorial and subsidiary revenues. Switching to expenses, our appendix slides provide some more detail, but I'll walk through the highlights as operating expense increased only 1 percent to $3.6 billion against a 4% increase in quarterly volume. Looking closer at the expense lines, compensation and benefits increased 5%, driven by the brake person buyout agreement of $55 million. This is the third and final brake person agreement, further enabling more efficient car handling. When you adjust for the brake person agreement, quarterly compensation and benefits expense increased 1%, while our cost per employee increased 3.5%. These results demonstrate how a 3% lower workforce level and strong productivity almost entirely offset the impact of wage inflation. We would expect a similar level of increase in compensation per employee for the full year as we continue to leverage process improvements and technology to offset wage increases. Additionally, in the quarter, we transferred close to 250 employees to METRA, completing the majority of the transfers we began in the second quarter of 2024. Fuel expense declined 8% on an 11% decrease in fuel prices from $2.73 to $2.42 per gallon. Our fuel consumption rate improved 2% and set a second quarter record. Ongoing benefits from our fuel and locomotive initiatives coupled with running a more fuel efficient business mix drove the improvement. Equipment and other rents increased 5% driven by lower equity income and our business mix. Finally, other expense improved 5% versus last year. Lower casualty, including environmental costs, more than offset last year's $46 million gain from the intermodal equipment sale. Our reported operating income grew to $2.5 billion, a second quarter record. Income tax expense improved 14% as the state tax legislation change provided a one-time deferred tax benefit of $115 million, more than offsetting the tax increase from higher income. Our reported net income totaled $1.9 billion and earnings per share was $3.15. Excluding those unusual items in the quarter, adjusted earnings per share was $3.03. Our adjusted operating ratio came in at 58.1%, reflecting the 90 basis point impact of the break person agreement. Overall, a very strong quarterly performance by the team, executing on all elements of our strategy and demonstrating what's possible from the Union Pacific franchise. Turning to shareholder returns in the balance sheet on slide six, our second quarter cash from operations totaled $4.5 billion, up more than $500 million versus last year. Through the second quarter, we've returned $4.3 billion to our shareholders through a combination of share repurchases and dividends. And in keeping with our Investor Day commitments, we announced a 3% dividend increase last week. This marks the 19th consecutive year of annual increases. Our adjusted debt to EBITDA ratio finished the quarter at 2.8 times, and we remain A-rated by our three credit rating agencies. Looking out to the remainder of 2025 on slide 7, we expect third quarter other revenue to be in line with our second quarter results due to continued softness in the auto's market and lower accessorials. Additionally, other income will look more like first quarter results as a result of lower expected real estate gains. For volume, everyone recalls the benefit that we experienced in the second half of 2024 from the surging international intermodal flows through the West Coast ports. Month to date in July, we are seeing the impact of the tariff pause as reflected in the current volume surge. Similar to last year, we're seamlessly handling this volume, although we do expect volume to moderate to the point of sequential declines through the quarter. On the flip side, our diverse franchise is providing numerous growth opportunities, which Kenny will discuss a bit later. Operationally, we plan to stay the course and keep driving improvement, working safely, controlling our costs, providing good service, and seeking out price opportunities that reflect the value of that service product. Our second quarter results support our conviction in the three-year targets introduced last September. Specific to 2025, EPS growth will be consistent with attaining our three-year EPS CAGE review of high single to low double-digit growth Further, we reaffirm our view on accretive pricing, industry-leading operating ratio, and ROIC. And, of course, our capital deployment strategy is unchanged. The team is confident, energized, and ready to deliver value for our stakeholders. With that, I'm going to turn it over to Kenny to provide more details on the business.