Union Pacific Corporation

Greetings and welcome to the Union Pacific's third quarter 2025 earnings 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 for 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 now my pleasure to introduce your host, Mr. Jim Venna. Chief Executive Officer for Union Pacific. Thank you, Mr. Vena. You may now begin your presentation.

Thank you very much, Rob. Listen, thanks, everyone, for joining us. Beautiful 36-degree day here in morning in Omaha, Nebraska. Absolutely perfect day to be railroading. It's the type of day that I love. Not too hot, not too cold. It's just a slam dunk, so Eric and team should continue to deliver what they've delivered this past quarter, and we'll get into that in a minute. So here with me, we're going to review the third quarter 2025 numbers. Here with me is Jennifer, our Chief Financial Officer, Eric, our Operations Chief, and Marketing and Sales Chief, Kenny Rocker. As you'll hear from the team this morning, our third quarter results serve as a proof point that we are successfully executing on our strategy. We are focused on driving continued improvements in our pursuit of what's possible. Now let's dig into our results on slide four. Union Pacific reported 2025 third quarter earnings per share of $3.01, excluding $41 million of merger related costs. Our adjusted earnings per share of $3.08 increased 12% versus last year. Core pricing gains and continued operational efficiencies drove the strong financial results in the quarter. Freight revenue, excluding fuel, grew for the sixth consecutive quarter and set a best-ever record. In addition, we set best-ever quarterly records in workforce productivity, fuel consumption, terminal dwell, and train length. As a result, our third quarter adjusted operating ratio was 58.5%, a 180 basis point improvement versus last year. Importantly, our safety and service results also improved, demonstrating the team's commitment to our goal of running the safest and most reliable Railroad in North America. Next, the team will walk through the third quarter in more detail, and then I'll come back and wrap it up before we go to Q&A. And with that, Jennifer Heyman, you are up.

Thank you, Jim, and good morning, everyone. I'll begin with a walkdown of our third quarter income statement on slide six, where our operating revenue of $6.2 billion increased 3% versus last year. Digging into the top line further, freight revenue totaled $5.9 billion, up 3%. Volume was down slightly in the quarter, driving a 25 basis points reduction in freight revenue. Fuel was also a modest headwind with surcharge revenue of $602 million, down $33 million as lower fuel prices impacted freight revenue 50 basis points. Strong core pricing combined with a more favorable business mix to drive a 350 basis point improvement in freight revenue versus 2024. Importantly, our ability to yield pricing dollars net of inflation that are accretive to our operating ratio is directly supported by a consistent and reliable service product. Wrapping up the top line, other revenue declined 2% to $317 million. Lower revenue from the transfer of Metro operations was partially offset by a favorable comparison to a one-time contract settlement of $12 million in 2024. Switching to expenses, our appendix slides provide more detail, but I'll walk through the highlights as operating expense increased only 1% to $3.7 billion. Compensation and benefits decreased 1% as 4% lower workforce levels and record productivity more than offset the impact of wage inflation. Compensation per employee increased 2.5% versus last year. And we expect full year compensation per employee to end up around 3%, which is consistent with the increase we've seen year to date. Fuel expense grew 1%, driven by a 3% increase in gross ton miles, partially offset by a 2% decrease in fuel prices from $2.60 to $2.56 per gallon, and a 1% improvement in the consumption rate. In fact, our fuel consumption rate set a best-ever record in the quarter as we yielded benefits from our fuel initiatives. Purchase services and materials expense increased 6% due to merger-related costs, And equipment and other rents declined 11%, driven by favorable contract settlements of $13 million, improved cycle times, and lower car hire related to the year-over-year decline in international intermodal demand. Finally, other expense improved 1% versus last year to $352 million, as lower casualty costs were partially offset by higher state and local taxes. Reported operating income grew 6% to $2.5 billion. Below the line, other income grew 10% to $96 million on real estate gains. Our reported net income totaled $1.8 billion with earnings per share of $3.01. When you exclude the $41 million of merger costs in the quarter, our adjusted earnings per share totaled $3.08 and our adjusted operating ratio came in at 58.5%. Overall, really great quarterly financial results enabled by successfully executing on our strategic priorities. Turning to cash generation in the balance sheet on slide 7, third quarter cash from operations totaled $7.1 billion, up 6%, or $381 million versus last year. As we discussed when we announced our merger with the Norfolk Southern, we have paused our share repurchase program. We are prioritizing the reduction of debt and paid down $1 billion in long-term notes during the third quarter. With that, our adjusted debt to EBITDA ratio finished the quarter lower at 2.6 times. Our cash balance ended at just over $800 million after funding our capital program and paying the increased third quarter dividend, our 19th consecutive year of providing our shareholders with an annual dividend raise. As we close out 2025, we expect our cash balance to steadily grow with our strong cash generation. Looking out to the remainder of the year on slide eight, With just over two months left in the year, we are proud of how we have executed on our strategy this year. We've handled volume growth while improving our service and efficiency. Notably, the third quarter continued this trend as we handled the highest absolute volumes of the year while setting several best-ever operating records. Meanwhile, some of the key economic indicators, like automotive sales and housing starts, are generally softer than when we established our investor day targets last September. Against that backdrop, we have achieved very solid results with reported year-to-date EPS growth of 8% and 80 basis points of operating ratio improvement. For the fourth quarter, volumes are currently running down 6% as international intermodal volumes reflect the tough comparison against last year's strong growth. This level of decline, plus merger costs and pause share repurchases, obviously creates a headwind to earnings and margin expansion compared to last year's record fourth quarter. The team understands the task and is working hard to drive more volume to the railroad in a safe, efficient manner. Despite the somewhat challenging close to the year, we still expect to achieve our three-year EPS CAGR view of high single to low double-digit growth. We also are reaffirming our view on accretive pricing, industry-leading operating ratio, and return on invested capital. It is an exciting time at Union Pacific as we execute on our strategy and deliver for our customers in a way that I have not seen us do in my 30-plus years at Union Pacific. And we are absolutely committed to driving further value as a standalone company and when merged with the Norfolk Southern. Now I'll turn it over to Kenny to provide more details on the business environment.