This summary is based on the third quarter fiscal 2008 earnings call conducted by Union Pacific Corp. (UNP) on October 23, 2008.
Management:
-
Chairman, President and CEO: Jim Young
-
EVP, Marketing and Sales: Jack Koraleski
-
EVP, Operations: Dennis Duffy
-
EVP of Finance and CFO: Rob Knight
Key Investors Issues
- Revenue of $4.8 billion was up 16% from $4.2 billion in the prior year.
- Earnings grew 32% to $703 million or $1.38 per share from $532 million or $1.00 a share in 2007.
Year to Date Highlights:
- Revenues were up 13% to $13.7 billion from $12.1 billion in 2007.
- Income was $1.68 billion or $3.27 a share, up 23%.
- The firm repurchased 5.9 million shares of Union Pacific common stock, returning nearly $445 million in cash to shareholders.
Third Quarter Highlights
Earnings grew 32% to $703 million or $1.38 per share from $532 million or $1.00 a share in the prior year on solid pricing of fuel cost recoveries and strong operating productivity.
- UP''s franchise diversity provide a solid based load demand, as evidenced by the 1% growth in revenue ton-miles during the quarter.
- The business mix was favorably impacted by the strong demand for both commodities, which brings with that high-density long haul moves.
- With coal in particular, the firm set a number of Southern Powder River Basin loading records on capital investments in the Joint Line UP''s train size initiatives and co-dated efforts were both producers and receivers all contributed to these achievements.
Operating revenue of $4.8 billion was up 16% from $4.2 billion in the prior year on the strength of both price improvement and fuel cost recoveries.
- Price improvement in each of the six businesses drove a 16% increase in freight revenue to a $4.6 billion overcoming a 5% decline in volume resulting from continued economic softness in the disruption caused by hurricanes Gustav and Ike.
- Firm continued to grow in market tides of the global demand for energy and food, but two hurricanes and the weak demand in some of the key rail markets, more than offset that growth leaving volume down 5% for the quarter overall.
- Economic softness continues to be most evident in the automotive and construction related markets, along with the international segment of our intermodal business.
Production cutbacks by the largest auto manufactures let to a 25% drop in vehicle shipments and the parts lines were down almost 22%. Industrial products volumes drop 3% below last year.
- Steel shipments grew 23% and markets related the energy demand like resin [ph] pipe and wind components remain strong, but was not sufficient to overcome the softness lead by a 24% decline in lumber volumes and the 9% falloff in rock shipments.
- Coal demand remains strong in a 38% increase in ethanol and DDG set the pace for the young products growth.
- Chemical volumes declined 6%, a 20% increase in average revenue car drove a 12% increase in revenues.
- The global demand for food continues to drive growth in fertilizer with volume up 6% and intermodal revenue grew 9% with a 19% improvement in average per unit, more than offsetting a 9% decline in volume.
Expenses increased $445 million or 14%, primarily driven by a $349 million increase in fuel expense and a $66 million increase in other expense.
- Lost revenue and higher cost related to the hurricanes took roughly 8 cents per share out of earnings.
- Fewer train starts and lower reaccrual rates are helping to further reduced true needs as volume demand stay soft.
- Fuel expense total cost increased 44% to $1.1 billion, and though prices have moderated, the firm still paid a $1.38 per gallon a year-over-year increase of 59% in the cost per gallon.
Equipments and other rents expense declined 5% to $326 million as increased asset utilization illustrated by freight car utilization as well as fewer shipments of finished vehicles, and Intermodal containers, all contributed to the year-over-year decline.
- As legacy contracts renew, the firm has a combined opportunity of increasing prices through a market rate, as well as adding adequate fuel cost recovery mechanisms.
- Interest expense increased $6 million to $130 million, driven by higher average debt levels in 2008.
Capital Spending:
- In terms of the split between cash, capital and leasing, leased financing is somewhat lower this year at $353 million, primarily as a result of few equipment acquisitions.
- The firm repurchased 5.9 million shares of Union Pacific common stock, returning nearly $445 million in cash to shareholders, with a new 40 million share authorization that was granted by the board in May.
- UNP''s adjusted debt balances at the end of September totaling $12.7 billion or 44.7% adjusted debt to capital ratio inline with targeted mid 40s, debt to cap ratio and is consistent with continued commitment to maintaining a solid BBB, BAA2 investment grade quarter rating.
- The firm issued an additional $750 million of 10-year notes, which adds to that debt balance.
- The liquidity position is enhanced by a $1.9 billion credit facility.
Operational metrics:
