- Ethanol and DDGs continued their growth as well with volumes up about 19%.
- The only area of softness in the Ag products business was import beer where high inventory levels were still being worked off in the first quarter.
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Energy revenue was up 17%, with volume up 6% and a 11% increase in average revenue per car.
- Continued strong demand along with more normal coal production and improved network efficiency drove the Southern Powder River Basin volume up 7%, setting new records for trains, tons and carloads.
- Colorado Utah volumes were up 4% and were also aided by better production and improved service performance.
- The SPRB outlook remains unchanged at about 5% with strong demand from existing customers.
With an 8% improvement in average revenue per unit intermodal revenue grew 5% even though volume ran 3% below year ago levels.
- Overall west coast port volumes were down due to the continued softness of the US economy and that also impacted in the international segment where volumes declined 5%.
- Volume in the domestic business was flat year-over-year as growth in the legacy contract business offset other business losses.
- Continued service improvements supports yield gains and helped the firm to capitalize on business opportunities but most importantly it leads to higher levels of customer satisfaction.
Operating Highlights:
- The firm held 1% more gross ton-miles with 4% fewer first crew starts and 7% less yard and local starts.
- In the Powder River Basin, train length grew to nearly 131 cars per train, which will move more than a 100 additional load of coal trains of coal in 2008 versus 2007 without any additional crews or locomotives.
- There was a significant increase in the level of network disruption, up 22%, but notwithstanding this, the firm made a pickup in system velocity gaining a half-mile per hour during the quarter.
- Union Pacific also managed the slight improvement in the terminal dwell and reduced inventory levels by 1%.
The firm is also managing unit cost with greater employee productivity and fuel efficiency.
- Other efforts to reduce train starts and increased train length are reflected in a 4% increase in gross ton-miles hauled per employee.
– The firm achieved the first quarter best level of 1.28 gallons per thousand gross ton-miles, and has the ability to further enhance fuel efficiency and related bottom line results.
The maintenance spend budget was $1.6 billion, allowing the firm to improve safety, increase service reliability, provide for growth and enhance productivity.
- Additionally, for freight cars, the firm is going to add 300 covered hoppers to support the agriculture business, which is in strong demand.
- Capital spending both in terms of new track and terminals is expected to total about $840 million, and about 85% of this spending is devoted to adding capacity in the sunset corridor and the RED-X areas of the central corridor.
Fiscal 2008 Outlook:
- Second quarter volumes to be in the range of down 1% to flat versus last year.
- Earnings to be between $1.80 and $1.95 per share or 9% to 18% growth.
- The impact of fuel alone could increase locomotive fuel costs by $180 million or more. from the first quarter level.
- For the full year 2008, the firm had originally expected annual fuel prices to increase 15% to 20%, however, it seems likely that annual diesel costs will be substantially higher than that.
- Despite that headwind however, the firm is not changing its full year earnings guidance of $7.75 to $8.25 per share.
Key questions and answers from the first quarter earnings call conducted by Union Pacific Corp. (UNP) on April 24, 2008.
Ken Hoexter (Merrill Lynch):
Is there a capacity to handle the increased demand for coal?
John J. Koraleski: We are in fairly good shape and the mines have held up. From time to time we have had problems with some of the Colorado, Utah mines in terms of their geology and things like that but they are right at the moment, mines are doing well, we are doing well and the market is pretty hot.
James R. Young: PRB has the capacity. Colorado, Utah will be stretched.
Ken Hoexter (Merrill Lynch):
How do you measure the network interruption days?
John J. Koraleski: We look at any time that we incur 50 or more greater train hours, any one particular day from an incident then we characterize that as a service interruption day.
Ken Hoexter (Merrill Lynch):
On the exposure on the insurance from the problems in upper west, are you still exposed about $25 million of that total amount that you had given?
James R. Young: We should be careful the timing of the insurance recovery. We are not assuming anything in our financials right now. That will be a long drawn out process there going forward.
