Union Pacific Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Scott Group - Wolfe Research LLC - Analyst : Hey, thanks. Good morning. I just want to start on the guidance. The comment consistent with attaining the long-term CAGR. That seems carefully chosen language. Just so we're all on the same page. Like -- does that just mean you expect to be in that high single-digit to low double-digit range on earnings this year? And then I just want to understand also, Jennifer, the pricing starting to become accretive to margin. Is that -- does that start right away in Q1? I don't know if there's any sort of Q1 color you want to give us? Thank you.

Question: Scott Group - Wolfe Research LLC - Analyst : Thank you.

Question: Jon Chappell - Evercore ISI - Analyst : Thank you. Good morning. Eric, in Jennifer's comments at the start, you noted the record workforce productivity, also said all-in cost per employee of 4% in '25 as you continue to find ways to be more productive. You've done a lot of volume with a lot less resources. Is it still a labor productivity? Or what are some of the other initiatives you're looking at a '25 to kind of maintain or manage that cost inflation?

Question: Jon Chappell - Evercore ISI - Analyst : Thanks, Eric. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 1:45PM, UNP.N - Q4 2024 Union Pacific Corp Earnings Call

Question: Brian Ossenbeck - JPMorgan Chase & Co - Analyst : Hey. Morning, Jim. Good morning, team. Thanks for taking the question. Doing well, thanks. Hope you are as well. I wanted to come back to the -- I guess, there's a second brakeperson rule. So I wanted to hear a little bit more about that because you mentioned there was one earlier. So thanks for pointing that out. And then also, Jennifer on the comp per employee for the full year, you're still rolling out last year heard storing out some of the predictable work schedules for the engineers. As I understand that there's still some negotiation going on with the conductors for something similar. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 1:45PM, UNP.N - Q4 2024 Union Pacific Corp Earnings Call So maybe you can just give us a little context in terms of the other brakerperson agreement, how's different to the first one? And then how do you see this other two factors or agreements, I guess, for the engineers and conductors rolling out for the rest of this year and what you expect in the numbers there? Thank you.

Question: Brian Ossenbeck - JPMorgan Chase & Co - Analyst : Understood. Thank you, Jim.

Question: Jason Seidl - TD Cowen - Analyst : Thank you, operator. Good morning, Jim and team and nice job with the quarter. You briefly touched about some of the unknowns that are out there. There's obviously been a lot of talk about potential tariffs with two of our largest trading partners [Canada] and Mexico. Clearly, you guys have a big position in Mexico with your access to the Mexican interchanges as well as a partial ownership of Ferromex. I guess if we do get that tariff on February 1, sort of what are the expectations on volume? And then, I guess, what potentially could have an impact if cross-border business with you guys would decline because of that?

Question: Jason Seidl - TD Cowen - Analyst : Thank you very much. Appreciate the time.

Question: Chris Wetherbee - Wells Fargo & Company - Analyst : Morning. Thanks again, the question. I guess I wanted to maybe pick up on the West Coast and get some perspective about how you think about sort of the shifts. I know international intermodal has got some pretty challenging comps, particularly as you move into the second half of the year. But Kenny, any sort of perspective you can give what you're seeing from your customers? Maybe how real time any of those shifts may occur? I know we kind of have a tentative agreement on the East Coast. So potentially, there could be some business moving around a little bit. And then just maybe in terms of the pricing piece. I know we're getting back into sort of accretive pricing. How do we sort of think about the opportunity in pricing as we move forward over the course of the next year, or maybe longer, in terms of the service recovery in the network ultimately, the inflation that we've seen across the sort of the broader market outside of transportation and maybe what your opportunity is to try to cap into that? Just want to get a sense of maybe how that plays out.

Question: Chris Wetherbee - Wells Fargo & Company - Analyst : Got it. That's helpful. Thank you.

Question: Christyne McGarvey - Morgan Stanley - Analyst : Hey, thanks. Good morning. This is Christyne McGarvey on for Ravi. Thanks for taking our question. Just to circle back to some of the service comments. It sounds like you guys have a pretty good confidence going into 2025, but I wanted to touch on kind of what's underpinning that? And maybe particularly in the context of perhaps a better environment than you guys are currently thinking about if the volumes do snap back a little bit more aggressively, how you guys feel that kind of capacity is there to meet that without much service disruptions for customers?

Question: Christyne McGarvey - Morgan Stanley - Analyst : Thanks. Appreciate the color.

Question: Ari Rosa - Citigroup Inc - Analyst : Hey, good morning, Jim, and congrats on congrats on the nice results here in the fourth quarter. So I wanted to ask about the operating ratio. You mentioned this expectation of industry-leading operating ratio. Just wanted to understand a little bit more. What gives you confidence in that target? And if you could talk about kind of how you perceive the structural advantage of the UP relative to some of your competitors, especially given the context of BN maybe having some challenges in the fourth quarter that maybe held up some of their intermodal partners. So if you could just give a little more color on that outlook, both kind of short term and longer term, how we should think about that, the OR evolution?

Question: Ari Rosa - Citigroup Inc - Analyst : All right. Thank you, Jim.

Question: Bascome Majors - Susquehanna International Group LLP - Analyst : Good morning, Jim. In one of the earlier questions, you talked about some opportunity with the FRA waiver backlog potentially beginning to clear and opening up some efficiency. But this week, we also had Patrick Fuchs take over as STB Chairman. Can you talk about that side of the regulatory fence? What have you learned from working with him as a Board member over the last six years? And over the next several years, what opportunities is UP, or the industry have that might not have been on the table under (inaudible) Oberman leadership? Thank you.

Question: Bascome Majors - Susquehanna International Group LLP - Analyst : Thank you all.

Question: Ken Hoexter - BofA Securities Inc - Analyst : Hey, great. Good morning, Jim and team. Congrats on the solid OR and results, but maybe digging in a little bit on that, Jen, you guided in the appendix, the other expense to $325 million, $350 million. Maybe can you delve into what happened in the fourth quarter? I think you mentioned the bad debt expense. Can you talk about a scale of the one-timer, or the scale of casualty expense that we should see bounce back? And I guess maybe I'm just ultimately getting at trying to think about the cadence to first quarter. Can you talk about seasonality in what we should -- I know you don't delve into quarterly specific, but maybe just normal historical seasonality, how we should think about the move given the improved performance here in the fourth quarter?

Question: Ken Hoexter - BofA Securities Inc - Analyst : I mean, just on the expense on cadence into first quarter of kind of the OR, did you normally see 150 basis point deterioration. Is that would you see that given all the backdrop that you're talking about in a big picture way?

Question: Ken Hoexter - BofA Securities Inc - Analyst : Appreciate your clarification. Thanks for the time.

Question: David Vernon - Bernstein - Analyst : Hey, good morning and thanks for the time. So Kenny, I got a couple of questions for you. First is, in the intermodal business, can you give us a sense for where utilization is in the box pool fleet for you guys right now? Obviously, there's a lot of channel inventory that's been built up by the intermodal marketing companies through the pandemic taking too many boxes. I'm just wondering where your utilization is kind of running right now on railroad owned equipment? And then the second question would be whether this recent uptick in natural gas prices that we're seeing may have some benefit for you on the pricing side with some of your utility coal contracts? Thanks.

Question: David Vernon - Bernstein - Analyst : Right. And is there any way to quantify how many more boxes kind of are stacked today versus maybe you would have had normally pre-COVID? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 1:45PM, UNP.N - Q4 2024 Union Pacific Corp Earnings Call

Question: David Vernon - Bernstein - Analyst : All right. Thanks for the time.

Question: Jordan Alliger - The Goldman Sachs Group Inc - Analyst : Good morning. Just coming back to intermodal. If the trends hold up that international facing those tough comps, maybe volumes be tough to grow in the back half of the year. Does the domestic intermodal offset can that provide even if volumes are perhaps down? Can that provide a favorable net positive in terms of mix, margin, EBIT dollars, et cetera? Thanks.

Question: Jordan Alliger - The Goldman Sachs Group Inc - Analyst : Thank you.

Question: Daniel Imbro - Stephens Inc - Analyst : Hey, good morning, everybody. Thanks for taking the question. Maybe to follow up on the volume outlook. If you look on the outlook on slide 11. On a headline, there's more pluses than minuses. But how should we think about the mix impact on revenue per carload? You just talked about intermodal in the previous question. But I guess, any visibility into changes of mix within mix within these categories that we should be aware of when we think about the market share wins? And Jennifer, I understand that you don't want to guide each quarter, but how should we think about volume growth through the year given the more difficult back half comparisons? Can we grow volume each quarter? Would that be kind of a base case expectation? Just any color there would be helpful. Thanks.

Question: Daniel Imbro - Stephens Inc - Analyst : Thanks for all the color.

Question: Walter Spracklin - RBC Capital Markets - Analyst : It's pretty cold, but my backyard [rink] is in good shape, Jim. That mentor quote, it sounds like it was a quote from Hunter, am I right?

Question: Walter Spracklin - RBC Capital Markets - Analyst : Well, my son will be happy to hear that comment for sure. Speaking of those fundamentals, Jim, you talked a bit about guidance, and it's predicated on a mixed economic outlook. And I know you like that kind of scenario analysis where we look at the upside, and I know a few of your trucking peers spoken pretty constructively here today about that potential for an improvement in the economy. So if we do see that, where do you see the most opportunity for leverage if we get a better macro? And more importantly, is this type of operating leverage that you're engineering here, Jim? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 23, 2025 / 1:45PM, UNP.N - Q4 2024 Union Pacific Corp Earnings Call Is this setting you up for potentially coming in above the high end of that low double-digit band? Or is the low double-digit capture if the economy gets better than we will do low double digits? Just curious to hear how that sensitivity works out for you.

Question: Walter Spracklin - RBC Capital Markets - Analyst : I appreciate the color, Eric, Kenny.

Question: Walter Spracklin - RBC Capital Markets - Analyst : Agreed.

Question: Walter Spracklin - RBC Capital Markets - Analyst : We get it done.

Question: Jeff Kauffman - Vertical Research Partners LLC - Analyst : Thank you very much and congratulations on just a terrific execution quarter. Kenny, I want to come back to you, if I can. I like your answer to Jason Seidl's question be prepared in terms of dealing with these known unknowns. But I want to dive a little bit deeper. When I think about what could be at risk on the tariff side, I'm not talking about the tax change or regulatory benefit. You would think, obviously, export grain south. You would think beer imports north. You would think auto parts. -- what elements of your traffic mix either have maybe a Canadian Intuit that we might not see as obviously or a Mexican import export and that might not be as obvious to us on the outside?

Question: Jeff Kauffman - Vertical Research Partners LLC - Analyst : So maybe to your point, I guess, maybe the thing we should be thinking about is, maybe the way it gets to where it's going changes, but your feeling is that the team will find a solution if that has to be?

Question: Tom Wadewitz - UBS Securities LLC - Analyst : Hi. Yeah, good morning. I wanted to -- I think you had some pretty positive and convicted views on pricing and focus on price, which is great. How do you think about the truck, your assumptions on truckload market? And do you just think, well, we'll get a little help from some modest contract increases in trucking that helps us. And -- or how do you think about that? And also, just on intermodal revenue per unit, is that something that's been a pretty meaningful drag for a while. I know some of that [can be filled with] surcharge and mix and everything. But that's been a pretty big drag. How do you think about revenue per unit in intermodal in 2025 as well?

Question: Tom Wadewitz - UBS Securities LLC - Analyst : Okay. Great. Thank you.

Question: Oliver Holmes - Redburn Atlantic - Analyst : (inaudible)

Question: Oliver Holmes - Redburn Atlantic - Analyst : (inaudible)

Question: Brandon Oglenski - Barclays plc - Analyst : Hey. Good morning, all. Thanks for getting my question in here. I know it's been a long call, and I was off for the front part of it, so apologies if I'm replicating something here. But I guess, Jim or Kenny, we've heard about better service. And I think what investors are looking for at Union Pacific and other railroads is to finally see real volume growth. So on the back of those service gains that you guys have made in the network, Kenny, within the context of your comments about volume outpacing the market this year? I mean, is this incremental wins? Is it business development efforts that are driving this? And finally, leveraging that service product?'

Question: Brandon Oglenski - Barclays plc - Analyst : Thank you, all.