Union Pacific Corp at NYSE/Bank of America London Conference Transcript

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

Question: Ken Hoexter - BofA Global Research - Analyst : Thanks. So maybe just digging into that for a bit, right? You talked about the volumes trending flattish quarter to date, slightly better than we were targeting. Maybe dig into that, just the differentiation of what you're talking about with coal. We're actually, starting to see that rebound now. How do you think that sets up? One, how do you see the macro backdrop and how do you see that moving forward as we exit the quarter?

Question: Ken Hoexter - BofA Global Research - Analyst : Okay. Jen, you noted mix was an overhang in the quarter. Maybe delve into that a bit because I just want to understand. I think the simple thought is intermodal volumes up, coal volumes down, and -- or you were indicating even within categories, the difference with aggregates and other. Maybe you can talk about mix a little bit because I know we're going to get all of the questions after your comments there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, UNP.N - Union Pacific Corp at NYSE/Bank of America London Conference

Question: Ken Hoexter - BofA Global Research - Analyst : The other comment that caught my attention was you talked about pricing costs over time, right, and it takes you time to offset inflationary costs. One, where do you see inflation now? But secondly, it sounded like, Jim, you were mentioning it takes time. Hey, give us time to catch up. Is that just because, let's say, the average contract is three years, so if inflation moved a little faster, taking at 1.5 years to at least get half of them covered now you start getting ahead of inflation? Is that a time frame you think about?

Question: Ken Hoexter - BofA Global Research - Analyst : Yeah.

Question: Ken Hoexter - BofA Global Research - Analyst : And so then is the core pricing, Jen, you were mentioning, it's doing well? Or are we seeing that accelerate in terms of the pure pricing to offset that inflationary? Sorry. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, UNP.N - Union Pacific Corp at NYSE/Bank of America London Conference

Question: Ken Hoexter - BofA Global Research - Analyst : And that's why, if you're talking about continued improvement, then that's where your cost cutting up. Okay. Great.

Question: Ken Hoexter - BofA Global Research - Analyst : So Jim, you talked about the railroad running well, right? So right now, the velocity metrics wouldn't suggest that, right? And you were just talking about a lot of different things on the network that are going on. Maybe you could boil it down into us. Why are we not seeing the improved service levels on a high-level basis? And what are you looking at that tells you a different story, given all these idiosyncratic events?

Question: Ken Hoexter - BofA Global Research - Analyst : So I want to come back and revisit that in a second, but I want to just follow up on some of the fresh news that Jen is talking about in terms of the operating improvement, right? So normally in 1Q to 2Q, you post a 120-basis-point improvement, right? And so from first quarter to second quarter -- or fourth quarter to first quarter, as you mentioned, you improved from 60.9 to 60.7. That goes against the normal 180 basis point deterioration that you would normally see.

Question: Ken Hoexter - BofA Global Research - Analyst : Yeah. And that -- so that -- I'm trying to understand then the impact going forward because you were suggesting, yeah, we could see if things fall into the -- I guess, the right path that you can get improvement sequentially won't be as big as you normally do, which then means that first quarter step down is even more impressive, right, that you can keep continuing at that level. So maybe you can talk to us about the weather impacts and other things that hurt you against that so we can see what improvement you can get going forward.

Question: Ken Hoexter - BofA Global Research - Analyst : Okay, great. So you mentioned car miles per day is how you look at things in terms of operating efficiency. And so we took a dip down on the car miles per day given some of these events. What can the rail operate? I guess within that, how much equipment is sidelined now? Is it locomotives cars parked? Just want to think about what capacity you have available so you can handle the growth and we'll talk about the history of growth.

Question: Ken Hoexter - BofA Global Research - Analyst : So, Jen, I think I might have overlooked it before, but we talked about inflation. Did you -- is there a number that you're looking at now versus a year ago, two years ago, have we seen that cool-off relative to your...

Question: Ken Hoexter - BofA Global Research - Analyst : And then you get to start the negotiations all over again. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, UNP.N - Union Pacific Corp at NYSE/Bank of America London Conference

Question: Ken Hoexter - BofA Global Research - Analyst : Yes. So, Jim, bigger picture, we're going to step back for a second. We hit a lot of stuff on the quarter and what's going on now. But you've addressed a little bit of this with the coal discussion and the different products, but you're still running fewer carloads today than you were six, nine years ago, right? So if you're talking about 155,000, 165,000 cars a week, you're doing 170,000, you know, maybe six to nine years ago. What -- you know, is that solely coal? Why are the rails not able to capture that business? Maybe you can talk about the wins that you've had and what -- when coal starts to decelerate and decline, then we can start to see some of the growth, or is there anything else?

Question: Ken Hoexter - BofA Global Research - Analyst : I think that's really important for investors. I think that's what they want to see. I think that's what they want to hear is that there's actually, growth at the railroad. So good luck on that.

Question: Ken Hoexter - BofA Global Research - Analyst : I want to...

Question: Ken Hoexter - BofA Global Research - Analyst : Awesome. So to take that step further, though, you mentioned Mexico and the opportunity in Mexico, and I want to understand a couple of things. One, how do you see the growth, and you were giving timeframe differences from the West Coast to the Midwest. Maybe talk about what the advantages are versus your competitor who now has a single-line network running from Mexico through the Midwest, but also the concept of nearshoring, we hear a lot about that. Are you seeing that yet? Are you starting to see a pickup? And then I'll start with that and then I'll jump.

Question: Ken Hoexter - BofA Global Research - Analyst : So a big debate, especially as we get closer to election season is going to be the impact of tariffs, whether we're talking more on China or even stuff flowing through Mexico. What are your thoughts on that? I don't want to get too political, but your thoughts on what does that mean for business, right? Does that mean we're likely to see what we saw in 2019 where we saw a decrease in freight flows, or does it not?

Question: Ken Hoexter - BofA Global Research - Analyst : So I would deal with a little differently. Do you see a lot of the intermodal ramp-up that we're seeing now? Is that pre-shipping ahead of? Just because if I look at Walmart, Target all taking down inventory levels, and yet we're seeing a 23% increase at the West Coast ports. Does that mean we're getting a lot of pre-shipping? Is that -- I mean, that can't just be the Red Sea diversions?

Question: Ken Hoexter - BofA Global Research - Analyst : Yes. Now the problem is they're spending, and they're spending it on higher-priced items, which means -- I mean, inflation costs more so less actual volumes what we're seeing. So let's switch it. While we're on intermodal, one of your major customers at our conference talked about variable pricing they've been getting. And that ability is allowing them because of what they're working on with you to compete better against J.B. Hunt and Burlington Northern. So is this a new version of Union Pacific, maybe a little bit more cost variable to enable customers to win in the marketplace a little better and win particularly in intermodal? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, UNP.N - Union Pacific Corp at NYSE/Bank of America London Conference

Question: Ken Hoexter - BofA Global Research - Analyst : Yes.

Question: Ken Hoexter - BofA Global Research - Analyst : And can I presume that, that is given even to all three -- the new -- all three new, or I guess, two newer intermodal customers on your network, or

Question: Ken Hoexter - BofA Global Research - Analyst : Correct.

Question: Ken Hoexter - BofA Global Research - Analyst : So employees have been steady at about 30,000 -- 31,000 employees. I believe you mentioned you expect a little sequential rise. Is that on growth-dependent? Is that a contract? Is that seasonal? What's the thoughts on the outlook for employees from here?

Question: Ken Hoexter - BofA Global Research - Analyst : I was just checking with Jennifer. Maybe she was speaking to somebody when there wasn't any...

Question: Ken Hoexter - BofA Global Research - Analyst : Given the Canadians -- both Canadian rails are still engaged in negotiations with their engineers and conductors, are you seeing any movement in freight already diverse -- freight diversion onto your network?

Question: Ken Hoexter - BofA Global Research - Analyst : So I guess, would you look at the negotiations with their conductor, which arguing I imagine still overpriced. So is that a look-back at what you've already gone through and they're marketing to-market? Or do you think as you're now coming to the end of your contract, is that another preview of what we're going to see in the next round?

Question: Ken Hoexter - BofA Global Research - Analyst : Let's talk about financials, right? So, Jen, your thoughts on leverage here. You've increased it a bit lately, right, and what are your thoughts in this market, focus on debt repayment, thoughts on buybacks at these levels? Are you returning to the buyback? Maybe just give an overall view.

Question: Ken Hoexter - BofA Global Research - Analyst : Okay. Jim, the STB is now at a split balance, right, with Chairman Oberman retiring, but he was able to issue the reciprocal switching on his way out -- literally on his way out the door. Is there anything on the docket now left, revenue adequacy, anything of major substance that we should look forward to?

Question: Ken Hoexter - BofA Global Research - Analyst : So I think we've gotten to the point where after the CPKC merger, there was the point where we're done with mergers maybe for a decade, maybe forever on Class 1, right? So your thoughts on the next phase would just be to increase alliances. You were talking about working with FXC. You can maybe with the operating committees get more efficient. You've also partnered now with somewhat with CN, right, in terms of moving it through Canada and compete against the CPKC. What about on the East Coast? Are there things you're doing to increase the fluidity between West and East?

Question: Ken Hoexter - BofA Global Research - Analyst : Okay. So I think we hit on -- I guess, if I were to wrap up, right, let's say, I'll give you a chance to finish, right? We've just got a couple of minutes here. But if I think about quarterly, the volumes are flattish, right, a little bit better than we thought, some maybe snapback in coal, intermodal was up, but maybe a little bit less. Pricing, hard for dollars to outpace inflationary costs, it just takes time to catch up as you were explaining timing of contracts. You'll get there. It just takes time to work through that. Yet, as Jen was highlighting, other things that you're doing, you could potentially still see sequential operating ratio improvement a little bit bigger year-over-year, which -- it just won't be as big as the normal seasonality in terms of the OR improvement. The network is operating as efficient as possible, or you're starting to rebound given the weather impacts in the quarter. What else would you want to wrap up with? I'm trying to summarize as I'm going here.

Question: Ken Hoexter - BofA Global Research - Analyst : Thank you for the time. Appreciate it.