UNION PACIFIC CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 Results: Fourth quarter net income $1.8B, EPS $2.91 (7% improvement); revenue excluding fuel surcharge grew 4%; operating income grew 5%; operating ratio 58.7% (adjusted to 58% excluding Brakeperson Agreement). Full year 2024: operating revenue $24.3B (1% growth), operating income $9.7B (7% increase), operating ratio 59.9% (improved 240 basis points).
• Operational Efficiencies: Total operating expense down 4% vs 2023; workforce levels decreased 3%; train service employee workforce flat vs 5% volume growth; fuel expense down 23% on lower fuel prices; 2024 capital spending $3.4B, targeting $3.4B in 2025.
• Safety: 2024 derailment and personal injury rates improved, with focus on sending every employee home safe.

Segment Performance

• Bulk: Fourth quarter revenue down 4% vs 2023 on 4% volume decrease; Average Revenue per Car flat. 2025 outlook: coal decline to continue but LCRA contract offsets losses, domestic grain steady, grain products growth expected. Revenue contribution not explicitly stated in absolute % but discussed in context of overall business.
• Industrial: Fourth quarter revenue up 1% vs 2023; volume flat, core pricing gains mostly offset by lower fuel surcharges and negative mix. 2025 outlook: muted industrial production, but chemicals and plastics markets favorable due to plant expansions.
• Premium (Intermodal): Fourth quarter premium revenue up 3% on 13% volume increase; 9% decrease in Average Revenue per Car due to increased intermodal shipments and lower fuel surcharges. 2025 outlook: domestic intermodal growth expected, tough international comps in second half, watch for tariff changes.

Guidance

• 2025 EPS growth expected in high single to low double-digit range, consistent with three-year targets set at Investor Day 2024.
• Plan to invest $3.4B in capital spending in 2025, flat vs 2024.
• Intend to return excess cash to shareholders via share repurchases of $4B-$4.5B in 2025.
• Focus on driving earnings per share growth through productivity improvements, pricing accretion, and technology investments to align with three-year CAGR goals.

Risks

• Regulatory changes, including potential tariff adjustments, which could impact cross-border business and commodity flow.
• Weather-related disruptions, such as winter storms affecting operations.
• Competitive pressures from other railroads and trucking, which could impact market share.
• Labor negotiations, including ongoing agreements with unions for engineers and conductors, which could affect workforce productivity and costs.
• International trade dynamics, including uncertainties around trade policies with Canada and Mexico.

Question and Answer

• Q: Scott Group with Wolfe Research on guidance and pricing A: Jim Vena states 2025 EPS growth expected in high single to low double-digit range, consistent with long-term targets; Jennifer Hamann notes pricing is already accretive to margin and expects this to continue in 2025.
• Q: Brian Ossenbeck on Brakeperson Agreement and labor contracts A: Jennifer Hamann and Eric Gehringer discuss the second Brakeperson Agreement, similar to the first, aimed at improving crew efficiency; ongoing work on work rest agreements for engineers and conductors to maintain workforce productivity and cost neutrality.
• Q: Jason Seidl on tariffs with Canada and Mexico A: Jim Vena and Kenny Rocker state Union Pacific is prepared to handle potential tariff impacts, with a strong balance sheet and focused marketing and operations team to adapt to changing trade dynamics.
• Q: Walter Spracklin on economic leverage A: Kenny Rocker and Eric Gehringer discuss operating leverage from business development wins in areas like renewable diesel, grain products, and industrial chemicals, expecting these to drive growth if macroeconomic conditions improve.