Q1 2025 Union Pacific Corp Earnings Call
Greetings, welcome to Union Pacific's first quarter, 2020-5 earnings call. At this time, all positions are in listen only mode. A brief question and answer session will follow the formal presentation.
If anyone today should acquire upward assistance, please press star zero from your telephone keypad.
As a reminder, this conference call is being recorded, and the slides for today's presentation are available on Union Pacific's website.
Speaker Change: At this time is now my pleasure to introduce your host, Mr. Jim Vena, Chief Executive Officer for Union Pacific.
Mr. Vena, you may now begin.
Speaker Change: Good morning Rob, and thank you. Good morning, and thank you for joining us today to discuss Union Pacific's first quarter result.
Speaker Change: I'm joined in Omaha by our Chief Financial Officer, Jennifer Hamann, our Executive Vice President of Marketing and Sales, Kenny Rocker, and our Executive Vice President of Operations, Eric Gehringer. As you'll hear from the team, excuse me.
Speaker Change: We had a solid start to the year. A reported operating ratio was 60.7 flat compared to last year, even what a 90 basis point headwind from fuel and leap year. [inaudible]
Speaker Change: We delivered record, first quarter operating performance. Further, we had the strongest cardboard growth of the class ones as we worked closely with our customers to meet their needs in an uncertain environment. [inaudible]
Now, let's discuss first quarter results, starting on slide 3.
Speaker Change: This morning, Union Pacific reported 2025, first quarter earnings per share of $2.70, which reflects a 19 cent or 7 percent headwind from fuel and leap year
Speaker Change: A reported 2025 first quarter net income of 1.6 billion was essentially flat.
Speaker Change: versus last year. Reported first quarter, 2025, operating income was flat at 7% volume growth, robust core pricing gains, and strong productivity were offset by business mix, fuel,
Speaker Change: and The Leap Year. Freight Revenue grew 1% versus last year, and if you exclude the impact from fuel surcharge, Freight Revenue increased 4%, both first quarter records. Freight Revenue increased 4%, both first quarter records. Freight Revenue increased 4%.
Speaker Change: Looking to the rest of 2025, we will continue to execute our strategy that emphasizes safety, service and operational excellence . . . . . . . . .
Speaker Change: Building on the strong foundation with our record first quarter operating performance we are positioned to deliver.
Speaker Change: I'll let the team walk you through the quarter in more detail and then come back and wrap it up before we go to Q&A.
with that Jennifer. [inaudible]
Jennifer Hamann: First quarter financials. All right, thanks, Jim, and good morning, everyone.
Jennifer Hamann: I'll begin with the walk down of our first quarter income statement on slide five, we're operating revenue of $6 billion, match last year's level, even with lower quarterly fuel surcharge revenue, a reduction in other revenue, and the leapier comparison [inaudible]
Jennifer Hamann: Freight revenue of 5.7 billion increased 1%, despite the roughly $70 million impact of having one less day in the quarter. They get into the freight revenue drivers further, our strong volume growth in the quarter added 650 basis points to freight revenue.
Jennifer Hamann: Field Surcharge Revenue of 565 million declined 100 million as the impact of lower year-over-year fuel prices more than offset the higher volume, reducing freight revenue to 175 basis points.
Jennifer Hamann: Corp pricing was very strong and reached the highest quarterly level in the past ten years. Further, pricing dollars net of inflation were a creative to our operating ratio.
Jennifer Hamann: Despite these robust results, quarterly business mix combined with price for a 250 basis point drag on freight revenue.
Jennifer Hamann: In addition to volume growth in our lower average revenue per car business lines, such as intermonial and coal, we had the additional dynamic of lower volumes in our higher arc businesses, like petroleum, sodash, and finished vehicles [inaudible]
Jennifer Hamann: Wrapping up the top line, other revenue declined 19% to $336 million. Included in the year-over-year change are several items including some that we have discussed previously, such as last year's Intermodal Equipment Sale and the Metro Transfer. Thank you for your time.
Jennifer Hamann: Porterley results were also challenged by reduced auto-part shipments at a subsidiary and lower assocorial revenue. And finally, you'll recall that first quarter of 2024 included a one-time favorable contract settlement of 25 million.
Jennifer Hamann: Switching to expenses, operating expenses, $3.7 billion, equal last year, as solid productivity gains and lower fuel costs, offset, volume-related costs, inflation and appreciation.
Jennifer Hamann: Digging deeper into a few of the expense lines, compensation and benefits expense improved 1% versus last year as reduced workforce levels were partially offset by wage inflation.
Jennifer Hamann: Records Quarterly Workforce Productivity, and Nable Best to limit first quarter cost per employee to only a 2% increase.
Jennifer Hamann: First quarter fuel expense declined 8% on 11% decrease in fuel prices from $2.81 to $2.51 per gallon.
Jennifer Hamann: We also improved our fuel consumption rate 1% during the quarter as we continue to leverage optimization tools such as energy management systems on our locomotive fleet, enhancing train handling while reducing consumption. Thank you for your time.
Jennifer Hamann: Purchase services and materials expense increased 3% versus last year, driven by inflation, volume-related costs, and a favorable 2024 item, partially offset by lower costs at subsidiary
Jennifer Hamann: Equipment and other rents increased 12%, driven by increased car hire for automotive racks, inflation, and demand in intermodal and other traffic that utilizes foreign freight cars
Jennifer Hamann: Finally, other expense increased 1%, as higher costs associated with destroyed equipment were partially offset by lower bad debt expense and environmental remediation costs. [inaudible]
Jennifer Hamann: First quarter operating income of $2.4 billion was consistent with last year. [inaudible]
Jennifer Hamann: First quarter, 2025 net income totaled $1.6 billion and earnings per share came in at $2.70. Both essentially flat versus 2024 despite the 19 cent EPS impact from fuel and leap year.
Jennifer Hamann: Similarly, fuel and leap year had a 90 basis point unfavorable impact on our reported quarterly operating ratio of 60.7%. All in, the UP team produced a good quarterly performance and start to 2025.
Jennifer Hamann: Before I go on a couple housekeeping items I want to mention, first is that we now estimate our other revenue will total about 325 million per quarter, reflecting our expectations for lower assets, soil and subsidiary revenue.
Jennifer Hamann: and a reminder that in the second quarter of 2024, our results included a $46 million benefit in other expense from the sale of intermodal equipment and we have now lapped that transaction.
Jennifer Hamann: Turning to shareholder returns in the balance sheet on slide six, first quarter cash from operations totaled $2.2 billion, up 4% versus last year
Jennifer Hamann: In February , we initiated an accelerated share repurchase program for $1.5 billion and through the quarter we made open market purchases of an additional $220 million as we more recently took advantage of very attractive share prices [inaudible]
Jennifer Hamann: That cash return plus our industry-leading dividend payout enabled us to return $2.5 billion to our shareholders in the first quarter.
Jennifer Hamann: In the quarter, our net debt increased $1.7 billion, as we issued $2 billion of long-term debt and paid maturities totaling $350 million, and this resulted in our adjusted debt to EBITDA ratio of 2.8 times at the end of the quarter as we continue to be arated by our three credit rating agencies.
Jennifer Hamann: Turning to the remainder of 2025 on Slide 7, as we look to the next three quarters, it is likely going to be a bumpy ride.
Jennifer Hamann: In preparation, we've worked through scenario planning and will remain agile. Importantly, we will continue executing our strategy and our maintaining the three-year targets set at our investor day last September Andrzej Tomczyk,
Jennifer Hamann: In particular, 2025 EPS growth will be consistent with attaining our three-year EPS cage review of high single to low double-digit growth
Jennifer Hamann: Similarly, our views on accretive pricing, industry leading operating ratio, and ROIC, as well as capital employment plans still hold. [inaudible]
Jennifer Hamann: Obviously, there's uncertainty in the marketplace, but the year is off to a good start and we are delivering value for our shareholders.
Jennifer Hamann: In fact, April volumes and service metrics were quite strong heading into the Easter weekend. Our focus on safety, service, and operational excellence prepares us for whatever lies ahead and we're confident in our ability to perform. I'll now turn it over to Kenning to provide you an update from the business environment.
Kenny Rocker: Thank you, Jennifer, and good morning. Freight revenue is total 5.7 billion for the quarter, which was up 4% excluding fuel surcharges due to increased volume.
Despite unfavorable mix, we saw strong core pricing gains. [inaudible]
Kenny Rocker: Jones, which is Jennifer mentioned was the highest absolute quarterly level over the past ten years. This is a testament to our deliberate focus on maximizing price. [inaudible]
Kenny Rocker: Let's jump right in and talk about the key drivers for each of these business groups.
Kenny Rocker: Starting with our bulk segment, Revenue for the quarter was up 1% compared to last year on a 2% increase in volume and a 1% decrease in average revenue per car as business mix and more fuel, third charge revenue was more than offset by core pricing gains and volume.
Speaker Change: Coles off strong customer demand due to favorable natural gas pricing.
Kenny Rocker: Green products volume with up for the quarter driven by increased demand for feedstocks.
Kenny Rocker: Locating new customers on our railroad in sure of long-term, rateable demand, and the newest facilities located in Nebraska and Kansas are now running out for capacity.
Lastly, food and beverage volume decline in the core. [inaudible]
primarily driven by consumer preference.
Kenny Rocker: Turning to industrial, revenue was down 1% for the quarter, on a 1% decrease in volume.
Kenny Rocker: Strong core pricing gains were offset by business mix, lore fuel, third charges, and volume.
Kenny Rocker: Petroleum shipment decreased during the quarter due to business shifts, while soda ash was impacted by weaker global demand. [inaudible]
Kenny Rocker: This was partially offset by increased rock shipments driven by strong customer demand coupled with favorable weather conditions compared to last year.
Kenny Rocker: Premium Revenue for the quarter was up 5% on a 13% increase in volume and a 7% decrease in average revenue per car reflecting the mixed impact of increased intermodal shipment and lower fuel third charges.
Kenny Rocker: Intermodal volumes remain strong based on international West Coast import demand. Additional positive domestic and immoto growth was further supported by business development efforts.
Automotive Volume's experience of decine due to reduce OEM production.
Kenny Rocker: Turning to fly-10, here is our 20-25 outlook as we see it today for the key markets we serve.
Kenny Rocker: Now, starting with bulk, continued challenges for food and beverage is expected primarily based on weakness in the U.S. beer market. [inaudible]
Kenny Rocker: We anticipate co-volumes to remain strong in the near term. However, there is always volatility in natural gas prices, so we'll remain agile as we move into the second half of the year.
Kenny Rocker: Lastly, we expect grain exports into Mexico to remain strong. For grain products, our intense focus on business development results is expected to mitigate market uncertainties in renewable fuels and associated beef stocks.
Kenny Rocker: Moving to industrial, we anticipate petroleum volume to remain challenged, do the business shift and our commitment to balance the volume at the right margin.
Kenny Rocker: Our industrial chemicals and plastic markets were remain favorable based on customer plant expansion and our ability to win incremental volume in the marketplace.
Kenny Rocker: For example, we are excited to support Dallas expansion later this year at their poly-7 facility in Freeport, Texas
Kenny Rocker: And wrapping up with premium, while tear up uncertainty remains a concern for automotive, we are closely aligned with our customers, providing guidance and solutions every step of the way.
Kenny Rocker: On Animoto's side, we anticipate a slowdown in International Animoto as we move through the second quarter. And we expect decreased volume in the second half of the year. Do the higher comparisons as customers diversify back to East Coast and Canadian ports. [inaudible]
Kenny Rocker: However, we remain optimistic about growth in domestic intermodal driven by our over-the-row conversions because of our strong service product and multiple channels to win.
Kenny Rocker: We are keeping a watchful eye on the market and potential tear of changes that could further impact overall consumer spending.
Kenny Rocker: While we navigate the trade policies and face difficult comparisons in the latter half of the year, our team is proactively taking action and hustling to overcome these obstacles [inaudible]
Kenny Rocker: Specifically, earlier this month, we began moving volumes with Lord Colorado River Authority and will continue to ramp up throughout the month.
Kenny Rocker: The team's focus on business development is yielding positive results, as we see incremental volume from new and expanding facilities across multiple segments like grain products and petrochemicals Andrzej Tomczyk, Jairam Nathan, Jairam Nathan, Jairam
Kenny Rocker: In fact, we actively maintain an open pipeline of 200 construction projects, so business development through growth and expansion is always a priority.
Kenny Rocker: The team is also set in the stage for future growth. Hyundai Steel Corporation recently joined the Union Pacific Rail Network, announcing their first ever US Steel Mill in Louisiana. [inaudible]
Kenny Rocker: Construction won't be complete for a few years but this is a positive result of our current business development efforts.
Kenny Rocker: with our strong service product, I am confident that we will continue to win new business.
Kenny Rocker: and take trucks off the road. And as I stated last quarter, our commercial team is crystal clear on acceptable pricing levels based on the service we sow, which is driving strong core pricing gains.
Kenny Rocker: I'm proud of the team's ability to deliver a 4% increase in freight revenue excluding fuel. The team is focused and I'm very comfortable with our current position. And with that, I'll turn it over to Eric to review our operational performance.
Eric Gehringer: Thank you, Kenny, and good morning, moving to slide 12. In the first quarter, we continue to see meaningful improvements across nearly all of our metrics.
Eric Gehringer: This is a testament to our strategy and our steadfast focus on providing industry leading, safety, service, and operational excellence [inaudible]
Eric Gehringer: Starting with safety, which is the foundation of everything we do. Both personal injury and derailment rates continue to improve versus their three year rolling average.
Eric Gehringer: In fact, we achieved a first quarter personal injury raise that tied a quarterly record dating back to 2016
Eric Gehringer: Our number one priority remains returning all employees home safely each and every day.
Eric Gehringer: Freycar Velocity, the best measure of fluidity on the railroad, improved 6% to 215 miles per day, a first quarter record. The primary driver was further reductions in terminal dwell, which improved 6% year over year, and also set a new first quarter record. The primary driver was further reductions in terminal dwell, which improved 6% year over year, and also set a new first quarter record.
Eric Gehringer: We are turning our customers assets faster, a win-win, as we support their growth initiatives while simultaneously generating future growth capacity within our terminals.
Eric Gehringer: On the service front, Manifest SPI was 93% to 6-point improvement, while Intermodal SPI at 94% was essentially flat.
Eric Gehringer: Our buffer of resources coupled with improved fluidity I mentioned earlier continues to translate into a very high level of service for our customers
Eric Gehringer: and customers are seeing the benefit rewarding Union Pacific with new business. [inaudible]
Eric Gehringer: As Keny mentioned, we have successfully onboarded our new coal customer while also adding incremental growth coalsets beyond what we had originally planned coming into the year.
Eric Gehringer: On the Intermodal Front, we continue to handle historically high international intermodal volumes. All while delivering a service, we sold our customers.
Now let's review our key efficiency metrics on slide 13.
Eric Gehringer: Throughout the quarter, the team was effective in our approach to asset management, leveraging our buffer of resources to inject assets only as we needed them.
Eric Gehringer: That approach paid off, as you see improved efficiency metrics across the board.
Eric Gehringer: Locomotive productivity improved 1% compared to first quarter 2024. Notably, our active locomotively only increased 3% against the backdrop of a 7% volume growth and normal winter weather challenges we historically experienced this time of the year.
Eric Gehringer: While the increased fluidity of our network enabled the performance, we also see the continued benefits from our work on locomotive dwell.
Workforce Productivity, which includes all employees, improve 9%.
Eric Gehringer: Moore specifically, our active train engine and yard workforce decreased 1%, demonstrating excellent operating leverage against the 7% volume growth. We will continue to support our training pipeline and provide the capacity but for necessary to navigate an ever changing environment. [inaudible]
Eric Gehringer: Trainlinkton, the quarter grew 2% compared to first quarter 2024. Further we delivered improved train links sequentially despite lower intermodal volumes, which generally provide greater density to drive gains in train links.
Eric Gehringer: We will continue to leverage proprietary technologies like precision train builder to safely grow train links while generating mainline capacity for current and future growth
Eric Gehringer: Wrapping up, I'm very proud of the team and the results we delivered. We efficiently leveraged our resources to handle volume growth in a service focused manner. As we progress throughout the year, we will remain agile and in constant communication with our customers as they analyze their supply chain options.
Eric Gehringer: I'm very confident in our ability to control what we can control, whether it be our service product, buffer of resources, asset utilization, etc. We are prepared and as we move forward I'm certain you will see our resiliency on display.
Jim.
Speaker Change: Scott, we have a sip of coffee. You were way too fast closing that off, Eric. I thought you still had a couple of lines.
Speaker Change: Listen, thank you very much, and what do we turn to slide 15? Before we get to your questions, I'd like to quickly summarize what you've heard from our team. First, as you heard from Jennifer and Kenny, there are still a lot of unknowns related to volumes and the economy. But what I do know is that we are driving efficiency.
Speaker Change: Throughout our network and pricing for the strong value we provide our customers.
Speaker Change: Eric walked you through the records we're setting across safety service and operational excellence. The network is fluid and we are meeting demands of all our customers. We are in a good position and we will be agile and responsive as we move forward. [inaudible]
Speaker Change: We remain committed to the long-term guidance that we laid out at Investor Day last September, and we are confident we will be the industry leader as we drive value for our shareholders.
Speaker Change: We have the right strategy, right team, and the right focus on the fundamentals, all supporting our ability to unlock the great value of the UP franchise. With that, we're now ready to take your questions. Rob? Rob?
Speaker Change: Thank you, Mr. Vena. We'll now be conducting our question and answer session.
Speaker Change: If you like to ask a question at this time please press star 1 on your telephone keypad and a confirmation tone to indicate your line is in the question queue. You may press star 2 if you like to withdraw your question from the queue. Thank you.
Speaker Change: For participants using speaker equipment, maybe necessary to pick up your handset before pressing the star keys. [inaudible]
Speaker Change: Do the number of analysts joining us on the call today, eliminating everyone to one question to come day as many participants as possible. Thank you very much.
Speaker Change: Thank you, and our first question will be coming from the line of Chris Wetherbee with Wells Fargo. Lucius Youth, your question.
Chris Weatherby: Hey, thanks, good morning guys, morning. You know, I guess I wanted to talk a little bit about 2025 guidance. So, you know, obviously uncertainty is building here with concerns about maybe some slowing activity, particularly on the West Coast. You guys have talked about sort of growth this year, consistent with the long-term targets. And I think that can kind of take a couple of different meanings. So I was kind of curious if you...
Chris Weatherby: Wanted to maybe put a little bit of a finer point, kind of think about what the potential outcomes could be, either from an earnings perspective, maybe from an operating ratio perspective. Just wanted to see if you can put some framework around what you think 25 might look like just given the uncertainty that's out there. [inaudible]
Chris Weatherby: Well, Chris, that's a great question and a great way to start off. So, at this point, there's a lot of things, tariffs.
Economy, what the consumer does.
with interest rates and what's going to happen with interest rates.
What's going to happen with the tax package or the...
Chris Weatherby: Packages that the Congress is looking at doing. So all those things are up in the air. Well, we look at at this point in time.
Chris Weatherby: We're very comfortable that we're standing by our guidance that we provided last year. Now, is it a little...
Chris Weatherby: Mudier at this point than it was when we gave it last year, absolutely. But at this point what we're seeing and that's why Jennifer mentioned, our car loads are pretty strong. [inaudible]
Chris Weatherby: So far in April , and the mix is pretty strong, so we like what we see and we just don't want to get because everything is so fluid, it would be remiss to start talking about what's going to happen as we move through the rest of the year. For us though, what we look at and it's very key. So we're going to start talking about what's going to happen as we're going to start talking about what's going to happen as we move through the rest of the year.
Chris Weatherby: if you come in with a fundamental railroad that's operating in the...
Chris Weatherby: You know, very well, you know, good manner. What happens is, is you can build from that. The reaction is, is what happens with all these items that I've, these vectors that I've talked about coming in, in at us.
Chris Weatherby: The end of the day, I'm comfortable. If we need to react, we will react. But at this point, I think it's so fluid, I woke up this morning to see when I woke up when I normally do.
Chris Weatherby: Went to bed last night at midnight after watching that bad hockey game, that my team lost real bad.
Chris Weatherby: and woke up this morning to see what the news was, the latest. And at this point, it's a day-to-day week-to-week reaction of what's happening in the marketplace. So that's why Chris, we're sticking to our three-year guidance. We think if everything comes to...
Chris Weatherby: A normal, much more normal situation. I think we will deliver that and we're very comfortable that we have the opportunity to do that. [inaudible]
Jennifer Hamann: Jennifer, anything you want to add? No, I mean, I think you hit all the right points, Chairman, and...
Jennifer Hamann: You know, we are looking at it in a number of different ways both in terms of what we think is going to happen on the demand side, but obviously, Eric and his team has to be prepared in terms of if demand does fall, what are the levers that we can pull, and so when we look at that in totality, we feel comfortable that we've got the right strategy, we're well positioned, and obviously we want to take advantage of Carlos when they're there, and I think we're doing a really good job with that today.
Thank you very much. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Tom Waterlitz with UBS. Please excuse your question.
Yeah, yeah, good morning. Yeah, good morning.
Speaker Change: I guess this is a question along the same thing, which you'll probably get even more after my hand, right? Let's go.
Speaker Change: When we think about your framework for this year and kind of, you know, volumes are strong in April , but, you know, there are a number of segments that might be pre-shipping or fall off. So I guess
If you say in that kind of...
Speaker Change: Three-year guide and call it high single digits, earnings growth at the low end.
Speaker Change: Is there like a revenue growth or a volume growth assumption that you say, hey we kind of need to be in this range in order to achieve that?
Speaker Change: and I guess, you know, I don't know if that's a low single digits revenue growth, and then I guess it's just from a year-over-year perspective, if you're flat in earnings in one queue, but you do, you know, full your high single digit.
Speaker Change: What's the lever that accelerates? Is it just easier? Combs? Is it kind of volume acceleration? You know, I guess a couple more things of how we understand the frame. Thank you.
Speaker Change: Tom, you know what, it's an interesting question is, as you know, there's a lot of puts and takes. If you take a look at our first quarter, the headline, you would say
Speaker Change: It was a flight year, but if you look at it underneath with the impact of fuel. [inaudible] but it was a flight year
Speaker Change: and what we had, we had a pretty good first quarter, especially for a first quarter for Union Pacific. That is one of our highest expense side with a lot of things that come in. Fundamentally, we're good.
We like the business mix that we have. [inaudible]
Speaker Change: We like the way the quarter has started off. I am absolutely not sure what's going to happen, and if anybody tells you...
Speaker Change: at any point that they know what's going to happen over the next few weeks, let alone for the rest of the year completely. And I think we'd be remiss to start changing our guidance. You know, the easy thing would have been to come in this morning and just say listen there's so much noise we're pulling in our guidance. [inaudible]
Speaker Change: But we have a job to do, and our job is to react to whatever's thrown at us. At Union Pacific, we've been doing that for a long time and...
Speaker Change: You know, I do have nobody sees it, but I do have a few gray hairs, so I've been around for a while and I've seen the ups and downs [inaudible]
Speaker Change: I think I've never been against the United States economy or the United States in general. So at the end of the day I think we end up in a good place.
Speaker Change: Whether that's in a few weeks or whether that's in six months, but fundamentally, if we can operate the way we are, Kenny and the team are building long term partnerships with customers, and we have the franchise that we have. [inaudible]
Speaker Change: that handles so many products in Americans use every day. I'm very comfortable, Tom, and we are not going to come off of our, how we do it. How do we deliver that high single digit, low double digit? Absolutely, it's a, are we price? [inaudible]
Speaker Change: Volume, how efficient we are, everything that's in the mix that we can control. And I think we've shown over the last few quarters how whether we're doing a good job or not. I rate the team because I'm a hard marker. I'm like Walter a little bit. Thank you.
Speaker Change: We're average, and I think there's more left for us to do, but I'm very comfortable of where we are right now.
Speaker Change: I guess any thoughts on like threshold revenue growth or volume to get there or not? [inaudible]
Speaker Change: Tom, first few weeks in April , we're saying, listen, we see a little bit of impact with everything that's going on, but at the end of the day it's been pretty strong for us, you know, our industrial, our bulk, even the intermodal is pretty strong, but and I like to see the bulk and industrial where it is because, as you know, it's a different margin business. [inaudible]
Speaker Change: But I really can't tell you, and Tom maybe you have a better idea, film me in if you can, because I can't tell what's going to happen here in the next couple of weeks. But I think at the end of it we'll see a reasonable position for the United States of America when it comes and will not impact. [inaudible]
Speaker Change: The worst thing that can happen is it starts to impact what consumers are doing and their thought process and how they spend money. We haven't seen that at this point, but that would be a worry, but at this point we haven't seen it. [inaudible]
Thanks Rob, thanks, thanks for the time.
Speaker Change: Our next questions are in the line of Fadi Chamoun with BMO Capital Markets. Please receive it with your questions.
Fadi Chamoun: Yes, good morning. Good morning, Patty. Good morning, Jim. So, a good question on the pricing. You mentioned the strongest in 10 years for the Q1. How much of that is? [inaudible]
Fadi Chamoun: reflecting maybe the lag impact from the inflation we saw in the last couple of years and how much is driven by the better service performance of the network in the last year.
Fadi Chamoun: If you can give some color about kind of what's under underlying this strong pricing and how sustainable that is.
Kenny Rocker: Fadi, thanks for that question, I'll start it off and then kick it over to Kenny.
Kenny Rocker: I do think it's important to recall back at our investor day where we laid out our vision that we were going to have a creative pricing going forward. And in that we talked about the fact that we had some catch up to do, that we had the opportunity to touch more of our long-term contracts.
Kenny Rocker: and that that was part of what gave us the confidence that we were able to stand before you all in September and say that the pricing was going to be a creative.
Kenny Rocker: Certainly, Eric's service product helps support that when the team is going in and having those conversations. But this is consistent with what we were seeing and what we were expecting to see back in September . And we just believe there's more of that coming forward. So that's where you're seeing that confidence. That's where you're seeing that confidence. That's where you're seeing that confidence. That's where you're seeing that confidence.
Speaker Change: Yeah, so you look at it as Jennifer mentioned last year, we were price accretive, we're starting off price accretive today.
Speaker Change: and it's really the mindset that we have as a commercial team. Eric and his team is providing us with a strong service.
Speaker Change: Product. We also have quite a few investments that we're making into the network. That gives us all the ability to really price to the service that we're so, and we're pretty dogged on that. And so that's what you're seeing, you're seeing the results of that play out.
Thank you. Thanks, Fadi.
Speaker Change: The next questions were in the line of Brandon Oglenski with Barclays. We shall see you with your questions.
Brandon Oglinski: Hi, good morning. Thanks for taking the question. Kenny, I know everything is volatile right now, but obviously we have pretty sizeable tariffs on Chinese goods here. I mean...
Brandon Oglinski: I think our Treasury Secretary is calling it a facto embargo on trade with China...
Brandon Oglinski: and we can see that there are going to be some higher blanks, sailings into like Ali Long Beach, which has been...
Speaker Change: You know, a pretty big source of volume for you guys. I guess maybe a two-part question. You know, A, have you heard from your international customers or any of your customers about plans we're dealing with, you know, these very large tariffs? [inaudible]
Speaker Change: and then maybe just quickly for Eric, how would you deal with potentially a big air pocket and demand on certain parts of your network even if you're seeing growth domestically? Thank you.
Yeah, Brandon, thanks for the question. So first of all...
Speaker Change: It's Doris Whitt, Stan Cokes, so the customers I've been talking to customers this week, it's Stan Cokes with Eric.
Speaker Change: and it's all about the agility. We've shown improved that in the quarter. We were able to handle that business. [inaudible]
Speaker Change: You're asking a specific question about China, and yeah, we do see, and Jim used the word, normal patterns. We expect, as we move throughout the quarter, to see a little bit more softness, and then we have some tougher comps. [inaudible]
Speaker Change: The best thing we can do during that time is just have all the products that we have with the ramps, the mashback and the service product and stay close to our customers because we've been seeing these supply chain patterns change at the drop of a hat. [inaudible]
Brandon Oglinski: and Brandon, we're related to how we continue to maintain volume variable plus.
Brandon Oglinski: For us, we're very prompt of being able to do that. When we think about what are we physically doing, what does it look like on the railroad? The railroad?
Brandon Oglinski: It's really your five critical resources with emphasis, mostly on three of them. You adjust the amount of locomotives you have, the amount of cars you have...
Brandon Oglinski: and you adjust the amount of crews that you have. Now you do that inside of our transportation plan, which over the last year we've got a big plus that we've added to that with a tool that we have that's called Adaptive Planning.
That's taken our playbooks.
Brandon Oglinski: and made us even faster at how we're able to make those decisions. What used to take, you know, multiple days or weeks, now we can do in a matter of hours or even up to maybe that most a couple days. So we have the ability to adjust, you've seen us demonstrate that many times over our history and that's exactly what we'll do.
Thank you
Speaker Change: Our next question is from the line of Scott Group with Wolf Research. Please excuse your question.
Morning, Scott.
Scott Group: Hey, thanks. Good morning, guys. So if I take a step back and we have the best pricing in 10 years and
Scott Group: volumes up seven, and headcounts down three. I would have thought it could have been like the perfect storm of like-
record kind of margin improvement.
Scott Group: when you just think about those three things and margins are flat. But, um...
Scott Group: Is this just mix and fuel? And so, what does this look like going forward? Maybe at the volume slows, but maybe now the mix turns positive. Hopefully the fuel headwind isn't the same magnitude. Should we start to see?
Scott Group: Allot, more margin improvement, just given this price as we get through some of this mixed headwind.
Speaker Change: You know, it's an interesting way to look at it, is if we have, you're saying if we have less revenue but the mix is better, we end up with better margins. I look at it a little bit different. Yeah, that's a win, but I'd rather have...
Scott Group: Moore Revenue, and Drive to make sure that the margins in the right place. We like all the business that we have. We love and love.
Scott Group: The reason we are Union Pacific is because of the top 100 customers that we have, that we move everything that people use every day in either the manufacturing at the end.
Scott Group: So Scott, yeah, you could say that if Intermodal came down because of what's happening at the West Coast or the imports that would help us margin wise, but for me, I'd rather...
Scott Group: Remember, we don't give all our specifics on purpose. You know, if somebody would tell me that I could be a 55 operating ratio railroad and our revenue went down by X. [inaudible]
Scott Group: I would rather be a 57 operating racial railroad with our revenue going up by X. So that's the way I look at it. Jennifer, anything else you want to add? Yeah, I just, you know, on the mix part, I mean, you know, obviously mix price together and mix with record price together, being down.
Scott Group: 250 basis points, that gives you an indication of the impact of mix.
to the quarter and we also gave you...
Scott Group: What the impact was to the OR and EPS from fuel. So to your point...
Scott Group: as we look ahead, you know, mix should moderate. I don't know when it will turn positive, but probably should turn positive as we move into the back half of the year. We'll see how the second quarter plays out as Jim talked earlier. There's just a lot of wild cards on how that's going to play, but should improve, nevertheless. We'll see how that's going to turn out. We'll see how that's going to turn out as we move into the back half of the year.
Scott Group: You look at fuel, we see that as something that moderates through the year as well. And when we get to the end of the year, if fuel prices stay kind of where they're at, I think you look back and you say fuel was kind of a non-event for us overall for the year. So I think you're looking at it right. The only thing I would say is don't underestimate the mixed impact to our margins in the first quarter.
Thanks, Scott.
Speaker Change: The next question is from the line of Ken Hexter with Bank of America. Please see with your question.
Good morning, Ken, hey, great, good morning. Good morning.
Speaker Change: So, Jen, maybe just taking that to another step, and I know you don't give a specific guidance, but, you know, if I think about maybe just historical averages, right, so first quarter to second quarter...
Speaker Change: Maybe you could talk about what kind of level improvement you've historically seen. I think it's been about 100 basis points so I just want to understand just to get to the EPS target that you're talking about. Do we have to see outsized?
Speaker Change: Seasonal Performance, given I don't know whether it's the leap day and fuel impact you were talking about. Maybe I'll start with that. Thanks.
Well, can I love the question? You know that the...
Speaker Change: You asked me because you thought for sure Jennifer would say I don't give any guys but yes we're historically we're gonna historically see that improvement at this point. We see it already with three weeks in the books that we look like we'll have that historical uh...
Speaker Change: from the Winter Weather, and so you've got that kind of mud behind you, if you will, in the first quarter that helps propel you in the second and third quarter as you see volume growth. Obviously as we're talking today, volume is going to be the wild card, but we're not going to use that as an excuse to not improve. In fact, we believe we will improve, and that's the task that the team has, and we're absolutely committed to it. [inaudible]
Speaker Change: Wonderful. Thanks, Jim. You're my turn team was bad. Was that the Euler's Canadian or are you really an auto within? Yes, I am.
Well, listen, I'm a...
Speaker Change: I'm an amateur in order span, that was ugly. My dad's a Montreal Canadian span, he didn't like that, so there wasn't a lot of positive. I went to bed last night after midnight and going, what the heck is this? Okay, now I normally go to bed at midnight anyways, and I had to laugh, I know this is a serious call, not a call about the NHL or NBA but, uh...
Speaker Change: I think Kenny goes to bed at 9 o'clock and Eric goes at 8.30. So when I told him I was staying up till midnight to watch the game like I normally do, I think that just threw them right off. Jennifer said that's Vena. He only needs five hours sleep, so he's good. But yeah, rough day, Ken, rough day. Let me show you. Yeah.
Sorry to divert. Thank you guys. Yeah
Speaker Change: Thank you. For next questions from the line of Brian Ossenbeck with J.P. Morgan, please excuse your question.
Good morning, Brian.
Hey, good morning. Thanks, Ella.
Speaker Change: to get us back on track with something much more boring in this question. [inaudible]
Fadi Chamoun: Yeah, I don't know if you appreciate me, I'll ask it first, but so maybe for Keny to see. I'll see you next time.
Speaker Change: I know there's a lot of volatility with policies but it does seem like there will be something on this section 301 related to China shipbuilding and now they're talking about removing the harbor maintenance tax benefits from the Canadian ports. So I wanted to see what your initial thoughts are on that since we've been through two iterations of that with US. [inaudible]
Speaker Change: TR, and then, you know, the past trade war, we saw a big impact in general for the US export green, particularly soybean, so wanted to see if that's something that we should also be considering here. Thanks.
Speaker Change: Yeah, thanks for that, Brian . So first of all, we've talked with quite a few customers.
Speaker Change: and I'll tell you that they need a little bit more clarity and certainty candidly. We've seen the tariffs come on, we've seen them come off.
Speaker Change: We need a little bit more certainty. They need a little bit more certainty before they are going to commit to making any significant changes in ports or traffic bows. I'd be remiss to say our commercial team is...
Pretty.
intense or having pretty intense conversations.
about coming to the U.S. [inaudible]
Speaker Change: Special with our network that we have, especially with the service, so that's the focus for it. But bottom line, we've got to make sure that the stick. [inaudible]
The second part of your question on the grain piece.
Speaker Change: You know, when you look back the first time Trump was in, we did see some of the traffic flows changed.
Speaker Change: and we're seeing that as a positive today, Eric, and the team have really done a great job of moving grain. [inaudible]
Speaker Change: to areas like the Gulf and areas like Mexico. So, yeah, the traffic blows may change. [inaudible]
but we still are able to have an agile network.
Speaker Change: The last part of that is just what I'll call, you know, fundamental growth in terms of the fuel size, so the biofuels are renewable fuels.
Speaker Change: We still see that as a positive. We've been very aggressive, hyper-aggressive, about landing new customers, landing new origins, landing new destinations. We still think that that's a good emerging market that's going to be in place. [inaudible]
Thank you very much, Ron. Thank you, Kenny. Thank you very much.
Speaker Change: Next questions from the line of Jonathan Chappell with Evercore ISI. Please receive their questions.
Thank you.
Jonathan Chappell: Good morning, Jim. Eric, question for you. I'm covered in a little bit, but I don't think we know exactly what the outcome is going to be, but I think with the blank failings and some of the other comments around exports leaving China and what's going to come to the West Coast.
Speaker Change: Kenny already mentioned International Intermodal, probably had some challenges in the back half of the year, but domestic seems to be set up pretty well. So how do you kind of manage resources for that volatility kind of within the Intermodal segment? [inaudible]
Speaker Change: Do you keep a level of resiliency in case things are kind of short-lived and kind of just focus on service and making sure you're prepared for the upturn? Or do you have to become a little bit more, I guess, drastic with some of the resource decisions that you make in the short term? [inaudible]
Speaker Change: That's a great question, Jonathan, and a timely one. Let's make sure we're really clear about something. We always keep our buff for every sources.
Speaker Change: We always maintain the rail cars, the locomotives, and the crews that we need to operate to deliver the service product that we sold our customers.
Speaker Change: Now let's talk a little bit more lower in the weeds about how we do that on the railroad and we can just start with really practical things but they're really important things [inaudible]
Speaker Change: So with the increase in international intermodal, we've obviously made changes to our transportation plan [inaudible]
Now...
Speaker Change: You might think that that's just what we just add trains to the system. That's not what we do. We first look at how do we fill any latent capacity we have on existing trains.
Speaker Change: Then we look to say how do we combo certain trains to be able to generate more capacity and as a last resort we add new symbols that being new trains that we run.
Speaker Change: So, when you're thinking about any type of reduction that may occur, you just work that in reverse, all right? You first look at, were there any trains that we added to the entire system that the volumes just doesn't support running anymore? [inaudible]
Speaker Change: Then from there you look and say, can I still combo with other trains so that we can continue to be productive and be volume variable plus?
Speaker Change: It's literally how we do it every single month when we look through our transportation plan and make adjustments to it. It's sounding like I'm over simple finance a complex thing and that's why we use so much technology to inform our decision making so that we can still deliver our service product but do it in the most efficient manner.
Thank you very much. Okay, Karin Sightful, thanks Eric [inaudible]
Speaker Change: The next questions are in the line of Stephanie Moore with Jeffries. Please receive their question.
Moore and Stephanie.
Speaker Change: Good morning, everyone. This is Joe Hafling on for Stephanie, Eric Thanks for walking through there. That was very helpful and I think helped [inaudible]
Speaker Change: You know, answer a lot of those questions. I guess I may be wanted to talk about something a little bit different under the surface. All the productivity initiatives you guys have been embarking on. We think about 2025.
Speaker Change: What major projects do you guys have kind of under your barrel that you're working on that we should we should be looking forward to and maybe just an obligatory how we should think about head count throughout the year thanks.
So, taking on your technical or your productivity question first.
Speaker Change: As we think about projects, you kind of naturally want to...
Trent towards talking about technology.
Speaker Change: Let's never forget, though, the biggest driver of our productivity is the fundamentals and how we operate this railroad day in and day out. You saw that in the first quarter, right? 7%
Speaker Change: Volume Handled, that being 7% higher volume handled, and our operating expenses were actually down 2% excluding fuel. You saw that in the record train length, record workforce productivity, etc. So you always want to stay most focused on your fundamentals.
Speaker Change: Now from a project slash initiative place, now you really are getting into the technology. That's technology. As Jennifer mentioned on the fuel conservation side with energy management system, it's how we think about mobile and X inside of our terminals as we work to automate portions of the terminals.
Speaker Change: It's even the work that our engineering team is doing on how do you automate the distribution of materials. In total, we only have dozens and dozens of these initiatives in different phases, so we're in a great position to continue to build on that. Now as far as the hiring side [inaudible]
Speaker Change: as we've discussed before, every single month we go through our hiring plan, and when we do that we're looking to...
Speaker Change: Consider all of the different variables that we have to take into account, right? So those are things like attrition. Then to your question, the positive impact we get from productivity, changes in markets, and the list goes on and on.
Speaker Change: We've already made adjustments this year to our hiring plan based on the changes in different markets and we'll continue to do that Joe We're committed to make sure that as we look at our asset base we continue to become continue to be volume variable plus
Speaker Change: Eric, the only thing I can add is, and I think you did a great job of describing it, you make it sound easy, but it's very complex, but at the end of the day, the way we look at it, and the nice...
Part about where we are right now is...
Speaker Change: with us implementing net control, a new dispatch system that allows us to dispatch at the highest level and react to things as they're moving on.
Speaker Change: Our unit control will allow us to actually react in a real fast manner. It's all about touch points for the cars. If we can touch the real cars less to get them from origin to destination. [inaudible]
Speaker Change: Containers, both domestic and international, going to across this network of ours, plus going east into the eastern part with our partners east of the Mississippi. So the way we look at it is, is how can we use the technology that we've developed and the fundamental technology to be able to make decisions so we remove touch points. If we can remove touch points. [inaudible]
Speaker Change: then we end up with a more efficient railroad and quicker and react to whatever is thrown at us. [inaudible]
The nice part is we're hiring.
Speaker Change: We still have to hire an Eric and the team did a great job when we talked about the head count that we have in operations versus with the business that was increased we were actually down.
Speaker Change: and we want to continue to be able to be as neutral as we can and the first action we take always is we stop hiring or we slow down hiring if we need to if we see there's something changing. [inaudible]
and we take...
for Realization that it.
Speaker Change: When we make a decision to hire, this is not a one day to show up and they're on the railroad as a conductor, whereas an engineering person or as a mechanical person.
or whatever.
Speaker Change: You know, listen, in headquarters, if we miss somebody one day, it's not that big of a deal. Somebody else will work an extra hour and we'll fill that in.
Speaker Change: But when it comes out in the field, you need those locomotive engineers, conductors. So we make sure that we're very careful, but because we were hiring, we adjust that, and we'll adjust that down if we see things happen over the next few weeks on what we're going to do. But we're hiring now for three months down the road, three, four months down the road.
Speaker Change: So we've already started to slow that down just because we've become more efficient and then we'll take a look at it as we go ahead. Sorry for the long answer but you know I love operations so I had to get in the middle of that. Sorry Eric.
Oglampary, Scott Paul, thank you.
Thank you. Thanks for the question.
Speaker Change: Our next questions from the line of Jordan Alliger with Goldman Sachs. Please receive your question.
Jordan, Jordan
Andre: Good morning, everyone. Thanks for taking the time today. This is Andrean for Jordan.
Andre: My question is somewhat conceptual, trying to frame the downside risk to freight markets that might be left out there in the respect that...
Andre: Most of transportation has already been in a freight recession for three years now. How much additional absolute downside risk? [inaudible]
Andre: We fall into a consumer-led GDP recession. Would a downturn be less pronounced and freight versus historical GDP slowdowns given the already extended slowdown and freight that occurred post-COVID? Or would that be fair to say, you know, for some of your non-consumer-facing businesses? Yes, sir.
Speaker Change: Yeah, so I'll take a stab at that one. I mean, I do think you're making some good points in terms of particularly when you think about the truck competitive part of our business.
Andre: which we've been all talking about the fact that it's been in a down mode, maybe it's recessionary about the last couple of years and we've just been bouncing along the bottom there.
Andre: Over that time, we've made tremendous strides to improve our service, we've filled out our, you know, stable of IMC partners and so we do think we're extremely well positioned.
Andre: to be able to capture business that's out there. And, you know, when I think about the UP franchise, one of the best things about our franchise is the diversity. And so, you know, with that broad diversity, that broad scope are reached across a number of markets.
Andre: You know, we have historically felt that that insulates us a little bit from what happens in one market versus the other. And you've seen that. I mean...
Andre: You've got things last year, our volumes are up 3% when our coal was down 20%. Now this year we have coal up and you've got other markets that are down. So,
Andre: We'll deal with whatever the markets give us, rather it's a softer landing maybe for us, just because of what's happened in the transportation space, the truck space, the last few years or not. I think that still remains to be seen. I think the good news is we're agile, we're ready, and we'll respond, and with the work that Kenny and Tina have been doing in business development.
Andre: Service Product at Eric's team is providing them, I think we'll capture our share and more and we'll perform very well.
Thanks, appreciate the thoughts.
Andre: Thank you. The next questions are in the line of Daniel Imbro with Stevens. Let's just hear with your questions.
Good morning. [inaudible]
Megan Morton, thanks for taking the question.
Andre: Strength from truckload conversions, I guess how did those domestic conversions trend? And?
Andre: to the first quarter of the truck market began to soften. And then related to that, I guess, with the favorable mix of more domestic versus international, but maybe a softer truck pricing environment, how are you expecting to see Intermodal revenue for Carload through the back half of the year, just as Wade has put the takes.
Andre: Yeah, so I'll just start off by just updating you on where we are through Bay season.
and call it a little bit. [inaudible]
More than a third going through the best season.
We're encouraged on where we are from a bit perspective. Thank you.
Andre: We're encouraged by the winds that are out there. Again, you hear me talk about the channels, the stable of private assets that come from the along with our own private box. We've seen winds in those sections.
Andre: The Over-the-Road section, part of our business is the one that we're most focused on. A strong service product will help you with that. We talked about, you know, 6,000 lows with Uber that we want, that's all over the road. So that's how we're approaching that. From a price perspective.
Andre: You know, we have mechanisms in place to go out there and price with all of our customers. Again, with our rail asset, we're also able to compete in that marketplace.
Andre: We've been in a law that is Jennifer mentioned on our previous question.
Andre: For a while, that has allowed us to go out there and win in compete business doing a challenging environment.
Andre: as the market or as the market does improve, we expect him to move in a more positive direction on the revenue per car size.
Speaker Change: Yeah, the only thing I'll add there is if you think about which we talk about mix within mix so within intermodal there are different mixes we talked back in September that international intermodal is our lowest average revenue per car and so if you see less international intermodal, more domestic that can be positive within that mix on mixed space so another thing to take into consideration.
Great, thank you for the question.
Speaker Change: It makes questions from the line of Ari Rosa with City Group. Please just see your third question.
Good morning. Good morning.
and Eric.
Speaker Change: Yeah, hey, good morning. So I just want to ask a clarifying question. When you talk about EPS growth consistent with attaining the three-year keger on EPS,
Speaker Change: Just help me understand, that is not specifically a target for 2025 to be of high single digits . . .
Speaker Change: High single digits to low double digits. Just wanted to clarify that point. And then we've seen some strength in coal in second quarter to date. Just wanted to help understand what's underlying that strength and the extent to which you think it's sustainable. Thanks.
Speaker Change: I wish I could come here and tell you that what we see is a high single digit, low double digit for sure this year. There's just too many variables that we can't control going on right now. But we're very comfortable with the way the railroad is operating and if we continue, we're standing by our guidance. That's the way I look at it.
Speaker Change: Just on the natural gas, it's really the driver there when you look at our coal business, but the other part of that is being able to capture that business and, you know, Eric and the team have done a great job of both.
Speaker Change: Being at y'all, getting the resources in place, we actually felt double digit strength. [inaudible]
Speaker Change: inside the quarter, both sequentially from February to March. We were able to capture that business, year over year you're talking. Thank you.
Speaker Change: You know, says that we're at it over 25% so a great job there. I'm excited because you look at
Speaker Change: You know, the natural gas part of it, but you also look at the business win that we have and we've added those sets, and we're seeing those up and running. Natural gas is volatile, we've seen them move around in the month, but the ability to be agile is what we look at. [inaudible]
Great. Thanks for the question.
Speaker Change: The next question is from the line of David Vernon with Bernstein. Please, you'll see with your... David.
David Vernon: Hey, good morning. Thanks for to fit me in here. I wanted to ask maybe Kenny or Jennifer when we're talking about the best price we've had in about ten years.
Can you? [inaudible]
to help us. Thank you, sir.
David Vernon: I understand kind of how much it has improved kind of either sequentially or we're relative to where we're sort of last year. What specifically has changed to drive it? Are we starting to see the benefits of a better service product? Like, or is this just, you know, you guys are being more effective on on capturing Christen in coal, for example? And then what are you thinking about? What are you thinking about?
David Vernon: You know, the ability to sustain that best level of pricing in 10 years as we go through the rest of this year. Thank you.
Thank you for joining us.
Speaker Change: I start, and if you want to jump in, Jennifer, so, and I'm going to be a broken record here, but look, when you have a strong service product, but what you sow to the customers, you can leave with that. When you have a strong service product, plus the investment that you have, you can leave with that. We sit down with our customers. [inaudible]
to share the service performance index with them.
Speaker Change: and we know what acceptable levels of pricing are. And so we leave with that. Now, I'll tell you, I think there was a question about, I think it was about mindset or will it? The same, we will always have a mindset to go out there and price to the service that's old. That won't change. [inaudible]
Speaker Change: The team is critical clear on that, so there you have it. [inaudible]
Speaker Change: Yeah, Kenny, I really don't know that I can add to that, but when you walk through the drivers of our price, you hit on all of them. The only part of the market right now that's not supportive to our pricing is that truck piece which we've been talking about. So, you know, if we can get a little bit of help from that, that could be further good news for us.
All right. Go ahead. Let me, if you just give me a second here and appreciate it.
Speaker Change: In the day what we've also done is we've invested in being able to give more markets for our customers.
Speaker Change: Wether it's what we did at the East End of the LA Basin.
Speaker Change: at Colton with the new facility there, what we've done in Phoenix, what we're doing in Kansas City, but not just in Minneapolis, I could keep on going on that side of the business, but we've invested with our customers in the industrial base and in the bulk base, we've opened up new facilities. [inaudible]
So,
Speaker Change: Pricing comms by being able to provide baseline service at a high level and consistent, not just customers and no one likes it, if it's one week or a month, it has to be consistent and I think we've been able to show that.
Speaker Change: for the last few quarters that were very consistent and we have a good handle of how to operate this railroad. We didn't even talk about winter. Some people like to talk about winter. We had winter, we had storms, we had floods, but at the end of the day the resiliency and the way we operate the railroad and the buffer is real important to us. [inaudible]
Speaker Change: is we've expanded our fluidity. We spent a lot of money in that Houston area to be able to improve our humpyard and we just about double the capacity of the place that removes touch points and that allows you to give better service and allows you to open more markets for our customers. So it's a complicated decision making in what we've done so just add on to what was already said by Kenny and Jennifer. That's the way we look at it. Thank you very much.
Speaker Change: All right, thanks for that. And then maybe if I could just tack one more on here. If you guys see any sort of change in cross-order Mexico volumes, either LaRena or Eagle Pass as we've been dealing with some of these, the tariff in position, I'm just wondering if there's been any noticeable sort of shift in that north-south volume. [inaudible]
Speaker Change: Wes, why don't you talk about, we've seen the last sort of year or so in what we've seen sort of a balance against our competitor and then what we've seen more recently.
Speaker Change: Yeah, so if you look at it, you know, and it's the dust art with the fundamentals, the dust art with the fact that, you know, we've got seven day a week service, that we've got the best route, we've got short amount, we've got a fast, you know, faster route.
Speaker Change: But if you look at Mexico when we talked to our customers and we've been there over 30 years when we talked to our customers [inaudible]
Speaker Change: Yes, because I've just mentioned all those attributes. We know we can win and compete, but we're also selling the entire network, so it's not just one part of...
Speaker Change: Texas, or one lane that we're going in, we're moving and utilizing the entire network. You look at the last quarter. Yeah, there were stops and starts, especially when you look at our automotive segment. [inaudible]
Speaker Change: You heard me say in my words, we relish that closely with our customers. [inaudible]
Speaker Change: and Focus on Fundamentals, which for us in Mexico is a service product, the interchange, making sure we have enough equipment and where we see ourselves today. We certainly don't try to manage our business to a market share but we feel good about where we are and we know we're up a few points as we look at our market share so far this year. [inaudible]
Speaker Change: The next question is from the line of Richa Hermane with Deutsche Bank. Please just use your question.
Good morning.
Good morning.
Speaker Change: So, you know, your execution this quarter was strong, all things considered, but clearly just from the tone of some of these questions there's a lot of fear out there [inaudible]
Speaker Change: and you know a lot of that's related to your exposure so maybe you can help call those by sizing up your exposures a little bit I was hoping [inaudible]
Speaker Change: For instance, with green exports, appreciate Keny using that is very strong given Mexico and speaking to the agility of your network. But can you tell us how much of that business is Mexico exports versus China? Yeah.
Speaker Change: and just on international intermodal. You said that that's about 40% of total premium for 2024. Can you tell us how much is West Coast or China oriented? Thank you.
Speaker Change: Yeah, so we talked about the grain ice, I certainly unfortunately won't be able to give you any specifics and break out our grain network. What I'll tell you though is that...
Speaker Change: I mentioned the strength and grain. We've been growing there. I mentioned the rail and physical infrastructure that we have on the origin side to grow that market. We're focused on expanding the pie even if it means. And that's why I wanted to emphasize that.
Speaker Change: You know, we are moving in the different markets like the Gulf. [inaudible]
and in the Mexico.
Speaker Change: There was a question on international model, I think where you wanted me to break out those numbers then [inaudible]
Speaker Change: and I'll stay away from doing that and just let you know that a strong service product along with the new products that we have.
Speaker Change: We inserted a new product, Jim talked about it in the Twin Cities and last year we were able to have get a good win that'll...
Speaker Change: Still continuing into this year, we're seeing a little bit more growth into the new market, new ramp that we have in Arizona in the Phoenix area, and we've inserted new products.
Speaker Change: going from the Gulf to other parts of our network. So we're going to be pretty aggressive about building out that network and not be independent on one area.
Okay, we'll see you later.
Speaker Change: Our next questions from the line of Jeff Kauffman with Vertical Research Partners. Please receive your question.
Jeff Kaufman: Thank you, and good morning. Thanks for squeezing me in. Jim, I like your opening comment about how if you just looked from 10,000 feet, revenues were flat, margins were flat, outlooks the same, you know, no changes, the reality was anything but
Jeff Kaufman: I'm just kind of curious if we look at your forward outlook. Thank you very much.
Jeff Kaufman: today for, you know, whether it's groups or pricing as you were talking about core pricing, things like that, what's different today than it was say three months ago when you gave us guidance that's kind of been a legitimate surprise? Thank you very much.
Jeff Kaufman: The biggest surprise is the whole discussion of import exports tariffs and the effect on the business and like I said, the
Jeff Kaufman: to start off with our biggest worry and what we look at, and it's not a worry, it's just, I don't worry, okay, so that was a mistake by me. I don't worry, you have to react and be able to run the business and operate it in a smart manner. Is what the consumer is going to do? [inaudible]
So far, we haven't seen...
Jeff Kaufman: A huge impact, and if anything, we really haven't seen it, our car roads are up across the board and most places still from where we were last year.
Jeff Kaufman: But that's the thing that we have to keep an eye on, and it's a daily exercise. Every day we look at what's happening to the US consumer in the market because that's who the final customer is for us.
Jeff Kaufman: If I take out the intermodal uncertainty, part of it are the international trade certainty and you just look more at the bulk or industrial groups, what was the legitimate surprise there, positive or negative? [inaudible]
Jeff Kaufman: Well, I think, I don't like to think about it as a surprise. The things that we can...
Jeff Kaufman: Not being a surprise. We have done a great job this quarter. I give Eric and the entire team a pat on the back. They've done a great job. Jennifer's done a great job to set us up the handle financially, anything that we need.
You can see where our rating is 2.8.
Jeff Kaufman: Debti Ibadah, you can see where our cash is. We're in a great position there. And Kenyatta and team have done a great job of pricing for the value of what we provide. The things that we can't control are the things that we have to look at very carefully. And just at this point. [inaudible]
Jeff Kaufman: You know, I think at the end of the day we come to the right place as a country but I think there's going to be some noise and we'll react to whatever noise is thrown at us [inaudible]
Thank you, you're welcome.
Speaker Change: Our next question comes to the line of Oliver Holmes with Red Baron Atlantic. Please receive your question.
Ed Sheer, Ed Sheer, Ed Sheer, Ed Sheer,
Dr. Smith, Dr. Smith
Speaker Change: Hi, good morning, thanks only on just a quick one. Is there a scenario perhaps maybe you're already seeing it where Asia, Ex-China and Metzbo pick up share of the trade war we're trying to continue? In essence, reduce in the impact of Chinese tariffs, maybe just a follow up on that. Is there something you saw during 2018-19 when tariffs were David on China? Thanks.
Speaker Change: Yeah, thanks for that question. I think, Kenny, the question he's asking is, are you seeing more in terms of shifts away from China to Vietnam Korea? Yeah, let me, okay, so, there's...
and some good public data out there and you can see. [inaudible]
Speaker Change: Oliver over the last few quarters, a little bit of a change, we look at the IANA data, and you can feel a little bit of a change from China going into the Southeast Asia piece.
Speaker Change: It's hell strong, those volumes of hell strong. We can see them coming up to us. We like the fact that there is diversity in that. And we're going to continue to take advantage of it. [inaudible]
Speaker Change: It sure is a moving target though, and pressures of what's happening in the marketplace right now and what's happening to trade will have an effect. It just takes a while for some of those things to settle down.
Thanks for the question. Thanks
Speaker Change: The next questions from the line of Jason Seidl with D.D. Cowan. Please receive your questions.
Jason Seidel: Thanks, Happeter. Morning, and Jim, I feel your pain on being done to nothing here. Jennifer, I think the question goes to you. You guys did a pretty good job of managing sort of salaries, wages, benefits, per employee in one queue, wondering how we should think about that line item going forward, and then just to clarify, I believe we talked about. Thank you very much.
Speaker Change: That $46 million gain in last year's 2Q, was that in other income? [inaudible]
Speaker Change: Okay, so for the first part of your question, we laid out in January that we expected for the full year our comp [inaudible]
Speaker Change: Per employee cost per employee to be up 4%. You're right, did a great job in the first quarter, only up 2%.
At this point, we would stick with the 4% [inaudible]
Speaker Change: Just because as we're looking ahead, we know that July 1st is another wage increase. We're obviously still negotiating with our unions, but as you know...
Speaker Change: in terms of the cost per employee, in terms of the outlook on a full-year basis, in terms of your other question that was in the other expense line, in terms of the 46 million where that flowed through as a good guy last year.
Perfect. Thank you very much, appreciate the time. Okay, thank you
Speaker Change: Thank you. Our final question is from the line of Hiram Nathan with Daiwa. Pleas to see you with your question.
Hiram Nathan: Hi, thanks. Thanks for the question. Just on, you know, we talked a lot about what you can do on the cross side and stuff, but I just wanted to understand on the bad end sheet in terms of share repurchases. If things get long drawn or you see bigger and bigger impact, push it to think of your capital or don't plan. Between the share repurchases, so conserving cash.
Hiram Nathan: Yeah, so thanks for that question. So off to a really strong start here in 2025. You know, our guide for the year in terms of Sherry purchases was four to four and a half billion. At this point, I think we're at a little over one seven in terms of what we've returned so far, one five.
Hiram Nathan: through the Accelerated Sherry Purchase Program and another 200 million in Open Market Purchases. It is so...
Hiram Nathan: In one quarter, almost halfway there, I'd say we feel very good about that range. Obviously, we'll watch it. If the situation changes, we can scale back. That is the flexible lever. We've got 1.4 billion on the balance sheet today. So, again, we're re-literating the guide to the four to four and a half.
Hiram Nathan: and that's our view for the full year and feel confident in that, but if the world changes dramatically for us, we can't flex that.
Thank you. That's all right. Thank you.
Vena: Thank you. This concludes the question and answer session. I'll now turn the call back over to Mr. Vena for closing with comments.
Mr. Vena: Well listen, I think the questions were spot on. There were questions that we ask ourselves every day. I think we've shown as Union Pacific what we can do and how we can react and I think that's real important. At the end of the day...
Mr. Vena: Truly, it would be a boring job, I probably wouldn't be here if you woke up every morning and everything was perfect.
Mr. Vena: You see the quality of a company and you see the quality of the management when you see how they react to things and I think the team did a great job first quarter. Very excited with what we have going on fundamentally and in the long term.
Speaker Change: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time in every wonderful day. Thank you very much.