Union Pacific 2Q16 Earnings Call Notes

Union Pacific (UNP) Lance Fritz Q2 2016 Results

Volumes declined in five of six groups

“Total volume decreased 11% in the quarter compared to 2015. Carload volume declined in five of our six commodity groups, with coal, Intermodal and industrial products all down double-digits. Agricultural products was the only group to show positive year-over-year growth, with volumes up 2% this quarter, reflecting stronger grain shipments versus 2015.”

Soft global economy will continue to pressure volumes

“A soft global economy, the negative impact of the strong U.S. dollar on exports, and relatively weak demand for consumer goods will continue to pressure volumes through the second half of the year.”

Eric Butler

Reduced drilling activity continues to negatively impact minerals

“In industrial products, reduced drilling activity will continue to negatively impact our minerals and metals rock volumes for the remainder of the year. The improving construction and housing market should drive growth in our lumber and rock volumes.”

Cameron Scott

Robert Knight

Expect 2% wage inflation

“Labor inflation was about 1.5% in the second quarter, driven primarily by health and welfare, which is partially offset by some favorable pension expense. We expect full year labor inflation to be around 2%.”

We have a lot of strong competitors

“Yeah, Chris I think you said it right, we compete vigorously every day for business we have strong real competitor, strong truck competitors. We have strong water barge shipping competitors and you’re exactly right we compete vigorously. We do think we have a strong value proposition and we think that with that strong value proposition we can compete effectively on that value proposition and price for the value that we’re providing to the marketplace. As I said earlier you’re seeing capacity tighten and many of those modes and we think that’s positive for the competitive environment, but, yes, we compete vigorously every day.”

Eric Butler

There will probably be more opportunity to move grain in the second half than the first

“if you look at the crop there was something like 6 million more acres of corn planted this year and it’s still dependent upon kind of the weather and the harvest, but right now it looks like it’s going to be pretty decent yields from the current crop. And so if you look at the pretty decent yields from the current crop if you look at the high storage levels on a historical basis, if you look at some of the challenges — in particular South American crops that have had, it suggests that there’s going to be opportunity to move grain in the second half of the year at a higher run rate than what we saw in the first half.”

Half of auto business is to or from Mexico

“Yeah. So, about half of our franchises to or from Mexico that’s all unfinished vehicles and parts. We — the Mexico volume is growing as you know. Historically, it was like 2 million vehicles, I think they are probably up to about 3.7 million vehicles produced in Mexico. The forecasts is they are going to get close to about 5 million vehicles produced in Mexico.”