Union Pacific 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Worldwide grain inventories are relatively high

” In ag products the strong corn and soybean crop and competitive corn prices should sustain domestic demand while worldwide grain inventories are relatively high creating a potential headwind for exports”

Velocity got a little better, but still not where it needs to be

“While our velocity in December was more than a mile an hour faster in November, and the best since January, our service performance still fell short during the fourth quarter. As reported to the AAR, fourth quarter velocity was down 8% and freight car dwell up 11% when compared to 2013. Our performance in December was a step in the right direction, but we are still not where we need to be.”

4-5% labor inflation in 2015

“Labor inflation for 2015 is expected to come in between 4% and 5% for the full year. This is driven primarily by agreement wage inflation.”

7.4B in operating cash last year

“in 2014 cash from operations increased to almost $7.4 billion, up 8% compared to 2013. After dividends our free cash flow totaled $1.5 billion for the year.”

Even if fuel prices fall, intermodal volume may continue to hold up

“I think the factors that we’ve been talking about are still there or even growing. The factors being driver shortages, I think that is still a factor that is going to drive conversions. If you look at the experience that we’ve had, we’ve had another year of record domestic intermodal volumes. You can look at our fourth quarter volumes and we’ve had new products and services.”

Federal mediation is happening at the ports, that’s about all we know

“I think you probably know that both sides did ask for federal mediation so that mediator was appointed I think, last week or so and they’re going through the process. I don’t think we have any unique knowledge of how that process is going. We’re hopeful that the issue does get resolved.”

Once the port stuff is cleared up, LA and Long Beach are in our sweet spot

“Long term the port of LA, Long Beach, is in a sweet spot in terms of the connectivity with the rail network, our network, our competitor network. Long term the expectation is once these things are behind that will be the preferred option for shippers.”

Rundown of some capital projects

“We’ve been increasing our capital investment in Texas, Louisiana, up into Oklahoma and Kansas both in our north/south routes and in the Texas area. That’ll continue and pay very big dividends for a multitude of commodities that use those routes. We have added about 40 miles of double track on the Sunset. We’re going to continue to add double track there. We’re at a point now we’re about 80% double tracked on that route so that will be good. We’re adding some capacity in the P&W for our critical bulk and premium routes. We’re adding capacity in Chicago. We have a public/private partnership project on our primary corridor in and out of Chicago which is the Geneva Sub, to triple track a critical portion of that’s shared with a metro service and that will be very, very helpful.

We’ve also announced a Hearne new network terminal in the middle of Texas ”

No one seems to think this is a sustainable trend in energy

“I think one of the things as we look at this and as we talk to our customers, first of all this is still a relatively early phenomena in terms of the dramatic reduction in oil prices that we’ve seen. Nobody that I can find expects that this is going to be a long term trend and certainly no one at this point in time has made any decisions to alter long term capital, facility expansions, or things like that. I think it’s just way too early to see if this is sustainable trend in energy prices.”

Example of the benefits of one capital project

” the investments that you outlined have helped us in terms of velocity and service performance. You take just a little snapshot like Fort Worth and Tower 55, we increased speed through that facility on both the north/south and east/west route. We increased capacity adding the ability to run an incremental 20 trains a day through the facility and we reduced the complexity of the facility itself and simplified it’s signal systems which is a safety enhancement.”