Conference. We're pleased our next session is with Union Pacific. From the company, we've got Jennifer Hamann, Executive Vice President and Chief Financial Officer, as well as Rahul Jalali, Executive Vice President and Chief Information Officer. We've got Brad Stock in the room as well from Investor Relations. So we're looking forward to a good conversation, and we'll get into the fireside chat in a bit. But Jennifer's going to start us off with a few opening comments.
All right.
Thanks, Jennifer.
OK, thanks, Garrett. Good morning. Good morning to everyone here in Chicago, and good morning to those who are joining us online. If you're online, we are going to go through a little bit of prepared remarks, talk through a few slides, and those slides are available on the Investor web page if you want to look at those for your reference. We've obviously got them up here in the room. Also, if you go to slide two, you see we have our standard cautionary information. I need to make sure everyone understands I will be making some forward-looking statements this morning. Those statements are subject to risks and uncertainties, and so please refer to the Union Pacific website or SEC filings for more information about those risk factors. So then, if you move to slide three, we've got a recap here of our third quarter performance.
It was a strong quarter for us. We had double-digit growth, 11% growth in our operating income. We had 10% growth in our earnings per share. When you think about it in the context of our full-year performance in 2024, it really was a continuation of our improving financial picture that we've been delivering over that period. In my mind, it really does a good job of demonstrating what's possible for our company. For those of you who maybe participated in our Investor Day down in Dallas in September or listened to that online, you really heard us use that term quite a bit in terms of pursuing what's possible, being very much rooted in the strategy that we established a little over a year and a half ago, which is safety, service, operational excellence. Those are the fundamentals of railroading.
When we do those three things excellently, they can lead to very positive financial results. So if you look a little bit further into the quarterly results, it really was driven by 6% volume growth. That 6% volume growth we translated then into freight revenue growth, excluding fuel, of 5%. And so when you see that difference with revenue a little bit off of the volume growth, that's a little unusual for us. But it's pretty easy to understand when you dig down a little bit deeper into those volumes, and you see that the vast majority of our growth was driven by international intermodal volumes, which were up 33% in the quarter. And when you think about the average revenue per car on international intermodal, it's 40%-45% below our system average. So that mix impact is what you see flowing through there from a revenue perspective.
It is not an indication of our core pricing. Our core pricing was very strong in the quarter, but it was offset by that mix impact
. In fact, our core pricing, the dollars that we're yielding for core price continues to exceed our inflation dollars. We've achieved that throughout this high inflationary period, and we believe we'll continue to achieve that, which I'll talk more about in just a moment. Think then about the expense side. Our expenses actually decreased 2% in the quarter. That's pretty remarkable performance, again, when you consider 6% volume increase, largely driven by strong productivity and lower fuel prices year over year. Those things together then sum down to the operating income EPS numbers I just provided you, as well as an operating ratio that was industry-leading, our third consecutive quarter of having an industry-leading operating ratio, and improved 310 basis points to 60.3%.
So again, very strong performance. And one thing I need to mention when talking about operating ratio, I know people like to make a lot about operating ratio in our industry. It is an outcome. It is not the strategy, but it is the outcome of us successfully executing on that strategy. And we have said that because of our ability to execute on the strategy and how we look to position ourselves in the industry, we think that should be industry-leading over the next several years. If you move then to slide four, one of the things that was a highlight, obviously, in the quarter was growth. Being able to see strong growth in the quarter, it was really driven and supported by the service product that we're providing to our customers.
And so when you look at this slide and you see volumes going up through the course of 2024, and then you see our freight car dwell coming down, our freight velocity going up, that really is a great testament to the work that Eric and his team are doing to drive fluidity across the railroad and deliver the service that we sold to our customers, which is a critical element and a critical cornerstone of the foundation of our strategy. But the thing that I think is very important to show here is that we're really, I'll call it either flipping the script or rewriting the narrative, that it is possible for a railroad, for Union Pacific, to be able to grow volumes while at the same time improving our service product. And we also improved our efficiency.
When you look in the bottom right-hand corner, you see the workforce productivity numbers. Workforce productivity for us was an all-time best in the month of September, as well as the third quarter. We also improved productivity measures for our locomotives, and we reached an all-time record in terms of a monthly record for our train length in the quarter at over 9,600 feet, so again, really feel like we're hitting on all cylinders when you think about driving service as we grow volumes while improving efficiency. If you layer that then on top of our rail franchise, we think this is what really is the secret sauce, and executing on that strategy then is unlocking that in terms of the great UP franchise and being able to deliver on the power that that franchise sets us up for.
I'll talk about the franchise more in just a moment, but direct your attention to the upper right-hand. You see our fourth quarter volumes. So we're up 3% quarter to date, and it looks very similar to how things played out for us in the third quarter. You see the growth there is being led by the premium sector of our business. And again, that very much is international intermodal. It's not up quite to the level that it was in the third quarter, but it's up over 20% right now. And so when you think about that mixed impact, that's something that's going to look similar in the fourth quarter to what it did in the third quarter for us.
Longer term, though, we really believe that the service product that we're putting together and the ability to operate in a very efficient manner is what's going to help us now unlock the potential of the franchise and all the different carload opportunities, manifest opportunities, and premium opportunities that are available to us. Kenny Rocker talked pretty extensively about some of those growth opportunities at our Investor Day, but I think it's important to highlight a couple points from that discussion. One is, if you think back over the last three years, we have seen about $700 million of new revenue growth come to us as we completed about 180 track construction projects. Looking forward, we have a pipeline of $1.6 billion. That's billion with a B in revenue opportunities ahead of us, supported by about 200 different track construction projects.
Now, not all of those will likely come to fruition, but we're working on those projects day in and day out. They bring great carload business to us, and we know that there's more that we will backfill into the pipeline as some things maybe don't come to fruition or some things fall out. So the revenue opportunity there is very strong on the carload side of our business. We also highlighted that there's kind of four other markets that we would say are maybe the cornerstones to look about and think about in terms of where we see growth coming from. First and foremost, it is truckload conversion. We know that we offer a very competitive, and we're demonstrating to our customers a very reliable service product that also is very ESG-friendly. So making those truckload conversions is something we're very focused on, particularly with our existing customers.
We also know we have great access and great growth opportunities when you consider the Mexico part of our franchise. For those of you who are familiar with us, you know that we're the only rail in North America with access to all six major border crossings, and we also have a 26% ownership interest in the FXE. We're also very good about our petrochemicals business. That's our bread and butter at Union Pacific. When you think about the petrochems franchise, the amount of investment that continues to go into that part of the world, when you think about the way that our network is positioned, and the investment that we're putting into our network there to be able to support that growth and move that growth very efficiently. It's an exciting time within that industry.
And then last, but certainly not least, if you think about our grain and grain products business, being able to serve and deliver grain to more of the feeders, growing that network into and out of Mexico in terms of delivering more products into Mexico is another tremendous opportunity that I think is important to understand. And that's the volume piece. But on top of the volume piece, we do have the price piece as well. And so when you look in the lower right-hand corner and you think about our portfolio of business, we reprice about 50% of our business, actively reprice about 50% on an annual basis. The other 50% is made up of long-term contracts.
And then when you look at the, I'll call it the cannonball, that's a little bit lower down in the right-hand corner, you see how much of those long-term contracts that we've repriced since 2022. Why are we picking 2022? Well, that was when inflation really started to pick up in our business. You saw the labor agreements. You saw additional work rest agreements, sick pay. Those things really impacted our cost structure and drove significant inflation in our business. Since that time, we've actively repriced about 75% of those long-term contracts. So we still have another 25% that we have not touched at all. But I think it's important to point out that even some of that business that we touched in 2022 and probably early 2023, we didn't have a full appreciation for how sticky, if you will, the inflation was.
So we think there's additional catch-up opportunity within that part of our long-term contracts book. And last but not least, I think it's important to remind everyone, we did enter into on the domestic intermodal side of our business some flexible pricing agreements. We think it was the right agreements for our customers, for us to be able to compete in that marketplace, but we did it at a time that the market was coming down. So again, as that market comes back, that's further opportunity for us. If you go then to our last slide, this really was the culmination of what we talked about down in Dallas at our Investor Day. And so I just want to quickly remind everyone what our long-term guidance is that's out there for us over the next three years.
So when you talk about the top line, we expect, setting aside coal and fuel, that we should be able to grow our volumes faster than the markets and our revenue faster than our volumes. And when we talk about market, we use the estimates from S&P Global, which over the next three years does call for growth, fairly moderate, but there are expectations for growth over that time period. Pricing, I already mentioned that although we have been yielding price dollars that have been in excess of our inflation dollars over this entire last several years through the inflationary period, it has not been enough to be accretive to our margins. We expect that to change starting next year. So pricing not only will continue to exceed inflation dollars, but it will become accretive to our margins in 2025.
With those two things together, continuing to focus on operating a safer railroad, a more operationally efficient railroad, we will believe we'd be able to continue to maintain our position of industry leadership when it comes to operating ratio and from an earnings per share standpoint, we think that that will range between high single digits and low double digits and people have asked, how are you anchoring those two pieces? Really, it is on that lower end of the range. It's tied to the current S&P Global outlook. So if the economy can do a little bit better, we think there's certainly opportunities to outperform and last, but obviously certainly not least, from a capital allocation standpoint, we intend to continue to reward our shareholders as our financial performance improves and we'll do that in a couple of ways.
We'll do that in terms of providing consistent annual dividend increases, and then we're planning to return, call it $4-$5 billion worth of shares to our shareholders annually over the next three years. So all in, I think it's a pretty rosy picture. I'm very excited about what's ahead of us, unlocking the potential of Union Pacific. I think we've got the right strategy and the right team to do just that. So with that, Garrett.
Yeah, it's a great overview, Jennifer. Now we'll shift into the fireside part of the conversation. If the audience has any questions, feel free to submit them through the iPad system or just raise your hand, and we'll be sure to work you into the conversation. So I appreciate all that perspective, Jennifer. There's been a lot going on at Union Pacific over the past year.
How would you summarize a lot of the change that we've seen, and really, how do they position the company for sustained industry-leading performance?
Wow, there's a lot in that question, Garrett. I guess when I think about it, certainly we think the culmination of all the activities is encapsulated in the financial guidance that I just provided. But if you break it down into kind of the building blocks of that, first and foremost, I would say it's focus. The team is very focused on the strategy of safety, service, operational excellence. If you're not doing an activity that is not directly linked to one of those activities, you're not focused on the right things. I think another important part is culture. One of the things that Jim has been really active with within the workforce is talking to them about accountability, decision-making, speed of decision-making.
We've done some delayering in the organization to help that, and that continues to be a mantra that we're pushing through. Own the work that you have, and you have the responsibility to go execute on that. I'm sure we'll talk more about it, but leveraging technology, I would say, is another very important part of that, continuing to really use the great technology assets that we have to improve our safety, our productivity, and then maybe last thing I'd add to that is the buffer, so running with a buffer of resources is a little bit different for us, and I think it's already shown, in fact, I know it's already shown that it's been very valuable for us to do that. We would not have been able to handle that 33% increase in international intermodal volumes in the third quarter without that buffer of resources.
As you might recall, we came into the year thinking international intermodal was probably going to be down because we had lost a contract, and so to see things flip like that and the fact that we were able to react. I think that's a very different dynamic, and I think from a customer standpoint and from an investor standpoint, it really is a very great sign of things to come.
Now, I'd agree. A question we're asking all the companies at the conference this year, help us understand some of the impacts following the election, the results. As we think about taxes, tariffs, deregulation, what are some of the net impacts you see for your business at this stage?
That's really hard to know at this point, Garrett, but we are a heavily regulated industry. To the extent that there can be some regulatory modifications, regulatory easing, I think that could be beneficial to us. Certainly things that help the economy. As I said, S&P Global has a pretty muted coming into this period, had a pretty muted outlook. If that can change, either because of regulatory policy, tax policy, whatever, I know there's also the tariff piece that's out there. We'll see how that all rolls through. Our key is to be ready and able to handle whatever it is.
Yeah, much more to come on the detail side there. As we think about fourth quarter trends, how would you process the quarter-to-date changes that we've seen? Obviously, International Intermodal still carrying the premium side. Should we expect to see more balance across the portfolio, or would you expect import activity to cool off potentially after this pull forward in peak?
Yeah, I mean, so far it has not. I mean, it's come back a little bit, but it's also against a little bit tougher comp on a year-over-year basis. So as the East Coast strikes were settled, although now there's some labor disruptions in the Canadian ports that are going on right now, that certainly has been activity that has driven more volume to us. But when you look across other parts of our business, the industrial segment is still down. And that's the segment of our business that tends to have the highest average revenue per car. So again, we said this at our third quarter earnings, and I'd say it's continuing to play out this way. The fourth quarter is really looking pretty similar.
That's helpful. Rahul, help us understand what you're working on the technology side. You outlined $100 million of benefits coming from tech changes and implementations. What's on the agenda and what's really having an impact at the organization?
Yeah, Garrett. So I didn't grow up in the railroad industry. I came from retail. So it was like anybody's guess what we would find. And here's what I found. UP is truly a tech-forward company, right? And over the last four years, especially, we now put our strategy together to build the basic building blocks that kind of enable this age and era of AI and machine learning that we find ourselves in, right? Right from marketing sales, being on the Salesforce platform, we're the first Class I railroad to put the next generation of operating systems in place. There are microservices-based architecture, plug and play.
Think about today's world of all the niche players that are building all these fantastic products that need to be integrated or go solve our problems. We have that in place. The first railroad, and I think we will be first for a very long time based on what I know about others, and then an SAP back office that now sits on S/4HANA, which has been a nightmare for a lot of companies out there. We've already implemented it. And what that's done is really created the fundamentals building blocks for us, Garrett, on top of which now we're building feature functionality at a breakneck speed, right? That jives with what Jennifer said. Speed of decision-making and the things that need to be built are getting built with customers in mind, with our employees in mind, automation in mind to ring out the inefficiencies.
These are not science projects that we're doing, but we'd cue it and say, what does Eric need to run a more efficient railroad, right? What does that mean from an employee and the connectivity that they need or things like terminal throughput, because that can be inefficient in a railroad? How do we enable things like that? So we sit down every 90 days with each of our business partners, curating that to say, what's the art of the possible that you need to go accomplish those results that Jennifer said? So we are set from a tech perspective in having those fundamentals in place. And I'm very excited, especially in this age of full AI and machine learning, on what all is coming down the pipeline from UP perspective.
No, that's great. What's having the most impact with customers from a visibility solution or connectivity? How is the experience more like Walmart than a Class I rail?
Yeah, so that's, again, customer service, exactly, is not at the top of the list in the industry, but we don't think like that anymore, right? We have to get the fundamentals in place, so from a customer visibility perspective, now that we've got these building blocks, we've been able to do a few things, and I'll highlight those. First, customers say, talk about visibility, right? It's really difficult to know where's my stuff, right? I heard that in every customer forum, every customer advisory board. We said, we'll go solve that, right, so we signed up with about 150 customers to say, we want to build a product that serves you in a meaningful way, and that thought came to us in about second quarter. We started the product.
And I announced that at the investor day that was going to come later this year, where we implemented it last week, the first pilot of that. That's the speed I'm talking about. What does that give us? Customers fundamentally want to know where's my stuff. If there's an exception, can you be exceptional in exception management and notify us? Have an easy mechanism for us. The product's called Customer Vision, and we just already implemented a pilot version of it. Now, God knows where it's going to go, Garrett, over the next six months as we kind of learn things from it, but we will let the customers inform us. Second, customers have said, we want now that you've built this phenomenal API network, and the number of APIs we're doing, by the way, is equal to some of the most leading Silicon Valley companies.
Can we lean into that? We have over 200 customers that do bidirectional conversations with us, which takes the customer friction and the customer journey simpler, takes those friction points out. So we're working hand in glove with our customers on the things that they want to solve. They've said, hey, your website needs help. Guess what? Later this year, our website will be completely reinvented and with one thing in mind. It's going to be designed with the customer in mind, right? So those are the retail fundamentals now coming into our company here.
That's great perspective. And maybe tie back for investors. What's on your agenda? Tie back to an OR outcome or attracting more business to the rail. Is that a tangible driver we can expect?
Yeah, so listen, OR, like Jennifer said, is an outcome, right? If we run, my job is to run safe, secure tech, be operationally efficient, that Walmart kind of inculcated that, and then have a customer impact to remove the friction points. Like I said, we've put a target out there to say, because of this data analytics platform that we've built, because of the AI and machine learning algorithms now we will build over the course of next three years, we'll help bring out about $100 million in productivity, right?
Does that have an impact on OR? Oh, yeah, but meaningfully, what it'll have is the throughput that I worry about more, right? If we can have more throughput, if the trains are running faster, if the terminals are more smooth, right? That's better customer service. That's better ETAs, and then you can combine that with awesome visibility. That usually translates more into growth with the customers.
That's great. And Jennifer, I would love to hear more about the comment about pricing being accretive to margins. Obviously, the service product has been really strong. Has anything changed in those conversations with customers, or what are your expectations for pricing as we look forward to 2025?
Yeah, I mean, I would say nothing has maybe changed meaningfully with the customers. And I know if Kenny were here, he would say, it's always still a tough conversation. But we're walking our talk, and we're providing value to our customers. And so it's much easier to go in when you're providing a good service product, when you're being viewed as a partner with that customer, to talk to them about not only, hey, here's what we're looking at in terms of price increases. This is going to support the ongoing capital investments I'm making to support your business.
This is going to support the service product. But also, let's talk about opening up your book of business. So I know I may be only handling X% of it as your railroad. I know you're moving some business by truck. I know you're moving some business maybe by another rail. What can I do to increase my wallet share with you? And so it's really twofold that that service product sets us up for. It's to be able to have that price conversation and feel very confident in that, but it's also to grow the business.
Now, that's helpful. And what are the primary drivers for OR improvement going forward? Is it going to be a function of volume growth, or where can you unlock more productivity gain? It was good to see on the service side, velocity and dwell continuing to improve. What can you control on your own to improve profitability?
Yeah, I mean, you know it's a three-legged stool for us, right? It's volume, it's productivity, and it's price. And if you look back at our work historically, where we have made the improvements to our OR, it's been on the productivity and price side. We still absolutely have productivity opportunities. They're across the board. We're continuing to work on those. We will continue to be able to get pricing in the marketplace. We know that that's a must-have for us. We're providing very valuable service, and we want to be compensated appropriately for that. But volume needs to be a bigger part of our picture. It's not that we have purposely chased away volume. I think some people maybe have an incorrect narrative there. We want to grow our business. We have been working to grow our business.
There have been headwinds in different cases. Coal, obviously, is kind of first and foremost. But setting that aside, we need to go out and, by providing a more consistent service product and showing to our customers that we can improve service as volumes grow, that's game-changing. And that's what's going to help us, I think, unlock that growth piece because we know the franchise is built for it. We know the franchise is set up in terms of the markets that are there to be able to serve.
I think that's good perspective. And the investor community has been looking for the railroad industry to demonstrate and capitalize on that growth potential. I guess talk about that opportunity. 200 projects in the works, $1.6 billion of pipeline opportunity. Is your visibility to realizing that demand and growth better now after these investments you've made? Any perspective there would be great.
I don't know that the visibility is necessarily any better now, but the team definitely is going out, and they have a unique, I'll call it, playbook that they're able to go after and utilize when they're trying to get that business brought onto our network. They're able to demonstrate to our customers that we're providing good service. We're able to demonstrate to our customers that we're making investments to further support that, and those investments are in physical assets, but they're also in the technology assets that Rahul's talking about, and we're willing to change our service if we need to, so we've got examples. I was talking to Kenny the other day where there's a customer that we've historically done some business with. They asked us if we could increase our day-of-week service.
By doing that, they were willing to shift some business to us that was currently moving by truck. That's probably a conversation in the past where we're either resource-constrained or we're maybe bumping up against it in capacity in some way, shape, or form that we wouldn't have been willing to say yes to. We said yes to that. As a result, we won incremental business from that customer.
That's great. I'd love to hear how you're approaching the 2025 plan and, at the industry level, some of the puts and takes that you see out there today.
Yeah, I mean, 2025 is probably not going to be a dramatic shift, at least not on day one from 2024. As I said, I think most of the economic indicators right now show growth, but it's not a ski slope kind of thing. It's fairly incremental. We do continue to see opportunities on the intermodal side to win new business. We see opportunities really across the portfolio to win new business. But I don't think the fundamentals in terms of what's driving kind of the macro sense of it, we don't see that changing dramatically, at least not into the first part of 2025.
No, that's fair. And I think it's good to have anchored expectations. But how do you improve performance and break out of the consistent outlook as we think about the fourth quarter? Just maybe to close, just remind us of those idiosyncratic opportunities and how you chase down that truly best-in-class performance. I think the 1% outlook perhaps for industrial production next year could be conservative, but we'll see, and hopefully it is. But how do you capitalize and improve performance on a company-specific level?
Yeah, well, to your point, hopefully it is conservative, but also to that point, we have to be positioned to be able to capitalize on it, and so that's where the team is very focused on providing that good service product, really working directly with our customers day in and day out and identifying what their needs are, what is being unmet that you need to be able to grow your volumes. Is it the increased day-of-week service? We had a situation with a customer where they needed to know better car supply. If we could guarantee them better car supply, they were willing to shift business, so we rallied the troops, had discussions, secured some additional cars, and now we're after that business.
Is it we need to provide maybe some different locomotive power so that they could build some longer blocks of trains when we make our service to their plant on, I think, an every-other-day basis? So it's those really in-the-trench kind of activities that are happening across the board that are winning new business, bringing it in at a very good profitable price, and then executing on that. Because at the end of it, we have to execute because that's what brings it all together.
Well, that's great perspective. Special thanks to Jennifer and Rahul and Union Pacific for being here. With that, our success meeting is adjourned, and thanks again for being here. Take care.