Exactly. All right, thanks, and good morning again, everybody. Very excited to be joined again, in the transport track by Union Pacific from UP. We have Jim Vena, CEO, Jennifer Hamann, CFO. In the audience, we have Diana and Brandon from the IR team. Thanks, everyone, for joining us. Really appreciate your coming to the conference today.
Thanks for having me.
And Jennifer.
I think you guys have one slide. We only allowed you one slide, no more than that. We have lots of questions we want to get to, so we're going to turn it over to you for a couple of opening comments. We're going to dig right in after that.
Great. Listen, for myself and Jennifer, questions are more important than us to speak for 30, 40 minutes, so let's be quick. You can see the slide up, and I'll talk about that in a minute, but the first thing I always have to say is remember we're going to be making statements that are forward-looking, and make sure that you—if you need more information, please go on our website or call us at Union Pacific, and we'll clarify or give you the information that maybe you—if you didn't understand it completely or I did not explain it well enough, especially, as I said earlier before we got on. I want to make sure that that's there. Second is, when you're operating a railroad and you're managing a railroad, there's a lot of moving parts.
You know, there's the political, the regulatory, there's the state and local, local governments, there's what we do as far as interaction with the public. Really, the foundation of everything that we do is how well we can operate. If you ever make a mistake on that, then it truly affects everything. If you think about it, if you're not fluid, then you're slow getting into rail yards in big cities, and guess what? The communities understand that because they see the blocked crossings or the impact. If you're slow getting trains over the railroad out there, you can see that. The effect is not just internally that the metrics aren't good; you are actually impacting. Let me tell you about where we are at Union Pacific and this journey. I've been here just about two years.
There are some people at Union Pacific that feel that the two years was actually only a year. You know, they figure, "Vena hasn't been here for very long," and I've run into a couple of people that said, "Is it—are you just starting your second year?" and I'm going, "Wow, I didn't have that much of an impact on." Then there's other people that go, "Wow, those first 22 months feels like a decade." I would rather have those people because that means we're pushing and we're trying to do things. Guess what's real important is, is what is it that we're doing? Car velocity, key measure in the 220s. We are very fluid. We are operating excellent. This morning, I looked, and this is one of those numbers that's not yet public.
In the last week, our train speed all in is over 20 mi an hour, which is pretty good for the railroad when you—what—how you work out that number. Remember, I do not give a lot of—a lot of value to that number. It is just a guide point or a point. For me, car velocity is more important. Fluidity is good. The terminals are working at a dwell level that is setting records. Underneath the numbers that you do not see that we look at is how long does it take us to change a crew when we—when we have a crew change with the trains. Those are running just about at record levels, if not record levels.
I could keep on going, and when we look at the report that I get every morning, there's about 90 different metrics, but something that tells you how much revenue, where we are with the railroad, what the operation's like, all those things, love where we are. Real key is, is what's the service like and what are the customers seeing? In fact, Jennifer ran into a customer of ours that was presenting here, a fairly big customer of ours, and Jennifer, good CFO, says, "How's the service? Best he's ever seen." We're in a good place, and we want to continue to build on it. This is not the end.
I remember some of you, maybe not in this room, but others, because you guys were—all of you in here are too smart to ask me that question when I came back last time, "Is there anything left to do?" Basically, I guess they must have thought I was going to come in, put my feet on the desk, and enjoy it. In actual fact, there is, and there is more we can do to make the place more resilient, faster recovery ability, speed is of the essence, and service at a high level, and we think that drives us to win. With that, I am not going to get into where our car loads are. You are probably going to ask the question.
That's my job.
That's your job. Let me pass that over to Jennifer, and she can give you a quick little discussion about that before we open it up to questions.
Yeah, and I'll be brief, but, you know, good 2nd quarter in terms of our car loadings, up 5% quarter to date. I'm sure you all looked at car loads that came out yesterday, so we've got them up on the slide as well. Our bulk loadings are up 12%, certainly the headline there, coal. Our coal loadings are up almost 35% quarter to date, very strong performance, and certainly part of that is attributable to higher natural gas prices. We have the contract win that started moving on us in April. The other thing that I think I have to point out, and kind of going back to Jim's comments on operations, is giving props to the operating team because they have been very nimble. They have reacted.
We were not forecasting + 35% kind of coal volumes, and the fact that they have been able to dedicate the resources, pivot and surge, and handle that in a very efficient manner, I think, is a real plus, and it goes to that strong service product and what that does for us. Industrial, a little bit of a mixed bag, but still seeing strong performance on the industrial chems and plastics. If you look then at the premium line, that is kind of a tale of two pieces. You have automotive, which is down quarter- over- quarter, down about 6%. You have intermodal, which is still up, but certainly you saw in our intermodal volumes this week, in total, down 7%. We are hitting that air pocket that people have been looking for.
I don't think it's been as dramatic maybe as some were expecting, but certainly it's something that's giving a little bit of a tale to our overall loadings right now. From a mix perspective, and I know you'll ask this question, Chris, it does help the mix, the fact that you see less international intermodal on our business, but with that surge in coal, coal is still a little bit of a negative mix for us, so it doesn't totally change that trajectory at all. You know, again, net-net, feel like we're in a good place. We do, you know, looking out ahead, I think there is going to be a little bit of a rebound in those international intermodal volumes. We've got the 90-day pause. We'll see how quickly some of that turns around for us.
Great setup for the quarter, strong performance when you think about how the operating team is running the railroad. Great to, again, see those volumes. Really, again, you've heard me say this, changing the paradigm for the industry and for ourselves in terms of improving the service, growing the volumes, and that's just a great setup and why we're so bullish about UP right now.
That's a great intro. Appreciate that. There certainly is the opportunity for folks in the audience to ask questions, so if you want to ask a question, raise your hand, we'll get it over to you. This is a question they're going to ask. I'm going to ask it first because we get it all the time now, and so good.
Things you're going to ask me about, how car velocity can get to 230?
I was actually going to ask about where you got the tie, but yeah. Things find their way into the press for various reasons. You know, there was an article a few weeks ago about potential M&A coming back into the space. We wanted to get your take on this. Is this something that we think is reality? Is it a possibility? Is it something that UP would have interest doing?
I was asked the question by a reporter, okay, with one of the trade magazines, and I answered the question. I don't think I have anything further to add to that. It's pretty straightforward, but let me summarize it because I don't think it's fair to just leave it at that. Bottom line is, do I, Jim Vena, think that a merger would be beneficial for the country? Absolutely. It would be beneficial for the country. Second, would it be beneficial for our customers? Absolutely. Would it be beneficial for how we look at some of the U.S. forces and products that we move across the country? Absolutely. There are a lot of things that are positive, but on the other side, you have to deal with the regulatory, right, and the political side and how you could get it done. It's not easy.
It's complicated. No one wants to get into something if you think you want to try it, but then you know that the possibility of you getting it is zero. At the end of the day, that was the question I answered, was I think it'd be fantastic for our customers, fantastic for competition, fantastic politically, and I think the regulators would have to deal with it if somebody went forward. That's the answer I gave. I haven't changed my mind. If anybody's been listening to me, I've said that for years. I wasn't against the logic behind it, but you also have to understand what the rules are in place and how you would deal with it and how you'd move forward.
I do not want to belabor this, so I am not going to ask a ton of follow-ups on it, but just to be clear, you do not feel like the probability is zero at this point?
You know what? Listen, I'm Jim Vena. There's a lot of people that would tell you when I joined the railroad that, and I remember sitting in 2000 because history is real important on the character of the person. In 2019, when I came to Union Pacific, I was asked by one analyst the question, and that's why I still joke around about it, is, "UP's gone through this UP 2020, so they're just about done. Do you have anything to do, or are you going to have your feet on the desk?" That was during the very 1st quarterly call. I sort of smiled to myself and I said, "No, I think there's a few things for us to do." Internally, it was the same way. The way we work at Union Pacific is we look at what's possible.
We do not look at what is just in front of us. We are trying to build this company, and I think as a management team, we are along that path a long ways. We do not look at whether we can get—we have got records on our crew change. We look at it, can we get it to 52 minutes? That is the way to look at it. Everything that we do, we look at it in that, but we are also smart enough to say, "We are not going to take something on that degrades value for our shareholders." That is real important, right? Everything that we do is about running a long-term sustainable company that adds value to our shareholders, and over the long run, they win and they beat what they could do with their money somewhere else. That is the way I think. Who knows?
At the end of the day, it's a difficult one, and we'll take it. All it was was an answer to a question, and son of a gun, I guess, and maybe in hindsight, I should have just said, I don't really want to talk about that. At the end of the day, anybody that knows me, I'm honest and upfront. Last point. Railroads always look at, unless you're an idiot and unless your company's stupid, you always look at everything that you can do to grow your business to see what you can do. That's the capitalist way, and I'm about as big a capitalist as you've ever seen, okay? That's what it's all about, Chris.
Appreciate that.
Simple as that.
Appreciate that. That's very helpful.
You want to add anything on that?
I don't think I can.
Okay. Sure.
Yeah.
Okay.
Great. Listen, let's talk about the business and how things are going. Obviously, you noted 5% volumes quarter to date. You're seeing strength in bulk and coal. Intermodal is maybe fading, so a little bit around the lull that you talked about. You guys sit on the West Coast, so let's talk about that. There was discussion about the tariffs impacting the business, and then maybe with China coming down from 145 to 30, potentially a surge. Where do you stand on that in terms of what you're seeing? We've heard anecdotally that if the volume's going to start hitting in a bigger way, it would be kind of in the next week or two now that we're sitting, you know, in June here. How are you guys looking at the next, you know, several weeks of activity, particularly on the West Coast?
Let's take team that. No advanced advice. We can see what's coming on the vessels. You saw a drop, and you see a slight increase. You can't see too far ahead because you don't know exactly what the people that are purchasing weeks down the road versus what was pulled ahead. At the end of the day, we see a slight change, but at the end of the day, we know Union Pacific just because of forces that were outside of what we had. We had a real strong international intermodal in the second half last year just because of the issues with labor and both the East Coast and in Canada and issues in Canada. We expect that this year to happen in the second half, and we'll deal with it.
The nice part about us, and then Jennifer will jump in and give way more detail than I'm giving right now. At the end of the day, for us, it's the originations that we have, and I think sometimes people miss that, but if you take a look at, it's not just the number of different markets that we're in, it's the size of the markets. On the bulk side, our grain and movements this quarter are substantially up, and they're up because we've got the draw, and we also have built and spent money on capital to have the right facilities, and the markets that we serve, whether they're export out of the Gulf or into Mexico or up and down the river before they get to the river to be using that, are all positive for us.
Yes, we have some negative in some area, but lots of positive. The intermodal piece, I do not know. I like the industrial and the bulk business, and if I can grow that over the intermodal, I think the railroads have made some real strategically impactful decisions on how they handle intermodal that are not helpful. A little downturn on that in the second half, and we can do more on bulk and industrial. Hurt me again, okay?
We do love all of our customers, so I want to clarify that because all of our businesses are operating.
I didn't say I didn't love them.
No, but I want to give a little love out to the intermodal crowd. You know, if you think about just the international piece, which is kind of where you started, Chris, our April international loadings, I think were up, call it 18% or so. May, I think we were down about 4%. That really does show you what happened. We'll see what happens here in June. Jim, I think appropriately called out, this is we're starting to lap that time period where we really started to see international intermodal surge for us. We may see on an absolute level, see those car loads come back some, but when you're looking at some of those week-over-week comps, it may still look a little challenged just because of some of that.
Got it. On the coal side in particular, a lot of strength there, is there a way to kind of break apart what might be seasonal inventory type of stuff as opposed to, you know, more sustainable business opportunity for you as you go through the rest of the year? I guess in other words, in the back half of the year, how do you think coal ultimately shapes up?
A lot of it is tied to what happens to outside forces, but there has been a change in the way people look at coal and how fast people want to get out of that generation of electricity for coal. I think there's a change. On top of that, we had some customers join us, okay, to be able to help us with the amount. We think we're in a good place there. We really are. We have the network built, okay? The railroad was built for way more trains to handle it. We have the locomotives. We add a few people, so it's great business for us, and we like it, and we'll do everything we can that's smart to be able to do that. We're trying to drive it more efficient.
Size of the trains, make them way bigger, you know, add 30-40-50% more on the size of the train. We started that a few years ago, but for us, that was to be able to make sure that they're competitive against other forms of energy that can be. Who knows what's going to happen with that? I don't know, Chris. If anybody can tell me what the tariff is going to be on some product coming in the U.S. in the next month, let me know because I sure don't, so.
We're still trying to figure that out, so I'll get back to you on that one. Don't have a good answer yet. Let's round out kind of the conversation on volume. You know, merchandise and industrial, you noted that. ISM has been kind of soft for an extended period. We're now kind of two-plus years into this now. Any sort of signs of, you know, lighter opportunity as we move into the back half of the year on the merchandise side?
Yeah, I think, again, so the industrial chemicals and plastics, that's staying pretty solid for us, which is good. We are looking for better performance in our construction products, so think about rock. Had a record year in 2023. 2024 was more challenged, mostly because of weather. It was not as much of a demand issue, but weather in Texas just did not really cooperate much for us. We are looking to be able to get back to some of those 2023 levels this year. I think that will be a good news story. You know, lumber kind of hanging in there, but without much housing demand, it is tough to see a real upside to that. And then the metals, you know, we will see what happens maybe with some of the tariffs there. That could be a potential spark for some of that business.
You know, on the. You can always look at things with a glass half full. I like where we are. I think we've done a great job of making the railroad as efficient as it needs to be to win business, and we think our customers are going to go out there and win business. Some of the markets, they can't win at. You know, it's just not in the right location, right time. There's other areas. Whether it's soda ash, whether it's coal, whether it's potash, whether it's lumber, whether it's grain, whether it's grain products, whether it's international domestic auto parts out of Mexico autos, we handle so much of what the U.S. economy is, but what I like about it is I think we win. We're going to have some ups and downs.
Nobody can handle a long-term effect of higher interest rates or something that affects the economy. If the consumer keeps on spending, and from what I've seen so far and what all the metrics say, they're spending, I like where we are. I really do. I think we've done a great job of making sure we get value for the product that we provide customers, and we'll continue to do that because value for us for what we're doing is real important, but we return value to our customers, and we see what we can do to grow in the marketplace with them. We have a couple of hundred sites that we've set up to be able to grow our business. Some of them are already in Kansas City. There's a reason why we want to open up.
Here's a little love for the international and domestic intermodal as we think it's a better mousetrap for us to be able to expand that market, whether it's Phoenix, what we've done at the east end of the L.A. Valley. All those things are important for us because we want to outgrow what we had last year and the year before. Chris, always put some tanks, but nice 2nd quarter.
Is auto coming across the border from Mexico, is that still flowing? Kind of, I think it paused for a moment after the tariffs were put in. Is that back to a reasonably normal level of activity at this point?
Yeah, I'd say reasonably, although auto volumes are down year- over- year. I think I mentioned that. I think they're down about 6%, and that's both the finished vehicles and parts. That's really a demand issue, kind of going back to where Jim was at. It's less about, at least from what we can see at this point, in terms of a true tariff impact, and it's more that the consumers aren't engaged with that level of spend. You know, we're also coming into the time of period where auto manufacturers are going to retool. They do that often around the 4th of July period, do some retooling. Some are shifting a little bit more production up into the U.S. There's opportunities for us there.
Obviously, we have the best auto franchise kind of hands down when you think about all the auto facilities that we have, our book of auto customers that we work with, all the major ones out there. We feel very good about that. We are positioned for growth when that industry starts to get more engaged and when people are out buying cars again.
On the last call, I think you noted that price dollars, I think, net of cost inflation, were amongst the best that you've seen in a number of years.
A decade.
Yeah, a decade, 10 years. Can you talk a little bit about the price opportunity as the rest of the year progresses? Are we in the position where we're starting to see catch-up from some of the inflation that's been embedded in the cost side of the rail industry for the last couple of years but hasn't seen the price pick up? Is that where we are at this point?
I think it's a couple of things. I think, and we talked about this back at our investor day, if you look at our contracts, about half of our total book of business is in long-term contracts. We repriced, call it 75% of that book in 2022- 2024. In those early years, in 2022 in particular, we did not fully appreciate what was happening with inflation. Some of those pieces of business were repriced before the PEB and before some of the big labor inflation started to roll through. As we are looking at that book of business, we definitely think the next time that comes available, we have an opportunity, especially with the service product that we are providing as well. We are providing real value to our customers. We are giving them cost savings.
Rail transportation is still a much more economic form of freight movement than trucks is. As we've improved the service, we've got a great safety track record. Those are all things that give us just very good confidence and conviction that we're going to be able to continue to achieve strong pricing in those areas. That's why we, you know, end of the year last year, we started seeing price become more accretive. Certainly, we've said it's going to be accretive going forward for us from a margin standpoint. There's good line of sight to that. The team understands what they need to deliver, and it's being backed up by a great operational performance.
I think when we talked with the 1st quarter operating ratio, you guys thought that operating ratio, I think there is seasonal improvement that is normally expected 1 Q -2 Q. I do not know that you went a lot farther than that, but I guess as you think about putting some thoughts around operating ratio, whether it be for 2 Q or as we move through the rest of the year, any reason to think that sort of normal seasonality is not playing out? I mean, car loads are up 5%, like you said, things are seemingly moving in the right direction from a service perspective as well.
Yeah, that's very positive. The only thing that I would say, I mean, I'm still trying to understand what normal seasonality is anymore. It feels like all of those things have kind of gotten thrown up in the air a bit because we could well have a 2nd quarter car loadings that are less than 1st quarter when you think about it, the way the 1st quarter car loadings really surge. We are watching that, but again, the network is running really well. We are seeing an improvement in our mix of business. I would say not mixing to the positive because you do still have coal out there, but feel very good about it.
Of course, Jennifer never wants to give an operating number, right, Chris?
I'm looking at you for that.
Yeah, I got it.
I leave him to do that.
Bottom line is this: take the noise out that you can't truly control, so property sale, stuff like that.
Which we don't put in our operating budget.
Which we don't put in ours, but at the end of the day, we think, in fact, we don't think, we know that we can be and have the capability with the management team we have. We don't have the longest length of haul. There are other people that have longer length of haul than us. If you look at the way we operate and the way we do things, yeah, we should have the best in the industry. I've also always said that everybody should be within 100 basis points. This quarter looks like it could be okay.
We do not give numbers on purpose because when we go to announce, there is so much in and out that you have to play on with what happens that if the headline says it is X, everybody is going to say, "Vena, you told me it was going to be X minus two from 200 basis points from the 1st quarter." For me, the fundamentals are right, and I am very comfortable about where we are going to end up, and that is real important. You know, somebody asked me, "How far can you get?" There is a point of diminishing value for what you are doing, and you do that, and you make a mistake on that, then it hurts you. I am real happy where we are, and I am looking forward to closing the next three weeks this week and announcing a good quarter in July.
Let's talk a little bit about the cost side and maybe labor specifically. We've seen some other headlines around preliminary contracts being signed. You know, what is your thought on the opportunity with labor? Hopefully, we'll see cost inflation continue to come down, but you know, any expectations or thoughts around that?
I will tell you, Chris, when we look at what happened after the last round, and you always learn. I remember when I came back to work, and the first thing I did was go through these contracts that we had signed up, and I was very disappointed at Union Pacific. I really was. We made changes, and we provided things to our employees, and it is always good. We pay our employees at the highest level in the industry, okay? We are not cheap. We want to pay them good, but we also expect them to work. What we did was we actually, with some of the agreements, even though they had a wage increase, they are just not working as much because we limited ourselves so much, and some of them are not happy.
Some of them are happy, but some of them are not happy because their actual total take-home pay is not making as much as they were. I never make that mistake. You got to give people the capability to make the money that's possible for them and what they want to live their lives. That is why we moved off from having to be part of the national deal. There are a few things that we want to tweak in those collective agreements that actually help both of us, our employees and ourselves, to compete with others in the marketplace and give better service to our customers. That is why we are negotiating on our own. We have already signed two, and I think we are close to signing the third right away. The first one is basically ratified, so they are good deals.
The pattern was set on what the wage is, and it's pretty tough to move away from that pattern. It was higher than what inflation. You can see what happened in Canada. The Canadians got an arbitrator to give them a 3% wage increase. Here we are in the U.S. giving people 4% because we didn't have the patience to wait. We're negotiating on our own at Union Pacific. I know I'm strong on this one here, Chris, and you can see it's irritating, but I can't go back to change things. Moving forward, Union Pacific's going to make their own deals, what's best for our employees and Union Pacific, not following some pattern that somebody else wants to make. Son of a gun, 3% in Canada versus 4%, okay, July 1st here in the U.S. That doesn't make a particle of sense to me.
I know what people make in Canada and what their buying power and parity is. Like, yes, you got me going on that one.
I might ask you a follow-up on that. Is there the opportunity to do something different than 4%?
Listen, I do not think so. I think if I was a person that had a spreadsheet and I wanted to put in some numbers, what you will not see is the little tweaks that will help us sort of mitigate some of that. We have been able to do a lot of that over the last two years on the number of people it takes because we are switching more cars per person. Actually, you know, the full wage increase that was put in last time, if you look at the total dollars spent, each individual employee might be up X amount % that we signed the contract, but the total spend is down a little bit. That is what you want to do, to be able to move that ahead.
Yeah, I think it's pretty hard to, once a union in the same industry, and especially if some of the bigger ones have a deal made out that gives them 17.2% over five years, it's pretty hard to move off of that. I'm not into having a fight with our employees, okay? Our employees are real important for us. For us, we'll do the pattern. Give me a couple of things like on a North Platte, I can work you both ways if I'm short people one way or the other. Not a huge amount, but those little tweaks allow you to react when there's an issue on the railroad and what you want to do that gives you better, higher level of service.
Kenny's job and the team needs to go out and use that high service level to see what the market will drive for value and be able to price for that value that we have so our customers, because it's competitive out there. You know, I wish it was easy. You just get up in the morning and tell everybody, "Give me 8%." It is a competitive market, competitive customers, competitive railroad, and we need to be able to win in that marketplace. Yeah, I think I put it in. Sorry for the long answer, but it gives you a feel of how we think. That is real important, who we are at Union Pacific and what we see that we have to do over the next few years.
It's high level of service, grow the business, our customers win, more customers want to be with us, and we'll take that 2-3% increase in rail cars as we move ahead.
Yep.
Okay?
I want to make sure if there's any questions for the audience, we'll get you in here. We're running a little short on time. They can think it over for a second. I wanted to ask you about the full year. You talked about earnings growth kind of consistent with the full year, the longer-term targets that you laid out at investor day. You know, obviously that can mean a lot of different things as we're here a little further into the year, almost halfway through. Volume seems okay. Obviously, there's some puts and takes around tariff, and there still is a lot of uncertainty, as you noted. Anything else to kind of add from finer point on around the guidance for the full year?
No, I do not necessarily think so. I mean, I think, you know, we laid those targets out in September. A lot of the world, to your point, has changed since then. And we still feel confident that we are going to be able to meet those. You know, it does not necessarily mean we are going to be, you know, at some exact cadence or that it is going to be, you know, smooth and symmetrical through those three years, but certainly feel very confident that we have, with the service product we are providing with the diversity of our franchise, with the new business that we are winning, feel very confident that we are going to be able to achieve those targets.
Yeah, and we have to have a good strong start, right? We did not come up with a high single- digit or low double digit because we thought it was a, we shot a dart at a dartboard and came up with a number. We did a lot of work to get there. And we are very confident. This year, I like where we are right now to deliver at the right level in that range. This year could be on the lower end of it, but so what? We have clear sight of what we are doing this year, next year, and the following year to be able to deliver that. That is where we are. Jennifer does not like it when I get a little too specific, but, and she talks about the system.
They just plug the number into their model.
I got it. I am here to deliver. I do not know about your business.
We appreciate that.
I'm not here to just talk about it. I'm here to deliver, okay?
One last specific question before we let you go here. Shares, not to hit a sore point, have underperformed some of your peers more recently. Do you see value in the stock? You guys bought a bunch in April. You talked about that on the call. I do not know how to think about the buyback program. I think it is $4 billion-$4.5 billion over the course of the full year. Any thoughts around that?
Yeah, I mean, I absolutely think our shares are undervalued, and so we are a buyer of our shares. We think it's a great investment. We think everybody should be buying UP right now at these levels.
We're buy rated, so there you go.
Appreciate it.
Thanks, everybody. Appreciate it. Thank you.
Thank you very much.
Chris, thank you.
Thanks, sir. Appreciate it. Always good.