The operator introduces the host, Jim Vena, for Union Pacific's Third Quarter Earnings Call. Vena is joined by the CFO, EVP of Marketing and Sales, and EVP of Operations. Vena emphasizes the importance of safety and aims to make Union Pacific the safest railroad in North America. He also prioritizes service and operational excellence and plans to streamline decision-making within the organization.

The second paragraph of the article discusses a cultural change within the company to empower employees and ensure operational excellence. The third quarter results were then presented, showing a decline in net income and operating revenue, but also a decrease in expenses. However, the company is still facing challenges with inflation and fuel surcharge programs. The CEO is confident that the company is taking the necessary steps to improve and build upon these results. The next speaker will provide more details on the financials for the quarter.

In the third quarter, the company's operating revenue decreased by 10% compared to last year, primarily due to a decline in freight revenue and a decrease in fuel surcharge revenue. However, the company saw a 150 basis point increase in freight revenue due to solid core pricing gains, although this was partially offset by an unfavorable business mix. Other revenue also decreased by 13%, mainly due to a reduction in accessorials. On the expense side, operating expenses decreased by 4%, driven by lower fuel prices and volume-related costs. Compensation and benefits expense also decreased, partly due to a reduction in workforce levels and a decrease in train crew personnel in training. Overall, the company's productivity has improved.

The company expects a higher cost per employee for the full year due to increased workforce levels and wage inflation. Fuel expense decreased due to lower fuel prices, but other expenses grew due to higher casualty costs and one-time write-offs. Operating income declined by 17% compared to last year. Other income decreased and interest expense increased. Net income and earnings per share also decreased. The operating ratio increased to 63.4%. Cash from operations decreased by $1 billion due to lower net income and labor payments.

The company's free cash flow and cash flow conversion rate were impacted, but they have returned a significant amount of cash to shareholders. The overall financial outlook for the remainder of the year is largely unchanged, with a focus on maximizing growth opportunities and improving service. However, there are still challenges, such as fuel costs and inflation. The company's capital plan is slightly higher than expected. The company is striving to continue its current momentum and improve its financials in the coming year. The speaker then hands over to Kenny to discuss the business environment.

In the third quarter, Union Pacific's freight revenue declined by 9% with a 3% decrease in volume. The Bulk and Industrial segments were the main drivers of this decline, with a 10% decrease in revenue and a 6% decrease in average revenue per car respectively. This was due to lower fuel surcharges and a decline in volume, particularly in grain exports and coal. However, the company saw growth in its Rock network and automotive volumes. Premium revenue was also down by 12% due to a decrease in volume and fuel surcharges, but the company outperformed the market in this segment with a strong business development pipeline. Intermodal volumes were also down, primarily due to softness in the parcel segment and weak imports on the West Coast.

The company's domestic truckload volume increased slightly due to new business wins and stronger shipments to Mexico. The fourth quarter outlook includes challenges in the coal market, but potential growth in the grain and renewable biofuel markets. Industrial production is expected to remain low, but the company's focus on business development may benefit the petroleum and construction markets. The premium sector is seeing an uptick in demand, particularly in the automotive industry, but the ongoing UAW negotiations may have a negative impact. Overall, the company has a diverse portfolio and is focused on what they can control in a challenging market.

The company has a strong pipeline of opportunities and is actively pursuing new business through partnerships. They are focused on safety and are committed to leading the industry in service and operational excellence. Despite weather challenges, their performance metrics have improved and they are maintaining positive momentum. Freight car velocity has also improved by 5% this quarter.

The increased freight car velocity has resulted in improved trip plan compliance for customers. The company is working to further improve its efficiency metrics, such as locomotive and workforce productivity, and train length. Despite lower volumes in intermodal business, train length has increased by 6% since January. The company recognizes the importance of balancing resources and is focused on maximizing efficiency in various areas.

The team at Union Pacific has outlined the challenges they are facing, including inflationary pressure, a challenging volume environment, and the need for improved safety, service, and efficiency. Despite these challenges, the team is leveraging their business development pipeline and seeing strong momentum in September. The new CEO, Jim Vena, is focused on increasing urgency and aligning the team with a strategy of safety, service, and operational excellence in order to drive growth for the railroad. The team is now ready to take questions from investors.

Jim Vena, Union Pacific's COO, discusses the metrics he focuses on when getting started with the company. He mentions the importance of a strong network and having enough capacity to handle fluctuations in business. Vena also looks at revenue as a key indicator of the company's performance.

The speaker discusses various metrics they use to evaluate the performance of the railroad, including volume, revenue, car velocity, fluidity, and asset management. They mention that they have over 500 locomotives parked and ready to use, and that they were able to store 300 locomotives during the quarter. They also mention facing challenges with workforce productivity.

The speaker, Jim Vena, discusses the challenge of overcoming productivity headwinds and improving car velocity in order to increase commercial momentum and improve the company's operating ratio. He mentions strategies such as reducing the fleet and implementing remote control locomotives, and believes there is still more opportunity for growth. The speaker is optimistic about the future and believes progress can be made even if volume remains flat or the economy is muted.

Jim Vena discusses the challenges he faced when returning to work, including inflation and labor costs. He emphasizes the importance of efficiency and productivity, and believes that the railroad's speed and network should be leveraged to provide customers with the best service.

The speaker discusses their love for the places they serve and their customers, and their goal to become the most efficient railroad in North America. They are pushing their team to make decisions quicker and react faster in order to win. The speaker also mentions their strategy for pricing and contracts in light of current inflation.

The speaker is addressing concerns about the company's recent performance and explains that they are currently repricing contracts to reflect labor costs. They are also investing in improvements and are confident in their ability to communicate the value of these investments to customers. However, it may take some time to reprice all contracts, as half of their book is in multiyear contracts.

The operator introduces a question from Amit Mehrotra of Deutsche Bank about OR expectations for the fourth quarter. Jennifer Hamann responds by saying they are looking to build off the momentum from the third quarter and operate efficiently to potentially see sequential gains in the OR. Jim and Eric also address the increase in car velocity and how it may affect volume and service challenges.

The goal of the railroad is to continue making gains in efficiency and improve freight car velocity. The speaker, Jim Vena, believes that car velocity is a good indicator of the overall performance of the railroad. He also mentions that they are not leaving any business behind and are actively looking for ways to increase business. The capacity of the railroad, especially in terminals, is crucial for handling an increase in business. The speaker also mentions their investment in a terminal in the Houston area and their focus on reducing touch points and increasing fluidity. They have the capability to react to an increase in business by adding more trains or increasing the length of existing ones.

The speaker discusses the importance of consistent service and pricing in order to attract more customers to use intermodal transportation. They also mention that weather events may impact car velocity, but overall, they are confident in their ability to handle an increase in carloads.

The company is focused on recovering quickly and proving their ability to deliver consistently to shippers. They have a strong customer base and are investing in product development to improve service. They are also optimistic about growing their market share in Mexico and the Southeast. There is concern about labor cost inflation in 2024.

The upcoming year is expected to bring more challenges for the company, including a 4.5% increase in bonuses and potential changes in work rest rules. Jennifer Hamann discusses potential labor inflation and the need for increased productivity. Jim's thoughts on regulatory issues, such as embargoes and FRA letters, are also mentioned. Inflation in labor, purchased services and materials, and fuel is expected to continue.

The speaker discusses how car velocity and efficient asset management can positively impact the network, and mentions that the company has been facing higher expenses due to increased verdicts and awards. They also mention the importance of running a safe railroad for the well-being of employees and customers. The speaker praises a recent article on cars per employee and discusses the company's positive relationship with the FRA and their shared goal of ensuring safety. They emphasize the importance of continuous improvement and working with the FRA's feedback.

Jim Vena discusses the STB and the need to balance regulations with efficient service for customers. He is comfortable with the relationship and believes communication is key. Scott Group asks about improving margins and the pause in buybacks.

Jennifer and Jim are responding to Scott's question about a change in the company's philosophy around capital allocation. Jennifer explains that the company is currently taking a temporary pause in their share repurchase program in order to focus on generating more cash flow and reducing their debt-to-EBITDA levels. Jim adds that while the company may not see the same level of productivity gains as before, there are still opportunities for efficiency improvements. He also mentions that these changes may take longer to implement, but the company is committed to making incremental changes and staying on track.

Jim Vena, speaking on a conference call, expressed uncertainty about the economy and the possibility of a recession next year. He hopes that the country will not experience a recession as it would benefit the company. When asked about his plans for longer-term structural efficiency objectives, Vena mentioned the success of improving locomotive storage and employee productivity. He also noted that while there is nothing inherently wrong with hump yards, they must fit into the overall fluidity and efficiency of the network. Vena also expressed dissatisfaction with the current speed of put through.

The speaker discusses their goal of increasing operational efficiency by reducing the number of layers in the company's hierarchy. They also mention the importance of empowering employees to make decisions and improving processes such as scheduling and loading. They plan to announce the findings of a delayering exercise in the future.

The speaker welcomes Jim back and asks about the potential for growth and cost reduction in the company. Jim mentions the opportunities for growth in various markets, such as biofuels, construction, and autos, as well as the potential for increased market share in Mexico. He also mentions the importance of improved products and consumer-facing products in driving growth.

The company is optimistic about the growth potential in their petrochem and industrial chem businesses. They plan to leverage their network and increase productivity to take advantage of this growth. This includes optimizing existing resources and finding ways to improve efficiency in their operations.

The speaker discusses how the company is looking for cost savings and using attrition to rightsize the company. They also mention the earnings leverage from intermodal agreements and how the competitive dynamic may change post the CP/KC acquisition.

The company sees potential for growth and increased margins through volume growth and improved service. They plan to price their services accordingly and are confident in their ability to compete with other railroads, such as CP/KC, due to their strong network and fast access to various states and Mexico.

The speaker discusses their company's partnership with FXC in Mexico and their strong competition with CP/KC. They prioritize service and access to markets over price and are confident in their ability to compete. They also mention the potential for over-the-road opportunities and estimate that around 15% of their business could potentially be converted to over-the-road products in the future.

Jim Vena discusses the company's efforts to improve service and increase productivity. He mentions that they have seen some success in winning over-the-road business and adding more products in the Southeast. Headcount has decreased due to attrition, but it is unclear if it will stay flat or decrease further. Vena also mentions ongoing negotiations with unions that may impact productivity. He emphasizes the importance of having a productive workforce and will make necessary changes to achieve this goal.

The speaker acknowledges that there are still some uncertainties in terms of the timeline and pace of growth due to outstanding deals, but once those are implemented, the company's long-term goal is to grow volumes faster than headcount. The speaker also addresses the issue of lack of volume growth in the past and expresses confidence in their ability to overcome it through providing good service and driving growth faster than the economy. The speaker invites the Board, shareholders, and team to judge their performance in a year. The speaker also mentions that the coal industry is a potential headwind for growth.

The speaker discusses their plans to grow their business and increase profits by going after new products and pricing them properly, while also investing in their intermodal network to improve service and remain competitive in the market. They are confident in their ability to succeed and are willing to discuss their progress in the future.

During a Q&A session, Union Pacific CEO Jim Vena discussed the company's strategy for maintaining competitive pricing and the importance of being nimble and adapting to market changes. He also mentioned that the company has around 500 locomotives parked and will continue to invest in making them as fuel efficient as possible. Vena indicated that the company's capital expenditures for next year may be different from this year and encouraged listeners to stay tuned for more details in January.

Jim Vena discusses the changes that need to be made at Union Pacific in order to meet customer expectations and adapt to the market. He emphasizes the importance of making decisions quickly and efficiently, as well as maintaining the foundation of the railroad's operations. Vena also mentions the potential for growth and the challenges he looks forward to facing. He jokes about his wife being upset about him returning to work.

The operator introduces Ravi Shanker from Morgan Stanley and he asks a follow-up question about the Mexico and Falcon service. He wants to know how important speed is to customers when considering converting from truck or another railroad. Jim Vena clarifies that there are no structural disadvantages, but they face competition from CP/KC in certain scenarios. Kenny Rocker explains that they know their customers and their needs, and they offer a revised service product, daily service, and private assets to differentiate themselves.

Jennifer Hamann, the speaker, responded to a question from Justin Long about the company's comp per employee. She clarified that the 3% increase did not include abnormal labor costs from the previous year. She also mentioned that there may be some pressure on comp per employee in the fourth quarter due to training costs and capital programs winding down. However, the company is focused on increasing productivity to offset inflation and has identified opportunities for efficiency in various areas such as maintaining locomotives and managing transportation employees.

Jim Vena summarizes the goals of Union Pacific, which include safety, service, and operating excellence. He emphasizes the importance of providing consistent service to meet the different needs of customers and leveraging the physical plant to improve efficiency. He also mentions the importance of listening to stakeholders and being professional in dealing with them. Vena is confident that the team is moving in the right direction and expects to see improvements in the next quarters. He thanks everyone for participating in the teleconference.

This summary was generated with AI and may contain some inaccuracies.