The operator introduces the Union Pacific Fourth Quarter Earnings Call and reminds participants that the conference is being recorded. CEO Jim Vena discusses the company's fourth quarter and full year results, highlighting their strategy to lead in safety, service, and operational excellence. The company reported a net income of $1.7 billion for the fourth quarter, with operating revenue and expenses remaining flat. The operating ratio improved by 10 basis points compared to last year and showed strong sequential improvement from the third quarter.

In the fourth quarter, our company has taken effective measures to improve the efficiency of our railroad and enhance customer service. Our strategy focuses on excelling in areas that we can control, and we have made significant progress in these areas. This is a strong indication that we are on the right track for future success. In terms of financials, our operating revenue remained steady at $6.2 billion, with a 3% increase in volume. Freight revenue increased by 1%, mainly driven by fuel surcharges and volume growth. However, other revenue decreased by 13%. Our operating expenses also remained flat, with compensation and benefits expense remaining steady despite a 2% decrease in workforce levels.

In the fourth quarter, strong workforce productivity helped offset wage inflation and fuel expenses decreased due to lower fuel prices. Other expenses increased due to higher casualty costs and a backlog of cases from COVID. Operating income remained flat, while net income and earnings per share improved slightly. For the full year, revenue declined 3% and operating income deteriorated, resulting in a decrease in earnings per share and return on invested capital. Cash from operations also decreased by roughly $1 billion, mainly due to lower net income and labor agreement payments.

In 2023, the company returned $3.9 billion to shareholders through dividends and share repurchases. The adjusted debt-to-EBITDA ratio was at a strong level of three times and the company maintained an A rating from credit agencies. Despite a difficult year, the company has made progress in improving service and productivity. The freight revenue for the quarter was up 1%, driven by a 3% increase in volume, but partially offset by lower fuel surcharges. The bulk and industrial sectors saw increases in volume, but were affected by lower fuel surcharges and other market factors.

The business development in petroleum and LPG segments contributed to growth, while sand volumes were negatively impacted by lower natural gas prices. Automotive volumes were affected by the UAW strike, but were offset by other wins. Intermodal volumes were positive due to stronger West Coast imports and Mexico volumes. The key economic indicators for 2024 show a mixed picture, but the company's outlook for the key markets it serves remains relatively stable, with challenges in coal and potential growth in fertilizer and biofuels.

The construction market may not exceed last year's record volumes, but the petroleum and petrochem market is expected to remain favorable. There may be challenges in the international intermodal market due to a lost contract, but the domestic side is expected to see growth with strong service offerings. The economic environment looks muted for 2024, but the company is well prepared to handle demand and is making capital investments to capture more freight. The commercial team is ready to help customers succeed. The operational team has been focused on improving service and network efficiency.

During the fourth quarter, our network showed great fluidity and reliability thanks to our team's efforts. Freight car velocity improved by 14%, and service was strong with significant improvements in compliance and customer-specific metrics. Safety remains our top priority, and we continue to invest in technology and processes to improve derailment performance. Our efficiency metrics also saw year-over-year improvements, with locomotive productivity increasing by 14% and workforce productivity by 4%. However, we still face challenges with scheduled work agreements that require additional employees in the near future.

In 2023, train length improved by 2% due to the removal of car touch points from the system. This was a result of our focus on train length to drive productivity and improve service for our customers. In 2024, we will continue to invest in technology and targeted capital projects to further improve safety, service, resource utilization, and cost structure. Our capital outlook for 2024 is $3.4 billion, with a focus on infrastructure, modernizing locomotives, acquiring freight cars, and investing in technology and capacity projects. We recently implemented NetControl, our new transportation management system, which will allow us to use real-time analytics for new capabilities. We will also invest in intermodal expansion and business development in high-growth areas such as Inland Empire, Kansas City, and Phoenix.

The company has added a new appendix slide with 2024 modeling assumptions to help frame expectations for the current market. Economic indicators show a muted and uncertain economy, and other variables such as interest rates and the presidential election add to the uncertainty. Lower coal demand and lost international intermodal business are expected to negatively impact volume, but the company's strong service product will help capture available demand. The company expects to generate pricing dollars in excess of inflation, but pricing may not be accretive to margins this year. The company's focus for 2024 is on controlling controllable factors such as safety, service, and network efficiency. Capital allocation will prioritize investing in the railroad, followed by dividend payout and share repurchases.

The company will not be repurchasing shares in the first quarter due to debt maturities, but they are optimistic about their momentum and potential for improvement in the year ahead. The team discussed their volume outlook, progress in returning service levels to industry best, and plans for overcoming inflation and a soft economy. The CEO remains confident in the company's potential for success and is focused on improving safety, service, and operational excellence.

The speaker, Mr. Vena, expresses confidence in the team and strategy of Union Pacific to grow the railroad in the long term. He then invites questions, and the first question from Chris Wetherbee is about the outlook for 2024. The speaker and another person, Kenny, respond by saying that they cannot provide a specific volume growth forecast due to uncertainty in the current macro environment. They express hope for a second half recovery and mention the strong performance in the fourth quarter. Kenny also mentions a mix of opportunities for margin expansion.

The company is optimistic about the biofuels market and has had success in the industrial and petrochem sectors. They are facing challenges in the construction sector due to weather. The premium business is dependent on economic factors. They have lost in the international intermodal side but have had wins in the auto market. The company is not giving specific guidance on margins due to uncertainty in volumes. The focus is on operational improvements.

The speaker discusses the company's efforts to provide their team with the capability to maximize the resources and assets available to them in order to compete in the marketplace. They acknowledge potential challenges in the economy, but express confidence in their ability to win and maximize their profits. The speaker also addresses a recent business loss in the intermodal sector and mentions potential opportunities for new business in the LA Long Beach region, but also notes the need to ensure that the fluidity of the region can keep up with the increased volume.

The speaker discusses the lack of significant shifts in the near term and their efforts to work with vessel carriers and customers to move goods efficiently. They mention an increase in business going through the IPI and their strong network to capture this business. The speaker also mentions the importance of having a buffer in locomotives and railcars to capture potential volume. They also mention a 14% improvement in car velocity and overall fluidity in operations.

The speaker agrees that prices are controllable and mentions that the company has been working on increasing prices for a few months. They have been communicating with customers about the improved service and inflationary pressures. The speaker also clarifies that the company lost some international intermodal contracts earlier in the year, but the majority will still be in effect until 2024.

In this paragraph, Jennifer Hamann and Kenny Rocker discuss the importance of maintaining acceptable margins for the business on the railroad. They mention that sometimes they may lose a piece of business if the margins are not acceptable. Jim Vena then recaps their strategy for dealing with inflationary pressures, which involves tackling it through both pricing and efficiency measures. He also emphasizes the importance of ensuring their customers' success in the marketplace.

Jim Vena believes that there is still room for improvement in efficiency and operations at Union Pacific. He sees opportunities in speed and car velocity, as well as in the fluidity of terminals. The company is also looking at ways to improve maintenance and reduce costs. Overall, Vena believes there is still more to be done to make the network more efficient.

Jim Vena discusses the challenges of managing headcount due to collective agreements and other factors. Despite these challenges, the company was able to reduce overall headcount in the fourth quarter. Vena is confident that the company has the programs and processes in place to continue reducing headcount while handling the same amount of business. An analyst asks a follow-up question about potential headcount reductions, but Vena cannot provide a specific number due to the constantly changing nature of the situation.

During a conference call, Jim Vena, the CEO of a railroad company, addressed the challenges they were facing with their work agreements and the need for additional employees. Vena stressed that these challenges would continue through 2024, but they had programs in place to mitigate the impact. He also mentioned ongoing negotiations with a union and the potential for growth and increased efficiency to help offset the costs. An analyst on the call asked about the 5% inflation rate and how it would affect the company's $15 billion cost structure, which could result in $750 million of higher costs in 2024.

The speaker discusses the 5% gross number and how it relates to the company's cost structure. She mentions that the management team is focused on offsetting this number with productivity, and gives an example of how they have been able to do so in the past. However, she cannot give a specific percentage of how much they can offset the gross number, as it also depends on volume and other factors.

Jim Vena, responding to a question about customer engagement, discusses the improving service at Union Pacific and the opportunities it presents. He mentions their efficient operations and the mix of traffic available on their railroad. Vena highlights their ability to provide speed and partner with other railroads to reach destinations quickly. He believes that with good service, customers will see the potential and want to partner with Union Pacific for their business.

Kenny Rocker, CSX's Chief Marketing Officer, discusses the company's strong business development pipeline and the robust service product they offer. He highlights their unmatched service coming out of Mexico and their ability to pitch and catch on the West Coast. Rocker also mentions growth in the carload and petrochem sectors and improvements in their service park. Eric, the Chief Operating Officer, adds that there is still more to come in terms of improving velocity and train length.

Eric Gehringer discusses the potential for productivity gains in 2024, with a focus on improving car velocity, train length, and fluidity. He mentions that train length can be increased by adding more volume to existing trains or through transportation plan changes. The company also plans to continue reducing their locomotive fleet and optimizing purchase services to increase efficiency.

Jennifer and the company are focused on safety and ensuring successful delivery of freight without damage. They are working to reduce claims and capitalize on opportunities. The questioner asks about the company's strategy for locomotive fleet renewal in the next 3-5 years, and the potential impact of California's regulations. Jim responds that they currently have enough locomotives and will continue to invest in making them more efficient and environmentally friendly. There are no immediate plans for locomotive purchases, but they are testing new propulsion methods and will invest when necessary.

Jim Vena, CEO of a company, states that they will invest in their fleet in order to avoid having the oldest fleet in the network. However, this investment will not happen until 2024. The next question from Ken Hoexter is about the company's need for volume gains to improve margins, expectations for first quarter gains, and the scale of intermodal loss in 2024. Vena and other executives discuss the contract loss and how it will affect the company's profitability.

The speaker discusses the challenges facing the company in terms of volume and margins, and emphasizes the importance of productivity in improving financial results. They mention that they are not providing guidance on volume changes and caution against trying to link volume with productivity and margin. They also mention that the first quarter will be challenging due to factors such as weather and year-over-year comparison pressures.

The speaker, Jim Vena, is responding to a question about the company's productivity and margin expansion. He believes that the company has a clear vision and goal of achieving the best operating ratio in the industry. He also has confidence in the company's ability to win with customers and replace lost business with short-term adjustments in price.

The speaker reflects on his decision to return to the company and his belief in its potential for success. He expects the team to perform well and capitalize on opportunities to monetize the railroad. A question is asked about the company's plans for Mexico, and the speaker defers to another team member to discuss the business. He then addresses the impact of border closures on the company's operations in Mexico.

The speaker discusses the company's expansion into different parts of Canada and the success of their service product in the Southeast. They also mention their franchise in Mexico and the importance of fluid border crossings for their operations. The company is investing in systems to prevent people from crossing on trains and is working closely with customs to ensure minimal impact on their rail operations. They also mention their goal to increase train length.

The speaker was asked about the potential for increased train length and the impact of regulatory scrutiny. They confirmed that there is room for longer trains and that they are constantly working to optimize train length. They did not provide a specific number but stated that they will capitalize on this opportunity in 2024. The following question was about the work rest rules and the speaker clarified that they are assuming only the BLE will come on board. Another question was about the forecast for mix and volume, and the speaker noted that the two are related.

The speaker is asked about market pricing adjustments for coal and intermodal and whether they will continue to be a headwind in the future. They mention a potential agreement on work rest and the slow improvement in rates over the past few months. The mix for next year is dependent on intermodal, which is uncertain due to unknown volume.

The speaker discusses the potential impact of the premium category in the automotive market on the company's overall mix and mentions a potential swing factor in 2024. They also address a question about the magnitude of the international intermodal loss and clarify that price will not be accretive to margin. The speaker expresses optimism about the growth of the international intermodal network and mentions new products and terminals.

Jeff Kauffman asks a follow-up question about near shoring for Kenny, who responds that it is difficult to provide a specific answer but that the impact on volume over the next 3-5 years could potentially be significant. However, he declines to give a specific estimate.

The speaker discusses a service product coming out of Mexico that is highly efficient and has multiple gateways, leading to optimism about growth in Mexico. They also mention their ownership position in FXC and the potential for near shoring to increase efficiency. In response to a question about casualty and other expenses, the speaker explains that they have been catching up on higher expenses in these areas and do not expect them to continue due to their safety performance.

The company is focused on improving its overall performance and expects to have a better footing in 2024. They have faced some challenges in the courts, but believe they have overcome the major issues. The company's CapEx plan is in line with their partner's, and they are confident in their ability to invest in their railroad. The last question is about the potential impact of passenger rail in Mexico on freight flows and the response of FXE to the Mexican government's recent actions.

The executives at the railroad company are discussing their approach to capital planning and growth. They state that they never limit their capital and always prioritize reinvesting in the railroad and identifying opportunities for growth. They also mention a new intermodal terminal opening soon and their ability to invest quickly. They assure that they will not skimp on safety, maintenance, or growth. They also address concerns about passenger service, stating that they are confident it will not have a significant impact on their operations.

Jim Vena, in response to a question, thanks the operator and says he would like to recap the call with his team. He reiterates that the company has a strong railroad franchise that allows it to adapt to changes in different segments. He expresses excitement for the future and the team's goals to grow revenue and become the most efficient railroad in the industry. He looks forward to the next call in 3 months to see how the company has progressed. The call ends.

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