Shareholder's Meeting - May 6, 2010
While the votes are being counted, let me give you an update on UP’s accomplishments since last year’s annual meeting. I’ll make some “forward looking” comments today, so please refer to the cautionary information and risk factors summarized in our 2009 annual report (PDF File) .
Long-Term Strategy Drives Success
The economic challenges we faced in 2009 were unprecedented, but we emerged a stronger company that is well-positioned for future success. We did this by staying focused on our strategy to:
- Operate the safest railroad,
- Exceed customer expectations,
- Leverage productivity from our capital investments and technology,
- Invest for future growth and efficiency,
- Protect the environment, and
- Maintain financial discipline, preserving a strong balance sheet and access to capital.
UP's Strong Value Proposition
As 2009 unfolded, we were hoping for the best, but planning for the worst. When the economy continued to falter, we adapted and responded aggressively, with a focus on safety, service and innovation.
The results were outstanding. We accomplished the second highest earnings per share on record, an all-time low operating ratio, a strong balance sheet, and best-ever safety and service metrics. I’ll talk in more detail about our performance in a moment, but these results would not have been possible without the hard work and dedication of UP’s employees.
2009 - A Record Setting Safety Year
 Topped 2008 Record Levels in All Areas |
Coming off of a record year in 2008, we again set records in all three areas of safety.
- The employee injury incident rate improved 12 percent,
- Derailment prevention efforts yielded a 10 percent reduction in our incident rate, and
- Public safety programs had success as crossing incidents declined 11 percent.
These improvements reflect our comprehensive efforts to enhance employee training, increase public education, make targeted capital investments, and eliminate or reduce safety risks.
Driving Service Excellence
 2009 Best Ever Customer Satisfaction |
Building off the foundation of record safety performance, UP’s Operating Team achieved “bests” in virtually all metrics as we increased network fluidity, improved asset utilization and delivered highly reliable service products to our customers.
Our Service Delivery Index, which is a composite measure of meeting our customer commitments, was an all-time best at 92, an 8 point improvement. In addition, our network velocity increased 16 percent or nearly 4 miles per hour during 2009.
Greater network efficiency drives better overall productivity and lowers our costs. As shown by the bar chart on the left – with volumes (as measured by gross ton-miles) down 17 percent, we reduced train starts (or the workload on the network) 20 percent.
Achieving New Highs
Our Customer Satisfaction survey scores provide further validation of UP's strong operating performance as we established an “all-time” best in 2009. Individually, our six business groups and our Mexico team also posted best-ever customer satisfaction results.
We kept commitments, expanded our service offerings and provided our customers with significant value. Innovation also plays a role. Through subsidiaries such as Union Pacific Distribution Services, Streamline and ShipCarsNow, we are reaching new markets and finding new ways to extend our reach into our customers' supply chain.
UP's increasing value proposition also supports our long-term pricing objectives.
Increasing Value of UP’s Service is Making a Difference with Our Customers
Another measure of how UP's service products stack up in the marketplace are customer testimonials. Not only does this validate the hard work of our employees, but recognition from customer award programs builds credibility and can help persuade a new or former customer to try out our service.
These customers set high standards, especially when it has a direct bearing on their own success. For instance, we just completed our second consecutive perfect peak season for UPS.
In addition, although we show the Hub Group on this slide, they don't actually have an award program. But, they gave us something better, their business. They've gone “all in” on the UP, awarding us nearly 100 percent of their business.
Investing for Today and Tomorrow
Over the last 5 years, UP has invested over $14 billion dollars for safety, service, growth and productivity. The investments we make today support not only our current traffic levels, but also the business that will move on our Railroad over the next 20 to 30 years. That's why last year, despite the recession, we maintained a strong capital program, spending over $2.5 billion dollars.
A portion of that spending went to improve our infrastructure, reducing track speed restrictions 30 percent and helping increase our network velocity.
We also continued to dedicate resources to growth projects such as tunnel clearances on the Donnor Pass, completing signal upgrades from Wyoming to Chicago, building the Joliet Intermodal terminal and finishing the Boone High Bridge.
Investments like these generate significant growth and efficiency for our Railroad and help us improve our overall financial returns.
 2009 Capital Achievements |
Generating Greater Value for Shareholders
Ultimately, our performance is measured by our shareholders and how they “vote” with their dollars to buy or sell UP stock. This chart shows that over the past decade, our stock on average produced double-digit total annual returns, significantly outperforming the S&P 500.
2010 Stock Price Comparison
So far, in 2010, we are continuing to outperform both our peers and the S&P 500. Our stock price is up roughly 17 percent year-to-date and we just “reset” our 52-week high last week, trading over $78 per share.
Investors value UP’s strong earnings and cash generation, and we are excited about what’s to come.
 Total Investor Returns |
Valuing Employee, our Most Important Resource
None of UP’s achievements would have been possible without our most valuable resource, our employees. Our goal is to be an “Employer of Choice” and we support that goal by attracting and retaining high quality, professional people.
Value of UP’s Corporate Commitment Improves Our Communities
Our employees also recognize the importance of giving back to communities where we work and live. We’re fostering a strong working relationship that benefits both our Company and our communities.
Washington’s Regulatory Actions Threaten Future Rail Benefits
Unfortunately, not everyone agrees about how rails can best deliver value to our nation over the long-term. While many in Washington are in favor of moving more freight to rails, there are others who want to increase rail regulation. In fact, many of the same people favor both!
We are in discussion with representatives in Washington on all the issues that impact us. Our engagement is critical, and at some point we may ask for your support as well. As shareholders of our Company, we can work together to help lawmakers appreciate the long-term need for a healthy, growing freight rail network.
Economics of Rail Make Sense for America
Our ability to handle more traffic isn’t just beneficial for our Company and our shareholders; it benefits our customers, our communities and our country.
One clear benefit is the fuel efficiency of rail. As a recently published FRA study noted, freight rail is at least two times more fuel efficient than trucks, and in some cases is more than 5 times more efficient.
Using more freight rail is also more space efficient. According to the 2009 Texas mobility report, highway congestion in the U.S. costs $87 billion in wasted travel time and fuel.
But, by shifting freight from trucks to rails, the savings can be tremendous. Adding one intermodal train creates the capacity for at least 900 more cars to move on the highway. One study estimates that if just 10 percent of the long-distance freight moved to rail, the fuel savings alone would exceed one billion gallons per year.
Strong Start to 2010
Before I wrap things up, let’s talk briefly about this year. A couple of weeks ago we reported a record First Quarter. Earnings were up 40 percent on a 13 percent volume increase, our first quarter of carload growth in two years. The First Quarter Operating Ratio was a record at 75.1 percent and we generated strong free cash flow in the quarter.
For the rest of the year, the primary driver of our earnings will be volumes. We are feeling better today about our opportunities for growth in a more stable economy, and we have significant volume leverage remaining in the system.
Fluid operations are key to creating satisfied customers, allowing them to increase their reliance on UP’s strong value proposition. We’re also continuing to make the critical long-term capital investments that support future growth.
In fact, our Board today approved an additional $100 million dollars for growth capital investments in 2010 – bringing the full year total up to $2.6 billion. The increased capital budget is supported by Union Pacific’s growing profitability, cash flows and financial returns.
Our confidence in the future is further evidenced by the Board’s decision today to increase the quarterly dividend 22 percent to 33 cents per share and resume our share buyback program.
A "New" Golden Age of Rail
We are very excited about the great opportunities that lie ahead of us as we enter a “new” golden age of railroading. First and foremost, our future is supported by the great UP franchise. We have the best rail network in the world, and it cannot be duplicated.
The U.S. freight rail system also offers the safest form of ground freight transportation – benefiting not only our customers, but the public as well.
We provide cost effective, energy efficient and environmentally sound transportation solutions. That‘s why it’s so important that the national transportation policy supports the long-term growth of freight rails.
Best of all, we have world-class employees who are dedicated to our Company’s mission of service.
We see a bright future ahead for Union Pacific. Our goal is to run the safest, most efficient, service-oriented Railroad that generates growing financial returns for our shareholders in the years to come.
With that, we should be ready to report on the voting results…