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    Union Pacific Corp (UNP)

    Q4 2023 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$242.33Last close (Jan 24, 2024)
    Post-Earnings Price$244.10Open (Jan 25, 2024)
    Price Change
    $1.77(+0.73%)

    What went well

    • Strong Growth Opportunities from Near-Shoring in Mexico: Union Pacific is well-positioned to capitalize on near-shoring trends with an unmatched service product coming out of Mexico, including daily and fastest routes, six gateways providing optionality, and an ownership position in FXE, enhancing efficiency and customer offerings.
    • Expansion of Intermodal Network and New Terminal Openings: Union Pacific is focused on growing its international intermodal network, with a new intermodal terminal in Phoenix opening on February 1, and additional products coming out of Houston and Mexico, enhancing capacity and capturing growth opportunities.
    • Confidence in Achieving Industry-Leading Operating Efficiency: Management is confident in achieving the best operating ratio in the industry through operational efficiency, regardless of volume growth, with the ability to flex up capacity and assets, leading to winning more business and improving margins.

    Q&A Summary

    1. Volume Growth and Margin Outlook
      Q: Can volumes be up this year, and will margins expand?
      A: Management is cautious about providing volume forecasts due to economic uncertainty. They are not giving specific guidance on margins but emphasize efforts to drive efficiency and maximize opportunities.

    2. Intermodal Contract Loss Impact
      Q: What's the scale of the intermodal loss in 2024?
      A: The company lost an international intermodal contract in early 2023, with the bulk of the impact affecting 2024. While this presents a headwind, they are focused on growing the intermodal network through initiatives like the new Phoenix terminal opening on February 1.

    3. Cost Inflation and Offsets
      Q: How will the 5% inflation affect costs?
      A: The 5% gross inflation represents about $750 million in higher costs. Management aims to offset this through productivity improvements and has already reduced the cost per employee by 1% in the fourth quarter despite wage inflation.

    4. Productivity and Margin Expansion
      Q: Can you achieve margin expansion without volume growth?
      A: Management believes they can improve margins through productivity and efficiency, even without volume growth. They are committed to becoming the most efficient railroad in the industry.

    5. Labor Agreements Impact
      Q: How do labor agreements affect staffing levels?
      A: New work agreements require additional employees, creating headwinds in 2024. Management is implementing programs to mitigate this impact over the next two years.

    6. Near-shoring Opportunities
      Q: What is the impact of near-shoring on growth?
      A: Near-shoring is viewed as a real opportunity, with significant investments in Mexico's industrial sectors. They provide unmatched daily service from Mexico and are optimistic about growth in auto parts and petrochemical markets.

    7. CapEx Moderation and Growth
      Q: Will reduced CapEx affect growth opportunities?
      A: Management asserts they never limit capital for growth. Investments are made as needed, exemplified by the new intermodal terminal in Phoenix opening on February 1.

    8. Operational Efficiency Gains
      Q: Where do you see further productivity gains?
      A: Opportunities exist in improving car velocity and train length. They achieved a 14% improvement in car velocity in Q4, establishing a new baseline for further enhancements.

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