February 11, 2016
BB&T Capital Markets 31st Annual Transportation Services Conference
Rob Knight CFO
1
Cautionary Information This presentation and related materials contain statements about the Company’s future that are not statements of historical fact, including specifically the statements regarding the Company’s expectations with respect to economic conditions and demand levels; and its ability to generate financial returns, improve network performance and cost efficiency, and provide returns to its shareholders. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements also generally ll include, i l d without ith t limitation, li it ti i f information ti or statements t t t regarding: di projections, j ti predictions, di ti expectations, t ti estimates or forecasts as to the Company’s and its subsidiaries’ business, financial, and operational results, and future economic performance; and management’s beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Company’s future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Company’s and its subsidiaries’ future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Company’s Annual Report on Form 10-K for 2015, which was filed with the SEC on February 5, 2016. The Company updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC). Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Company assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein. 2
The Strength of a Unique Franchise Excellent Network Strategic Terminal Locations Broad Port Access Border and Interchange Coverage
Business Mix 2015 Freight Revenue: $20.4B Intermodal 20% Automotive Distribution Centers
Automotive 11%
Industrial Products 19%
Intermodal Terminals Manifest Terminals Ports
Coal 16%
Border Crossings, Gateways and Interchanges
Agricultural Products 17%
Chemicals 17%
3
2015 Full Year Results Earnings Per Share $4.71
$5.75
-5%
$5.49
• Softness in Demand • Business Mix Shifts
2013
2014
2015
• Solid Core Pricing
Operating Ratio 66.1%
63.5%
-0.4 pts
63.1% Best-Ever Year
2013
2014
• Resource Agility • Lower Fuel Prices
2015 4
2016 Volumes 2016 YTD Volumes*
7-Day Monthly Carloadings
(vs 2015)
(000s)
+16%
Automotive
200 2006 @192 2014 @188
190 180
2013 @ 176 2012 @176 2015 @177
170 2016 YTD Down 9%*
160
Flat
Chemicals Intermodal
Int’l: Flat Dom: -2%
Agricultural Products
150 January
-34%
TOTAL
December
-8% -15%
Industrial Products Coal
-1%
-9%
*Through February 4, 2016
5
Resources & Network Performance Total TE&Y* 17,975
-18%
Active Locomotive Fleet 7,896
14,808
4Q14
4Q15
6,895
• ~ 4,100 TE&Y Employees in Furlough / AWTS**
4Q15
• ~ 1,500 Locomotives in Storage**
-13%
4Q14
*Full-time equivalent
**As of February 5, 2016
UP Velocity
UP Terminal Dwell
(As reported to AAR, in mph)
(As reported to AAR, in hours)
Good
+13%
Good
27.0
31.0
23.8
-5% 29.4
• Record Velocity at 4Q Volume Levels • Focus on Further Improving Service & Costs
4Q14
4Q15
4Q14
4Q15
6
Coal Trends
Powder River Basin Coal Stockpiles*
Volume Impact
(Days of Burn)
(Weekly Carloadings)
2013 -15 Inventory
120
50,000
5-Year Average
105 39
80 2014
30,000
40
2015 2016*
10,000 1Q
66
0 Jan 2013
PRB Flooding
Jul 2013
Jan 2014
Jul 2014
Jul Dec Jan 2015 2015 2015
*Energy Ventures Analysis
2Q
3Q
4Q
Electricity Generation Market Share** % from coal
• Natural Gas Prices • Coal Inventory Levels • Exports
50%
48%
% from natural gas 2016- 2017 EIA Est.
47% 40% 33%
Apr ’12: 32%
32% 25% 19%
17%
2007 *Through February 6, 2016
2009
20%
2011
2013
Dec 2015
**U.S. Energy Information Administration (EIA)
7
Shale-Related Volumes 3.2% of 2015 Total Volume 2015 Frac Sand*
Volume
% Incr
(000s)
(vs 2014)
177
-30%
2.0%
Crude Oil
90
-37%
1.0%
Pipe
19
-43%
0.2%
286
-33%
3.2%
• Lower Energy Prices / Lower Rig Counts • Enhanced Fracking Technology
• Crude Oil By Rail Market Drivers • Lower Crude Oil Prices • Unfavorable Price Spreads
2,500
30,000
2,000 20 000 20,000
1,500 1,000
10,000
500 0
Jan-14
May-14
Sep-14
U.S. Rig Count**
Jan-15
May-15
UNP Frac Sand Carloads* UNP Crude Oil Carloads
Sep-15
0
UNP Montthly Carloads
Ave. Month hly U.S. Rig Cou unts
Total Shale
• Frac Sand Drivers
% of Total UP Volume
Dec-15 * Includes barites ** Source: Baker Hughes
8
Grain Volumes
U.S. Grain Exports* (Bushels in Millions)
Export Grain Flows
2013/14 1,920 1,864
1,700
2014/15
1,638
1,843
2015/16 Est. 1,690 1,176 , 854
Major UP-Served Grain Producing Region
Corn
Soybeans
800
Wheat
*Source: USDA January 2016
UNP Weekly Grain Carloads (As reported to the AAR)
9,000 ,
2014
7,500 6,000
2016* 2015
4,500 3,000
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 *Through February 6, 2016
9
Intermodal
2015 Volume Mix
Seattle
International 49%
Portland
Domestic D ti 51%
Chicago Sparks
Omaha Salt Lake City
NorCal
Denver
St. Louis
KC
Las Vegas
Retail Inventory-to-Sales Ratio Memphis
Tucson Los Angeles
El Paso
Nogales Intermodal Terminals
Dallas San Eagle Antonio Pass Laredo
New Orleans
1.48
1.5
1.4
Houston
Ports Interchange Points
Shreveport
Source: U.S. Bureau of Economic Analysis 1.6
1.46 1.39
1.3 Jan-10
60 0
1.34
Jan-12
Jan-14
Nov-15 10
Chemicals
2015 Volume Mix
2015 Revenue: $3.5 Billion Canadian Oil Sands
Crude Oil Petroleum 8% Fertilizer / LPG 17% 15% Soda Ash 11%
Potash Bakken
Soda Ash / Trona Ore
Industrial Chemicals 26%
Niobrara
Plastics Pl ti 23%
Key End-Use Markets (% of 2015 Volume) Crop Production 15% Consumer Goods 43%
Permian
Port Storage-in-Transit
Eagle Ford
11
2015 Volume Mix
Eastport
Seattle
Auto Parts 43%
Duluth
Portland
Construction 10% Fuel & Energy 26%
Gulf Coast Infrastructure
U.S. Vehicle Sales and Drivers
Automotive 6%
Finished Vehicles 57%
Twin Cities Chicago Omaha Oakland
Salt Lake City
Denver Kansas City
Los Angeles
St. Louis
U.S. Light Vehicle SAAR*
Memphis 17.5 16 5 16.5
Dallas
17.8
18.2
18.1
17.7
16 4 16.4
New Orleans Borders & Interchange Distribution Centers/Ports (UP Owned/Leased and Private)
Houston
10.4
2006
2009
2014
2015 2016E 2017E 2018E 2019E
Assembly Centers (UP served) *Source: January 2016 IHS Global Insight forecast
12
UP Positioned for Mexico Growth Strong Investments – Foreign & Domestic
Volume Growth (Carloads in Thousands) +8% +5% +9%
764 776 743
817
+3%
Flat
956 956
857 882
750 600
'06
'07
'08
'09
'10
'11
'12
'13
'14
15
2015 Volume Mix (In Carloads)
Coal 1% Chemicals 6%
IIntermodal t d l 22%
Industrial 9%
Ag Products 14% Autos 48%
13
Strengthening the Franchise
Replacement, Growth & Productivity, and PTC
2016 Capital Plan: ~$3.75 Billion* ($ in Millions)
Locomotives/ Equipment $965
Infrastructure Replacement p $1,825 PTC $375
• Safe & Resilient Infrastructure • Capacity C it Investments I t t
Technology/ Other $190 Capacity/ Commercial Facilities $395
•
Southern Region
•
Network Strategies
• Equipment Acquisitions •
230 New Locomotives
•
450 Freight Cars
• Positive Train Control *Includes cash capital, leases and other non-cash capital. 14
Leverage & Shareholder Returns ($ In Millions)
Adjusted Debt / Adjusted EBITDA* 1.7 1.4
1.4
12/31/2013**
12/31/2014**
• Strong Balance Sheet • Investment Grade Credit Rating
12/31/2015
Dividends & Share Repurchases
• $3.35 Billion Debt Issuance in 2015
($ In Millions) Share Repurchases Dividends
+37%
+20% $4,857
$5,809
$3,551
• Repurchased 15% of Shares over past 5 years * See Union Pacific website under Investors for a reconciliation to GAAP.
2013
2014
2015*
*2015 includes 4Q14 dividend payment made Jan. 2, 2015
** Prior periods have been adjusted for the retrospective adoption of Accounting Standard Update 2015-03.
15
Summary of 2016 Key Guidance First Quarter • Coal Volume Down 20% or so • Total Volume Down Mid-Single Digits
Full Year • Total Volume Down Slightly • Fuel & Mix Pressure • Record Productivity • Improved Operating Ratio • Capital Plan of ~$3.75 Billion 16
Aspiring to New Levels: “G55 + 0” Kicked off Fall 2015
• 15 Focused Teams • Turbocharge Productivity – All Areas • New Capital Efficiency Approaches • Improve the Customer Experience • New Business Development p • Continue Pricing to Service & Value
• $ Billions of Ideas – Launch in 2016 17
“G55 + 0” Key Initiatives Initiatives: Engineering Fuel Support
Relative Operating Expense + Capital Savings
45+ Projects
Frontline Locomotive Sourcing Car Corridor Terminal
Increased Annual Productivity
All Other Projects
18
Realizing Potential of the Franchise 87.5
Operating Ratio (Percent)
63.1
60 +/55
184 177
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 7-Day Volume (000s)
2019 Target
Realizing 55
19