Former Chairman, President & Chief Executive Officer, Union Pacific Corporation
Union Pacific posts mixed Q4 Earnings as profits dip
Lance Fritz, Union Pacific CEO joins Yahoo Finance’s Adam Shapiro and the Yahoo Finance Live panel to discuss the latest Union Pacific earnings call and the company outlook for 2021.
For 2020 election results please visit:
Election results: https://www.yahoo.com/elections
Subscribe to Yahoo Finance: https://yhoo.it/2fGu5Bb
About Yahoo Finance:
At Yahoo Finance, you get free stock quotes, up-to-date news, portfolio management resources, international market data, social interaction and mortgage rates that help you manage your financial life.
About Yahoo Finance Premium: With a subscription...
About Lance Fritz
Lance Fritz, former Chairman, President, and CEO of Union Pacific, has discussed the company's operational and financial performance in several media appearances. In October 2022, Fritz stated that the company made "sequential improvement" in network fluidity from the second to third quarter, and he anticipated a return to normal operations in the fourth quarter. He attributed volume pullbacks to cooling consumer demand, particularly in domestic intermodal and parcel shipments, while noting strong demand in coal, grain, and some industrial segments. Fritz also addressed labor negotiations, saying he was "less comfortable" after the BMWED Maintenance of Way employees failed to ratify a contract, but he anticipated closing agreements by the end of the year. In 2023, Fritz described the hiring picture as "very difficult" in 2022, particularly in rural areas, and noted that Union Pacific was using hiring bonuses and a referral program to attract workers. He discussed the company's implementation of Precision Scheduled Railroading (PSR) to lower costs and improve the operating ratio. Regarding the regulatory environment, Fritz said the Surface Transportation Board (STB) had done "a very good job" of balancing its decisions with the health of the freight rail network. Earlier, in 2022, Fritz addressed supply chain disruptions, citing high import demand, a shortage of truck drivers and warehouse labor, and the impact of COVID-19. He also described organized train theft in the Los Angeles area as a "real problem," stating that the company was working with law enforcement and investing in security measures.
Transcript (11 segments)
✨ AI-enhanced transcript with speaker attribution
A
Adam Shapiro0:04
Congratulations on being on the top and bottom line. Stock is under pressure right now, but let me throw out some of your metrics where you achieved in the quarter and also full year. I mean, revenue was $5.1 billion, it was barely down 1% year over year, and 2020 is one of those years that will always have an asterisk. Your adjusted net income was $1.6 billion, and you had warned us about the $278 million pre-tax charge you were going to take, so that was up 13% year over year. But it's the operating ratio, that operating ratio in the quarter was a record 55.6. You attributed that to lower fuel costs. I'm going to ask you a little bit later in this interview what happens when fuel costs go up, but I got to ask you right now, what you see in your metrics, what do they tell you about the future of the economy?
L
Lance Fritz0:54
Yeah, Adam, thank you very much for having me on your program, and also thanks for highlighting just how terrific the fourth quarter was. The women and men of Union Pacific did a tremendous job of overcoming a fair amount of headwind. And while you highlighted fuel costs being down, what really drove the quarter was a bit of growth, 3% up in units, and a lot of productivity, $170 million in productivity. So it was a great close to the year that postures us when we pivot and look to 2021. For the guidance that we provided this morning, we said we expect growth to be something like 4 to 6% in units, we expect another $500 million in productivity, we expect pricing to be above inflation, and we expect all that to generate 150 to 200 basis points of margin improvement. All in, that's a really good look at 2021.
A
Adam Shapiro1:53
The reason you're one of our top CEO interviews during quarterly reports is because you are shipping so much of the stuff that is necessary to keep an economy on track. So let's talk about some of the freight picture here. Coal and renewables in full year 2020, for the quarter at least, that was down, what was it, about 16%? Yet grain and grain products was up 20%. I imagine we're going to consider the grain and food shipments are going to increase going forward.
L
Lance Fritz2:27
Yeah, so as we look at the two commodities you just mentioned, we talked this morning about specific headwinds in coal, and that is related to the conversation that happened before I got on in terms of climate change. There's a long-term decline in the use of coal in the United States as a power generating fuel, and that's continuing. And we said as we look into 2021, we think the decrease in coal shipments might be as much as a 1 percentage point hit to our overall unit volumes. So offsetting that is going to be a pretty strong grain market, and grain right now is about export, and exports about the Chinese into the U.S. market for soybeans. Part of that is they're supplying their own hog farms that have been rebuilt after a big swine flu epidemic that they faced earlier, and also it's about fulfilling some of the commitments they made in the Phase One China deal. There's other strength in the economy. We think housing is going to be pretty good. We think the automotive industry continues to recover. What we really are keeping a strong eye on is what the consumer's going to do. Are they going to stay as strong as they are in e-commerce and build off that, and what's going to happen in the industrial economy?
A
Adam Shapiro3:47
So when you bring those things to the forefront, where I get a disconnect is I'm looking at the stock under pressure right now, and I know of late there's an article that short interest has increased on the stock, but yet when you look at the 52-week range, your shares have more than doubled over the last 52 weeks. What would you say to those short interest folk who are putting pressure on you right now? And I realize the CEO doesn't want to deal with the day-to-days of the stock market, but what are they missing?
L
Lance Fritz4:14
Yeah, Adam, let's broaden that out to just what is the message for our shareholders, and for our shareholders and really all stakeholders, the message is we did a hell of a job in 2020 in a very difficult environment. We improved our operating ratio by a pretty substantial amount with down volume, and we generated $780 million of productivity. When you pivot and look into 2021, we think all three stools of margin improvement and growth are in place. We think unit volume is going to grow, we think we're going to be able to have a pretty decent pricing outcome, and we're anticipating another $500 million in productivity. The story looks good to us as we look forward. Now, whether or not we get some of those guidance items right, you know, whatever the outcome is, we're going to make really good with what's presented to us. If there's greater volume, that's awesome. If there's greater price opportunity, fantastic. If we have the ability to drive more productivity, we will. But net-net, given the uncertainty of the year and what we're entering, that's how we're looking at the year, and even in that context, looks like a pretty darn good year in 2021.
A
Adam Shapiro5:34
And your cash and cash equivalents as you go into the year, $1.8 billion roughly. But let's look at some of the 2020 achievements. Your freight car velocity, an improvement of 6%. Your terminal dwell time was an 8% improvement. So it looks as if you go very strong into 2021. Your debt, roughly $28 billion overall, most of it long-term, $26 billion, so that's very manageable. What is the hiccup that might cause you concern in 2021?
L
Lance Fritz6:01
Well, one thing I want to address, Adam, and you'll appreciate this, we mentioned it but it wasn't really picked up that strongly. We increased our debt year over year by about a billion and a half from '19 to '20, and we reduced our cost of debt, our interest, by about 20 basis points. That's a hell of an outcome from the treasury team. In terms of what we look at in 2021 and what might happen that would be a downside, you know, we need to see the COVID pandemic get under control. That's a predicate. So the talk about that the Biden administration is focused primarily, laser focused on getting vaccines into arms, we think is absolutely the right thing to be doing right now. We also think we need to continue to see global trade continue to grow and enhance, so not just in the United States, we've got to get COVID under control around the globe. And predicated on that, we need to see the industrial economy continue to improve. That's a big mix impact for our business, and it's also got a lot of carload potential just overall. Then the last thing we got to make sure happens is that consumers are healthy, and that speaks to the debate that's going on right now in terms of the next stimulus package and the question of how big and what's required to make sure that consumers are healthy, they continue to stay confident, and they grow in that confidence.
A
Adam Shapiro7:43
I just want to shift very quickly in my last question to you to the political situation, because you did bring up the Biden administration. Union Pacific has put a temporary pause on all political donations. Why?
L
Lance Fritz7:53
Yeah, you just got to look back to what happened on January 6th, and that was a strong indicator to us that things have gone haywire in our political system. So we've made the decision that we're going to pause, we're going to evaluate who and how we distribute contributions to before we get back into the business of helping candidates and elected officials understand what's important to Union Pacific. So that's what that pause is all about.
A
Adam Shapiro8:26
Adam, Lance Fritz, it's always good to see you, the CEO from Union Pacific. And Zach, as I throw back to you, one thing I like to point out to more conservative, risk-averse investors is that their dividend yield is close to 4%. So as an old friend of mine used to say, I'm not mad at that.