Union Pacific Corporation (NYSE:UNP) Q2 2023 Earnings Call Transcript

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Jennifer Hamann : Yes. So going back to — you’re really asking a sequential question. And again, I — we had a 63% reported OR. If you’re stripping out the brake person agreement, that was 1.1 points in the quarter. If you look at what we have done historically as a company, you tend to see some of your better margins in the third quarter, tends to go up a little bit then in the fourth quarter when you’re just thinking about kind of that normal seasonality. We are going to work to make sequential improvement. I’m not telling you that we’re making sequential improvement, but that is the task that has to be ahead of us. We have to work to improve the cost structure. And we’ve already made some progress. I think you certainly saw that.

I know it’s a little bit of a messy quarter with all that was going on in it. But when you strip some of the noise out, there was — particularly when you’re comparing first quarter to second quarter, we did make gains, not year-over-year but sequentially, we did make some gains there. So I think that’s the way to think about it into the back half of this year.

Kenny Rocker: So Scott, I’d tell you, we look at the weekly crop report and, call it five, maybe six weeks ago, wasn’t looking great. And since then, we’ve had rain in areas that we serve and participate in. So it’s looking much better. You heard in my comments that we think there is an opportunity for incremental grain in the fourth quarter. And so we’re steering that down and working with Eric’s team to make sure we can capture it.

Operator: The next question is from the line of Walter Spracklin with RBC.

Walter Spracklin : Best of luck there, Lance, on the future. Just a question here — wrap up here on coal. I know you’d indicated that, that was an area of discrepancy from where you were looking at before. Really on the — or the revenue per carload revenue per RTM, that’s taken a notable step-down. And I know your peers talked a lot about — you talked about a 15% decline in their rates on coal. Now a lot of that is tied to export met, which is not in your mix, but you did see a similar type of step-down in sense per RTM. Just wondering if that’s something that you expect to continue for the foreseeable future. What’s driving it? What could make it change up or down from this point going forward?

Jennifer Hamann : Yes. So Walter, we did mention that in my prepared remarks that, that was a bit of a headwind. And you’ve heard us talk before that we do have a portion of our coal contracts that have some mechanisms that link that pricing to natural gas pricing. And with what’s happened with natural gas pricing, that certainly is flowing through in terms of some of the rates. We did that similar to intermodal in terms of keeping competitiveness for those players that are dispatching into the grid, keeping them competitive. And we’re continuing to ship coal. Still profitable for us, but there is some pricing differentials there. So it really depends on how you see the rest of the year playing out in terms of how that’s going to look. But if you just compare last year’s nat gas prices to where we’re at this year, that tells you there’s going to be some ongoing pressure there.

Lance Fritz : Yes. I think the differentiation there is sequential versus year-over-year, and year-over-year is going to continue to see some pressure. Sequential, we’ve seen as much pressure as we’re going to see.

Walter Spracklin : So kind of flat from this point going forward?

Jennifer Hamann : It should be. I mean, obviously, watch natural gas prices.

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