Union Pacific Earnings Call INSIGHTS: More Color on Coal, Coal’s Affect on Core Price
More Color on Coal
Thomas Wadewitz – JPMorgan Chase: I wanted to see if you could give a bit more commentary on the coal view, your slide shows that, on an absolute load it seems like things have bottomed. But you do have more difficult comparisons in second half? How would we think about year-over-year I think you had some stockpile comments, I didn’t catch them all and then I don’t know if you want to comment on natural gas within that. So, (do you the broader) little more detail under outlook for coal in second half?
A Closer Look: Union Pacific Earnings Cheat Sheet>>
Eric L. Butler – EVP, Marketing and Sales: Yes, Tom. In terms of our coal outlook, as we said earlier our run rate is increasing as weather increase and coal low demand increases also as natural gas price has increased, our coal utility providers become more competitive in terms of using coal versus natural gas. As we said in the third quarter, we will continue to have some tough comps as you saw on the slide, even as our volumes sequentially improved which is why we said that third quarter will be down again – in the second half, the third quarter we said will be down in the low to mid teens.
Robert M. Knight, Jr. – EVP and CFO: If I can just add to your point on the drop, what slide shows is that our low point was in the second quarter – on an absolute basis forget the year-over-year for a second. On an absolute basis we did drop out on our coal in the second quarter and that was at a low on the PRB basis of around 23 trains per day. We have sequentially grown to where we are running around call it 30 trains per day PRB today. So, we clearly have come out of that drop.
Thomas Wadewitz – JPMorgan Chase: Eric, I think, you might have mentioned, I just didn’t catch it, what was the stockpile level that you were – days of stockpiles you think you are at today?
Eric L. Butler – EVP, Marketing and Sales: I don’t think we actually mentioned the absolute number of those, the report comes out this afternoon, we are expecting a reduction in the stockpiles with the report that comes out today or tomorrow it will be around the low 20s, we think above normal in terms of days above normal. So, we are seeing continued and expecting, particularly with this kind of weather seeing across the country a reduction in what the stockpile report will show.
Robert M. Knight, Jr. – EVP and CFO: Tom, I’m a little skeptical of that reported information. If it is going to go and show as Eric said, the last report that came out said 23 days of available stockpile, our customer base is not expecting or is not behaving like they have 23 days of excess coal supplies. They are ordering more coal, they are bringing coal sets on service, so that is a generalized number and I think it involves all Powder River Basin shipments throughout the United States. I think in our served territory, we might actually be in somewhat better position than what that average stat might indicate.
Eric L. Butler – EVP, Marketing and Sales: As Rob mentioned, we are seeing our run rate sequentially improve.
Thomas Wadewitz – JPMorgan Chase: For the second question. There is so much focus on legacy contracts this year, I don’t think I have heard you talk much about legacy in 2013, but you have shown charts, I believe, $350 million in legacy business in 2013. Can you give us a sense of the timing of that? Is that all skewed to the beginning of the year, so you’d see a kind of a full-year benefit and is that all coal or is there some other stuff in it?
Eric L. Butler – EVP, Marketing and Sales: Tom, I would refer you and others to the chart that you have seen us use in the past that kind of lays out the pie chart of fuel and legacy where we show in 2013 there is about $350 million of legacy renewals up in 2013 and mostly that us front end loaded. We haven’t broken out precisely, but as you know the bulk of what’s still in front is coal related.
Coal’s Affect on Core Price
William Greene – Morgan Stanley: Rob, I want to just follow-up on a comment that you made, which is that the decline in coal affected core price. Do you know roughly how much that would’ve affected it, had it just been say flat?
Robert M. Knight, Jr. – EVP and CFO: Roughly it’s, if you recall, Bill, in the first quarter we said about half a point of our pricing was hurt if you will by the fall in coal. That was even worse in the second quarter, because coal is down more. So it was more than half a point.
William Greene – Morgan Stanley: On coal price.
Robert M. Knight, Jr. – EVP and CFO: On price, yes.
William Greene – Morgan Stanley: Then I realize that there is a lot of moving parts here and there is uncertainty, but I think, correct me if I am wrong. Usually the third quarter is typically your best (OR) quarter and coal at least sequentially looks like it will be a little bit better. So I sort of look at kind of the sub 70s target and I say given where the first half was the second half should be better. So that feels like a pretty modest guide or is there a part here that we have to remember just in terms of a cost metric or something as we model the second half?
Robert M. Knight, Jr. – EVP and CFO: Bill, there is a lot of uncertainty out there in the world. So, I would just say this that we are not going (slow) for the 70, just like all the previous targets we have set. We are going to get there as efficiently as we can and do it the right way, and that’s through a combination of good service, fleet service, pricing it right and running it efficiently. So don’t look at the 70 as a (self board) number, we are going to get there as efficiently as we can but there is a lot of uncertainties in front of us.
William Greene – Morgan Stanley: Just one last detail. I think in the past you tried to estimate the market size for some of the shale play can you remind us sort of what numbers you’ve thrown out?
Eric L. Butler – EVP, Marketing and Sales: I am not sure we’ve thrown out any absolute total market size numbers. What we have said in the past is that we would kind of double our volumes this year and what we’ve said today is that as we look at our current outlook that’s about 2% impact on our volume growth. I am not sure we’ve given an ultimate market sized impact of the shale play in the past.
John J. Koraleski – President and CEO: I think one of the things we’ve said in the past is we expect that our shale business when you add it all up together to be somewhere close to 400,000 carloads this year. As Eric reported, there is couple of customer facilities that are a little slower coming online. We are probably going to fall a little bit shorter by 400,000, but not too terribly much.