Union Pacific Earnings Call Insights: Oil Prices Impact and Coal Price Targets
Oil Prices Impact
Thomas Wadewitz – JPMorgan: I wanted to ask you about one of the popular topic that accrued by rail here, how would you view the potential impact of a decline in oil prices and also changes in the WTI/Brent spread or if you look at other spreads it might be helpful for inland crude moves. Is that a material source of risk in the near-term to volumes; or are your contracts setup in a way that you have commitments and so you don’t have much sensitivity to the price and the spread moves?
John J. Koraleski – President and CEO: Tom, I think certainly, it depends on the order of magnitude of the moves that were to take place. We don’t see anything in the horizon at this point in time that gives us any concern, but Eric, why don’t you explain on that.
Eric L. Butler – EVP, Marketing and Sales: Tom, there are couple of factors. We said previously, crude by rail provides a great value proposition to the producers in terms of agility in terms of being able to get to destinations that they previously couldn’t get to, so all of those value factors remain. Certainly, if the price of oil goes to levels, pick a number, below 70s, mid-60s that’s going to impact the amount of production, which as the total production numbers come down, the total numbers that will go crude by rail will come down, so that’s clearly will have an impact if price of oil goes down. In terms of the spreads, we’re probably less concerned about the spreads narrowing. Again, there’s a value proposition we’ve talked several times in the past publically, where crude by rail that again gets you to destinations, allows the producers flexibility and agility, so we think that even if the spreads get you some narrow, some low single-digit number, there’s still a value proposition for crude by rail. The biggest factor is if crude production goes down, then certainly that impacts us.
Thomas Wadewitz – JPMorgan: What about the structure of the contracts that you have in place into the St. James market? Are there same commitments that multiyear where you would have some minimum volumes into those markets or is it set up in a way that if things really change, that there wouldn’t necessarily be volume commitment?
Eric L. Butler – EVP, Marketing and Sales: We don’t really talk about specific customers agreements. What I would say is that you look at is the fact that the destination providers and the origin producers they are investing huge dollar amounts of capital (indiscernible) by rail, both in terms of freight cars and facilities. So that should be a comforting indicator in terms of their long-term commitment to (commute) by rail.
Coal Price Targets
Ken Hoexter – Bank of America: Congrats on some solid performance. Rob can you just talk about the outlook there that you just ran through. If you look at by carloads for second quarter, do you still see coal moderating, is Ag accelerating on the downside, maybe you can give a little bit more insight on to some color on what’s in that in your targets there?
Robert M. Knight, Jr. – EVP and CFO: Ken, just to kind of reiterate what both Eric and I talked about. Keep in mind, as I think you know, the coal falloff that we saw year-over-year in the first quarter of being done 19%, last year you recall we sort of hit the trough on coal. So we do have clearly an easier comp on coal as we head into the second quarter. But as Eric mentioned, we do envision that the Ag drought will continue certainly through the second quarter, and we estimate that’s going to be down in the low double digits, which is a little bit worse year-over-year, if you will, compared to what we saw last year. So when you add it all up, the guidance that we’re giving is, assuming all the markets remain about constant with what we saw in the first quarter, that still is about flattish to up, but full-year again if the economy continues to cooperate, which thus far it is, all those things will sort of neutralize, if you will, when we get to the back half of the year. We think at the end of the day, at the end of the year, we will have volumes that overall are on the positive side of the ledger.
Ken Hoexter – Bank of America: And if I can do my follow-up on pricing, on the coal side, were there any contract settlements within the yields? And then also, within pricing, you mentioned the Pacer agreement a couple of times. Can you kind of talk about or walk through the level of increase – I know you don’t like talking about specific contracts, but maybe just magnitude of what we’re looking at or continue to go forward on that contract? And then similarly on pricing on the domestic intermodal side, I think you mentioned it was flat. Can you just kind of run through what you’re seeing impact on those – on that as well?
Robert M. Knight, Jr. – EVP and CFO: Ken, this is Rob. Let me take the first point and you asked about the settlements in the coal line. There’s a little bit in there. We’re not calling out precisely what it is, but it’s just a little sort of an impact on the ARC on the coal. And in terms of the other pricing discussions, we don’t break out by…
Eric L. Butler – EVP, Marketing and Sales: We don’t talk about pricing on particular arrangements or agreements. So, Ken, I’m not sure what your question was.
Ken Hoexter – Bank of America: I guess you mentioned that auto pricing was up significantly because of the Pacer agreement. So you kind of called it out on there. I mean, can you give us I guess an understanding of what auto would be like without the agreement. I mean, it was a big number in terms of the 10% increase. Is it half of that in terms of magnitude?
Robert M. Knight, Jr. – EVP and CFO: Ken, this is Rob again. I mean, the impact on the auto’s ARC of that news agreement, it’s in that number. So we’ve clearly inflated, if you will, the ARC number. But that Pacer agreement as I think everybody is aware as we have previously announced is really kind of a neutralizing effect. I mean, it’s showing up both on the revenue and expense line, but it doesn’t change the full year economics to us at the bottom line, but there isn’t a positive impact shown up in that ARC number on the autos line, and you will see that all year.
Ken Hoexter – Bank of America: Then lastly just on the domestic intermodal, I think you had mentioned something like flat there. I just want to understand that as well.
Eric L. Butler – EVP, Marketing and Sales: Yes, we are continuing to see strength in our domestic intermodal business. As I think I mentioned our conversion strategy is going well, we are continuing to price to the market, and we are continuing to be pleased with the performance in that business.
John J. Koraleski – President and CEO: The volume was flat in the first quarter Ken, was that your question?
Ken Hoexter – Bank of America: It’s volume, okay, not price?
Robert M. Knight, Jr. – EVP and CFO: Ken, this is Robert. I’ll just make one clarifying point on the (page request) that you asked. I said that the (Autospark) requested this new agreement. But it’s not reflected in our 4% core pricing number that we report. That doesn’t factor anything related in that number.
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