Union Pacific Earnings Call Nuggets: Coal Volumes and Contract Losses
Thomas Wadewitz – JPMorgan: Let’s see, I’m going to surprise you here with a question on coal, I guess, Eric, sure you’ll get a lot on that but, anyways, can you give us some thoughts around what might drive upside or downside to your view on coal volumes. I think you are saying coal volumes are probably full year down a little bit. What would be the scenario, maybe your gas price levels, natural gas price level it would drive some upside and also in terms of risk to the downside how are you thinking about the impact of the Edison Mission bankruptcy and whether you are factoring in lower volumes there and for your comments on coal?
Eric L. Butler – EVP, Marketing and Sales: As you say there are lot of uncertainty in terms of the coal outlook and environment certainly on the down side regulatory environmental changes in Washington could have continued negative impact on the coal business and the coal market share. Certainly the natural gas, the price of natural gas can also have impacts on the downside and the upside right now we are expecting natural gas prices to remain in the $3.54 range for the year. But you know on the upside as natural gas prices go up that will drive more business to coal. If you look at the coal market share, full year market share for 2012 we are not expecting substantially higher coal market share vis-a-vis natural gas for 2013 maybe a point or two higher but basically flat in terms of overall market share.
But there will be upside and downside to that. In terms of the announced bankruptcies that are out there, we are working closely with our customers to work with them as they are working through those difficult times we also are doing what we need to do to ensure that we are preparing our corporate interest as we are going through the process. As you know the way the bankruptcies where customers have the right to look at contracts and we are working with them as they are going through that process and we’ll continue to work with them.
Robert M. Knight, Jr. – EVP and CFO: If I could just add couple of more points to Eric’s thoughts on drivers of coal. Remember we said in October at a conference it was about 10 million ton contract for us, so that’s factored obviously in 2013. And the other variable I’d remind everyone that can impact our coal volumes up or down is weather, and that’s always the case. The biggest driver is will we have a deep cold winter season and more importantly how early and how long and how deep will the summer season be and that can always influence our volume.
William Greene – Morgan Stanley: I was curious, what do we make about well you’ve mentioned these contract losses? It seems like that happened last year with some of the legacy repricings same thing this year. Does that suggest that some of the competitors are being a bit more aggressive on price than you’d expect, how do we sort of take that?
Robert M. Knight, Jr. – EVP and CFO: If I could just give you a comment and I’ll turn over to Eric. I mean, Bill that’s — we’re negotiating contracts every day of the week. There’s lot of visibility given probably to the legacy renewals, but I would just say that we compete vigorously every day of the week on whether it’s a legacy contract or non-legacy, so it doesn’t strike us as unusual. The business we’re in that there’s constantly negotiations taking place and there are factors like price and service et cetera that go into those equations. Eric, do you want to elaborate?
Eric L. Butler – EVP, Marketing and Sales: Yeah, I’ll add to that Bill. Price negotiations as Rob said they are always difficult, we always compete in the marketplace. We expect to win some, we expect to lose some, but our strategy remains the same. We’re going to be re-investable. We have had that strategy for many years now and we remain committed to that strategy and focused on it. I mentioned that for 2012 we had about $350 million in legacy. We retained about 80% of that and we feel pretty good about that retention rate.
William Greene – Morgan Stanley: Is return on capital metrics now up around 14%, CapEx coming down, is there sort of something to think about there where as the returns have gotten better you’ve slowed the growth in the CapEx. I’m not sure sort of if that suggest kind of maybe limited opportunity to keep taking up price because where the returns are getting from a regulatory standpoint. Is there – I don’t know maybe Rob you can sort of comment on…
Robert M. Knight, Jr. – EVP and CFO: I wouldn’t read too much into that connection in terms of the (sliding) reductions, the $3.6 billion planned spend this year versus 2012 $3.7 billion in the ROIC. I would say that as we’ve said all along and we walked our cost there over the last several years, is we have to improve our returns to justify those kinds of capital investments and that’s the takeaway there and that’s how we look at every capital investment. In terms of there being a slight reduction from year-to-year in capital spending, that’s really more timing issues.
We expect to spend more as I mentioned and as Lance mentioned on positive train control spending this year, but less on locomotives. We’ll take 100 locomotives this year, last year we took 200, so those are all the factors. Replacements spending remains strong, that hasn’t changed. Our key investments that we spend every year and the other thing that we’ve talked about the last couple of years and we’re continuing into 2013, as we direct more capital spending in the southern part of our network because of the growth prospects that we were seeing there and the return expectations. So, that would be my answer in terms of how we look at our capital spending and I wouldn’t read anything into the (slight) reduction this year. Lance you want…
Lance M. Fritz – EVP, Operations: I’ll just add Bill that we are not at a loss for excellent projects to invest in.
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