2023-06-13 11:15:24 ET
Union Pacific Corporation (UNP)
2023 Wells Fargo Industrials Conference
June 13, 2023 09:00 AM ET
Company Participants
Jennifer Hamann - EVP & CFO
Eric Gehringer - EVP, Operations
Conference Call Participants
Allison Poliniak - Wells Fargo
Presentation
Allison Poliniak
So good morning, everybody. Welcome to the Wells Fargo Industrial Conference. My name is Allison Poliniak. I'm the Senior Analyst following Industrial Technology and more importantly, for patients (ph) here at the company. We're delighted to have our Union Pacific here kicking it off for us today. We have Jennifer Hamann, the CFO of Union Pacific; and Eric Gehringer, EVP of Operations, right?
So I guess, firstly, I guess Jennifer, you have a few slides you want to walk through. So I'll turn it with you.
Jennifer Hamann
All right. Great. So good morning, everyone. So as Allison mentioned, we do have a couple of slides. So for those of you who are listening in on the webcast and not in the room, you can access those slides on our investor web page. It's in the link next to the webcast itself.
I also need to remind everybody that we will be making some forward-looking statements today. Those statements are subject to risks and uncertainties. So please refer to our SEC filings for additional information about the risk factors.
So if you look on our first slide here, we show the UP franchise. And I think it's an important part -- place for us to start in terms of our conversation about UP. It's the foundation of everything we do. And we absolutely believe that it is the premier rail franchise in North America, and I know that, that belief is shared by many of our shareholders as well.
If you look at the breadth of that map and the very diverse markets that we serve, you can see that, that's a core strength of ours. And so let me talk about just a couple of those. One of the key strengths for us is our strong North-South route, so connecting Canada and Mexico. We're the only railroad that crosses at all six major border crossings into and out of the United States.
We actually carry about two-thirds of all traffic rail traffic, north-south across that border. And in an effort to enhance the service and the product offerings that we have in that quarter, we've recently announced a partnership with CN and Grupo Mexico for the Falcon Premium service. Now that service is going to take advantage of that great route structure and we very much look forward to it further expanding our intermodal service portfolio that we're offering to our customers.
You also see, we've got great access across the Midwest in terms of, call it, the grain belt, access to coal in Wyoming and Colorado and Utah. Think about our autos franchise. We're the largest distributor, transporter of finished vehicles in auto parts, West of the Mississippi, serving large manufacturing facilities as well as the distribution centers. And then you think about the Gulf Coast and the Texas Petrochem franchise, the metals expansion, tremendous investment along that corridor and there's more coming.
So as we think about leveraging our robust network with our business development, that's really what gives us the confidence that we're going to over a long-term basis, grow our volumes at a faster rate than industrial production. We've done that through some, what I'll call, marquee business wins. If you think about Schneider and Knight-Swift over the last couple of years, but I can point you to wins across our entire business portfolio, whether you're talking about grain, biodiesel, renewable diesel, metals, construction products.
The team is really doing a great job of both using this diverse franchise, harnessing the service products that Eric and his team are providing and winning new business, it’s allowing us to outpace our peers.
On the right side of that slide, you see our second quarter volumes to date. And that really highlights, why we love this diverse franchise. We manage our business in three teams. On the bulk side, those volumes are flat quarter-to-date. We are seeing growth in grain and grain products, a little bit on coal. That's being offset by less demand for fertilizer as well as food and beverage.
You think about going out into 2023, we were actually just talking about weather. Weather plays a big role in both the grain and the coal demand. So we want a hot summer, but we like some good rains to come as well to help support the grain harvest. It was very weak in 2022 due to drought. We're looking for a little bit better moisture and a better harvest in the fall of 2023.
If you look at industrial, those volumes are up 1% and you see improvement there in terms of energy and specialized as well as metals and minerals. Now that's being offset partially by less demand on the forest product side. And then premium, that's the consumer product story. Our premium volume is down 4%m that's largely intermodal. When you think about parcel and truckload. Now that is being offset somewhat by continued strength in our finished vehicles franchise, both for finished vehicles and parts.
So net-net, you put that all together and we're down 2% here quarter-to-date, but still, I believe, leading the U.S. peers and I think really all the rails right now in terms of volume here in the second quarter.
Eric Gehringer
Perfect. So moving on to Slide 4 and give you an update on our network performance and efficiency. We remain focused on providing a more consistent and reliable service product to our customers and we have been a better service provider over the last several months. If you look at our reported car velocity has exceeded 200 miles per day for the nineth consecutive week. If you go back and you look since mid-April of 2022, our car velocity is actually up 14%.
All of our trip plan compliance metrics, which we report to the STB for each of the last four weeks has been at goal or above. As displayed on the slide on the right-hand side, you can see that our TPC measures have shown strong improvement and continue a positive uptrend. Intermodal trip plan compliance of 79% is up 18% versus same to last year and 15% versus March of this year. Manifest auto trip plan compliance of 65% is up 9 points versus '22, and 7 points versus March of '23.
For our current reported operating metrics, our freight car velocity is at 206 miles per day, up 4% versus 198 this time last year. And our operating inventory of 170,000 cars is down 8%, 14,000 cars. We continue to evaluate our network by utilizing supply and demand analysis to synchronize resources and capacity.
From a crew side, to date, Union Pacific has graduated 760 employees. We also have a very strong pipeline of nearly 1,200 employees in training. We also employ a total of 200 borrow outs currently across the system in our Northern regions. Our workforce levels will likely be up again sequentially in the second quarter, but we are aligning our hiring plans and volumes while staying active in hard-to-hire areas that we've discussed before and look forward to graduating the 1,000 plus that are in training.
Currently, we are leveraging our operational fluidity to squeeze out excess costs and improve asset utilization. For example, we have removed 230 locomotives in the first quarter -- excuse me, second quarter. And our year-to-date recrew rate has dropped from 9.5% to 6.8% and recently is at 6.1%. We, at Union Pacific remain very confident in the service product that we're building, and our ability to control costs as we do that.
Let's move to Slide 5, talk about our employee base. The well-being and quality of life of our employees remains a top priority. We continue to collect feedback, collaborate and look for win-win solutions with our employees. I'm showing here three specific examples. First one is sick leave, then our SMART-TD, which is our conductors and crew consist and then BLET work list, which are engineers.
So let's start with paid sick leave. Under this agreement, which we've reached, employees will have up to seven paid days to use in the event of illness. We have agreements in place for 12 of our 13 unions, which in total is 68% of our craft professionals.
Moving now to the SMART-TD crew consists, which is a tremendous breakthrough that give our conductors fixed days-off and greater certainty about their weekly assignments. For the railroad, it gives us greater flexibility to redeploy crew members to work either in or outside the yards and offset some of our future hiring.
Finally, on the BLET work list, which is a tentative agreement currently out for ratification. This is truly a historic agreement that gives UP locomotive engineers and their families more predictable work schedules. It provide engineers with 11 days on and four days off. It also enables UP to better manage staffing levels, which support more consistent and reliable service.
As information, Union Pacific employees, approximately 5,600 engineers represented by the BLET. These agreements in total mark another step forward in UP's commitment to prioritize the health and well-being of our employees and we look forward to further collaboration and continue fostering a supportive work environment.
Jennifer Hamann
So the UP team certainly has many opportunities as we look ahead to the rest of 2023. But it can't be ignored that the year did start off a bit slower than what we had planned. And you also heard Eric just talk about really some landmark agreements with our craft professionals.
And we're excited about what that's going to do for them in terms of a more engaged workforce, giving them better quality of life, as well as the flexibility that that's going to provide us as we see our business to continue to evolve. But those agreements do come at cost.
So for the sick leaves agreement, which we talked about in our first quarter earnings, we indicated that there would be added expense with the provision of those benefits. Eric just referenced the newly ratified break person agreement. That agreement comes with a buyout payment pre-tax of $70 million. That's about 120 basis points to our second quarter operating ratio.
And then the BLET agreement for scheduled work, which is still out for ratification, once that's ratified, we will begin implementation, that will be a more spaced out implementation. It's going to take us several months, in fact, full implementation likely won't occur until sometime in 2024.
And as we're implementing it, we'll be figuring out some things in terms of what the staffing levels need to be, how that reflects itself in better crew availability and what some of those cost benefit trade-outs are. But the known cost of these labor deals, combined with ongoing volume and expense headwinds likely mean that our 2023 full year reported operating ratio will exceed 2022 levels.
Now some other news in the second quarter. We also have a $75 million after-tax tailwind, and that's from a Nebraska state tax law change. And then if you think about our other full year guidance for the year, when you're talking about volumes, price, capital allocation, those are all unchanged. So Allison, a lot going on at Union Pacific right now, some really exciting developments with our labor agreements that we think certainly position us to drive our strategy forward to serve growth, win together.
And in the near term, then we're going to look to impact those things that are more directly within our control in terms of providing a safe and efficient train service, win new business with our customers and deliver value to the shareholders. So with that, we'll [Multiple Speakers]
Question-and-Answer Session
Q - Allison Poliniak
Yeah. Just want to delve into the growth part of the story first, and there's a lot of factors that you've talked about. Maybe talk about Intermodal first. Obviously, West Coast ports are in the news all the time, but it is the opportunity for modal share gain and you guys have the perfect network for it. How do you view that intermodal business going forward?
Jennifer Hamann
Yeah. I mean we're very excited about that opportunity. Clearly, we've had some great wins so far. It's hard to see that sometimes in the metrics when you see what's happened in terms of the consumer economy. But relative to our peers, I think it's very evident that we have gained share in that. And we're winning and setting ourselves up, I think, very well for the future when you think about the large IMCs that we're partnering with and the fact that they're all very dedicated to growing their intermodal business.
You think about the ESG benefits of moving more freight by rail versus truck. I call it the easy button. If you want to reduce your greenhouse gas emissions by 75% just convert that truckload to a rail carload and you've automatically made that savings. And we're seeing more and more inquiries in that space, but it's not truly converting itself. Obviously, there's a loose truck market today. So that makes some of that competition a bit more difficult. But then we've got new products, as I mentioned earlier, the Falcon Premium. I think that sets us up well.
And then we're investing in the intermodal space when you think about the investments that we're putting into our intermodal terminals in those facilities. So we think the opportunity is tremendous. But I think it's also fair to say when we talk about truck conversion, while most of that does go intermodally, we can also convert truckloads into box cars into gondolas. And so it's not just an intermodal play. It goes across our whole business.
Allison Poliniak
One of the questions or pushbacks we get on that intermodal story is obviously, truckload rates are down. You mentioned that. How impactful is that to yield and pricing? And what kind of discipline do you place around that in terms of bringing that to rail?
Jennifer Hamann
Yeah. I mean -- so one of the things that's been great for us is, we have improved our service product, improved our cost structure that put us in a much better position competitively. You're always going to have times when the market is a bit looser. I think you're aware that we have with some of our large IMCs, we do have pricing mechanisms that do led the prices adjusted that more than they have in the past that hopefully lets us both capture more of the upside but also downside when rates are coming down, hold more of that volume onto our network because it's that consistent pipeline of volume that helps us be much more effective an efficiency and competitive standpoint. And then it's just really continuing to strengthen the ties with our customers, which we're using technology to do to help them better manage their supply chain.
Allison Poliniak
And you mentioned Falcon a few times. Maybe walk us through the dynamics of that. Obviously, it's three rails you all have to somewhat operate effectively right to make this work.
Jennifer Hamann
I'll actually let Eric talk that one. He lives that every day.
Eric Gehringer
So the Falcon Express service, believe it or not parts of what we do with this new product, we've done for a long time, specifically the part with the Canadian National. What this provides us an opportunity to do is through just three railroads combined actually take volume from Mexico. We collect it from a myriad of different nodes where we combine it, set it into Laredo, and then we, of course, take it all the way up to Chicago and/or change with the CN that takes it over to other markets like Detroit.
What's really exciting about this is to see all three railroads be able to very quickly. I mean the agility that we demonstrated, I haven't seen it. I mean it was an idea. The next thing you know 30 days later, we have it on the railroad between three of us. So I'm very excited about it. And for the month that we've had it, we've seen very good success in our service metrics combined.
Allison Poliniak
Great. Thanks. And Houston expansion kind of walk through the importance of that announcement.
Eric Gehringer
Yeah. So the Port of Houston, it's a really exciting one. It's a service that we had the better part of 20 years ago, and for a variety of reasons, didn't exist. Now what we have is the ability to work directly with the Port of Houston, which is really interesting because as Jennifer pointed out, as we think about intermodal and we think about investment, there was very little investment for us.
This was the partnership with the Port of Houston where we simply bring the railcars, they place the boxes directly on the railcars. We take them up to our yard in Settegast, which is one of our two major yards in Houston. And then from there, we can disperse it to five of the highest growing intermodal markets that we have.
Jennifer Hamann
Yeah. And I think going back to your West Coast port, comment earlier, the Port of Houston is seeing tremendous growth as people are looking to diversify away from the West Coast ports. So we see that as a great opportunity as well to offset some of that I think.
Allison Poliniak
And we're hearing a lot more these days about clean energy supply chains, right, renewable diesel and then the EVs, the opportunity there. Can you remind us, when we look at the map of even renewable diesel plants, it seems like it's firmly sitting right on top of your roof network. How should we think about opportunity maybe over the next three to five years for you guys?
Jennifer Hamann
Yes. I mean I don't think we've sized exactly what that means for us. But as we look at the market itself, in total, I think that's projected to grow almost 200% over the next couple of years. And certainly, to your point, we're going to participate in that. We have contracts with several new plants that are coming online.
And the other part about renewable diesel that I know you're aware of, we're not only involved in the supply chain, but we're also a consumer of that as it's a key component for us and some of our sustainability efforts. So good growth opportunities. You mentioned EVs. Certainly, we're aligned well with that marketplace as well. Those cars are much heavier and so regardless of the profile of the car, they tend to move in by levels.
And so even if you're moving the exact same number of wins, you actually generate more carloads because you're needing to move those in buy levels versus the trial level. So we're excited about that, and there's parts opportunities that go with the EVs as well.
Allison Poliniak
Yeah. And I would say the one question we get all the time, growth is great. There's a lot of opportunity. What's different this time? How have you altered the strategy to capture that growth going forward?
Jennifer Hamann
Yeah. I mean I think it's a number of different things. There's no silver bullet here. Certainly, part of it was getting our cost structure where it needs to be. We still have some work to do there, but certainly have taken some tremendous steps forward there to put us in a very solid position competitively. Then it's the service product that Eric and his team are delivering. We know we need to do that consistently, reliably. We've not demonstrated that as fully as we need to our customer base yet. So that's obviously a big part of what he and his team are focused on.
I do think these labor agreements with our unions are going to be a step in that direction in terms of really engaging the workforce and putting them in a position, where they are going to be more available to us that's going to let us be more consistent with that service product and hopefully continue to find innovative ways. Technology is probably the other piece, and it's probably been one of the bigger missing pieces in terms of letting our customers see deeper into our operations, identify where their products are at any point in time and then really being able to leverage that.
We know that we're historically have been maybe a bit of a black box and maybe a little bit hard to work with, and so we've got to break that down and make that easier. I don't know, Eric, if you have anything you want to add?
Eric Gehringer
I think you hit all four of them.
Jennifer Hamann
Okay.
Allison Poliniak
Well, I guess with that service products, what is your sort of approach for us, the reliability first part and then just kind of cascade down to the importance there?
Eric Gehringer
Sure. It definitely starts with the reliability that we've talked very publicly in the past about we have five critical resources. And we all watched over the last, call it, 1 year, 1.5 years where we struggled with one of those resources, and it was crews. Now you look at the other four and you look at line of road capacity, terminal capacity, railcars, no concerns there. We continue to make investments in our locomotive fleet. They continue to get more and more reliable.
The lesson learned on the crews was to make sure that as we came into a very, very difficult market that we could be successful in hiring. And while it took us longer than any of us wanted it to take, we've got ourselves to that place. And we've kept ourselves at place especially in those hard to hire markets. So with that being the fifth one, and you have all five, we've proven historically that we can be consistent and reliable. We're proving it right now. And now that lesson is one that we will not forget. And we will stay true to all five of those because it really does take all five for us to be consistent and reliable.
Allison Poliniak
Got it. And you touched on the visibility and transparency. I know you got to remember in the rail call. How far are we into that? Are we ready to commercially make it available? I know it was a two-year kind of...
Jennifer Hamann
Yeah. I would say, it's very early days still yet. I think there's certainly a lot of promise for that, but it will also take a number of years even once kind of all the infrastructure is in place and you get all the necessary parties signed on to fully equip the entire railcar fleet in the industry. So there's still a lot of promise for that, I would say.
Allison Poliniak
Got it. And another concern we get is around the cyclicality of price for the rails. It's -- I guess, it's one of the question is, with your ability to maintain price above inflation, does that get impacted because of the service challenges you've had? Is there any change in that dynamic that you see going forward?
Jennifer Hamann
Yeah. I mean the pricing above inflation, we think really is a must-have for us, and we're very committed to that. We've demonstrated over probably 15, 16 years, it's been a long time, almost 20 years, gosh, I'm dating myself. But I remember when we started getting the positive pricing and the pricing above inflation. So that is a must-have for us. Certainly, a strong service product helps support that, but we provide tremendous value to our customers. And they recognize that value and they want to participate more in that value.
In fact, we often hear from our customers, we want to put more freight on you. We just need to make sure that you're demonstrating that consistency and reliability. So I think it's a great combination, and I don't see that changing. Yes, there's going to be kind of peaks and valleys in terms of how that works. But as long as we're staying above that inflationary target, which we have very solidly, I think we're in good shape.
Allison Poliniak
I guess, I want to make sure we touch on reciprocal switching. Obviously, it's a key topic for the STB right now. Maybe explain sort of what that is to you guys and kind of your view on that?
Eric Gehringer
So believe it or not, reciprocal switching exist on almost every railroad, if not every single railroad in the United States. It's used in basically places where it's advantageous for the customer and the railroads to be able to utilize more than one railroad. Where we have concerns with it is, if employed broadly, you can be assured it's going to take longer for us to be able to deliver cars to customers. And we don't have customers coming to us saying, I'd like it to take longer to get my shipments. And we have the exact opposite. We have customers that say, I want you to deliver as you said in the most expeditious manner in which you can.
The other challenge that we will have is, if today, you have a location or 100 locations that you don't have reciprocal switching and tomorrow, suddenly all 100 do, you're going to have places inside of there, where our infrastructure, whether it be just the track or whether it be a terminal's capacity, it's not going to be sufficient to provide the reliable service that our customers expect. So we've pushed back and we continue to collaborate. But what we need to do more than anything is, we need to be able to have consistent reliable service and reciprocal switching is not a facilitator of that.
Jennifer Hamann
Yeah. And it actually would consume more resources if you think about our brand, it's a product that we're hauling from point A to point B. And now we are going in sort of another railroad into that and other railroads assets. It really goes against, I think, a lot of what the STB wants ultimately, which is for us to grow with our customers and be more reliable.
Allison Poliniak
Yeah. It's surprising they're pushing it just because of some of the concerns they had with customers' life. Another question we get a lot of times is around CapEx, right? There's been a lot of discipline around CapEx. Some would say maybe some underinvestment in the rail over time. What's your view on that? Is there a right level? Are we getting to that point where maybe there's this CapEx level that's needed?
Jennifer Hamann
Yeah. I mean I certainly don't believe that we have underinvested in our railroad. We talk about our spend in terms of 15% of revenue or less is kind of what we target, but that's a short hand that really we use externally to help people size what our CapEx spending is going to be. Internally, we're looking at what do we need to do to safely maintain the railroad and that's the track and infrastructure, that's, call it, $2 billion a year.
And then we build on top of that to say, what do we need? Eric just walked you through the five critical resources. What do we need for locomotive straight cars? What's our terminal capacity need to be? Where do we see growth? Where do we see customers coming on? Where can we provide a better service product? And it builds up from there. And I don't see us cutting back on that in terms of sacrificing anything. I do think we're very efficient with what we spend.
For instance, our locomotive modernizations. What we do with those programs, it's much less costly than going out and buying a new locomotive, but we essentially get a new locomotive at the end of that process. It's a locomotive that has much greater reliability, greater fuel efficiency and greater attractive effort. We've also done that with some of the intermodal terminals that we're developing, where we're repurposing old manifest charge and we're converting that into an intermodal terminal. That's a much cheaper way of creating intermodal capacity than how we've done it in the past. So I absolutely don't believe that, but...
Eric Gehringer
You brought up the $2 billion roughly in renewal. Even inside of that, we're constantly, every single year looking for productivity. And we've talked publicly before about some of the work equipment initiatives that we have. That's designed so that we can actually put more units in the ground for the same cost. We've got a team on the engineering side as well as our supply team that are highly focused on those automation initiatives, which just makes that $2 billion stretch even further.
Jennifer Hamann
Yeah. And if I look at it, say, on a capital per carload basis, we're near record levels because, unfortunately, our carloads have come down over the years and our CapEx has grown. And when you think about the guidance in terms of the 15% of revenue that assumes growth. And so that has some natural lift to it as well.
Allison Poliniak
Got it. And then you mentioned the locomotives. You obviously had the ESG targets out there for 2030. I know renewable diesel is a big piece of it as well. With those puzzle pieces, obviously, understanding that battery is probably not going to be ready. Hydrogen is probably not going to be ready by 2030. Would those efforts basically get you to those targets by 2030 in terms of the modernizations and use of renewable diesel going forward?
Jennifer Hamann
Yeah. I would say in terms of our current targets, we believe that the conversion with the renewable diesel could get us there. Now I will also say we're in the midst of getting those targets reevaluated. And so we actually expect those may go up some after the SBTI for what we have used them. And so we'll have to relook at, can we still get there just through the renewables. We have made a commitment to buy some battery electric locomotives. We're also working with another company on kind of what I'll call a hybrid type locomotive unit. So we're pushing in a number of different areas, but ultimately, it's the locomotive and that technology has to come along to be able to fully achieve really the long-term goals.
Allison Poliniak
Got it. I know we're getting -- we have a couple of more minutes, but does anybody have any questions or something you want to target with management? Otherwise, I can keep going. You guys are all just waking up, I guess. And I guess in line with that capital investment, you mentioned technology, and it just seems like an area that the rails overall, in general, just haven't pushed the card into. Have you changed sort of your view on the payback period for technology? What's enabling you to sort of push into that a bit more?
Jennifer Hamann
Yeah. So I would say there's a number of things. I think you're familiar, we did bring in a new person to run our type group a couple of years ago, a new CIO from Walmart. He very much brought a customer-centric view in terms of how do you integrate our technology with the customer and help the customers see better and understand. So that goes through some of those truckload conversions.
We're also adopting what I'll call, more of a buy mentality for those kind of back-office systems. We used to be pretty build centric and that consumed a lot of resources. So we're looking at more software-as-a-service. So that does have a bit of an OE impact. But then in terms of where the capital expense comes, those are really things that benefit Eric's team, things that are unique to the railroad that we can develop that can really propel us forward.
I know you've heard us talk about the progressive gate technology. We've got technology around how we build trains to make sure that the train building is softer. I don't know, Eric, maybe jump in.
Eric Gehringer
I mean even on the SMART-TD concept that we're talking about, right, we had to incorporate new technology for now what will be mobile conductors out on the railroad as we do those programs to be able to continue our journey down that path. At the same time, for us, when we think about it, it was really awesome when you started your question about what is reliable look like? When you think about, we have a dispatch center with people. There's roughly 200 people in there every given day, and they're controlling the better part of about 2,000 total trains.
How do we incorporate more intelligent really proactive messaging to them that says, hey, I see this thing. I'm going to predict that there may be an opportunity there to avoid some issue. And I don't mean a safety issue. I mean more of fluidity issue and let's navigate through that. It's a huge opportunity for us. We have parts of that today. But I imagine the dispatch and center of the future, and it will be largely the ability to help us through -- every one of those decisions, all with an eye towards that consistent reliable service.
Jennifer Hamann
Yeah. I mean technology is really going to be our biggest unlock going forward when you think about productivity as well as growth because that's going to be a big facilitator for us.
Allison Poliniak
Got it. And one of the things, just kind of bigger picture, PSI (ph), I don't know if Eric or Jennifer, you want this one, it's gotten a bad connotation, right, because of the service issues there. Maybe kind of walk through in your head, what went wrong sort of in the implementation, if anything today? What are people not understanding and sort of how are you viewing that sort of PSR approach going forward?
Jennifer Hamann
Yeah. I'll maybe start and then Eric, I mean when I think about it from an implementation standpoint, when we first started implementing PSR, which was late 2018, early 2019, we were very, I think, concerted in our effort to make sure that we didn't surprise our customers. And so we took a pretty measured approach and made sure that as we made changes that we brought the customer along in that.
The noise mean that they like the change that we were making, unfortunately, but we did, I think, a pretty good job of keeping that informed and keeping them at pace with us. Certainly, in Eric references, where we took a step back last year was with regard to our crew resources and I would not tie that to our PSR implementation. I think now that we've got the crews in place largely that we need, we're continuing to operate a PSR road and do so with a good service product.
Eric Gehringer
Absolutely. And to focus back on the quality of life of our employees, if you look at -- if we've gone back five years and asked, could we have done those types of agreements with 30% more people, I honestly don't think that we could have. So that's even -- PSR has even facilitated the ability to drive quality of life. It's been a long journey to go there, and there's still a journey ahead of us, but I'm super excited about the fact that PSR helped to facilitate where we are today and where we're going to be in the future.
Allison Poliniak
Yeah. Great. And then another balance sheet question. It's been obviously a very unique environment over the past few years. Has that altered your approach of how you want to manage the balance sheet, the leverage, I mean any color there?
Jennifer Hamann
No, our kind of guiding life there, if you will has been an investment grade credit rating and we're very solidly in that position. That's something that we have committed to all of our stakeholders that we're going to maintain that through little repos in the capital markets over the last year. So we've always had very good access. And so I think we feel very good about where we're at. It's something we'll always monitor and manage. But I think we're in a good position right now.
Allison Poliniak
And what about capital deployment and share buyback?
Jennifer Hamann
Yeah. So our priority there, obviously, capital in the ground is number one. Then our dividend 45% target there, industry leading, we feel good about that position. And then excess cash to share repurchases or you've seen us make some very small acquisitions because they've been kind of under the radar in terms of a couple of transload facilities. So looking to deploy capital where we can drive value is really the key for the excess cash.
Allison Poliniak
Great. And I know I'm getting a little sign that we're running out of time. Any lasting remarks that you want to leave?
Jennifer Hamann
[indiscernible] take that.
Unidentified Participant
[indiscernible]
Jennifer Hamann
Yeah. So without -- the question is, without the labor costs that I talked about, how would the OR look. So I probably wouldn't be sitting here talking to you about the fact that we're effectively pulling the guidance. Certainly, a lot of puts and takes, and we were going to have to work very hard in the back half of the year. But that -- really the impetus for us to make guidance change today with the labor agreements.
Allison Poliniak
Okay. Any closing remarks that you want to leave with everybody with.
Jennifer Hamann
I'd just probably circle about to where we started the conversation with the franchise, the great growth opportunities we have, really the excitement around the new labor agreements and the service product and the fact that we feel like we're in a very strong position today to leverage all of those things together and drive tremendous growth, which we know is what needs to come in terms of the next leg of the UP story.
Allison Poliniak
Great. Well, thank you very much.
Jennifer Hamann
All right. Thank you.
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Union Pacific Corporation (UNP) 2023 Wells Fargo Industrials Conference (Transcript)