Jennifer L. Hamann
Executive Vice President & Chief Financial Officer at Union Pacific
Thanks, Eric, and good morning.
We'll start on Slide 15 with a look at our first quarter income statement. Operating revenue totaled $6.1 billion, up 3% versus 2022, despite a 1% year-over-year volume decline. Other revenue decreased 5%, driven by $30 million of increased subsidiary revenue which was more than offset by a $50 million reduction in accessorials. Lower intermodal volume and greater supply chain fluidity drove the accessorial decline.
Operating expense increased 8% to $3.8 billion, resulting in first quarter operating income of $2.3 billion, down 3% versus last year. Below the line, other income increased $137 million year-over-year, largely driven by a $107 million one-time real estate transaction that contributed $0.14 to earnings per share. Interest expense increased 9%, reflecting higher debt levels.
Net income of $1.6 billion was flat versus 2022, but when combined with share repurchases resulted in a 4% increase in earnings per share to $2.67. Our first quarter operating ratio increased 2.7 points to 62.1%. Falling fuel prices during the quarter and the lag on our fuel surcharge programs positively impacted our operating ratio by 190 basis points. Core results offset the fuel benefit and were a 460 basis-point drag to operating ratio. Included in that is the impact of weather, which is difficult to quantify, but between both lost revenue in additional expense, we estimate to be in excess of $50 million.
Now looking more closely at first quarter revenue, Slide 16 provides a breakdown of our freight revenue, which totaled $5.7 billion, up 4% versus last year. Lower year-over-year volume reduced revenue 150 basis points. Total fuel surcharge revenue of $883 million added 475 basis points to freight revenue reflecting the lag in our programs. The combination of price and mix increased freight revenue 75 basis points as ongoing pricing actions were mostly offset by our business mix. Fewer lumber shipments and more short-haul rock shipments were the primary drivers of the negative mix.
Turning now to Slide 17 and a summary of our first quarter operating expenses, which totaled $3.8 billion. Compensation and benefits expense increased 7% versus 2022. First quarter workforce levels increased 4% with transportation employees up 5%, the result of our dedicated hiring efforts over the last 12 to 15 months. Cost per employee, only increased 3% in the quarter, as wage inflation was partially offset by a larger training pipeline. During the first quarter, we signed agreements with the majority of our labor unions to provide paid sick leave to our employees. These agreements became effective April 1 and represent just under half of our craft professionals.
Assuming we are able to reach agreements across the board, we would expect cost per employee to be up mid-single digits for the year, consistent with what we discussed in January. Fuel expense grew 7% on a 9% increase in fuel prices as we moved less freight. Our fuel consumption rate deteriorated 1% as the impact of our fuel conservation efforts was more than offset by reduced network fluidity. Purchased services and materials expense increased 16%, driven by maintenance of a 3% larger active locomotive fleet and inflation. Equipment and other rents was up 9% as a result of increased car hire expense related to elevated cycle times. And the other expense line grew 6% related primarily to higher environmental remediation costs.
Turning to Slide 18 and our cash flows. Cash from operations in the first quarter decreased to $1.8 billion from $2.2 billion in 2022. The primary driver was Presidential Emergency Board back pay settlements paid in January, which totaled $383 million. That payment also impacted our quarterly cash flow conversion rate and free cash flow, with both roughly in line with last year's performance when you exclude that payment. In the quarter, we returned $1.4 billion to shareholders through dividends and share repurchases, and we finished the first quarter with an adjusted debt-to-EBITDA ratio of 2.9 times as we continue to be A-rated by our three credit agencies.
Wrapping up on Slide 19, we are maintaining our 2023 full year guidance to achieve volumes above industrial production, price gains in excess of inflation and operating ratio improvement. Our plans for capital allocation also are unchanged. As with every year, there are puts and takes to how the year plays out. While 2023 started a bit slower-than-expected, I need to remind everyone it is only April 20, we have 8.5 months in front of us and many opportunities with volume, service and productivity.
Before I turn it back to Lance, I'd like to express my thanks to the UP team. We are skilled and running the outdoor factory that is our railroad, but mother nature seem very focused on testing those skills this year, given the extremes we faced. And yet, the team forged ahead, keeping the network fluid and our customers served. Fantastic work by everyone.
With that, I will turn it back to Lance.
