Jennifer Hamann
Executive Vice President and Chief Financial Officer at Union Pacific
Thanks, Jim; and good morning. I'm going to discuss our third quarter results by walking through the income statement on Slide 5, starting with operating revenue of $5.9 billion, down 10% versus last year on a 3% year-over-year volume decline. Breaking it down further, as illustrated in the appendix slides, freight revenue totaled $5.5 billion, down 9% versus 2022. Total fuel surcharge revenue of $637 million declined $515 million from last year. The impact of lower year-over-year fuel prices, as well as the lag in our surcharge programs reduced freight revenue 8%.
The combination of price and mix increased freight revenue 150 basis points, a solid core pricing gains were partially offset by an unfavorable business mix. Increased short haul rock moves and fewer lumber carloads outweighed the impact of moving fewer low average revenue per car intermodal shipments. In addition, our pricing gains continue to include the impact of certain coal and intermodal contracts that are more reflective of current market conditions. Wrapping up the topline, other revenue decreased 13% versus last year, driven by a $70 million year-over-year reduction in accessorials.
Switching to expenses, where, again, more detailed information can be found in the appendix. Operating expense of $3.8 billion declined 4% driven by lower fuel prices, last year's one-time charge for labor agreements and volume-related costs. Digging deeper into a few of the expense lines, compensation and benefits expense decreased $77 million versus 2022, which does include last year's $114 million one-time labor charge. Third quarter workforce levels increased 3% and our active TE&Y workforce is up 2% as we graduated new train crew personnel during the quarter.
At this point, with our train crews more appropriately staffed our training pipeline is shrinking. Today, we have just over 500 employees in training, down more than 50% from last quarter's pipeline of roughly 1,200. Excluding the impact of last year's labor charge, cost per employee was essentially flat in the third quarter as we are starting to generate better overall productivity. As a result, we now expect full-year cost per employee to be up closer to 3%. Both third quarter and full-year cost per employee reflect elevated workforce levels and better crew efficiency, partially offset by wage inflation, which includes $20 million in the third quarter from paid sick leave. Fuel expense in the quarter decreased 25% on a 21% decrease in fuel prices from $3.96 a gallon to $3.12. Our fuel consumption rate was flat, but showed positive momentum through the quarter as we stored locomotives and improved freight car velocity.
Finally, other expense grew 18%, primarily related to continued pressure in casualty costs. It also reflects the impact of one-time write-off, as highlighted in the financial walk-down slide on 2002 in the appendix. The resulting outcome is third quarter operating income of $2.2 billion, down 17% versus last year. Below-the-line other income decreased $18 million, driven by last year's $35 million gain from a real estate transaction. Interest expense increased 6%, reflecting higher average debt levels. Income taxes are lower in the quarter on reduced income and lower tax rates that resulted in a $41 million deferred tax expense reduction. Similar to last year's $40 million tax reduction, we again had three states cut corporate income tax rates in the third quarter.
Net income of $1.5 billion declined 19% versus 2022, which when combined with a lower average share count resulted in an 18% decrease in earnings per share to $2.51. Third quarter operating ratio increased 3.5 points to 63.4%. Core results, which include the impact of inflation, lower volumes and cost inefficiencies accounted for the majority of the year-over-year change.
Turning now to Slide 6 and cash flows. Year-to-date, cash from operations totaled $6 billion, a decrease of roughly $1 billion from 2022. The combination of lower net income and nearly $450 million of labor payments were the main drivers. Free cash flow and our cash flow conversion rate also were impacted. Year-to-date, we've returned a little more than half of the cash generated or $3.1 billion to shareholders through dividends and share repurchases. And we finished the third quarter with an adjusted debt-to-EBITDA ratio, up slightly from 2022 levels at 3 times, as we continue to be A-rated by our three credit agencies.
Wrapping up now on Slide 7, the overall financial story and outlook for the remainder of 2023 is largely unchanged. We're facing the demand environment where we don't expect full-year volumes to exceed industrial production. We do however still expect to generate pricing dollars in excess of inflation dollars, although, as we've discussed through the year, not to the level that offsets the negative impact of elevated costs on our operating ratio.
Fuel also remains a headwind on earnings per share, although moderating from the $0.34 negative EPS in the quarter -- third quarter to approximately $0.10 of negative year-over-year impact in the fourth quarter. And that assumes fuel prices in the fourth quarter are around $3.30 a gallon. And significant inflation headwinds remain primarily in the form of the new labor agreements. We expect similar levels for fourth quarter paid sick leave expense to third quarter, and the impact of the BLET work/rest agreements will primarily be seen through elevated force levels.
Finally, our capital plan is coming in a little bit higher at $3.7 billion. All that said, the important takeaway from today's results and our view of tomorrow is that we're making gains from maximizing growth opportunities and repricing our business to improving service and generating productivity. We're striving to build on the current momentum as we end 2023 and enter 2024 on a path to further financial improvement.
With that, I'll turn it over to Kenny to give us a view of the business environment.
