Jennifer Hamann
Chief Financial Officer at Union Pacific
All right. Thanks, Jim, and good morning. I'll begin with a walkdown of our first quarter income statement on slide five, where operating revenue of $6 billion was flat versus last year on a 1% volume decline that was significantly driven by a 20% reduction in coal shipments. In fact, excluding coal, volumes would have been up close to 2% year-over-year even in this tough freight environment. Looking in at the revenue components further, total freight revenue of $5.6 billion declined 1%. The single largest driver of the year-over-year decrease was a 25% reduction in fuel surcharge revenue to $665 million as lower fuel prices negatively impacted freight revenue 375 basis points.
Solid core pricing gains and a favorable business mix combined to add 350 basis points to freight revenue. Reduced coal and rock shipments as well as increased soda ash and petroleum carloads drove the positive mix dynamic. Excluding fuel surcharge, freight revenue grew 4%, a solid start to the year and a demonstration of the great diversity of the UP franchise. Wrapping up the top line, other revenue increased 4%, driven by increased accessorial revenue that included a one-time contract settlement of $25 million. Switching to expenses, operating expense of $3.7 billion decreased 3%, as we generated solid productivity against lower demand. Digging deeper into a few of the expense lines, compensation and benefits expense was up 4% versus last year.
First quarter workforce levels decreased 2% as reductions in non-transportation employees more than offset a 4% increase in our active TE&Y workforce. Although our training pipeline is significantly reduced, we continue to carry additional train services employees as a buffer for our operations and to offset the impact of newly available sick pay benefits and work rest agreements. While talking about workforce levels, I do want to mention one quick housekeeping item. As some of you might be aware, we are in the process of transferring operating responsibility for certain passenger lines in Chicago to Metro. As part of that, in June, we will be transferring around 350 mechanical employees to Metro. On a quarterly basis, this will lower both revenue and expense by roughly $15 million.
Cost per employee in the first quarter increased 5%, reflecting wage inflation and additional costs associated with new labor agreements. Fuel expense in the quarter declined 14% on a 13% decrease in fuel prices from $3.22 per gallon to $2.81 per gallon. We also improved our fuel consumption rate by 1% as locomotive productivity more than offset a less fuel-efficient business mix given the decline in coal shipments. Purchased Services & Materials expense decreased 6% versus last year, as we maintained a smaller active locomotive fleet, and our logistics subsidiary incurred less drayage expense. In addition, a little less than half of the year-over-year variance related to resolution of a contract dispute. Finally, Equipment & Other Rents declined 8%, reflecting a more fluid network seen through improved cycle times and lower lease expenses.
By controlling the controllables in our cost structure, first quarter operating income of $2.4 billion increased 3% versus last year. Below the line, Jim noted last year's real estate transaction and other income, and our interest expense declined 4% on lower average debt levels. First quarter net income of $1.6 billion and earnings per share of $2.69 both improved 1% versus 2023. And our quarterly operating ratio of 60.7% improved 140 basis points year-over-year, which includes a 60 basis point headwind from lower fuel prices. Turning to shareholder returns and the balance sheet on slide six. First quarter cash from operations totaled $2.1 billion, up roughly $280 million versus last year. Growth in operating income as well as the impact from 2023 labor agreement payments are reflected in that increase. In addition, free cash flow and our cash flow conversion rate both showed nice improvements.
As planned, we paid down $1.3 billion of debt maturities in March. That resulted in our adjusted debt-to-EBITDA ratio declining to 2.9 times at the end of the quarter, and we continue to be A-rated by our three credit rating agencies. Also during the quarter, we paid dividends totaling $795 million. Wrapping things up on slide seven. As you'll hear from Kenny, our overall outlook on the freight environment hasn't changed a lot since January. Yes, there have been some pluses and minuses from our original outlook, but in totality, we still see the same economic uncertainty. What I am certain of, however, is that our service product is meeting and will continue to meet the demand in the marketplace.
And when volumes strengthen, we will be ready to provide our customers with the service they need to grow with us. In addition, as evidenced by our first quarter results, we will continue to generate productivity that improves our network efficiency. Also demonstrated by those first quarter results is our commitment to generating pricing dollars in excess of inflation dollars. If you set fuel aside, our price commitment as well as expectations for positive mix in 2024 should allow us to pace freight revenue ahead of volume.
And finally, with capital allocation, we plan to start -- restart share repurchases in the second quarter, a further demonstration of the confidence we have in our strategy and the momentum that is building. The actions we're taking to improve safety, service and operational excellence are reflected in our financials, and continuing on with this strategy will drive shareholder value in 2024 and well into the future.
Let me turn it over to Kenny now to provide an update on the business environment.
