Jennifer Hamann
Chief Financial Officer at Union Pacific
Thank you, Jim, and good morning. Let's begin on Slide 5 with a walkdown of our third-quarter income statement, where operating revenue of $6.1 billion increased 3% versus 2023 on a 6% volume increase, and third quarter freight revenue totaled $5.8 billion, up 4% compared to last year.
Breaking down the freight revenue components, increased volume in the quarter added 550 basis points. Strong core pricing gains were more than offset by business mix, reducing freight revenue 75 basis points. As I mentioned at Investor Day, International Intermodal's average revenue per car is significantly lower than our system average. And lastly, fuel surcharge revenue of $635 million was flat versus last year as lower fuel prices impacted freight revenue 75 basis points.
Wrapping up the top-line, other revenue declined $73 million or 18%, driven by several factors, lower accessorials resulting from the second-quarter intermodal equipment sale, reduced demand for auto parts shipments at our subsidiary, the ongoing transfer of metro operations and a one-time contract settlement of $12 million during the quarter all contributed to the decrease. As a reminder, there are cost-savings across our expense lines associated with the ongoing revenue impact from the equipment sale and metric transfer.
Switching then to expenses, third quarter operating expense of $3.7 billion improved 2%, driven by strong productivity and lower fuel prices that are more than offset volume-related expenses. There are more details in the appendix, but let me highlight some of the performance drivers. Compensation and benefits expense increased 2% versus last year as wage inflation, including the July 1, 4.5% increase and volume costs were partially offset by 5% lower workforce levels and record workforce productivity.
Train service employees were flat year-over-year, as we used our buffer resources to handle increased quarterly volume. All other workforce areas decreased 8%, reflecting our continued focus on operational excellence. Cost per employee in the third quarter increased 8% as a result of higher incentive compensation as well as additional wage inflation related to the work rest labor agreements.
Purchase services and material expense improved 4% as costs to maintain a lower active locomotive fleet and decreased subsidiary drayage expenses were partially offset by inflation and volume-related expenses. Fuel expense in the quarter declined 13% on a 17% decrease in fuel prices from $3.12 to $2.60 per gallon. Our fuel consumption rate increased 1% related to the significant growth in less fuel-efficient intermodal traffic, which offset our year-over-year productivity gains.
Finally, other expense was better by 6%, reflecting the impact of write-offs in 2023 that more than offset inflation and volume costs. The result of solid revenue growth and strong cost-control was third quarter operating income of $2.4 billion, up 11% versus 2023. Below-the-line, other income decreased $19 million from lower real-estate income, while interest expense declined 6% or $20 million on lower average debt levels.
Income tax expense increased 23%, driven by higher pretax income and state income tax reductions in 2023. Third quarter net income of $1.7 billion increased 9% versus 2023, which when combined with a lower average share count resulted in double-digit earnings per share growth to $2.75.
Our quarterly operating ratio of 60.3% improved 310 basis points year-over-year with nearly half of that coming from core operational improvement. As we discussed in Dallas at our Investor Day, operating ratio is an outcome of our strategy and not the goal. Our goal is to grow earnings and generate more cash for our shareholders, which we achieved even as our revenue growth and margins were impacted by mix.
Looking now at cash, shareholder returns the balance sheet on Slide 6. Year-to-date cash from operations totaled $6.7 billion, up $700 million versus last year. Our cash-flow conversion rate improved to 83% and free cash flow has almost doubled versus 2023, up over $900 million. These improvements are driven by 2023 labor agreement payments and growth in operating income, partially offset by higher cash taxes. Year-to-date, our shareholders have received $3.2 billion through dividends and share repurchases, including third quarter repurchases of $738 million.
Finally, our adjusted debt-to-EBITDA ratio finished the quarter at 2.7 times as we maintain a strong balance sheet and remain A-rated by our three credit rating agencies.
So wrapping up on Slide 7, with just over two months left in the year, the majority of 2024 story has been written and it's been a good one. We are executing on the fundamentals of railroading, which is critical to achieving the full financial potential of this franchise. We are affirming our prior 2024 guidance, most importantly, that we will continue to improve profitability through our strategy of safety, service and operational excellence. Pricing dollars will exceed our inflation dollars. We will purchase $1.5 billion of shares and invest roughly $3.4 billion of capital and our capital allocation strategy is unchanged.
We also are going to put a slightly finer point on how we expect to close the year. At this time, we'd expect fourth quarter results to closely mirror the third quarter, while improving on a year-over-year basis. This level of performance will mark our fifth consecutive quarter of year-over-year gains, again demonstrating the positive results of our strategy.
Throughout the year, we've shown our ability to pivot and flex to handle the various challenges of railroading, from weather of all types to the significant West Coast traffic spike and we navigated them successfully, improving service while maintaining cost discipline. We continue to generate strong pricing and productivity, positioning us well to finish 2024 with momentum and on a path to achieve the long-term targets we laid out last month.
I'll now turn it over to Kenny to provide an update on the business environment. Kenny?
