10-KPeriod: FY2015

UNION PACIFIC CORP Annual Report, Year Ended Dec 31, 2015

Filed February 5, 2016For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported financial results for the year ended December 31, 2015, reflecting a challenging operating environment marked by a 10% decrease in freight revenue year-over-year to $20.4 billion. This decline was primarily driven by a 6% drop in carloads across key commodity groups and lower fuel surcharge revenue, though partially offset by core pricing gains of 3.7%. Despite the revenue decrease, the company achieved an all-time best operating ratio of 63.1%, a 0.4 percentage point improvement from the prior year, showcasing operational efficiency gains. Net income stood at $4.8 billion, resulting in diluted earnings per share of $5.49. Financially, UNP generated strong operating cash flow of $7.3 billion. Capital expenditures for 2015 totaled $4.3 billion, including significant investments in Positive Train Control (PTC). Looking ahead to 2016, the company plans to invest approximately $3.75 billion, with a focus on renewing and improving existing assets, technology, and fleet upgrades. The company maintained its commitment to shareholders through dividends, paying $2.20 per share in 2015, and also actively repurchased shares, spending $3.5 billion on buybacks. Management expressed optimism for continued margin improvement in 2016 driven by pricing, productivity, and resource leverage, while acknowledging ongoing economic uncertainties.

Financial Highlights

48 data points
Beta

Revenue

$21.81B

Net Income

$4.77B

21.9% Net Margin

EPS (Diluted)

$5.49

Total Assets

$54.60B

Cash & Equivalents

$1.39B

Free Cash Flow

$2.69B

Financial Statements
Beta
Revenue$21.81B
Operating Expenses$13.76B
Operating Income$8.05B
Interest Expense$622.00M
Net Income$4.77B
EPS (Basic)$5.51
EPS (Diluted)$5.49
Shares Outstanding (Basic)866.20M
Shares Outstanding (Diluted)869.40M

Key Highlights

  • 1Freight revenue declined 10% to $20.4 billion in 2015, primarily due to a 6% decrease in carloads and lower fuel surcharges, despite core pricing gains.
  • 2The company achieved an all-time best operating ratio of 63.1% in 2015, an improvement from 63.5% in 2014, indicating enhanced operational efficiency.
  • 3Net income for 2015 was $4.8 billion, translating to diluted earnings per share of $5.49.
  • 4Union Pacific generated robust operating cash flow of $7.3 billion in 2015.
  • 5Capital expenditures were $4.3 billion in 2015, with a planned $3.75 billion for 2016, including investments in Positive Train Control (PTC).
  • 6Shareholder returns included dividends of $2.20 per share in 2015 and significant share repurchases totaling $3.5 billion.

Frequently Asked Questions

Union Pacific's freight revenue in 2015 declined by 10% to $20.4 billion. This was primarily due to a 6% decrease in carloads across most commodity groups, particularly coal and intermodal, and lower revenue from fuel surcharges. These factors were partially offset by core pricing gains of 3.7% and an increase in volumes for some segments like automotive and domestic intermodal.

Union Pacific demonstrated strong cost management in 2015, achieving a record-low operating ratio of 63.1%. This improvement was driven by a significant decrease in fuel costs (down 43% due to lower prices and reduced consumption), productivity gains, and operational efficiencies realized from lower volumes and improved network fluidity. These benefits helped offset increases in compensation and benefits due to wage inflation and higher depreciation expenses.

For 2016, Union Pacific plans capital expenditures of approximately $3.75 billion. Key priorities include continuing investments in Positive Train Control (PTC) technology, modernizing the fleet with new locomotives and freight cars, and renewing and improving existing track infrastructure and network facilities to enhance safety and efficiency. Approximately 55% to 60% of the capital plan is dedicated to asset renewal and improvement.

In 2015, Union Pacific's (UNP) stock experienced a significant decline of 32.9%. This underperformance was considerably worse than the S&P 500's 1.4% gain and also lagged behind the Dow Jones Transportation Index's (DJ Trans) 16.8% decline. Over a three-year period (2013-2015), UNP's cumulative total shareholder return of 32.2% also trailed behind the S&P 500's 52.5% return.