01—Abstract
Summary
Summary of the 10-K filed February 3, 2017. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation (UNP) reported total operating revenues of $19.9 billiona for the year ended December 30, 2016, a decrease of 9% from the prior year, primarily driven by a 7% decline in carloads and lower fuel surcharge revenue, partially offset by core pricing gains.
Despite the volume decline, the company achieved its third-best earnings performance, with net income of $4.2 billionb, or $5.07 per diluted share. The company maintained a strong focus on safety, achieving its best-ever reportable personal injury incidents rate. Operations saw improved metrics like increased average train speed and decreased terminal dwell time, partly due to lower volumes.
Financially, UNP generated substantial operating cash flow of $7.5 billionc, resulting in $2.3 billion in free cash flow after investments and dividends. The company continued its commitment to returning capital to shareholders through dividends and share repurchases, repurchasing approximately $3.1 billion worth of shares in 2016.
Looking ahead to 2017, UNP anticipates modest volume growth and continued margin improvement driven by pricing, productivity, and operational leverage. Key investments will include approximately $3.1 billiond in capital expenditures, with a significant portion allocated to Positive Train Control (PTC) and infrastructure improvements.
02—Key points
Key Highlights
- In 2016, Union Pacific's freight revenue decreased 9% to $18.6 billion due to a 7% drop in carloads and lower fuel surcharge revenue, though core pricing gains provided some offset.
- Despite lower volumes, net income remained strong at $4.2 billion ($5.07 per diluted share), marking the third-best earnings performance in the company's history.
- The company achieved its best-ever reportable personal injury incidents rate (0.75 per 200,000 employee-hours) and improved key operational metrics like average train speed and terminal dwell time.
- Union Pacific generated $7.5 billion in cash from operating activities, resulting in $2.3 billion in free cash flow after accounting for capital expenditures and dividend payments.
- The company returned significant capital to shareholders in 2016, with $2.26 per share in dividends declared and approximately $3.1 billion in share repurchases.
- Capital expenditures for 2017 are planned at approximately $3.1 billion, with a focus on infrastructure renewal, network capacity, and Positive Train Control (PTC) implementation.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 3, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $19.94B$21.81B | −8.6% |
| Operating Expenses | $12.70B$13.76B | −7.7% |
| Operating Income | $7.24B$8.05B | −10.0% |
| Interest Expense | $698.00M$622.00M | +12.2% |
| Net Income | $4.23B$4.77B | −11.3% |
| EPS (Basic) | $5.09$5.51 | −7.6% |
| EPS (Diluted) | $5.07$5.49 | −7.7% |
| Shares Outstanding (Basic) | 832.40M866.20M | −3.9% |
| Shares Outstanding (Diluted) | 835.40M869.40M | −3.9% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Union Pacific's revenue decline in 2016?
The primary drivers of the revenue decline were a 7% decrease in carloadings across several commodity groups (including coal, intermodal, and automotive) and a significant reduction in fuel surcharge revenue due to lower diesel prices. These factors were partially offset by core pricing gains.
How did Union Pacific manage costs in 2016 given the lower volumes?
Union Pacific managed costs through lower fuel prices, volume-related savings, productivity initiatives, and improved network fluidity, which led to lower locomotive and freight car maintenance expenses. These savings helped offset inflation and increased depreciation.
What is Union Pacific's outlook for 2017 regarding volume and financial performance?
For 2017, Union Pacific anticipates volume growth in the low single-digit range, dependent on the overall economy and market conditions. The company expects continued margin improvement driven by pricing opportunities, ongoing productivity initiatives, and leveraging its resources.
What are the key risks Union Pacific highlighted in its 10-K filing?
Key risks include fluctuating demand for services and network capacity, transporting hazardous materials, significant governmental regulation, general economic conditions, competition from other transportation providers, reliance on technology, environmental laws and regulations, severe weather events, and potential labor disputes or work stoppages.
06—Continue