10-KPeriod: FY2017

UNION PACIFIC CORP Annual Report, Year Ended Dec 31, 2017

Filed February 9, 2018For Securities:UNP

Summary

Union Pacific Corporation (UNP) filed its 2017 10-K report on February 8, 2018, detailing its business operations, financial condition, and risk factors for the year ended December 30, 2017. The company, primarily through its operating subsidiary Union Pacific Railroad Company, is a critical component of the North American supply chain, serving 23 states and connecting major ports to eastern gateways. The report highlights the company's diversified business mix, including Agricultural Products, Automotive, Chemicals, Coal, Industrial Products, and Intermodal, which collectively generated $19.8 billion in freight revenue for 2017. Key financial highlights for 2017 include a reported net income of $10.7 billion, significantly boosted by a $5.9 billion non-cash reduction in income tax expense due to the Tax Cuts and Jobs Act. Adjusted operating income increased by 8% year-over-year to over $7.8 billion, with an all-time record adjusted operating ratio of 63.0%. The company generated $7.2 billion in cash from operating activities, resulting in $2.2 billion in free cash flow after investments and dividends. Union Pacific continues to invest in its infrastructure, with a 2018 capital plan of approximately $3.3 billion focused on renewal, improvement, and capacity expansion, including Positive Train Control (PTC) implementation. Investors should note the company's strategic focus on safety, operational efficiency, and capital allocation, including a commitment to returning cash to shareholders through dividends and share repurchases. The report also outlines significant risk factors, including fluctuating demand, competition, regulatory changes, and the impact of severe weather, all of which are crucial considerations for evaluating the company's long-term prospects.

Financial Highlights

48 data points
Beta

Revenue

$21.24B

Net Income

$10.71B

50.4% Net Margin

EPS (Diluted)

$13.36

Total Assets

$57.81B

Cash & Equivalents

$1.27B

Free Cash Flow

$3.99B

Financial Statements
Beta
Revenue$21.24B
Operating Expenses$13.13B
Operating Income$8.11B
Interest Expense$719.00M
Net Income$10.71B
EPS (Basic)$13.42
EPS (Diluted)$13.36
Shares Outstanding (Basic)798.40M
Shares Outstanding (Diluted)801.70M

Key Highlights

  • 1Union Pacific generated $19.8 billion in freight revenue in 2017, driven by its diversified business segments including Agricultural Products, Automotive, Chemicals, Coal, Industrial Products, and Intermodal.
  • 2Reported Net Income for 2017 was $10.7 billion, significantly impacted by a $5.9 billion non-cash reduction in income tax expense due to the Tax Cuts and Jobs Act.
  • 3Adjusted operating income increased 8% to over $7.8 billion in 2017, with an all-time record adjusted operating ratio of 63.0%.
  • 4Generated $7.2 billion in cash from operations, resulting in $2.2 billion in free cash flow after capital expenditures and dividends.
  • 5The 2018 capital plan is set at approximately $3.3 billion, focusing on infrastructure renewal, capacity expansion, and Positive Train Control (PTC) implementation.
  • 6The company declared a quarterly dividend of $0.73 per share in early 2018, indicating a continued commitment to shareholder returns.
  • 7Union Pacific's extensive network covers 32,122 route miles across 23 states in the western two-thirds of the U.S., serving as a critical link in the supply chain.

Frequently Asked Questions

The Tax Cuts and Jobs Act, enacted in December 2017, significantly reduced the federal income tax rate from 35% to 21% effective January 1, 2018. This led Union Pacific to remeasure its deferred tax assets and liabilities, resulting in a substantial $5.9 billion non-cash reduction to its income tax expense for 2017. This significantly boosted reported net income to $10.7 billion.

In 2017, Union Pacific's operational performance saw some challenges. Average train speed decreased by 5% and average terminal dwell time increased by 8% compared to 2016. These declines were attributed to network disruptions, including the impact of Hurricane Harvey, and the ongoing implementation and testing of Positive Train Control (PTC). Despite these operational headwinds, freight revenues increased by 7% due to volume growth, higher fuel surcharges, and core pricing gains.

Union Pacific plans to invest approximately $3.3 billion in its capital program for 2018, focusing on infrastructure renewal, capacity expansion, and technology like PTC. The company demonstrates a commitment to shareholder returns through consistent dividend payments, with an increase in the quarterly dividend declared in early 2018, and an active share repurchase program. In 2017, the company repurchased over 37 million shares of its common stock.

Key risks identified include fluctuating demand for services, intense competition from other transportation modes (trucks, barges, pipelines), significant government regulation, reliance on technology, potential for lawsuits and claims, stringent environmental laws, climate change impacts, severe weather events, labor disputes, fluctuating fuel prices, and dependence on key suppliers for locomotives and rail. These factors can materially affect the company's operations, financial condition, and liquidity.