01—Abstract
Summary
Summary of the 10-K filed February 7, 2020. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation (UNP) reported a decrease in freight revenues for 2019 compared to 2018, primarily driven by a 6%a decline in volume across key markets like intermodal, coal, frac sand, and grain.
Despite the revenue dip, the company achieved an all-time record operating ratio of 60.6%, an improvement of 2.1 points from the previous year, due to significant productivity initiatives under the Unified Plan 2020 and lower fuel prices. Net income remained strong at nearly $6.0 billionb, resulting in diluted earnings per share of $8.38, a 6% increase year-over-year. The company also maintained robust operating cash flow and generated free cash flow of $2.6 billion, supporting increased dividend payments and share repurchases.
Looking ahead to 2020, Union Pacific anticipates continued market uncertainties but expects slightly positive volume growth. The company plans to focus on further improving safety, enhancing network operations through continued implementation of Unified Plan 2020 and G55+0 initiatives, and managing fuel price volatility.
Capital expenditures are projected to remain strong, with a focus on infrastructure renewal and efficiency improvements. The company's financial outlook suggests continued margin improvement driven by pricing opportunities and productivity savings.
02—Key points
Key Highlights
- Freight revenues decreased by 5% to $20.2 billion in 2019, primarily due to a 6% decline in volume across key commodity groups.
- Achieved an all-time record operating ratio of 60.6%, a 2.1 percentage point improvement from 2018, driven by productivity initiatives and lower fuel costs.
- Net income remained strong at $5.9 billion, with diluted earnings per share increasing by 6% to $8.38.
- Generated $8.6 billion in cash from operating activities and $2.6 billion in free cash flow, supporting dividend increases and share repurchases.
- The company is implementing Unified Plan 2020, focused on improving service reliability, reducing operational variability, and enhancing resource utilization.
- Capital expenditures for 2020 are planned at approximately $3.1 billion, with a continued focus on infrastructure renewal and operational efficiency.
- Despite operational changes and weather disruptions in early 2019, key performance indicators like freight car terminal dwell and freight car velocity showed significant year-over-year improvement.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 7, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $21.71B$22.83B | −4.9% |
| Operating Expenses | $13.15B$14.31B | −8.1% |
| Operating Income | $8.55B$8.52B | +0.4% |
| Interest Expense | $1.05B$870.00M | +20.7% |
| Net Income | $5.92B$5.97B | −0.8% |
| EPS (Basic) | $8.41$7.95 | +5.8% |
| EPS (Diluted) | $8.38$7.91 | +5.9% |
| Shares Outstanding (Basic) | 703.50M750.90M | −6.3% |
| Shares Outstanding (Diluted) | 706.10M754.30M | −6.4% |
05—Questions
Frequently Asked Questions
What were the primary drivers of Union Pacific's revenue performance in 2019?
Freight revenues in 2019 decreased by 5% to $20.2 billion. This was primarily driven by a 6% decline in carload volume across several key markets including intermodal, coal, frac sand, and grain. While core pricing gains partially offset this decline, the overall volume reduction was the main factor impacting revenue.
How did Union Pacific manage its operating expenses and what was the impact on profitability?
Union Pacific achieved an all-time record operating ratio of 60.6%, improving by 2.1 points from 2018. This was accomplished through significant cost management, including a 10% decrease in compensation and benefits and a 17% decrease in fuel expenses due to lower prices and improved fuel efficiency. Productivity initiatives under Unified Plan 2020 also contributed to lower operating expenses.
What is the company's outlook for 2020 regarding volumes and key market conditions?
For 2020, Union Pacific anticipates market uncertainties to continue but expects volume to be slightly positive compared to 2019. The company expects continued margin improvement driven by pricing opportunities exceeding inflation and ongoing productivity initiatives. Market conditions to watch include natural gas prices impacting coal demand, crude oil price spreads affecting petroleum products, truck capacity influencing intermodal business, and the impact of international trade agreements.
How does Union Pacific's capital expenditure plan for 2020 compare to 2019?
The capital plan for 2020 is projected at approximately $3.1 billion, a slight decrease compared to 2019. The plan includes significant investments in capacity and facility improvements aimed at boosting productivity and operational efficiency, as well as ongoing investments in locomotive modernization and freight car replacements.
06—Continue