10-QPeriod: Q3 FY2009

UNION PACIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2009

Filed October 22, 2009For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported a decrease in operating revenues and net income for the third quarter and the first nine months of 2009 compared to the same periods in 2008. This decline was primarily driven by a significant drop in freight volumes (down 15% in Q3 and 19% year-to-date) reflecting adverse economic conditions impacting most market sectors, particularly automotive and industrial products. Despite lower revenues, the company demonstrated improved operational efficiency with a 16% increase in average train speed and a reduction in workforce by 11% compared to the prior year. Cost-saving measures, including lower fuel prices and productivity initiatives, partially offset the impact of reduced volumes, leading to an improved operating ratio for both periods. The company's financial position remains solid, with a debt-to-capital ratio of 37.3% as of September 30, 2009. While cash provided by operating activities decreased year-over-year due to lower net income and higher voluntary pension contributions, the company maintained significant liquidity with $1.4 billion in cash and cash equivalents and an undrawn revolving credit facility. Capital expenditures were reduced for the year in response to economic conditions, and share repurchases were suspended during the nine-month period, indicating a focus on capital preservation amidst the challenging economic environment.

Financial Highlights

48 data points
Beta

Revenue

$3.67B

Net Income

$514.00M

14.0% Net Margin

EPS (Diluted)

$0.51

Total Assets

$41.69B

Cash & Equivalents

$1.44B

Free Cash Flow

-$51.00M

Financial Statements
Beta
Revenue$3.67B
Operating Expenses$2.71B
Operating Income$961.00M
Interest Expense$156.00M
Net Income$514.00M
EPS (Basic)$0.51
EPS (Diluted)$0.51
Shares Outstanding (Basic)1.01B
Shares Outstanding (Diluted)1.01B

Key Highlights

  • 1Operating revenues decreased by 24% year-over-year for the third quarter and year-to-date 2009, primarily due to a 15% and 19% decline in freight volumes, respectively.
  • 2Net income for the third quarter of 2009 was $517 million ($1.02 per diluted share), down from $703 million ($1.38 per diluted share) in the same quarter of 2008. Year-to-date net income was $1.3 billion compared to $1.7 billion.
  • 3Operating expenses decreased by 26% in both the third quarter and year-to-date 2009, driven significantly by a 59% and 62% reduction in fuel costs, respectively, due to lower prices and volumes.
  • 4Average train speed improved by 16% in the third quarter and 19% year-to-date, indicating enhanced operational efficiency.
  • 5The company reduced its workforce by 11% in the third quarter and 10% year-to-date compared to 2008, reflecting cost-saving measures in response to lower demand.
  • 6Free cash flow for the nine months ended September 30, 2009, was $73 million, a significant decrease from $685 million in the prior year, mainly due to lower operating cash flow and dividend payments.
  • 7Union Pacific did not repurchase any shares under its share repurchase program during the nine months ended September 30, 2009, compared to significant repurchases in the same period of 2008, signaling a shift towards capital preservation.

Frequently Asked Questions

The primary driver of the revenue decline was a significant decrease in freight volumes across most commodity groups, down 15% in the third quarter and 19% year-to-date. This was a direct result of adverse economic conditions impacting demand for the company's services, with notable declines in automotive and industrial products. Lower fuel surcharges, reflecting decreased fuel prices, also contributed to the reduction in reported freight revenues.

Union Pacific implemented several cost-saving measures. Operating expenses decreased by 26% in the third quarter and year-to-date, largely due to a substantial reduction in fuel costs (down 59% and 62%, respectively). The company also reduced its workforce by 11% (Q3) and 10% (year-to-date) compared to 2008, adjusted resources to match demand levels by storing locomotives and freight cars, and benefited from improved operational efficiencies such as increased average train speed.

As of September 30, 2009, Union Pacific reported $1.4 billion in cash and cash equivalents and had access to $1.9 billion under its revolving credit facility, which remained undrawn. The company's debt-to-capital ratio was 37.3%. Free cash flow generation decreased significantly year-over-year, and share repurchases were suspended, indicating a focus on managing capital in the challenging economic environment.

The company is involved in various legal proceedings and environmental matters. While these can involve significant costs, management does not expect any currently known lawsuits, claims, or environmental costs to have a material adverse effect on its consolidated results of operations, financial condition, or liquidity after considering recorded liabilities and insurance recoveries. Notable items include ongoing litigation regarding the Omaha Lead Site and a recently entered consent decree for environmental claims related to flood restoration work.