10-QPeriod: Q3 FY2010

UNION PACIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 22, 2010For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported a significant rebound in its third quarter and year-to-date results for 2010 compared to the challenging economic environment of 2009. Total operating revenues increased by 20% and 21% respectively for the quarter and nine-month period, driven by a strong 14% and 15% increase in freight carloads. This volume growth, coupled with core pricing gains and higher fuel surcharges, led to a substantial improvement in profitability, with diluted EPS rising to $1.56 for the quarter and $3.98 year-to-date. The company demonstrated improved operational efficiency, with its operating ratio improving by 5.6 points in the quarter and 6.3 points year-to-date. Despite a 30% increase in fuel costs for the quarter and 47% year-to-date, Union Pacific managed its expenses effectively, keeping workforce levels flat year-over-year while handling increased volumes. The company also continued its commitment to returning capital to shareholders, repurchasing approximately $1.1 billion in common shares during the nine-month period, while also managing its debt levels and maintaining strong liquidity.

Financial Highlights

48 data points
Beta

Revenue

$4.41B

Net Income

$778.00M

17.6% Net Margin

EPS (Diluted)

$0.78

Total Assets

$43.00B

Cash & Equivalents

$1.36B

Free Cash Flow

$395.00M

Financial Statements
Beta
Revenue$4.41B
Operating Expenses$3.01B
Operating Income$1.40B
Interest Expense$153.00M
Net Income$778.00M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)986.00M
Shares Outstanding (Diluted)995.40M

Key Highlights

  • 1Total operating revenues increased significantly, up 20% for the third quarter and 21% for the first nine months of 2010 compared to the same periods in 2009.
  • 2Freight carloads saw robust growth, increasing by 14% in the third quarter and 15% year-to-date, indicating a recovery in economic activity and demand for rail services.
  • 3Diluted earnings per share (EPS) saw a substantial increase, rising to $1.56 for the third quarter and $3.98 for the nine months ended September 30, 2010, up from $1.01 and $2.66 respectively in the prior year.
  • 4The operating ratio improved significantly, decreasing by 5.6 percentage points in the third quarter and 6.3 percentage points year-to-date, showcasing enhanced operational efficiency.
  • 5Union Pacific actively repurchased shares, spending approximately $1.1 billion on common share repurchases during the first nine months of 2010, demonstrating a commitment to shareholder returns.
  • 6Despite higher fuel costs (up 30% for the quarter and 47% year-to-date), the company managed its overall operating expenses effectively through productivity initiatives and efficient resource utilization.

Frequently Asked Questions

The primary driver for the increase in revenue and net income was a significant rebound in freight carloads (up 14% for the quarter) and overall economic activity compared to the depressed levels in the prior year. This volume growth, combined with core pricing gains and higher fuel surcharges, boosted top-line performance and subsequently profitability.

Union Pacific managed its expenses effectively by leveraging productivity initiatives, improving operational efficiency, and maintaining flat workforce levels despite increased volumes. While fuel costs increased significantly, cost savings from improved fuel efficiency and other productivity measures helped to offset some of these higher costs.

Union Pacific demonstrated a commitment to shareholder returns by actively repurchasing approximately $1.1 billion of its common stock during the first nine months of 2010. The company also managed its debt levels, issuing new debt and engaging in a debt exchange, while maintaining a focus on generating free cash flow, which amounted to $1.009 billion for the first nine months.

The company's debt management strategy includes plans to refinance existing debt. A subsequent event noted the intent to redeem $400 million of 6.65% notes due January 15, 2011, on November 1, 2010. The company also has a $1.9 billion revolving credit facility maturing in April 2012 and intends to replace it with a similar agreement.