10-QPeriod: Q3 FY2015

UNION PACIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 22, 2015For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported for the third quarter of 2015 a decrease in net income to $1.3 billion ($1.50 per diluted share) from $1.4 billion ($1.53 per diluted share) in the prior year's third quarter. This decline was primarily driven by a 10% reduction in operating revenues, largely due to lower freight volumes across several key commodity groups and a decrease in fuel surcharge revenue reflecting lower energy prices. Despite revenue challenges, the company achieved a record-low operating ratio of 60.3% for the quarter, an improvement from 62.3% in Q3 2014, driven by significant cost reductions, particularly in fuel, and productivity gains. For the nine months ended September 30, 2015, net income was $3.65 billion ($4.18 per diluted share), compared to $3.75 billion ($4.14 per diluted share) in the same period of 2014. Operating revenues also declined by 7% year-to-date, impacted by similar factors as the quarterly results, with coal and industrial products showing notable volume decreases. The company continued to invest in capital projects, including Positive Train Control (PTC), while actively repurchasing shares and paying dividends, demonstrating a commitment to shareholder returns amidst a challenging economic environment characterized by lower commodity demand.

Financial Highlights

46 data points
Beta

Revenue

$5.56B

Net Income

$1.30B

23.4% Net Margin

EPS (Diluted)

$1.50

Total Assets

$53.76B

Cash & Equivalents

$1.08B

Free Cash Flow

$736.00M

Financial Statements
Beta
Revenue$5.56B
Operating Expenses$3.35B
Operating Income$2.21B
Interest Expense$157.00M
Net Income$1.30B
EPS (Basic)$1.51
EPS (Diluted)$1.50
Shares Outstanding (Basic)862.90M
Shares Outstanding (Diluted)865.80M

Key Highlights

  • 1Operating revenues decreased by 10% to $5.56 billion for the three months ended September 30, 2015, compared to $6.18 billion in the same period of 2014.
  • 2Net income for the third quarter of 2015 was $1.30 billion, a decrease from $1.37 billion in the third quarter of 2014.
  • 3Diluted earnings per share (EPS) were $1.50 for the third quarter of 2015, down from $1.53 in the prior year's quarter.
  • 4The operating ratio improved to 60.3% for the third quarter of 2015 from 62.3% in the third quarter of 2014, indicating improved operational efficiency.
  • 5Freight revenues declined 10% year-over-year for the quarter, primarily driven by a 6% decrease in volume and lower average revenue per car (ARC) due to reduced fuel surcharges and unfavorable business mix.
  • 6The company repurchased approximately $2.88 billion of common stock during the nine months ended September 30, 2015, and paid $1.88 billion in dividends.
  • 7Capital investments for the nine months ended September 30, 2015, totaled $3.32 billion, with significant portions allocated to infrastructure, locomotives, freight cars, and Positive Train Control (PTC).

Frequently Asked Questions

The primary drivers for the decrease in operating revenues were a 6% decline in freight volume across various commodity groups and lower average revenue per car (ARC). The reduction in ARC was largely due to lower fuel surcharge revenue resulting from decreased fuel prices and an unfavorable business mix. Lower demand for coal and related products due to lower energy prices also significantly impacted revenues.

Union Pacific successfully reduced its operating expenses by 13% in the third quarter of 2015 compared to the prior year. This was achieved through lower fuel prices, cost savings related to reduced volumes, and productivity gains, which more than offset factors like wage inflation and depreciation. These cost management efforts resulted in an improved operating ratio.

The company continued to invest in its infrastructure and critical projects, such as Positive Train Control (PTC), with capital expenditures of $3.32 billion for the first nine months of 2015. Simultaneously, Union Pacific demonstrated a commitment to returning capital to shareholders through substantial share repurchases ($2.88 billion year-to-date) and dividend payments ($1.88 billion year-to-date).

Key challenges include managing volumes in a weak commodity market, particularly for coal and shale-related products. Additionally, the company is navigating the complexities and potential financial impacts related to the mandatory implementation of Positive Train Control (PTC) by the end of 2015, which may lead to operational embargoes or significant fines if deadlines are not met or extended. Antitrust litigation related to fuel surcharges also remains an ongoing concern.