10-QPeriod: Q2 FY2016

UNION PACIFIC CORP Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 21, 2016For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported a decrease in operating revenues for the second quarter and the first six months of 2016 compared to the same periods in 2015. This decline was primarily driven by lower freight revenues, which were impacted by a decrease in both volume and average revenue per car (ARC), largely due to lower fuel surcharge revenue and unfavorable commodity mix. Operating expenses also decreased, benefiting from lower fuel prices and volume-related reductions, although these were partially offset by inflation and higher depreciation. Net income and diluted earnings per share saw a reduction in the second quarter of 2016 compared to the prior year. The company's financial position remains solid, with efforts focused on operational efficiency and cost management in response to the prevailing market conditions. Capital expenditures were reduced compared to the prior year, and the company continued its share repurchase program.

Financial Highlights

46 data points
Beta

Revenue

$4.77B

Net Income

$979.00M

20.5% Net Margin

EPS (Diluted)

$1.17

Total Assets

$55.69B

Cash & Equivalents

$1.83B

Free Cash Flow

$449.00M

Financial Statements
Beta
Revenue$4.77B
Operating Expenses$3.11B
Operating Income$1.66B
Interest Expense$173.00M
Net Income$979.00M
EPS (Basic)$1.17
EPS (Diluted)$1.17
Shares Outstanding (Basic)837.40M
Shares Outstanding (Diluted)840.10M

Key Highlights

  • 1Total operating revenues declined 12% in Q2 2016 and 13% year-to-date compared to 2015, primarily due to a 13% decrease in freight revenues.
  • 2Net income decreased by approximately 18% in Q2 2016 and 17% year-to-date compared to 2015.
  • 3Diluted earnings per share fell to $1.17 in Q2 2016 from $1.38 in Q2 2015.
  • 4Operating expenses decreased by 11% in Q2 2016, driven by lower fuel costs and volume-related reductions.
  • 5Capital investments were reduced to $1.59 billion in the first six months of 2016 from $2.21 billion in the same period of 2015.
  • 6The company's debt-to-capital ratio increased slightly to 42.6% as of June 30, 2016, from 40.7% as of December 31, 2015.
  • 7Union Pacific repurchased $7.1 billion of its common stock in Q2 2016, continuing its share repurchase program.

Frequently Asked Questions

The primary driver of the revenue decline was lower freight revenues, which decreased due to an 11% decline in volume and a 2% decline in average revenue per car (ARC). The decrease in ARC was largely attributed to lower fuel surcharge revenue, although core pricing gains provided some offset. Lower demand for coal and shale-related products, as well as declines in intermodal, finished vehicles, and rock shipments, also contributed to the revenue decrease.

Union Pacific managed its operating expenses by reducing them by 11% in the second quarter of 2016 compared to the prior year. This reduction was primarily driven by significantly lower fuel prices and volume-related savings. Productivity gains and lower locomotive and freight car repair expenses also contributed to the decrease, helping to offset inflationary pressures and higher depreciation.

Union Pacific reduced its capital investments significantly in the first six months of 2016, with total cash capital investments at $1.59 billion compared to $2.21 billion in the same period of 2015. The company also continued its share repurchase program, buying back $7.1 billion of common stock in the second quarter of 2016, indicating a focus on returning capital to shareholders while managing investments prudently.

While this specific 10-Q filing does not detail new risk factors, it refers to the 'Risk Factors' section in the 2015 Form 10-K. Generally, for a company like Union Pacific, risks include fluctuations in commodity prices (especially coal and energy), changes in economic activity affecting freight volumes, regulatory changes, labor relations, and competition. The filing does mention specific legal proceedings, including antitrust litigation related to fuel surcharges, which represent ongoing uncertainties.