01—Abstract
Summary
Summary of the 10-Q filed October 20, 2016. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation (UNP) reported its third-quarter and year-to-date results for the period ending September 30, 2016.
For the third quarter, the company saw a decrease in operating revenues of 7% to $5.17 billiona, primarily driven by a 6% decline in volume and a 2% decrease in average revenue per car (ARC). Net income for the quarter was $1.13 billion, or $1.36 per diluted share, compared to $1.30 billion, or $1.50 per diluted share, in the prior year's quarter. For the nine-month period, operating revenues decreased by 11% to $14.77 billion, and net income fell to $3.09 billion from $3.66 billion in the same period last year.
This downturn was largely attributed to lower demand for coal and related products due to lower energy prices, as well as decreased intermodal, finished vehicle, and rock shipments. Despite revenue headwinds, Union Pacific demonstrated strong cost management. Operating expenses for the third quarter decreased by 4%b, and for the nine-month period by 10%, due to lower fuel prices, volume-related costs, and productivity gains.
The company also returned capital to shareholders through dividends and share repurchases, maintaining a consistent dividend per share. The company's balance sheet remains robust, with significant assets in net properties and a manageable debt-to-capital ratio, although leverage increased slightly compared to the prior year.
02—Key points
Key Highlights
- Operating revenues declined 7% year-over-year for the third quarter of 2016, reaching $5.17 billion, primarily due to a 6% decrease in freight volume.
- Net income for the third quarter was $1.13 billion, or $1.36 per diluted share, down from $1.30 billion, or $1.50 per diluted share, in the same period of 2015.
- Operating expenses decreased by 4% in the third quarter compared to the prior year, reflecting lower fuel costs, volume-related savings, and productivity improvements.
- The company continued to return capital to shareholders, maintaining the dividend declared per share at $0.55 for the quarter, consistent with the prior year.
- Year-to-date revenue carloads decreased by 8% compared to the first nine months of 2015, reflecting broader economic conditions impacting key commodity groups like coal and industrial products.
- Capital investments for the first nine months of 2016 were $2.60 billion, a decrease from $3.32 billion in the prior year, reflecting a revised capital plan and adjusted expectations for locomotive deliveries.
- The debt-to-capital ratio increased to 43.5% at September 30, 2016, from 40.7% at December 31, 2015, indicating slightly higher leverage.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 20, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $5.17B$5.56B | −7.0% |
| Operating Expenses | $3.21B$3.35B | −4.2% |
| Operating Income | $1.96B$2.21B | −11.2% |
| Interest Expense | $184.00M$157.00M | +17.2% |
| Net Income | $1.13B$1.30B | −13.0% |
| EPS (Basic) | $1.36$1.51 | −9.9% |
| EPS (Diluted) | $1.36$1.50 | −9.3% |
| Shares Outstanding (Basic) | 829.00M862.90M | −3.9% |
| Shares Outstanding (Diluted) | 832.20M865.80M | −3.9% |
05—Questions
Frequently Asked Questions
What were the primary drivers for the decrease in operating revenues?
The primary drivers for the decrease in operating revenues were a 6% decline in freight volume across most commodity groups and lower fuel surcharge revenue due to reduced fuel prices and volumes. Additionally, the 'mix of traffic' also contributed to lower revenues, particularly in the year-to-date period.
How did Union Pacific manage its operating expenses in light of declining revenues?
Union Pacific implemented strong cost management strategies. Operating expenses decreased by 4% in the third quarter and 10% year-to-date. This was achieved through lower fuel prices, reduced volume-related costs, and significant productivity gains. These savings helped to offset increases from inflation, higher depreciation, and other miscellaneous expenses.
What is the company's outlook on capital expenditures and shareholder returns?
For the remainder of 2016, Union Pacific reduced its capital plan by approximately $100 million to slightly below $3.6 billion, excluding lease buyouts. This adjustment was influenced by anticipated delays in locomotive deliveries. The company continued to return capital to shareholders through consistent dividend payments and share repurchases, indicating a commitment to shareholder value despite the challenging revenue environment.
What is the company's financial health and leverage position?
Union Pacific maintained a robust balance sheet, with significant assets in net properties. While the debt-to-capital ratio increased slightly to 43.5% from 40.7% at year-end 2015, the company's overall leverage remains within manageable levels. The company also highlighted its strong cash flow generation, with free cash flow of $1.27 billion for the first nine months of 2016, enabling continued investment and shareholder returns.
06—Continue