01—Abstract
Summary
Summary of the 10-Q filed April 27, 2017. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation reported solid financial results for the first quarter of 2017, demonstrating revenue growth and operational resilience despite challenging weather conditions.
Total operating revenues increased by 6% year-over-year to $5.132 billiona, driven primarily by a 6% rise in freight revenues to $4.794 billion. This growth was fueled by a combination of increased shipment volumes, particularly in coal and agricultural products, and higher average revenue per car (ARC), which benefited from increased fuel surcharges and core pricing gains. While operating expenses also rose by 6% to $3.339 billion, largely due to higher fuel prices and weather-related costs, the company maintained its operating ratio at 65.1%, indicating effective cost management.
Net income grew by 9.5% to $1.072 billionb, leading to a diluted earnings per share of $1.32, up from $1.16 in the prior year's comparable period. The company continued its commitment to shareholder returns through share repurchases and dividend payments, while also managing its debt levels and investing in capital expenditures.
02—Key points
Key Highlights
- Total operating revenues increased by 6% to $5.132 billion for the first quarter of 2017 compared to the same period in 2016.
- Freight revenues grew by 6% to $4.794 billion, driven by a 2% increase in volume and a 4% rise in average revenue per car (ARC), attributed to higher fuel surcharges and pricing.
- Net income increased by 9.5% to $1.072 billion, resulting in diluted earnings per share of $1.32, up from $1.16 in Q1 2016.
- Operating expenses rose by 6% to $3.339 billion, primarily due to increased fuel costs and weather disruptions, though the operating ratio remained stable at 65.1%.
- The company repurchased shares totaling $759 million in the first quarter of 2017, demonstrating a continued focus on returning capital to shareholders.
- Despite weather challenges that impacted average train speed and terminal dwell time, Union Pacific managed employee levels effectively, decreasing workforce by 4% while volumes grew.
- Capital investments for the quarter were $811 million, reflecting ongoing investment in infrastructure and equipment, with a full-year capital plan of approximately $3.1 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed April 27, 2017Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $5.13B$4.83B | +6.3% |
| Operating Expenses | $3.34B$3.14B | +6.4% |
| Operating Income | $1.79B$1.69B | +6.0% |
| Interest Expense | $172.00M$167.00M | +3.0% |
| Net Income | $1.07B$979.00M | +9.5% |
| EPS (Basic) | $1.32$1.16 | +13.8% |
| EPS (Diluted) | $1.32$1.16 | +13.8% |
| Shares Outstanding (Basic) | 811.50M844.00M | −3.9% |
| Shares Outstanding (Diluted) | 814.80M846.70M | −3.8% |
05—Questions
Frequently Asked Questions
What was the primary driver for the increase in freight revenues?
Freight revenues increased by 6% to $4.794 billion primarily due to a combination of increased shipment volumes (up 2%) and a 4% rise in average revenue per car (ARC). The increase in ARC was driven by higher fuel surcharge revenue, core pricing gains, and a favorable mix of traffic. Specific commodity groups like coal and agricultural products saw significant volume growth.
How did weather conditions impact Union Pacific's operations?
The company experienced significant weather challenges in the West, including snow, rain, and flooding, which disrupted network operations. This resulted in a negative earnings per share impact of approximately $0.03 due to deferred or lost revenue and additional costs. Consequently, average train speed decreased by 6% and average terminal dwell time increased by 7%.
What is the company's outlook on capital expenditures and shareholder returns?
Union Pacific's capital plan for 2017 is projected to be approximately $3.1 billion. The company continued its commitment to shareholder returns by repurchasing $759 million of its common stock in the first quarter of 2017 and declared dividends of $0.605 per share. Management expects to fund share repurchases through cash generated from operations, property sales, debt issuances, and cash on hand.
What is the company's approach to managing operating expenses, particularly fuel costs?
Operating expenses increased by 6% to $3.339 billion, largely driven by higher fuel prices which increased by 44% year-over-year ($127 million impact). The company also cited weather-related costs and inflation. Despite these pressures, Union Pacific maintained its operating ratio at 65.1% through productivity gains and resource alignments. The fuel consumption rate (c-rate) improved by 4%, indicating some efficiency gains in fuel usage.
06—Continue