01—Abstract
Summary
Summary of the 10-Q filed April 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation reported solid financial results for the first quarter of 2018, demonstrating revenue growth driven by a combination of price increases and volume expansion across key commodity groups.
Total operating revenues increased by 7%a year-over-year, with freight revenues rising 7% due to a 5% increase in average revenue per car and a 2% growth in volume. This growth was bolstered by stronger demand in energy (particularly frac sand and petroleum products) and premium segments, which offset declines in agricultural and coal shipments.
Despite a significant 28%b increase in fuel expenses and ongoing network operational challenges, the company managed to improve its operating income by 8% and net income by 22%. A key contributor to the net income growth was the reduction in the federal income tax rate following the Tax Cuts and Jobs Act, which lowered the effective tax rate from 36.5% to 23.4%.
02—Key points
Key Highlights
- Total operating revenues grew 7% to $5.475 billion, driven by a 7% increase in freight revenues to $5.122 billion.
- Freight volume increased by 2%, with notable growth in energy, industrial, and premium segments, while agricultural and coal volumes declined.
- Average revenue per car (ARC) increased by 5%, primarily due to higher fuel surcharge revenue and core pricing gains.
- Operating income rose 8% to $1.939 billion, despite a 28% increase in fuel expenses.
- Net income increased by 22% to $1.310 billion, significantly benefiting from the lower federal tax rate enacted by the Tax Cuts and Jobs Act.
- Earnings per diluted share (EPS) grew from $1.32 in Q1 2017 to $1.68 in Q1 2018.
- Capital expenditures were $910 million for the quarter, supporting infrastructure and technology improvements.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed April 26, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $5.47B$5.13B | +6.7% |
| Operating Expenses | $3.54B$3.34B | +5.7% |
| Operating Income | $1.94B$1.79B | +8.4% |
| Interest Expense | $186.00M$172.00M | +8.1% |
| Net Income | $1.31B$1.07B | +22.2% |
| EPS (Basic) | $1.69$1.32 | +28.0% |
| EPS (Diluted) | $1.68$1.32 | +27.3% |
| Shares Outstanding (Basic) | 776.40M811.50M | −4.3% |
| Shares Outstanding (Diluted) | 779.60M814.80M | −4.3% |
05—Questions
Frequently Asked Questions
What were the main drivers of revenue growth in the first quarter of 2018?
Revenue growth was driven by a 7% increase in freight revenues, which was a combination of a 5% increase in average revenue per car (ARC) and a 2% growth in volume (carloads). The increase in ARC was primarily due to higher fuel surcharge revenue and core pricing gains. Stronger demand in segments like energy (frac sand, petroleum products), industrial, and premium shipments contributed to the volume growth.
How did the Tax Cuts and Jobs Act impact Union Pacific's financial results?
The Tax Cuts and Jobs Act, enacted in late 2017, significantly reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. This led to a lower effective tax rate for Union Pacific, which decreased from 36.5% in Q1 2017 to 23.4% in Q1 2018. This tax rate reduction was a key factor in the 22% year-over-year increase in net income.
What were the key operational challenges mentioned in the report?
The report highlighted network congestion on key routes and terminals, partly attributed to high freight car inventory levels and execution challenges. This congestion negatively impacted overall network fluidity, leading to a decrease in average train speed (down 4% year-over-year) and an increase in average terminal dwell time (up 8% year-over-year). The implementation and testing of Positive Train Control (PTC) also contributed to slower average train speeds.
How is Union Pacific managing its capital and returning value to shareholders?
Union Pacific invested $910 million in capital expenditures during the quarter, focusing on infrastructure and technology. The company also continued its share repurchase program, buying back 9.26 million shares for $1.23 billion during the quarter. Dividends paid increased to $568 million from $492 million in the prior year's quarter.
06—Continue