10-QPeriod: Q3 FY2018

UNION PACIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 25, 2018For Securities:UNP

Summary

Union Pacific Corporation (UNP) reported a strong third quarter and year-to-date performance for 2018, demonstrating significant revenue growth driven by increased freight volumes and pricing gains. The company's operational efficiency showed signs of stabilization, though not without challenges like higher fuel costs and network congestion. Net income saw a substantial increase, aided by the lower corporate tax rate enacted in late 2017. Key financial highlights include a 10% increase in total operating revenues for the quarter and an 8% increase year-to-date. Diluted EPS rose to $2.15 in Q3 2018 from $1.50 in Q3 2017. The company continued its aggressive share repurchase program, underscoring its commitment to returning capital to shareholders, while also managing its debt levels effectively. Investors should note the ongoing efforts to improve network performance and cost management amidst inflationary pressures and operational complexities.

Financial Highlights

47 data points
Beta

Revenue

$5.93B

Net Income

$1.59B

26.9% Net Margin

EPS (Diluted)

$2.15

Total Assets

$59.31B

Cash & Equivalents

$1.81B

Free Cash Flow

$1.53B

Financial Statements
Beta
Revenue$5.93B
Operating Expenses$3.66B
Operating Income$2.27B
Interest Expense$241.00M
Net Income$1.59B
EPS (Basic)$2.16
EPS (Diluted)$2.15
Shares Outstanding (Basic)737.40M
Shares Outstanding (Diluted)740.90M

Key Highlights

  • 1Total operating revenues increased by 10% year-over-year for the third quarter of 2018, reaching $5.93 billion.
  • 2Net income for the third quarter of 2018 rose by 33% to $1.59 billion, resulting in diluted earnings per share of $2.15, up from $1.50 in the prior year.
  • 3Freight revenues grew by 10% in Q3 2018, driven by a 6% increase in volume and a 4% rise in average revenue per car (ARC), reflecting price increases and fuel surcharges.
  • 4Operating expenses increased by 10% in Q3 2018, primarily due to a 46% surge in fuel costs and higher compensation and benefits.
  • 5The company repurchased approximately $7.02 billion in common stock during the first nine months of 2018, a significant increase from $2.88 billion in the same period of 2017.
  • 6Adjusted debt to Adjusted EBITDA ratio improved to 2.3 as of September 30, 2018, from 1.9 at December 31, 2017, indicating enhanced leverage management.
  • 7Despite operational challenges such as network congestion, the company reported progress in improving terminal dwell time and average train speed sequentially in Q3 2018.

Frequently Asked Questions

Union Pacific's revenue growth in Q3 2018 was primarily driven by a 10% increase in freight revenues, fueled by a 6% rise in shipment volume and a 4% increase in average revenue per car (ARC). This ARC increase was attributed to higher fuel surcharge revenue and core pricing gains, partially offset by a negative traffic mix.

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 substantial decrease in income tax expenses, contributing to a higher net income and improved earnings per share for the company in the reported periods of 2018 compared to 2017.

Union Pacific faced challenges including a 46% increase in fuel costs, network congestion on key routes and terminals, and high freight car inventory levels. They are addressing these by implementing 'Unified Plan 2020,' a new operating plan focused on increasing service reliability, reducing network variability, and improving resource utilization. Progress was noted in stabilizing network performance with sequential improvements in terminal dwell time and fuel consumption efficiency.

Union Pacific is actively returning capital to shareholders through its share repurchase programs. In the first nine months of 2018, the company repurchased approximately $7.02 billion of its common stock, a significant increase compared to the $2.88 billion repurchased in the same period of 2017. They also continued to pay dividends, with dividends declared per share increasing to $0.80 in Q3 2018 from $0.605 in Q3 2017.