01—Abstract
Summary
Summary of the 10-Q filed October 17, 2019. 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 29, 2019.
For the three months ended September 30, 2019, operating revenues were $5.516 billiona, a decrease of 7% from $5.928 billion in the same period of 2018. Net income for the quarter was $1.555 billion, a slight decrease from $1.593 billion in the prior year's third quarter. Diluted earnings per share (EPS) were $2.22, up from $2.15 in the prior year, benefiting from a reduced share count.
For the nine months ended September 30, 2019, operating revenues were $16.496 billionb, a decrease of 3% from $17.075 billion in the prior year. Net income increased to $4.516 billion from $4.412 billion in the prior year, and diluted EPS rose to $6.36 from $5.79. The company highlighted operational improvements through its Unified Plan 2020, leading to increased productivity in locomotives, freight cars, and workforce, which contributed to an improved operating ratio.
02—Key points
Key Highlights
- Total operating revenues declined by 7% year-over-year to $5.516 billion for the third quarter of 2019, primarily due to an 8% decrease in carloads driven by weak demand in key sectors like intermodal, coal, and frac sand.
- Despite lower revenues, net income remained relatively stable at $1.555 billion for the quarter, compared to $1.593 billion in Q3 2018. Diluted EPS increased to $2.22 from $2.15, aided by a lower weighted average share count.
- Operating expenses decreased by 10% to $3.282 billion, largely due to lower fuel costs, reduced volume-related expenses, and productivity gains from the Unified Plan 2020.
- The company achieved an all-time record operating ratio of 59.5% in the third quarter, a 2.2 percentage point improvement year-over-year, reflecting strong operational efficiency.
- Capital expenditures for the nine-month period increased to $2.495 billion, up from $2.428 billion in the prior year, with significant investments in road infrastructure replacements and capacity projects.
- Free cash flow for the nine months ended September 30, 2019, was $1.832 billion, a decrease from $2.224 billion in the same period of 2018, primarily due to higher capital investments and increased dividends paid.
- Union Pacific continued its aggressive share repurchase program, spending $5.162 billion in the nine-month period, contributing to the reduction in the diluted EPS.
- The company adopted the new lease accounting standard (ASU 2016-02) effective January 1, 2019, which resulted in the recognition of approximately $2 billion in new assets and liabilities on the balance sheet.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 17, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $5.52B$5.93B | −7.0% |
| Operating Expenses | $3.28B$3.66B | −10.3% |
| Operating Income | $2.23B$2.27B | −1.5% |
| Interest Expense | $266.00M$241.00M | +10.4% |
| Net Income | $1.55B$1.59B | −2.4% |
| EPS (Basic) | $2.22$2.16 | +2.8% |
| EPS (Diluted) | $2.22$2.15 | +3.3% |
| Shares Outstanding (Basic) | 699.30M737.40M | −5.2% |
| Shares Outstanding (Diluted) | 701.90M740.90M | −5.3% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue decline in the third quarter of 2019?
The primary driver of the 7% decrease in operating revenues was an 8% decline in carloads. This volume decrease was concentrated in sectors such as intermodal, coal, and frac sand, which were impacted by weak demand. While average revenue per car (ARC) saw a slight increase of 1%, this was not enough to offset the volume reduction. Lower fuel surcharge revenue also contributed to the decline.
How did Union Pacific manage its expenses despite lower revenues, and what impact did this have on profitability?
Union Pacific successfully reduced operating expenses by 10% year-over-year to $3.282 billion. Key factors included significant savings from lower fuel prices and reduced volume-related costs. The company also benefited from productivity improvements stemming from its Unified Plan 2020 initiative, which enhanced locomotive, freight car, and workforce efficiency. These expense reductions helped cushion the impact of lower revenues, resulting in only a 2% decrease in operating income and an improved operating ratio.
What is the company's capital allocation strategy, particularly regarding share repurchases and capital expenditures?
Union Pacific continues to return capital to shareholders through substantial share repurchases, spending $5.162 billion in the first nine months of 2019. This strategy, combined with dividend payments, contributed to a decrease in free cash flow compared to the prior year. Simultaneously, the company is investing in its infrastructure, with capital expenditures for the nine-month period totaling $2.495 billion, focused on road infrastructure replacements and capacity expansion projects as part of its Unified Plan 2020.
How did the adoption of the new lease accounting standard affect the company's financial statements?
Effective January 1, 2019, Union Pacific adopted Accounting Standards Update No. 2016-02 (ASU 2016-02) related to leases. This adoption required the company to recognize lease assets and lease liabilities on its balance sheet, resulting in an increase of approximately $2 billion in both total assets and total liabilities. The adoption did not have a material impact on the consolidated results of operations or cash flows.
06—Continue