01—Abstract
Summary
Summary of the 10-Q filed October 22, 2020. Cited figures are marked; the original filing is the authoritative source.
Union Pacific Corporation (UNP) reported a decrease in revenue and net income for the third quarter and first nine months of 2020 compared to the prior year, largely attributable to the economic impact of the COVID-19 pandemic.
Freight revenues declined 11%a year-over-year in Q3 2020, driven by a 4% volume decrease and a 7% lower average revenue per car (ARC), with reduced fuel surcharges and unfavorable traffic mix being key factors. Despite the revenue challenges, the company achieved an all-time best operating ratio of 58.7% in Q3 2020, a 0.8 percentage point improvement, showcasing strong cost management and operational efficiencies. Operating expenses saw a significant decrease of 12% in Q3 2020, benefiting from lower fuel prices, reduced volumes, and ongoing productivity initiatives.
The company maintained a solid liquidity position with $2.6 billionb in cash and cash equivalents at the end of the quarter and $2.0 billion in available credit. UNP also continued its commitment to shareholder returns through dividends and share repurchases, though the pace of repurchases moderated compared to the previous year. Management remains focused on managing costs and navigating the uncertain economic environment.
02—Key points
Key Highlights
- Total operating revenues decreased by 11% to $4.9 billion in Q3 2020 compared to $5.5 billion in Q3 2019.
- Net income for Q3 2020 was $1.36 billion, a decrease from $1.56 billion in Q3 2019, resulting in diluted EPS of $2.01 compared to $2.22.
- The company achieved an all-time best operating ratio of 58.7% in Q3 2020, an improvement from 59.5% in Q3 2019, demonstrating effective cost control.
- Operating expenses decreased by 12% to $2.89 billion in Q3 2020, primarily driven by lower fuel costs, reduced volumes, and productivity initiatives.
- Freight revenues for the nine months ended September 30, 2020, decreased by 13% to $13.45 billion from $16.50 billion in the prior year.
- The company ended the quarter with $2.6 billion in cash and cash equivalents, indicating a strong liquidity position.
- Share repurchases in Q3 2020 amounted to 4.05 million shares, a decrease from 9.53 million shares in Q3 2019, reflecting a moderated buyback program.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed October 22, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $4.92B$5.52B | −10.8% |
| Operating Expenses | $2.89B$3.28B | −12.0% |
| Operating Income | $2.03B$2.23B | −9.1% |
| Interest Expense | $295.00M$266.00M | +10.9% |
| Net Income | $1.36B$1.55B | −12.3% |
| EPS (Basic) | $2.02$2.22 | −9.0% |
| EPS (Diluted) | $2.01$2.22 | −9.5% |
| Shares Outstanding (Basic) | 675.00M699.30M | −3.5% |
| Shares Outstanding (Diluted) | 676.80M701.90M | −3.6% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in operating revenues?
The primary driver for the decrease in operating revenues was the negative impact of the COVID-19 pandemic on economic conditions, leading to reduced freight volumes (down 4% in Q3 2020) and a lower average revenue per car (down 7% in Q3 2020) due to factors like a less favorable traffic mix and lower fuel surcharges.
How did Union Pacific manage costs to achieve an improved operating ratio despite lower revenues?
Union Pacific implemented significant cost-saving measures. Operating expenses decreased by 12% in Q3 2020, driven by substantial reductions in fuel costs (down 40%), lower expenses related to purchased services and materials, and productivity initiatives. These cost efficiencies helped offset the revenue decline and resulted in an all-time best operating ratio of 58.7%.
What is the company's liquidity position and outlook?
The company maintains a strong liquidity position, ending the quarter with $2.6 billion in cash and cash equivalents and $2.0 billion in available credit under its revolving credit facility. Management indicated sufficient capacity to sustain an extended period of lower volumes and plans to manage upcoming debt maturities and maintain its quarterly dividend.
How has the pandemic affected different market segments?
While most market segments experienced declines due to the pandemic, there have been sequential improvements from the second quarter. Segments like automotive manufacturing are recovering, but demand still lags. Other segments like construction products, industrial chemicals, plastics, food, and refrigerated products have not seen full recoveries. Low oil and natural gas prices continue to negatively impact shipments of coal and petroleum products.
06—Continue