Union Pacific Reports Third Quarter 2017 Results

October 26, 2017 8:02 AM

OMAHA, Neb., Oct. 26, 2017 /PRNewswire/ --

Third Quarter Results

Diluted earnings per share of $1.50 increased 10 percent.
Operating income totaled $2.0 billion, up 3 percent.
Operating ratio of 62.8 percent, up 0.7 points.

Union Pacific Corporation (NYSE: UNP) today reported 2017 third quarter net income of $1.2 billion, or a $1.50 per diluted share. This compares to $1.1 billion, or $1.36 per diluted share, in the third quarter 2016.

Union Pacific. (PRNewsFoto/Union Pacific)

"During the quarter, our company faced the unprecedented challenge of Hurricane Harvey," said Lance Fritz, Union Pacific chairman, president and chief executive officer. "I want to thank the men and women of Union Pacific who worked tirelessly and heroically to quickly and safely restore our network and operations from the storm and related flooding. Given these challenges, I am pleased with our results and look forward to continuing to build on the foundation provided by our six-track value strategy."

Third Quarter Summary

Operating revenue of $5.4 billion was up 5 percent in the third quarter 2017 compared to the third quarter 2016. Third quarter business volumes, as measured by total revenue carloads, declined 1 percent compared to 2016. Volume increases in industrial products were more than offset by declines in agricultural products, automotive, chemicals and coal. Intermodal volume was flat compared to 2016. In addition:

Quarterly freight revenue improved 4 percent compared to the third quarter 2016, as increased fuel surcharge revenue, core pricing gains and positive mix of traffic all contributed to the increase.
Union Pacific's third quarter operating ratio of 62.8 percent increased 0.7 points compared to the third quarter 2016. Higher fuel prices negatively impacted the operating ratio by 0.3 points.
The $1.77 per gallon average quarterly diesel fuel price in the third quarter 2017 was 13 percent higher than the third quarter 2016.
Quarterly train speed, as reported to the Association of American Railroads, was 25.4 mph, 2 percent slower than the third quarter 2016.
The year-to-date reportable personal injury rate of 0.78 per 200,000 employee-hours increased from the record year-to-date rate of 0.77 achieved in 2016.
Union Pacific repurchased 11.8 million shares in the third quarter 2017 at an aggregate cost of nearly $1.3 billion.
Included in the third quarter results are the following previously disclosed items:

	EPS Impact	Operating RatioImpact
	Favorable / (Unfavorable)	Favorable / (Unfavorable)
Workforce Reduction Charge	($0.06)	(1.55) pts
Hurricane Harvey Impact	($0.04)	(0.75) pts
Illinois State Income Tax Adjustment	($0.04)	N/A
Land Sale	$0.04	N/A
Resolution of a Litigation Matter	$0.05	N/A

Summary of Third Quarter Freight Revenues

Automotive down 3 percent
Agricultural Products down 2 percent
Coal down 2 percent
Chemicals up 2 percent
Intermodal up 3 percent
Industrial Products up 26 percent

2017 Outlook

"As the economy continues to ebb and flow, we will focus on executing our value strategy. We will use innovation to enhance our customer experience while continuing to drive resource productivity throughout the organization as we progress our G55 + 0 initiatives," Fritz said. "Looking ahead to 2018, our engaged team is laser focused on building upon our recent success. Our goal is to continue creating long-term enterprise value for all of our stakeholders as we improve our top-line and progress toward our margin improvement targets."

Third Quarter 2017 Earnings Conference Call

Union Pacific will host its third quarter 2017 earnings release presentation live over the Internet and via teleconference on Thursday, October 26, 2017 at 8:45 a.m. Eastern Time. The presentation will be webcast live over the internet on Union Pacific's website at www.up.com/investor. Alternatively, the webcast can be accessed directly through the following link. Participants may join the conference call by dialing 877/407-8293 (or for international participants, 201/689-8349).

ABOUT UNION PACIFIC

Union Pacific Railroad is the principal operating company of Union Pacific Corporation (NYSE: UNP). One of America's most recognized companies, Union Pacific Railroad connects 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. In the past 10 years, 2007-2016, Union Pacific invested approximately $34 billion in its network and operations to support America's transportation infrastructure. The railroad's diversified business mix includes Agricultural Products, Automotive, Chemicals, Coal, Industrial Products and Intermodal. Union Pacific serves many of the fastest-growing U.S. population centers, operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada's rail systems and is the only railroad serving all six major Mexico gateways. Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.

Supplemental financial information is attached.

This presentation and related materials contain statements about the Company's future that are not statements of historical fact, including specifically the statements regarding the Company's expectations with respect to economic conditions; its ability to generate financial returns, improve resource productivity and use innovation to enhance customer experience; implementing corporate strategies; and providing excellent service to its customers and returns to its shareholders. These statements are, or will be, forward-looking statements as defined by the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements also generally include, without limitation, information or statements regarding: projections, predictions, expectations, estimates or forecasts as to the Company's and its subsidiaries' business, financial, and operational results, and future economic performance; and management's beliefs, expectations, goals, and objectives and other similar expressions concerning matters that are not historical facts.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times that, or by which, such performance or results will be achieved. Forward-looking information, including expectations regarding operational and financial improvements and the Company's future performance or results are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statement. Important factors, including risk factors, could affect the Company's and its subsidiaries' future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. Information regarding risk factors and other cautionary information are available in the Company's Annual Report on Form 10-K for 2016, which was filed with the SEC on February 3, 2017. The Company updates information regarding risk factors if circumstances require such updates in its periodic reports on Form 10-Q and its subsequent Annual Reports on Form 10-K (or such other reports that may be filed with the SEC).

Forward-looking statements speak only as of, and are based only upon information available on, the date the statements were made. The Company assumes no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. If the Company does update one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect thereto or with respect to other forward-looking statements. References to our website are provided for convenience and, therefore, information on or available through the website is not, and should not be deemed to be, incorporated by reference herein.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Income (unaudited)


Millions, Except Per Share Amounts and Percentages,	*3rd Quarter*						*Year-to-Date*
For the Periods Ended September 30,	2017		2016		%		2017		2016		%
Operating Revenues
Freight revenues	$	5,050	$	4,837	4	%	$	14,750	$	13,769	7	%
Other revenues		358		337	6			1,040		1,004	4
Total operating revenues		5,408		5,174	5			15,790		14,773	7
Operating Expenses
Compensation and benefits		1,298		1,191	9			3,752		3,564	5
Purchased services and materials		615		566	9			1,778		1,705	4
Depreciation		528		512	3			1,573		1,518	4
Fuel		450		392	15			1,344		1,058	27
Equipment and other rents		275		282	(2)			824		857	(4)
Other		230		271	(15)			709		764	(7)
Total operating expenses		3,396		3,214	6			9,980		9,466	5
Operating Income		2,012		1,960	3			5,810		5,307	9
Other income		151		29	F			261		152	72
Interest expense		(180)		(184)	(2)			(531)		(524)	1
Income before income taxes		1,983		1,805	10			5,540		4,935	12
Income taxes		(789)		(674)	17			(2,106)		(1,846)	14
Net Income	$	1,194	$	1,131	6	%	$	3,434	$	3,089	11	%

Share and Per Share
Earnings per share - basic	$	1.50	$	1.36	10	%	$	4.27	$	3.69	16	%
Earnings per share - diluted	$	1.50	$	1.36	10		$	4.26	$	3.68	16
Weighted average number of shares - basic		794.5		829.0	(4)			803.4		836.8	(4)
Weighted average number of shares - diluted		797.6		832.2	(4)			806.5		839.6	(4)
Dividends declared per share	$	0.605	$	0.55	10		$	1.815	$	1.65	10

Operating Ratio		62.8%		62.1%	0.7	pts		63.2%		64.1%	(0.9)	pts
Effective Tax Rate		39.8%		37.3%	2.5	pts		38.0%		37.4%	0.6	pts

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Freight Revenues Statistics (unaudited)

	*3rd Quarter*						*Year-to-Date*
For the Periods Ended September 30,	2017		2016		%		2017		2016		%
*Freight Revenues (Millions)*
Agricultural Products	$	914	$	937	(2)	%	$	2,763	$	2,664	4	%
Automotive		469		485	(3)			1,486		1,483	-
Chemicals		896		875	2			2,679		2,617	2
Coal		711		728	(2)			1,978		1,741	14
Industrial Products		1,079		855	26			3,016		2,519	20
Intermodal		981		957	3			2,828		2,745	3
Total	$	5,050	$	4,837	4	%	$	14,750	$	13,769	7	%
*Revenue Carloads (Thousands)*
Agricultural Products		232		258	(10)	%		719		722	-	%
Automotive		200		210	(5)			627		644	(3)
Chemicals		259		274	(5)			785		817	(4)
Coal		331		341	(3)			920		846	9
Industrial Products		325		283	15			918		832	10
Intermodal*		841		838	-			2,452		2,435	1
Total		2,188		2,204	(1)	%		6,421		6,296	2	%
*Average Revenue per Car*
Agricultural Products	$	3,951	$	3,637	9	%	$	3,844	$	3,691	4	%
Automotive		2,341		2,310	1			2,370		2,302	3
Chemicals		3,457		3,201	8			3,412		3,206	6
Coal		2,143		2,134	-			2,150		2,057	5
Industrial Products		3,325		3,019	10			3,287		3,028	9
Intermodal*		1,166		1,141	2			1,153		1,127	2
Average	$	2,307	$	2,195	5	%	$	2,297	$	2,187	5	%


*	Each intermodal container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Financial Position (unaudited)

	*Sep. 30,*		Dec. 31,
Millions, Except Percentages	2017		2016
Assets
Cash and cash equivalents	$	1,847	$	1,277
Short-term investments		90		60
Other current assets		2,512		2,259
Investments		1,566		1,457
Net properties		51,036		50,389
Other assets		346		276
Total assets	$	57,397	$	55,718

Liabilities and Common Shareholders' Equity
Debt due within one year	$	903	$	758
Other current liabilities		2,928		2,882
Debt due after one year		15,930		14,249
Deferred income taxes		16,524		15,996
Other long-term liabilities		1,961		1,901
Total liabilities		38,246		35,786
Total common shareholders' equity		19,151		19,932
Total liabilities and common shareholders' equity	$	57,397	$	55,718

Debt to Capital		46.8%		43.0%
Adjusted Debt to Capital*		50.4%		47.3%


*	Adjusted Debt to Capital is a non-GAAP measure; however, management believes that it is an important measure in evaluating our financial performance. See page 8 for a reconciliation to GAAP.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Cash Flows (unaudited)

Millions,	*Year-to-Date*
For the Periods Ended September 30,	2017		2016
Operating Activities
Net income	$	3,434	$	3,089
Depreciation		1,573		1,518
Deferred income taxes		514		519
Other - net		(123)		341
Cash provided by operating activities		5,398		5,467

Investing Activities
Capital investments		(2,379)		(2,604)
Purchases of short-term investments		(90)		(580)
Maturities of short-term investments		60		250
Other - net		149		115
Cash used in investing activities		(2,260)		(2,819)

Financing Activities
Common shares repurchased		(2,882)		(2,100)
Debt issued		2,285		1,883
Dividends paid		(1,460)		(1,382)
Debt repaid		(471)		(481)
Other - net		(40)		(50)
Cash used in financing activities		(2,568)		(2,130)

Net Change in Cash and Cash Equivalents		570		518
Cash and cash equivalents at beginning of year		1,277		1,391
Cash and Cash Equivalents at End of Period	$	1,847	$	1,909

Free Cash Flow*
Cash provided by operating activities	$	5,398	$	5,467
Cash used in investing activities		(2,260)		(2,819)
Dividends paid		(1,460)		(1,382)
Free cash flow	$	1,678	$	1,266


*	Free cash flow is a non-GAAP measure; however, we believe this measure is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Operating and Performance Statistics (unaudited)

	*3rd Quarter*				*Year-to-Date*
For the Periods Ended September 30,	2017	2016	%		2017	2016	%
Operating/Performance Statistics
Gross ton-miles (GTMs) (millions)	229,791	224,633	2	%	671,547	633,056	6	%
Employees (average)	42,056	42,756	(2)		42,127	43,154	(2)
GTMs (millions) per employee	5.46	5.25	4		15.94	14.67	9

Locomotive Fuel Statistics
Average fuel price per gallon consumed	$ 1.77	$ 1.57	13	%	$ 1.74	$ 1.42	23	%
Fuel consumed in gallons (millions)	245	242	1		744	721	3
Fuel consumption rate*	1.063	1.075	(1)		1.107	1.139	(3)

AAR Reported Performance Measures
Average train speed (miles per hour)	25.4	26.0	(2)	%	25.5	26.6	(4)	%
Average terminal dwell time (hours)	30.0	28.0	7		29.6	27.9	6

Revenue Ton-Miles (Millions)
Agricultural Products	21,943	24,235	(9)	%	67,491	68,091	(1)	%
Automotive	4,353	4,381	(1)		13,707	13,487	2
Chemicals	16,358	16,719	(2)		49,259	50,832	(3)
Coal	34,865	35,030	-		97,144	83,614	16
Industrial Products	22,040	17,552	26		62,200	51,497	21
Intermodal	19,411	19,566	(1)		58,070	57,500	1
Total	118,970	117,483	1	%	347,871	325,021	7	%


*	Fuel consumption is computed as follows: gallons of fuel consumed divided by gross ton-miles in thousands.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Condensed Consolidated Statements of Income (unaudited)

	2017
Millions, Except Per Share Amounts and Percentages,	*1st Qtr*		*2nd Qtr*		*3rd Qtr*		*Year-to-Date*
Operating Revenues
Freight revenues	$	4,794	$	4,906	$	5,050	$	14,750
Other revenues		338		344		358		1,040
Total operating revenues		5,132		5,250		5,408		15,790
Operating Expenses
Compensation and benefits		1,257		1,197		1,298		3,752
Purchased services and materials		566		597		615		1,778
Depreciation		520		525		528		1,573
Fuel		460		434		450		1,344
Equipment and other rents		276		273		275		824
Other		260		219		230		709
Total operating expenses		3,339		3,245		3,396		9,980
Operating Income		1,793		2,005		2,012		5,810
Other income		67		43		151		261
Interest expense		(172)		(179)		(180)		(531)
Income before income taxes		1,688		1,869		1,983		5,540
Income taxes		(616)		(701)		(789)		(2,106)
Net Income	$	1,072	$	1,168	$	1,194	$	3,434

Share and Per Share
Earnings per share - basic	$	1.32	$	1.45	$	1.50	$	4.27
Earnings per share - diluted	$	1.32	$	1.45	$	1.50	$	4.26
Weighted average number of shares - basic		811.5		804.1		794.5		803.4
Weighted average number of shares - diluted		814.8		807.2		797.6		806.5
Dividends declared per share	$	0.605	$	0.605	$	0.605	$	1.815

Operating Ratio		65.1%		61.8%		62.8%		63.2%
Effective Tax Rate		36.5%		37.5%		39.8%		38.0%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Freight Revenues Statistics (unaudited)

	2017
	*1st Qtr*		*2nd Qtr*		*3rd Qtr*		*Year-to-Date*
*Freight Revenues (Millions)*
Agricultural Products	$	942	$	907	$	914	$	2,763
Automotive		504		513		469		1,486
Chemicals		885		898		896		2,679
Coal		648		619		711		1,978
Industrial Products		907		1,030		1,079		3,016
Intermodal		908		939		981		2,828
Total	$	4,794	$	4,906	$	5,050	$	14,750
*Revenue Carloads (Thousands)*
Agricultural Products		250		237		232		719
Automotive		212		215		200		627
Chemicals		257		269		259		785
Coal		304		285		331		920
Industrial Products		278		315		325		918
Intermodal*		787		824		841		2,452
Total		2,088		2,145		2,188		6,421
*Average Revenue per Car*
Agricultural Products	$	3,773	$	3,813	$	3,951	$	3,844
Automotive		2,373		2,393		2,341		2,370
Chemicals		3,448		3,334		3,457		3,412
Coal		2,134		2,173		2,143		2,150
Industrial Products		3,261		3,271		3,325		3,287
Intermodal*		1,154		1,140		1,166		1,153
Average	$	2,297	$	2,287	$	2,307	$	2,297


*	Each intermodal container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES
Non-GAAP Measures Reconciliation to GAAP

Debt to Capital*
	*Sep. 30,*		Dec. 31,
Millions, Except Percentages	2017		2016
Debt (a)	$	16,833	$	15,007
Equity		19,151		19,932
Capital (b)	$	35,984	$	34,939
Debt to capital (a/b)		46.8%		43.0%


*	Total debt divided by total debt plus equity. We believe this measure is important to management and investors in evaluating our balance sheet strength and is important in managing our credit ratios and financing relationships.



Adjusted Debt to Capital, Reconciliation to GAAP*
	*Sep. 30,*		Dec. 31,
Millions, Except Percentages	2017		2016
Debt	$	16,833	$	15,007
Net present value of operating leases		2,186		2,435
Unfunded pension and OPEB, net of taxes of $256 and $261		417		436
Adjusted debt (a)		19,436		17,878
Equity		19,151		19,932
Adjusted capital (b)	$	38,587	$	37,810
Adjusted debt to capital (a/b)		50.4%		47.3%

Total debt plus net present value of operating leases plus after-tax unfunded pension and OPEB obligation divided by total debt plus net present value of operating leases plus after-tax unfunded pension and OPEB obligation plus equity. Operating leases were discounted using 4.6% at September 30, 2017, and 4.7% at December 31, 2016. The discount rate reflects our effective interest rate. We believe this measure is important to management and investors in evaluating the total amount of leverage in our capital structure including off-balance sheet lease obligations.

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Union Pacific Reports Third Quarter 2017 Results

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