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Union Pacific Reports Record Second Quarter Results

July 19, 2018 8:00 AM

OMAHA, Neb., July 19, 2018 /PRNewswire/ --

Union Pacific. (PRNewsFoto/Union Pacific) (PRNewsfoto/Union Pacific)

Second Quarter Results

  • Diluted earnings per share of $1.98 increased 37 percent.
  • Operating income totaled $2.1 billion, up 5 percent.
  • Operating ratio of 63.0 percent, up 1.1 points (see footnote 1).

Union Pacific Corporation (NYSE: UNP) today reported 2018 second quarter net income of $1.5 billion, or a second quarter record $1.98 per diluted share. This compares to $1.2 billion, or $1.45 per diluted share, in the second quarter 2017.

"Overall, I am pleased with the effort put forth by the entire Union Pacific team; however, I recognize the results could have been better," said Lance Fritz, Union Pacific chairman, president and chief executive officer. "Network performance improved significantly coming out of the First Quarter, but a tunnel outage and train-crew shortages created a headwind in June. I am confident we have the right plans in place to drive improvement in our operations and a better service experience for our customers."

Second Quarter Summary

Operating revenue of $5.7 billion was up 8 percent in the second quarter 2018 compared to the second quarter 2017. Second quarter carloads increased 4 percent compared to 2017. Volume increases in industrial and premium more than offset declines in agricultural products and energy. In addition:

  • Quarterly freight revenue improved 8 percent compared to the second quarter 2017, as volume growth, increased fuel surcharge revenue, and core pricing gains were partially offset by negative mix of traffic.
  • Union Pacific's 63.0 percent operating ratio increased 1.1 points (see footnote) compared to the second quarter 2017.
  • The $2.30 per gallon average quarterly diesel fuel price in the second quarter 2018 was 36 percent higher than the second quarter 2017.
  • Quarterly train speed, as reported to the Association of American Railroads, was 24.7 mph, 3 percent slower than the second quarter 2017.
  • Union Pacific's first half reportable personal injury rate of 0.76 per 200,000 employee hours was flat compared to the first half of 2017.
  • The Company repurchased 33.2 million shares in the second quarter 2018, including 19.9 million shares received as part of an accelerated share repurchase program.

Summary of Second Quarter Freight Revenues

  • Agricultural Products up 5 percent
  • Energy up 5 percent
  • Industrial up 8 percent
  • Premium up 14 percent

2018 Outlook

"Looking to the remainder of the year, we expect the strong business environment to continue as we regain our productivity momentum and improve the value proposition for all of our stakeholders," Fritz said.

Footnote 1: Certain prior period amounts have been adjusted for the retrospective adoption of Accounting Standard Update 2017-07 related to the presentation of the components of net periodic pension and other postretirement benefit costs.

Second Quarter 2018 Earnings Conference Call

Union Pacific will host its second quarter 2018 earnings release presentation live over the Internet and via teleconference on Thursday, July 19, 2018 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, 2008-2017, 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, Energy, Industrial and Premium. 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 and demand levels and its ability to improve network performance and customer service. 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 2017, which was filed with the SEC on February 9, 2018. 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,

2nd Quarter

Year-to-Date

For the Periods Ended June 30,

2018

2017

%

2018

2017

%

Operating Revenues

Freight revenues

$

5,317

$

4,906

8

%

$

10,439

$

9,700

8

%

Other

355

344

3

708

682

4

Total operating revenues

5,672

5,250

8

11,147

10,382

7

Operating Expenses

Compensation and benefits*

1,241

1,204

3

2,514

2,466

2

Fuel

643

434

48

1,232

894

38

Purchased services and materials

630

597

6

1,229

1,163

6

Depreciation

546

525

4

1,089

1,045

4

Equipment and other rents

265

273

(3)

531

549

(3)

Other

248

219

13

514

479

7

Total operating expenses

3,573

3,252

10

7,109

6,596

8

Operating Income

2,099

1,998

5

4,038

3,786

7

Other income*

42

50

(16)

-

122

(100)

Interest expense

(203)

(179)

13

(389)

(351)

11

Income before income taxes

1,938

1,869

4

3,649

3,557

3

Income taxes

(429)

(701)

(39)

(830)

(1,317)

(37)

Net Income

$

1,509

$

1,168

29

%

$

2,819

$

2,240

26

%

Share and Per Share

Earnings per share - basic

$

1.98

$

1.45

37

%

$

3.67

$

2.77

32

%

Earnings per share - diluted

$

1.98

$

1.45

37

$

3.65

$

2.76

32

Weighted average number of shares - basic

760.5

804.1

(5)

768.4

807.8

(5)

Weighted average number of shares - diluted

763.7

807.2

(5)

771.6

811.0

(5)

Dividends declared per share

$

0.73

$

0.605

21

$

1.46

$

1.21

21

Operating Ratio*

63.0%

61.9%

1.1

pts

63.8%

63.5%

0.3

pts

Effective Tax Rate

22.1%

37.5%

(15.4)

pts

22.7%

37.0%

(14.3)

pts

*

Certain prior period amounts have been adjusted for the retrospective adoption of Accounting Standard Update 2017-07 related to the presentation of the components of net periodic pension and other postretirement benefit costs.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

2nd Quarter

Year-to-Date

For the Periods Ended June 30,

2018

2017

%

2018

2017

%

Freight Revenues (Millions)

Agricultural Products

$

1,114

$

1,064

5

%

$

2,212

$

2,158

3

%

Energy

1,111

1,057

5

2,284

2,081

10

Industrial

1,437

1,334

8

2,777

2,598

7

Premium

1,655

1,451

14

3,166

2,863

11

Total

$

5,317

$

4,906

8

%

$

10,439

$

9,700

8

%

Revenue Carloads (Thousands)

Agricultural Products

285

289

(1)

%

564

579

(3)

%

Energy

387

391

(1)

806

786

3

Industrial

452

427

6

863

830

4

Premium [a]

1,101

1,038

6

2,117

2,038

4

Total

2,225

2,145

4

%

4,350

4,233

3

%

Average Revenue per Car

Agricultural Products

$

3,903

$

3,687

6

%

$

3,922

$

3,728

5

%

Energy

2,874

2,702

6

2,835

2,647

7

Industrial

3,178

3,120

2

3,218

3,130

3

Premium

1,503

1,398

8

1,495

1,405

6

Average

$

2,389

$

2,287

4

%

$

2,400

$

2,292

5

%

[a]

For intermodal shipments each container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Financial Position (unaudited)

Jun. 30,

Dec. 31,

Millions, Except Percentages

2018

2017

Assets

Cash and cash equivalents

$

1,604

$

1,275

Short-term investments

90

90

Other current assets

2,800

2,641

Investments

1,856

1,809

Net properties

51,947

51,605

Other assets

392

386

Total assets

$

58,689

$

57,806

Liabilities and Common Shareholders' Equity

Debt due within one year

$

1,456

$

800

Other current liabilities

2,916

3,139

Debt due after one year

21,357

16,144

Deferred income taxes

11,109

10,936

Other long-term liabilities

1,942

1,931

Total liabilities

38,780

32,950

Total common shareholders' equity

19,909

24,856

Total liabilities and common shareholders' equity

$

58,689

$

57,806

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Condensed Consolidated Statements of Cash Flows (unaudited)

Millions,

Year-to-Date

For the Periods Ended June 30,

2018

2017

Operating Activities

Net income

$

2,819

$

2,240

Depreciation

1,089

1,045

Deferred income taxes

204

298

Other - net

(79)

(124)

Cash provided by operating activities

4,033

3,459

Investing Activities

Capital investments

(1,614)

(1,589)

Purchases of short-term investments

(60)

(90)

Maturities of short-term investments

60

60

Other - net

(11)

55

Cash used in investing activities

(1,625)

(1,564)

Financing Activities

Debt issued

6,892

1,186

Share repurchase programs

(6,693)

(1,611)

Debt repaid

(1,295)

(444)

Dividends paid

(1,125)

(980)

Net issuance of commercial paper

196

-

Other - net

(54)

(37)

Cash used in financing activities

(2,079)

(1,886)

Net Change in Cash and Cash Equivalents

329

9

Cash and cash equivalents at beginning of year

1,275

1,277

Cash and Cash Equivalents at End of Period

$

1,604

$

1,286

Free Cash Flow*

Cash provided by operating activities

$

4,033

$

3,459

Cash used in investing activities

(1,625)

(1,564)

Dividends paid

(1,125)

(980)

Free cash flow

$

1,283

$

915

*

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)

2nd Quarter

Year-to-Date

For the Periods Ended June 30,

2018

2017

%

2018

2017

%

Operating/Performance Statistics

Gross ton-miles (GTMs) (millions)

230,938

222,842

4

%

457,867

441,756

4

%

Employees (average)

42,114

42,256

-

41,925

42,162

(1)

GTMs (millions) per employee

5.48

5.27

4

10.92

10.48

4

Locomotive Fuel Statistics

Average fuel price per gallon consumed

$ 2.30

$ 1.69

36

%

$ 2.22

$ 1.72

29

%

Fuel consumed in gallons (millions)

270

246

10

537

499

8

Fuel consumption rate*

1.170

1.105

6

1.173

1.130

4

AAR Reported Performance Measures

Average train speed (miles per hour)

24.7

25.4

(3)

%

24.8

25.6

(3)

%

Average terminal dwell time (hours)

29.5

28.3

4

31.2

29.4

6

Revenue Ton-Miles (Millions)

Agricultural Products

25,908

25,075

3

%

51,081

51,236

-

%

Energy

40,002

40,317

(1)

83,964

80,503

4

Industrial

25,750

25,095

3

50,040

49,148

2

Premium

25,976

24,335

7

49,951

48,014

4

Total

117,636

114,822

2

%

235,036

228,901

3

%

*

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)

2018

Millions, Except Per Share Amounts and Percentages,

1st Qtr

2nd Qtr

Year-to-Date

Operating Revenues

Freight revenues

$

5,122

$

5,317

$

10,439

Other revenues

353

355

708

Total operating revenues

5,475

5,672

11,147

Operating Expenses

Compensation and benefits

1,273

1,241

2,514

Fuel

589

643

1,232

Purchased services and materials

599

630

1,229

Depreciation

543

546

1,089

Equipment and other rents

266

265

531

Other

266

248

514

Total operating expenses

3,536

3,573

7,109

Operating Income

1,939

2,099

4,038

Other income/(expense)

(42)

42

-

Interest expense

(186)

(203)

(389)

Income before income taxes

1,711

1,938

3,649

Income taxes

(401)

(429)

(830)

Net Income

$

1,310

$

1,509

$

2,819

Share and Per Share

Earnings per share - basic

$

1.69

$

1.98

$

3.67

Earnings per share - diluted

$

1.68

$

1.98

$

3.65

Weighted average number of shares - basic

776.4

760.5

768.4

Weighted average number of shares - diluted

779.6

763.7

771.6

Dividends declared per share

$

0.73

$

0.73

$

1.46

Operating Ratio

64.6

%

63.0

%

63.8%

Effective Tax Rate

23.4

%

22.1

%

22.7%

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Freight Revenues Statistics (unaudited)

2018

1st Qtr

2nd Qtr

Year-to-Date

Freight Revenues (Millions)

Agricultural Products

$

1,098

$

1,114

$

2,212

Energy

1,173

1,111

2,284

Industrial

1,340

1,437

2,777

Premium

1,511

1,655

3,166

Total

$

5,122

$

5,317

$

10,439

Revenue Carloads (Thousands)

Agricultural Products

279

285

564

Energy

419

387

806

Industrial

411

452

863

Premium [a]

1,016

1,101

2,117

Total

2,125

2,225

4,350

Average Revenue per Car

Agricultural Products

$

3,942

$

3,903

$

3,922

Energy

2,799

2,874

2,835

Industrial

3,262

3,178

3,218

Premium

1,487

1,503

1,495

Average

$

2,411

$

2,389

$

2,400

[a]

For intermodal shipments each container or trailer equals one carload.

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

Non-GAAP Measures Reconciliation to GAAP

Adjusted Debt / Adjusted EBITDA*

Millions, Except Ratios

Jun. 30,

Dec. 31,

for the Twelve Months Ended

2018

2017

Net income

$

11,291

$

10,712

Less:

Other income

123

245

Add:

Income tax expense/(benefit)

(3,567)

(3,080)

Depreciation

2,149

2,105

Interest expense

757

719

EBITDA

$

10,507

$

10,211

Interest on present value of operating leases

89

98

Adjusted EBITDA (a)

$

10,596

$

10,309

Debt

$

22,813

$

16,944

Net present value of operating leases

2,073

2,140

Unfunded pension and OPEB, net of taxes of $133 and $238

470

396

Adjusted debt (b)

$

25,356

$

19,480

Adjusted debt / Adjusted EBITDA (b/a)

2.4

1.9

*

Total debt plus net present value of operating leases plus after-tax unfunded pension and OPEB obligation divided by net income less income tax benefit and other income plus depreciation, interest expense, and interest on present value of operating leases. Operating leases were discounted using 4.3% at June 30, 2018, and 4.6% at December 31, 2017. Adjusted debt to adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and interest on present value of operating leases) is considered a non-GAAP financial measure by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe this measure is important to management and investors in evaluating the Company's ability to sustain given debt levels (including leases) with the cash generated from operations. In addition, a comparable measure is used by rating agencies when reviewing the Company's credit rating. Adjusted debt to Adjusted EBITDA should be considered in addition to, rather than as a substitute for, net income. The table above provides reconciliations from net income to adjusted debt to adjusted EBITDA.

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