Union Pacific Earnings: Winter Weather Constrains Velocity Gains, but Firm Maintains Guidance

Wide-moat Class-I railroad Union Pacific's top line grew 3% year over year on core pricing gains and higher fuel surcharges. Total yield (revenue per carload) grew 5.5%, while total volume fell 1%, which came in shy of our forecast due to winter weather disruption. Intermodal activity is facing retail sector inventory destocking and loose capacity in the competing truckload sector, and industrial end markets softened by the end of last year. Additionally, network service was a material volume headwind (across the board) in the quarter because of weather, which offset underlying productivity gains from hiring progress. Recall that productivity and velocity had been improving throughout much of 2022 before the onset of winter. On the positive side, automotive volumes expanded on recovering production, and metals and minerals were up on healthy nonhousing construction demand and new business wins.