Company Reports

Wide moat Class-I railroad Union Pacific's first-quarter freight revenue was roughly flat year over year as positive core-pricing and favorable mix offset lower fuel surcharges and a slight decline in consolidated volumes. Revenue came in modestly below our expected run rate on coal volume weakness and domestic intermodal pricing pressure, but UP's margin performance came in ahead on impressive productivity gains.

Since 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Since 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Wide-moat Class-I railroad Union Pacific's fourth-quarter freight revenue flipped positive year over year, rising about 1%, partly because of a rebound in intermodal activity. Overall, total volume growth and positive core pricing were partly offset by lower all-in yield (revenue per carload). Revenue was mostly in line with our forecast.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Union Pacific's third-quarter revenue declined 9.5% year over year on persistent intermodal weakness, easing accessorial income, unfavorable mix, and lower fuel surcharges. Revenue for the wide-moat, Class-I railroad came in shy of our forecast on yield noise (from mix and fuel) and greater-than-anticipated intermodal pricing pressure. Core carload pricing remains positive.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Wide-moat Class-I railroad Union Pacific's second-quarter top line trend flipped negative, falling 5% year over year on lower intermodal volumes, easing accessorial income, unfavorable mix, and now-declining fuel surcharges. Revenue came in shy of our forecast on greater-than-anticipated deterioration in intermodal activity and pricing, though bulk and industrial end-market volumes weren't far off our expectations.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

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.

The U.S. Surface Transportation Board announced that it has approved the merger of Canadian Pacific and Kansas City Southern. CP bought KCS in December 2021 for an implied enterprise value near $31 billion but placed the shares into a voting trust (with KCS run independently) pending regulatory approval. We'd been expecting STB approval, but there was incremental uncertainty recently, given political pushback on the deal following Norfolk Southern's East Palestine derailment. The press release said CP is reviewing the decision and "in the coming days will announce its plans with respect to the creation of CPKC [Canadian Pacific Kansas City]," but we expect the rail to take control of KCS on or around April 14, when permitted.

Over the weekend, Union Pacific announced that CEO Lance Fritz will step down in 2023; it is actively seeking his replacement. Fritz has been CEO since 2015. It appears the announcement was sparked by pressure from activist investor Soroban Capital, which via a letter called for Fritz's departure (on the grounds of "operating underperformance" in recent years) and suggested that Union Pacific bring back former COO and precision scheduled railroading specialist Jim Vena to take the reins.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading, or PSR, if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial success at Canadian National and Canadian Pacific. Union Pacific is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Wide-moat Class I railroad Union Pacific's top line grew 8% year over year, not far off our forecast, on core pricing gains and higher fuel surcharges. Total yield grew 8%, while total volume was up less than 1%. Year-over-year revenue growth slowed from 18% in the third quarter due to unfavorable mix (higher international intermodal and weaker forest product volume), winter weather disruption, and softening U.S. industrial production, partly offset by new business wins.

While the stages have varied over the years, Class I railroad behemoth Union Pacific continues its long-running profitability improvement efforts. Since roughly 2018, all the rails have confronted the push to implement precision scheduled railroading if they hadn’t already. Shareholders have demanded it, motivated by PSR’s initial impressive impact at Canadian National and Canadian Pacific. UP is no exception, launching its own PSR efforts in late 2018. UP’s operating ratio (expenses/revenue) was in a better position than other railroads when its rollout started, but PSR has proved to be the surest path to greater network efficiency and higher incremental margins.

Wide-moat Class-I railroad Union Pacific's top line grew 18% year over year on core-pricing gains, higher fuel surcharges, and modest volume improvement. Growth came in slightly ahead of our forecast due to strong yields. Total volume (up 3%) was mostly in line, though intermodal activity fell short on softening parcel-related shipments.

The U.S. Class-I railroads and two remaining union holdouts struck a tentative labor agreement, averting what seemed to be an imminent strike. Recall that last month a White House-appointed Presidential Emergency Board, or PEB, put forth a nonbinding proposal, which split the difference between both sides' proposals down the middle. Until the Sept. 14 bargaining session, the two largest (of 12) railroad unions had yet to agree to a settlement. We understand the finalized agreement largely reflects the PEB's proposal, with the addition of a few sweeteners related to time off. The agreement will now enter the ratification process (approval from the rank and file), and during that time the unions have agreed not to strike.