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Union Pacific Corp UNP

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Economic Moat




Pandemic Derails Union Pacific’s Carloads, but PSR Helps Shield Margins

Matthew Young, CFA Equity Analyst

Analyst Note

| Matthew Young, CFA |

Wide-moat Class-I railroad Union Pacific’s second-quarter top line plummeted a painful 24% year over year. As we expected, pandemic-related disruption appeared in full force, pummeling carloads across all end markets including bulk, industrial, and premium. Hardest hit were automotive (OEM shut downs), coal (low cost natural gas; reduced power consumption), and intermodal (soft imports; truckload competition). Crude and frac sand were also down materially on energy end market pressure. Overall, total carloads fell 20%, while average revenue per carload declined 6%. RPC headwinds likely stem from fuel and mix, though we suspect core pricing remains healthy and above rail inflation. On a positive note, carload activity probably bottomed in May, with sequential improvement in June as the U.S. economy began to reopen. Management expects full-year 2020 carloads to fall by about 10%, pointing to continued sequential gains. 

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Company Profile

Business Description

Omaha, Nebraska-based Union Pacific is the largest public railroad in North America. Operating on more than 30,000 miles of track in the western two thirds of the U.S., UP generated $22 billion of revenue in 2019 by hauling coal, industrial products, intermodal containers, agriculture goods, chemicals, and automotive goods. UP owns about one fourth of Mexican railroad Ferromex and derives about 10% of its revenue hauling freight to and from Mexico.

1400 Douglas Street
Omaha, NE, 68179
T +1 402 544-5000
Sector Industrials
Industry Railroads
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2019
Stock Type High Yield
Employees 33,872