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.