Analyst Note| Matthew Young, CFA |
Wide moat Class-I railroad UNP’s third-quarter revenue grew 13% year over year (it was up 29% in the second quarter) on yield improvement and higher fuel surcharges—revenue came in slightly ahead of our forecast. Carload volume was roughly flat, which compares with the 22% increase posted in the second quarter that benefited from an easy pandemic comparison. Industrial sector demand remains positive, along with strong retail end market demand for intermodal, but auto carloads are still anemic due to the semiconductor shortage. Domestic and international intermodal grappled with network congestion, and grain fell on lower U.S. stocks. Average revenue per carload was up 12.5% on solid rate gains and favorable mix (lower intermodal, with higher industrial shipments). Core pricing continues to benefit from yield management and constrained capacity across most transportation modes. Management now expects full-year carload growth near 5% (7% previously). This is below our forecast, but largely offset by higher-than-expected yield gains.