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    UNP
    Earnings call· Mar 2025(Q1 FY25)

    UNION PACIFIC Q1 FY25 earnings call UNP

    Apr 24, 2025 Source

    Executive summary

    Union Pacific Q1 FY25 — Solid Start with Record Operating Performance Amidst Market Uncertainty

    Union Pacific reported a solid Q1 FY25, achieving record operating performance and the strongest carload growth among Class 1 railroads, despite significant headwinds from fuel, leap year, and unfavorable business mix. The company reiterated its long-term 3-year EPS CAGR targets, emphasizing its agile strategy and strong operational execution to navigate ongoing market uncertainties, particularly around tariffs and consumer spending. Management highlighted robust core pricing gains and continued focus on efficiency and service quality.

    Highlights

    5

    • Reported operating ratio was 60.7%, flat compared to last year, even with a 90 basis point headwind from fuel and leap year.

    • Delivered record first quarter operating performance.

    • Achieved the strongest carload growth of the Class 1s, with 7% volume growth.

    • Core pricing gains reached the highest quarterly level in the past 10 years.

    • First quarter cash from operations totaled $2.2 billion, up 4% versus last year.

    Concerns

    5

    • EPS of $2.70 reflects a $0.19 or 7% headwind from fuel and leap year.

    • Freight revenue increased 1% despite roughly $70 million impact of having 1 less day in the quarter.

    • Quarterly business mix combined with price for a 250 basis point drag on freight revenue.

    • Petroleum shipments decreased due to business shifts, and soda ash was impacted by weaker global demand.

    • Anticipate a slowdown in International Intermodal as we move through the second quarter, and expect decreased volume in the second half of the year due to higher comparisons.

    Guidance & targets

    4
    CategoryTargetConfidence
    EPS CAGR
    high single to low double-digit growth
    high materiality
    High
    Share Repurchases
    $4 billion to $4.5 billion
    high materiality
    High
    Other Revenue
    $325 million
    medium materiality
    Medium
    Cost per Employee
    up 4%
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Bulk
    Revenue growth driven by volume and core pricing gains, partially offset by business mix and lower fuel surcharge revenue.
    Volume: 2% increaseAverage revenue per car: 1% decreaseCoal: strong customer demand due to favorable natural gas pricingGrain products volume: up, driven by increased demand for feedstocksFood and beverage volume: declined, primarily driven by consumer preference
    		up 1%———
    Industrial
    Revenue decline due to business mix, lower fuel surcharges, and volume, partially offset by strong core pricing gains.
    Volume: 1% decreasePetroleum shipments: decreased due to business shiftsSoda ash: impacted by weaker global demandRock shipments: increased driven by strong customer demand and favorable weather conditions
    		down 1%———
    Premium
    Revenue growth driven by strong intermodal volumes, but average revenue per car decreased due to mix and lower fuel surcharges.
    Volume: 13% increaseAverage revenue per car: 7% decreaseMix impact: increased intermodal shipments and lower fuel surchargesIntermodal volumes: remained strong based on International West Coast import demandDomestic intermodal growth: positive, supported by business development effortsAutomotive volumes: declined due to reduced OEM production
    		up 5%———

    Operational metrics

    31
    EPS
    $2.70
    Q1 FY25

    Reported earnings per share.

    GAAP Net Income YoY Change
    essentially flatvs last year
    Q1 FY25

    Reported net income of $1.6 billion was essentially flat versus last year.

    Operating Expense YoY Change
    equaledvs last year
    Q1 FY25

    Operating expense of $3.7 billion equaled last year.

    GAAP Operating Income YoY Change
    consistentvs last year
    Q1 FY25

    First quarter operating income of $2.4 billion was consistent with last year.

    Other Expense Benefit
    $46 million
    Q2 FY24

    Benefit from the sale of intermodal equipment, which has now been lapped.

    Freight Revenue Growth
    1%YoY
    Q1 FY25

    Freight revenue increased 1% versus last year, despite a $70 million impact from one less day.

    Fuel Surcharge Revenue
    $565 milliondeclined $100 million
    Q1 FY25

    Impact of lower year-over-year fuel prices more than offset higher volume.

    Business Mix Impact on Freight Revenue
    250 basis point drag
    Q1 FY25

    Quarterly business mix combined with price resulted in a drag on freight revenue.

    Other Revenue
    $336 milliondeclined 19%
    Q1 FY25

    Included intermodal equipment sale, Metro transfer, reduced auto part shipments, lower accessorial revenue, and a one-time favorable contract settlement in Q1 2024.

    Compensation and Benefits Expense
    improved 1%YoY
    Q1 FY25

    Reduced workforce levels partially offset by wage inflation.

    Cost per Employee
    2% increase
    Q1 FY25

    Record quarterly workforce productivity limited the increase.

    Fuel Expense
    declined 8%YoY
    Q1 FY25

    Driven by an 11% decrease in fuel prices.

    Average Fuel Price
    $2.5111% decrease from $2.81
    Q1 FY25

    Average price per gallon.

    Purchase Services and Materials Expense
    increased 3%vs last year
    Q1 FY25

    Driven by inflation, volume-related costs, and a favorable 2024 item, partially offset by lower costs at a subsidiary.

    Equipment and Other Rents
    increased 12%
    Q1 FY25

    Driven by increased car hire for automotive racks, inflation, and demand in intermodal and other traffic.

    Interest Expense
    declined 1%YoY
    Q1 FY25

    On lower average debt levels, partially offset by a slightly higher effective interest rate.

    Share Repurchases Executed
    $1.5 billion
    Q1 FY25

    Initiated in February.

    Open Market Share Purchases
    $220 million
    Q1 FY25

    Additional purchases made in the quarter.

    Capital Returned to Shareholders
    $2.5 billion
    Q1 FY25

    Total cash returned to shareholders.

    Net Debt Increase
    $1.7 billion
    Q1 FY25

    Net debt increased in the quarter.

    Long-Term Debt Issued
    $2 billion
    Q1 FY25

    Issued during the quarter.

    Maturities Paid
    $350 million
    Q1 FY25

    Paid during the quarter.

    Adjusted Debt-to-EBITDA Ratio
    2.8x
    Q1 FY25

    At the end of the quarter, maintaining A-rated credit.

    Cash Balance
    $1.4 billion
    current

    Cash on the balance sheet today.

    AAR Carloadings Growth
    just over 7%YoY
    April

    Current carloadings for April.

    Fuel Consumption Rate Improvement
    1%
    Q1 FY25

    Improved during the quarter leveraging optimization tools.

    Locomotive Productivity
    improved 1%vs Q1 2024
    Q1 FY25

    Despite active locomotive fleet increasing only 3% against 7% volume growth.

    Active Locomotive Fleet Increase
    3%
    Q1 FY25

    Against a backdrop of 7% volume growth.

    Active Train Engine and Yard Workforce Decrease
    1%
    Q1 FY25

    Demonstrating excellent operating leverage against 7% volume growth.

    Train Length Growth
    2%vs Q1 2024
    Q1 FY25

    Despite lower intermodal volumes, leveraging Precision Train Builder.

    Mexico Market Share
    up a few points
    YTD

    Company feels good about its position in Mexico.

    Industry KPIs

    10
    MetricValueDetails
    Safetytied a quarterly record dating back to 2016
    Volume7%%
    Operating ratio60.7%%
    Service metrics93%%
    Network fluidity215 miles per daymiles/day
    Pricing vs rail inflationhighest quarterly level
    Fuel surcharge diesel price$565 millionUSD
    Intermodal truckload volume13%%
    Labor productivity headcount9%%
    Tariff trade policy revenue impactuncertainty remains a concern

    Deals & partnerships

    4
    Lower Colorado River AuthorityBegan moving volumes

    Began moving volumes earlier this month and will continue to ramp up throughout the month.

    Hyundai Steel CorporationJoined Union Pacific Rail network for first-ever U.S. steel mill

    New U.S. steel mill in Louisiana. Construction won't be complete for a few years, but is a positive result of current business development efforts.

    DowSupport expansion at Poly 7 facility

    Excited to support Dow's expansion later this year at their Poly 7 facility in Freeport, Texas.

    Lowe's with UberWon 6,000 over-the-road volumes

    Won 6,000 over-the-road volumes, demonstrating success in domestic intermodal conversions.

    Risks & headwinds

    10
    Fuel and leap year impact on OR and EPSQ1 FY25

    90 bps unfavorable impact on OR; $0.19 or 7% headwind on EPS

    Mitigation: Solid productivity gains and lower fuel costs offset volume-related costs.

    Business mix drag on freight revenueQ1 FY25

    250 bps drag

    Mitigation: Expect mix to moderate and potentially turn positive in H2.

    Lower fuel surcharge revenueQ1 FY25

    $100 million decline, 275 bps reduction to freight revenue

    Mitigation: Offset by higher volume and core pricing gains.

    Reduced auto part shipments at a subsidiary and lower accessorial revenueQ1 FY25

    Contributed to 19% decline in other revenue

    Mitigation: New estimate for other revenue at $325 million per quarter.

    Petroleum shipments decrease and soda ash weaker global demandQ1 FY25

    Contributed to 1% decrease in Industrial revenue/volume

    Mitigation: Partially offset by increased rock shipments. Expect petroleum to remain challenged, but industrial chemicals and plastics markets favorable.

    Automotive volumes decline due to reduced OEM productionQ1 FY25

    Caused decline in Premium segment

    Mitigation: Closely aligned with customers, providing guidance and solutions.

    Tariff uncertainty and potential changes impacting consumer spendingOngoing, particularly H2 FY25

    Discussed as a concern for automotive and overall consumer spending

    Mitigation: Proactively taking action, hustling to overcome obstacles, business development efforts.

    Slowdown in International Intermodal and decreased volume in H2 FY25Q2 and H2 FY25

    Expected slowdown in Q2, decreased volume in H2

    Mitigation: Optimistic about domestic intermodal growth from over-the-road conversions, strong service product, multiple channels to win.

    Volatility in natural gas prices impacting coal volumesNear term, H2 FY25

    Coal volumes expected to remain strong in near term but subject to volatility

    Mitigation: Remain agile, able to capture business.

    Continued challenges for food and beverage, especially U.S. beer market weaknessExpected to continue

    Declined in Q1

    Mitigation: Intense focus on business development to mitigate market uncertainties.

    What to watch in Q2 FY25

    5

    International Intermodal volume trend

    Q2 FY25, H2 FY25
    Currentremained strong in Q1
    TargetSlowdown in Q2, decreased volume in H2

    Why it matters

    Significant impact on Premium segment revenue and overall volume mix, especially given tariff uncertainties.

    On the intermodal side, we anticipate a slowdown in International Intermodal as we move through the second quarter, and we expect decreased volume in the second half of the year due to the higher comparisons as customers diversify back to East Coast and Canadian ports.

    Q&A highlights

    6

    Asked for more specific framework around 2025 EPS/OR outcomes given market uncertainty, despite reiteration of 3-year targets.

    Jim Vena reiterated commitment to 3-year guidance (high single to low double-digit EPS CAGR), acknowledging increased market fluidity (tariffs, economy, consumer behavior). Stated that April carloads and mix are strong, and the company is well-positioned to react to changes, but it's too early to give specific full-year numbers beyond the long-term targets.

    “At this point, it's a day-to-day, week-to-week reaction of what's happening out in the marketplace. So that's why, Chris, we're sticking to our 3-year guidance.”

    asked by Christian Wetherbee · answered by Vincenzo Vena

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 Performance Overview

    Union Pacific reported a solid start to 2025 with a Q1 operating ratio of 60.7%, flat year-over-year despite a 90 basis point headwind from fuel and the leap year. EPS was $2.70, impacted by a $0.19 headwind. Freight revenue grew 1% (4% excluding fuel surcharge) driven by 7% volume growth, but offset by unfavorable business mix and lower fuel surcharge revenue. The company achieved record first quarter operating performance and the strongest carload growth among Class 1 railroads.

    02

    Revenue Drivers and Mix Impact

    Freight revenue of $5.7 billion increased 1%, with strong volume growth adding 650 basis points. However, lower fuel surcharge revenue ($565 million, down $100 million) reduced freight revenue by 275 basis points. Robust core pricing gains, the highest in 10 years, were offset by a 250 basis point drag from business mix, including increased intermodal and coal volumes (lower average revenue per car) and decreased petroleum, soda ash, and finished vehicle volumes (higher average revenue per car).

    03

    Operational Efficiency and Productivity

    The company saw meaningful improvements across nearly all operating metrics. Freight car velocity improved 6% to a record 215 miles per day, and terminal dwell improved 6% year-over-year. Workforce productivity improved 9%, with active train engine and yard workforce decreasing 1% despite 7% volume growth. Train length grew 2%, leveraging technologies like Precision Train Builder.

    04

    Market Outlook and Agility

    Management acknowledged significant market uncertainty🌐 due to tariffs, the economy, interest rates, and consumer spending. They anticipate a slowdown in International Intermodal in Q2 and H2 due to higher comparisons and customer diversification to East Coast/Canadian ports. However, domestic intermodal growth is expected from over-the-road conversions. The company emphasizes agility and responsiveness, with April carloadings up over 7% and strong service metrics.

    05

    Pricing Strategy and Sustainability

    Union Pacific achieved its highest quarterly core pricing level in 10 years, which was accretive to its operating ratio. This is attributed to a deliberate focus on maximizing price, supported by a strong service product and network investments. Management expects this pricing mindset to be sustainable, leveraging service performance and customer partnerships, and believes there is more opportunity for accretive pricing going forward⏳.

    06

    Capital Deployment and Balance Sheet

    First quarter cash from operations was $2.2 billion, up 4%. The company returned $2.5 billion to shareholders, including $1.5 billion through an accelerated share repurchase program and $220 million in open market purchases. Net debt increased by $1.7 billion, with $2 billion of long-term debt issued and $350 million in maturities paid, resulting in an adjusted debt-to-EBITDA ratio of 2.8x.

    AI-generated summary of the company’s earnings call. Not investment advice.