Skip to content
    UNP
    Earnings call· Jun 2026(Q2 FY26)

    UNION PACIFIC CORP UNP

    Jul 23, 2026 Source

    Executive summary

    Union Pacific Q2 FY26 — Record Results Driven by Strong Execution and Volume Growth

    Union Pacific reported record Q2 FY26 financial results, driven by strong execution, 2% volume growth, and effective cost management despite fuel price volatility and wage inflation. The company raised its full-year EPS growth outlook, emphasizing its capacity to handle increased demand and its commitment to the proposed merger with Norfolk Southern, which is seen as a compelling growth opportunity for the industry. A significant merger settlement agreement was reached with Canadian National, addressing competitive concerns and enhancing network access for both parties.

    Highlights

    7

    • Reported record financial results driven by strong execution and 2% volume growth.

    • Net income totaled $2 billion and adjusted EPS grew to $3.41.

    • Operating ratio improved by 10 basis points (adjusted for fuel and one-timers).

    • Freight revenue grew 12% to $6.5 billion, or 4% excluding fuel surcharge, both record highs.

    • Domestic Intermodal delivered its fourth consecutive record quarter in both volume and revenue.

    • Workforce productivity delivered 8 consecutive quarters of record results.

    • Full-year 2026 reported EPS growth outlook raised to high single-digit range.

    Concerns

    4

    • Coal volume was challenged by weaker natural gas prices, mild weather, and customer downtime, leading to a 1% decline in Bulk segment volume.

    • Fuel prices remain volatile, with recent purchases over $4 a gallon, adding 120 basis points to the operating ratio.

    • Compensation per employee is expected to increase around 6% for the full year due to wage inflation and higher health and welfare costs.

    • Business mix was a slight headwind in the quarter as strong growth in domestic intermodal outpaced international intermodal traffic.

    Guidance & targets

    3
    CategoryTargetConfidence
    Full year compensation per employee increase
    around 6%
    medium materiality
    High
    Reported EPS growth
    high single-digit range
    high materiality
    High
    Operating ratio improvement
    continue delivering
    high materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Bulk
    Grain and grain products growth driven by strong export demand, facility expansions, and renewable fuels. Coal volume was adversely impacted by weaker natural gas prices, mild weather, and customer downtime.
    Volume: 1% declineGrain and grain products volume growth: double-digitCoal volume: challenged
    		up 7%———
    Industrial
    Strong core pricing gains delivered record freight revenue and average revenue per car. Petrochemicals and Metals & Minerals showed strength, offsetting ongoing weakness in the export soda ash market.
    Volume: 3% increaseFreight revenue: record (ex-fuel surcharge)Average revenue per car: recordPetrochemicals growth: driven by improved demand and new businessMetals & Minerals volumes: rose on higher domestic steel production and business development wins
    		up 8%———
    Premium
    Revenue growth driven by higher fuel surcharge, core pricing, and improved business mix. Domestic Intermodal benefited from constrained truck capacity and share gains. International Intermodal saw improvement towards quarter-end due to stronger West Coast import volumes. Automotive results were positive despite market softness due to strong business development.
    Volume: 4% increaseAverage revenue per car: 16% increaseDomestic Intermodal: fourth consecutive record quarter in both volume and revenuePrivate asset, rail asset and parcel volumes: up double digitsInternational Intermodal volume: down 14% versus last year
    		increased 21%———

    Operational metrics

    33
    Net income
    $2 billionrecord
    Q2 FY26

    Record financial results driven by strong execution and 2% volume growth.

    Adjusted EPS
    $3.41grew
    Q2 FY26

    Earnings per share after adjusting for merger costs.

    Adjusted Operating Ratio Improvement
    10better
    Q2 FY26

    When removing fuel and one-timers, saw solid core improvement in operating ratio.

    Operating revenue
    $6.9 billionincreased 12% versus last year
    Q2 FY26

    Operating revenue increased 12% versus last year.

    Freight revenue
    $6.5 billiongrew 12%
    Q2 FY26

    Freight revenue grew 12% to $6.5 billion, or 4% excluding fuel surcharge, both record highs.

    Volume growth contribution to freight revenue
    225
    Q2 FY26

    Volume growth added 225 basis points to freight revenue.

    Fuel surcharge revenue contribution to freight revenue
    750
    Q2 FY26

    Fuel surcharge revenue added 750 basis points to freight revenue.

    Fuel surcharge revenue increase
    $460 millionincreased
    Q2 FY26

    Reflecting the impact of higher year-over-year fuel prices and volume.

    Core pricing and business mix contribution to freight revenue
    175
    Q2 FY26

    Solid core pricing combined with business mix to drive 175 basis points of freight revenue improvement.

    Other revenue
    $346 millionincreased 11%
    Q2 FY26

    As higher volume drove increases in both subsidiary and accessorial revenue.

    Total operating expenses
    $4.1 billionincreased 13%
    Q2 FY26

    Primarily from higher diesel fuel prices.

    Compensation and benefits expense
    1%improved
    Q2 FY26

    Excluding the buyout agreement, cost per employee increased 7%.

    Cost per employee increase (adjusted)
    7%increased
    Q2 FY26

    Driven by higher wage and benefit costs.

    Fuel expense growth
    63%
    Q2 FY26

    On a 60% increase in average fuel price and 2% higher gross ton miles.

    Average fuel price per gallon
    $3.86grew from $2.42
    Q2 FY26

    Year-over-year, our price per gallon grew from $2.42 to $3.86.

    Fuel price impact on operating ratio
    120
    Q2 FY26

    Added 120 basis points to our operating ratio.

    Purchased services and material expense
    10%increased
    Q2 FY26

    Due to merger-related costs as well as higher intermodal and subsidiary expenses.

    Equipment and other rents
    7%reduction
    Q2 FY26

    Despite increased volume, fewer operating equipment leases and record second quarter cycle times drove a 7% reduction.

    Other expense
    13%grew
    Q2 FY26

    On higher casualty costs.

    Income tax expense
    29%increased
    Q2 FY26

    Reflecting last year's onetime $115 million deferred state tax benefit and higher pretax income this year, partially offset by some good news in 2026 from state taxes.

    Reported EPS
    $3.36record
    Q2 FY26

    Record reported earnings per share.

    Operating ratio (adjusted for fuel noise)
    58%
    Q2 FY26

    If you remove all the noise (fuel impact), the operating ratio was 58%.

    Long-term debt paid down
    $1.5 billion
    H1 FY26

    Paid down $1.5 billion of long-term debt in the first half of the year.

    Adjusted debt-to-EBITDA ratio
    2.5x
    Q2 FY26

    Resulting in an adjusted debt-to-EBITDA ratio of 2.5x.

    Reported EPS growth
    6%
    YTD FY26

    Generated reported earnings per share growth of 6% year-to-date, in line with January outlook.

    Car orders fulfillment
    100%
    Q2 FY26

    Car orders are being fulfilled at 100%.

    International intermodal volume growth
    33%increase
    last year

    Last year saw a 33% increase in international intermodal volume, which was handled well.

    Industrial development pipeline (RFIs)
    200
    current

    Approximately 200 industrial development RFIs are currently in the pipeline.

    Houston complex investment
    $125 million
    ongoing

    More than $125 million has been invested in the Houston complex for strategic capacity.

    Unionized wages increase
    75%
    effective July 1

    Unionized wages increased by 75% effective July 1, contributing to higher compensation costs. (Note: This figure is likely an ASR error, 7.5% or 0.75% is more probable given context of overall 6% comp per employee increase.)

    Recrew rate
    4.5%2 whole points better than last year
    Q2 FY26

    The recrew rate dropped to 4.5% in the quarter, a 2-point improvement year-over-year.

    Run through dwell
    8%down
    Q2 FY26

    Run through dwell was down 8%.

    Active train engine and yard workforce
    2%decreased
    Q2 FY26

    The active train engine and yard workforce decreased 2%, demonstrating discipline in managing resources more than volume variably.

    Industry KPIs

    10
    MetricValueDetails
    Safetyimproved
    Volume2%%
    Operating ratio59.2%%
    Service metrics95%%
    Network fluidity231miles/day
    Merger synergy metricsaccepted as complete
    Pricing vs rail inflationexceed inflation dollars
    Fuel surcharge diesel price$3.86USD/gallon
    Intermodal truckload volume4%%
    Labor productivity headcount5%%

    Deals & partnerships

    2
    Norfolk SouthernProposed transcontinental railroad merger

    Expanded competitive nature through committed gateway pricing and other voluntary commitments. Aims to create seamless single-line service, better reliability, lower cost, and greater competition against trucks and other railroads. Seen as a growth deal for the country.

    Canadian NationalMerger settlement agreement and commercial agreement

    Agreement clears up ownership of Kansas City terminal and TRRA. Allows Canadian National access between St. Louis and Kansas City, providing optionality to customers and addressing 2:1/3:2 overlap. Also grants CN access to Mexico via UP network. In return, UP gains better access through Chicago (east-west) for seamless interchange connections and run-through trains. Seen as a win-win for both companies, enabling increased traffic and competitiveness.

    Risks & headwinds

    4
    Coal market weaknessQ2 FY26, expected to continue in H2 FY26

    1% volume decline in Bulk segment

    Mitigation: Team can quickly flex to handle shifts in volume; business wins helping to offset market-driven declines.

    Fuel price volatilityOngoing

    Recent purchases over $4 a gallon; added 120 basis points to operating ratio in Q2.

    Mitigation: Confident in margin improvement despite headwinds; focus on fuel efficiency and productivity; nimble response to market changes.

    Wage inflationFull-year 2026

    Cost per employee increased 7% (excluding buyout); full-year compensation per employee expected to increase around 6%.

    Mitigation: Workforce productivity (up 5%) and operational efficiencies (e.g., train length, car velocity) are offsetting wage inflation.

    Business mix headwindQ2 FY26, potentially continuing in H2 FY26

    Slight headwind in Q2 FY26.

    Mitigation: Domestic intermodal is a great business, handled well, and provides strong contribution.

    What to watch in Q3 FY26

    5

    STB merger approval timeline

    Next quarter
    CurrentApplication accepted May 28; supplemental info due Monday
    TargetFormalized list of demands and hearing schedule

    Why it matters

    The merger is a key strategic initiative for long-term growth and competitive positioning, and its approval timeline is critical for investment thesis.

    Where do you think we land on in the procedural schedule where we get to the point where you see the more formalized list of demands for some of the competitors that oppose the merger. And ultimately, those -- the hearings where we discuss that live with the regulator.

    Q&A highlights

    5

    Clarify the $0.14 fuel gain and elaborate on the commercial agreement with Canadian National, specifically regarding EJ&E access and network implications.

    Jennifer clarified the $0.14 fuel gain was the net benefit from expense vs. surcharge, despite a 120 bps OR headwind. Jim detailed the CN agreement: it resolves TRRA/Kansas City ownership, grants CN St. Louis-KC access (addressing 2:1/3:2 overlap), and provides CN Mexico access via UP. In return, UP gains better Chicago east-west access, framing it as a win-win growth opportunity.

    “It's a win-win. It's a win for Union Pacific. And it's also a great position for Canadian National. I think it's a deal that is going to help both of us be able to increase traffic from both of us because of what we're able to take off the roads and move more of that on the rail.”

    asked by Ken Hoexter · answered by Vincenzo Vena

    2 min read4 chapters

    Detailed Narrative

    01

    Merger with Norfolk Southern Update

    The Surface Transportation Board (STB) accepted Union Pacific's merger application as complete on May 28, and supplemental information will be submitted on Monday. The company has further improved the competitive nature of the merger through an expansion of committed gateway pricing and other voluntary commitments. Management asserts the merger will create a stronger rail industry with better service, reliability, lower costs, and increased competition against trucks, believing the transaction is in the public interest and will deliver significant benefits for stakeholders.

    02

    Agreement with Canadian National

    Union Pacific reached a merger settlement agreement with Canadian National (CN). This agreement clarifies ownership of the Kansas City terminal and TRRA, and allows CN access between St. Louis and Kansas City, providing optionality to customers and addressing potential 2:1 and 3:2 customer overlap concerns. Additionally, CN gains access to Mexico via the UP network, while UP secures better east-west access through Chicago. This is viewed as a win-win, growth-oriented deal that enhances competitiveness for both railroads.

    03

    Operational Excellence and Efficiency

    The company delivered record second-quarter operating performance, maintaining a fluid network and improving safety while handling 2% more volume. Key achievements include a 5% increase in freight car velocity to a record 231 miles per day, a 7% improvement in terminal dwell to a record 19.7 hours, and a 5% increase in workforce productivity. Train length grew 2%, and the active train engine and yard workforce decreased 2%, demonstrating discipline in managing resources more than volume variably.

    04

    Industrial Development and Capacity

    Union Pacific maintains a strong industrial development pipeline with approximately 200 requests for information (RFIs), indicating robust opportunities for new customer locations and plant expansions. Strategic capacity investments, such as over $125 million in the Houston complex, Pacific Northwest siding extensions, and Sunset double track projects, ensure the network is poised to handle future growth. The company emphasizes its ability to onboard incremental volume efficiently by leveraging existing train starts and maintaining buffer resources.

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