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Union Pacific Corp Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- Net income in Q4 was $1.8 billion, and EPS was $2.91, both 7% improvements.
- Fuel expense decreased by 23% on a 24% YoY falloff in fuel prices from $3.16 to $2.41 per gallon.
- The adjusted debt-to-EBITDA ratio finished the year at 2.7 times, maintaining a strong balance sheet and A rating by credit agencies.
- Premium revenue for Q4 was up 3% on a 13% increase in volume and a 9% decrease in average revenue per car, reflecting increased intermodal shipments and lower fuel surcharges.
- Industrial revenue was up 1% in Q4, but volume remained flat.
- Equipment and other rents expense increased by 8% due to inflation and volume-related growth in the intermodal business.
- The intermodal service performance index declined by 7 points YoY.
- Coal continued to experience the same challenges seen throughout the year as demand remained soft due to high inventory levels and the competition from low natural gas prices.
- Housing starts are expected to remain challenged.
- The company expects the combination of activities to drive volume, price, and productivity to deliver EPS growth for the full year, consistent with attaining the three-year Investor Day CAGR of high-single to low double-digit growth.
- The company expects to achieve industry-leading results.
- The company expects continued strength in grain products, driven by intense business development and the expanding markets for renewable fuels and the associated feedstocks.
- The company expects some benefit if natural gas prices increase.
Q&A Highlights from Union Pacific Corp Earnings Call Q4 2024
- Analyst asked about specific areas where Union Pacific has experienced additional red tape, and how reduced regulatory burden could benefit the company.
- Eric Gehringer, CFO, explained that the company has applied for several waivers related to technology implementations that would improve efficiency and service. He also mentioned that there are a number of waivers that have been outstanding for years, and the company is hopeful that these will be approved with the change in federal regulations.
- Eric Gehringer, CFO, explained that the company has applied for several waivers related to technology implementations that would improve efficiency and service. He also mentioned that there are a number of waivers that have been outstanding for years, and the company is hopeful that these will be approved with the change in federal regulations.
- Analyst asked about the impact of potential tariffs on Union Pacific's business, specifically regarding cross-border volumes and the company's position in Mexico.
- Management responded that they are prepared to react to any changes in the business environment, including tariffs, and that they have a strong balance sheet, marketing team, and operations to handle any challenges. They also mentioned that they are hoping for a negotiated solution to avoid increasing prices for consumers.
- Management responded that they are prepared to react to any changes in the business environment, including tariffs, and that they have a strong balance sheet, marketing team, and operations to handle any challenges. They also mentioned that they are hoping for a negotiated solution to avoid increasing prices for consumers.
- Analyst asked about the opportunity for pricing growth in the coming year, particularly in terms of service recovery and inflation.
- Management stated that they are seeing some pull-ahead in international intermodal volumes, and that they are walking into January with strong numbers. However, they noted that it is premature to make a strong forecast about pricing growth, as they have tough comps in the second half of the year. They emphasized that they are price accretive and expect to be so in 2025, with a focus on providing a strong service product and aligning pricing with the service they have sold.
- Management stated that they are seeing some pull-ahead in international intermodal volumes, and that they are walking into January with strong numbers. However, they noted that it is premature to make a strong forecast about pricing growth, as they have tough comps in the second half of the year. They emphasized that they are price accretive and expect to be so in 2025, with a focus on providing a strong service product and aligning pricing with the service they have sold.
- Analyst asked about the regulatory environment and the company's relationship with the STB.
- The company has a strong relationship with the STB and is working to provide good service to customers. The STB deals with mergers and acquisitions and the company hopes for quicker decisions. The company is comfortable with the relationship and will continue to be transparent about its operations.
- The company has a strong relationship with the STB and is working to provide good service to customers. The STB deals with mergers and acquisitions and the company hopes for quicker decisions. The company is comfortable with the relationship and will continue to be transparent about its operations.
- Analyst asked about the cadence of operating ratio (OR) into the first quarter.
- The company sees a 150-basis-point deterioration in OR in the first quarter due to seasonal factors such as beginning of year costs, payroll taxes, and weather expenses. The company is pleased with the way the railroad started in terms of volume demand and fluidity but doesn't expect anything unusual in terms of seasonality.
- The company sees a 150-basis-point deterioration in OR in the first quarter due to seasonal factors such as beginning of year costs, payroll taxes, and weather expenses. The company is pleased with the way the railroad started in terms of volume demand and fluidity but doesn't expect anything unusual in terms of seasonality.
- Analyst asked about the company's visibility into changes in mix within categories and how they will impact volume growth in the year.
- The company is not providing volume guidance for the full year or on a quarterly basis. However, they expect to be well-positioned with a strong service product and a focus on winning new business. The mix pressure in the back half of the year will be alleviated by international intermodal, but it will depend on market forces and other components.
- The company is not providing volume guidance for the full year or on a quarterly basis. However, they expect to be well-positioned with a strong service product and a focus on winning new business. The mix pressure in the back half of the year will be alleviated by international intermodal, but it will depend on market forces and other components.
- Analyst asked about the company's operating leverage and how it will affect their ability to exceed the low-double-digit band.
- The company is confident in their ability to exceed the low-double-digit band, but they are not providing specific guidance. They have a strong team, including Eric and Kenny, who are working on operating leverage and customer leverage, and they are seeing positive results in their grain products area, petrochem business, and automotive market. They also have a strong history of supporting Kenny's efforts in the market, with proof statements such as international intermodal, the shift on the grain side away from the Pacific Northwest, and the Houston/Gulf Coast projects.
- The company is confident in their ability to exceed the low-double-digit band, but they are not providing specific guidance. They have a strong team, including Eric and Kenny, who are working on operating leverage and customer leverage, and they are seeing positive results in their grain products area, petrochem business, and automotive market. They also have a strong history of supporting Kenny's efforts in the market, with proof statements such as international intermodal, the shift on the grain side away from the Pacific Northwest, and the Houston/Gulf Coast projects.
- Analyst asked about Union Pacific's assumptions on the truckload market and whether they expect to see some help from contract increases in trucking.
- Kenny G. Rocker, Chief Marketing Officer, explained that the company has been resistant to making forecasts about the truckload market, but that they are seeing positive signs in data points such as DAC and FTR, and customer sentiment is also improving. They will continue to monitor the market and make adjustments as needed.
- Kenny G. Rocker, Chief Marketing Officer, explained that the company has been resistant to making forecasts about the truckload market, but that they are seeing positive signs in data points such as DAC and FTR, and customer sentiment is also improving. They will continue to monitor the market and make adjustments as needed.
- Analyst asked about the drivers of the company's international intermodal business, specifically the impact of lower revenue per unit and the competitive environment.
- Jennifer L. Hamann, Chief Financial Officer, explained that the company's international intermodal business has the lowest revenue per unit of any commodity they haul, and that fuel prices have also been a factor. They are working to improve efficiency and productivity in this area, and have made progress in reducing terminal dwell, car speed, and car velocity, among other things.
- Jennifer L. Hamann, Chief Financial Officer, explained that the company's international intermodal business has the lowest revenue per unit of any commodity they haul, and that fuel prices have also been a factor. They are working to improve efficiency and productivity in this area, and have made progress in reducing terminal dwell, car speed, and car velocity, among other things.
- Analyst asked about the service gains that Union Pacific has made in the network and how they relate to the company's comments about volume outpacing the market this year.
- Kenny G. Rocker, Chief Marketing Officer, explained that service gains, including business development wins, have been a significant factor in the company's ability to outpace the market, especially in areas like automotive and renewable diesel, where they have been ahead of the curve.
- Kenny G. Rocker, Chief Marketing Officer, explained that service gains, including business development wins, have been a significant factor in the company's ability to outpace the market, especially in areas like automotive and renewable diesel, where they have been ahead of the curve.
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