Union Pacific Corporation
) reported second quarter 2012 adjusted earnings of $2.10 per
share, surpassing the Zacks Consensus Estimate of $1.96 as well as
the year-ago earnings of $1.59. Better-than-expected earnings came
on the back of increased cargo hauling despite weaker coal
Revenues of $5,221 million came below the Zacks Consensus
Estimate of $5,236 million but grew 7% year over year from $4,858
million on higher revenues through pricing gains and improved fuel
surcharges. Volume growth from Automotive, Chemicals, Industrial
Products and Intermodal also aided revenue growth, compensating for
the lackluster performance by Coal (and formerly know as Energy)
On a year-over-year basis, freight revenues for
Chemicals, Intermodal and Agriculture
increased 25%, 14%, 13%, 10%, and 1%, respectively.
revenues were down 9%. Total volumes remain flat year over year at
2.2 million units and average revenue per car increased 6% year
Operating income leaped 24% year over year to $1,724 million in
the second quarter.
Operating expenses inched up 1% year over year to $3,497
million. Operating ratio (defined as operating expenses as a
percentage of revenue) improved 430 bps year over year to 67% in
the reported quarter.
Union Pacific exited the second quarter of 2012 with cash and
cash equivalents of $1,201 million, up from $ 1,055 million in the
same quarter a year ago. Free cash flow was $319 million at the end
of the second quarter versus $900 million in the year ago
Long-term debt edged down to $8.6 billion in the second quarter
from $8.7 billion in December 31, 2011. Adjusted
debt-to-capitalization ratio decreased to 40.6% from 40.7% at
year-end 2011. Further, the company repurchased $3.8 million shares
in the reported quarter.
Union Pacific continues to deliver strong results across most of
its business groups including automotive, chemicals, Intermodal and
industrial products, driven by the ongoing productive and
However, near-term growth for Union Pacific is expected to be
tempered by lower coal and agriculture volumes that will likely
weigh on top-line growth going forward. Further, stiff competition
from major rivals like
Norfolk Southern Corp.
), unionized workforce, steeply rising fuel prices, increased
railroad regulation as well as high barriers to entry might limit
the potential upside for the stock.
We have a Zacks #2 Rank (short-term Buy recommendation) on Union
Pacific. We also reiterate our long-term Neutral rating on the
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