Union Pacific Corporation
) reported third quarter fiscal 2012 adjusted earnings of $2.19
per share, surpassing the Zacks Consensus Estimate by a penny and
the year-ago earnings of $1.85. Despite weaker coal volumes and
subdued metal market, the company's earnings mainly benefited
from pricing gains, operational efficiency and growth across
other product lines.
Revenues of $5,343 million came below the Zacks Consensus
Estimate of $5,384 million but grew 5% year over year on higher
freight revenues based on core pricing gains of 5%. Higher
volumes from Chemicals, Automotive and Intermodal compensated for
declines in Coal and Agricultural and volumes.
On a year-over-year basis, freight revenues for
Intermodal, Industrial Products
increased 17%, 15%, 8% and 2%, respectively.
Coal and Agricultural
revenues were down 5% and 4%, respectively. Total volumes
remained flat year over year at 2.3 million units and average
revenue per car increased 4% year over year.
Operating income leaped 13% year over year to $1,786 million
in the third quarter. Operating expenses inched up 1% year over
year to $3,557 million. Operating ratio (defined as operating
expenses as a percentage of revenue) improved 250 bps year over
year to 66.6% in the reported quarter.
Union Pacific exited the third quarter of 2012 with cash and
cash equivalents of $1,130 million, down from $1,647 million in
the same quarter a year ago. Free cash flow was $640 million at
the end of the third quarter versus $1,486 million in the
Long-term debt stood at $8.77 billion in the third quarter
from $8.69 billion in December 31, 2011. Adjusted
debt-to-capitalization ratio decreased to 40.2% from 40.7% at
year-end 2011. Further, the company repurchased 3.1 million
shares worth $378 million in the reported quarter.
Union Pacific continues to deliver strong results across most
of its business groups including automotive, chemicals,
Intermodal and industrial products alongside strong productivity
and cost-control measures.
However, the 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 its major rivals like
Norfolk Southern Corp.
), unionized workforce and increased railroad regulation might
limit the potential upside for the stock.
We have a Zacks #3 Rank (short-term Hold rating) on Union
Pacific. We also reiterate our long-term Neutral recommendation
on the stock.
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