The U.S. freight railroad giant Union Pacific Corp. (UNP) reported record breaking financial results for the third quarter of 2011. Quarterly net income was a historic-high at $904 million or $1.85 per share compared with a net income of $778 million or $1.56 per share in the year-ago quarter. The second-quarter EPS of $1.85 easily beat the Zacks Consensus Estimate of $1.81.
Total operating revenue, in the third quarter of 2011, was $5,101 million, up 16% year over year, better than the Zacks Consensus Estimate of $4,996 million. Within this, total Freight revenue was $4,836 million, up 16% year over year. Quarterly Freight revenue of all the six business groups increased in the reported quarter.
Quarterly operating ratio (operating expenses as a percentage of total revenue) was 69.1%. Although it was worse than the year-ago quarter’s ratio of 68.2%, it improved significantly from the previous quarter's level of 71.3%. The year-over-year decline is mainly attributable to higher fuel price that was up 42%.
Quarterly business volume (measured by total revenue carloads) was 2.341 million, up 1% year over year. Four out of six business groups of Union Pacific posted volume growth in the previous quarter. The two notable exceptions were the Intermodal segment and Agricultural segment.
Quarterly Consumer Satisfaction Index was 91% compared with 90% in the year-ago quarter. Operating expenses in the third quarter of 2011 were $3,523 million, up 17% year over year. Quarterly operating income was $1,578 million, up 13% year over year.
In the reported quarter, average revenue per rail car was $2,066, up 14% year over year. During the third quarter of 2011, Union Pacific repurchased around 4.7 million of its own shares for a total consideration of approximately $428 million.
During the first nine months of 2011, Union Pacific generated $4,334 million of cash from operations compared with $2,720 million in the year-ago period. Free cash flow during the reported period was $2,116 million compared with $1,034 million in the year-ago period.
At the end of the third quarter of 2011, Union Pacific had $1,647 million of cash and cash equivalents on its balance sheet compared with $1,086 million at the end of fiscal 2010. Total debt, at the end of the reported quarter, was $9,407 million compared with $9,242 million at the end of fiscal 2010. Debt-to-capitalization ratio at the end of the third quarter of 2011 was 0.32 compared with 0.34 at the end of fiscal 2010.
Segment Wise Revenue
Agricultural revenue was $814 million, up 9% year over year. Automotive revenue was $379 million, up 23% year over year. Chemicals revenue was $720 million, up 14% year over year. Energy revenue was $1,112 million, up 21% year over year. Industrial Products revenue was $863 million, up 24% year over year. Intermodal revenue was $948 million, up 8% year over year. Quarterly Other revenue was $265 million, up 20% year over year.
Our Recommendation
We maintain our long-term Neutral recommendation on Union Pacific. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock. Union Pacific competes with other freight railroad operators in the U.S., such as KansasCity Southern (KSU), CSX Corp. (CSX), and Norfolk Southern Corp. (NSC).
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