Union Pacific Corporation (UNP) reported second-quarter 2014 adjusted earnings of $1.43 per share, beating the Zacks Consensus Estimate by a penny and surging 21% higher than the year-ago earnings of $1.18 per share. The improvement was aided by significant volume improvement and increased coal shipments.
Revenues increased 10.0% year over year to $6.015 billion in the second quarter, steering ahead of the Zacks Consensus Estimate of $5.982 million. The revenue growth was attributable to higher volumes as well as pricing gains. Volumes (carloads) grew 8% year over year. Average revenue per car rose 1% year over year.
Operating income grew 17% year over year to $2.2 billion. Operating expenses increased 6% year over year to $3,819 million in the quarter.
Operating ratio (defined as operating expenses as a percentage of revenue) improved 220 basis points (bps) year over year to 63.5%.
Segment Details
Agricultural revenues were $934 million, up 19% year over year. Business volumes increased 16% year over year and average revenue per car increased 2% year over year.
Automotive accounted for $545 million of total revenue, up 2% year over year. Business volumes were up 6% year over year and average revenue per car fell 4% year over year.
Chemical contributed $913 million in revenues, up 3% year over year. Volumes were down 1% year over year. Average revenue per car rose 4% year over year.
Coal revenues moved up 1% year over year to $989 million on 1% higher volumes. Average revenue per car also rose 1% year over year.
Industrial Products generated revenues of $1,130 million, up 16% year over year on 12% volume growth. Average revenue per car was up 3% year over year.
Intermodal segment revenues rose 16% year over year to $1,150 million and volumes were up 12% year over year. Average revenue per car was up 3% year over year.
Other revenues grew 12% year over year to $354 million.
Liquidity
Union Pacific exited the second quarter with cash and cash equivalents of $1,537 million, up from $1,432 million At the end of2013. Free cash flows were $267 million at the end of the second quarter of 2014 compared with $833 million in the same quarter a year ago.
Long-term debt was $10.4 billion in the second quarter versus $8.9 billion at year-end 2013. Adjusted debt-to-capitalization ratio increased to 38.4% from 37.6% at year-end 2013.
Share Repurchase
The company repurchased 8.3 million shares at an aggregate cost of $806 million during the reported quarter.
Our Analysis
The company’s pricing strategy, new business avenues and network efficiency improvement through enhanced safety, reliability and productivity were key factors that helped it to sail through operational difficulties.
Currently, Union Pacific retains a Zacks Rank #2 (Buy).
Other Stocks
Other well-placed stocks in this sector include Norfolk Southern Corp. (NSC), Kansas City Southern (KSU) and Canadian Pacific Railway Limited (CP), all with the same Zacks Rank #2.
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