Union Pacific Corporation (UNP) reported third-quarter 2014 adjusted earnings of $1.53 per share, beating the Zacks Consensus Estimate of $1.51 and surging 23% over the year-ago earnings of $1.24 per share. Results were aided by significant volume improvement and increased coal revenues.
Revenues increased 11% year over year to $6.2 billion in the third quarter, ahead of the Zacks Consensus Estimate of $6.1 billion. Revenue growth was attributable to higher volumes as well as pricing gains. Volumes (carloads) grew 7% year over year. Average revenue per car climbed 3% year over year.
Operating income grew 19% year over year to $2.3 billion. Operating expenses increased 7% year over year to $3.9 billion in the quarter.
Operating ratio (defined as operating expenses as a percentage of revenue) improved 250 basis points (bps) year over year to 62.3%.
Segment Details
Agricultural revenues were $915 million, up 19% year over year. Business volumes increased 14% year over year and average revenue per car rose 4% year over year.
Automotive accounted for $527 million of total revenue, up 3% year over year. Business volumes were up 5% year over year and average revenue per car fell 1% year over year.
Chemical contributed $936 million in revenues, up 6% year over year. Volumes were up 2% year over year. Average revenue per car rose 4% year over year.
Coal revenues moved up 2% year over year to $1.1 billion, while volumes remained flat year over year. Average revenue per car also rose 2% year over year.
Industrial Products generated revenues of $1.2 billion, up 19% year over year on 12% volume growth. Average revenue per car was up 7% year over year.
Intermodal segment revenues rose 15% year over year to $1.2 billion and volumes were up 10% year over year. Average revenue per car was up 4% year over year.
Other revenues grew 12% year over year to $363 million.
Liquidity
Union Pacific exited the third quarter with cash and cash equivalents of $1,887 million, up from $1,432 million at the end of 2013. Free cash flows were $847 million at the end of the third quarter of 2014, compared with $1.3 billion in the year-ago quarter.
Long-term debt stood at $11 billion in the third quarter versus $8.9 billion at year-end 2013. Adjusted debt-to-capitalization ratio increased to 40.2% from 37.6% at year-end 2013.
Share Repurchase
The company repurchased 8.3 million shares at an aggregate cost of $856 million during the reported quarter.
Our Analysis
The company’s pricing strategy, new business avenues and improved network efficiency, backed by enhanced safety, reliability and productivity, were the 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 CSX Corp. (CSX), all carrying Zacks Rank #2.
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