QUOTE AND NEWS
Insurance Journal  10 hrs ago  Comment 
A deadly head-on train collision in Arkansas proves more needs to be done to improve safety, but implementing fixes industrywide likely won’t occur before a federal deadline, a transportation expert said. Two Union Pacific crew members were...
Benzinga  Aug 18  Comment 
Credit Suisse revealed the top five reasons to buy Union Pacific (NYSE: UNP) right now in a research report reiterating its Outperform rating. The price target was raised from $115 to $119. 1. Core Pricing Improved A mix of contracts,...
TheStreet.com  Aug 18  Comment 
NEW YORK (TheStreet) --aCredit Suisseaincreased its price target onaUnion Pacifica to $119, increased its estimates and set an "outperform" rating. The firm saidathe company is realizing higher EBIT. The stock closed at $101.99 on Friday. Must...
Jutia Group  Aug 14  Comment 
[at noodls] - Safety Omaha, Neb., August 14, 2014 Union Pacific Railroad achieved a record low 2.95 reportable rail equipment incident rate for the first half of the year (through June 30, 2014). This is a 4 percent ... Read more on this. Union...
TheStreet.com  Aug 12  Comment 
NEW YORK (TheStreet) -- The four railroad and package delivery companies profiled today are components of the Dow Jones Transportation Average, which has risen 10% so far this year. Transports were up 15% when the index set an all-time intraday...
Benzinga  Aug 12  Comment 
Union Pacific (NYSE: UNP) trended up slightly on Tuesday after one analyst named it his top pick in the railroad sector. Macquarie's Cleo Zagrean revisited ratings on a batch of stocks in the sector and upgraded Union Pacific from Neutral to...
SeekingAlpha  Aug 12  Comment 
ByJosh Arnold: Investors who have held Union Pacific (NYSE:UNP) over the past five years have enjoyed enormous, steady gains. Shares traded for $30 five years ago and today, are knocking on the door to $100 after a long, steady rally. There is...
Jutia Group  Aug 11  Comment 
[at noodls] - Capital Investment Union Pacific Railroad Invests $6 Million to Strengthen Iowa's Transportation Infrastructure Project Funded by Private Investment, Not Taxpayer Dollars Omaha, Neb., August 11, 2014 Union ... Read more on this. ...
SeekingAlpha  Aug 9  Comment 
ByAbba's Aces: The last time I wrote about Union Pacific Corporation (NYSE:UNP) I stated, "I like the stock but won't be buying into it this week." Since the article was published the stock has decreased 1.62% versus the 2.33% drop the S&P 500...
SeekingAlpha  Aug 6  Comment 
By Stan Stafford: Overview In this series of articles, I will be identifying which S&P 500 stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 23, I will be taking a look at...




 

Union Pacific Corporation (NYSE: UNP) owns the Union Pacific Railroad Company, one of America's leading transportation companies and operator of one of the largest railroads in North America. The Union Pacific railroad stretches from Chicago to the Pacific Ocean and is the only railroad that serves all six significant gateways to Mexico.[1] UNP caters to six commodity groups: agricultural, automotive, chemicals, energy, industrial products, and intermodal shipping[2]

Business Overview

Union Pacific operates the Union Pacific Railroad, a freight railroad linking 23 states in the western two-thirds of the United States.[1] The railroad serves six different sectors, with energy, industrial products, and agricultural shipments accounting for 56% of the company's revenues.[3][4] UNP's income depends on the volume of freight contracts it sells and the price of those contracts while its expenses primarily consist of labor, fuel costs, and track maintenance.

Business Growth[5]

  • Revenue: Revenue increased from $14,143 million in 2009 to $16,965 million in 2010.
  • Net Income: Net income increased from $1,890 million in 2009 to $2,780 million in 2010.

Business Segments

Union Pacific only has one reportable operating segment: its railroad segment.[3] This segment operates a railroad with over 32,000 route miles that links Pacific Coast and Gulf Coast ports with the Midwest and eastern United States gateways .[3][6] It also provides access to several key Mexican gateways and imports and exports freight across the Canadian and Mexican borders.[3] Although Union Pacific's rail network is well-integrated across commodity groups, energy and industrial products are its biggest revenue generators,.[3]

Energy (around 20% of revenue):[3] UNP's energy shipments primarily consist of coal and coke shipments to utilities, factories, and water terminals.[4] Coal from the Southern Powder River Basin in Wyoming[7] is the biggest driver of UNP's energy freight revenue growth.[4]

Industrial Products (around 15% of revenue):[3] This sector includes lumber shipments, steel, construction products, paper, consumer goods, metals, and industrial minerals.[4] Transportation services for government entities and waste companies are also included in the "Industrial Products" tally.[4]

Agricultural (around 20% of revenue):[3] UNP's agricultural shipments include whole grains, commodities produced from these grains, and food and beverage products including fresh and frozen fruits and vegetables, dairy products, and beverages.[4] Union Pacific has exposure to most of the United States' primary grain markets and creates a link between producing areas in the Midwest and West with Pacific Northwest export terminals, Gulf ports, and Mexico.[4]

Intermodal (around 15% of revenue):[3] Intermodal shipments consist of a hodgepodge of container and trailer shipments as well as time-sensitive delivery services for businesses willing to pay a premium.[4] UNP's intermodal business is done with both domestic and international clients.[4]

Chemicals (15% of 2009 Freight Revenue):[3] Union Pacific services chemical-producing areas along the Gulf Coast and in the Rocky Mountain region and two-thirds of UNP's chemical shipments are liquid and dry chemicals, plastics, or liquid petroleum products.[4] The company ships soda ash from Wyoming and California to glass producers all over the country as well as fertilizer from the Gulf Coast, West Coast, and Canada to farmers in the Midwest.[4]

Automotive (around 10% of revenue):[3] UNP is the largest automotive carrier west of the Mississippi River; it acts as the shipper for seven vehicle assembly plants and distributes imported vehicles from six West Coast ports and Houston, ultimately delivering finished cars to around 40 automotive distribution centers where they are taken to dealerships by truck.[4] The company also transports automotive parts.[4]

Trends and Forces

Congress sustains its review of freight railroad pricing

A report presented by the U.S. Senate Commerce Committee it is stated that the discretionary pricing power enjoyed by the freight rail transport companies are putting excessive pressure on freight customers.[8] The freight railroad operators are enjoying this pricing power since 1980 when the U.S. government adopted an act to improve profitability of the railroad industry by allowing rail transporters to hike price on captive shippers like electric utilities, chemical and agricultural companies in order to improve profitability of the struggling railroad industry.[8] If this act is to be reversed, the entire freight railroad industry may be severely affected. [8]

UNP's performance is directly tied to prevailing economic conditions

Both national and international economic conditions affect the demand for the commodities that UNP transports; the state of the economy directly affects the amount of goods being shipped and UNP freight orders being placed. For example, a significant change in the U.S. economic climate can affect automobile purchases and hurt UNP's business with General Motors, one of its two biggest customers.[9] Furthermore, international economic shifts directly affect UNP's intermodal segment, which deals with imports and exports.[4]]]

Labor constitutes significant expense and risk

Labor is the largest operating expense for UNP and about 86% of UNP's 48,242 employees are part of a railroad union.[4] Maintaining union-level wages, hours, and working conditions resulted in compensation and benefits for employees accounting for 28.8% of the company's total expenses in 2009.[10] The high percentage of unionized employees also makes UNP especially vulnerable to strikes, work stoppages, or work slowdowns. [11]

Oil prices influence a large portion of expenses

Oil prices have a significant impact on Union Pacific's expenses. UNP uses a fuel surcharge program to offset expenses related to rising oil prices but surcharge rates for any given month are set two months in advance and consequently reflect outdated oil prices; as a result, the fuel surcharge does not always protect UNP from losses related to oil volatility.

Weather has a direct impact on track maintenance costs

Severe weather and natural disasters can delay or disrupt railroad operations and result in revenue loss. Damaged infrastructure resulting from such weather also increases track maintenance costs.[12] Track delays and closings disrupt damaged areas and can easily spread delays and stoppages throughout UNP's entire rail network.

Competition

UNP's main competition comes from other railroads, the long-haul trucking industry, and barge operators. Burlington Northern Santa Fe Corporation is UNP's most significant railroad competitor while the company's competition with non-railroad freight services is difficult to quantify.

  • Burlington Northern Santa Fe: UNP's primary competitor primarily operates in the western half of the United States; as a result, Burlington Northern Santa Fe and UNP directly compete for delivery contracts.[13] Burlington Northern Santa Fe is the second-largest U.S. railroad company with over 6,300 locomotives and 32,000 route miles. The company ships freight, such as coal and agricultural products, throughout the western two thirds of the United States.[14]


  • Canadian National Railway Company: Canadian National Railway Company (or CN) operates the largest rail network in Canada and the only transcontinental network in North America. The company operates approximately 20,300 route miles in around 10 Canadian provinces and around 15 U.S. states.. This company primarily operates in Canada but also has track running through the middle of the United States; competes with UNP for deliveries less frequently than Burlington Northern Santa Fe.[15]


  • Norfolk Southern: Norfolk Southern's largest business is moving coal, and the company operates in the eastern half of the United States. While not a very close competitor, NSC competes with UNP on occasion.[16] The largest commodities after coal are intermodal containers, agricultural products such as corn, cars, and consumer products.[17] Its principal subsidiary is wholly-owned Norfolk Southern Railway Company, and it also has joint ownership (along with CSX (CSX)) of Consolidated Rail Corporation. Altogether, it has a network of about 21,000 miles of track throughout more than 20 U.S. states, the District of Columbia and Ontario, Canada.[18]

References

  1. 1.0 1.1 UNP 2008 10-K pg. 5  
  2. UNP 2009 10-K, Item 7
  3. 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 UNP 2009 10-K, Notes to the financial statements
  4. 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 4.13 4.14 UNP 2008 10-K pg. 6  
  5. Wikinvest SEC Files: UNP 2010 10-K, Item 6, Selected Financial Data
  6. UNP 2009 10-K, Part 1, Page 6
  7. Business Wire (January 15, 2007). Union Pacific Boosts SPRB Coal Shipments to Nation's Utilities During 2006 - Setting New One Year Record. BNET.
  8. 8.0 8.1 8.2 SeekingAlpha: Railroads under Congressional Review
  9. Union Pacific Corporation: Company Overview. WetFeet.
  10. UNP 2009 10-K, Operating Expenses
  11. UNP 2008 10-K pg. 34  
  12. UNP 2008 10-K pg. 38  
  13. Profile: Burlington Northern Santa Fe Corp.. Yahoo! Finance.
  14. Wikinvest Stock Summary: BNI
  15. Profile: Canadian National Railway Company. Yahoo! Finance.
  16. Norfolk Southern Corporate Profile. Norfolk Southern.
  17. NSC 2007 10-K, page K23
  18. NSC 2007 10-K, pages K3-K4
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