Union Pacific Corporation (UNP, Financial) is one of America's leading transportation companies. Its principal operating company, Union Pacific Railroad, is North America's premiere railroad franchise, covering 23 states across the western two-thirds of the U.S.
Founded in 1862, Union Pacific provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel efficient and environmentally responsible manner.
It recently reported first-quarter results and beat on earnings. It witnessed a strong decline in the sales year over year. The stock did not do well since it reported its first quarter. 2015 was a difficult year in many respects; the company continues to actively buy back stock. In general, transportation stocks are under pressure.
First-quarter results
Operating revenue during the quarter was $4.8 billion (a decrease of 14% from the prior-year quarter).
First-quarter business volumes, as measured by total, declined by 8% from the prior-year quarter.
Quarterly freight revenue decreased by 14% from the prior-year quarter.
Average quarterly diesel fuel price in the first quarter was $1.25 per gallon (36% lower than the prior-year quarter).
Diluted earnings per share were $1.16 (a decline of 11% from the prior-year quarter).
Operating income was $1.7 billion during the quarter (a decrease of 15% from the prior-year quarter).
Share repurchases
The company repurchased 9.3 million shares in the first quarter at an aggregate cost of $713 million.
Challenges faced by the company
- Energy market recession.
- Low commodity prices.
- Strength of the U.S. dollar in a soft global economy.
- Muted domestic retail demand.
Efforts taken
- The company is focusing on operating safely and efficiently.
- Managing resources.
- Improving customer experience.
- Solid core pricing.
- Productivity improvements.
- The company plans to leverage the strength and diversity of the Union Pacific franchise to develop new business opportunities.
- The company plans to diversify out of coal revenues.
Investment plans
- The company plans to invest $37.7 million in 2016 to improve Arizona's transportation infrastructure.
- It plans $3.75 billion investment across its network this year.
- It plans to invest $54 million in 2016 to improve Missouri's transportation infrastructure.
- It plans to invest $70.9 million in 2016 to improve Colorado's transportation infrastructure.
- It plans to invest $70.9 million in 2016 to improve Kansas' transportation infrastructure. The company's multimillion-dollar private investment will enhance employee, community and customer safety and increase rail operating efficiency.
On a concluding note
The company has a robust capital program that ensures that it has the resources and network capacity required to efficiently handle current volumes and future growth while improving network fluidity and generating returns for shareholders. Union Pacific invested $4.3 billion in 2015 strengthening the franchise.
It has a good track record of returning dividends to its shareholders, and the company has witnessed growth for the last five years. The company has created a mark of its own in the railroad industry and boasts of a solid customer base. Though the company is going through a tough time, it is making efforts to revamp. Long investors should stick by this company; otherwise it is preferable to stay away from it.
Disclosure: I do not hold a position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.
