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. The railroad’s diversified business mix includes Agricultural Products, Automotive, Chemicals, Coal, Industrial Products and Intermodal.
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.
The company recently reported second quarter results and the revenue meets expectations. The management is continuously focusing on operational efficiency, so I think the operating margins should go up. The company boasts an exceptional cashflow margin.
Second quarter results
Operating revenue during the quarter was $4.8 billion, which marked a decrease of 12% from the prior year quarter.
Net income during the quarter was $1.0 billion, or $1.17 per diluted share.
Business volumes decreased by 11% from the prior year quarter. Cash and cash equivalents during the quarter were $ 1.8 billion.
Share repurchases
The company repurchased 7 million shares in the second quarter 2016 at an aggregate cost of $602 million.
Strong attributes of the company:
- Boasts of a solid customer base.
- Relentless focus on focus on safety, productivity and service.
- Returning dividends to shareholders.
- Pricing power.
Focus:
- The company is taking efforts to revamp itself.
- Improving network fluidity.
- Productive with resources.
- Providing the customers with excellent service.
- Improving safety performance.
- Operational efficiency initiatives.
Risks
The company expects volumes to be down slightly in 2016 compared to 2015, but will depend on the overall economy and market conditions. The strong U.S. dollar and historic low commodity prices could also drive continued volatility. One of the biggest uncertainties is the outlook for energy markets, which will bring both challenges and opportunities. In the current environment, it expects continued margin improvement driven by continued pricing opportunities, ongoing productivity initiatives, and the ability to leverage resources and strengthen the franchise. Over the longer term, the company expects the overall U.S. economy to continue to improve at a modest pace, with some markets outperforming others.
(Source: Company’s website)
On a concluding note
From 2006 to 2015, Union Pacific invested approximately $33 billion in its network and operations to support America’s transportation infrastructure. The company has a robust capital program required to efficiently handle its current volumes and future growth,
The company has potential for certain segments of its business, despite the weak demand for consumer goods. The company is constantly implementing strategy for its future and is focusing on solid returns for the shareholders. The strength and diversity of the Union Pacific franchise also will provide tremendous opportunities for new business development as both domestic and global markets evolve. The company is doing well as of now, and I think adding this company to the portfolio is going to reap returns.
Disclosure: I do not hold any position in the company.
