Tuesday, April 22, 2014

Union Pacific Q1 Results

Union Pacific reported Q1 results for 2014 beating EPS estimates by 1 cent, 2.38 compared to estimated 2.37.  They missed on revenues by about 40 million which was already signaled earlier in the quarter due to harsh winter conditions.  In Q1 Union started their 4 year repurchasing plan buying back 3.8 million shares which amounted to $683 million dollars.  Including $363 million dollars were spent in dividend payments which is a 32% year over year increase.  With Union Pacific staying committed to reaching a dividend payout ratio in the 30%-35% range they spent about 1 billion dollars in share buybacks and dividend payments in the first quarter alone.

Freight revenue was up 6% to 5.3 billion, crude oil volume declined 18% which was caused by price spreads across the region.  Coal revenue increased 3% and 7% in volume due to a cold winter and high natural gas prices.  Industrial revenue increased 10%, mainly due to high demands for fracturing sand as well as salt which were both up 22 and 28 percent respectively.  Intermodal as well was up 4% year over year and agricultural revenue was up 16 %.  Operating revenue grew 7% to 5.6 billion outpacing operating expense increases of 3% to 3.8 billion.  .05 cents/share were expenses due to weather and in the first quarter Union Pacific reached a new Q1 record of 1.8 billion in operating income.

Looking forward Union Pacific expects a rebound in the automotive market due to lower fuel prices, demand increases and dealer incentives.  Crude by rail is important to keep an eye on due to the impact from price spreads across the region.  Agricultural commodities revenue for the year will be based on the weather in the summer as well as the rest of the commodities are expected to continue to increase in the year going forward.  In 2014 Union Pacific is planning to invest 3.9 billion in infrastructure, which is a 300 million dollar increase from 2013.

All in all Union Pacific reported strong quarter 1 results despite the harsh economic and weather conditions.  With operating ratio reaching a Q1 record of 67.1% as well as new Q1 EPS quarter at 2.38, the worst quarter historically in performance is out of the way and still had significant performance. Going forward the fuel prices will be important to keep an eye on as they impact average revenue per car as well as economic conditions.  Union Pacific has been up about 2.7% since reporting and it previously closed at 192.05 and I am staying with my price target of $204.43.

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