Friday, October 24, 2014

Union Pacific Q3'14 Earnings

            Union Pacific reported their Q3'14 earnings pre-market on October 23rd.  Their earnings per share was 1.53 representing a 23% increase year over year.  Their bottom line growth beat consensus estimates by 2 cents.  Top line freight growth increased 11% year over year to 5.9 billion, overall revenue came in at 6.2 billion.  The robust growth was driven by total volumes increasing 7% year over year including a 2.5 point improvement in operating ratio to a record 62.3%.  In addition core pricing which was a major driver in my investment thesis, improved revenue by carload by 3.5%. The stock price has increased about 5% since their earnings report due to investors appreciating an exceptional Q3'14.

            Agricultural revenue increased 19% year over year led by low commodity prices and high grain demand in China, Canada and Mexico.  Automotive revenue increased 3% year over year led by the North American Automotive production of 16.7 million vehicles (highest since 2006).  Chemical revenue increased 6% year over year driven by a increase in demand for liquid petroleum gas in Canada and Mexico.  Coal revenue increased 2% year over year driven by strong demand from lower inventories.  Industrial products increased 19% year over year led by double-digit growth in fracturing sand shipments and lumber shipments.  Lastly inter-modal revenue increased 15% led by domestic inter-modal revenue increasing interest for new premium services and highway conversions.  More over the personal injury rate was 4% lower than 2013 year to date to a staggering 1.09 ( new record).  Rail equipment incidents or derailment rate improved 7% to 3.04 which is a new record year to date.  Capital expenditure for 2014 is expected to be $4.1 billion for the year which includes an investment in 32 additional locomotives.

           Union Pacific returned 1.2 billion in dividend payments to shareholders and since the beginning of the year they have repurchased 24 million shares amounting to $2.3 billion worth.  All in all Union Pacific has returned $3.5 billion worth to shareholders over the first three quarters of 2014 representing a 47% increase over 2013.  Union Pacific's extraordinary investment in infrastructure continues to improve operating ratio's and safety and performance rates, representing their mission to continue to enhancing their overall value to their customers, workers and shareholders.  It was another record-breaking quarter for Union Pacific and I am expecting Union Pacific to continue to outperform and break new records in Q4'14.  After updating my model I have a price target of $126.

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