Union Pacific’s Q4 2016 Earnings Review: Recovering Top Line And Productivity Improvements Bode Well For Profitability Going Forward

January 20th, 2017 by Trefis Team
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Union Pacific

Union Pacific announced its Q4 earnings and conducted a conference call with analysts on January 19. [1] As expected, a recovery in Union Pacific’s top line and its productivity improvement initiatives boosted the company’s earnings. Union Pacific witnessed a stabilization in its shipments in Q4 after several quarters characterized by declines. A recovery in the demand for coal has played a major role in Union Pacific’s overall shipments reverting close to levels seen a year ago. An increase in demand for coal by utilities amid rising natural gas prices has driven up U.S. rail shipments of the commodity. Union Pacific reported a 9% year-over-year decline in its coal shipments for Q4 2016, considerably lower as compared to the 20% decline for the full year 2016. [2] The company’s top line also benefited from an improvement in core pricing, reflecting improving market conditions. In addition, the company’s efforts to realize savings through improving efficiency helped prop up the company’s results throughout 2016, including the fourth quarter.

Going forward, improving economic conditions are likely to translate into a broad-based increase in shipment volumes. In addition, a few sector-specific factors are likely to positively impact certain commodity shipments. Higher gas prices should continue to drive demand for coal whereas regulatory intervention by U.S. authorities against unfairly traded steel imports should translate into higher metals shipments. Besides an improving top line, Union Pacific plans to continue with its productivity improvement initiatives, targeting $350-400 million worth of savings through these measures in 2017. [1] Thus, a combination of rising revenue and a focus on boosting productivity bodes well for Union Pacific’s margins going forward.

UNP Q4 2016 Earnings

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Union Pacific

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Notes:

  1. Union Pacific’s Q4 2016 Earnings Transcript, Seeking Alpha [↩] [↩]
  2. Union Pacific’s Q4 2016 Earnings Release, SEC [↩]