Union Pacific’s Q2 2017 Earnings Review: Favorable Business Conditions And Productivity Improvements Drive Earnings Growth

by Trefis Team
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Union Pacific Corporation
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Union Pacific reported sharp growth in its Q2 earnings driven by top line growth and the success of the company’s productivity improvement initiatives.

Core pricing gains stemming from firming demand conditions and higher fuel surcharge revenue as a result of higher fuel prices this year drove a 6% improvement in the company’s revenue per carload. In addition, higher demand for coal from utilities amid elevated natural gas prices and higher demand for non-metallic minerals such as frac sand (used in oil and gas drilling) and gravel (used in construction) drove growth in the rail shipments of these commodities, boosting the company’s top line.

Besides top line growth, Union Pacific’s productivity improvement initiatives yielded savings worth $110 million in Q2, which helped drive earnings growth. [1] Economies of scale resulting from longer train lengths, labor force rationalization, improved fuel efficiency, and lower support costs resulted in the aforementioned savings.

Going forward, Union Pacific is committed to pursuing additional opportunities for productivity enhancement. Given the $200 million in total productivity savings realized over the first six months of 2017, the company is on track to realize $350-400 million in savings for the full year. [1] In addition, the company should continue to benefit from favorable economic conditions, which are likely to translate into steady shipment growth over the rest of the year. Thus, Union Pacific is well placed to report strong results over the rest of the year.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such 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 Q2 2017 Earnings Call Transcript, Seeking Alpha [] []
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