How Will Union Pacific’s Revenue Grow In The Next Three Years?

by Trefis Team
Union Pacific Corporation
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Union Pacific Corporation (NYSE:UNP) is an Omaha-based railroad company that operates from all major West Coast and Gulf Coast ports to eastern gateways, connects with Canada’s rail systems, and is the only railroad serving all six major Mexico gateways. It generates the majority of its revenues through the transportation of industrial, intermodal, agricultural, automotive, and other products. Below, we present the major sources of Union Pacific’s revenue for 2017 and forecast for 2018 using our interactive platform.

Here’s what we think will drive Union Pacific’s revenue growth in 2018 and beyond:

With the growing preference for cleaner and safer sources of energy, the demand for coal has dropped significantly over the last few years. However, with the Trump administration’s plans to pull back from the Paris Agreement, the coal shipments in the US have gone up drastically. The US coal shipments stood at 4.42 million carloads at the beginning of 2018, almost 8% higher compared to the same period of last year ((Weekly US Rail Traffic, Association of American Railroads)). Now, assuming that the government’s current stance on the climate change issue remains constant, we expect US coal shipments to continue to rise in the coming quarters, boosting Union Pacific’s top-line growth in the coming years.

According to the Federal Motor Carrier Safety Administration’s (FMCSA) directive, all trucking companies were mandated to be equipped with Electronic Logging Devices (ELDs) by the end of December 2017. The ELDs are synchronized with a vehicle engine to automatically record accurate driving time and hours of service to ensure safety on roads and preventing drivers from logging in incorrect hours. However, this new rule is likely to result in a lower capacity of trucks available for transportation. While the trucking industry is expected to be hit by this law, other modes of transportation, particularly railroads, are expected to benefit from this. In light of this enactment, we expect Union Pacific’s intermodal shipments to grow strongly in the coming years. Also, due to the tightness in the trucking market, the rates for intermodal shipments are anticipated to rise sharply in the near term.

Extension of the production cuts by OPEC and its allied Non-OPEC members until the end of 2018, coupled with the recovery in the US economic activities, is expected to augment industrial shipments over the next few quarters, which will boost Union Pacific’s revenue. However, this rise is likely to be partially offset by the weakness in automotive shipments driven by lower anticipated sales of US light vehicles over the next couple of years.

Do not agree with our forecast? Create your own forecasts for Union Pacific and its revenue streams using our interactive platform.


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