How Will Union Pacific’s Profitability Move In The Next Three Years?

by Trefis Team
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UNP
Union Pacific Corporation
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Union Pacific Corporation (NYSE:UNP), the Omaha-based railroad company, has experienced a drop in its profitability over the last few years due to the declining shipments in the coal and commodities markets. However, the reversal of these trends in 2017 enabled the company’s earnings to rebound. This, coupled with the company’s efforts to bring down its operating expenses, enabled it to witness a surge in its profits. Below, we present the breakdown of UNP’s divisional EBITDA for 2017 and our forecast for 2018 using our interactive platform.

Union Pacific has been working towards streamlining its operations in order to enhance its margins. In 2015, the company had announced its “G55 + 0” program to improve its profitability. The term G55+ 0 breaks down to read Grow to 55% and 0, which implies that the company plans to reduce its operating ratio to 55% and injuries to zero in the next few years. A lower operating ratio (operating expenses as a percentage of total revenue) would result in higher operating profits for the company and its investors. Further, a zero injury rate will improve client and investor confidence, as well as yield productivity gains for the company.

In order to achieve these objectives, Union Pacific has been rationalizing its work force, improving fuel efficiency through longer train lengths, and reducing its support costs. So far, the company has brought down its operating workforce by 550 employees, and engineering and mechanical workforce by 800 employees and notably lowered its locomotive servicing and repair costs, realizing cost savings of roughly $350 million in 2017. Going forward, UNP plans to further reduce its operating ratio to around 60% by 2019 and further to 55% in the years beyond 2019.

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

 

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