UNION PACIFIC CORP (UNP)·Q4 2024 Earnings Summary

Executive Summary

• Q4 2024 delivered record fourth-quarter operating income ($2.53B) and net income ($1.76B) as OR improved 220 bps YoY to 58.7% (58.0% ex ~$40M crew staffing agreement), and diluted EPS rose 7% to $2.91; revenue fell 1% on lower fuel surcharge and mix despite 5% volume growth .
• Mix headwinds from 26% international intermodal growth compressed pricing per unit, but management emphasized core pricing dollars exceeded inflation and were accretive to OR in Q4 and are expected to remain accretive through 2025 .
• 2025 outlook: EPS growth consistent with achieving Investor Day’s 3-year high-single to low-double-digit CAGR; capital plan ~$3.4B; repurchases $4.0–$4.5B; pricing accretive; aim for industry-leading OR and ROIC; volume backdrop mixed (coal decline, tough intermodal comps) .
• Potential stock reaction catalysts: sustained margin resilience from accretive pricing and productivity, plus sizable 2025 buybacks ($4.0–$4.5B) offsetting mixed macro/coal and intermodal comp headwinds .

What Went Well and What Went Wrong

• What Went Well

  • Record Q4 operating income ($2.53B) and net income ($1.76B); OR 58.7% (58.0% ex staffing agreement) on strong productivity with 3% fewer employees moving 5% more volume; diluted EPS +7% YoY to $2.91 .
  • Service and efficiency: workforce productivity +6% YoY; freight car velocity +1%; terminal dwell improved; management highlighted 75+ productivity initiatives and terminal automation to sustain gains .
  • Commercial execution: intermodal volumes +16% (international +26%), automotive stabilized, grain and grain products +8% revenue; management: “price accretive in Q4 and throughout 2025” .

• What Went Wrong

  • Revenue -1% YoY on lower fuel surcharge, unfavorable mix and lower other revenue despite higher carloads; average revenue per car fell 5% YoY from mix (international intermodal) and lower fuel .
  • Coal & renewables softness (revenue -29% YoY in Q4; -23% FY) amid high inventories and low natural gas prices; management expects continued decline in 2025 despite a new LCRA contract .
  • Intermodal service index down 7 points YoY in Q4 (though improving intra-quarter); pricing per intermodal unit pressured by mix and lower fuel surcharge .

Financial Results

Actual vs. Consensus (S&P Global)

• S&P Global consensus estimates were unavailable at the time of analysis due to data access limits; as a result, estimate comparisons are not provided.

Segment Breakdown – Q4 2024 vs. Q4 2023

Key Operating KPIs – Sequential (Q3 2024 → Q4 2024)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategic focus: “Operate with a buffer and connect more closely to our customers…paying dividends…winning new business” (CEO) .
• Cost/OR: “Q4 operating ratio of 58.7%…when you adjust for the brake person agreement, OR came in at 58%” (CFO) .
• Productivity: “More than 75 initiatives…automation in terminals…engineering automating inspections/maintenance…purchased services savings to go” (EVP Ops) .
• 2025 capital and returns: “Invest ~$3.4B; dividend ~45% payout; repurchase $4–$4.5B in 2025” (CFO) .
• Pricing: “We were price accretive in 2024 and expect to be price accretive in 2025” (EVP M&S) .

Q&A Highlights

• EPS framework and pricing: Management reiterated EPS growth consistent with high-single to low-double digit CAGR and confirmed pricing accretive to OR through 2025; accretive already achieved in Q4 .
• Labor/staffing agreements: Q4 included ~$40M related to regional brakeperson agreement; similar to prior agreement; goal to redeploy brakepersons into conductor roles; Work-Rest rollout ~75% of hubs .
• Tariffs/regulatory: Company preparing for potential tariff changes by pivoting origins/destinations; seeking resolution of FRA waivers; constructive view on STB’s pace and alignment on service goals .
• Capacity buffer: Operating with 20–25% network capacity buffer and resources (locomotives/railcars) to handle upside demand without service degradation .
• Seasonality: Q1 typically sees lower volumes and certain cost resets (e.g., payroll taxes); no unusual seasonality expected beyond normal patterns (CFO) .

Estimates Context

• Wall Street consensus (S&P Global) for Q4 2024 EPS and revenue was not retrievable due to S&P Global daily request limits at the time of analysis; therefore, explicit beat/miss comparisons to consensus are unavailable. Management’s tone and record results suggest potential for positive margin revisions given price accretion and productivity, offset by volume headwinds from coal and H2 intermodal comps .

Key Takeaways for Investors

• Margin/OR durability: Despite mix pressure, UNP delivered a 58.7% OR (58.0% ex-staffing) and record Q4 profitability—evidence that pricing and productivity are offsetting mix and lower fuel surcharge revenue .
• 2025 capital returns step-up: Planned repurchases of $4.0–$4.5B alongside a ~$3.4B capex plan and ~45% dividend payout underpin robust shareholder returns in a mixed volume environment .
• Mix watch: International intermodal strength drives volume but compresses revenue per unit; management remains confident in pricing discipline and service to protect margins .
• Coal drag persists: Continued coal weakness is expected in 2025, though new wins (LCRA) help partially offset; monitor nat gas and utility inventory dynamics .
• Execution edge: Operational KPIs (velocity, dwell, workforce productivity) improved sequentially; 75+ productivity levers and automation support sustained cost control and capacity buffer .
• Policy/regulatory optionality: Potential easing of regulatory friction (FRA waivers, STB pace) could unlock efficiencies; management is proactively engaged .
• Trading setup: Near-term, focus on sustainability of pricing accretion and sequential OR vs normal Q1 seasonality; medium-term, watch H2 intermodal comps and coal trajectory against the buyback ramp and efficiency gains .

Appendix: Additional Detail (from primary documents)

• Q4 revenue drivers: +525 bps from volume; -450 bps from lower fuel surcharge; -100 bps net pricing/mix (core price positive but offset by mix) .
• Free cash flow FY 2024: $2.81B, up from $1.54B in 2023 .
• FY 2024 ROIC (as adjusted): 15.8% .
• Dividend declared for Q4 2024: $1.34 per share (paid Dec 30, 2024) .