Q4 2024 Earnings Summary
- Union Pacific is achieving volume growth that outpaces the market through strategic business development wins, particularly in high-growth areas such as renewable diesel and petrochemicals. Kenny Rocker stated, "I'm very bullish on what we're seeing in our grain products area with renewable diesel," and mentioned that their petrochemical business "has been strong" with expansions coming this year.
- The company is investing in capacity projects and operational efficiencies to support growth and improve productivity. Eric Gehringer highlighted the Houston Gulf Coast project as "a massive undertaking" and emphasized strategic investments in terminals to support growth. The company is also improving train operations to handle increased volume efficiently.
- Management reaffirms commitment to delivering high single-digit to low double-digit earnings growth, consistent with their long-term targets, and has achieved margin accretive pricing earlier than expected. Jennifer Hamann stated, "We were accretive... in the fourth quarter... and we're going to be accretive throughout 2025."
- Potential tariffs with Mexico could negatively impact Union Pacific's cross-border volumes, given their significant exposure to Mexico. Executives expressed concerns about possible tariffs on February 1st and acknowledged that they may have to adapt if cross-border business declines.
- Tough comparisons in the second half of 2025 for international intermodal volumes could lead to volume declines, as executives admit facing "extremely tough" comps and uncertainty about maintaining growth. They also rely on domestic intermodal growth to offset this, but its sufficiency is uncertain.
- Intermodal revenue per unit under pressure due to a shift towards lower-revenue international intermodal business, lower fuel surcharges, and a tougher competitive environment, which could negatively impact margins. Executives acknowledged that intermodal revenue per unit has been "a pretty big drag for a while."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -1% | Lower fuel surcharge revenues continued to weigh on top line, partially offset by modest volume gains in intermodal and core pricing improvements. Market-wide softer freight demand also contributed to the overall revenue dip. |
Other Subsidiary Revenues | -91% | Weaker intermodal demand and the partial transfer of commuter operations to Metra led to a steep decline. A one-time contract settlement in the previous period amplified the year-over-year drop. |
Accessorial Revenues | -11% | Reduced intermodal accessorial fees following improved cycle times and the sale of intermodal equipment lowered these revenues. Additionally, the absence of prior-period contractual settlements contributed to the YoY decline. |
Net Income | +7% | Stronger operating efficiency and cost discipline supported earnings growth despite headwinds from lower overall revenues. Volume gains in select segments also helped lift net income. |
EPS – Diluted | +8% | Higher net income and a slightly reduced share count both drove EPS increases, reflecting the company’s share repurchase initiatives and ongoing margin improvements. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Earnings Per Share (EPS) Growth | FY 2025 | no prior guidance | high single-digit to low double-digit | no prior guidance |
Operating Ratio (OR) | FY 2025 | no prior guidance | industry-leading OR, with a Q4 2024 adjusted OR of 58% as a benchmark | no prior guidance |
Capital Expenditures | FY 2025 | no prior guidance | $3.4 billion in 2025 | no prior guidance |
Share Repurchases | FY 2025 | no prior guidance | $4 billion to $4.5 billion in 2025 | no prior guidance |
Dividend Payout Ratio | FY 2025 | no prior guidance | 45% of earnings | no prior guidance |
Volume Growth | FY 2025 | no prior guidance | anticipates volume growth in 2025 | no prior guidance |
Coal Demand | FY 2025 | no prior guidance | expects coal demand to continue declining, though at a slower rate | no prior guidance |
Pricing | FY 2025 | no prior guidance | pricing dollars expected to remain accretive | no prior guidance |
Cost Per Employee | FY 2025 | no prior guidance | all-in cost per employee increase of around 4% | no prior guidance |
Macroeconomic Indicators | FY 2025 | no prior guidance | monitoring mixed indicators (slight industrial production growth, slowing GDP) | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Share Repurchases | Q4 2024 | "Plans to purchase $1.5 billion of shares" | "Actual: $1.505 billion (-1,505 million)" | Met |
Capital Expenditures | Q4 2024 | "Invest approximately $3.4 billion of capital" | "$3.452 billion (-3,452 million)" | Met |
EPS Growth (YoY) | Q4 2024 | "Achieve EPS growth in the high single-digit to low double-digit range" | "From $2.71 in Q4 2023To $2.92 in Q4 2024(~7.7% increase)" | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Operational Efficiency | Consistent improvements across quarters, including increased train length, higher workforce and locomotive productivity, and reduced terminal dwell. | Freight car velocity improved by 1%, locomotive productivity up 5% year-over-year (down 3% in Q4), workforce productivity up 6%, record terminal dwell. | Recurring focus with continuing productivity gains, although slight Q4 headwinds due to buffer resources. |
Capacity Expansions | Previous quarters emphasized siding extensions, terminal upgrades, and investments in equipment (locomotives, freight cars) to support future volume and reliability. | Maintained a $3.4B capital plan, focusing on sidings, terminal enhancements, and intermodal growth in regions like Houston, Kansas City, and Lathrop. | Recurring priority to accommodate growth and improve fluidity. |
Aggressive Pricing and Margin Improvements | Historically emphasized pricing above inflation, strengthening profitability and supporting margin expansion; consistent discussions on maximizing price at contract renewals. | Pricing was accretive to margins in Q4 2024, with strong core pricing gains helping offset mix pressures. | Recurring strategy with continued margin outperformance expected. |
Intermodal Volumes | Broadly strong international intermodal in prior quarters; domestic volumes mixed but improving. Headwinds included soft market conditions and rate pressure. | International intermodal rose 26% year-over-year, domestic also positive; company expects tough comparisons heading into late 2025. | Recurring focus, maintaining growth but wary of challenging comps. |
Coal Volumes | Consistent secular decline highlighted in prior quarters, with headwinds from competition and high stockpiles. | Continued challenges from low natural gas prices and high inventories; new LCRA contract provides slight offset for 2025. | Recurring weakness, though minor positive offsets emerged. |
Potential Tariffs with Mexico | No mentions in Q1–Q3 2024. | New topic in Q4 2024; Union Pacific prepared to handle trade flow shifts, confident in network flexibility. | New issue highlighting adaptability to tariff-related disruptions. |
Renewable Diesel and Petrochemicals | Consistent growth discussed in previous quarters, driven by new facilities, feedstock demand, and strategic positioning in plastics and industrial chemicals. | Renewable diesel expansions increased accessible plants to 15, with more expected in 2025; petrochemicals demand up, supported by Gulf Coast investments. | Recurring growth segment with expanding capacity and strong outlook. |
Shifting Sentiment on Cross-border Mexico Trade | Focus previously on nearshoring opportunities and daily service into Mexico, with less discussion of tariff impacts. | Emphasis on nearshoring benefits (strong export grain, autos), while also monitoring tariff risks. | Recurring interest in Mexico trade; newer caution around tariffs. |
Large Future Impact from Nearshoring and Capacity | Nearshoring recognized as a real trend; capacity expansions mentioned but with less emphasis on looming large-scale impact. | Highlighted readiness for shifting origins (e.g., Asia to Mexico), leveraging ongoing capacity investments and flexible operations. | Recurring theme with potential for significant long-term volume growth. |
Inflationary Cost Pressures and Wage Increases | Mentioned each quarter, with 4–5% wage inflation and higher benefit costs partly offset by productivity gains and pricing above inflation. | Compensation and benefits up 8% (includes a buyout and wage inflation); costs per employee projected to rise 4% in 2025. | Recurring challenge, managed through productivity and vigorous pricing. |
-
Earnings Growth Guidance
Q: Do you expect high single-digit to low double-digit earnings growth this year?
A: Management affirmed their goal of achieving high single-digit to low double-digit earnings growth in 2025, consistent with their long-term CAGR commitments. Despite uncertainties like tariffs and regulatory changes, they stated this expectation remains unchanged from prior guidance. -
Impact of Potential Tariffs
Q: How might new tariffs with Mexico affect your volumes?
A: Management acknowledged potential tariffs could impact cross-border volumes but emphasized their ability to adapt. They are prepared to handle shifts in commodity flows, leveraging their franchise's flexibility to meet customer needs regardless of tariff outcomes. -
Operating Ratio Outlook
Q: What gives you confidence in achieving an industry-leading operating ratio?
A: Management expressed confidence in delivering an industry-leading operating ratio, aiming to maintain or improve upon their 58.0% OR achieved in the quarter. They believe their operational efficiency and ability to provide good service will drive continued improvement relative to competitors. -
Pricing and Intermodal Revenue
Q: How do you expect pricing and intermodal revenue per unit to evolve?
A: Management expects to be price accretive in 2025, with pricing outpacing cost inflation. While acknowledging challenges in intermodal revenue per unit due to mix and competitive factors, they anticipate improvements as the truckload market tightens and service levels remain strong. -
Volume Growth and Capacity
Q: Can you handle higher volumes without service disruption?
A: Management is confident in their capacity to meet increased demand without compromising service. They maintain a 20–25% buffer in network capacity and are prepared to onboard resources quickly to handle a potential 10% increase in volume. -
Cost Management Initiatives
Q: What are you doing to manage cost inflation and improve productivity?
A: Management is focused on multiple productivity initiatives beyond labor efficiency, including automation of terminals and maintenance tasks, reduction of purchased services, and over 75 initiatives targeting productivity across the company to manage costs despite inflationary pressures. -
Regulatory Environment Changes
Q: How might changes in regulatory leadership impact you?
A: Management is optimistic about working with new regulatory leadership, expecting quicker decisions and clarity that could benefit the industry. They look forward to collaborating with regulators to support service improvements and efficiency gains. -
Mix Impact on Revenue
Q: How will mix affect revenue per carload?
A: Management acknowledged that a strong international intermodal business, which has the lowest revenue per unit, pressures revenue per carload metrics. However, they expect this mix pressure to ease in the back half of 2025 as comparisons normalize and domestic intermodal and other businesses grow. -
Service Improvements Driving Growth
Q: Are service gains leading to real volume growth?
A: Management believes their improved service is resulting in incremental business wins and positions them to outpace market volume growth. They highlight successes in business development and the ability to leverage their service product to capture new opportunities. -
Upside from Economic Improvement
Q: Could you exceed guidance if the economy strengthens?
A: Management indicated that while they plan for a range of economic scenarios, a stronger economy could provide upside beyond their high single-digit to low double-digit earnings growth target. They are positioned to capitalize on improved demand and have the operating leverage to benefit from increased volumes.
Research analysts covering UNION PACIFIC.