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Union Pacific Corporation (UNP - Analyst Report) reported first quarter 2014 adjusted earnings of $2.38 per share, in line with the Zacks Consensus Estimate and 17% higher than the year-ago earnings of $2.03. The improvement was aided by significant volume improvement and increased coal shipments. 

Revenues increased 7.0% year over year to $5,638 million in the first quarter, but missed the Zacks Consensus Estimate of $5,700 million. The revenue growth was attributable to higher volumes as well as pricing gains. Volumes (carloads) grew 5% year over year. Average revenue per car rose 1% year over year.

Operating income grew 14% year over year to $1,854 million. Operating expenses increased 3% year over year to $3,784 million in the first quarter.

Operating ratio (defined as operating expenses as a percentage of revenue) improved 200 basis points (bps) year over year to 67.1%. 

Segment Details

Agricultural revenues were $910 million, up 16% year over year. Business volumes increased 13% year over year and average revenue per car increased 3% year over year.

Automotive accounted for $488 million of total revenue, flat year over year. Business volumes were up 2% year over year and average revenue per car fell 2% year over year.

Chemical contributed $893 million in revenues, up 2% year over year. Volumes were flat year over year. Average revenue per car rose 3% year over year.

Coal revenues increased 3% year over year to $961 million on 7% higher volumes. Average revenue per car was down 4% year over year.

Industrial Products generated revenues of $1,011 million, up 10% year over year on 9% volume growth. Average revenue per car was up 1% year over year.

Intermodal segment revenues rose 4% year over year to $1,023 million and volumes were up 3% year over year. Average revenue per car was up 1% year over year.

Other revenues grew 15% year over year to $352 million.

Liquidity

Union Pacific exited the first quarter with cash and cash equivalents of $1,857 million, up from $1,432 million in 2013. Free cash flows were $499 million at the end of first quarter 2014 compared with $401 million in the same quarter a year ago.

Long-term debt was $9.54 billion in the first quarter versus $8.87 billion at year-end 2013. Adjusted debt-to-capitalization ratio increased to 38.4% from 37.6% at year-end 2013.

Share Repurchase

The company repurchased 3.8 million shares at an aggregate cost of $683 million during the reported quarter.

Our Analysis

The company’s pricing strategy, new business avenues and network efficiency improvement through enhanced safety, reliability and productivity were key factors that helped it to sail through operational difficulties.

Currently, Union Pacific retains a Zacks Rank #2 (Buy).

Other Stocks

While another railroad company CSX Corp. (CSX - Analyst Report) reported a year-over-year drop in first quarter earnings, Kansas City Southern (KSU - Analyst Report) posted significant earnings growth.

Another major railroad, Norfolk Southern Corporation (NSC - Analyst Report) is scheduled to report first quarter earnings on Apr 23. The Zacks Consensus Estimate for Norfolk Southern’searnings is pegged at $1.14.

Read the Full Research Report on UNP
Read the Full Research Report on KSU
Read the Full Research Report on CSX
Read the Full Research Report on NSC


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