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Union Pacific Corporation  (UNP - Analyst Report) reported first quarter fiscal 2013 adjusted earnings of $2.03 per share, surpassing the Zacks Consensus Estimate of $1.96 as well as the year-ago earnings of $1.79. Better-than-expected earnings were aided by higher pricing and an improvement in operating ratio.

Revenues rose 3% year over year to $5,290 million in the first quarter, beating the Zacks Consensus Estimate of $5,286 million. Volumes (carloads) registered a dip of 2% year over year due to lower coal and agricultural shipments. Average revenue per car increased 6% year over year.

Operating income rose 8% year over year to $1,633 million in the first quarter. Operating expenses increased 2% year over year to $3,657 million.

Operating ratio (defined as operating expenses as a percentage of revenue) improved 140 bps year over year to 69.1%. Further, the company’s customer satisfaction index nudged up to 94 from 93 in the year-ago period.

Segment Details

Agricultural revenues in the first quarter were $784 million, down 9% year over year. Business volumes were also down by 9% year over year and average revenue per car inched up 1% year over year.

Automotive accounted for $487 million revenues, up 13% year over year. Business volumes were up 2% year over year and average revenue per car rose 11% year over year.

Chemical contributed $873 million in revenues, up 14% year over year. Volume was up 12% year over year. Average revenue per car nudged up 1% year over year.

Coal revenues saw a decline of 6% year over year to $936 million, owing to a 19% decline in volumes. However, average revenue per car remained positive with 16% growth year over year.

Industrial Products generated revenues of $916 million, up 6% despite flat volumes on a year-over-year basis. Average revenue per car was up 7% year over year.

Intermodal segment revenues were $988 million, up 9% year over year. Business volumes were up 4% year over year. Average revenue per car was also up 4% year over year.

Other revenues increased 6% year over year to $306 million.


Union Pacific exited the first quarter with cash and cash equivalents of $1,917 million, up from $995 million in the year ago quarter. Free cash flows were $401 million at the end of the quarter compared with $285 million in the corresponding previous-year quarter.  

Long-term debt was $9.3 billion in the first quarter versus $8.8 billion in 2012. Adjusted debt-to-capitalization ratio increased to 40.2% from 39.1% at year-end 2012.

Our Analysis

Favorable market trends of the non-coal businesses are expected to boost Union Pacific’s revenue and earnings levels in the coming months. We believe that the company has an attractive product franchise given its exposure to a unique mix of commodity end markets alongside the strength in intermodal services.

Further, an improved cost structure and investment program will support the company’s performance, going forward. Nevertheless, we stay on the sidelines due to concerns related to agricultural and coal volumes, stringent regulations, rising expenditures, and competitive threats.

Union Pacific, which operates with the likes of CSX Corp. (CSX - Analyst Report), Kansas City Southern (KSU - Analyst Report) and Canadian Pacific Railway (CP - Analyst Report), currently has a Zacks Rank #3 (Hold).

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