Union Pacific Corporation — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 10, 2023. This is an annual report, not a standalone fourth-quarter filing. Union Pacific’s sole reportable operating segment is its railroad, serving the western two-thirds of the United States and key Mexico and Canadian gateways.
Financial and operating performance
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total operating revenue | $24.875 billion | $21.804 billion | +14% |
| Freight revenue | $23.159 billion | $20.244 billion | +14% |
| Operating expenses | $14.958 billion | $12.466 billion | +20% |
| Operating income | $9.917 billion | $9.338 billion | +6% |
| Operating ratio | 60.1% | 57.2% | Deteriorated 2.9 points |
| Net income | $6.998 billion | $6.523 billion | +7% |
| Diluted EPS | $11.21 | $9.95 | +13% |
| Cash from operations | $9.362 billion | $9.032 billion | +4% |
| Cash capital investments | $3.620 billion | $2.936 billion | +23% |
Freight volume increased 2%. Freight revenue growth reflected higher fuel-surcharge revenue, core pricing gains, and volume. Fuel surcharges generated $3.7 billion, up $2.0 billion; diesel averaged $3.65 per gallon, 64% higher year over year. Operating expenses rose largely because of fuel, inflation, operational inefficiency, volume-related costs, and a one-time $92 million labor-agreement charge. Lower weather-related costs versus 2021 partly offset these pressures. The effective tax rate was 22.9%, versus 23.1%.
Cash flow and shareholder returns: Cash used in investing activities was $3.471 billion and cash used in financing activities was $5.887 billion. Company-defined free cash flow was $2.732 billion, down from $3.523 billion; this non-GAAP measure subtracts investing cash use and dividends from operating cash flow. Dividends paid were $3.159 billion. The filing reports $6.282 billion of share repurchases in the cash-flow statement; management described approximately $6.3 billion in repurchases and $9.4 billion returned to shareholders through dividends and repurchases. The average diluted share count fell about 5%.
Debt and liquidity: Year-end debt was $33.326 billion, compared with $29.729 billion a year earlier; adjusted debt to adjusted EBITDA was 2.9x, versus 2.7x. Cash and cash equivalents were $973 million. The company had $2.0 billion available under its undrawn revolving facility and up to $700 million undrawn under its receivables facility. It reported a working-capital deficit, attributed primarily to upcoming debt maturities, and said it expected to remain compliant with debt covenants. The filing identifies $1.681 billion of debt principal maturities in 2023.
Material changes versus 2021
- Revenue, operating income, net income, and diluted EPS increased, but expense growth outpaced revenue growth and the operating ratio worsened.
- Fuel expense increased 68% to $3.439 billion; higher fuel prices added approximately $1.3 billion of expense, excluding volume effects. A 1% improvement in fuel consumption partially offset the increase.
- Service and efficiency weakened amid crew shortages, congestion, and supply-chain disruption: freight-car velocity declined 6% to 191 daily miles; intermodal trip-plan compliance fell 6 points to 67%, and manifest/automotive compliance fell 4 points to 59%.
- Derailment incident rate increased 8% to 2.88 per million train miles, while the personal-injury rate improved 18% to 0.80 per 200,000 employee-hours.
- Cash capital investment rose to $3.620 billion. Total debt increased, while cash from operations rose modestly and free cash flow declined.
Outlook, management commentary, and risks
For 2023, management expected volume to outpace industrial-production growth, citing business-development wins, while noting forecasts for negative industrial-production growth and macroeconomic uncertainty. It expected operating-ratio improvement from pricing above inflation, better service, and improved resource utilization, and anticipated strong operating cash flow. These are expectations, not guaranteed results. The 2023 capital plan was approximately $3.6 billion, 6% above 2022, for infrastructure resilience, safety, capacity, intermodal projects, locomotive modernization, and efficiency.
Management acknowledged that 2022 service did not meet expectations and cited constrained crew bases, elevated freight-car inventory, supply-chain disruption, inflation, high fuel prices, and prolonged labor negotiations. The 2020–2024 labor negotiations concluded in December 2022; four agreements were imposed by legislation after ratification failed. Fuel-price volatility and surcharge timing (about a two-month lag) may affect results.
Principal risks include economic weakness and lower demand, service disruptions or insufficient network capacity, labor availability and future labor disputes, fuel-price fluctuations, severe weather and climate-related impacts, hazardous-material accidents, cybersecurity events, dependence on key locomotive and rail suppliers, competition from other transport modes, increased regulation, and environmental liabilities. The company reported 353 potentially responsible environmental sites and a $253 million environmental liability. It also recorded a $361 million personal-injury liability and stated that reasonably possible settlement costs could range from $361 million to $397 million. Management said known claims and environmental obligations were not expected to have a material adverse effect, while acknowledging estimation uncertainty.
The company reported pending fuel-surcharge antitrust litigation and stated that it believes the claims are without merit and does not expect them to materially affect results, financial condition, or liquidity. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; capitalization of property was identified as a critical audit matter.
Important facts for investors to verify
- Whether service recovery is sustained: monitor car velocity, terminal dwell, train speed, and trip-plan compliance alongside hiring and workforce availability.
- Whether pricing and surcharge recovery offset inflation and fuel costs, including the effect of the surcharge lag and changes in traffic mix.
- Whether the planned operating-ratio improvement and 2023 volume expectations materialize amid the company’s cited weak industrial-production outlook.
- Debt maturities, refinancing access, leverage, covenant headroom, and liquidity if operating conditions deteriorate.
- Actual capital spending versus the $3.6 billion plan and the resulting effect on free cash flow, dividends, and repurchases.
- Developments in labor, antitrust, personal-injury, environmental, safety, and cybersecurity matters, including any changes to recorded reserves or management’s stated assessments.