Union Pacific Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparative period is Q1 2021. Union Pacific operates an integrated railroad business reported as one operating segment. Financial statements are unaudited.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $5.860 billion | $5.001 billion | +17% |
| Operating income | $2.377 billion | $1.993 billion | +19% |
| Net income | $1.630 billion | $1.341 billion | +22% |
| Diluted EPS | $2.57 | $2.00 | +29% |
| Operating ratio | 59.4% | 60.1% | Improved 0.7 points |
| Cash from operations | $2.236 billion | $1.958 billion | +14% |
| Capital investments | $848 million | $536 million | +58% |
| Free cash flow | $657 million | $803 million | −18% |
Freight revenue rose 17%, reflecting 12% higher average revenue per car and 4% more carloads. Fuel surcharge revenue increased to $635 million from $260 million. Revenue grew across bulk, industrial, and premium categories, though intermodal and petroleum volumes declined.
Operating expenses increased 16% to $3.483 billion. Fuel expense rose 74%, including a 59% increase in average locomotive diesel price to $2.95 per gallon. Compensation and benefits rose 7%; purchased services and materials increased 14%. The effective tax rate was 23.0%, versus 23.5%.
Financial position and liquidity
- At March 31, cash and cash equivalents were $909 million; current assets were $3.876 billion and current liabilities were $5.462 billion.
- Reported debt was approximately $32.239 billion, comprising $1.559 billion due within one year and $30.680 billion due thereafter. Adjusted debt was $33.743 billion and adjusted debt/adjusted EBITDA was 2.8x, versus 2.7x at year-end 2021.
- Cash used in financing was $1.453 billion, including $2.743 billion for share repurchases and $743 million of dividends, partly offset by $3.490 billion of debt issuance. Cash and restricted cash declined $53 million during the quarter.
- Union Pacific had $2.0 billion available on its revolving credit facility and reported compliance with its debt covenant. The facility permits up to $43.0 billion of covenant-defined debt; $34.0 billion was outstanding under that definition.
Material changes, outlook, and risks
- Management attributed improved year-over-year results partly to the impact of Winter Storm Uri on Q1 2021, which had reduced carloads and raised costs. Q1 2022 revenue gains were partly offset by higher fuel, inflation, volume-related costs, and reduced network fluidity.
- Operating performance weakened amid congestion: freight car velocity fell 5%, average train speed fell 4%, and both intermodal and manifest/automotive trip-plan compliance declined 6 percentage points. Management cited ongoing supply-chain disruption and increased operating car inventory.
- Management expected 2022 capital expenditures of approximately $3.3 billion, up 10% from 2021, for infrastructure, capacity, rolling stock, technology, safety, and operating-efficiency projects. The filing does not provide a specific full-year earnings or revenue forecast.
- Management said liquidity analysis indicated borrowing capacity to sustain an extended period of lower volumes. It stated that known claims and contingencies were not expected to have a material adverse effect, while noting estimates and outcomes remain uncertain.
- The Russia-Ukraine conflict contributed to higher crude oil and fuel prices; average fuel prices increased 59% year over year. The company reviewed customer and supplier relationships for sanctions compliance and did not expect identified potential actions to have a material adverse effect.
- Environmental liabilities were $268 million, up from $243 million at year-end; the company identified 367 sites where it may have remediation responsibility. Personal-injury liabilities were $332 million, with estimated future settlement costs of approximately $332 million to $366 million.
- Subsequent events: the company drew $600 million on its receivables facility on April 14 and redeemed $750 million of notes on April 15. A new authorization effective April 1 permits repurchases of up to 100 million shares through March 31, 2025.
Important facts for investors to verify
- Whether service reliability and network fluidity improve, given the deterioration in velocity, speed, dwell, and trip-plan compliance.
- How fuel prices, inflation, and fuel-surcharge recovery affect costs, pricing, margins, and cash generation in subsequent quarters.
- Execution and funding of the approximately $3.3 billion capital plan, alongside dividends, debt service, and the new share-repurchase authorization.
- Debt levels and leverage, including the effects of new borrowing, the April note redemption, and the receivables-facility draw.
- Developments in environmental and personal-injury claims, supply-chain disruption, and geopolitical or sanctions-related exposure.