Union Pacific Corporation (UNP) Earnings & Analysis

Latest quarter

Union Pacific reported third-quarter revenue of $7.2 billion, above the $7.1 billion consensus. Adjusted earnings per share were $3.53, above the $3.47 consensus; reported diluted EPS rose to $3.49 from $3.01 a year earlier.

The company said freight revenue rose 15% as higher fuel surcharges, 6% volume growth and core pricing gains outweighed a shift toward lower-revenue intermodal shipments. Its filing said premium freight revenue rose 21%, with intermodal volume up 11%, while bulk freight revenue rose 10% on essentially flat volume. Industrial shipment volumes increased 6%, while coal shipments declined.

Union Pacific’s gross margin was 57.6%, down from 59.8% a year earlier, while its operating margin was 40.9%, compared with 40.8%. The company reported quarterly free cash flow of $1.8 billion, up from $1.6 billion a year earlier. Its filing said operating expenses rose 15%, driven in part by higher fuel prices and volume-related costs.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CFO Jennifer Hamann said nearly 75% of quarterly volume growth came from domestic and international intermodal traffic, masking pricing gains in the freight mix. She said higher fuel prices and related surcharges added 900 basis points to freight revenue, while pricing gains continued to exceed inflation dollars.

Asked when pricing might accelerate as volumes improve and trucking rates rise, marketing and sales chief Kenny Rocker said Union Pacific competes with barges, trucks and customers’ sourcing alternatives. He said, “We are going to price to what the market can support.” Rocker also said changes in truck rates and capacity occurred after much of the bid season, and he expected a better pricing environment into the first several months of 2027.

Rocker attributed earlier volume growth to service, business development and network investments, while saying higher fuel prices had helped the railroad win some business more recently. CEO Jim Vena said Union Pacific must show customers trying rail that its service is consistent enough to retain them, although he acknowledged that some may not stay.

On costs, Hamann said diesel prices added 140 basis points to the third-quarter operating ratio. She expected fuel to have a somewhat greater effect in the fourth quarter, when Union Pacific anticipates an average price of around $4.85 per gallon. Vena said the core operating ratio improved 110 basis points from a year earlier after excluding fuel-price effects and merger costs.

Operations chief Eric Gehringer said longer trains and locomotive management contributed to a 2% improvement in fuel conservation during the quarter. Hamann said the company updated its 2026 capital-spending plan to $3.5 billion, including work brought forward from 2027.

On the proposed Norfolk Southern merger, Vena said the Surface Transportation Board had published a procedural schedule and that Union Pacific had again requested direct discussions with the regulator. Hamann said the company would continue building cash reserves in anticipation of closing in the second half of 2027.

Guidance

CFO Jennifer Hamann said Union Pacific updated its capital-spending plan for 2026 to $3.5 billion. She said the company is investing for growth and bringing forward some capital work that had been planned for 2027 into the current year.