Earnings Recap: Union Pacific Corporation (UNP) Stands Out

Page 1 of 2

The country’s major railroad companies recently came out with their 4th quarter and 2012 full year earnings. The amount of exposure to the weak coal markets helped discern the winners and losers among the rail companies. Low supplies of corn negatively affected agricultural revenue throughout the industry. Housing helped drive industrial product revenues, and oil demand continues to drive chemical freight. Overall, the western railroads won out in 2012:

Consolidated 2012 figures
Norfolk Southern Corp. (NYSE:NSC)

(East)

CSX Corporation (NYSE:CSX)

(East)

Kansas City Southern (NYSE:KSU)

(Midwest)

Union Pacific Corporation (NYSE:UNP)

(West)

Yearly revenue growth (1%) 0.1% 7% 7%
Yearly operating income growth (3%) 1% 17% 18%
Operating ratio 72% 71% 68% 68%
Yearly net income growth (9%) 2% 15% 20%
Yearly operating cash flow growth (5%) (16%) 6% 5%
Yearly free cash flow growth (12%) (45%) (3%) (8%)
P/E ratio 13 12 28 16
Dividend growth 28% 20% 100% 29%
Dividend to free cash flow payout 61% 71% 58% 45%

Source: Compiled from SEC documents

Consolidated look

In the table above, Union Pacific and Kansas City Southern increased their revenue the most and possess the highest levels of efficiency.  Kansas City Southern and Union Pacific lead the way on operating cash flow growth increasing 6% and 5% respectively.  Union Pacific and Kansas City Southern also paid out the least amount of free cash flow in dividends further highlighting cash prudence.

Segmented look

1.) Coal - Weaknesses in the coal market put a dent in the revenue of every railroad discussed here. In the table above, the biggest 2012 losers, Norfolk Southern and CSX, experienced a 1% decline and a 0.1% increase respectively in revenue. The coal segment as a percentage of total revenue for Norfolk Southern and CSX clocks in at 26% and 27% respectively.

At the same time, the biggest winners garnered the least amount of revenue from coal. Kansas City Southern and Union Pacific increased 2012 overall revenue 7% (consolidated table above). Percentages of 2012 revenue from coal for Union Pacific and Kansas City Southern came in at 20% and 11% respectively.

Coal segment revenue change for 2012
Norfolk Southern

(East)

CSX

(East)

Kansas City Southern

(Midwest)

Union Pacific

(West)

Coal (17%) (14%) (13%) (4%)

Source: Compiled from SEC documents

Union Pacific’s coal revenues declined 4% representing the lowest decrease of the four railroad companies discussed (see table above). The increase in western coal freight revenue served as a buffer to its decline.

Natural gas prices remain low which means electric utilities will continue to give preference to it over coal, specifically central Appalachian coal. Even if natural gas prices rise, utilities may operate under a contract to utilize natural gas for some time, so the lag may last a while before the switch back to coal can happen. In essence, the coal segment will remain under pressure for some time.



US Natural Gas Wellhead Price data by YCharts

2.) Agriculture – Low corn supplies stemming from last year’s drought provided a boon to the American farmer and fertilizer companies such as Potash Corp./Saskatchewan (NYSE:POT) and Intrepid Potash, Inc. (NYSE:IPI); however, it hurt agricultural railroad freight with fewer crops to haul.

The railroad companies operating in the predominantly agricultural midwest and western states experienced the largest loss in agricultural revenue. Kansas City Southern, which operates predominantly in the Midwest, experienced a 3% drop in agricultural freight revenue. Union Pacific, a mostly western railroader, experienced a 1% decrease in the segment.

Agricultural segment revenue change for 2012
Norfolk Southern

(East)

CSX

(East)

Kansas City Southern

(Midwest)

Union Pacific

(West)

Agricultural 0.5%* (0.5%) (3%) (1%)

*Includes agriculture/consumer/government
Source: Compiled from SEC Documents

Members of the farming community anticipate a number of new growers next season. In the absence of drought conditions a higher supply of corn and other crops will boost this segment.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!