Financial wise: Second quarter net income was static $1.8 billion, earnings per share up slightly
Power wise: $1 billion agreement with Wabtec Fort Worth plant will modernize 600 locomotives
Union Pacific Corporation (NYSE: UNP) today reported 2022 second quarter net income of $1.8 billion, or $2.93 per diluted share. This compares to 2021 second quarter net income of $1.8 billion, or $2.72 per diluted share.
“As anticipated, the Second Quarter was a tough one as we limited carloadings and increased expenses to recover network fluidity,” said Lance Fritz, Union Pacific chairman, president, and chief executive officer. “We also experienced record high fuel prices and increasing inflation, adding pressure to our total costs. Offsetting the cost pressures were higher fuel surcharge revenue, solid core pricing, a positive mix, and continued train size initiatives. The result was operating revenue and income growth. Our network fluidity improved through the quarter, and we are positioned to grow volumes in the back half of 2022 while continuing to improve our service product.”
Union Pacific signed a historic deal with Wabtec Corporation for 600 locomotive modernizations worth more than $1 billion and is the largest investment in modernized locomotives in rail industry history. It's part of Union Pacific’s fleet strategy to move more freight efficiently and sustainably across its service territory. The largest share of the modernization work will take place at Wabtec's Fort Worth Alliance facility.
“Union Pacific is taking thoughtful, deliberate steps to reduce our environmental impact and to help our partners improve theirs,” said Lance Fritz, Chairman, President and CEO of Union Pacific. “Wabtec’s modernization program helps make our existing fleet more fuel efficient, capable and reliable. The resulting increased tractive power enables us to move more freight with fewer locomotives, which improves efficiency and reduces emissions.”
Wabtec will modernize 525 of Union Pacific’s AC4400 and AC6000 locomotives, as well as 75 Dash-9 locomotives. The modernized locomotives will feature a suite of digital innovations such as the FDL Advantage engine upgrade and Modular Control Architecture, a next-generation controls technology that is applicable throughout Wabtec’s locomotive installed base. The modernizations will extend the locomotive’s life and provide benefits, including a fuel efficiency improvement of up to 18%; more than 80% increase in reliability; and haulage ability increase of more than 55%.The modernizations will provide approximately 350 tons of carbon reduction per locomotive per year.
Financial results by the numbers:
Second Quarter 2022 Compared to Second Quarter 2021
Operating revenue of $6.3 billion was up 14% driven by higher fuel surcharge revenue, core pricing gains, and a positive business mix, offset slightly by volume declines.
Business volumes, as measured by total revenue carloads, were down 1%.
Union Pacific’s 60.2% operating ratio deteriorated by 510 basis points. Higher fuel prices negatively impacted the operating ratio 130 basis points.
Operating income of $2.5 billion was up 1%.
The company repurchased 3.1 million shares in second quarter 2022 at an aggregate cost of $722 million.
Operating Performance: Service and Efficiency Measures Lag as Network Recovery Continues Second Quarter 2022 Compared to Second Quarter 2021
Quarterly freight car velocity of 187 daily miles per car, a 12% decline.
Quarterly locomotive productivity was 123 gross ton-miles (GTMs) per horsepower day, a 12% decline.
Average maximum train length was flat at 9,439 feet.
Quarterly workforce productivity was 1,034 car miles per employee, a 2% decline.
Fuel consumption rate of 1.076, measured in gallons of fuel per thousand GTMs, was flat.
Union Pacific’s first half reportable personal injury rate improved to 0.93 per 200,000 employee-hours compared to 0.95 for first half 2021.
2022 Guidance: First Half 2022 Results Challenge Previous Full Year Volume and Operating Ratio Targets Updated
Stronger second half volumes should produce full year carload growth of 4% to 5%
Full year operating ratio around 58%
Second half operating ratio improvement vs. 2021
Second half incremental margins around 50%
Pricing gains in excess of inflation dollars
Capital spending of $3.3 billion
Long term dividend payout target of 45% of earnings