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Union Pacific Corporation (UNP) owns transportation companies, of which its principal operating company, Union Pacific Railroad Company, connects 23 states in the western 66% of the United States. The company reported earnings before the market opened on 23Jan14 and on the surface everything looked good with the company reporting fourth quarter earnings of $2.55 per share (beating analysts' estimates by $0.06) on revenue of $5.63 billion (missing analysts' estimates by $90 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Revenue (millions)

4Q13

4Q12

Y/Y

Agriculture

$ 937

$ 785

19%

Automotive

$ 544

$ 466

17%

Chemicals

$ 855

$ 834

3%

Coal

$ 985

$ 990

-1%

Industrial Products

$ 954

$ 835

14%

Intermodal

$ 1,022

$ 1,021

0%

Total

$ 5,297

$ 4,931

7%

Compared to last year total revenue has increased by 7%. The agricultural segment accounted for about 18% of total revenues and showed a 19% increase from the prior year. Autos have been a hot industry in The States for about a year now and it's indicated in Union Pacific's revenue (Autos account for about 10% of revenues) as that segment rose 17%. Another big revenue maker is the industrial products segment which accounts for about 18% of revenues and it had a 14% increase from the prior year. Union Pacific isn't levered too much to one segment of the economy and its revenue streams are well diversified.

Income Statement

Income Statement

4Q13

4Q12

Y/Y

Freight Revenue

$ 5,297

$ 4,931

7%

Other Revenue

$ 333

$ 319

4%

Total Operating Revenue

$ 5,630

$ 5,250

7%

Compensation & benefits

$ 1,210

$ 1,135

7%

Fuel

$ 905

$ 920

-2%

Purchased services and materials

$ 585

$ 533

10%

Depreciation

$ 458

$ 453

1%

Equipment and other rents

$ 311

$ 302

3%

Other

$ 188

$ 182

3%

Total Operating Expenses

$ 3,657

$ 3,525

4%

Operating Income

$ 1,973

$ 1,725

14%

Other income

$ 37

$ 43

-14%

Interest expense

$ (127)

$ (128)

-1%

Income before income taxes

$ 1,883

$ 1,640

15%

Income taxes

$ (709)

$ (604)

17%

Net Income

$ 1,174

$ 1,036

13%

Avg. number of basic shares

458.1

468.8

-2%

Avg. number of diluted shares

460.7

472

-2%

Earnings per basic share

$ 2.56

$ 2.21

16%

Earnings per diluted share

$ 2.55

$ 2.19

16%

Overall operating revenue increased 7% from 2012 while operating expenses also increased but by only 4%, therefore making operating income increase by a dandy 14%! The company is definitely operating on all cylinders. Another highlight is that income before taxes increased by 15% on the year but taxes themselves increased 17%, causing net income to increase 13% which is not too shabby. All this excellent execution by the company allowed earnings per share to increase by 16% from 4Q12 on both the basic and diluted share side of things.

Balance Sheet

Balance Sheet

4Q13

4Q12

Y/Y

Cash and cash equivalents

$ 1,432

$ 1,063

35%

Other current assets

$ 2,558

$ 2,551

0%

Investments

$ 1,321

$ 1,259

5%

Net Properties

$ 43,749

$ 41,997

4%

Other assets

$ 671

$ 283

137%

Total Assets

$ 49,731

$ 47,153

5%

Debt due within one year

$ 705

$ 196

260%

Other current liabilities

$ 3,086

$ 2,923

6%

Debt due after one year

$ 8,872

$ 8,801

1%

Deferred income taxes

$ 14,163

$ 13,108

8%

Other long-term liabilities

$ 1,680

$ 2,248

-25%

Total Liabilities

$ 28,506

$ 27,276

5%

Total common shareholders' equity

$ 21,225

$ 19,877

7%

Total Liabilities & common shareholders' equity

$ 49,731

$ 47,153

5%

The balance sheet looks pretty clean as cash and cash equivalents have increased 35% from last year while other assets have increased an astounding 137%. The 4% increase in net properties though is what helped total assets increase by 5% on the year. On the liability side of things the total debt that is coming due within a year increased a dramatic 260%, but that's okay because the cash alone on hand can do away with that debt handily. Other long-term liabilities have decreased 25%, making total liabilities increase by 5%. Shareholder's equity increased by 7% in the past year as well.

Conclusion

The company reported earnings which were 16% higher than a year before on more revenue while the share price was up 31.42% in the past year excluding dividends. The share count has decreased slightly for the entire year. I definitely love that both earnings per share and revenue were up year over year. The stock was up 3.34% the day it reported while the S&P500 (SPY) was down 0.89%. On a fundamental basis this railroad company is fairly valued with respect to 2014 earnings. The company reported beautiful results in my opinion. Even though the company may pull back with the broader market this is one company I want to be buying up, even after that move higher on earnings!

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Union Pacific's Earnings Increase 16% Year Over Year And I Think It's A Buy