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Summary

  • Revenue increased by 7%.
  • Earnings increased by a whopping 17%.
  • Agriculture and industrial segments of the economy are performing well while the auto sector may be in a decline.

The last time I wrote about Union Pacific Corporation (NYSE:UNP), I stated:

"Due to the tiring bullish technicals, fair valuation on future growth, and macroeconomic concerns I'm not going to be buying a position at this price." Since that article was published the stock is up 5.85% while the S&P 500 (NYSEARCA:SPY) was up 1.56%. Union Pacific Corporation 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 17Apr14 and on the surface the results were mixed with the company reporting earnings of $2.38 per share (beating estimates by $0.01) on revenue of $5.64 billion (missing estimates by $60 million). What I'd like to do 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)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Agriculture

$ 910

$ 937

$ 784

-3%

16%

Automotive

$ 488

$ 544

$ 487

-10%

0%

Chemicals

$ 893

$ 855

$ 873

4%

2%

Coal

$ 961

$ 985

$ 936

-2%

3%

Industrial Products

$ 1,011

$ 954

$ 916

6%

10%

Intermodal

$ 1,023

$ 1,022

$ 988

0%

4%

Total

$ 5,286

$ 5,297

$ 4,984

0%

6%

Instantly what I noticed looking at the segment revenue is that agriculture freight increased 16% from last year. Agriculture freight accounts for 17% of total revenues. Agriculture freight includes whole grains, commodities produced from grains, and food and beverage products including fresh and frozen fruits and vegetables, dairy products, and beverages. The company has the majority of the access to American grain markets with its Midwest and West hubs. However, on a quarterly basis the revenue in the agriculture segment did decrease 3%.

Another eye popping number is the 10% increase in industrial products from the prior year. Industrial products accounts for 19% of total revenues. Industrial freight includes lumber, steel, construction products, paper, consumer goods, metals, and industrial minerals. On a quarterly basis the revenue in the industrial segment did increase 6%.

Overall revenue increased 6% from the prior year but remained flat from the prior quarter. One concerning item is the 10% decrease from last quarter in automotive shipments, I'll have to keep an eye on this issue in the coming quarter.

Income Statement

Income Statement

1Q14

4Q13

1Q13

Q/Q

Y/Y

Freight Revenue

$ 5,286

$ 5,297

$ 4,984

0%

6%

Other Revenue

$ 352

$ 333

$ 306

6%

15%

Total Operating Revenue

$ 5,638

$ 5,630

$ 5,290

0%

7%

Compensation & benefits

$ 1,254

$ 1,210

$ 1,216

4%

3%

Fuel

$ 921

$ 905

$ 900

2%

2%

Purchased services and materials

$ 607

$ 585

$ 557

4%

9%

Depreciation

$ 464

$ 458

$ 434

1%

7%

Equipment and other rents

$ 312

$ 311

$ 313

0%

0%

Other

$ 226

$ 188

$ 237

20%

-5%

Total Operating Expenses

$ 3,784

$ 3,657

$ 3,657

3%

3%

Operating Income

$ 1,854

$ 1,973

$ 1,633

-6%

14%

Other income

$ 38

$ 37

$ 40

3%

-5%

Interest expense

$ (133)

$ (127)

$ (128)

5%

4%

Income before income taxes

$ 1,759

$ 1,883

$ 1,545

-7%

14%

Income taxes

$ (671)

$ (709)

$ (588)

-5%

14%

Net Income

$ 1,088

$ 1,174

$ 957

-7%

14%

Avg. number of basic shares

454.1

458.1

467.8

-1%

-3%

Avg. number of diluted shares

456.2

460.7

470.5

-1%

-3%

Earnings per basic share

$ 2.40

$ 2.56

$ 2.05

-7%

17%

Earnings per diluted share

$ 2.38

$ 2.55

$ 2.03

-6%

17%

On the income statement there was a 15% increase from last year for other revenue which helped close out a 7% increase in total operating revenue from the previous year. Total operating expenses increase 3% from last year as operating income increased a whopping 14% for the same timeframe. Income before taxes kept up at 14% from the prior year, but income taxes increased 14%. The increase in taxes didn't really affect net income much as a 14% increase from the prior year was posted. On the bottom line earnings increased 17% from the prior year but decreased 6% from last quarter.

Balance Sheet

Balance Sheet

1Q14

4Q13

1Q13

Q/Q

Y/Y

Cash and cash equivalents

$ 1,857

$ 1,432

$ 1,432

30%

30%

Other current assets

$ 2,822

$ 2,558

$ 2,558

10%

10%

Investments

$ 1,344

$ 1,321

$ 1,321

2%

2%

Net Properties

$ 44,189

$ 43,749

$ 43,749

1%

1%

Other assets

$ 686

$ 671

$ 671

2%

2%

Total Assets

$ 50,898

$ 49,731

$ 49,731

2%

2%

Debt due within one year

$ 632

$ 705

$ 705

-10%

-10%

Other current liabilities

$ 3,556

$ 3,086

$ 3,086

15%

15%

Debt due after one year

$ 9,544

$ 8,872

$ 8,872

8%

8%

Deferred income taxes

$ 14,229

$ 14,163

$ 14,163

0%

0%

Other long-term liabilities

$ 1,665

$ 1,680

$ 1,680

-1%

-1%

Total Liabilities

$ 29,626

$ 28,506

$ 28,506

4%

4%

From the balance sheet perspective the company increased cash and equivalents by 30% from last year while increasing other current assets by 10% in the same timeframe. These two large increases helped total assets increase 2% from last year.

On the debt side of things the debt due within one year decreased by 10% which is a good sign, but other current liabilities increased 15%! On the whole, the liability segment of the balance sheet increased 4% from last year.

Conclusion

The company reported earnings which were 17% higher than a year before on 6% more revenue while the share price was up 12.96% in the past year excluding dividends. The share count has decreased by 3% for the entire year. I definitely love that both revenue and earnings were up on a yearly basis. The results were great to me, and investors seem to think the same as the stock popped 0.77% after reporting while the S&P500 increased in value by 0.14%. That being said, I think the stock is fairly valued. Union Pacific is one of my favorite companies to listen to during earnings season because it provides me with insight as to what segments of the economy are performing well. From this earnings report I glean that the industrial sector and agriculture are performing really well, but that the auto sector might not be doing so well. With the great results the stock is in my starting lineup.

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 Earnings Are Chugging Along Higher