Union Pacific Corporation (UNP) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance with record net income and improved ROIC, despite some volume declines. Cash returns to shareholders are up significantly, and operational efficiency improvements are evident. The Q&A section reveals confidence in managing challenges like inflation and regulatory changes, with a focus on productivity and efficiency gains. Although some responses were vague, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives. The lack of market cap data suggests a cautious approach, but the positive factors outweigh the negatives, leading to a 'Positive' sentiment rating.
Key Financial Performance
2025 full year reported net income $7.1 billion, up 6% year-over-year. The increase was driven by increased other income and higher operating income from revenue growth and productivity.
Earnings per share (EPS) $11.98, up 8% year-over-year. This reflects the company's strong financial performance and revenue growth.
2025 freight revenue (excluding fuel surcharge) Grew 3% year-over-year, setting a best-ever full year record. This was driven by strong core pricing gains and an additional 113,000 railcars, which offset business mix challenges.
Annual operating expenses (adjusted for merger costs and other one-timers) Roughly flat year-over-year. This was achieved despite business growth and inflationary pressures, reflecting disciplined cost management.
Workforce productivity Set a best-ever full year record, utilizing 3% fewer employees to move 1% more volume. This was achieved through operational efficiency and reduced car touches.
2025 full year adjusted operating ratio Improved 60 basis points to 59.3% compared to 2024. This improvement was driven by revenue growth, productivity, and cost management.
Fourth quarter operating revenue $6.1 billion, decreased 1% year-over-year. Freight revenue of $5.8 billion declined 1% due to 4% lower volume, but was partially offset by higher fuel surcharge revenue and core pricing gains.
Fuel surcharge revenue (fourth quarter) $603 million, increased $15 million year-over-year due to higher fuel prices.
Fourth quarter operating expenses Increased 2% to $3.7 billion. This was driven by merger-related costs, higher inflation, and increased maintenance and repair costs.
Fourth quarter net income $1.8 billion, a fourth quarter record. This was supported by industrial park land sales and strong operating performance.
2025 full year cash from operations $9.3 billion, roughly flat year-over-year. Cash conversion declined due to higher cash capital and significant land sales gains.
Cash returned to shareholders (2025) $5.9 billion, up 25% year-over-year. This was achieved through dividends and share repurchases.
Return on invested capital (ROIC) Improved 50 basis points to 16.3% year-over-year, reflecting strong financial performance and operational efficiency.
Freight car velocity (fourth quarter) 239 miles per day, a 9% improvement year-over-year and a best-ever quarterly record. This was driven by improved terminal dwell and process improvements.
Train length (2025 full year) Averaged almost 9,700 feet, a best-ever record. This was achieved through transportation plan adaptations and targeted investments.
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Operating Highlights
Freight Revenue: 2025 freight revenue, excluding the impact of fuel surcharge, grew 3% versus 2024 and set a best-ever full year record.
Operational Metrics: Best-ever records were set in freight car velocity, locomotive productivity, terminal dwell, train length, and fuel consumption.
Domestic Intermodal: 2025 was the best-ever year for domestic intermodal, driven by exceptional service and business wins.
Grain Exports: Lower domestic demand and reduced soybean exports to China were partially offset by business development wins in Mexico.
Renewable Fuels: Growth in renewable fuels and associated feedstocks was tempered by uncertainty around the renewable fuel tax credit.
Safety Performance: Achieved best-ever results in personal injury and derailment rates for 2025.
Workforce Productivity: Set a best-ever full year record by utilizing 3% fewer employees to move 1% more volume.
Operational Efficiency: Improved freight car velocity by 9% and set a best-ever quarterly record.
Merger with Norfolk Southern: Union Pacific is working through the regulatory process to merge with Norfolk Southern, targeting closure in the first half of 2027. The merger aims to enhance competition, move goods faster, and remove millions of trucks off congested highways.
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Risk or Challenges
Weather-related disruptions: Significant weather events impacted operations, particularly in the Southern region (Texas, Louisiana, Arkansas). Recovery efforts were ongoing, with 70% recovery achieved but not yet fully back to normal. Such disruptions could delay services and affect customer satisfaction.
Competitive pressures: Pricing and mix were impacted by competitive and global market environments, particularly in agricultural markets. This could pressure margins and revenue growth.
Economic uncertainties: S&P Global's 2026 economic estimates for industrial production, housing starts, and auto sales have deteriorated. This creates a challenging backdrop for growth and could impact demand for services.
Regulatory hurdles: The merger with Norfolk Southern faced delays due to additional information requests from the Surface Transportation Board (STB). This could extend timelines and create uncertainty around the merger's completion.
Inflationary pressures: Rail inflation is expected to exceed 4% in 2026, impacting costs. Wage inflation and higher guarantee payments are also expected to increase compensation per employee by 4%-5%.
Supply chain disruptions: Lower West Coast imports and customer shifts in intermodal volumes were noted, reflecting ongoing supply chain challenges.
Strategic execution risks: The company faces risks in achieving its 3-year CAGR of high single to low double-digit EPS growth through 2027, given volume and cost headwinds.
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Guidance & Outlook
2026 Compensation Per Employee: Expected to increase by around 4% to 5%, with efforts to offset wage and benefit inflation through process improvements, technology, and investments.
2026 Capital Spending: Targeting approximately $3.3 billion, focusing on safe, reliable, and productive operations, including infrastructure, locomotive modernization, freight car acquisitions, and targeted capacity projects.
2026 Earnings Outlook: Anticipated mid-single-digit growth, despite volume and cost headwinds, with a commitment to high single to low double-digit EPS growth through 2027.
2026 Operating Ratio: Expected to improve compared to 2025, maintaining industry leadership in operating ratio and return on invested capital.
2026 Volume and Market Conditions: Planning for a challenging backdrop with flat industrial production, a decline in housing starts by over 2%, and softening vehicle sales. Opportunities identified in chemicals, domestic intermodal, and renewable fuels.
2026 Coal and Grain Markets: Optimistic about coal potential due to favorable natural gas prices. Grain exports to Mexico and China, along with renewable fuels and feedstocks, expected to support growth.
2026 Intermodal and Automotive Volumes: Continued softness in international intermodal volumes expected in the near term, with opportunities in domestic intermodal. Automotive volumes pressured by softening vehicle sales.
2026 Inflation: Rail inflation expected to slightly exceed 4%, with a focus on pricing to exceed inflation dollars.
Merger with Norfolk Southern: Targeting completion in the first half of 2027, with ongoing regulatory processes and confidence in demonstrating the merger's benefits.
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Shareholder Return Plan
Dividends: Union Pacific returned $5.9 billion to shareholders in 2025 through dividends and share repurchases. The company plans to continue delivering value to shareholders with consistent annual dividend increases in 2026.
Share Repurchases: Union Pacific returned $5.9 billion to shareholders in 2025 through dividends and share repurchases. However, share repurchases are paused in anticipation of the merger with Norfolk Southern.
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Key Q&A
Q:How does the company plan to improve its operating ratio in 2026 despite challenges like accelerated inflation and weak domestic intermodal market?
A:The company plans to improve its operating ratio in 2026 through productivity gains, efficiency improvements, and a more favorable business mix. They do not expect price to be a driver due to inflation and weak domestic intermodal market. They also aim to move every available carload and continue executing well.
Q:What is the variability of the $4 billion gross traffic number from the merger and how are associated costs projected?
A:The $4 billion gross traffic number is considered conservative, and the company is confident in achieving it. They have analyzed traffic growth opportunities and believe the additional movements will have minimal impact on the network. They also rely on existing capacity buffers and investments made in 2023-2025 to handle the new traffic efficiently.
Q:What is the base rate for mid-single-digit growth and how does the company plan to achieve its 2027 outlook?
A:The base rate for mid-single-digit growth is the $11.98 reported EPS. The company plans to achieve its 2027 outlook by continuing to run well, leveraging resources, and capitalizing on market opportunities. They are conservative in their approach and have reduced CapEx to align with network needs.
Q:What is the company's perspective on the potential impact of regulatory changes around switching?
A:The company supports competition and believes customers should have optionality. They emphasize that any regulatory changes should improve the customer experience without complicating operations. They are confident in their ability to compete and provide high service levels.
Q:How does the company view the pricing environment and its ability to achieve pricing gains?
A:The company aims to price above inflation in absolute dollars and is committed to maximizing price based on their strong service product. They acknowledge structural challenges in coal and domestic intermodal markets but remain focused on capturing demand and opening new markets.
Q:What is the company's confidence level in the merger approval and what factors contribute to this confidence?
A:The company is very confident in the merger approval, citing the compelling benefits for customers, employees, and the country. They believe the merger will enhance competition and provide better service. They are addressing regulatory questions and are prepared to provide additional information as needed.
Q:How does the company plan to manage compensation cost increases in 2026?
A:The company plans to offset compensation cost increases through productivity gains, automation, and process improvements. They aim to do more with fewer employees and have already achieved workforce productivity improvements.
Q:What is the company's approach to handling weather-related disruptions?
A:The company focuses on rapid recovery to minimize the impact of weather-related disruptions. They aim to make up for lost carloadings and manage additional costs like crew delays and equipment needs efficiently.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the specific timeline for resubmitting the merger application and the exact impact of regulatory changes on their operations. They also provided vague responses regarding the long-term pricing environment and the detailed breakdown of cost offsets for compensation increases.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ARC business
China development
SP Global
Thursday
car touch
coal demand
comparison
course
credit
development service
development win
drive
estimate
excellence level
forest
freight pricing
freight volume
garage
housing start
import
income park
income record
indicator
information risk
land sale
material
merger
momentum
outlook Slide
park land
partnering
pricing mix
production housing
record income
return
risk uncertainty
softness
sulfur
technology investment
UNP Transcript
Union Pacific Corporation (UNP) Q4 2025 Earnings Call Transcript
Positive1-27
The earnings call summary indicates strong financial performance with record net income and improved ROIC, despite some volume declines. Cash returns to shareholders are up significantly, and operational efficiency improvements are evident. The Q&A section reveals confidence in managing challenges like inflation and regulatory changes, with a focus on productivity and efficiency gains. Although some responses were vague, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives. The lack of market cap data suggests a cautious approach, but the positive factors outweigh the negatives, leading to a 'Positive' sentiment rating.
Union Pacific Corporation (UNP) Presents at UBS Global Industrials and Transportation Conference Transcript
Neutral12-2
Union Pacific Corporation (UNP) Presents at Baird 55th Annual Global Industrial Conference Transcript
Neutral11-11
Union Pacific Corporation (UNP) Q3 2025 Earnings Call Transcript
Unknown10-23
The earnings call reveals mixed signals: record train length and strong coal volumes are positive, but declining volumes and challenging pricing environments are concerning. The merger process is progressing with strong support, yet macroeconomic challenges and unclear guidance create uncertainty. The Q&A highlights management's confidence despite competitive pressures, but lack of specific guidance tempers optimism. Overall, the sentiment is neutral as positive elements are balanced by potential risks and uncertainties.
UNP Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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Why do some answers appear as “Unclear” or “Inaudible”?
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Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
