Impairment charge flattens Union Pacific’s Q4 profit gains

A photograph of a Union Pacific train traveling through a field.

Union Pacific’s (NYSE: UNP) net profit for the fourth quarter of 2020 was on par with the fourth quarter of 2019 amid a $278 million, pretax, noncash impairment charge related to its change of plans for the Brazos yard in Texas.

Union Pacific’s (UP) fourth-quarter net income was $1.4 billion, or $2.05 per diluted share, compared with $1.4 billion, or $2.02 per diluted share, in the fourth quarter of 2019.

Without the impairment charge, UP’s fourth-quarter net profit would have been $1.6 billion, or $2.36 per diluted share.

“These outstanding results demonstrate the true potential of our franchise as we leveraged all three profitability drivers simultaneously – volume growth, productivity and pricing – to produce record fourth-quarter results,” said UP President and CEO Lance Fritz in a release.

Fourth-quarter operating revenue fell 1% to $5.1 billion year-over-year, although business volumes rose 3%. UP uses total revenue carloads to measure business volumes.

Freight revenue was down 1% as decreased fuel surcharge revenue and a less favorable business mix outweighed volume growth and core pricing gains, UP said.

Premium volumes, which include UP’s intermodal product, were up 5% over a year ago, UP said. But bulk volumes were “flat,” according to UP, up 1%, while industrial volumes slipped 7%. 

Operating expenses rose 1% to $3.1 billion.

UP’s operating ratio (OR) reached an all-time quarterly record of 55.6%, compared with 59.7% in the fourth quarter of 2019. That figure factors in the impairment charge. Without the charge, UP’s OR would have been 61%. Investors use OR to gauge the financial health of a company, with a lower OR implying improved health. OR is a company’s operating expenses as a percentage of its revenue. 

Service metrics mostly improved year-over-year. Average train speed was 26.1 mph compared with 26.2 mph in the fourth quarter of 2019, while average terminal dwell fell 4% to 22.4 hours compared with 23.3 hours in the fourth quarter of 2019.

UP said its freight car velocity was 223 daily miles per car, a 1% gain, while locomotive productivity rose 13% to 142 gross ton-miles per horsepower day. 

Average train length increased 12% to 9,154 feet.

Looking ahead to 2021, Fritz said, “While the economic outlook for 2021 remains uncertain, we will build off our solid 2020 performance to produce continued strong productivity through operational excellence.”

He continued, “We expect our enhanced service product will support both solid core pricing gains while also increasing our share of the freight transportation market. Our confidence in our ability to drive value for all of our stakeholders has never been greater.”

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