UP posts lower net income, operating revenue in Q2

Union Pacific Corp. today reported second-quarter 2023 net income of $1.6 billion, or $2.57 per diluted share, compared with $1.8 billion, or $2.93 per diluted share, in the same quarter a year ago.

The 2023 results include the previously disclosed $67 million labor expense and $73 million income tax benefit.

UP posted Q2 operating revenue fell 5% to $6 billion compared with a year ago. The decrease was driven by reduced fuel surcharge revenue, lower volumes and an unfavorable business mix partially offset by core pricing gains.

"The results this quarter were impacted by softening consumer markets, inflation, a one-time labor expense and increased workforce levels,” said Chairman, President and CEO Lance Fritz said in the press release.

Also in Q2 2023:

• Business volumes, as measured by total revenue carloads, were down 2%;
• Operating ratio was 63%, up 280 basis points. This includes an unfavorable 110 basis-point impact from a one-time labor agreement payment and a 200 basis-point benefit from falling fuel prices;
• Operating income of $2.2 billion declined 12%; and
• UP repurchased 600,000 shares in second quarter 2023 at an aggregate cost of $120 million.

Supported by a larger crew base, UP’s service performance improved during the quarter versus a year ago. In addition:

• Freight car velocity was 202 daily miles per car, an 8% improvement;
• Locomotive productivity was 126 gross ton-miles (GTMs) per horsepower day, a 2% improvement;
• Average maximum train length was 9,316 feet, a 1% decline;
• Workforce productivity decreased 5% to 983 car miles per employee;
• Fuel consumption rate of 1.086, measured in gallons of fuel per thousand GTMs, deteriorated 1%; and
• UP’s first half reportable derailment rate improved 9% to 2.45 per million train miles compared to 2.68 for 2022.

"We took actions throughout the second quarter to drive greater network fluidity and provide our customers with better service," said Fritz. "We finished the quarter with resource levels more aligned with demand, as we stored excess locomotives, improved recrew rates and reduced borrowed-out employees."

For its 2023 outlook, the company anticipates:

• Consumer-related volumes likely will drive full year volume expectations below industrial production (current forecast: +0.1%);
• Pricing dollars in excess of inflation dollars;
• $50 million to $70 million in labor expenses from new agreements in 2023’s second half; and
• a $3.6 billion capital plan.

"The entire team remains focused on maintaining a solid service product while taking steps to recapture lost productivity and lay a strong foundation for sustainable future success," said Fritz.