What Union Pacific (UNP) Said on Its Q3 Earnings Call

Key Points

• Record Q3 performance: Union Pacific’s net income reached $2.1 billion, while adjusted EPS rose 15% to $3.53 and operating revenue increased 15% to $7.2 billion on 6% freight-volume growth.
• Strong intermodal and industrial demand: Premium revenue grew 21% and volume rose 9%, led by record domestic intermodal activity, while industrial revenue increased 14%. Operational productivity also improved, though higher diesel prices drove a 69% increase in fuel expense and pressured the operating ratio.
• Merger and outlook: Union Pacific continued preparations for its proposed Norfolk Southern merger, expected to close in the second half of 2027, while reaffirming high-single-digit 2026 EPS growth and raising planned 2026 capital spending to $3.5 billion.

Union Pacific NYSE: UNP reported record third-quarter financial results as freight volume growth, operating productivity and intermodal demand supported higher revenue and earnings, while elevated diesel prices remained a significant cost headwind.

Net income totaled $2.1 billion, and adjusted earnings per share increased 15% year over year to $3.53, Chief Executive Officer Jim Vena said during the company’s Oct. 22 earnings call. Operating revenue rose 15% to $7.2 billion, including a 15% increase in freight revenue to $6.8 billion on 6% volume growth.

“Our third quarter results reflect the strength of our franchise and our ability to execute at a consistently high level,” Vena said. He cited the company’s volume growth and a 110-basis-point improvement in its core operating ratio, excluding the effects of fuel and merger costs.

Fuel Costs Pressure Reported Operating Ratio

CFO Jennifer Hamann said total operating expenses increased 15% to $4.3 billion, led primarily by higher diesel fuel prices. Fuel expense rose 69% as the average fuel price increased 64% from $2.56 per gallon a year earlier to $4.21 per gallon. Higher fuel costs added 140 basis points to the operating ratio, she said.

Union Pacific reported an operating ratio of 58.8% and reported earnings per share of $3.49. Compensation and benefits expense increased 4%, reflecting a 5% increase in cost per employee from higher wages, incentive compensation and training costs. However, headcount declined 1% while carload volumes rose 6%, producing the company’s ninth consecutive quarter of record workforce productivity.

Cash from operations increased 18% to $8.3 billion, while free cash flow totaled $2.4 billion after network investment. The company raised its quarterly dividend by 3%, marking its 20th consecutive year of an annual dividend increase. It ended the quarter with $3.1 billion in cash and short-term investments and an adjusted debt-to-EBITDA ratio of 2.4 times.

Hamann said Union Pacific is continuing to build cash reserves ahead of its anticipated closing of the Norfolk Southern merger in the second half of 2027. The company affirmed its outlook for reported earnings-per-share growth in the high single digits for 2026, compared with reported 2025 EPS of $11.98. It also raised planned 2026 capital spending to $3.5 billion, pulling forward certain projects originally planned for 2027.

Intermodal and Industrial Markets Lead Volume Growth

Executive Vice President of Marketing and Sales Kenny Rocker said freight revenue excluding fuel surcharge reached a record $5.6 billion, up 6%. Business mix muted the pricing contribution because nearly 75% of quarterly volume growth came from domestic and international intermodal traffic.

• Bulk: Revenue increased 10% on flat volume. Grain and grain products benefited from export demand and renewable-fuel activity, partly offset by lower wheat shipments. Coal and renewables volume fell 3% amid lower natural-gas prices and elevated inventories.
• Industrial: Revenue rose 14% and volume increased 6%, with record industrial carloads and freight revenue excluding fuel. Growth was supported by construction-related metals shipments, domestic steel demand, petroleum products and business-development wins.
• Premium: Revenue increased 21% and volume rose 9%. Domestic intermodal recorded its fifth consecutive quarter of record volume and revenue, with volume up 13%. International intermodal volume rose 8%, helped by West Coast imports and business wins.

Rocker said domestic intermodal is positioned to deliver its third consecutive record-volume year, supported by over-the-road conversions and service performance. International intermodal volumes are expected to grow by double digits in the fourth quarter after lapping prior-year tariff volatility.

He also said Union Pacific expects opportunities for stronger pricing as contracts reset following an improvement in truck-market conditions during the spring and summer. The company said its intermodal operations have benefited from capacity investments in locations including the Twin Cities, Phoenix, Kansas City and the Inland Empire.

Operational Metrics Improve With Higher Volumes

Executive Vice President of Operations Eric Gehringer said the railroad handled higher demand while improving several operating measures. Freight-car velocity rose 1% to 228 miles per day, while terminal dwell improved 2%. Terminal dwell remained below 20 hours for a fourth consecutive quarter.

The intermodal service performance index was 92% as intermodal volume increased 11%, while the manifest service performance index was 93% against what the company described as record industrial carloads. Train length increased 2% to nearly 10,000 feet, and fuel consumption per unit of output declined 2%, setting a quarterly record.

Gehringer said Union Pacific added resources to support growth but retained additional buffer capacity. The active locomotive fleet increased 2% to handle a 4% increase in gross ton-miles, while locomotive productivity remained even with the prior year’s record third quarter.

Norfolk Southern Merger Remains Central Focus

Vena said the Surface Transportation Board has issued a procedural schedule for Union Pacific’s proposed combination with Norfolk Southern. Based on that schedule, he said the company expects to report its first earnings as a merged entity about a year from now.

Union Pacific has requested permission for ex parte communications with the STB for a second time, according to Vena, saying it is willing to discuss the details of its merger application. He said the company believes the transaction would lower transportation costs, improve service speed and create more seamless rail options for customers.

Vena said Union Pacific has received more than 500 customer letters supporting the merger and is working with about 30 customers on integration planning. He also said the company has provided job protections for employees, while acknowledging that some labor groups remain opposed.

Near the close of the call, Vena announced that Hamann will leave the company early next year after extending her tenure by an additional year. He credited her with helping lead the company through its recent performance and merger planning.

About Union Pacific (NYSE:UNP)

Union Pacific Corporation NYSE: UNP is a transportation company that operates one of the largest freight railroad networks in the United States. Through its Union Pacific Railroad subsidiary, the company moves goods across the western two-thirds of the country, connecting major agricultural, industrial, energy, population and port markets.

Union Pacific transports a broad range of commodities and products, including agricultural goods, automotive shipments, chemicals, coal, industrial products, forest products and intermodal containers.

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