Union Pacific says it’s ready to take on more

Union Pacific (NYSE: UNP) has the network capacity to handle any volume rebound in 2021 and even has room to grow, executives said Thursday during the railroad’s fourth-quarter earnings call.

Union Pacific’s (UP) deployment of precision scheduled railroading has created quite a bit of open capacity, President and CEO Lance Fritz said on the earnings call. “Nothing would please us more to have more volume growth to justify an increase” in our budget for capital expenditures.

UP is planning a capital expenditures budget of around $2.9 billion for 2021 compared with $2.84 billion for 2020.

UP sees the additional capacity as coming through operational adjustments that the company has made over the past several quarters and is continuing to make, such as how UP operates intermodal terminals and ramps and how UP works with customers to move goods more efficiently, executives said. It also includes finding ways to combine different types of carload traffic moving on a train.

“We’re being very judicious” by looking for the largest opportunities that enable UP to grow capacity without increasing the budget for capital expenditures, according to Eric Gehringer, UP executive vice president for operations.

Although lengthening trains and constructing the accompanying sidings is one way to increase capacity, another is using technology to find and capitalize on what’s already available on the network, according to Gehringer.

“We’re seeing the railroad with better clarity than we have before,” Gehringer said.

UP anticipates a favorable international intermodal market in 2021, although its growth will depend on several factors, including consumer spending, trade actions and the pace of COVID-19 vaccinations.

Meanwhile, although mid-January is still early in the bid season, a tight truck market is creating favorable opportunities so far for UP, according to Kenny Rocker, executive vice president for marketing and sales. Also, congestion at the West Coast ports is related to equipment such as chassis not turning around fast enough. Once the boxes get onto UP’s network, they aren’t facing congestion, he said.

UP also expects full-year sales growth of 4%-6%, and that range could’ve been higher were it not for export coal headwinds, according to Rocker.

Fourth-quarter 2020 financial results

UP’s net profit for the fourth quarter 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.

UP’s 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.

Union Pacific	2020 Value	2019 Value	Y/Y Gross Change	Y/Y % Change
Freight revenue (in millions)	$4,803	$4,851	($48)	-1%
Carloads (in thousands) (includes intermodal)	2,051	1,993	58	2.9%
Revenue per carload	$2,341	$2,435	-$94	-3.9%
Gross ton miles (in millions)	202,844	200,801	2,043	1%
Revenue ton-miles (in millions)	101,466	99,932	$1,534	1.5%
Employee counts	29,753	34,563	-4,810	-13.9%
Train velocity (mph)	26.1	26.2	0	-0.4%
Dwell time (hours)	22.4	23.3	-1	-3.9%
OR%	61%	59.7%	1.3%	2.2%
EPS	$2.05	$2.02	$0.03	1.5%