OMAHA, Neb. — Union Pacific generated record revenue and profits last year despite the impact of crew shortages that snarled operations, hurt service, and limited traffic growth.
“The fourth quarter and 2022 overall were challenging for Union Pacific and our employees. The lengthy labor negotiations tested our workforce, while customers felt the impact of our service issues,” CEO Lance Fritz told investors and analysts on the railroad’s Tuesday morning earnings call.
Fritz acknowledged that 2022 didn’t meet expectations, but said the railroad is on the mend, pointing to UP’s rebound from recent winter storms and a trend of velocity improvements that began in the summer. “We are building resiliency into the network through hiring efforts, shifting critical resources, and better operations,” Fritz says.
Due to economic uncertainty, the railroad’s outlook for 2023 is fuzzy. UP expects volume to be ahead of the rate of industrial production, which the railroad currently expects to decline by 0.5%. UP forecasts that its operating ratio will improve this year as service improves.
For the year, UP’s operating income rose 6%, to $9.9 billion, as revenue grew 14%, to $24.9 billion. Overall traffic volume was up 2%. Earnings per share surged 13%, to $11.21. UP’s full year operating ratio was 60.1%, a 2.9-point increase.
For the fourth quarter, operating income declined 1%, to $2.4 billion, as revenue grew 8%, to $6.1 billion. Earnings per share of $2.67 was up a penny from a year ago. UP’s operating ratio rose 3.6 points, to 61%, as costs rose due to higher fuel prices, inflation, and inefficient operations.
UP’s volume increased 1% for the quarter. Bulk shipments were down 3%, with declines in grain, fertilizer, and food and refrigerated shipments. Industrial products volume was flat. Premium traffic, which includes intermodal and automotive shipments, was up 3% thanks to 2% growth in intermodal and a 9% rise in auto traffic.
The railroad’s key quarterly operations metrics reflected the impact of crew shortages and harsh weather. Car velocity, measured by car-miles per day, was down 3% compared to a year ago. Intermodal trip plan compliance dropped 5 points to 73%, while manifest and automotive trip plan compliance was flat at 58%.
UP’s safety performance was mixed last year. The personal injury rate improved by 18% to its lowest level in five years, but derailments were up 8%.
The railroad’s capital plan calls for spending $3.6 billion this year, up 6% from a year ago.
Record Revenue and Profits are good news but you got to look into the numbers. If you look closely you’ll notice that the volume of shipments hasn’t really grown with all the operational issues (employee turnover) and traffic embargo’s. Revenue and Profits are only increasing because UP is charging it’s customers more to ship a product. That can’t last.
Back in the day (late 1950’s to about 1970) GM grew to be the largest auto manufacturer in the US and world. At one time 51% of US cars sold were GM products. Part of their strategy to grow was to keep prices down. Grow your growth with more sales that lead to more profits. Things changed about 1971, maybe a little earlier. Started to use cheaper quality materials and raised prices to make more short term profits. They also did a Ford Edsel in it’s product lines, like the VEGA (rolling crap, but didn’t explode like the Pinto) and building big Gas Hogs when gas prices doubled or more. This lead to the fuel efficient imports gaining a big market share. By the 1980’s GM market share was about 38%, by the mid to late 1990’s 30%. When GM filled bankruptcy in 2007/8, it’s share fell to about 25%. This is what PISS POOR Management leads to.
Big deal, any Corporation can show record profits if you run it on the cheap, low staffing and poor maintenance. This is not run as a service provider, but a Wall Street investment. Read, short term max return on investment. Once any company falls into the hands of investors not interested in the core business, but only for that short term return, has ruined many a company. Takes a strong management team to go up against Wall Street, and UP definitely does NOT have Railroad Men running things now. This is NOT the Union Pacific of 40 – 50 years ago.
The third from last paragraph should actually have read –
“The railroad’s key quarterly operations metrics reflected the impact of crew shortages, harsh weather and inept management.”
For the year they repurchased 27.1 million shares ay a cost of 6.3 BILLION dollars. They couldn’t put some of that into resolving their embargo problem?
That is a very telling number. I wonder if they could have afforded a few sick days for their staff?
Several years ago when I read the reports and saw that they were repurchasing shares with borrowed money and were repurchasing more dollars of stock than they were making, I sold out. Not a long term hold.
Still, there are red flags. Revenue is a nice number to know, but operating income is more important, because it accounts for expenses. Fourth quarter revenue was up but operating income was down, and for the year revenue grew faster than operating income.
I think Mr. Fritz in another life may have been the Captain of the Titanic. Of course, when UP hits the iceberg he’ll have a private helicopter ready to whisk him off to safety and a golden parachute to make sure he’s set for life. He’ll suffer none of the consequences of his arrogance and stupidity and that makes my blood boil.
Wall Street and the investing communities are no doubt pleased with UP’s 2022 results, UP’s customers, not so much. Given the # of ‘Service Embargoes” UP initiated in 2022 (over 1,000?) as well as all of their other various operational issues, I’m surprised their overall traffic volume increased at all (+2%).
And yes, per Mr. Saunders’ remarks above, manifest and automotive trip compliance being ‘flat’ at 58% truly is an embarrassment. I would imagine any shipper that isn’t “captive” to the Union Pacific is seeking other shipping options, given UP’s poor (pathetic?) levels of service reliability ….
Not even so sure that Wall Street and the investing communities are so pleased. My UP stock is down about 50 points from a year ago.
The hedge funds are done with the railroads now. They have already squeezed all the capital gains out of the stock and then took options that the price would drop, and it did.
Now that the government is getting involved, look for bargain hunters to buy in low so they can ride re-regulation back up.
This quote says it all…”Intermodal trip plan compliance dropped 5 points to 73%, while manifest and automotive trip plan compliance was flat at 58%…”
While other railroads are trying to capitalize on Automotive and Manifest business, UP practically eschews it. 58% should be an embarrassment to Lance Fritz and his boyz running a historically great railroad into the ground…
Embargoes? What embargoes???
No shortage of bragging even though their service to customers stinks. Just ask the STB.