UNP Earnings Recap
Beat 4 of last 6 quarters
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Union Pacific's record quarter and raised guidance reflect strong freight demand, particularly in domestic intermodal and industrial segments, which are benefiting from data center construction and reshoring. The company's capacity investments and operational efficiency position it to capture growth from AI infrastructure buildout, though fuel costs and coal weakness remain headwinds.
Union Pacific delivered record Q2 results with revenue up 12% to $6.9B and adjusted EPS of $3.41, beating consensus. Volume grew 2%, core pricing added 175 bps, and fuel surcharge added 750 bps. Operating ratio improved to 59.2% despite a 120 bps fuel headwind. Domestic intermodal posted its fourth consecutive record quarter, while international intermodal declined 14% but improved through the quarter. The company also announced a merger settlement with Canadian National, including access to Mexico and Chicago, and raised its full-year EPS outlook.
Management raised full-year 2026 reported EPS growth guidance to high single-digit range, up from mid-single-digit, citing strong volume, pricing, and productivity. They expect continued operating ratio improvement despite fuel headwinds (recent purchases over $4/gallon). Compensation per employee is now expected to increase ~6% for the year. Demand outlook is positive across most segments, with grain, petrochemicals, metals, and domestic intermodal expected to remain strong; coal remains challenged. International intermodal volumes expected to turn positive in 2H as tariff volatility laps in August. Management expressed confidence in the Norfolk Southern merger closing, highlighting the CN settlement and expanded voluntary commitments.
“We have delivered a very strong first half 2026 as we execute on our strategy and deliver improvement in safety, service and operational excellence, leading to carload growth.”
on First half performance
“Our merger is unprecedented and deserves a careful review. We've done our homework now versus almost when we first announced our plans to merge, we have even more conviction that our transaction is in the public interest and will deliver benefits for our stakeholders, especially our customers.”
on Merger conviction
“We are prepared to meet increased customer demand with best-in-class safety, service and operational excellence.”
on Capacity readiness
Can you delve into the $0.14 fuel gain and expand on the commercial agreement with CN, including access to the EJ&E?
Jennifer explained the fuel headwind of 120 bps to OR and the $0.14 benefit from the difference between expense and surcharge. Jim detailed the CN agreement: it resolves 2-to-1 and 3-to-2 overlap in the St. Louis-Kansas City area, gives CN access to Mexico via UP, and gives UP better access through Chicago. He called it a win-win growth deal.
How does the CN agreement influence revenue synergies and concession numbers, and is this the first of multiple such arrangements?
Jim said the deal is a growth story, not a limiting factor, and will not impact revenue synergies. It makes CN more competitive against CPKC and should grow business for both. Jennifer noted the concessions were part of their initial thinking. Jim indicated openness to further discussions but said there aren't many other overlaps to address.
You raised EPS guidance while also raising cost per employee outlook—where is the upside coming from?
Jennifer said the upside comes from stronger volume outlook, efficient handling of that volume by operations, and continued productivity gains. She cited Kenny's bullish outlook and Eric's team's ability to manage increased volume cost-effectively.