Union Pacific Corporation

This is our first report on a premium railroad operator, Union Pacific Corporation. The company faced numerous challenges in the fourth quarter and throughout 2022 which is why it failed to meet Wall Street expectations with respect to revenues as well as earnings. Its fourth-quarter operating ratio of 61% fell 360 basis points compared to 2021, owing to ongoing service problems and the impact of winter weather. The stated operating ratio concluded the year at 60.1%, down 290 basis points due to operational inefficiencies, inflation, and higher fuel expenses. Crew shortages in important places caused by shifting demand impacted the company’s performance. Fertilizer carloads were down 15% year on year, owing to lower potash exports due to the market downturn. Food and refrigerated volume fell 8% due to lower shipments of finished beverage products and raw ingredients. However, coal and renewable carloads were steady in the third quarter. On the other hand, metals and minerals volumes continued to expand strongly year over. In addition, the company intends to outperform the market through its new business with Schneider and strong IMC partners. The management anticipates that automotive growth will be another bright light in this industry, driven by increased manufacturing and inventory replenishment. We initiate coverage on the stock of Union Pacific Corporation with a ‘Hold’ rating.