Earnings
Union Pacific's earnings rise 16% despite a 69% jump in fuel costs, while buybacks stay all but halted during the Norfolk Southern review
The railroad affirmed its 2026 profit growth target, but it has repurchased only $26 million of stock this year against $2.7 billion a year ago.
HedgeWeekly News Desk ·
Union Pacific said on Thursday that third-quarter diluted earnings rose 16% to $3.49 a share from $3.01 a year earlier, on operating revenue up 15% at $7.2 billion. Adjusted EPS came in at $3.53. Revenue carloads climbed 6% to 2.29 million, and freight revenue excluding fuel surcharges grew 6%, pointing to gains in underlying volume and pricing as well as higher surcharge pass-through.
Fuel was the main drag. The railroad paid an average of $4.21 a gallon, up 64% from $2.56, which pushed fuel expense up 69% to $1.04 billion. The operating ratio, the share of revenue absorbed by costs, still edged 10 basis points better to 59.1%, even though fuel added 140 basis points to it. On an adjusted basis the ratio was 58.8%, against 58.5% a year earlier. Terminal dwell improved 2% to 19.9 hours and workforce productivity rose 5%.
Management kept its 2026 target of high-single-digit growth in reported EPS, in line with a three-year goal of high-single to low-double-digit growth through 2027, and set the capital plan at $3.5 billion. It warned that high fuel prices will weigh on the reported operating ratio. On the Norfolk Southern merger, chief executive Jim Vena said the company is preparing for the next stages of the Surface Transportation Board review; the release gave no closing date and booked $22 million of acquisition costs in the quarter.
For investors, the shift in capital returns is the clearest sign of how the pending deal is shaping the balance sheet. Union Pacific has bought back just $26 million of stock in 2026 so far, compared with $2.68 billion in the same period last year, even as year-to-date free cash flow rose to $2.36 billion from $1.86 billion. It raised its quarterly dividend 3% to $1.42 and carries $30.3 billion of debt, or 2.4 times adjusted EBITDA. By comparison, CSX said on Wednesday that its operating margin widened to 39.1%. The next markers are the STB's review schedule and whether fuel keeps eroding the reported ratio in the fourth quarter.