Union Pacific Corp (UNP)

F4Phanatic (25.47) Submitted: 5/09/08 3:08 PM : Start Price: $41.81 UNP Score: 48.94

The Union Pacific Corporation is an industry leading transportation company and is the parent of it's principal company, The Union Pacific Railroad Company, linking 23 states in the western two-thirds of the country. The Union Pacific Railroad is the largest Class 1 railroad in North America. The diversified business mix of Union Pacific Railroad includes agricultural products, automotive, chemicals, energy, industrial products, and intermodal. Union Pacific offers competitive long haul routes between all the major West Coast and Gulf Coast ports to the Eastern gateways. Union Pacific Railroad connects with Canada's rail systems and is the only railroad serving all six major gateways to Mexico.

Freight traffic consists of bulk, manifest, and premium business. Business traffic is coal, grain, rock,or soda ash in unit trains - trains transporting a single commodity from one destination to another. Manifest traffic is individual carload or less than train-load freight, including commodities such as lumber, steel,paper, and food. Premium business is transporting finished vehicles and intermodal containers. In 2007 UNP generated commodity revenue totaling $15.5 billion from six commodity groups in 2007:

Agricultural - provided 17% this includes grain, commodities produced from grain, and food and beverage products. Primary food commodities consist of fresh and frozen fruit and vegetables, dairy products, beverages and frozen meat and poultry.

Automotive - accounted for 9% UNP serves seven vehicle assembly plants along with distributing imported vehicles from six West Coast ports and Houston. UNP also handles automotive parts in boxcars and intermodal containers.

Chemicals - provided 15% of revenue. Union Pacific serves the Gulf Coast and the Rocky Mountain region. Two-thirds of UNP's chemical business consists of liquid and dry chemicals, plastics, and liquid petroleum products. UNP also ship soda ash used in glass production from Wyoming and California to markets around the U.S. and abroad. Fertilizer is shipped from the Gulf Coast across the U.S. and Canada.

Energy - transporting coal accounted for 20% of 2007 revenues. UNP transports coal across 27 states destined for utilities and industrial facilities. UNP serves mines in the Southern Powder River Basin of Wyoming (SPRB), Colorado, Utah, Southern Wyoming, and Southern Illinois. SPRB coal is the largest growing segment of the market, as utilities favor both its lower cost and low-sulfur content.

Industrial Products - provided 20% of revenue. Union Pacific shipments in this group are between thousands of points of origin and destinations in North America. Lumber from Canada and the Pacific Northwest is shipped throughout the United States. Commercial and highway construction products include steel, rock, and cement. Paper and consumer goods include furniture and appliances. Nonferrous metal and industrial minerals are shipped for industrial manufacturing.

Intermodal - in 2007 this represented 19% of UNP's revenue. Intermodal includes international, premium, and domestic shipments. International shipments are imported container traffic that arrives on container ships at West Coast ports for points throughout the U.S. The majority of premium service users are less-than-truckload and package carriers with time sensitive requirements. Domestic shipments include domestic container and trailer traffic for shipping agents, freight consolidators and truckload carriers.

The operations of railroads are subject to the regulatory jurisdiction of the Surface Transportation Board of the U.S. Department of Transportation. The STB has regulatory oversight on rates charged on regulated rail traffic; freight car compensation; transfer, extension and abandonment of rail lines. On January 26, 2007, The STB issued a decision limmiting the manner used by U.S. railroads to calculate fuel surcharges on traffic regulated by the STB.

Union Pacific is dependent on two key domestic suppliers of locomotives. EMD (Electro-Motive Devices) and General Electric. If one of these suppliers discontinues manufacturing locomotives, UNP could experience a significant coast increase and risk the reduced availability of locomotives needed to operate. Potential new locomotive suppliers face high barriers due to the sophistication of the equipment and the capital intensive nature of the industry.

Union Pacific, currently has, and historically has had, a working capital deficit which is common in the railroad industry.

UNP's rail network includes 32,205 routes miles of track. UNP owns 26,354 miles and operates pursuant to trackage rights on the remainder.

Rail equipment includes;

Locomotives;
Owned - 4,930
Leased - 3,792
Total - 8,721

Freight Cars;
Owned - 50,189
Leased - 44,095
Total - 94,284

Capital expenditures for 2007 totaled $1.3 billion which included cash spending of $2.5 billion. UNP acquired 259 locomotives and 150 freight cars under long-term leases totaling $434 million, and purchased 56 locomotives and other equipment through financing valued at $82 million.

Sunset Corridor Expansion - in 2007, UNP added 33 miles of double track to the corridor bringing the total to 410 miles. The Sunset Corridor is a 760-mile route between Los Angeles and El Paso.

SPRB Joint-Line Expansion - Union Pacific owns the access to the coal producing SPRB with Burlington Northern Santa Fe (The Joint Line). In addition to the annual maintenance required on the Joint Line (due to the weight of loaded coal cars, volume of trains, and the effects of coal dust on the rail beds), a capacity expansion project was completed with the installation of additional track, the entire Joint Line now has triple track.

Union Pacific is planning $3.1 billion in capital expenditures for 2008. During 2007 UNP stock price appreciated almost 37 percent, dividends increased 47 percent.

Financials

2007 Revenue $16,283 billion
2006 Revenue $15,578 billion

2007 Operating Expenses $12,908 billion
2006 Operating Expenses $12,694 billion

2007 Dividends/share $1.49
2006 Dividends/share $1.20
2007 EPS - basic $6.97
2006 EPS - basic $5.96

2007 Cash $878 million
2006 Cash $827 million

2007 Capital Investments $2,496 billion
2006 Capital Investments 42,242 billion

Total Debt
2007 $7,682 billion
2006 $6,780 billion

Trailing P/E (ttm); 20.40
Forward P/E (fye 31 Dec 09): 15.14

Forward Annual Dividend Rate 1.76
Trailing Annual Dividend Rate 1.58

Operating Cash Flow (ttm): $3.38 billion

With the rising cost of shipping Union Pacific, and the railroad sector for that matter is looking quite attractive.

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