Nature of business • One of America’s leading transportation companies • Principal operating company - Union Pacific Railroad • North America's premier railroad franchise • Covering 23 states • Railroad's diversified business mix is classified into its Agricultural Products, Energy, and Industrial and Premium business groups • Route Miles: 32,100 • Employees: 42,900 • Locomotives: 8,500 • Customers: 10,000
Modest volume growth in medium term, higher prices and efficiency gains
Market is concerned about pricing -
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Justified given expected improvement in margins and tax tailwind
Increases in pricing over 4Q marginally below previous quarter Management expects pricing improvements
Management’s operating ratio target 60% by 2019 Business is exposed to movements in the USD exchange rate External factors: commodity prices and weather conditions Well diversified across regions High barriers to entry
Revenue up 7% to $21.2bn - 5% increase in revenue per car - 2% increase in volumes Gross ton/miles increased by 5% to 898.7m Adjusted operating profit up by 8% to $7.9bn Operating ratio 63% (2016: 63.6%) -
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Fluidity deteriorated with average train speeds down 5% and terminal dwell time up 8% -
Supported by productivity gains Despite 27% increase in fuel costs with average diesel price up 22% 2% improvement in fuel consumption per gross ton/mile Impacted by implementation of positive train control (PTC)
Adjusted earnings 11% higher at $4.6bn for the year Adjusted EPS increased by 16% to 579 US cents Total dividends amounted to 248 US cents (2016: 225.5 US Cents)
Oversupply in global markets and uncertainty on quality of US crops.
Frac sand expected to continue to contribute strongly 1H2018 Industrial products expected to be •
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Strong ethanol exports, good beer volumes and growth in food and refrigerated products.
Management expects production shifts to be positive for auto part volumes.
Company guidance •
Full-year 2018 guidance: • Volume growth in low, to mid-single digits • Pricing that exceeds cost inflation in dollar terms • Saving from productivity gains between $300m to $350m • Improvement in operating ratio Targeting operating ratio of 60% by 2019 with long-term target of 55%. Tax reforms expected to result in a FY2018 effective tax rate of 25% (currently around 37%). Over time effective rate should trend down to the statutory rate of 21%. Additional free cash flow of $1bn expected from tax cuts in 2018
We believe the share offers value at current levels. Good quality business Delivers attractive margins, strong cash generation and a high ROE. Overweight position with an exposure of up to 7%.
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