Union Pacific Earnings Call: Records, Headwinds and 2026 Outlook

Union Pacific Corporation ((UNP)) has held its Q4 earnings call. Read on for the main highlights of the call.

Union Pacific’s Earnings Call Balances Record Results With Emerging Headwinds

Union Pacific Corporation’s latest earnings call conveyed a mix of confidence and caution. Management highlighted a long list of record achievements in profitability, operations, safety, and shareholder returns, underscoring strong execution and disciplined pricing despite a softer freight backdrop. At the same time, executives acknowledged real near‑term pressures: weaker Q4 volumes, unfavorable freight mix, rising costs and wage inflation, and regulatory uncertainty tied to the planned Norfolk Southern merger. The tone was steady and execution‑focused, with clear emphasis on maintaining an industry‑leading operating ratio and return on capital while navigating a more challenging macro environment.

Record Full-Year Profitability Anchors 2025 Performance

Union Pacific turned in a record 2025, with reported net income rising 6% year-over-year to $7.1 billion and earnings per share climbing 8% to $11.98. Profitability improved alongside efficiency: the full‑year adjusted operating ratio tightened by 60 basis points to 59.3% versus 2024, signaling better cost control and operating leverage even in a mixed demand environment. These figures underscore that the company is entering 2026 from a position of financial strength, giving it room to absorb near‑term headwinds.

Freight Revenue Growth (Ex-Fuel) Reaches New High

Freight revenue excluding fuel charges hit a record in 2025, rising 3% from 2024. The company attributed this to strong core price gains and modest volume growth, with an additional 113,000 cars handled over the year. In a year where freight markets were uneven, the ability to push through price while still growing volume points to solid competitive positioning and disciplined yield management, key for sustaining margins as costs rise.

Quarterly Financial Records Despite Soft Volume

Union Pacific also set records in the fourth quarter, reporting net income of $1.8 billion, the highest ever for a quarter. Reported EPS came in at $3.11, with adjusted EPS at $2.86. The quarter’s adjusted operating ratio was 60%, close to the full‑year level despite a 4% decline in volumes. The Q4 numbers show that while the freight backdrop has softened, the company continues to execute well enough to hold profitability at historically strong levels.

Operational Productivity Hits Best-Ever Levels

Operational metrics were a standout theme. Union Pacific reported best‑ever full‑year and multiple quarterly records across safety, service, and efficiency. Freight car velocity reached 239 miles per day in Q4, up 9% versus the prior Q4 record, while terminal dwell fell to a record 19.8 hours. Locomotive productivity improved 4% in Q4 from 2024 levels, and workforce productivity rose 3% for the year. Notably, the railroad moved 1% more volume with 3% fewer employees, demonstrating that the productivity engine remains powerful even as the network runs leaner.

Domestic Intermodal Shines Amid Mixed Intermodal Trends

Intermodal performance was split, but domestic operations were a highlight. 2025 marked the best year ever for domestic intermodal, with record quarterly results driven by strong service levels and new business wins. This strength came despite pronounced weakness in international intermodal, which weighed on the overall intermodal story. The results suggest Union Pacific is capturing share and deepening relationships in domestic lanes, positioning the franchise well when broader freight volumes recover.

Strong Cash Generation Fuels Shareholder Returns

Cash generation remained robust, with full‑year cash from operations at $9.3 billion, roughly flat with 2024. Management leaned into returning capital: cash returned to shareholders jumped 25% to $5.9 billion through a combination of dividends and stock repurchases. While buybacks are now paused in light of the pending merger, the 2025 numbers show that Union Pacific is capable of consistently converting earnings into cash and distributing a significant portion back to investors.

Balance Sheet and Return on Capital Remain Key Strengths

Union Pacific reinforced its financial flexibility with a solid balance sheet and strong returns. Adjusted net debt to EBITDA finished the year at 2.7x, in line with maintaining A‑level credit ratings. Return on invested capital improved by 50 basis points to 16.3%, keeping Union Pacific at the top of the industry on this metric. These indicators matter for equity investors and bondholders alike, suggesting the company can fund growth investments and manage upcoming debt maturities without straining its capital structure.

Asset Monetization Boosts Other Income

Other income provided an additional tailwind in Q4, hitting a record level and rising by $264 million, primarily due to industrial parkland sales. Management framed this as opportunistic asset monetization rather than a recurring earnings driver. While one‑time in nature, these sales gave a notable boost to quarterly results and highlight the embedded value of non‑core assets on the railroad’s extensive land portfolio.

Capital Spending Aimed at Productivity and Growth

Looking ahead to 2026, Union Pacific outlined a roughly $3.3 billion capital plan focused on productivity, safety, and targeted capacity expansion. Spending will concentrate on core infrastructure, locomotive modernization, and selective growth projects such as siding extensions, terminal enhancements, and intermodal investments in the Inland Empire and Phoenix. The strategy aims to support both future volume growth and further operating ratio improvement, suggesting capex is being deployed with clear return expectations rather than broad expansion.

Weather Response Underscores Operational Resilience

The company highlighted its rapid recovery from a major winter storm affecting its southern network. Within days, roughly 70% of the impacted areas were back to normal, with full recovery expected shortly thereafter. Management pointed to improved resource positioning and operational “buffer” capacity as key factors behind this resilience. For shippers and investors, this performance indicates the network is better equipped to handle disruptions, limiting revenue and cost volatility from severe weather events.

Q4 Volume and Revenue Pressures Emerge

Despite strong annual records, Q4 underscored the softer freight backdrop. Freight revenue declined 1% to $5.8 billion on a 4% drop in volume. Management quantified the trade‑offs: lower volume shaved about 400 basis points off freight revenue growth, while fuel surcharges added roughly 75 basis points and pricing/mix contributed about 275 basis points. The quarter demonstrated that price and fuel mechanisms can partially offset volume softness, but not entirely, particularly when high‑margin segments weaken.

Unfavorable Business Mix Weighs on High-ARC Segments

Revenue mix was a material headwind in the quarter. Volumes declined in higher average‑revenue‑per‑car categories like forest products, refrigerated food, and specialized energy markets, while lower‑revenue segments such as coal and rock saw volume gains. This shift pulled down overall yield and blunted the benefit of solid core pricing. For investors, the mix story is important: even if total carloads stabilize, the composition of that traffic will be a key driver of revenue per car and profitability.

Rising Operating Costs Pressure Margins

On the cost side, Union Pacific faced broad-based increases in Q4. Total operating expenses rose 2% to $3.7 billion. Purchased services and materials climbed 8%, reflecting merger-related spending, inflation, and higher maintenance activity, while “other” operating expense surged 22% to $344 million, driven by elevated casualty costs and property taxes. These rising cost categories are eroding some of the benefit from productivity gains, making future operating ratio improvement more dependent on continued cost discipline and process automation.

Pricing Power Meets Macro and Inflation Headwinds

Management signaled that pricing may be less of a margin lever in 2026. With a softer macro outlook and rail inflation expected to run slightly above 4%, executives cautioned that price increases will likely track cost inflation rather than significantly outpace it. As a result, earnings growth is expected in the mid‑single digits and will need to come largely from productivity, network efficiency, and targeted volume improvements rather than pure rate hikes. This marks a subtle shift from prior periods where pricing alone was a more substantial margin driver.

International Intermodal and Automotive Under Pressure

Two higher‑margin segments were notable weak spots in Q4: international intermodal and automotive. International intermodal volumes fell roughly 30% year over year, reflecting softer global trade and competitive pressures, while automotive volumes declined due to reduced OEM production. These segments typically generate attractive revenue per unit, so their weakness has an outsized impact on mix and profitability. The company’s domestic intermodal strength helps offset some of this, but a recovery in these categories would be a key upside driver for future quarters.

Cash Conversion and Capital Priorities Shift Around Merger

Cash conversion slipped by about 10 percentage points versus the prior year, largely due to higher cash capital spending and the timing effect of a significant year‑end land sale. Looking ahead, Union Pacific plans to prioritize paying down $1.5 billion of long‑term debt maturing in the first half of 2026 and to conserve cash in anticipation of the Norfolk Southern merger. This shift in capital allocation marks a pivot from aggressive buybacks toward balance sheet management and liquidity, at least until the deal picture becomes clearer.

Merger Regulatory Uncertainty Adds Near-Term Friction

Regulatory review of the proposed Union Pacific–Norfolk Southern merger introduced an element of uncertainty. The Surface Transportation Board has requested additional information, creating a procedural delay and forcing extra filings. Management portrayed this as a temporary setback rather than a structural obstacle but acknowledged that merger-related costs are adding to expenses and that share repurchases are paused near term. For investors, the regulatory process is a key swing factor, influencing not just strategic positioning but also the timing of capital returns.

Wage and Compensation Pressures Intensify

Labor costs are another headwind. Compensation per employee rose 5% in Q4, driven by wage inflation and higher guarantees, and the company expects all-in compensation per employee to rise about 4–5% in 2026. Management is leaning on productivity initiatives and automation to offset these pressures, but the earnings algorithm increasingly depends on extracting more output per worker to keep the operating ratio improving. Persistent wage pressure is likely to remain a key watchpoint for margins in the coming years.

Guidance: Modest EPS Growth and Focused Investment

Union Pacific guided to mid‑single‑digit EPS growth in 2026 off 2025’s $11.98 base, while targeting an improved operating ratio versus the 59.3% adjusted level and maintaining industry‑leading ROIC. The company plans approximately $3.3 billion of capital spending centered on productivity, safety, and strategic capacity projects. Management expects rail inflation slightly above 4% and compensation per employee up 4–5%, and will prioritize retiring $1.5 billion of debt due in the first half of 2026 before building cash balances in preparation for the proposed merger. Share buybacks are paused, but the dividend is expected to continue growing, with leverage anchored around the current 2.7x net debt/EBITDA.

Union Pacific’s earnings call painted a picture of a franchise operating from a position of strength but increasingly navigating a tougher landscape. Record profits, industry‑leading returns, and standout operational metrics provide a solid base, while domestic intermodal wins and targeted capex signal confidence in long-term growth. On the other hand, softer volumes, unfavorable mix, rising labor and operating costs, and merger‑related uncertainty are likely to cap near‑term upside. For investors, the story in 2026 appears to be one of disciplined execution and modest EPS growth rather than breakout performance, with regulatory progress and freight demand trends as key catalysts to watch.