Why Union Pacific Stock Rose Today
Key Points
Union Pacific's profitability is strengthening ahead of its proposed merger with Norfolk Southern.
Management is eager to complete the regulatory review process.
- 10 stocks we like better than Union Pacific ›
Shares of Union Pacific (NYSE: UNP) rallied on Thursday after the railroad operator raised its full-year profit growth forecast.
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Solid Q2 performance
Union Pacific's operating revenue climbed 12% year over year to $6.9 billion in the second quarter. Excluding fuel surcharges, the railroad giant's freight revenue rose 4%, driven by volume gains and price increases.
Union Pacific's efficiency initiatives are also producing positive results. Trains are moving more quickly through its rail network. Freight car velocity increased 5% to 231 daily miles per car, while average terminal dwell decreased 7% to 19.7 hours. Fuel consumption rate also improved by 1% to 1.051 gallons per thousand gross ton-miles.
Still, higher fuel costs negatively impacted the company's operating ratio -- operating expenses as a percentage of revenue -- which came in at 59.7% compared to 59% in the year-ago quarter.
All told, Union Pacific's adjusted net income jumped 12% to $2 billion. Its adjusted earnings per share, aided by stock buybacks, increased 13% to $3.41.
Raised outlook
Union Pacific now expects high-single-digit earnings-per-share growth in 2026, up from a prior forecast of mid-single-digit growth.
During a conference call with analysts, CEO Jim Vena said the primarily Western U.S.-based rail network is progressing through the regulatory process for its proposed merger with Eastern U.S.-based Norfolk Southern (NYSE: NSC).
Vena believes the combination will lead to greater competition among freight transport providers, better overall service, and a stronger national supply chain.
"Now, versus almost one year ago when we first announced our plans to merge, we have even more conviction that our transaction is in the public interest and will deliver benefits for our stakeholders, especially our customers," Vena said. "The case for our transcontinental railroad is clear, and we're ready to go."
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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends Union Pacific. The Motley Fool has a disclosure policy.
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