Cynics claim Union Pacific (UNP) shows that breaking unions is good for business. The Class One railroad reported revenue growth after President Joe Biden’s (D-Delaware) betrayal of rail workers.
To explain, Biden asked Congress for special legislation preventing a strike at the Union Pacific, CSX (CSX), Norfolk Southern (NSC), and Berkshire Hathaway’s (BRK.B) Burlington Northern Santa Fe railroads in December 2022. Both houses passed the legislation fast and Biden promptly signed it.
Critics charge Biden betrayed rail workers who were striking for paid sick days and other benefits. To elaborate, the law forces two unions to accept contracts that their members voted to reject. Interestingly, the deal Biden and Congress forced on unions raised their salaries by 24% over five years, NPR claims.
Stockrow estimates Union Pacific’s revenues grew by 7.8% in the quarter ending on 31 December 2022. However, the revenue growth fell from 17.97% in the quarter ending on 30 September 2022.
Is Union Pacific Profiting from Union Busting?
Conversely, financial data shows Union Pacific (UNP) did not benefit from union busting.
For example, Union Pacific’s quarterly gross profit fell from $3.73 billion on 30 September 2022 and $3.528 billion on 31 December 2021 to $3.52 billion on 31 December 2022. Similarly, the quarterly operating income fell from $2.44 billion on 31 December 2021 and $2.633 billion on 30 September 2022 to $2.412 billion on 31 December 2022.
However, Union Pacific’s quarterly revenues grew from $5.733 billion on 31 December 2021 to $6.566 billion on 30 September 2022 to $6.18 billion on 31 December 2022. Hence, Union Pacific has more money and less revenue despite the labor unrest.
How Much Cash is Union Pacific (UNP) Generating?
Union busting is not generating cash at Union Pacific (UNP). The railroad reported a “quarterly ending cash flow” of -$297 million on 31 December 2022.
The quarterly ending cash flow fell from $470 million on 30 September 2022 and -$255 million on 31 December 2021. In contrast, Union Pacific reported a quarterly operating cash flow of $2.292 billion on 31 December 2022. The quarterly operating cash flow fell from $2.529 billion on 31 December 2021 and $2.903 billion on 30 September 2022.
Consequently, Union Pacific had $1.19 billion in cash and short-term investments on 31 December 2022. The cash and short-term investments fell from $1.326 billion on 30 September 2022 and rose from $1.025 billion on 31 December 2021.
One reason Union Pacific does not have much cash is that pays enormous amounts of debt. For example, it reported a quarterly financing cash flow of -$1.677 billion on 31 December 2022. The quarterly financing cash flow fell from -$1.867 billion on 31 December 2021.
Yet Union Pacific’s total debt rose from $31.488 billion on 31 December 2021 to $34.626 billion on 31 December 2022. I have to wonder if Union Pacific is incapable of paying its debts.
What Value does Union Pacific (UNP) offer?
I do not consider Union Pacific (NYSE: UNP) a value investment because I think Mr. Market overprices it.
Mr. Market paid $210.29 for UNP on 3 February 2023. I don’t think the $65.449 billion in total assets Union Pacific had on 31 December 2022 justifies that price.
Union Pacific’s assets grew from $64.482 billion on 31 December 2021. In contrast, the stock price fell from $242.39 on 4 February 2022.
Yet, Union Pacific pays an attractive dividend. Union Pacific has scheduled eight $1.30 quarterly dividends between 31 March 2023 and 27 December 2024. Dividend.com gave Union Pacific a forward dividend of $5.20 and a forward dividend of 2.47% on 3 February 2023.
Is Rail a Shrinking Business?
I advise investors to be leery of rail because railroads could be a shrinking business.
For example, the volume of US rail freight fell from 2.704 billion kilometer tons in 2014 to 2.241 billion kilometer tons in 2021, Statista estimates. Hence, rail freight volumes are falling despite a US gross domestic product (GDP) growth rate of 5.9% in 2021.
Rail freight volume is falling despite economic growth, which shows there is something wrong at the railroads. My guess is that aging and inadequate rail infrastructure and labor troubles will keep railroads from cashing in on economic growth.
In particular, US railroads rely on 150-year-old tunnels and 139-year-old bridges. Some of the US rail infrastructure is so old people regard it as historic monuments.
My advice to investors is to avoid rail, because no amount of union busting can save this industry. Instead, the only thing that will save US rail is massive amounts of federal investment. I think such an investment is impossible in today’s political environment. So I consider avoiding rail stocks a smart move.
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