Analyst Note| Matthew Young, CFA |
Wide-moat Class I railroad Union Pacific's second-quarter revenue jumped 30% year over year, driven by favorable comparisons (initial pandemic headwinds in the year-ago quarter), solid demand recovery across most carload groups, and yield improvement. Total carload volume expanded 22% versus a 1% fall last quarter, which had weather headwinds. Average revenue per carload was up 6% on solid contract rate gains and (likely) more favorable mix (higher grain activity, for example). Core pricing is benefiting from constrained capacity across most transportation modes, which is lifting railroads’ pricing power nicely. Management now expects full-year volume growth near 7% (6% previously), above our previous 6% forecast. It still expects "pricing gains in excess of inflation dollars."