Union Pacific (UNP) Q2 2025: Efficiency & Lower Fuel Costs Drive Profit Growth

As one of the titans of the American railroad industry, Union Pacific's (UNP) performance offers a valuable barometer for the health of the broader economy. The company just released its second-quarter financial results, and we're going to dig into the numbers from its latest 10-Q filing to see what’s driving the business and how it's managing costs. The big picture? Union Pacific delivered a strong quarter, with impressive profit growth fueled by operational efficiencies and a helpful dip in fuel prices.

Revenue and Profits Steam Ahead

For the second quarter of 2025, Union Pacific reported total operating revenues of $6.2 billion, a modest 2% increase over the same period last year. The real story, however, is on the bottom line. Net income surged by an impressive 12% to $1.88 billion. This translated to a 15% jump in diluted earnings per share (EPS) to $3.15, a result bolstered by the company's significant share repurchase program.

To visualize how the company's revenue converts into profit, this flow diagram breaks down the major sources of income and expense for the quarter.

A Split Story in Freight

Union Pacific's freight revenue, the core of its business, tells a story of divergence. The business is grouped into three main categories: Bulk, Industrial, and Premium.

• Bulk Shines Bright: The Bulk segment, which includes commodities like grain, fertilizer, and coal, was the standout performer, with revenue climbing 10% to $1.9 billion. This was driven by a powerful 38% surge in Coal & Renewables revenue and a solid 7% increase in Grain & Grain Products.
• Premium Segment Slips: In contrast, the Premium segment, which handles finished vehicles and intermodal containers (the large boxes you see on trains and trucks), saw its revenue decline by 4% to $1.7 billion. This softness could point to shifting demand for consumer goods and automotive products.

Efficiency Gains and Lower Fuel Costs Drive Record Profitability

So, how did Union Pacific grow its profits so much faster than its revenue? The answer lies in efficiency. A key metric for railroads is the operating ratio (OR), which measures operating expenses as a percentage of revenue—a lower number signifies better efficiency. Union Pacific’s OR improved to an impressive 59.0%, down from 60.0% a year ago.

Two major factors contributed to this improvement:

1. Lower Fuel Prices: A significant tailwind came from an 8% decrease in fuel expenses. The company paid an average of $2.42 per gallon of diesel, down from $2.73 a year prior. For an operation of this scale, that difference adds up quickly.
2. Smarter Operations: The railroad is simply running better. Key performance indicators show that average terminal dwell time (the time a rail car sits idle in a terminal) fell by 7%, while freight car velocity (the speed of the cars across the network) increased by 10%. The company achieved this while reducing its average employee headcount by 3%, boosting overall workforce productivity.

In conclusion, Union Pacific's second quarter was a testament to strong operational execution. While navigating softer demand in its premium markets, the company successfully capitalized on strength in bulk commodities and harnessed efficiency gains to deliver robust profitability. As it moves through the rest of the year, the challenge will be to maintain this impressive operational discipline while seeking growth across all its business segments.