In reporting second-quarter 2025 financial results that showed improvements in revenue, net income, volume and operating ratio, Union Pacific confirmed what has been widely speculated for the past few weeks: merger discussions with Norfolk Southern to form a seamless U.S. transcontinental Class I. Both railroads said they “confirmed today (July 24) that the companies are engaged in advanced discussions regarding a potential business combination,” but added that “there can be no assurances as to whether an agreement for a transaction will be reached or as to the terms of any such transaction,” and that they “do not intend to make additional comments or provide an update on this matter unless and until they determine that disclosure is required or otherwise appropriate.”
2Q25 RESULTS
Compared to 2Q24, this year’s second quarter saw UP net income grow to $1.9 billion, or $3.15 per diluted share, from $1.7 billion, or $2.74 per diluted share. Operating revenue of $6.2 billion grew 2%, “driven by higher volume and solid core pricing gains partially offset by reduced fuel surcharge, business mix and lower other revenue. RTMs (revenue ton-miles) grew 8% to 107.6 million, from 100 million. Freight revenue excluding fuel surcharge grew 6%. UP’s reported operating ratio was 59.0%, a 100 basis points (BPS) improvement. The adjusted operating ratio was 58.1%, a 230 BPS improvement.
Second-quarter 2025 results include a deferred tax benefit of $115 million, or $0.19 per diluted share, partially offset by a crew staffing agreement of $55 million, or $0.07 per diluted share. 2025 second quarter adjusted net income of $1.8 billion, or $3.03 per diluted share, compared to 2024 second quarter adjusted net income of $1.7 billion, or $2.71 per diluted share.
UP noted its operating results show “continued improvement in safety, service, and operational excellence.” The railroad set a 2Q record for locomotive productivity and had a “best ever quarter” for workforce productivity and train length. The FRA reportable personal injury rate and reportable derailment rate both improved. Freight car velocity was 221 daily miles per car, a 10% improvement. Locomotive productivity was 141 gross ton-miles (GTMs) per horsepower day, a 5% improvement from 2Q24’s 134. Average maximum train length was 9,689 feet, a 2% increase. Workforce productivity improved 9% to 1,124 car-miles per employee.
“We are delivering on our strategy and our second quarter results demonstrate our commitment to leading the industry as we set new standards for safety, service, and operational excellence,” said Chief Executive Officer Jim Vena. “The foundation is built, we are growing with our customers, and we have strong momentum as we continue to maximize the value of our great franchise.”
1H25 Result Highlights
Year to date, UP net income grew 2.9% to $3.5 billion from $3.3 billion, compared to 1H24. RTMs (revenue ton-miles) grew 5% to 211.6 million, from 201.3 million. Total operating revenues were $12.18 billion, with operating expenses of $7.2 billon. The operating ratio was 59.8%. STB-reported freight car velocity, measured in miles per car, improved 8% to 218, from 202. Locomotive productivity was 138 GTMs per horsepower day, a 3% improvement from 2Q24’s 134. Average train speed was virtually flat, at 23.8 mph vs. 23.7 mph in 1H24. STB-reported average terminal dwell time improved 6% to 21.7 hours from 23.1 hours. GTMs grew 5% to 433.1 million, from 412.8 million. Average train length increased 2% to 9,590 feet, from 9,415 feet. Intermodal car and manifest car service performance index improved 3 and 10 points, respectively. Intermodal car and manifest car trip plan compliance improved 3 and 7 points, respectively. Workforce productivity, measured in car-miles per employee, improved 9% to 1,108, from 1,015.
2025 Guidance
UP affirmed its 2025 outlook, stating that it is “well-positioned to meet customer demand” will anticipating a “challenging second half international intermodal comparison.” Pricing dollars should be “accretive to the operating ratio,” with EPS growth “consistent with attaining a three-year CAGR target of high-single to low-double digits.” The Class I affirmed an “industry-leading operating ratio and return on invested capital” with “no change” to its long-term capital allocation strategy. The capex plan remains at $3.4 billion. Share repurchases will be $4.0 to $4.5 billion, with a 3% 3Q25 dividend increase.
Vena: “Move ahead and Get Even Better.”
“Our story is about the fundamentals of what we were able to deliver,” Vena told Railway Age. “We were able to grow our business for the past three or four quarters. We’ve been able to increase our revenue and deliver at a very high service level. Those are what really measure what we sold to the customer, because trip plan compliance is an internal measure. That’s what’s going to allow us to win and handle anything that comes at us economy-wise, whatever’s thrown at us—you never know. Fundamentally, the financial position of the company, the projects that help you become more efficient, the way you’re invested in capital, are how you grow and win business.
“What I like about it is the people that work with me every day, people like [Executive Vice President-Operations] Eric Gehringer. He’s done a really good job of leading that. I’m not the easiest guy to have as a boss in the sense that I spent a lot of my career looking at operations. He’s done a spectacular job, and the metrics that he gave this morning [at the 2Q25 earnings call] on car velocity, locomotive asset use, there’s so many that I see every day. [Executive Vice President Marketing and Sales] Kenny Rocker is a great marketing person who knows the business and works hard. [Executive Vice President and Chief Financial Officer] Jennifer Hamann keeps us all in line. We’ve got a heck of a team. We’re able to deliver because of a lot of hard work by people like Eric, Kenny, and Jennifer—the whole team. They make my job easy.”
In terms of business growth. “We’re watching what is going to come out of this whole tariff discussion because you can see things changing in the way people are going to invest and for industrial production in the U.S. now,” Vena said. “It’s very fluid, and we are carefully watching the announcements of what’s going to happen and what will change the flow of traffic, whether it’s finished products or where railcars are manufactured, we must continue to show customers that we will give them a product that’s price efficient. Service is the key differentiator for us as we move ahead. I think the rail industry has been in a better place for the past six months to a year, if you look back a couple of years ago with all the noise. Now we must move ahead and get even better.”
TD Cowen: “UP May Be Going Through Changes”
By Jason Seidl, Elliot Alper and Uday Khanapurkar, TD Cowen
UNP reported strong Q2 results that came in above our forecast and consensus expectations. UNP announced it is in advanced discussions with NSC regarding a rail merger, in line with our belief that a deal announcement was likely. Greater clarity on price and STB stance appears necessary to reflect more investor conviction. Reiterate Buy.
UNP reported adjusted EPS of $3.03, above our $2.96 forecast and consensus of $2.91. 11% earnings growth was driven by strong rail volumes and OR improvement that came in better than our forecast. As we have previously written, we upgraded shares of NSC (and Eastern competitor CSX) earlier this week on our belief that UNP would likely pursue M&A with an Eastern railroad. UNP confirmed on the call that they are in “advanced discussions” with NSC regarding a merger. We believe that advanced discussions means 1) UNP may now be able to have open dialogue with the STB about a potential merger, 2) a fifth STB Board seat being announced in the near future, and 3) framework of a potential deal is likely in its home stretch with NSC. We continue to believe that UNP won’t pursue the merger without a nod from Washington, and a formal deal announcement may suggest so. The price action following the announcement was unusual, in our view, suggesting the market doesn’t believe a transaction is a likely outcome. Greater clarity regarding takeout premium may need to be observed before event-driven investors step into the name, though we note both Eastern rails have run ~25% over the past three months (as has the overall market) as M&A chatter increased.
CEO Jim Vena has brought very strong leadership to UNP, and that operational performance would be a significant asset for an Eastern carrier. We believe UNP should be able to show a merger would come with a higher quality service product and enhanced competition. Watershed routes should drive upside to revenue synergies that may increase labor, which could win over the unions. Additionally, UNP likely has a “sell the story” process to the White House, focusing on pro-America growth with something like a “slamming in the golden spike” finish (and a great potential photo-op even for POTUS 47).
The intermodal air pocket that was expected in 2Q did not come to fruition with volumes +2.4%, and QTD IM volumes are +6% for UNP. That said, management expects a significant air pocket to come later in the quarter, calling for a sequential decline in international IM volumes (acknowledging the very strong comps in 2H of last year). This commentary aligns with our State of the Ports call, where the Port of LA expected an absence of a traditional volume surge and a condensed/disrupted peak season. A declining mix of international IM freight should be a mix tailwind for UNP in 2H.
UNP reiterated its three-year outlook but refrained from full-year earnings commentary. 3Q revenues are now expected to be ~flat sequentially, which was below our forecast and consensus expectations. Coal and IM will likely be the largest swing factors in the quarter, and we note coal volumes are up 28% through the first few weeks of July. We adjust our 2025 to $11.70 from $11.65 and maintain our 2026 EPS estimate of $12.90. Continuing to use our 19.5x multiple, our $252 price target remains intact. Reiterate Buy. We see the next catalyst for UNP shares being driven by a formal deal announcement or news out from the STB.
UNP is a well-run North American Class I railroad, in our view, and the only Western one that is publicly traded. The company has made great strides toward improving its OR through the adoption of Precision Scheduled Railroading, though declining volumes, network cost pressures and regulatory risk are near-term headwinds. We rate UNP Buy.
