With an STB merger filing for acquiring Norfolk Southern targeted for no later than Dec. 1, Union Pacific posted a solid third-quarter 2025, showing “strong operating income growth driven by increased revenue and operating efficiency” and “a best-ever quarter record for freight revenue, excluding fuel surcharge.”
“Our third-quarter results serve as a proof point that we are successfully executing on our strategy,” said CEO Jim Vena. “We have a historic opportunity with the Norfolk Southern to create [the United States’] first transcontinental railroad. As we work toward regulatory approval, our team is focused and driving continued improvements in our pursuit of what’s possible.”
UP reported 3Q25 net income of $1.8 billion, or $3.01 per diluted share. Those results include merger costs of $41 million, or $0.07 per diluted share. Adjusted 3Q25 (non-GAAP) net income of $1.8 billion, or $3.08 per diluted share, compares to 3Q24 net income of $1.7 billion, or $2.75 per diluted share.
Compared to the prior-year period, UP’s operating revenue of $6.2 billion grew 3%, “driven by solid core pricing gains, partially offset by lower fuel surcharge. Freight revenue excluding fuel surcharge grew 4%. The reported operating ratio was 59.2%, an improvement of 110 basis points. The adjusted operating ratio was 58.5%, an improvement of 180 basis points.
UP said its operating results reflect “continued momentum in safety, service, and operational excellence,” with third-quarter records for freight car velocity and locomotive productivity, and “best ever” quarter records for terminal dwell, train length, workforce productivity and fuel consumption rate. The FRA reportable personal injury rate and reportable derailment rate both improved. Freight car velocity was 226 daily miles per car, an 8% improvement. Locomotive productivity was 140 gross ton-miles (GTMs) per horsepower day, a 4% improvement. Average terminal dwell was 20.4 hours, a 9% improvement. Average train length was 9,801 feet (1.86 miles), a 2% increase. Workforce productivity improved 6% to 1,165 car-miles per employee.
UP noted the company is “on track with Investor Day targets.” The 2025 outlook is based on “meeting customer demand with strong service” and a “challenging international intermodal comparison.” Pricing dollars are expected to be accretive to the operating ratio. EPS growth should be consistent with attaining a three-year CAGR target of high-single to low-double digits. UP predicts an “industry-leading operating ratio and return on invested capital, continued strong cash generation.” Capital allocation is based on a capital plan of $3.4 billion. The 3Q25 dividend will increase 3%. Share repurchases have been paused for the Norfolk Southern merger. (Download full financial statement below.)
“In-Depth Examination”
Concurrent with 3Q25 earnings, Jim Vena sent a letter (download below) to all UP employees outlining the benefits of merging with NS, stating that it “will allow us to move [products] in a faster manner, which will make American goods more competitive, open more markets and provide more jobs.” He reiterated his pledge that company is “guaranteeing a job for every unionized employee that’s working for the two companies on the day the deal closes.” And while he “personally thinks that [the STB] taking the prescribed length of time to review the application is excessive,” he believes the STB “will listen to its constituents and thoroughly examine our application, which will show the combination enhances competition and is in the public interest.”
“Working as One Team”
In a post-earnings call conversation with Railway Age Editor-in-Chief William C. Vantuono, Vena outlined some of the joint initiatives Union Pacific and Norfolk Southern have embarked upon to ensure that, operationally, integrating the two railroads will go smoothly. Glitches are bound to occur, he acknowledged, but pointed to his own involvement with mergers during his time with CN, where he spent most of his career, working on the acquisitions of Illinois Central and Wisconsin Central, among other railroads.
In the STB application, “we will explain how UP and NS will look” as one railroad. “Working as a team, we’re developing an overall plan, and I’m not worried about taking costs out right away.” The service plan will cover operating independently, transitioning to a single carrier, a process expected to take a while. “We won’t do anything until we’re confident that the numerous integrational aspects will work as expected,” he said. UP’s NetControl IT system, rolled out in January 2024, will extend to the entire combined railroad. Currently, UP and NS are identifying “tether points” that will connect both railroads’ IT systems beginning “on Day 1” of the merger. As far as blending corporate cultures, “we know it’s going to take a few years,” Vena said.
Yet, Vena left little doubt that, clearly, the combined transcontinental railroad will be named “Union Pacific.”
“Running Smoothly Ahead of STB Filing”
By Jason Seidl, Elliot Alper and Uday Khanapurkar, TD Cowen
Union Pacific posted a 3Q beat and strong service metrics, though 4Q25 should see a notable step down in earnings as volumes remained pressured from a macro and more difficult YOY comparisons. Core pricing is holding strong despite a weak backdrop as management leans on service quality. Shareholders will vote on the merger Nov. 14 (as will Norfolk Southern shareholders on the same day, both at 9:00 AM Eastern Time), and we expect an STB filing in the first week of December.
UNP reported 3Q24 adjusted EPS of $3.08, beating our $3.02 estimate and consensus of $2.99. Adjusted OR of 58.5% just missed us by 20bps. Revenues increased 2.5% despite negative carloadings as pricing more than offsets weaker macro and tougher intermodal comparisons.
Premium volumes weighed on the quarter, primarily driven by tariffs, as weaker imports should continue to challenge intermodal through year-end. Autos saw 5% declines in 3Q25 and are expected to be negative in 4Q25 despite growing 5% through the first few weeks of the quarter. Intermodal pricing will ultimately be at the whim of the truckload market, but a multi-year headwind to pricing gives UNP confidence it will have the ability to be aggressive when the market turns, given continued service quality (intermodal service index at 98, +12 points YOY).
UNP continued service improvements in 3Q25, which is enabling the commercial team to deliver pricing in excess of inflation despite a challenging demand environment. Pricing gains were partially offset by lower fuel surcharge and business mix. Pricing momentum should position UNP well into 2026 for margin improvements as the company works to achieve its three-year earnings CAGR outlook that remains intact.
UNP plans to have its shareholder vote regarding the transaction on November 14 and expects to publish its filing with the STB in the following weeks, potentially the first week of December. We continue to see a 90% chance of deal approval despite some recent opposition by the ACC (American Chemistry Council), which represents shippers of UNP’s third-largest commodity category and likely will be active in the STB comment period. As we discussed during our recent panel, shippers and shipper associations likely will not get much out of seeking concessions with the STB; they often work directly with the railroad on an agreement. Associations historically are not very good at stopping a merger from happening.
UNP lags the U.S. Class I group in rail volumes thus far in 4Q25 and is below its Western peer, BNSF. West Coast imports are the significant contributor to the declines and unlikely to surprise to the upside in the near term. We model carloadings improving off QTD levels though we still see earnings declining sequentially and YOY in 4Q25. UNP continues to manage what it can control on the cost side, particularly productivity measures around labor, though merger costs are expected to continue.
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 modestly adjust our 4Q estimate to reflect changes to operating expense assumptions and marginally lower our price target to $257 for UNP as we continue to value off 2029 EV/EBITDA of 11x. Reiterate Buy.
