Union Pacific updated investors Dec. 2 that its Surface Transportation Board filing to acquire Norfolk Southern will be pushed out two weeks due to “additional analysis from a contractor.” UP now expects to file its merger application with the STB in roughly two weeks (vs. our prior expectation of early December), putting a new date of Dec. 17-19. UP stated it doesn’t believe its earnings can grow in 4Q25 due to several factors heading into December, in line with our prior forecast, though below the current consensus estimate.
UP management called out its 4Q25 mix as being less favorable than previously expected, specifically lumber and specialized food and beverage, and will incur between $30MM and $40MM in merger related costs in 4Q25, with additional expense pressure from casualty items. It now expects earnings to decline y/y in 4Q25, which is worse than the consensus forecast calling for +1% earnings growth. Our current estimate of $2.80 (4% decline) remains intact vs. the $2.94 Street estimate. We expect consensus in 4Q25 to move lower toward our published number.
Western Class I competitor BNSF is asking the STB for a proceeding to examine anticompetitive behavior by UP from its Southern Pacific merger in 1996. BNSF says it still faces anti-competitive issues from a merger nearly 30 years ago years ago, and additional consolidation would exacerbate these problems. We believe BNSF is trying to shine as much light as it can on historical issues the Western rail has faced. We are surprised at the consistent noise BNSF is making ahead of this STB filing, particularly given our assumption that BNSF may inevitably be bidding for another Class I in the future if UP/NS is approved.
