Union Pacific Corp. (NYSE:UNP)

The analysis of the financial data reveals several important trends concerning profitability, capital costs, invested capital, and economic profit over the five-year period ending December 31, 2024.

Net Operating Profit After Taxes (NOPAT)

NOPAT exhibits a generally positive trajectory from 2020 through 2022, increasing from 6,650 million US dollars in 2020 to a peak of 8,288 million US dollars in 2022. However, this upward trend reverses somewhat in 2023, with NOPAT falling to 7,558 million US dollars, followed by a slight recovery to 7,772 million US dollars in 2024. Overall, NOPAT remains above the 2020 level, indicating improved operational profitability despite the decline post-2022.

Cost of Capital

The cost of capital has steadily increased over the analyzed period, beginning at 13.59% in 2020 and rising annually to reach 14.04% by the end of 2024. This escalation suggests a growing expense associated with financing the company's investments, which could impact future investment decisions and profitability metrics.

Invested Capital

Invested capital shows moderate growth throughout the timeframe, starting at 58,340 million US dollars in 2020 and gradually increasing to 62,044 million US dollars by 2024. The gradual increment indicates ongoing investments in the business, reflecting expansion, reinvestment, or asset replacement strategies.

Economic Profit

Economic profit demonstrates a volatile pattern. Initially, economic profit is negative at -1,280 million US dollars in 2020 but improves significantly by 2022, turning positive at 134 million US dollars. Despite this temporary positive economic profit, the metric declines sharply thereafter, becoming negative again at -1,005 million US dollars in 2023 and slightly improving to -938 million US dollars in 2024. This suggests that although operating profits improved, the cost of capital increases and invested capital growth have offset gains, resulting in economic profit remaining below zero for most years, which indicates value destruction from a capital cost perspective.

Net Income

Net income exhibited a generally upward trend over the five-year period, starting at 5,349 million US dollars in 2020 and increasing to 6,747 million US dollars in 2024. The most significant increase occurred between 2020 and 2021, with an approximate rise of 1,174 million US dollars. Following this, growth continued but at a slower pace, with a slight dip observed in 2023 where net income decreased to 6,379 million US dollars from the previous year's 6,998 million. However, net income recovered in 2024, reaching 6,747 million US dollars, indicating resilience after the decline.

Net Operating Profit After Taxes (NOPAT)

NOPAT demonstrated a consistent growth pattern from 2020 to 2022, rising from 6,650 million US dollars to 8,288 million US dollars. This growth trend aligns with the net income increases during the same period. In 2023, NOPAT declined to 7,558 million US dollars, mirroring the reduction observed in net income, and then increased slightly to 7,772 million US dollars in 2024. Despite the drop in 2023, the overall trajectory over the five years remains positive, with a total increase of 1,122 million US dollars from 2020 to 2024.

Comparative Insights

Both net income and NOPAT experienced growth from 2020 through 2022, followed by a decline in 2023 and a partial recovery in 2024. The decline in 2023 in both metrics suggests operational or market challenges during that year, while the recovery in 2024 indicates an improvement in conditions or performance. The proportional differences between net income and NOPAT values suggest effective management of taxes and operating expenses over the years, with NOPAT consistently exceeding net income, reflecting the inclusion of operating-related adjustments in its calculation. Overall, the data suggest a relatively stable profitability profile with some fluctuation centered around 2023, but an overall positive trend across the observed periods.

Income Tax Expense

The income tax expense demonstrated an overall increasing trend over the five-year period, rising from 1,631 million US dollars in 2020 to 2,047 million US dollars in 2024. There was a consistent increase from 2020 through 2022, peaking at 2,074 million US dollars in 2022. However, in 2023, a decline to 1,854 million US dollars was observed before increasing again in 2024.

Cash Operating Taxes

Cash operating taxes also exhibited an upward trajectory over the period under review, starting at 1,543 million US dollars in 2020 and reaching 2,285 million US dollars by 2024. The values rose steadily each year, except for a slight dip in 2023 to 2,020 million US dollars, followed by a recovery in 2024 to the highest level recorded.

Comparative Observations

Both income tax expense and cash operating taxes followed similar trends, including a noticeable decline in 2023 before increasing again in 2024. Cash operating taxes consistently exceeded income tax expense across all years, indicating higher actual tax outflows relative to the recorded income tax expense. The data suggest some volatility in tax-related cash flows in 2023, which may warrant further examination to understand drivers such as changes in tax payments or accounting treatments during that period.

The financial data exhibits several notable trends in debt, equity, and invested capital over the five-year period.

Total Reported Debt & Leases

This item showed a steady increase from 28,333 million US dollars at the end of 2020, peaking at 34,957 million in 2022. Subsequently, there is a declining trend in the following years, with debt and leases reducing to 32,463 million by the end of 2024. This pattern suggests an initial phase of increased leverage followed by a strategic reduction in debt levels.

Common Shareholders' Equity

The equity value demonstrates a declining trend from 16,958 million in 2020 to 12,163 million in 2022, indicating a reduction in shareholders' equity through those years. However, this trend reverses post-2022, with equity rising to 16,890 million by the end of 2024. The recovery in equity after 2022 points to improved retained earnings, capital injections, or other equity-enhancing actions.

Invested Capital

Invested capital remains relatively stable across the period, fluctuating within a range from approximately 58,241 million to 62,044 million. A slight upward trajectory is observable, with the figure reaching its highest point in 2024. This stability, combined with minor growth, implies consistent investment in operational or capital assets without significant expansion or contraction.

Overall, the data reflects a phase of increased leverage and declining equity until 2022, followed by a period of deleveraging and equity restoration. Invested capital maintained relative steadiness with slight growth, suggesting ongoing investment continuity. These dynamics may signal a strategic financial repositioning focused on balancing debt reduction with equity strengthening while sustaining capital investment levels.

Economic Profit

The economic profit demonstrated a fluctuating trend over the observed period. Initially, it was significantly negative at -1280 million US dollars and showed improvement in the following year, reducing the loss to -363 million US dollars. In the third year, the economic profit turned positive, reaching 134 million US dollars, indicating a brief period of value creation. However, in the subsequent years, it reverted to negative figures, with losses of -1005 million and -938 million US dollars respectively. This pattern reflects volatility in the company’s ability to generate returns above its cost of capital.

Invested Capital

Invested capital exhibited a steady increase throughout the entire period. Starting at approximately 58,340 million US dollars, it slightly decreased by 99 million in the second year but then showed a consistent upward trajectory reaching 62,044 million US dollars by the final period. This indicates an accumulation of resources or expansion of asset base over time.

Economic Spread Ratio

The economic spread ratio, representing the difference between return on invested capital and cost of capital, also mirrored the trends seen in economic profit. It was notably negative in the initial and final years, with values of -2.19% and -1.51% respectively, signaling underperformance relative to capital costs. The ratio improved markedly in the middle years, achieving a positive 0.22% before declining again. The fluctuations suggest varying operational efficiency or changing capital cost dynamics during the period.

Overall Insights

The data indicates that despite steady growth in invested capital, the company struggled to consistently generate economic profit. The brief period of positive economic profit and economic spread may represent favorable market or operational conditions that were not sustained. The persistent negative economic profit in most years highlights challenges in value creation that may warrant further investigation into cost structure, investment efficiency, and revenue generation.

Operating Revenues

The operating revenues demonstrate a generally upward trend from 2020 to 2024. Revenues increased from approximately 19.5 billion US dollars in 2020 to about 24.3 billion US dollars in 2024. Although there was a slight decline in 2023 compared to 2022, the overall trajectory shows growth over the five-year period, suggesting positive top-line momentum.

Economic Profit

The economic profit figures show notable volatility across the analyzed years. Starting with a significant negative value of -1.28 billion US dollars in 2020, there was an improvement by 2022 when economic profit turned positive at 134 million US dollars. However, this gain was not sustained, as economic profit again declined sharply to -1.005 billion in 2023 and remained negative at -938 million in 2024. This pattern indicates challenges in converting revenue growth into consistent economic profit, implying issues with cost management, capital costs, or other value drivers.

Economic Profit Margin

The economic profit margin mirrors the economic profit trend, moving from a deeply negative margin of -6.55% in 2020 to a positive margin of 0.54% in 2022. Subsequently, it deteriorated back into negative territory, dropping to -4.17% in 2023 and slightly improving to -3.87% in 2024. This fluctuation indicates that despite growth in revenues, the company struggled to generate returns above its cost of capital during most of the period, except in 2022.

Overall Assessment

The data reflect a complex financial performance characterized by revenue growth but inconsistent profitability when considering economic profit. The positive peak in 2022 followed by declines in subsequent years suggests external or internal factors affecting profitability. Continuous negative economic profit margins, except for the brief positive period, raise concerns about sustainable value creation. Management might need to focus on improving cost efficiencies or capital utilization to convert revenue gains into lasting economic profit.