Union Pacific Corp. (NYSE:UNP)

The period under review demonstrates a fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) initially increased from 2021 to 2022, then declined in 2023 before exhibiting a modest recovery in 2024 and further growth in 2025. Simultaneously, the cost of capital experienced a slight increase over the five-year period, while invested capital consistently rose.

Economic Profit Trend

Economic profit remained negative throughout the analyzed period, indicating that the company’s returns did not exceed its cost of capital. The magnitude of the economic loss decreased from 2021 to 2022, improving from a loss of US$1,314 million to US$832 million. However, economic profit worsened significantly in 2023, reaching a loss of US$2,032 million. A slight improvement occurred in 2024, with the loss moderating to US$1,988 million, followed by a further, though limited, reduction in the loss to US$1,613 million in 2025.

NOPAT Performance

NOPAT increased from US$7,625 million in 2021 to US$8,288 million in 2022, representing a growth of approximately 8.7%. A subsequent decline of 8.8% was observed in 2023, with NOPAT falling to US$7,558 million. NOPAT then showed a recovery, increasing to US$7,772 million in 2024 and further to US$8,399 million in 2025, representing a cumulative increase of approximately 10.3% from 2023 to 2025.

Cost of Capital and Invested Capital

The cost of capital remained relatively stable, increasing from 15.35% in 2021 to 15.73% in 2024 and remaining constant in 2025. Invested capital demonstrated a consistent upward trend, growing from US$58,241 million in 2021 to US$63,642 million in 2025, indicating ongoing investment in the business. This increase in invested capital, coupled with a relatively stable cost of capital, likely contributed to the consistently negative economic profit.

In summary, while NOPAT showed some positive movement, the company’s inability to generate returns exceeding its cost of capital resulted in persistent economic losses. The increasing invested capital base, alongside a slightly rising cost of capital, exacerbated this situation. The modest improvement in economic profit observed in the later years suggests a potential, but limited, positive trend.

Net operating profit after taxes (NOPAT) exhibited a generally positive trajectory over the five-year period, though with some fluctuation. While net income demonstrated consistent growth, NOPAT presented a more nuanced pattern. Initial observations suggest a strong correlation between the two metrics, but variances warrant further investigation.

Overall Trend

NOPAT increased from US$7,625 million in 2021 to US$8,399 million in 2025. This represents a cumulative increase of approximately 10.2% over the period. However, the growth was not linear.

Year-over-Year Changes

A significant increase in NOPAT was observed between 2021 and 2022, rising by US$663 million, or 8.7%. This was the largest single-year increase in the observed period. A subsequent decrease occurred between 2022 and 2023, with NOPAT falling to US$7,558 million, a decline of US$730 million, or 8.8%. The period from 2023 to 2024 showed a modest recovery, with NOPAT reaching US$7,772 million, an increase of US$214 million, or 2.8%. The most substantial growth occurred between 2024 and 2025, with NOPAT increasing by US$627 million, or 8.1%.

Relationship to Net Income

While both net income and NOPAT generally increased, the magnitude of change differed. The difference between NOPAT and net income remained relatively stable throughout the period, suggesting consistent treatment of items impacting net income but not NOPAT, such as interest expense and non-operating items. The consistent difference indicates a predictable relationship between the two metrics.

The fluctuations in NOPAT, particularly the decline from 2022 to 2023, suggest potential impacts from operational factors or changes in the tax environment. The strong finish in 2025 indicates a potential return to improved operational efficiency or favorable market conditions. Further analysis, incorporating cost of capital, is necessary to determine the true economic value creation.

The reported income tax expense and cash operating taxes exhibit generally stable patterns over the five-year period, with some fluctuations observed. Cash operating taxes consistently exceed income tax expense annually.

Income Tax Expense

Income tax expense increased from US$1,955 million in 2021 to US$2,074 million in 2022, representing a 5.8% increase. A subsequent decrease was noted in 2023, falling to US$1,854 million. This was followed by increases in both 2024 and 2025, reaching US$2,047 million and US$2,028 million respectively. The 2025 value is slightly below the 2024 value, indicating a minor deceleration in growth.

Cash Operating Taxes

Cash operating taxes demonstrated a modest increase from US$2,055 million in 2021 to US$2,085 million in 2022, a 1.5% rise. The value decreased slightly in 2023 to US$2,020 million. A more substantial increase occurred in 2024, reaching US$2,285 million. The 2025 value decreased to US$2,059 million, representing a significant reduction from the 2024 peak.

Relationship between Income Tax Expense and Cash Operating Taxes

The difference between cash operating taxes and income tax expense remained positive throughout the period, ranging from approximately US$100 million to US$430 million. This suggests the presence of non-cash tax items or timing differences between reported income tax expense and actual cash outflows for taxes. The largest difference was observed in 2024, while the smallest difference occurred in 2021. The gap narrowed in 2025 as both values decreased.

Overall, the fluctuations in both income tax expense and cash operating taxes appear relatively contained. The increase in cash operating taxes in 2024, followed by a decrease in 2025, warrants further investigation to understand the underlying drivers of these changes and their impact on economic value added calculations.

The reported invested capital demonstrates a consistent upward trend over the five-year period. Total reported debt & leases and common shareholders’ equity contribute to this invested capital figure, exhibiting individual patterns that influence the overall trend.

Invested Capital Trend

Invested capital increased from US$58,241 million in 2021 to US$63,642 million in 2025. This represents a cumulative increase of approximately 9.3% over the period. The growth was not linear, with a slight deceleration in the rate of increase between 2022 and 2023, followed by a resumption of growth in subsequent years.

Debt & Leases

Total reported debt & leases increased from US$31,488 million in 2021 to US$34,957 million in 2022, representing a significant increase. However, this was followed by a decrease to US$34,179 million in 2023. The trend continued downward to US$32,463 million in 2024 before a slight increase to US$32,822 million in 2025. Overall, the debt & leases remained relatively stable between 2023 and 2025, fluctuating within a narrow range.

Common Shareholders’ Equity

Common shareholders’ equity experienced a decrease from US$14,161 million in 2021 to US$12,163 million in 2022. This was followed by a recovery, increasing to US$14,788 million in 2023, US$16,890 million in 2024, and further to US$18,467 million in 2025. This demonstrates a consistent upward trend in equity over the latter part of the period, contributing to the overall increase in invested capital.

The combined effect of these trends indicates a shift in the capital structure. While debt initially increased, it subsequently stabilized and slightly decreased, while equity experienced a more pronounced and sustained growth. This suggests a potential move towards a more equity-financed capital structure over the observed timeframe, although debt remains a substantial component of invested capital.

The financial performance, as indicated by economic value added metrics, demonstrates a consistent pattern of negative economic profit over the five-year period from 2021 to 2025. Invested capital exhibits a steady increase throughout the period, while the economic spread ratio fluctuates, reflecting the relationship between economic profit and invested capital.

Economic Profit

Economic profit is negative for each year presented, ranging from a loss of US$1,314 million in 2021 to a loss of US$2,032 million in 2023. While the loss decreased slightly in 2024 to US$1,988 million, it remained substantial. A further, though smaller, decrease is observed in 2025, with economic profit reaching a loss of US$1,613 million. This indicates the company consistently fails to generate returns exceeding its cost of capital.

Invested Capital

Invested capital shows a consistent upward trend, increasing from US$58,241 million in 2021 to US$63,642 million in 2025. The annual increases are relatively consistent, suggesting a continued investment in the business. This growth in invested capital occurs concurrently with negative economic profit, potentially exacerbating the shortfall in return generation.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, mirrors the trend in economic profit. It begins at -2.26% in 2021, improves to -1.39% in 2022, then deteriorates to -3.30% in 2023. A slight improvement to -3.20% is seen in 2024, followed by a further improvement to -2.53% in 2025. The negative values consistently indicate that the company’s return on invested capital is less than its weighted average cost of capital. The ratio’s movement suggests a fluctuating, but generally unfavorable, relationship between profitability and capital employed.

In summary, the company experiences consistent negative economic profit despite increasing invested capital. The economic spread ratio confirms that returns are not covering the cost of capital, and while there are minor fluctuations, the overall trend suggests a continuing challenge in generating shareholder value.

The financial performance, as indicated by economic profit and its margin, demonstrates a pattern of negative economic profit over the five-year period. While operating revenues exhibit some growth, it has not translated into positive economic profit generation.

Economic Profit

Economic profit consistently remains negative throughout the observed period. The magnitude of the loss decreased from US$1,314 million in 2021 to US$832 million in 2022, before increasing to US$2,032 million in 2023. A slight reduction in the loss is noted in 2024 (US$1,988 million), followed by a further decrease to US$1,613 million in 2025. This suggests a potential stabilization, though still at a loss, towards the end of the period.

Operating Revenues

Operating revenues increased from US$21,804 million in 2021 to US$24,875 million in 2022, representing a substantial gain. However, revenues experienced a decrease in 2023 to US$24,119 million. A modest increase was observed in 2024 (US$24,250 million), and a further increase in 2025 to US$24,510 million. The revenue growth, while present, has not been sufficient to offset the costs associated with generating economic profit.

Economic Profit Margin

The economic profit margin reflects the negative economic profit. The margin improved from -6.03% in 2021 to -3.35% in 2022, mirroring the reduction in economic loss. A significant deterioration occurred in 2023, with the margin reaching -8.42%. The margin remained high in negative territory in 2024 at -8.20%, before improving to -6.58% in 2025. The movement in the margin closely follows the fluctuations in economic profit, indicating a strong correlation between overall revenue and the ability to generate economic profit.

In summary, despite revenue growth, the entity continues to experience negative economic profit. The economic profit margin, while showing some improvement in the latest year, remains substantially negative, indicating that the cost of capital exceeds the returns generated from operations.