Exchange: LSE | Sector: Industrials | Industry: General Transportation
Q3 2025
Published: Oct 23, 2025
Earnings Highlights
Revenue of $6.24B up 2.5% year-over-year
EPS of $3.01 increased by 9.8% from previous year
Gross margin of 46.5%
Net income of 1.79B
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Union Pacific Corporation (0R2E.L) QQ3 2025 Results – Profitability Meets Elevated Leverage: A Comprehensive Industrials Sector Analysis
Executive Summary
Executive Summary
Union Pacific Corporation (0R2E.L) reported QQ3 2025 results that reflect a stable, high-margin railroad operator with solid year-over-year profitability but notable near-term liquidity and leverage considerations. For the quarter ended September 30, 2025, UP posted Revenue of $6.244 billion, Gross Profit of $2.901 billion, Operating Income of $2.549 billion, and Net Income of $1.789 billion, delivering EPS of $3.02. The company’s EBITDA reached $3.263 billion, yielding an EBITDA margin of approximately 52.3% and an operating margin of roughly 40.8%, underscoring durable profitability in a mature freight environment.
Year-over-year comparisons show constructive momentum: Revenue +2.5% YoY, Gross Profit +4.7% YoY, Operating Income +5.8% YoY, Net Income +7.0% YoY, and EPS +9.8% YoY. However, QoQ movements were mixed, with Net Income down about 4.7% and EPS down ~4.4% versus Q2 2025, while Revenue rose about 1.5% QoQ. These dynamics suggest ongoing volume discipline and favorable pricing offset by quarter-to-quarter seasonality or working capital effects.
A key caveat is the near-term liquidity and leverage profile. Current ratio stands at 0.748 and the quick ratio 0.598 (current assets relative to current liabilities), indicating tighter near-term liquidity despite strong margins. Debt metrics remain elevated (Debt to Capitalization ~0.653; Long-Term Debt to Capitalization ~0.636) with an interest coverage of about 7.8x. Operating cash flow per share is negative at -$7.69 and free cash flow per share is -$4.76, suggesting substantial capex intensity or working capital outflows in QQ3 2025. The dividend payout ratio is 45.8%, reflecting a balanced but capex-absorbent capital allocation approach. Valuation remains elevated with a P/E of ~19.6x and a P/B of ~8.1x; however, free-cash-flow negative metrics temperance the sustainability of buybacks or deleveraging in the near term.
Given the data, UP presents a resilient profitability profile in a stable freight environment, offset by a cautious liquidity and capitalization stance. Investors should monitor cash flow generation, capex discipline, debt maturity profile, and potential productivity gains from network optimization and intermodal growth to form a balanced longer-term view.
Key Metrics and Trends (QQ3 2025 vs prior periods)
- Revenue: 6.244B; YoY +2.51%; QoQ +1.46%
- Gross Profit: 2.901B; Gross Margin 46.46%; YoY +4.73%; QoQ +2.26%
- Operating Income: 2.549B; Operating Margin 40.82%; YoY +5.81%; QoQ +1.23%
- Net Income: 1.789B; Net Margin 28.63%; YoY +7.00%; QoQ -4.69%
- EPS (diluted): 3.01; EPS (GAAP): 3.02; YoY +9.82%; QoQ -4.43%
- EBITDA: 3.263B; EBITDA Margin ~52.26% (EBITDA/Revenue)
- Margins: Gross 46.46%, Operating 40.82%, Pretax 37.12%, Net 28.63%
- Returns: ROA 2.60%, ROE 10.3%, ROCE 4.02%
- Liquidity: Current Ratio 0.748, Quick Ratio 0.598, Cash Ratio 0.155
- Working Capital / Efficiency: DSO 27.69 days, DIO 21.05 days, DPO 22.96 days; Cash conversion cycle ~25.78 days
- Leverage: Debt Ratio 0.474; Debt/Capitalization 0.653; Interest Coverage 7.80x
- Cash Flows per Share: Operating Cash Flow (OCF) per Share -$7.69; Free Cash Flow (FCF) per Share -$4.76; Cash per Share $1.364
- Payout and Valuation: Dividend Payout 45.8%; Dividend Yield 0.585%; P/E 19.58x; P/B 8.09x; P/S 22.43x; EV/EBITDA 52.65x; Price to Operating Cash Flows Negative indicators santize negative FCF metrics
- Notable Observations: Despite strong margin generation, the negative OCF/FCF signals significant capex intensity or working capital requirements in QQ3 2025. The payout remains moderate, consistent with a cash-generative yet capex-heavy model.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.24B
2.51%
1.46%
Gross Profit
2.90B
4.73%
2.26%
Operating Income
2.55B
5.81%
1.23%
Net Income
1.79B
7.00%
-4.69%
EPS
3.02
9.82%
-4.43%
Key Financial Ratios
currentRatio
0.75
grossProfitMargin
46.5%
operatingProfitMargin
40.8%
netProfitMargin
28.6%
returnOnAssets
2.6%
returnOnEquity
10.3%
debtEquityRatio
1.88
operatingCashFlowPerShare
$-7.69
freeCashFlowPerShare
$-4.76
dividendPayoutRatio
45.8%
priceToBookRatio
8.09
priceEarningsRatio
19.58
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Transcript Highlights (Earnings Call)
Note: The provided data set does not include an earnings transcript. As such, no management quotes or themes are available in this transmission. If a transcript or quotes are supplied, a follow-up will append verbatim quotes grouped by themes (strategy, operations, market conditions) with context and significance.
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Forward Guidance
Forward Guidance and Outlook
- No explicit forward guidance is included in the provided data for QQ3 2025. The assessment relies on trailing results and industry context.
- Industry and company-specific tailwinds suggest continued demand stability in core rails segments (intermodal, agricultural shipments, energy-related movements) which supports steady revenue streams and pricing opportunities in a mature market.
- Key uncertainties include macroeconomic sensitivity to freight volumes, labor costs, regulatory developments, and capital intensity. The negative operating and free cash flow per share implies closer scrutiny of capex pacing and capital allocation going forward.
- The expected trajectory should focus on maintaining EBITDA discipline, improving working capital efficiency, and reducing net debt burden over time. Monitoring capex plans, maintenance vs. growth spend, and any debt maturities will be critical to assess the potential for deleveraging and dividend sustainability.
- Management commentary would be essential to confirm any cost-reduction programs, network optimization initiatives, or pricing strategies planned to sustain margins and liquidity. Investors should seek explicit guidance on capex trajectory, maintenance needs, and any changes to dividend policy.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
0R2E.L Focus
46.46%
40.80%
10.30%
19.58%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Investment Outlook: Union Pacific demonstrates durable profitability with strong margins, supported by a wide network and diversified freight mix. However, the QQ3 2025 data reveal negative operating and free cash flow per share and a leveraged balance sheet, raising questions about near-term cash generation and deleveraging trajectory. The stock trades at elevated valuation metrics (P/E ~19.6x, P/B ~8.1x) relative to broad market expectations, and the limited near-term liquidity signals a cautious stance.
Recommendation: Maintain a cautious view until management provides explicit guidance on capex cadence and debt maturity plans, and until operating cash flow normalization signs emerge. Investors should monitor: (1) quarterly OCF/FCF trends and working capital dynamics; (2) capex strategy (maintenance vs. growth) and its impact on free cash flow; (3) debt amortization and refinancing risk; (4) utilization of pricing power to sustain margins amid cyclicality. If cash flow restoration materializes while maintaining margins, UP could justify its current valuation; otherwise, downside risk remains if liquidity pressures persist or macro demand weakens.
Key Investment Factors
Growth Potential
Stable mid-to-high single-digit revenue growth potential driven by consistent freight volumes, pricing discipline, and efficiency gains from network optimization, including intermodal growth and higher-load density.
Profitability Risk
Cyclicality of freight volumes; elevated leverage and relatively tight liquidity; capital-intensive operations with ongoing maintenance and expansion capex; regulatory and labor risks; sensitivity to macroeconomic downturns and fuel price volatility.
Financial Position
Strong profitability and high EBITDA margins support cash generation potential, but negative OCF/FCF indicates near-term cash flow constraints and debt-based financing needs; moderate dividend payout at ~45.8% of earnings; high capitalization levels with debt-to-capitalization around 0.653, signaling leverage risk if volumes falter.
SWOT Analysis
Strengths
Leading North American railroad network with extensive route miles and gateway access to major ports
High EBITDA margin (~52%) and strong operating margin (~41%) indicating pricing power and efficiency
Established market position and diversified freight mix (grain, fertilizers, intermodal, energy, autos)
Weaknesses
Near-term liquidity constraints (current ratio 0.748) and negative operating cash flow per share (-$7.69)
Elevated debt levels with debt-to-capitalization ~0.653 and interest coverage ~7.8x; reliance on debt to fund capex and growth
Opportunities
Intermodal growth potential and autos-related shipments in a rebounding industrial cycle
Network optimization and cost-improvement programs to convert EBITDA into stronger cash flow
Infrastructure-related freight demand tailwinds and favorable pricing in a regulated environment
Threats
Macro slowdown impacting freight volumes and shipment mix
Labor strikes or cost inflation impacting operating efficiency
Regulatory changes affecting pricing power or maintenance obligations
Camouflaged cash flow weakness if capex or working capital needs accelerate