Citadel Advisors and Union Pacific Corporation
During 4Q14, Citadel decreased its position in Union Pacific Corporation (UNP). Citadel held 1,203,112 shares of UNP in 4Q14, down from 3,542,964 shares in 3Q14. The company accounted for 0.173% of the fund’s 4Q14 portfolio.
About Union Pacific Corporation
Union Pacific Railroad is a principal operating company of Union Pacific Corporation. Union Pacific Railroad links 23 states in the western two-thirds of the US by rail. The company provides a critical link in the global supply chain. Since 2005, the company has invested more than $31 billion in its network and operations to support America’s transportation infrastructure.
The railroad’s diversified business mix includes agricultural products, automotive, chemicals, coal, industrial products, and intermodal. Intermodal and industrial products transportation both represented 20% of the total 2014 revenue, followed by coal transportation with 18%, agricultural products transportation with 17%, chemicals transportation with 16%, and automotive with 9%. UNP is well diversified and doesn’t depend on any particular commodity transportation for revenue generation.
The company experiences seasonality in its business. Agricultural products shipment depends on harvesting season, and intermodal traffic generally peaks during the third quarter to meet holiday-related demand for consumer goods during the fourth quarter.
Panama Canal expansion to hit intermodal revenue
UNP receives containers from ships at West Coast ports. But after the completion of the Panama Canal expansion, which is expected to take place in 2016, containers will move through Panama Canal to the Gulf Coast and the East Coast. UNP expects the expansion will hamper its intermodal revenue by 3%. This expansion will also affect UNP’s railroad competitor BNSF Railway.
In 4Q14, reported earnings were $1.61 per share, up 27% year-over-year (or YoY). Total volume was up 6% driven by an increase in all six business groups. Core prices also grew 3%. This led the company’s freight revenue to increase by 9% YoY to $5.8 billion. Operating revenue grew 9% YoY to $6.2 billion.
For full-year 2014, net income was $5.2 billion or $5.75 per diluted share compared to $4.4 billion or $4.71 per diluted share in 2013, which represented 18% and 22% increases, respectively. Operating revenue was $24 billion versus $22 billion in 2013.
Returns to shareholders
In 2014, UNP declared dividends of $1.7 billion. Last year, it increased its dividend to $0.50 per share. In February, it again increased its dividends to $0.55 per share. During the quarter, it repurchased 7.7 million shares for $880 million.
In 2014, the company’s cumulative shareholder returns were 44.5% compared to the 24.7% of its peer group and the 13.7% of the S&P 500 Index.
UNP has exposure to the SPDR S&P 500 ETF Trust (SPY) and the iShares US Transportation ETF (IYT). UNP accounts for 0.173% of the fund’s 4Q14 portfolio. SPY also holds positions in other industrials such as the United Parcel Service (UPS) and 3M Company (MMM).
In the next part of the series, we’ll discuss Citadel’s position change in JPMorgan Chase (JPM).