Union Pacific (UNP)
Largest US western Class I, seeking to acquire Norfolk Southern: FY2025 adjusted operating ratio 59.3%, adjusted ROIC 16.3%, post-dividend FCF $2,292m.
Educational analysis for professional use. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
The Big Step Came Early
Union Pacific, the largest listed US western Class I railroad (the top revenue tier of North American freight rail), made its big efficiency gain early. It began implementing precision scheduled railroading (PSR), running trains to a fixed timetable whether or not they are full, in late 2018, and cited a 58.5% adjusted operating ratio for 2020. The operating ratio is operating expenses as a share of revenue. FY2025's 59.8% reported and 59.3% adjusted were the lowest of the five listed Class I railroads on both lines. With the adjusted figure still near its 2020 level, further change is likely to come in smaller steps than Norfolk Southern's 220 basis point GAAP improvement in FY2025.
The operating ratio guide sets out all five on one basis, and the PSR guide follows Union Pacific from 2020 to FY2025. Market value was roughly $161.1 billion on 9 June 2026 (593.7 million shares in the Q1 2026 quarterly filing × $271.28 NYSE close).
The Norfolk Southern Merger
Union Pacific agreed on 28 July 2025 to acquire Norfolk Southern for stock and cash, which would join the largest western network to one of the two eastern US Class I railroads. The deal cannot close without Surface Transportation Board approval. On 18 September 2026 the Board denied motions from BNSF, CSX and a shipper coalition asking it to reject the revised application without a full review (docket FD 36873). Opening comments are due by 18 November 2026 and responses by 16 February 2027, and the Board said its ruling expressed no view on the merits. Every figure on this page is Union Pacific on its own.
Intermodal and the Average Revenue per Car
Intermodal traffic, containers and trailers on flat cars with each counted as one carload, was roughly 40% of carloads (3.357m of 8.447m) but 20% of FY2025 freight revenue ($4,632m of $23,220m). It averaged $1,380 a car, against $3,690 for bulk such as coal and grain and $3,840 for industrial, so it pulls the headline $2,749 down. That is why average revenue per car understates pricing on heavier carload types.
The average was flat year on year, yet freight revenue excluding fuel surcharge rose 3%: mix and fuel surcharges flatten the headline unit figure. The revenue-per-unit guide uses Union Pacific's intermodal and average figures as its worked example of dilution. Mix can be counted in carloads or in revenue, and peers compare only on the same measure.
ROIC and Capital Returns
Adjusted ROIC was 16.3% in FY2025, against 15.8% reported for FY2024. Union Pacific is one of two of the five listed Class I railroads to publish the figure; CSX, Norfolk Southern and Canadian Pacific Kansas City do not publish FY2025 ROIC in their primary filings. The ROIC guide explains how to set a filed return against the cost of capital, and why company definitions have to match first.
Buybacks ran ahead of free cash flow. Repurchases cost $2,679 million in cash, against FCF of $2,292 million on the company's post-dividend definition: $9,290m operating cash flow less $3,762m investing outflows and $3,236m dividends. That is not operating cash flow minus capex. Part of the buyback was therefore funded from sources other than that year's free cash flow.
What to Watch in the Financials
Adjusted ratio drift. On a revenue base of about $24bn, each 100 basis points of operating ratio is roughly $240m of operating income. Quarterly adjusted ratios against FY2025 show whether the level is holding.
Intermodal share. A rising share pulls average revenue per car down even when merchandise pricing is positive, so read freight revenue excluding fuel surcharge alongside the carload table.
Invested capital matters as much as the ratio. ROIC holds only if invested capital grows no faster than after-tax operating profit, and a step-up in capex, or an acquisition the size of Norfolk Southern, changes the denominator before it changes the profit.
Buybacks above post-dividend FCF depend on borrowing capacity. A peer comparison on an operating-cash-flow-minus-capex basis means rebuilding FCF from the three lines above.
Valuation Framework
North American Class I railroads are usually read on operating ratio and ROIC first, then valued on EV/EBITDA using normalised earnings: earnings at through-cycle volumes, smoothing out a single year's carload peak or trough. No filed peer multiple table exists, so any multiple has to be built from filed EBITDA and a dated enterprise value.
FY2025 volumes were steady. US industry carloads and intermodal units each grew 1.5% in calendar 2025, according to the Association of American Railroads, and Union Pacific's freight revenue grew 2% on core pricing gains.
Key Risks
Merger outcome. The Surface Transportation Board process runs into 2027. Approval, conditions attached to approval, or rejection would each change the network and the balance sheet this page describes.
Labour inflation and federal safety mandates flow through the operating expense line of the ratio. Wage settlements or mandated technology spend still bite on a low-ratio network.
Peer Context
CSX is the intermodal-heavy eastern comparison; its filings headline operating margin, and its implied adjusted operating ratio was 66.8%. Canadian National reported a 61.7% adjusted ratio and 13.0% adjusted ROIC (FY2025, CAD). The Railroads Sector Primer works through why network density and traffic mix spread the railroads' ratios and returns.
The operating ratio fades year by year off volume, revenue per unit and capex, feeding a value per share checked against return on capital.
The Excel model is the primer's railroad build live across 11 sheets: revenue from volume and revenue per unit, an operating ratio that fades year by year, a valuation for a mature compounder and an improvement story, a margin bridge, return on capital against the cost of capital, free cash flow and capital returns, and a sensitivity grid. Change the operating ratio path or capex and the value moves.