Results at a glance
- Period
- FY2026Q3
- Revenue
- $7.2B (7,197 MUSD)
- Net income
- $2.1B (2,076 MUSD)
- Net margin
- 28.8%
From the Union Pacific Open LedgerView the live ledgerIssuer filing (FY2026Q3)
Union Pacific reported record September-quarter net income of $2.1 billion on October 22, 2026, up 16%, with diluted earnings per share of $3.49 on $7.2 billion of revenue, also a record. It did that while paying $4.21 a gallon for diesel, up 64% — the highest fuel price in company history. Six percent volume growth, core pricing gains and a fuel surcharge that more than covered the fuel bill carried the quarter, and every headline number — freight revenue, operating revenue, operating income, net income — set a third-quarter record.
The Headline Numbers
Union Pacific's fiscal year is the calendar year, so the third quarter of 2026 is the three months ended September 30, 2026. Every figure below comes from the Form 10-Q and the earnings release, both filed on October 22.
| Metric | Q3 2026 | Q3 2025 | YoY Change |
|---|---|---|---|
| Revenue | $7,197M | $6,244M | +15.3% |
| Operating income | $2,943M | $2,549M | +15.4% |
| Pre-tax income | $2,726M | $2,318M | +17.6% |
| Net income | $2,076M | $1,788M | +16.1% |
| Fuel expense | $1,040M | $616M | +68.8% |
| Diluted EPS | $3.49 | $3.01 | +15.9% |
| Operating ratio | 59.1% | 59.2% | −0.1 pts |
| Adjusted net income (non-GAAP) | $2,098M | $1,829M | +14.7% |
| Adjusted diluted EPS (non-GAAP) | $3.53 | $3.08 | +14.6% |
Revenue rose $953 million and operating expense rose $559 million, so $394 million — 41% of every new revenue dollar — fell to operating income. That is operating leverage working in a capital-intensive network: 6% more carloads moved with 1% fewer employees. Below the line, interest expense fell $15 million on a smaller debt balance, other income was flat at $95 million, and the tax provision rose $120 million as the effective rate crept to 23.8% from 22.9%. The $288 million net income gain is, mechanically, operating leverage minus a higher tax rate.
The adjusted figures strip $22 million of Norfolk Southern acquisition-related expense (versus $41 million a year ago), with no tax benefit because the deal costs are non-deductible. Adjusted EPS of $3.53 grew a touch slower than GAAP EPS because last year's adjustment was bigger — the one comparison in the release that flatters 2025 rather than 2026.
Revenue Deep Dive
Freight revenue of $6,813 million (+15%) plus other revenue of $384 million (+21%) make the $7,197 million total. Volume did real work here: revenue carloads grew 6% to 2,293 thousand, revenue ton-miles grew 5%, and average revenue per car rose 8% to $2,971 on fuel surcharges and pricing. By commodity group:
| Group | Freight revenue | YoY | Carloads (k) | YoY |
|---|---|---|---|---|
| Bulk | $2,116M | +10% | 529 | flat |
| Industrial | $2,509M | +14% | 606 | +6% |
| Premium | $2,188M | +21% | 1,158 | +9% |
| Total freight | $6,813M | +15% | 2,293 | +6% |
Premium (+21%) is the growth engine. Intermodal revenue jumped 27% to $1,517 million on 11% volume growth, and the 10-Q names the drivers plainly: "continued strong domestic intermodal growth driven by business development and reduced truck market capacity, as well as higher international intermodal carloads due to improving U.S. West Coast import volume." Read that twice — tight truck capacity is pushing freight onto rails, which is the closest this release comes to a tight-supply signal. Automotive added 11% on auto-parts business development. The mix cost is real, though: intermodal's $1,586 average revenue per car is barely half the network average, and management concedes "unfavorable business mix (from an increase in shipments with lower ARC, such as intermodal)" was a drag on the top line.
Industrial (+14%) grew the old-fashioned way. Every business team added volume: metals and minerals +17% on domestic steel and construction materials, energy and specialized markets +18% on petroleum demand, forest products +13% on lumber, chemicals and plastics +8%. Carloads rose 6% and pricing did the rest — average revenue per car up 8% to $4,136.
Bulk (+10% revenue on flat volume) is pure price. Grain and grain products rose 11% on export strength, coal and renewables rose 12% even as coal carloads fell 3% "due to low natural gas prices and elevated plant inventories." When a railroad grows bulk revenue 10% moving the same number of cars, that is surcharge plus core pricing, full stop. Mexico business — spread across all three groups — grew 9% to $820 million on 4% volume growth.
The demand language to notice is what management affirms for the full year: "Meeting increased customer demand with strong service; mixed economic forecast." Increased demand against a mixed economy — volume is being taken, not given.
The Margin Story
A railroad lives and dies by operating ratio — operating expense as a share of revenue — and this quarter's reads like a riddle: reported OR improved 10 basis points to 59.1% while adjusted OR worsened 30 basis points to 58.8%. Both are true, and fuel explains the gap.
| Margin | Q3 2026 | Q3 2025 | FY2025 | FY2024 |
|---|---|---|---|---|
| Operating ratio | 59.1% | 59.2% | 59.8% | 59.9% |
| Operating margin | 40.9% | 40.8% | 40.2% | 40.1% |
| Net margin | 28.8% | 28.6% | 29.1% | 27.8% |
| Effective tax rate | 23.8% | 22.9% | 22.1% | 23.3% |
Start with fuel arithmetic. Fuel expense rose $424 million (+69%) on a 64% price spike to $4.21 a gallon; gallons consumed rose only 2%, and the fuel consumption rate improved 2% to a record 1.034 gallons per thousand ton-miles. Against that, fuel surcharge revenue roughly doubled to $1.2 billion from $602 million — a $598 million increase that covered the fuel bill 1.4 times over. The surcharge machine works.
But surcharge revenue carries the mix math against it: it inflates revenue without adding margin dollars beyond cost recovery, so "higher fuel price unfavorably impacted operating ratio 140 basis points," per the release. Reported OR still improved 10 points, which means the core railroad — pricing, productivity, volume leverage — improved roughly 150 basis points underneath. The outlook update says exactly that: "Operating ratio improvement from core business; reported operating ratio challenged by high fuel prices."
Pricing is the other half. The release credits "core pricing gains" in every segment discussion, and the affirmed outlook promises "pricing dollars in excess of inflation dollars" — sustained pricing momentum stated as a full-year commitment. Average revenue per car rose in all ten commodity lines, from 6% (food) to 15% (coal). Against that, the effective tax rate rose nearly a point, shaving net margin expansion to 20 basis points. A 28.8% net margin is still a number most industrials will never see.
The One Big Question: What Is the Norfolk Southern Deal Worth?
Forget the quarter — the defining number in Union Pacific's filings is a merger that has not closed. On July 28, 2025, Union Pacific agreed to acquire Norfolk Southern for one UNP share plus $88.82 in cash per NSC share: roughly 225 million new shares and $20 billion in cash, funded by new debt plus accumulated operating cash. The combination would create "America's first transcontinental railroad," spanning 50,000 miles across 43 states with access to 100 ports. CEO Jim Vena devoted his statement's closing line to it: "We look forward to the upcoming steps of the Surface Transportation Board's merger review process and to delivering the benefits of America's first transcontinental railroad for our customers."
| Deal term | Figure |
|---|---|
| Equity consideration | ~225M new UNP shares (~38% dilution on 594M outstanding) |
| Cash consideration | ~$20B (new debt + operating cash) |
| Termination fee | $2.5B each way |
| Expected close | Second half of 2027 |
| 9M 2026 acquisition expense | $93M ($22M in Q3) |
The STB timeline is moving, slowly, in Union Pacific's favor. The Board rejected the first joint application as incomplete in January, accepted the revised filing in May, adopted a procedural schedule in August, and on September 18 denied motions to dismiss the application "for failure to present a prima facie case." Shareholders of both companies approved the deal last November. The risk is no longer whether the application is serious — it is what conditions the STB attaches, and the release's forward-looking statement runs to two full pages of them.
The balance sheet already shows the deal's shadow. Share repurchases are paused — $26 million in nine months against $2,679 million a year ago, with only 6.1 million of the 100-million-share 2025 authorization used. Cash plus short-term investments doubled to $3.1 billion. Total debt actually fell $1.5 billion in nine months to $30.3 billion, and adjusted debt to EBITDA improved to 2.4x from 2.7x. Union Pacific is stockpiling the cash leg and deleveraging into the close — then levering back up by roughly $20 billion. The ledger next year will look like a different company.
Tracking a $7.2B Quarter in Plain Text
Double-entry bookkeeping forces every dollar to reconcile, which is exactly what an earnings release full of adjusted figures resists. Modeling Union Pacific in Beancount pins the filed numbers — revenue, every operating expense line, the acquisition costs, the equity split — in one zero-sum transaction, so the story above can be checked line by line. This is how we model every company.
; FY2026Q3 Income Statement — three months ended 2026-09-30
; Check: −7,197 + 1,263 + 1 + 1,040 + 726 + 20 + 643 + 206 + 354 + 1 − 95 + 312 + 650 + 2,076 = 0 ✓
2026-09-30 * "Union Pacific Corporation" "FY2026Q3 Income Statement"
Income:Revenue -7,197 MUSD ; freight revenues 6,813 + other revenues 384
Expenses:CostOfRevenue 1,263 MUSD ; compensation and benefits, before isolating acquisition-related expense
Expenses:CostOfRevenue 1 MUSD ; Note 18: acquisition-related compensation (filed line 1,264)
Expenses:CostOfRevenue 1,040 MUSD ; fuel ($4.21/gal, +64% YoY)
Expenses:CostOfRevenue 726 MUSD ; purchased services and materials, before isolating acquisition-related expense
Expenses:CostOfRevenue 20 MUSD ; Note 18: acquisition-related purchased services (filed line 746)
Expenses:CostOfRevenue 643 MUSD ; depreciation
Expenses:CostOfRevenue 206 MUSD ; equipment and other rents
Expenses:CostOfRevenue 354 MUSD ; other, before isolating acquisition-related expense
Expenses:CostOfRevenue 1 MUSD ; Note 18: acquisition-related other expense (filed line 355; filed opex total 4,254)
Income:OtherNet -95 MUSD ; other income, net (Note 6: real estate 73 + interest income 26 + pension 10 − environmental 18 + other 4)
Expenses:Interest 312 MUSD ; interest expense
Expenses:IncomeTax 650 MUSD ; income tax expense
Equity:Adjustments 2,076 MUSD ; net income offset (RE set by balance assertion)(Beancount sign convention: Income is negative, Expenses positive, and the transaction sums to zero.)
The one balance-sheet number that tells the narrative is the $3,086 million of cash plus short-term investments ($2,211 million cash plus $875 million of time deposits), doubled from $1,516 million at year-end while share repurchases sit at $26 million against $2,679 million a year ago. That is the merger war chest being filled in plain sight: every paused buyback dollar and every record cash-flow dollar is pre-funding the $20 billion cash leg of Norfolk Southern. The mirror image is $60,626 million of properties, net — road and equipment, 84% of total assets — the physical network the deal would extend coast to coast.
The Multi-Year Arc
Two audited years plus nine months of 2026 show a railroad compounding quietly while it waits for the transformational deal.
| Metric | FY2024 | FY2025 | 9M 2026 |
|---|---|---|---|
| Revenue | $24,250M | $24,510M | $20,278M |
| Operating income | $9,713M | $9,846M | $8,164M |
| Operating ratio | 59.9% | 59.8% | 59.7% |
| Net income | $6,747M | $7,138M | $5,770M |
| Net margin | 27.8% | 29.1% | 28.5% |
| Fuel expense | $2,474M | $2,390M | $2,621M |
| Properties, net | $58,343M | $59,645M | $60,626M |
| Total debt (ST + LT) | $31,192M | $31,814M | $30,324M |
| Shareholders' equity | $16,890M | $18,467M | $22,018M |
| Share repurchases | $1,505M | $2,679M | $26M |
| Dividends paid | $3,213M | $3,236M | $2,484M |
Revenue barely moved from 2024 to 2025 (+1%) while net income grew 6% — margin, not volume, did the work, helped by a $250 million industrial park land sale inside other income and lower fuel prices. Nine months of 2026 already show the opposite engine: revenue +10% on volume and surcharge, with nine-month fuel of $2,621 million past either full prior year. Operating cash flow tells the cash story: $9,346 million to $9,290 million across the two full years, then $8,302 million in nine months (+18%), converting to $2,362 million of free cash flow after capex and dividends.
Capital allocation flipped with the merger announcement. The 2024–2025 company returned $8.6 billion a year through buybacks plus dividends; the 2026 company pays the dividend (raised to $1.42 in Q3, the latest of "consistent annual dividend increases") and banks the rest. Equity grew 30% in 21 months — $16.9 billion to $22.0 billion — because earnings stayed home. Adjusted return on invested capital reached 16.3% in 2025, up from 15.8%, the number executive pay is partly scored against.
The Verdict: Bull vs. Bear
Bull Case
- Records on every P&L line — freight revenue, operating revenue, operating income, net income — with 6% volume growth proving the top line is earned, not just surcharged.
- Core operating ratio improved roughly 150 basis points underneath the 140-point fuel headwind; workforce productivity hit a record 1,219 car miles per employee (+5%) with 1% fewer employees.
- The fuel surcharge (+$598M) covered the fuel cost increase (+$424M) 1.4 times, and the consumption rate hit a record 1.034 — the pass-through machine works at $4.21.
- Deleveraging into the deal: total debt down $1.5B in nine months, adjusted debt/EBITDA 2.7x to 2.4x, dividend raised, free cash flow +27% to $2.4B.
- The STB denied dismissal motions in September and set a procedural schedule; a transcontinental close in H2 2027 would re-rate the network moat permanently.
Bear Case
- Adjusted operating ratio worsened 30 basis points (58.5% to 58.8%): on a like-for-like basis excluding deal costs, the railroad got less efficient, not more.
- Service slipped while volume grew: the intermodal performance index fell to 92 from 98 and manifest to 93 from 100 — even as Vena touted delivering "the service we sold to our customers."
- Coal carloads fell 3% on cheap natural gas and full plant inventories, bulk volume was flat, and growth concentrates in intermodal at half the average revenue per car — mix is a structural drag.
- The merger means ~225M new shares (~38% dilution) plus ~$20B of new debt, an STB process that runs to H2 2027 with unknowable conditions, and buybacks paused the whole way there.
- Diesel at $4.21 with "continued supply chain pressures" is a level, not a spike: surcharges lag spot prices, and the next leg up lands on Union Pacific before it lands on customers.
Our Take: This is the best-run railroad quarter of the fuel shock, and the numbers that prove it are the ones that exclude fuel: 150 basis points of core OR improvement, record productivity, pricing dollars beating inflation dollars. But the investment case is no longer the quarter — it is the merger. Union Pacific is deliberately becoming a different company: pausing buybacks, hoarding cash, and asking shareholders to accept 38% dilution plus $20 billion of debt for a transcontinental network the STB may condition. At 28.8% net margins with the deal on track, that is a bet worth taking; if the STB timeline slips past H2 2027 or fuel takes another leg up first, the paused buyback leaves shareholders holding the waiting risk with none of the waiting reward.
