Some very late and overlooked news here..Union Pacific has won the contract to handle HMM or Hyundai Merchant Marine container traffic. Prior to. BNSF handled HMM boxes for 25 years. This was a continuation from Santa Fe who originally landed the contract. HMM is South Koreas largest container line and ranked 8th in the world with 72 vessels and 720,000 TEU capacity. HMM is part of THE Alliance which includes; Hapag Lloyd, ONE (Ocean Network Express), and Yang Ming. I say Kudos UP. Not sure if this signals a change of heart with UP, but as more contracts come up let's see how UP reacts. Should be interesting..
I'm not sure what are uglier, container ships or the big carhaulers.
Great picture. That is a lot of containers.
SD60MAC9500
So, where were you standing when you took that picture?...
Convicted One SD60MAC9500 So, where were you standing when you took that picture?...
I was sitting in my chair when I copied this... This isn't my photo. I've tried to upload my photos from flickr but doesn't work.
SD60MAC9500I was sitting in my chair when I copied this... This isn't my photo
I was just taking a left handed stab at the other members who invariably make some kind of quip about mining man anytime I post a picture here that is obviously above my paygrade.
SD60MAC9500 I've tried to upload my photos from flickr but doesn't work.
flickr might have hot-linking blocked, I know that photobucket started using that as a tool to force members to up grade to paying accounts
For single images you want to post here you could try out imgur.com their hosting is hotlinking friendly. After your upload is complete click on the 3 dots icon in the upper right hand corner of your image, select "get share links" from the menu that pops. And then copy the link from the BB Code (forums) option.
I find it is more troublefree to strip their {img} {/img} tags from the copied url, and just use the remaing image address with this forum's software.
For BNSF to have held onto this business for 25 years indicates they were doing everything right from Hyundai's perspective. I doubt they suddenly did anything wrong that prompted Hyundai to sign a contract with UP. It's likely UP dropped a lowball number that Hyundai simply couldn't say no to.
The challenge now for UP is to be able to match BNSF's service level and commitment and do it consistently over the term of the contract.
Having dealt with UP from a customer's perspective, I have doubts they can do this.
Hyundai has been known as a bottom feeder that will always chase a lower price.
The UP needs more business and cash flow. It can't keep doing what it's doing. Wall Street is on to that. Eventually, if things don't change, anyone still holding UP stock is going to take a big loss. It's good for now, but things have to change or the stock will eventually fall significantly.
Union Pacific - Good As Long As The Buybacks Last (NYSE:UNP) | Seeking Alpha
I really don't think current UP management is up to the job.
They have been loading up on debt to "return more than 100% of earnings to shareholders" for about a decade now. Seeking Alpha is correct - it can't go on forever.
In 2010, Union Pacific had 8,815,000 revenue carloads, pulled in $16.965 billion in revenue, had net income of $2.780 billion, and had $9.003 billion of long term debt.
(Source - UP 2010 Fact Book at up.com)
In 2020, UP had 7,753,000 revenue carloads, pulled in $19.533 billion in revenue, had net income of $5.349 billion, and had $25.660 billion of long term debt.
In 2019 prior to the pandemic year, UP had 8,346,000 revenue carloads, pulled in $21.708 in revenue, had net income of $5.919 billion, and had $23.943 billion of long term debt.
(Source - 2020 Fourth Quarter Earnings Release at up.com)
Try to look at the bright side. By loading up on debt this way, they reduce the likelihood of being a target for a hostile takeover.
The other "bright side" is it does make UP stock a potential candidate for a short sale, though probably not there yet. If interest rates start going back to pre-quantitative easing levels, UP could be in a great deal of hurt with that debt.
Carl
Railroader Emeritus (practiced railroading for 46 years--and in 2010 I finally got it right!)
CAACSCOCOM--I don't want to behave improperly, so I just won't behave at all. (SM)
When interest rates are low, as now, debt is not necessarily a bad thing. Depends on how it is used. Ditto with additional revenue, even if only marginally profitable.
Erik_Magf interest rates start going back to pre-quantitative easing levels, UP could be in a great deal of hurt with that debt.
And then there are those four words that always strike me like the sounds of fingernails on a chalkboard..."too big to fail"...
We all know who gets left holding the bag when terms such as that start flying about.
The big issue with long term debt for corporations is if they can afford its carrying cost (i.e. interest expense).
It depends on what the maturity dates are on the various debt issuances UP owns. If they intend to roll them over at maturity, as long as interest rates stay low, and assuming steady revenue streams to continue making interest payments, there is no problem.
On the other hand, if interest rates rise when they have to roll over their issuances, that is where profitabilty takes a hit.
A 1% rise in the interest rate that UP is paying would result in $250 million more in interest expense on $25 billion debt, if it hits all $25 billion eventually. A 5% rise ergo would result in $1.25 billion more in interest expense.
At that point in time the stock value would drop because it would impact earnings - more money going to interest expense is less money dropping to the bottom line.
Of course, UP will have its various debt instruments set up in a "ladder" of maturities so that it all does not have to be refinanced at one time. So a rise in interest rates could result in interest expense for the whole of its debt creeping up over time instead of shooting up all at once.
UP has a little over $16 billion outstanding shareholder equity as of 12/31/2020, so its net income of about $5.3 billion was about a 30% return on shareholder equity.
Part of that $5.3 billion will go out in dividends over the next quarters in 2021 and more than likely additional debt will be issued to finance additional share repurchases, which will increase the return on shareholder equity in coming years.
As interest rates rise, unless UP has significant additional revenue coming in from additional traffic or price increases, one would expect UP to continue to be profitable, but not to the point of a 30% return on stockholder equity with more operating net income going to pay interest expense before falling to the net income line. If that does happen, at that point the share price would drop.
If the share price drops too low, perhaps someone would come in and take the railroad private. Heck, Warren Buffet (Berkshire Hathaway) owns a railroad and Bill Gates owns a big chunk of a railroad (CN). Perhaps it could even be a "prime" target. (Pun intended)
Just a few thoughts from a financial perspective.
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