Union Pacific Pricing Spineometer: 4 of 5 Vertebrae


Tim J. Smith, PhD
Founder and CEO, Wiglaf Pricing

Published May 31, 2023

Union Pacific, a U.S. rail shipping company, had a mixed Q1 2023. Revenue increased 3.3% to $6.1 billion while earnings before interest and taxes decreased 3.5% to $2.3 billion over the same period last year.

The 20 April earnings call clarified the important and positive impact of pricing on Union Pacific’s performance.

In his opening remarks, CEO Lance Fritz highlighted the negative impacts of weather interruptions, inflationary cost pressures, industry-specific transitory cost increases, and contrasted them with the positive impact of their employees delivering to customers and, more quietly, the positive impact of fuel surcharges and price gains.

Concerning the revenue gains, “Freight revenue for the first quarter increased 4% driven by higher fuel surcharges and solid pricing gains, partially offset by a 1% decline in volume,” according to EVP Marketing and Sales Kenyatta (Kenny) Rocker.  He continued: “We’ve been very disciplined in our approach to take price and then some cases we’ve also taken some risk there to make sure that we’re pricing towards the market.”

A Price-Volume-Mix Analysis clarified the impact in dollar terms.  To calculate your own, see my research paper “Normative decomposition of the profit bridge into the impact of changes in marketing variables.

Further comments indicate the decline in volume wasn’t related to customer price elasticity but rather changes in core demand for shipping.  Variations in crop production, fertilizer demand, beer consumption, housing starts, chemical production, and a multitude of other factors impacted the demand for rail freight service.  This is in keeping with the derived, rather than primary, demand nature of Union Pacific’s offering.  (Customers don’t purchase rail freight service for the joy of rail freight service, they purchase rail freight service because of a demand to get tangible goods someplace.)

CFO Jennifer Hamann clarified, “Yes, our pricing gains in the first quarter did exceed our inflation.”

Pricing is clearly on executives’ minds at Union Pacific, yet that is not the only issue with which they must contend.  Retiring labor force, union unrest, and recent derailment catastrophes with other rail companies are also issues Union Pacific must address.  Lance Fritz spoke to the importance of safety, teamwork, and ethics at Union Pacific.  EVP Operations Eric Gehringer spoke about a “10% improvement in derailment performance” and added: “We’ve made progress on derailments by implementing state-of-the-art technology like precision train builder and our geometry inspection fleet. This is on top of our network of more than 7,000 wayside detection devices and our 24×7 operating practices command center.”

Given the importance of pricing at Union Pacific and the diversity of its routes and offerings, we expect to find robust investment in pricing or revenue management.

Research into the quality of Union Pacific’s pricing team indicated a positive state of affairs.  Pricing professionals were identified with titles of specialist, consultant, manager, director, and senior director.  Pricing professionals worked on challenges in commercial, intermodal, and services.  And Union Pacific recently upgraded their pricing software to include PROS.

Given the importance and capability of pricing at Union Pacific as indicated in financial reports, management comments, and our pricing team research, and given their performance, we have come to the following conclusion as of May ‘23.

Union Pacific Pricing Spineometer:  4 out of 5 Vertebrae.

UNP (Union Pacific Corp.) was relatively flat at 202 the day before their earnings call and 199 the day after. FY 2022 revenue of $24.9 B with a 40% operating margin and P/E ratio near 18. 

Currently, a 1% improvement in price would yield a 2.5% improvement in EBIT holding all else constant for Union Pacific.

Chart your path to 5 of 5 vertebrae in your Pricing Spineometer and improve your profits with Wiglaf Pricing. Includes competitive benchmarks, a 67-point corporate inspection, and a three-year pricing improvement roadmap.

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About The Author

Tim J. Smith, PhD, is the founder and CEO of Wiglaf Pricing, an Adjunct Professor of Marketing and Economics at DePaul University, and the author of Pricing Done Right (Wiley 2016) and Pricing Strategy (Cengage 2012). At Wiglaf Pricing, Tim leads client engagements. Smith’s popular business book, Pricing Done Right: The Pricing Framework Proven Successful by the World’s Most Profitable Companies, was noted by Dennis Stone, CEO of Overhead Door Corp, as "Essential reading… While many books cover the concepts of pricing, Pricing Done Right goes the additional step of applying the concepts in the real world." Tim’s textbook, Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures, has been described by independent reviewers as “the most comprehensive pricing strategy book” on the market. As well as serving as the Academic Advisor to the Professional Pricing Society’s Certified Pricing Professional program, Tim is a member of the American Marketing Association and American Physical Society. He holds a BS in Physics and Chemistry from Southern Methodist University, a BA in Mathematics from Southern Methodist University, a PhD in Physical Chemistry from the University of Chicago, and an MBA with high honors in Strategy and Marketing from the University of Chicago GSB.