Union Pacific Corp (UNP) 2Q26: 2% operating beat, raising FY to high single digit EPS growth, and a deal with CN

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Union Pacific Corp (UNP) 2Q26: 2% operating beat, raising FY to high single digit EPS growth, and a deal with CN

d markets like Chicago and Houston (an enhancement to public interest benefit). The

terms of the MOU also address some of the minor completion points about 2:1 shippers and ownership in terminal railroads (assuming they

are acceptable to the regulator and other railroads). While the MOU supports the case that the deal enhances competition and improves

some public benefits, the MOU also puts downstream implications into higher contrast. Some of the wins here are not zero-sum - i.e.,

the MOU should expand the pie in some markets by taking freight off highways - but in others it will be zero-sum and other carriers stand to

lose (faster Chicago bypass or tunnel clearance and capacity at Sarnia are going to be harder to compete with). This raises the question of

how much the Surface Transportation Board may be swayed by “balance of competition” arguments - will they believe that railroads working

towards 60 ORs or better are going to be so negatively impacted that they stop investing, or will they believe that other carriers will find

other areas to cut costs to offset any shifts and still earn an acceptable return? It feels like a choice between margins and shipper interests,

influenced by how UP / NS / CN position what they will do with gains from the deal (reinvest to grow as returns > cost of capital, or choke

the life out of shippers by limiting capacity and jacking rates). At today’s levels of industry profit we would think the Surface Transportation

Board focuses more on the latter, but only time will tell. Then there remains the issue of a competing transcon...if this MOU makes approval