Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is the Union Pacific in Trouble?

Many investors are asking is the Union Pacific in trouble, because the venerable railroad is laying off employees.

For example, the Union Pacific (NYSE: UNP) plans to lay off 195 workers in Hermiston, Oregon, The Orgeonian reveals. Layoffs will occur at the Hermiston rail yard. Those losing jobs will include “machinists; electricians, switch men, material handlers and general laborers,” The Orgeonian adds.

Moreover, the Union Pacific; or UP, will close the Hermiston rail yard to cut costs. Revealingly, a UP press release contains the euphemism; “efforts to run an efficient railroad.” Thus, I think the Union Pacific is cutting costs to avoid losses.

Is the Union Pacific Losing Money?

The Union Pacific is making money, but its revenues are shrinking and the revenue growth is slowing.

In particular, UP reports a negative revenue growth rate of -1.66% on 31 March 2019. Meanwhile, revenues fell from $5.757 billion on 31 December 2018 to $5.384 billion on March 31, 2019.

Union Pacific is still making money with a gross profit of $4.019 billion at the end of March. However, that gross profit is down from $4.266 billion in December. On the other hand, the gross profit is a slight increase over $4.021 billion in March 2018.

Is the Union Pacific Making Money?

America’s oldest transcontinental railroad is still making money. UP reports an operating income of $1.96 billion and a net income of $1.391 billion for the 1st Quarter of 2019. Yet, those numbers are down from $2.016 billion and $1.554 billion in December 2018.

Cash flows are also down at the Union Pacific; the last operating cash flow was $1.959 billion; down from $2.312 billion on New Year’s Eve 2019. Additionally, the last free cash flow is $1.207 billion, down from $1.303 billion three months earlier.

Consequently, the UP has some money in the bank in the form of $1.059 billion in cash and equivalents and $60 million in short term investments. This adds up to $1.119 billion in additional cash.

Union Pacific is making money but not enough to justify the $168.73 stock price on 29 May 2019. I think Union Pacific’s stock price is heading for a fall under these circumstances.

Is the Union Pacific a Good Stock?

UP is a good dividend stock that will pay shareholders 88₵ on 28 June 2019. That payout grew by 8₵ in 2019 rising from 80₵ on 28 December 2018.

Additionally, UP’s dividend offers investors a 2.09% dividend yield, a $3.52 annualized payout, and a payout ratio of 45.3% on 29 May 2019. Plus, notes the Union Pacific has paid a dividend for the last nine years.

Conclusively, I think the Union Pacific is a decent dividend stock on shaky ground. My belief is the Union Pacific faces serious revenue losses because of dangerous new competition.

How Robot Trucks could threaten the Union Pacific

Interestingly, I think the greatest threat to railroads is robotic or autonomous trucks.

Robot trucks threaten railways because they offer many of the advantages of trains without the need to maintain an expensive infrastructure. Specifically, robot trucks like train lessen the need for drivers.

Theoretically, robot trucks could operate over long distances with fewer drivers. An autonomous truck could travel between cities on the interstate without a driver. However, a driver could board the truck outside a city and take it to the final destination.

How Virtual Reality Threatens Union Pacific

Trucking companies will achieve greater savings if drivers could operate big rigs by remote control. To explain, I think a driver could use a virtual reality (VR) device like the Oculus Quest to “see” what the truck’s sensors see.

Consequently, a driver could operate a semi-tractor making a delivery in Las Vegas from his rec room in Michigan. Given those conditions, one “driver” with virtually reality could oversee several big rigs.

Notably, startup Aitheon is trying to build a blockchain marketplace for the remote machine and vehicle operators it calls Aitheon Pilots. Aitheon Pilots will operate machinery and evehicles by remote control. Aitheon’s management hopes pilots will sell their services to vehicle owners for cryptocurrency or stablecoins.

Driverless Trucks are On the Highways Now

Self-driving trucks are making long-distance runs on America’s highways right now.

Driverless big rigs are making test runs between United States Postal Service (USPS) distribution centers in Phoenix and Dallas, CDL Life News reports. Each truck hauls mail on a run of over 20 hours. TuSimple is apparently using Freightlners in its test.

TuSimple, a driverless truck unicorn is responsible for the autonomous big-rigs. Notably, the USPS wants to replace team truckers with robo-rigs, CDL Life News notes.TuSimple is apparently using Freightlners in its test.  Forbes claims TuSimple raised $178 million to develop its autonomous semis.

Several companies; including Daimler AG (OTC: DDAIF) are developing autonomous rigs. Daimler’s Freightliner Cascadia has some basic self-driving capabilities, Forbes notes. Other notable driverless semi plans include the Telsa Motors (NASDAQ: TSLA) Semi and experiments at Alphabet’s (NASDAQ: GOOG) Waymo subsidiary.

Will Driverless Trucks Drive Railways out of Business?

I think driverless semis could threaten railways by reducing trucking costs. Currently, labor is the highest cost in long-haul trucking.

Long-haul truckers’ have a national average salary of $69,134 a year, some of them up clear up to $105,000 a year, ZipRecruiter calculates. Conversely, the average median wage in the United States was $47,060 a year in 2019, The Balance estimates.

Eliminate; or lower, the number of truckers and operators could put more semis on the road hauling more freight. Ideally, companies could operate convoys of several trucks with one rig with a driver in the lead. Thus, “trains” of trucks could compete directly with railways.

Trucking companies’ operating costs will be lower because taxpayers provide their infrastructure; highways. Meanwhile, American railways are private businesses that pay to maintain the tracks.

Why Driverless Trucks are Coming Fast

Truck operators could achieve greater savings and more efficiency with electric big rigs. Theoretically, electric rigs could offer lower fuel costs and require less maintenance.

Corporations have a strong incentive to adopt driverless semis because of the trucker shortage. America could be short 175,000 truckers because of horrendous working conditions and an aging workforce by 2026, Truck Driver Salary claims. Currently, America has around unfilled 70,000 truck driving jobs.

Obviously, the trucker shortage leads to higher wages; giving operators more incentive to go driverless. However, public backlash could keep self-driving rigs off the highways. My guess is hysteria about technological unemployment and killer robot trucks on the highways could keep robo-rigs off the road.

Can Union Pacific Survive?

Under these circumstances, the Union Pacific will have a tough time surviving. Notably, the UP’s biggest competitor the Burlington Northern Santa Fe (BNSF) is part of Berkshire Hathaway (NYSE: BRK.B) Thus, the BNSF has Warren Buffett’s resources behind it.

One result of the changing market could be for the UP to merge or sell itself. A logical merger could be with the Canadian National Railway (NYSE: CN). Buffett’s good friend Bill Gates is a part owner of the CN so that merger could give UP new resources.

Merging with the CN; or an East Coast railroad like the CSX (NYSE: CSX), will give the UP a true transcontinental system. Going coast to coast could make the Union Pacific more efficient and competitive.

Will Hyperloop Jump Start Union Pacific?

Hyperloop technology; which could move freight at far higher speeds and lower costs than traditional rail, offers a more fascinating possibility. Questionably, Hyperloop TT claims its system could move 4,000 cargo shipments a day at speeds up to 1,223 kilometers (759.937 miles) per hour.

Hyperloop is an opportunity for UP because Union Pacific’s rail lines will be logical Hyperloop routes. Unfortunately, Hyperloop is still on the drawing board. I advise investors to stay away from Union Pacific (NYSE: UNP) for now because I think its share price will soon plummet.