UNION PACIFIC CORP (UNP)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

UNION PACIFIC CORPORATION AND SUBSIDIARY COMPANIES

RESULTS OF OPERATIONS

Three and six months ended June 30, 2026, compared to

three and six months ended June 30, 2025

For purposes of this report, unless the context otherwise requires, all references herein to "Union Pacific", “UPC”, “Corporation”, “Company”, “we”, “us”, and “our” shall mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which we separately refer to as “UPRR” or the “Railroad”.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and applicable notes to the Condensed Consolidated Financial Statements, Item 1, and other information included in this report. Our Condensed Consolidated Financial Statements are unaudited and reflect all adjustments (consisting only of normal and recurring adjustments) that are, in the opinion of management, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (GAAP).

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable business segment. Although revenues are analyzed by commodity, we analyze the net financial results of the Railroad as one segment due to the integrated nature of the rail network.

Critical accounting estimates

The preparation of these financial statements requires estimation and judgment that affect the reported amounts of revenues, expenses, assets, and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ materially from actual results, the impact on the Condensed Consolidated Financial Statements may be material. Our critical accounting estimates are available in Item 7 of our 2025 Annual Report on Form 10-K. During the first six months of 2026, there have not been any significant changes with respect to our critical accounting estimates.

RESULTS OF OPERATIONS

Quarterly summary

The Company reported earnings of $3.36 per diluted share on net income of $2.0 billion and an operating ratio of 59.7% in the second quarter of 2026 compared to earnings of $3.15 per diluted share on net income of $1.9 billion and an operating ratio of 59.0% in the second quarter of 2025. Freight revenues increased 12% in the second quarter of 2026 compared to the same period in 2025 as higher fuel surcharge revenues, 2% volume growth, and core pricing gains more than offset the impact of unfavorable business mix (from higher domestic intermodal carloads). Second quarter of 2026 volume growth was attributable to a 19% increase in domestic intermodal combined with higher grain and grain products and plastics carloads, offsetting the impact of lower international intermodal carloads and coal carloads, which declined 14% and 17%, respectively, compared to the second quarter of 2025.

Our second quarter of 2026 key operating metrics reflect the continuation of solid operational performance and network fluidity, improving many key measures from 2025. Freight car velocity increased 5% and terminal dwell improved 7%. We realigned operational resources to meet changing customer demands within the bulk business group as demand for export grain remained high while coal demand decreased. We leveraged capacity improvements to handle increased intermodal shipments, improving our system train length 2%. Workforce productivity improved 5% and locomotive productivity improved 1%, demonstrating efficient asset utilization in a strengthening demand environment. Both service performance index measures were 95% as we measured ourselves relative to our highest performance levels from the last three years.

Operating expenses increased 13% compared to the second quarter of 2025 primarily due to higher fuel prices, as we experienced a 60% increase in the average price per gallon compared to last year as a result of supply chain pressures. Inflation, volume-related costs, acquisition-related expenses (see Note 18 to the Condensed Consolidated Financial Statements, Item 1), and higher depreciation also drove increased operating expenses, which were partially offset by a favorable comparison for a $55 million 2025 crew staffing agreement ratification charge and productivity. Operating income increased 9% to $2.8 billion reflecting top-line growth, while the operating ratio of 59.7% deteriorated 0.7 points primarily resulting from the impact of higher fuel prices compared to the second quarter of 2025.

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We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volume (carloads) and average revenue per car (ARC). Changes in price, traffic mix, and fuel surcharges drive ARC. Customer incentives, which are primarily provided for shipping to/from specific locations or based on cumulative volume, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volume are estimated using the expected value method, which is based on available historical, current, and forecasted volume, and recognized as the related performance obligation is satisfied. We recognize freight revenues over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred.

Other subsidiary revenues (primarily logistics operations) are generally recognized over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred. Accessorial revenues are recognized at a point in time as performance obligations are satisfied.

Freight revenues increased 12% in the second quarter of 2026 compared to the same period in 2025 driven by higher fuel surcharge revenues, 2% carload growth, and core pricing gains, which offset a slightly unfavorable business mix (from an increase in shipments with lower ARC, such as domestic intermodal). Increased domestic intermodal, grain and grain products, and plastics shipments were partially reduced by lower international intermodal and coal carloads. Year-to-date 2026 freight revenues increased 8% compared to 2025 due to higher fuel surcharge revenues, core pricing gains, 1% volume growth, and slightly favorable business mix. Higher domestic intermodal, grain and grain products, and industrial chemicals and plastics shipments more than offset lower international intermodal and automotive shipments.

Each of our commodity groups includes revenues from fuel surcharges. Freight revenues from fuel surcharge programs increased to $1.0 billion in the second quarter of 2026 compared to $569 million in the same period of 2025 due to higher fuel prices and higher volume, partially offset by the fuel price lag impact.

Other subsidiary revenues increased in the second quarter of 2026 compared to 2025 due to higher demand for shipments at our subsidiary that brokers intermodal and transload logistics services, partially offset by lower revenues from the sale of a portion of revenue-generating assets in late 2025 from our technology subsidiary. Additionally, other subsidiary revenues were negatively impacted in the year-to-date period from the transfer of commuter operations to Metra. Accessorial revenues increased in the second quarter and year-to-date 2026 compared to 2025 driven by higher container, intermodal accessorial, and demurrage revenues.

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The following tables summarize the year-over-year changes in freight revenues, revenue carloads, and ARC by commodity type:

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements and applicable notes to the Financial Statements and Supplementary Data, Item 8, and other information in this report, including Risk Factors set forth in Item 1A and Critical Accounting Estimates and Cautionary Information at the end of this Item 7. The following section generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment. Although we provide and analyze revenues by commodity group, we treat the financial results of the Railroad as one segment due to the integrated nature of our rail network.

EXECUTIVE SUMMARY

2025 Results

•Safety – Building on the foundation and commitment to our safety culture, 2025 furthered our progress towards world-class safety. With a focus on four central pillars – Injury Prevention, Leverage Technology, Situational Awareness Testing, and Peer-to-Peer Engagement, we are cultivating a safety-focused mindset so all of our employees return home safely each day.

Injury Prevention efforts focus on specific, critical tasks where any form of non-compliance can result in a serious injury. Training is vital to teach our employees how to safely execute those critical tasks in order to reduce the risk of injury or derailment.

By Leveraging Technology, we seek to eliminate or automate activities with the most risk. Over 7,000 wayside detectors monitor freight cars and locomotives in real time, generating 72 million data points daily to proactively identify and mitigate risks. We are building safer trains with our proprietary Physics Train Builder technology, which allows us to evaluate train and route characteristics to enable proactive intervention by our Operating Practices Command Center to prevent derailments. We utilize our autonomous geometry car fleet to inspect 500,000 miles of track annually. This technology and the data it provides enable us to direct investments and resources in the right place, helping to significantly reduce track-caused derailments over the last 10 years.

Situational Awareness Testing (a program we call COMMIT) is our program that observes, tests, and coaches our employees to promote understanding and compliance with our work rules. COMMIT goes beyond traditional classroom learning, with an emphasis on in-the-field training with employees actively running the railroad.

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Peer-to-Peer Engagement drives employee ownership through engagement with our safety programs. Our culture embodies a personal commitment to do our jobs with a passion for safety so everyone goes home safe. Employees are encouraged to speak up if they see unsafe behaviors.

The focus on these four pillars continues to drive improvement, resulting in our best-ever personal injury and derailment incident rate annual safety results. Compared to 2024, our personal injury rate (the number of reportable injuries for every 200,000 employee-hours worked) of 0.68 decreased 24% and our derailment incident rate (the number of reportable derailment incidents per million train miles) of 1.75 improved 19%.

•Service – Bolstered by sequentially improving freight car velocity and terminal dwell, our network remained fluid throughout 2025 as we achieved best-ever results for many of our operating metrics. For the year ended December 31, 2025, freight car velocity increased to 225 daily miles per car, an improvement of 8%, while terminal dwell declined 8% during the same period compared to 2024. Both service performance index measures improved to essentially three-year performance bests as we achieved intermodal service performance of 99% and manifest service performance of 100% for the full year 2025.

•Operational Excellence – We effectively adapted to shifts in business traffic mix throughout 2025 as we handled elevated international intermodal shipments in the first half of the year coupled with strong bulk shipments throughout the year. As customer demand changed, we efficiently modified our resources to match demand while improving our service performance.

•Financial results – Core pricing gains, strong productivity, and 1% volume growth positively impacted our financial results and offset the impact of inflation, negative business mix, and acquisition-related costs. Operating income of $9.8 billion increased 1% from 2024, and our operating ratio improved 10 basis points to 59.8% in 2025. Net income of $7.1 billion translated into earnings of $11.98 per diluted share, improving 8% from the prior year.

We generated $9.3 billion of cash provided by operating activities, yielded free cash flow of $2.3 billion after reductions of $3.8 billion for cash used in investing activities and $3.2 billion in dividends paid. Cash provided by operating activities was positively impacted by $0.3 billion due to the enactment of H.R.1 and the reinstatement of 100% bonus depreciation.

Free cash flow is defined as cash provided by operating activities less cash used in investing activities and dividends paid. Free cash flow is not considered a financial measure under GAAP by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. We believe free cash flow is important to management and investors in evaluating our financial performance and measures our ability to generate cash without additional external financing. Free cash flow should be considered in addition to, rather than as a substitute for, cash provided by operating activities. The following table reconciles cash provided by operating activities (GAAP measure) to free cash flow (non-GAAP measure):

2026 Outlook

•Safety – We are committed to our goal of world-class safety and are continuously identifying areas in which we can enhance safety. In 2026, our focus remains on our four pillars of safety. Critical safety tasks will be reinforced. Training to engage both new and experienced employees is fundamental to our success. We will continue using a comprehensive safety management approach utilizing technology, hazard identification and risk assessments, employee engagement, training, quality control, and targeted capital investments. In addition, we will continue to collect and utilize data with the goal of identifying and mitigating exposure to risk, detect rail defects, improve or close grade crossings, and educate the public and law enforcement agencies about crossing safety through a combination of our own programs (including risk assessment strategies), industry programs, and local community activities across the network. Our culture is ingrained with a safety-first mindset, critical to our success, both operationally and financially, and our focus will not deviate in 2026.

•Service – We are committed to delivering the service we sold to our customers. As we meet with customers to agree on their specific needs and outcomes, we will continue to measure ourselves against the best service we provided them over the last three years and use that as a guide for meeting their expectations. We will engage with customers by being the first to act on new opportunities, investing to grow, and finding innovative solutions to win together.

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•Operational Excellence – To provide our customers with the service we sold, we must run a fluid network. Network fluidity enables us to effectively utilize all our resources and provides the capacity to respond in an ever-changing environment. Terminal dwell and freight car velocity are key indicators of that fluidity. We will continue to transform our railroad using technology and automation to further improve our service product, improve resource utilization, and lower our overall cost structure.

•Business volumes – We expect macroeconomic uncertainties to persist in 2026, and those uncertainties could have a material impact on our 2026 financial and operating results. 2026 industrial production is forecasted to be essentially flat with 2025, coupled with reduced expectations for housing starts and light vehicle sales. Lower international intermodal business, largely due to the resumption of historical trade patterns, is expected to negatively impact volumes. However, higher coal demand, from elevated natural gas prices and increased coal-fired electricity production, is expected to positively impact volumes. In addition, other factors, such as geopolitical instability or changes in trade policies that may affect economic activity and demand for rail transportation; natural gas prices, weather conditions, and demand for other energy sources may impact the coal market; crude oil prices and spreads may drive demand for petroleum products and drilling materials; available truck capacity could impact our intermodal business; and international trade agreements could promote or hinder trade. Fuel prices may continue to fluctuate in the current economic environment. As prices fluctuate, there will be a timing impact on earnings, as our fuel surcharge programs trail increases or decreases in fuel prices by approximately two months. Regardless of macroeconomic or other external factors, we remain focused on operating a safe, fluid, and efficient rail network while delivering the service we sold our customers and capitalizing on new business opportunities.

RESULTS OF OPERATIONS

Operating revenues

We generate freight revenues by transporting products from our three commodity groups. Freight revenues vary with volumes (carloads) and average revenue per car (ARC). Changes in price, traffic mix, and fuel surcharges drive ARC. Customer incentives, which are primarily provided for shipping to/from specific locations or based on cumulative volumes, are recorded as a reduction to operating revenues. Customer incentives that include variable consideration based on cumulative volumes are estimated using the expected value method, which is based on available historical, current, and forecasted volumes, and recognized as the related performance obligation is satisfied. We recognize freight revenues over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred.

Other subsidiary revenues (primarily logistics and commuter rail operations) are generally recognized over time as shipments move from origin to destination. The allocation of revenues between reporting periods is based on the relative transit time in each reporting period with expenses recognized as incurred. Accessorial revenues are reco

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