Union Pacific Corp. (NYSE:UNP)

The income tax expense exhibited a generally stable pattern over the five-year period, with some fluctuations in both current and deferred components. Overall income tax expense increased from 2021 to 2022, decreased in 2023, and then increased again in 2024 before stabilizing in 2025.

Current Tax Expense

Current tax expense remained relatively consistent, fluctuating between US$1,737 million and US$1,812 million from 2021 through 2023. A notable increase to US$2,019 million occurred in 2024, followed by a slight decrease to US$1,787 million in 2025. This suggests a correlation with underlying pre-tax income levels, though further investigation would be needed to confirm this relationship.

Deferred and Other Tax Expense

Deferred and other tax expense demonstrated more volatility than current tax expense. It increased significantly from US$154 million in 2021 to US$262 million in 2022, then decreased to US$117 million in 2023. A substantial drop to US$28 million was observed in 2024, before rebounding to US$241 million in 2025. These fluctuations likely reflect changes in temporary differences between book and tax bases of assets and liabilities, as well as potential changes in tax laws or rates impacting deferred tax assets and liabilities.

Total Income Tax Expense

Total income tax expense mirrored the combined trends of its components. An increase from US$1,955 million in 2021 to US$2,074 million in 2022 was followed by a decrease to US$1,854 million in 2023. The expense then rose to US$2,047 million in 2024 and remained relatively stable at US$2,028 million in 2025. The overall pattern suggests a sensitivity to both current earnings and changes in deferred tax items.

The significant variation in deferred tax expense warrants further scrutiny to understand the underlying drivers and potential impact on future tax liabilities. The increase in current tax expense in 2024, coupled with the stabilization in 2025, may indicate a change in profitability or taxable income.

The effective income tax rate exhibited fluctuations over the five-year period, consistently remaining above the federal statutory tax rate. While the statutory rate remained constant at 21.00%, the effective tax rate demonstrated a pattern of incremental changes.

Effective Tax Rate Trend

In 2021, the effective tax rate was 23.10%. This decreased to 22.90% in 2022, representing a slight reduction. A further decrease was observed in 2023, with the rate falling to 22.50%. The rate then increased to 23.30% in 2024 before declining again to 22.10% in 2025.

The variations in the effective tax rate suggest the influence of factors beyond the standard corporate tax rate. These factors could include tax credits, adjustments related to deferred tax assets and liabilities, state income taxes, and the impact of non-taxable income or non-deductible expenses. The consistent difference between the effective and statutory rates indicates a recurring presence of these influences.

Comparison to Statutory Rate

Throughout the observed period, the effective tax rate remained above the 21.00% federal statutory rate. The difference ranged from 2.10% to 2.30%, indicating a consistent, though not dramatically large, increase in tax obligations beyond the standard rate. The narrowing of this difference in 2023, followed by a slight widening in 2024, warrants further investigation into the specific components affecting the effective rate in those years.

The observed fluctuations, while relatively modest, suggest a dynamic tax position. Continued monitoring of the effective tax rate and its underlying components is recommended to understand the drivers of these changes and their potential impact on future financial performance.

The composition of deferred tax assets and liabilities exhibits distinct trends over the five-year period. A consistent net deferred tax liability is present throughout, with a gradual increase in magnitude each year. The components contributing to this liability and offsetting assets demonstrate varying patterns.

Deferred Tax Assets - Composition

Deferred tax assets are primarily driven by operating lease liabilities, accrued casualty costs, accrued wages, stock compensation, and a category labeled 'Other'. Operating lease liabilities show a consistent decrease from US$434 million in 2021 to US$241 million in 2025, contributing to a reduction in deferred tax assets. Accrued casualty costs demonstrate a steady increase, rising from US$157 million to US$184 million. Accrued wages also show a modest, consistent increase. Stock compensation remains relatively stable until 2025, when it experiences a noticeable increase. The 'Retiree benefits' component is only present in 2021, at US$39 million. The 'Other' component of deferred tax assets decreased significantly from US$256 million in 2021 to US$186 million in 2023, before increasing slightly to US$215 million in 2025. Overall, deferred tax assets decreased from US$957 million in 2021 to US$726 million in 2025.

Deferred Tax Liabilities - Composition

Deferred tax liabilities are dominated by a substantial liability related to 'Property', alongside operating lease assets and a category labeled 'Other'. The 'Property' liability consistently increases in magnitude, moving from -US$12,657 million in 2021 to -US$13,260 million in 2025. Operating lease assets show a decreasing trend, similar to the related asset, declining from -US$441 million to -US$248 million. The 'Other' liability component also exhibits an increasing trend, rising from -US$534 million to -US$639 million. The total deferred tax liabilities decreased slightly from -US$13,632 million in 2021 to -US$13,912 million in 2022, then increased slightly to -US$13,947 million in 2023, before decreasing to -US$13,915 million in 2024, and finally increasing to -US$14,147 million in 2025.

Net Deferred Tax Position

The net deferred tax liability, calculated as the difference between total deferred tax liabilities and total deferred tax assets, consistently remains negative, indicating a net liability position. This net liability increases steadily over the period, from -US$12,675 million in 2021 to -US$13,421 million in 2025. The increasing net liability is primarily driven by the larger and consistently growing 'Property' related deferred tax liability, which outweighs the offsetting deferred tax assets.

The observed trends suggest a growing deferred tax liability, largely attributable to the 'Property' component. The decreasing operating lease related items, both assets and liabilities, contribute to a reduction in deferred tax amounts, but are insufficient to offset the overall increase in the net deferred tax liability.

The net deferred income tax liability exhibited a consistent upward trend over the five-year period from December 31, 2021, to December 31, 2025. The magnitude of the increases varied slightly year-over-year, but the overall direction remained positive.

Trend Analysis

The net deferred income tax liability increased from US$12,675 million in 2021 to US$13,421 million in 2025, representing a total increase of US$746 million. The largest single-year increase occurred between 2021 and 2022, at US$358 million. Subsequent annual increases were more moderate, ranging from US$29 million to US$80 million.

Growth Rates

The year-over-year growth rate in the net deferred income tax liability decelerated over the period. The growth rate from 2021 to 2022 was approximately 2.8%, while the growth rate from 2024 to 2025 was approximately 0.6%. This suggests a diminishing rate of change in the deferred tax liability.

Potential Implications

A consistently increasing net deferred tax liability generally indicates that taxable temporary differences exceed deductible temporary differences. This implies that the entity anticipates paying more income taxes in the future than it currently reports as an expense on its income statement. The deceleration in growth suggests that the rate at which these future tax obligations are accumulating is slowing.

The observed pattern suggests a stable, albeit growing, deferred tax position. Further investigation into the specific temporary differences driving these changes would be necessary for a more comprehensive understanding.

The information presents a five-year trend of reported and adjusted financial statement items. Significant adjustments have been made to both liabilities and shareholders’ equity, alongside corresponding adjustments to net income. These adjustments appear to relate to the removal of deferred tax assets and liabilities, impacting the overall financial picture presented.

Total Liabilities

Reported total liabilities increased from $49,364 million in 2021 to $53,286 million in 2022, then decreased to $50,825 million by 2024, and remained relatively stable at $51,231 million in 2025. However, the adjusted total liabilities show a different pattern. They increased from $36,689 million in 2021 to $40,253 million in 2022, then decreased consistently to $37,674 million in 2024, with a slight increase to $37,810 million in 2025. The difference between reported and adjusted liabilities is substantial, indicating a significant deferred tax position initially, which has been progressively reduced.

Common Shareholders’ Equity

Reported common shareholders’ equity exhibited volatility, decreasing from $14,161 million in 2021 to $12,163 million in 2022, then increasing to $18,467 million by 2025. The adjusted common shareholders’ equity demonstrates a more consistent upward trend, rising from $26,836 million in 2021 to $31,888 million in 2025. The adjustments significantly increase the reported equity, suggesting the deferred tax adjustments are reclassifying items previously held off-balance-sheet as equity.

Net Income

Reported net income fluctuated over the period, ranging from $6,379 million to $6,998 million. Adjusted net income shows a similar pattern but with slightly higher values each year, increasing from $6,677 million in 2021 to $7,379 million in 2025. The adjustments consistently increase net income, likely reflecting the impact of removing deferred tax expense or benefit related to the deferred tax position.

The consistent adjustments to liabilities, equity, and net income suggest a systematic removal of deferred tax items. This could be due to changes in tax laws, a reassessment of the realizability of deferred tax assets, or a change in accounting policy. The magnitude of the adjustments indicates that deferred taxes were a material component of the previously reported financial position. The trend suggests a reduction in the deferred tax position over the observed period.

The financial metrics demonstrate a consistent pattern when adjusted for the removal of deferred tax impacts. Generally, the adjusted ratios are lower than their reported counterparts, indicating that deferred taxes contribute positively to the initially reported figures. Examining the trends reveals some notable shifts in financial performance and position over the five-year period.

Profitability

Reported net profit margin exhibits fluctuations, beginning at 29.92% in 2021, decreasing to 26.45% in 2023, and then recovering to 29.12% in 2025. The adjusted net profit margin mirrors this trend, though the magnitudes of change are slightly smaller. Both reported and adjusted profitability metrics suggest a period of compression in 2023, followed by improvement. The difference between reported and adjusted net profit margin remains relatively stable, around 0.7% to 1%, suggesting a consistent impact from deferred taxes on reported profitability.

Financial Leverage

Reported financial leverage initially increases from 4.49 in 2021 to 5.38 in 2022, then declines steadily to 3.77 in 2025. The adjusted financial leverage shows a more pronounced decrease over the same period, starting at 2.37 and falling to 2.19. This indicates that deferred tax liabilities are a significant component of the reported leverage ratio. The reduction in adjusted leverage suggests a decreasing reliance on debt financing when deferred taxes are excluded from consideration.

Return on Equity (ROE)

Reported ROE experiences a substantial increase from 46.06% in 2021 to 57.54% in 2022, followed by a decline to 38.65% in 2025. The adjusted ROE demonstrates a less dramatic pattern, ranging from 24.88% to 23.14% over the period. The substantial difference between reported and adjusted ROE highlights the considerable influence of deferred taxes on equity. The adjusted ROE remains relatively stable, indicating a consistent return to equity holders excluding the effects of deferred taxes.

Return on Assets (ROA)

Reported ROA fluctuates between 9.50% and 10.69% throughout the period. The adjusted ROA follows a similar pattern, with values ranging from 9.68% to 11.09%. The difference between reported and adjusted ROA is smaller than that observed for ROE, suggesting a less significant impact from deferred taxes on asset utilization. Both reported and adjusted ROA show a slight upward trend towards the end of the period.

In summary, the adjustments for deferred taxes consistently lower the reported values of financial leverage and returns, while the impact on net profit margin and ROA is comparatively smaller. The trends observed in the adjusted ratios provide a potentially more conservative view of the company’s financial performance and position, excluding the timing differences associated with deferred tax accounting.

The period under review demonstrates fluctuations in both reported and adjusted net income, which correspondingly impact net profit margins. While both metrics generally move in tandem, the adjustments made to net income result in slightly different margin profiles. An overall trend of initial decline followed by recovery is observable in the latter years of the period.

Reported Net Profit Margin

The reported net profit margin experienced a decline from 29.92% in 2021 to 26.45% in 2023. A subsequent recovery is noted, with the margin increasing to 27.82% in 2024 and further to 29.12% in 2025. This suggests potential sensitivity to factors impacting reported earnings, with a return to levels approaching those seen at the beginning of the period.

Adjusted Net Profit Margin

The adjusted net profit margin mirrors the trend of the reported margin, decreasing from 30.62% in 2021 to 26.93% in 2023. Similar to the reported margin, a recovery is evident in 2024 (27.94%) and 2025 (30.11%). The adjusted margin consistently remains slightly higher than the reported margin across all years, indicating that the adjustments generally have a positive impact on profitability as measured by this metric.

Relationship Between Reported and Adjusted Margins

The difference between the reported and adjusted net profit margins remains relatively stable throughout the period, typically ranging between 0.5% and 1.0%. This consistency suggests that the nature of the adjustments to net income is consistent year-over-year. The adjustments appear to smooth out earnings volatility, resulting in a more stable profitability picture when viewed on an adjusted basis.

In summary, both net profit margins experienced a dip in 2023 before recovering in the subsequent two years. The adjustments to net income consistently yield a slightly higher profit margin, suggesting a positive impact from these modifications. Further investigation into the specific nature of these adjustments would be beneficial for a more comprehensive understanding of the company’s earnings quality.

An examination of the financial information reveals trends in both common shareholders’ equity and financial leverage over the five-year period. Reported common shareholders’ equity initially decreased from 2021 to 2022, then increased consistently through 2025. Adjusted common shareholders’ equity followed a similar pattern, exhibiting a decline between 2021 and 2022, followed by steady growth through the remainder of the period.

Reported Common Shareholders’ Equity

Reported common shareholders’ equity decreased from US$14,161 million in 2021 to US$12,163 million in 2022, representing a decline of approximately 14.1%. Subsequent years saw increases, reaching US$18,467 million in 2025. This indicates a recovery and expansion of reported equity following the initial decrease.

Adjusted Common Shareholders’ Equity

Adjusted common shareholders’ equity experienced a similar trajectory to its reported counterpart, decreasing from US$26,836 million in 2021 to US$25,196 million in 2022, a decrease of roughly 6.1%. From 2022 to 2025, adjusted equity increased steadily, culminating in a value of US$31,888 million. The magnitude of adjusted equity consistently exceeds that of reported equity throughout the period.

Reported Financial Leverage

Reported financial leverage increased from 4.49 in 2021 to 5.38 in 2022, suggesting a greater reliance on financial leverage. Following 2022, reported financial leverage decreased each year, reaching 3.77 in 2025. This indicates a reduction in the proportion of debt relative to reported equity.

Adjusted Financial Leverage

Adjusted financial leverage exhibited a more moderate pattern. It rose from 2.37 in 2021 to 2.60 in 2022, then decreased consistently over the subsequent three years, reaching 2.19 in 2025. The decline in adjusted financial leverage suggests a strengthening of the equity base relative to debt when considering adjustments. The values for adjusted financial leverage are consistently lower than those for reported financial leverage, reflecting the impact of the adjustments to shareholders’ equity.

The consistent difference between reported and adjusted financial leverage suggests the adjustments to shareholders’ equity have a material impact on the assessment of the company’s financial risk profile. The overall trend indicates a decreasing reliance on financial leverage, particularly when considering the adjusted figures, as equity grows and leverage declines.

The period between 2021 and 2025 demonstrates fluctuating performance when examining reported and adjusted net income alongside corresponding shareholders’ equity figures. Reported Return on Equity (ROE) initially increased, then declined, while Adjusted ROE exhibited a more moderate and relatively stable pattern. A detailed examination of these trends is presented below.

Reported Net Income & Equity

Reported net income increased from US$6,523 million in 2021 to US$6,998 million in 2022, before decreasing to US$6,379 million in 2023. A subsequent increase to US$6,747 million was observed in 2024, followed by a further rise to US$7,138 million in 2025. Reported common shareholders’ equity experienced a decrease from US$14,161 million in 2021 to US$12,163 million in 2022. It then increased significantly to US$14,788 million in 2023, continuing to rise to US$16,890 million in 2024 and reaching US$18,467 million in 2025.

Adjusted Net Income & Equity

Adjusted net income showed an initial increase from US$6,677 million in 2021 to US$7,260 million in 2022, followed by a decrease to US$6,496 million in 2023. It then rose to US$6,775 million in 2024 and further to US$7,379 million in 2025. Adjusted common shareholders’ equity began at US$26,836 million in 2021, decreased to US$25,196 million in 2022, and then increased to US$27,911 million in 2023. Continued growth was observed in 2024, reaching US$30,041 million, and further increasing to US$31,888 million in 2025.

Reported ROE Trend

Reported ROE increased from 46.06% in 2021 to a peak of 57.54% in 2022. Subsequently, a downward trend was observed, with ROE decreasing to 43.14% in 2023, 39.95% in 2024, and 38.65% in 2025. This decline occurred despite increasing net income in later years, suggesting the growth in equity outpaced the growth in net income.

Adjusted ROE Trend

Adjusted ROE began at 24.88% in 2021, increased to 28.81% in 2022, and then decreased to 23.27% in 2023. It remained relatively stable in 2024 at 22.55% and increased slightly to 23.14% in 2025. The Adjusted ROE demonstrates less volatility compared to the Reported ROE, remaining within a narrower range throughout the period. The difference between reported and adjusted ROE is substantial, indicating a significant impact from adjustments made to net income and shareholders’ equity.

In summary, while both net income figures generally trended upward over the five-year period, the impact of changes in shareholders’ equity significantly influenced the ROE metrics. The divergence between reported and adjusted ROE highlights the importance of considering adjustments when evaluating profitability relative to equity.

The period under review demonstrates fluctuations in both reported and adjusted net income, which correspondingly influence return on assets (ROA) metrics. While both reported and adjusted net income generally trend upward, there are notable variations year-over-year. The adjusted ROA consistently exceeds the reported ROA across all observed periods.

Reported Net Income

Reported net income increased from US$6,523 million in 2021 to US$6,998 million in 2022, representing a growth of approximately 7.2%. A subsequent decrease was observed in 2023, with reported net income falling to US$6,379 million. This was followed by a recovery to US$6,747 million in 2024 and further growth to US$7,138 million in 2025.

Adjusted Net Income

Adjusted net income exhibits a similar pattern to reported net income, beginning at US$6,677 million in 2021 and rising to US$7,260 million in 2022, a growth of approximately 8.7%. A decline is then noted in 2023, with adjusted net income at US$6,496 million. Subsequent years show increases, reaching US$6,775 million in 2024 and US$7,379 million in 2025.

Reported Return on Assets (ROA)

Reported ROA increased from 10.27% in 2021 to 10.69% in 2022. A decrease was then recorded in 2023, with reported ROA falling to 9.50%. The metric recovered to 9.96% in 2024 and further increased to 10.24% in 2025, approaching the 2021 level.

Adjusted Return on Assets (ROA)

Adjusted ROA mirrors the trend of reported ROA, starting at 10.51% in 2021 and increasing to 11.09% in 2022. A decline to 9.68% is observed in 2023, followed by a recovery to 10.01% in 2024 and a rise to 10.59% in 2025. Throughout the entire period, the adjusted ROA consistently registers higher values than the reported ROA, indicating the impact of adjustments made to net income.

The fluctuations in both net income figures and ROA suggest potential sensitivity to underlying economic conditions or company-specific factors. The consistent difference between reported and adjusted ROA highlights the significance of the adjustments made to net income in assessing the company’s asset utilization efficiency.