Traffic growth propels Union Pacific earnings

Profit rises 19 percent on rising coal volume
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OMAHA, Neb. — Union Pacific’s second-quarter net profit surged 19 percent as the railroad carried more freight, led by growth in coal and industrial products traffic compared to a year ago.

UP’s revenue was up 10 percent, to $5.3 billion, as carloads increased 5 percent, the railroad reported on Thursday. Net profit rose 19 percent, to $1.1 billion. The railroad’s operating ratio was 61.8 percent, a 3.4-point improvement and a second-quarter record.

“I’m pleased with our results through the first six months,” CEO Lance Fritz said on the railroad’s earnings call.

Four of UP’s six commodity groups posted volume gains for the quarter. Only automotive, down 1 percent, and chemicals, down 2 percent, lost ground.

Coal traffic was up 17 percent thanks to higher natural gas prices, utility coal stockpile reductions, and stronger West Coast exports. With power plant stockpiles now below the five-year average, UP expects coal traffic to hold steady for the rest of the year, says Beth Whited, chief marketing officer.

Industrial products traffic grew 15 percent, propelled by a 128-percent increase in frac sand shipments. Agricultural products was up 3 percent on strong grain exports to Mexico and at Gulf Coast ports. Intermodal was up 2 percent, as both domestic and international categories posted 2 percent gains.

UP’s key service metrics deteriorated during the quarter, largely due to the impact of harsh weather in the Western Region and a bridge outage in the Southern Region.

“Our network performance fell short during the second quarter,” says Chief Operating Officer Cameron Scott, noting the 5-percent decline in average train speed and the 4 percent rise in terminal dwell time.

UP’s bridge over the Atchafalaya River near Krotz Springs, La., was struck by a barge and has been out of service since June 12. As a result, detours are requiring more crews and locomotives and are delaying shipments by 48 hours. It should be back in service next week.

The railroad did notch gains in productivity, Scott noted, including record train lengths in the auto, manifest, grain, and coal networks. It’s the eighth straight quarter of increases for UP merchandise trains. Terminal productivity also improved 5 percent based on the number of cars switched per employee day.

As part of its effort to reach a 60 percent operating ratio target by 2019, UP aims to further increase train lengths while maintaining fundamental aspects of its service plan, Fritz says.

To do that, the railroad has been dissecting its network service plan by lane and is looking at ways to blend different types of traffic into longer trains.

“We think there’s pretty good juice there,” Fritz says.

UP faced continued pricing pressure in intermodal and coal traffic, Chief Financial Officer Rob Knight says. Overall core pricing rose 1.5 percent, which is below UP’s target. Pricing for other freight categories was in the 2-to-3 percent range, which is above the cost of rail inflation.

The railroad reported $110 million in productivity gains in the quarter, putting it well on its way to reaching its annual goal of $350 million to $400 million in savings, Knight says. The productivity gains came from fewer re-crews, longer trains, using fewer locomotives and cars, and more efficient track maintenance practices.

UP reported earnings per share of $1.45, up 24 percent to a second-quarter record. Wall Street analysts were expecting UP to report earnings of $1.39 cents per share, according to Thomson Reuters I/B/E/S.

NEWSWIRETrains News Wire

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