Union Pacific profits rise despite impact of hurricane and flooding

PTC rollout slows average train speed
RELATED TOPICS: UNION PACIFIC | WEST | FINANCIALS
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OMAHA, Neb. — Union Pacific’s revenue and profit rose despite the historic impact of Hurricane Harvey, which flooded thousands of miles of track and curtailed traffic in Texas and Louisiana, the railroad reported on Thursday.

“During the quarter, our company faced the unprecedented challenge of Hurricane Harvey,” CEO Lance Fritz said in a statement. “I want to thank the men and women of Union Pacific who worked tirelessly and heroically to quickly and safely restore our network and operations from the storm and related flooding. Given these challenges, I am pleased with our results.”

UP’s net profit rose 6 percent, to $1.2 billion, as revenue climbed 5 percent, to $5.4 billion. Earnings per share grew 10 percent, to $1.50, beating Wall Street estimates by a penny. The railroad’s operating ratio was 62.8 percent, up 0.7 of a point compared to a year ago.

“We faced a particularly tough challenge in the quarter dealing with the impact of Hurricane Harvey,” says Chief Operating Officer Cam Scott.

Flooding put 1,700 miles of track out of service, affecting more than 2,400 route miles. But crews worked around the clock and service was restored in just 10 days, Scott says.

UP’s key operating metrics showed the impact of Harvey. Terminal dwell was up 7 percent as the railroad held carloads bound for flooded areas in Texas, while velocity sank 2 percent. UP continued to increase train length to third-quarter records. And terminal productivity improved.

The rollout of positive train control on UP’s Western and Northern regions slowed average train velocity by up to 1 mph in those areas, Scott says. There was not a technical problem with PTC, he says, but a crew training and familiarization issue.

The PTC system in the locomotive cab flashes warnings too frequently, Fritz explains.

“Pretty much all it does is warn you when it’s thinking you’re going to need to take action. So half the time the screen is flashing at you a warning, and I think human behavior is to not have the screen tell you about a warning,” Fritz says. “That’s a little bit of a design issue that I think the overall industry is going to have to get into, because that drives behavior then to be more cautious than necessary, and that then retards overall velocity on the system.”

UP’s traffic fell 1 percent in the quarter, thanks largely to the impact of Harvey and related flooding.

Nonetheless, traffic in UP’s industrial products segment grew 15 percent as shipments of frac sand and other drilling-related traffic soared. Frac sand carloads were up 120 percent and is expected to grow for the remainder of the year amid increased drilling and higher sand volume per well, says Beth Whited, chief marketing officer.

Intermodal was flat, and everything else declined, led by a 10 percent drop in agricultural products shipments. Grain, which slumped 19 percent due to a delayed harvest and high global inventory, was the main reason for the hit to agricultural volume.

For the rest of the year, UP expects volume to be up slightly. Full-year volume is expected to be up in the low single-digit range.
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