Union Pacific profit and volume rise, led by gains in coal and grain traffic

Executives say free trade is essential for U.S. jobs, economy
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OMAHA, Neb. — Union Pacific’s first-quarter profit was up as the railroad hauled more freight, led by gains in coal and grain traffic.

UP reported first-quarter net income of nearly $1.1 billion, up 9 percent from a year ago, on revenue of $5.1 billion, a 6-percent increase. Earnings per share was $1.32, up 14 percent, to a first-quarter record. The railroad’s operating ratio held steady at 65.1 percent despite a spike in fuel costs and the effects of harsh winter weather.

“This is a very solid start to the year, especially given the weather challenges we encountered on the western part of our network earlier in the quarter,” UP CEO Lance Fritz during the railroad’s earnings call on Thursday. Overall carloads were up 2 percent for the quarter.

Coal carloads grew 16 percent, and coal revenue was up 25 percent, as higher natural gas prices, increased exports, and reduced utility stockpiles all contributed to higher demand. Volume remains well below levels of 2015 and 2014, however.

“Coal seems to have stabilized,” Fritz says.

Grain shipments were up 19 percent for the quarter, leading to a 7-percent rise in agricultural products revenue.

Industrial products carloads grew 1 percent, while intermodal volume was flat. Chemicals and automotive traffic showed slight declines.

UP’s key operating metrics suffered from the impact of winter weather, Chief Operating Officer Cameron Scott says. Train velocity was down 6 percent, while terminal dwell rose by 7 percent. But the railroad showed improvements in terminal productivity and train lengths increased to quarterly record levels for intermodal, manifest, and grain, while automotive trains reached all-time record lengths.

UP’s active locomotive fleet grew to 3 percent, to 6,774 units, but the railroad still has 1,400 locomotives in storage. UP brought 400 locomotives out of storage to help it recover from winter weather issues, Fritz says.

“Those are all the tail end of the fleet,” he says of the reactivated units.

UP will acquire 60 new locomotives this year, then 40 next year, completing a long-term purchase commitment, Chief Financial Officer Rob Knight says. But absent that long-term contract, UP would not be in the market for new power, Fritz says.

UP has plenty of room to add additional volume before it needs to tap the fleet in storage, Scott says.

First-quarter operating expenses increased, largely due to a 44-percent rise in diesel fuel prices and costs associated with winter weather, Knight says. UP recorded $90 million of productivity gains in the quarter, and expects to be able to cut costs by $350 million to $400 million this year, he says.

Executives were asked about the Trump administration’s protectionist trade moves against Canada and its threat to pull out of the North American Free Trade Agreement.

Open global trade is critical for U.S. jobs as well as continued economic growth – an understanding the Trump administration shares, Fritz says. In the long-term, the more markets available to U.S. manufacturers and producers, the better, he adds.

The 20 percent tariff on Canadian lumber should not affect UP’s forest product volumes, Whited says.

NEWSWIRETrains News Wire

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