UP reports record first-quarter earnings despite flooding, harsh weather

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OMAHA, Neb. — Union Pacific reported record first-quarter operating income on Thursday despite the impact of severe winter weather and historic flooding that crippled key routes and resulted in volume declines.

“I am extremely proud of the men and women of Union Pacific and applaud their heroic efforts to safely restore our rail network,” CEO Lance Fritz told investors and analysts on the railroad’s earnings call.

Flooding shut UP’s Overland Route in eastern Nebraska for 13 days last month, and due to flooding elsewhere in the Omaha area there were few detour options available for the 50 trains per day that run on the route, Chief Operating Officer Jim Vena says.

Snow and extreme cold in February also closed key routes in the Pacific Northwest and slowed operations in the Midwest.

Overall, UP’s volume declined 2% in the quarter, which Kenny Rocker, executive vice president of marketing and sales, attributed to a combination of the bad weather, a slump in coal and frac sand traffic, and the impact of tariffs on grain exports.

UP executives touted the way the railroad was able to quickly bounce back from the flooding thanks to its shift to an operating plan based on the principles of Precision Scheduled Railroading.

Key operating metrics generally improved in the quarter as UP rolled out changes as part of a third and final introductory phase of its UP 2020 operating plan.

“Our network showed tremendous resiliency in face of significant weather during the quarter and we’re already seeing it in our key operating metrics,” Vena says.

Terminal dwell improved 19%, freight car velocity improved 7%, and train length was up 7% while locomotive productivity improved 6%. The only figure to head in the wrong direction was average train speed, which declined 6% due to the effects of snow and flooding, Vena says.

With UP moving traffic on longer trains, it was able to reduce the size of its active locomotive fleet. As of March 31, some 1,900 units were stored.

For the quarter, UP’s operating income was up 1%, to $1.96 billion, on revenue of $5 billion, a 2% decline. The railroad reported earnings per share of $1.94, a 15% increase that beat Wall Street analyst estimates of $1.90, according to I/B/E/S.

UP’s operating ratio improved by a point, to 63.6%. The winter weather and flooding dinged the operating ratio by 1.6 points, Chief Financial Officer Rob Knight says, but that was more than offset by gains from a payroll tax refund and fuel surcharges.

Knight says efficiency and productivity gains from UP’s new operating plan also contributed to the operating ratio improvement.

Despite the volume declines, UP stuck with its guidance of low single-digit volume growth this year.

NEWSWIRETrains News Wire

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