(The following story by Joe Ruff appeared on the Omaha World-Herald website on April 19.)
OMAHA, Neb. — Union Pacific Corp. today reported a 24 percent jump in net income in its first quarter, driven by improved pricing and increased efficiency.
Net income for the three months ended March 31 was $386 million, or $1.41 per share, compared with $311 million, or $1.15 per share in the same quarter last year.
The results beat projections the Omaha-based railroad made in January, when it forecast first-quarter earnings per share of $1.25 to $1.35.
Union Pacific said it expected earnings growth of 10 percent to 15 percent in its second quarter.
U.P.’s stock rose more than 2 percent in early trading today on the New York Stock Exchange, to $116.28.
The stock of all major freight railroads in North America received a boost earlier this month, when Warren Buffett disclosed that his company, Berkshire Hathaway, had an 11 percent stake in Union Pacific rival BNSF Railway Co. Buffett also said Berkshire had invested in two other, unnamed railroads.
Shipping volume during Union Pacific’s first quarter fell 2 percent, but revenue increased 4 percent to $3.85 billion from $3.7 billion the year before. Winter storms – particularly in Nebraska and Wyoming – and a softer housing market contributed to the decline in volume, the railroad said, as did decreased domestic intermodal volume, or the hauling of goods in containers that can be transferred to trucks.
Efficiency, as measured by the railroad’s operating ratio, improved 2.4 points to 81.3 percent, a first quarter record, said Jim Young, chairman and chief executive officer. Railroads generally shoot for operating ratios of 80 percent or lower.
Quarterly average train speed improved 0.4 mph to 21.7 mph compared with the same period last year, and the amount of time trains spent idling in terminals dropped 13 percent to 25.3 hours from 29 hours. Operating income grew 19 percent to $719 million compared with $605 million in the same period last year.
“We’re making good progress on improving profitability and increasing operating efficiency,” Young said.
Analyst Rick Paterson with UBS said Union Pacific’s efficiency improvements were impressive.
“What was impressive here is that U.P. held costs in check despite severe weather disruptions, something we haven’t seen from them for a long time,” Paterson said in a research note on the quarter.
Union Pacific said its revenue from hauling chemicals was up 9 percent; agriculture, up 8 percent; and energy and intermodal, each up 4 percent. Automotive revenue was down 2 percent, and revenue from transporting industrial products was down 3 percent.
Fuel costs rose slightly to $1.90 per gallon from $1.87 per gallon in the first quarter of last year.
Union Pacific also repurchased more than 2 million shares of its stock in the first quarter at an average price of $98.68 per share.
Revenue for the year could grow by about 4 percent to 6 percent, depending on the strength of the economy, Young said. In January, the railroad projected revenue growth of 6 percent to 7 percent.
However, the railroad’s efficiency should improve as projected, with an operating ratio projected at below 80 percent for the year, Young said.
“The economy may stay slower, but operating efficiency is key,” Young said.