Union Pacific net up on carload gains

Union Pacific Corp. tallied second quarter 2017 net income of nearly $1.2 billion, up from $1 billion in the year-ago quarter on operating revenue that was 10% higher at $5.3 billion.

The Omaha-based carrier said second-quarter operating ratio was 61.8%, a record, and 3.4 points better on-year.

Diluted earnings per share of $1.45 increased 24% on operating income of $2 billion, up 21%.

Second quarter business volumes, as measured by total revenue carloads, increased 5% on gains in coal, industrial products, agricultural products and intermodal. Chemicals and automotive carloads were weaker than 2Q16.

Quarterly freight revenue improved 11% on volume growth, increased fuel surcharge revenue, core pricing gains and positive traffic mix. Gains in freight included coal (25%), industrial products (24%), agricultural products (7%), automotive (5%), chemicals (4%), and intermodal (3%).

Higher fuel prices improved the operating ratio by a half-point as the $1.69-per-gallon average quarterly diesel fuel price was 17% higher than in the year-ago period.

The company said it repurchased 7.8 million shares in the second quarter 2017 at an aggregate cost of $850 million.

“Absolute business volumes should be stronger in the second half than the first half, although year-over-year comparisons will be more challenging,” said Lance Fritz, Union Pacific Chairman, President and Chief Executive Officer. “In this environment we will focus on our growth opportunities. In addition, we will continue to make progress on our G55 + 0 initiatives as we work to make Union Pacific a stronger, more efficient company. We are confident these efforts will generate top-line growth, margin improvement and greater returns for our shareholders.”

“Despite beating expectations in the quarter and pushing its core pricing higher, UP’s shares came under pressure during trading falling just under 2% on the day as investors fretted about management commentary for 2H 2017,” noted Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Indeed, management sounded cautious on the outlook for several of its business units in the coming quarters due to macro related events and more difficult year-over-year comparisons. Specifically, UP called out potential declines in its agricultural business, including more lucrative export grain shipments due to recent crop damage. It also continues to sound the alarm about declining automotive traffic and a potential slowing of frac sand growth due to the use of more local brown sand in some of UP’s served regions. Even with these cautionary comments, UP did call for traffic to be both up sequentially and flat for the third quarter and back half of the year.”