By Dow Jones Business News, October 17, 2013, 01:26:00 PM EDT
(Update adds details and comments from CEO.)
By Nathalie Tadena
Union Pacific Corp. ( UNP ) said Thursday that pricing gains helped offset the railroad operator's flat volumes in the
third quarter, driving a 10% increase in quarterly profit.
The company projected modest volume growth for its fourth quarter and next year, assuming the economy cooperates, but
said it is unlikely that volumes will be positive for the current year.
"At this point in time, we are still seeing a slow-growth economy," Chief Executive Jack Koraleski said in an
interview, noting the company had hoped for a stronger economy and international peak season as well as a warmer summer
that could have improved the demand for coal.
Coal volumes for the year are expected to fall in the high-single-digit range, including the impact of a contract loss
from earlier this year.
Top U.S. railroads--considered a barometer of overall economic activity--have broadly been hurt by a slump in coal
demand from domestic utilities as a result of low-cost natural gas and high coal stockpiles. Flooding in Colorado in the
latest period further hurt Union Pacific's coal volumes and, to a lesser extent, other commodity shipments.
Economic uncertainty has also weighed on the company's intermodal volume, which measures the movement of freight by
two or more modes of transportation. In the most recent period, shipments of coal were down 6.6% while intermodal volume
was down 1.1%.
Despite a slow-trajectory economy, the company expects domestic highway conversions to help boost intermodal volumes
next year. Mr. Koraleski also expects to see gains from the business that transports steel, sand and pipe to drilling
sites and then hauls out the resulting crude oil, as well as from shipments of autos and building materials, such as
lumber, used in housing construction.
In the latest period, chemical shipments, which include crude shipments, were up 2.5%. Auto shipments climbed 7.7%
while industrial product shipments improved 8.7%.
Another bright spot was the company's improved operating ratio of 64.8%, a quarterly record that was driven by pricing
gains and productivity improvements. Union Pacific anticipates continued core pricing gains next year, though at less
than 2013's levels.
Overall, Union Pacific reported a profit of $1.15 billion, or $2.48 a share, up from $1.04 billion, or $2.19 a share,
a year earlier. Operating revenue rose 4.3% to $5.57 billion.
The company had projected earlier this month earnings between $2.45 to $2.48 a share on 4% to 4.5% operating revenue
growth, less than estimates at the time.
Carload volume was flat from a year earlier at 2.3 million shipments though average revenue per carload rose 4.7%.
Shares fell 3.8% to $151.93 in recent trading. The stock is up 21% since the start of the year.
Write to Nathalie Tadena at firstname.lastname@example.org
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