The Rising Influence of Rising Affluence

[DewDiligence]

UNP 3Q10 Profit Surges 51% on Higher Volume

[Year-over-year, volume increased and pricing was stable or improved in all six operating divisions (automotive, intermodal, industrial, chemicals, coal/energy, and agricultural). The share price is hovering near an all-time high (#msg-55507924).]

http://online.wsj.com/article/SB10001424052702304023804575565924104532344.html

›OCTOBER 22, 2010
By BOB SECHLER

Union Pacific Corp.'s reported a 51% increase in profit on rising freight volume across its major market segments, and the railroad said the steady, if slow, economic recovery appears to be continuing.

"We're not seeing any particular trend that says things are softening," Chief Executive Jim Young said.

Mr. Young declined to issue a specific forecast but said he expects solid fourth-quarter volume growth, compared with a year-ago period.

The Omaha, Neb.-based railroad said overall volume grew 14% in the third quarter, a slowdown from an 18% year-over-year increase in the second quarter. Still, Mr. Young downplayed the deceleration, saying the second-quarter growth rate was helped by a particularly easy comparison to the 2009 second quarter, a volume low point for the railroad.

"I don't see anything out there that is changing" in terms of the broad economy, Mr. Young said. "This is playing out somewhat how we expected."

Union Pacific said third-quarter earnings came in at $778 million, or $1.56 a share, up from $514 million, or $1.01 a share, a year earlier. Revenue climbed 20% to $4.41 billion.

Wall Street had expected a profit of $1.50 a share on revenue of $4.36 billion.

The railroad said its operating ratio [defined as 1.0 minus the operating profit margin—i.e. lower is better] came in at a company-record 68.2% in the third quarter, on the heels of a 69.4% ratio in the second quarter, the first time the figure has been below 70%.

Union Pacific and other U.S. railroads invested heavily through the recession to widen track and tunnels, upgrade rolling stock and enhance technology. Those moves, along with successful price increases, have paid off through improved efficiency and results, with CSX reporting its first sub-70% quarterly operating ratio last week.

Mr. Young declined to forecast a ratio going forward but said Union Pacific can continue operating efficiently as its volumes rise.

He also said Union Pacific has brought back all but about 1,100 of its furloughed employees—from 5,300 furloughed at the height of the downturn—and expects to bring the remainder back during the first half next year. The company also will hire about 3,500 people to make up for the number it expects to lose through attrition, Mr. Young said, assuming "the economy is still on a positive slope."

The company's third-quarter freight revenue climbed across all business segments, with its energy segment—the biggest—rising 11% and its industrial-products segment seeing a 25% increase. The automotive segment saw revenue jump 36%, while intermodal revenue rose 34%.‹