Union Pacific operational overhaul gains traction, shares rise

Business

(Reuters) – U.S. railroad operator Union Pacific Corp on Thursday reported better-than-expected quarterly profit as price increases and cost controls offset the impact of severe winter weather and record flooding that damaged rails in the Midwest.

FILE PHOTO: A Union Pacific rail car is parked at a Burlington National Santa Fe (BNSF) train yard in Seattle, Washington, U.S., February 10, 2017. REUTERS/Chris Helgren

Its shares jumped 4.6 percent to $177.02 after the second-largest U.S. railroad’s operational overhaul survived its first stress test.

Efforts to streamline operations and create surge capacity helped railway crews reroute the 50-60 daily trains that use the east-west main line that flood waters severed for almost two weeks, Chief Executive Lance Fritz told Reuters.

“We’re gaining traction… I see us coming back quickly and strongly,” Fritz said.

Net income at Union Pacific, which serves the western two-thirds of the country, rose 6.2 percent to $1.4 billion, or $1.93 per share, in the first quarter. That topped analysts’ average forecast of $1.89, according to IBES data from Refinitiv.

Expenses fell 3.2 percent, assisted by workforce reductions and increased train lengths, which reduce fuel, maintenance and labor costs.

The Omaha, Nebraska-based company early this year hired former Canadian National Railway Co executive and turnaround expert Jim Vena as its chief operating officer and tasked him with overseeing its plan to lower costs and improve service and reliability.

Vena had worked with Hunter Harrison, who led the revival of two Canadian railroads and died in 2017 after a short stint as CEO of rival railroad operator CSX Corp.

Union Pacific’s first-quarter operating ratio – a measure of operating expenses as a percentage of revenue – increased 1 point to 63.6 percent, largely due to the weather disruptions.

The railroad is working to get that key performance metric below 60 percent by 2020 and said “everything is on the table” as it works toward that end. CSX, which serves the eastern third of the United States and was less exposed to this winter’s extreme weather, on Tuesday reported a first-quarter operating ratio of 59.5 percent. [L1N21Y1AE]

Union Pacific’s total operating revenue fell 1.7 percent to $5.4 billion. Weather and the U.S. trade war with China reduced export grain carloads, but pricing rose nearly 2.8 percent.

The global economy is cooling and the United States is showing similar signs as manufacturing softens and stimulus from the $1.5 billion tax cut package ebbs.

Trade “is the thing that could tip us into a worse economy,” CEO Fritz said.

Reporting by Rachit Vats in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Shailesh Kuber and Dan Grebler

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