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Rail News: Union Pacific Railroad

UP: No upturn yet, but latest operating ratio and volumes are reasons to be upbeat

Like CSX Corp. and CN that released third-quarter financial results the past week, Union Pacific Corp. noted a few rays of sunshine in an otherwise dark and dreary quarter while announcing results this morning during a teleconference and Webcast.

The dark and dreary included a 26 percent drop in net earnings to $517 million, or $1.02 per diluted share, 20 percent decline in operating income to $967 million, 15 percent dip in carloads to 2 million units and 24 percent plunge in total operating revenue to $3.7 billion compared with third-quarter 2008 results. Agricultural revenue tumbled 23 percent to $649 million, automotive revenue fell 30 percent to $227 million, chemical revenue decreased 16 percent to $551 million, energy revenue declined 21 percent to $831 million, industrial products revenue plummeted 39 percent to $557 million and intermodal revenue dropped 22 percent to $656 million.

However, seven-day carloadings reached 161,000 units by September’s end compared with 158,000 units in August, 152,000 units in July and 146,000 units in June, showing the economy is “at least stabilizing and improving slightly,” said UP Chairman, President and Chief Executive Officer Jim Young during the conference.

In addition, the railroad registered a third-quarter customer satisfaction index of 88 — the highest since UP began tabulating the index in 1988 — and posted a record quarterly operating ratio of 73.7, down 1.2 points year over year, because of productivity, efficiency and pricing gains.

“Since 2006, we’ve taken 7.5 points off the operating ratio despite volume being down nearly 19 percent,” said Executive Vice President and Chief Financial Officer Rob Knight.

UP also shaved millions of dollars from third-quarter operating expenses, which plunged 26 percent to $2.7 billion. Fuel costs tumbled 59 percent to $466 million as diesel prices dropped 49 percent from $3.70 per gallon to $1.87 per gallon and the railroad cut fuel usage, primarily because gross ton-miles dropped 17 percent. Purchased services and materials costs decreased 16 percent to $403 million, equipment and other rents declined 11 percent to $290 million, and compensation and benefits costs fell 11 percent to $999 million. During the quarter, UP reduced its workforce by 11 percent.

“We’ve seen a sequential decline in our workforce the last six quarters,” said Knight.

While UP is providing “excellent service” and obtaining “better margins” of late, the Class I is positioning itself for a slow recovery because there won’t be a quick economic rebound in 2010, said Young.

The railroad isn’t necessarily “seeing an upturn yet,” but there are opportunities on the horizon that could change that in the fourth quarter and into next year, said EVP of Marketing and Sales Jack Koraleski.

“The fall harvest looks great” and ethanol should hold its run rate, he said. In addition, auto inventory replenishment is strong following the federal “Cash for Clunkers” program, domestic intermodal continues to outpace last year and new business development is progressing, said Koraleski.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 10/22/2009