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Rail News: Union Pacific Railroad

UP's profit falls due to lower traffic volumes in 2015

Pricing gains weren't enough to offset the decline in traffic volume in fourth-quarter 2015 at Union Pacific Railroad. As a result, UP posted net income of $1.1 billion, or $1.31 per diluted share for the period, compared with $1.4 billion, or $1.61 per diluted share, in fourth-quarter 2014, the railroad announced this morning.

Operating revenue for the quarter fell 15 percent to $5.2 billion compared with Q4 2014. Fourth-quarter business volumes — measured by total revenue carloads — declined 9 percent in 2015 compared with a year ago. Volumes fell in each business group except for automotive. Coal led the decline; freight revenue for that category fell 31 percent, according to the company's press release.

In addition, quarterly freight revenue was down 16 percent compared with fourth-quarter 2014. Volume declines, lower fuel surcharge revenue and negative business mix more than offset core pricing gains, the company said.

"Total volumes decreased 9 percent in the quarter, more than offsetting another quarter of solid core pricing gains," said Lance Fritz, UP's chairman, president and chief executive officer. "On the cost side, we continued to adjust resources throughout the quarter and also made solid progress with our productivity initiatives. As a result of these efforts, we achieved a quarterly operating ratio of 63.2 percent."

UP's operating ratio for the quarter was 1.8 points higher than a year earlier.

For the full year 2015, UP posted net income $4.8 billion, or $5.49 per diluted share, versus $5.2 billion, or $5.75 per diluted share in 2014. Operating revenue was $21.8 billion as compared to $24 billion in 2014. Operating income totaled $8.1 billion, an 8 percent decrease compared with 2014's operating income.

Freight revenue for the year decreased 10 percent to $20.4 billion when compared to 2014. Carloadings in 2015 were down 6 percent compared with 2014's numbers. UP posted declines in each business group except for automotive.

UP's operating ratio for the full year was 63.1 percent, an improvement of 0.4 points.

"This past year was a difficult one in many respects, but our team did outstanding work in the face of dramatic declines in volumes, and shifts in our business mix," said Fritz.

Overall economic conditions, uncertainty in the energy markets, commodity prices and the strength of the U.S. dollar will continue to have a "major impact" on the company's business in 2016, Fritz added.

"However, we are well-positioned to efficiently serve customers in existing markets as they rebound," he said. "The strength and diversity of the Union Pacific franchise also will provide tremendous opportunities for new business development as both domestic and global markets evolve. When combined with our unrelenting focus on safety, productivity, and service, these opportunities will translate into an excellent experience for our customers and strong value for our shareholders in the years ahead."





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