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Rail News: Union Pacific Railroad

UP sets all-time operating revenue and income records in third quarter

Union Pacific Corp. not only set third-quarter operating revenue and income records in the previous quarter, it established all-time-high quarterly revenue and income marks at $4 billion and $752 million, respectively. In addition, operating revenue rose 15 percent and operating income increased 56 percent — the sixth-straight quarter of year-over-year income growth — compared with third-quarter 2005 data.

Five of six business segments set all-time quarterly revenue records and automotive posted a third-quarter high-water mark. Agricultural revenue rose 19 percent to $597 million; energy revenue rose 17 percent to $764 million; industrial product revenue rose 15 percent to $830 million; chemical and intermodal revenue each rose 14 percent to $540 million and $743 million, respectively; and automotive revenue rose 10 percent to $328 million.

Strong traffic demand and a significant increase in average revenue per carload drove the revenue gains. UP’s revenue carloads rose 3 percent to 2.5 million units and total average revenue per carload increased 12 percent to $1.5 million compared with third-quarter 2005.

“Top-line growth led to a 5-point improvement in the quarterly operating ratio,” said UP President and Chief Executive Officer Jim Young during today’s earnings conference in Omaha, Neb., referring to the railroad’s 81.1 third-quarter ratio.

However, quarterly operating expenses totaling $3.2 billion increased 8 percent compared with third-quarter 2005 primarily because of inflation, higher traffic volumes, fuel costs and a larger workforce, said Executive Vice President and Chief Financial Officer Robert Knight Jr. Materials and supplies costs increased 27 percent, fuel costs rose 22 percent and labor costs went up 6 percent.

The railroad’s average quarterly fuel price increased 21 percent on a year-over-year basis from $1.88 per gallon to $2.27 per gallon. However, UP’s fuel surcharge recovered about 89 percent of diesel costs and the railroad’s fuel consumption rate was a quarterly best 1.26 gallons per thousand gross ton-miles, Knight said.

During 2006’s first nine months, UP’s operating revenue increased 17 percent to $11.6 billion, operating income rose 64 percent to $2 billion, net income went up 54 percent to $1.1 billion and operating ratio improved 5.2 points to 82.1 compared with similar 2005 data. Operating expenses rose 10 percent to $9.5 billion primarily because materials and supplies costs increased 29 percent and fuel expenses went up 28 percent.

UP execs expect similar results by year’s end. Full-year operating revenue will increase about 15 percent as traffic volumes rise between 3 percent and 4 percent compared with 2005, said Knight.

“We’ll [also] continue to see the trend with our operating ratio improvement by posting a 4- to 5-point gain in the fourth quarter,” he said.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 10/19/2006