Union Pacific 4Q profit jumps 22 per cent as railroad hauls more freight, raises rates

OMAHA, Neb. – Union Pacific finished last year with a strong 22 per cent jump in fourth-quarter profit, but volatile energy prices are making it difficult to predict how 2015 will unfold.

The railroad is confident the economy should continue growing at a moderate pace and Union Pacific expects to again haul more freight this year.

Crude oil prices, now well below $50 per barrel, make it hard to forecast shipments of everything from crude oil to the sand used in the hydraulic fracturing wells that have boomed over the past decade.

“Nobody that I can find expects that this is going to be a long-term trend,” CEO Jack Koraleski said. “And certainly no one at this point in time has made any decisions to alter long-term capital facility expansions or things like that. I think it’s just way too early to see if this is a sustainable trend in energy prices.”

Falling energy prices can be a positive for railroads because consumers will have more money to spend, and that could boost shipments of building materials, cars and other goods.

It also means cheaper fuel for railroads. In the fourth quarter, Union Pacific’s average diesel price fell 14 per cent to $2.66 per gallon.

Investors sent Union Pacific’s shares up nearly 5 per cent to $119.92 after the Omaha, Nebraska, railroad beat Wall Street expectations

Union Pacific earned $1.43 billion, or $1.61 per share, in the quarter. That’s up from $1.17 billion, or $1.27 per share, last year.

Revenue grew 9 per cent to $6.2 billion as it hauled 6 per cent more carloads of industrial goods, coal, intermodal containers, grain and other products.

Analysts surveyed by FactSet expected the railroad to report earnings per share of $1.52 on revenue of $6.1 billion.

Union Pacific’s performance measures show that the railroad’s service is still not as good as it used to be because it didn’t have the locomotives and workers it needed ready last year. For instance, average train speed fell 8 per cent in the fourth quarter and the amount of time trains spent dwelling in rail yards increased 11 per cent.

The answer to a big part of Union Pacific’s problem is more locomotives, but Edward Jones analyst Logan Purk said those have been on back order because all major freight haulers need them to handle rising volumes as the economy recovers.

“The railroads are doing everything they can,” Purk said. “These other companies just can’t spit out locomotives fast enough.”

Koraleski said Union Pacific has the locomotives it needs and train speeds are starting to recover.

For all of 2014, Union Pacific reported $5.18 billion net income, or $5.75 per share, on revenue of $23.99 billion. That’s up from $4.39 billion, or $4.71 per share on $21.96 billion in revenue in 2013.

Analysts expected the railroad to report earnings per share of $5.66 on revenue of $23.95 billion in 2014.

Union Pacific operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts.


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