UNP Union Pacific Corp

By Anne Steele 

Union Pacific Corp. Thursday reported a 15% drop in quarterly profit due to weak freight demand, especially for coal and forecast total volumes to be down this year.

The company's performance was hurt by big declines in energy-related businesses, particularly coal, and oil and natural gas shale fracking sand, which shrunk 34% and 49%, respectively in the quarter. Industrial products were down 10%.

Even so, Chief Executive Lance Fritz pointed to several bright spots in the U.S. economy such as healthy growth in industrial chemicals and improving signs for construction, including more rock and lumber shipments.

"Our book of business does indicate that the economy continues to recover and grow, even though it's at a relatively slow rate," Mr. Fritz said in an interview. While housing starts are still at historically low numbers, he said the business is strengthening.

Shares of Union Pacific rose 5.6% in recent trading to $88.50, and are up 13% so far this year.

Union Pacific said it expects total volumes for the year to decline in the mid single digits.

As major transportation providers for cargoes representing all facets of the U.S. economy, railroads have traditionally been seen as an economic bellwether.

While low energy prices have caused Union Pacific's oil and natural gas shale fracking business to skid, Mr. Fritz says that he does expect a recovery -- and at lower oil prices than was previously possible for domestic production. Union Pacific's biggest piece of that business is shipping sand, pipes and steel for drilling wells.

Shale drilling peaked about a year and a half ago with about 2,000 active drilling rigs, Mr. Fritz said, a number that has plunged beneath 500 currently.

"I don't know if you get back to that kind of peak," Mr. Fritz said. But "producers have really knocked down their operating cost, so I think that strike price is lower than it was four years ago."

Overall, revenue in the quarter decreased 14% to $4.83 billion and profit fell to $979 million from $1.15 billion.

For the three months ended March 31, Union Pacific's total freight volume skidded 14% as declines across sectors more than offset growth in automotive, which rose 7%.

Anne Steele contributed to this article

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

April 21, 2016 13:14 ET (17:14 GMT)

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