Union Pacific Net Off 19% -- WSJ
July 22 2016 - 3:03AM
Dow Jones News
By Imani Moise and Tess Stynes
Union Pacific Corp.'s quarterly earnings fell 19% as freight
demand remains soft, a trend the railroad operator expects to
continue through the second half of the year.
Chief Executive Lance Fritz cited the negative impact of the
strong U.S. dollar on exports, and relatively weak demand for
consumer goods. In an interview, he also said business was being
affected by competition due to excess capacity in all modes of
freight transport, including barges, trucking, shipping and
rail.
"To varying degrees all of our commodities are subject to modal
competition," Mr. Fritz said. Most commodities transported by rail
are subject to competition from trucks, he said, and some that
aren't, such as grain, can go by barge.
Mr. Fritz said he expects capacity surpluses to tighten over
time, due to shipping consolidations and driver shortages.
Freight revenue dropped 13% as weaker freight volume and fuel
surcharge revenue more than offset higher core pricing.
Union Pacific took a $240 million hit on fuel surcharge revenue
in the second quarter compared with last year. However, Mr. Fritz
said during a call with analysts on Thursday that the trend is
beginning to turn around as fuel prices get higher. "Assuming fuel
prices remain where they are today we will collect fuel surcharge
revenue at some level on almost all of our programs going forward,"
he said.
Although consumer spending surged this spring, railroads have
not felt the effects, Mr. Fritz said. "If consumers are consuming
more services like travel, data plans or health care, that doesn't
really impact our top line," he said. "We need consumers to buy a
house and fill it with goods."
The company said it is considering a reduction in ongoing future
capital spending to about 15% of revenue from roughly 17% of
revenue.
It said its operating ratio rose 1.1 percentage point to 65.2%.
In the long run, the company expects to reach its goal of 60% by
2019.
For the three months ended June 30, Union Pacific's total
freight volume fell 11% as a 2% increase in shipments of
agricultural products was offset by declines in volume for other
commodities. Coal volume slumped 21% and industrial products volume
dropped 11%. Volume in its intermodal business, which moves freight
using a combination of trains and trucks, fell 14%.
In April, Union Pacific said it expected total volumes for the
year to decline in the mid-single digits.
Union Pacific reported an overall profit of $979 million, or
$1.17 a share, down from $1.2 billion, or $1.38 a share, a year
earlier. Revenue decreased 12% to $4.77 billion.
Analysts polled by Thomson Reuters expected per-share profit of
$1.17 and revenue of $4.8 billion.
Write to Tess Stynes at tess.stynes@wsj.com
(END) Dow Jones Newswires
July 22, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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