Bloomberg News

Union Pacific Gains After Record Sales Amid Slow Economy

October 20, 2011

(Updates with closing share price in second paragraph.)

Oct. 20 (Bloomberg) -- Union Pacific Corp. climbed to the highest in more than two months after rate increases helped push the railroad’s revenue to a record high amid a slowing U.S. economy.

Union Pacific gained 4 percent to $94.59 in New York, the highest close since Aug. 3. The railroad said third-quarter revenue rose 16 percent to $5.1 billion.

Class 1 railroads, which are the biggest in North America by sales with Union Pacific holding the lead, saw carloads advance about 1.3 percent in the quarter as shippers transported more goods, according to Bloomberg Industries. Freight cars carry raw materials including chemicals and metals, making railroads indicators of economic health.

Union Pacific expects “a continuation of slow growth,” not a double-dip recession, Chief Executive Officer Jim Young said in a telephone interview. “The driver is going to be consumer confidence.”

Profit rose to $904 million, or $1.85 a share, topping the $1.81 average estimate of 25 analysts in a Bloomberg survey. A year earlier, the company posted third-quarter earnings of $778 million, or $1.56 a share.

The Omaha, Nebraska-based company’s sales topped the average estimate of $4.99 billion in a Bloomberg survey. Total volume rose 1 percent, while average revenue per car advanced 14 percent as the company boosted core rates.

Train speed and turnaround time at terminals deteriorated after a Texas drought damaged tracks and the impact of flooding earlier in the year carried over into the quarter.

‘Slow Growth Environment’

“Considering all the weather-related issues in the quarter and the fact that the economy had slowed, I thought the numbers were fine,” said Art Hatfield, an analyst with Morgan Keegan & Co. in Memphis, Tennessee, who has an “outperform” rating on the shares. “We’re in a slow growth environment. You just have to deal with that.”

Each carload of industrial and intermodal shipments, which can travel by truck, train and ship, generated 15 percent higher revenue, on average, than a year earlier, Union Pacific said.

Total intermodal carloads still dropped, after the company lost an international customer this year, and agricultural shipments declined. Auto deliveries increased 10 percent.

“We are thinking that slow growth trajectory that we’re seeing today continues on for the foreseeable future,” Executive Vice President of Marketing and Sales Jack Koraleski said on a conference call today with analysts and investors. “As we look at it, that spells real opportunity for Union Pacific” as energy, metal and auto demand continue to boost volumes.

--Editors: James Langford, John Lear

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net.

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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