UP’s Q2 profit drops 19 percent on lower volumes

From Progressive Railroading

Union Pacific Corp. reported today its second-quarter 2016 profit fell to $979 million, or $1.17 per diluted share, compared with $1.2 billion, or $1.38 per diluted share, in second-quarter 2015.

Operating revenue declined 12 percent to $4.8 billion, while operating income fell 15 percent to $1.7 billion compared with last year’s Q2 performance, UP officials said in a press release.

“While the second quarter was again challenging from a volume perspective, we continued focusing on initiatives that are squarely in our control, such as being productive with our resources, providing our customers with excellent service, and improving our safety performance,” said UP Chairman, President and Chief Executive Officer Lance Fritz.

Declining volumes and lower fuel surcharge revenue offset pricing gains, resulting in a 13 percent decrease in freight revenue for the quarter.

Volumes, measured by total revenue carloads, were down 11 percent in the quarter compared with last year. Declines in coal, intermodal, industrial products, chemicals, and automotive more than offset growth in agricultural products, UP officials said.

UP’s operating ratio rose 1.1 points to 65.2 percent.

“A soft global economy, the negative impact of the strong U.S. dollar on exports, and relatively weak demand for consumer goods will continue to pressure volumes through the second half of the year,” Fritz said.

However, UP sees “potential bright spots” in certain business segments if key economic trends continue, he added.

“We are implementing a strategy that will make us a stronger company for the future,” Fritz said. “In the months and years ahead, we will continue to create competitive advantages for our customers, enhanced safety and satisfaction for our employees, strength in our communities, and solid returns for our shareholders.”

UP’s second-quarter results were in line with expectations, according to Benjamin Hartford, senior research analyst at Baird Equity Research.

“UP’s full-year 2016 overall volume outlook appears little changed from guidance of low-single-digits volume growth declines offered in late May,” Hartford said today in a “Baird Flash” report.

The coal outlook remains weak and demand across other commodity groups remains uncertain, he said.