Union Pacific Profit Falls, Pressure on Freight Continues
Union Pacific Corp on Thursday reported a lower quarterly net profit that was hurt by falling freight volumes, especially coal, and warned the strong U.S. dollar, soft global economy and weak consumer demand would keep weighing on the No. 1 U.S. railroad's business in the second half of 2016.
The company's shares fell more than 3 percent after the announcement.
The Omaha, Nebraska-based company said overall freight revenue fell 13 percent in the second quarter, compared with a year earlier, led by a 27 percent decline in coal revenue.
Union Pacific said that falling coal freight volumes would continue to hurt the company's performance during the third quarter.
Despite the fall in revenue, Union Pacific (UNP)'s earnings met Wall Street expectations.
Like the other major U.S. railroads, Union Pacific has suffered from a precipitous drop in coal freight for the past year and a half. Low fuel prices have encouraged utilities to switch to burning cheaper natural gas, while the strong U.S. dollar has hurt coal exports.
U.S. railroads have reacted to falling demand by furloughing workers and mothballing locomotives. Union Pacific's hourly workforce was 13,760 in the second quarter, about 22 percent lower than the same period in 2015.
The railroad has reduced the number of locomotives it has in service by more than 14 percent since the second quarter of 2015.
Union Pacific's revenues declined across all its businesses versus the same period in 2015. Even revenue in its automotive business, which for several years has performed well in tandem with strong U.S. automaker sales, fell 13 percent during the quarter.
"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," chief executive Lance Fritz said in a statement.
The railroad reported second-quarter net income of $980 million, or $1.17 per share, down more than 18 percent from $1.2 billion, or $1.38 per share, a year earlier.
Analysts on average expected earnings per share for the quarter of $1.17.
Revenue in the quarter was down more than 11 percent, falling to $4.8 billion from $5.4 billion. The revenue figure matched analyst expectations.
In early trading, Union Pacific shares were down 3.3 percent at $91.00.
(Reporting By Nick Carey)
