Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Union Pacific Gathers Momentum

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Following Alcoa's (NYSE: AA  ) preliminary glimpse of potentially stabilizing industrial demand in the old-guard economies of Europe and the U.S., along come the railroads to let us know whether the domestic portion of that glimpse was merely a mirage, or a Shangri-La of gathering recovery momentum.

Taking over the lead-off reporting position from eastern rival CSX (NYSE: CSX  ) , western giant Union Pacific (NYSE: UNP  ) chugged into earnings season with a $775 million fourth-quarter profit ... a 41% improvement over the prior-year period! For the full-year 2010, Union Pacific carried a 20% revenue surge to an impressive 47% earnings boost.

Freight revenues for the fourth quarter expanded more notably than the underlying volumes carried, which speaks to the same pricing strength that helped sustain the industry through the darkest hours of the downturn. At 70.2%, Union Pacific's operating ratio stands 320 basis points ahead of the prior-year mark; although on this important profitability metric I suspect Canadian National Railway (NYSE: CNI  ) will continue to lead the pack.

Pinpointing the sources of particular volume strength, we find that carloads of industrial products yielded the greatest improvement, with a 23% increase (19% for the full year). Automotive volumes appear troublingly weak for the quarter, with a 3% fourth-quarter volume gain contrasting starkly with a 31% full-year surge. Though corroboration from my colleagues covering the automakers is required, this suggests to me that aggressively restocked auto inventories may be stalling on the showroom floors.

Intermodal volumes expanded a respectable 10% for the fourth quarter, though that's well below the solid 19% increase in Union Pacific's container traffic for all of 2010. In this case, extra caution is required when interpreting the data. You see, just as Apple recently revealed with respect to its fourth-quarter iPhone sales, Union Pacific's intermodal segment was constrained by capacity (rather than demand) during 2010. Explaining the need for ongoing investment in expanded intermodal capacity, CEO Jim Young lamented: "We left good revenue on the table last year."

Fools are strongly encouraged to stay tuned for additional railroad earnings results due for release next week. But as first glimpses go, Union Pacific tells a fairly upbeat tale of stabilized baseline demand for cargoes in multiple categories. At the same time, I must point out that overall freight volume declined 3.4% sequentially from the third quarter, so Fools may wish to keep their confetti bags sealed until we can gather additional data.

Please take our Motley Poll then scroll down and share your thoughts in the comments section.

Fool contributor Christopher Barker has never hopped a freight train, but he thinks it would be a fun place to learn the harmonica. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy carries a knapsack on a stick with a polka-dotted kerchief.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1426916, ~/Articles/ArticleHandler.aspx, 10/27/2016 9:37:20 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 12 hours ago Sponsored by:
DOW 18,199.33 30.06 0.00%
S&P 500 2,139.43 -3.73 0.00%
NASD 5,250.27 -33.13 0.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
AA $27.79 Up +0.50 +0.00%
Alcoa CAPS Rating: ***
CNI $63.09 Down -2.60 +0.00%
Canadian National… CAPS Rating: *****
CSX $30.38 Down -0.47 +0.00%
CSX CAPS Rating: ****
UNP $89.05 Down -0.94 +0.00%
Union Pacific CAPS Rating: *****