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



Union Pacific Books Highest Profit in Company History

Union Pacific (NYSE: UNP  ) released its third-quarter earnings on Thursday, reporting record revenue of $5.6 billion and net income of $1.15 billion. Earnings per share of $2.48 were up 13% over last year. All this is in the face of terminally declining shipments of coal, the company's largest revenue driver, as well as flooding in Colorado that wiped out some Union Pacific trackage and ultimately cut operating income by $10 million.

Union Pacific powers forward. Photo credit: Union Pacific.

All North American railroads are suffering from a decline in coal as cheap natural gas prices make coal less competitive. Western railroads like Union Pacific are in a better position, both because historically they have been less dependent on coal as their Eastern counterparts and because the primary Western source of coal, from the Powder River Basin, is naturally cleaner than Appalachian coal and is more able to pass regulatory muster. Nonetheless, coal carloads did fall by 7% in the third quarter, the largest absolute and proportional decline in all of Union Pacific's categories. Agricultural products and intermodal cargoes were also down slightly.

Union Pacific did see big gains in shipments of cars and industrial products, a category that includes raw materials and finished goods like cement and other construction inputs, household appliances, wind turbine components, and steel. These gains, plus a slight uptick in chemicals led by shipments from oil- and gas-producing shale formations, managed to mitigate Union Pacific's slips in coal, agricultural, and intermodal to result in flat volume shipments for the year.

Despite no volume growth, Union Pacific was able to drive revenue growth through better pricing, raising rates by an average of 3.5%. The company was also able to execute cost-cutting and efficiency gains that drove its operating ratio, the percentage of total revenue spent on running the business, down to 64.8% for the quarter, the lowest in its recent history and a good sign for its goal to drive annual operation ratios below 65% by 2015. 

Union Pacific did warn, however, that rate increases wouldn't sustain earnings growth indefinitely, with VP of Operations Lance Fritz saying the railroad did not expect 2014's pricing gains to match 2013's.  That means, for future growth, Union Pacific will have to rely on higher volumes and an ever-lower operating ratio. Eastern-based railroad rival CSX  (NASDAQ: CSX  ) released its own earnings earlier this week, and while even worse hurt by coal shipments, CSX managed massive increases in intermodal shipments and chemicals, particularly crude oil and fracking sand. If Union Pacific can emulate this performance while continuing to push its operating ratio downward, it can have another record year ahead of it even without big price increases.

Interested in railroads for the dividend?
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Read/Post Comments (0) | Recommend This Article (1)

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: 2688848, ~/Articles/ArticleHandler.aspx, 9/27/2016 8:28:59 PM

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 Moments ago Sponsored by:
DOW 18,228.30 133.47 0.74%
S&P 500 2,159.93 13.83 0.64%
NASD 5,305.71 48.22 0.92%

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

9/27/2016 4:00 PM
CSX $29.62 Down -0.09 -0.30%
CSX CAPS Rating: *****
UNP $94.85 Up +0.67 +0.71%
Union Pacific CAPS Rating: *****