Stock market volatility and earnings season go hand in hand, and with so many different companies reporting their latest financial results, it's only natural to see big swings in major market indexes from day to day. Wall Street looked ready to open for trading Thursday morning on a positive note, with futures contracts pointing to gains of half a percent or more in the Dow Jones Industrial Average (^DJI -1.52%), S&P 500 (^GSPC -1.17%), and Nasdaq Composite (^IXIC -1.59%).
Yet despite a large number of positive surprises from companies across various sectors of the economy, investors got lackluster news from a key component of the transportation sector. Railroad stock Union Pacific (UNP 3.90%) reported its latest results early Thursday, while CSX (CSX 0.28%) is slated to give its report after the closing bell this afternoon. Both companies are seeing challenges that led their share prices slightly lower.
Union Pacific cools off a bit
Shares of Union Pacific were down about 2.5% in premarket trading Thursday. The move lower came despite what appeared to be solid performance in the railroad company's fundamental business during the third quarter of 2022.
Many of the numbers from the Omaha-based railroad were positive. Revenue jumped 18% year over year to $6.57 billion. Net income managed a 13% rise from year-ago levels to $1.895 billion, and adjusted earnings weighed in at $3.19 per share, up from $2.57 per share a year ago.
Union Pacific saw particular strength in several key categories, including a 44% rise in freight revenue from automotive cargo, 23% higher revenue from metals and minerals, and a 20% boost in the grain category. Most freight categories saw percentage increases in the high teens, due largely to strong pricing power from the railroad.
However, from a volume perspective, Union Pacific's numbers were more mixed. Carloads were up 3% from year-ago levels, with declines in fertilizer, energy, and forest products shipments offsetting some of the gains from the auto and mining sectors. CEO Lance Fritz pointed to inflationary pressure and various operational inefficiencies as continuing challenges, and a tepid outlook and the likelihood of lower stock repurchases ahead seemed to deflate investor sentiment around the railroad stock.
Will CSX slow down?
Elsewhere among railroads, CSX shares were down a bit more than 1%. The Jacksonville-based railroad will give its quarterly report later this afternoon, but the stock moved lower in anticipation of seeing results like Union Pacific gave to investors.
CSX faces many of the same macroeconomic factors as Union Pacific and the rest of the railroad industry. Quickly changing conditions in several of the industries that CSX serves are making it a challenge to manage the railroad optimally. Ongoing challenges from higher fuel costs and logistical bottlenecks aren't helping either.
Yet CSX is also going through a leadership transition. Former CEO Jim Foote resigned from his position in late September as part of a planned succession process, giving way to Joe Hinrichs. Hinrichs comes to CSX from Ford Motor Company, having served as president of global automotive operations for the automaker. In the company's announcement, Foote explained that he saw similar dynamics between auto and rail that would inform Hinrichs' handling of CSX, noting the importance of operational efficiency and employee engagement in achieving success.
Investors generally expect CSX to show similar results to those of Union Pacific, with solid sales gains but slightly less growth in profits due to higher expenses. In the long run, both CSX and Union Pacific will play key roles in helping the U.S. alleviate the supply chain issues it has faced over the past couple of years, and investors will want to keep their eyes on the railroad industry to see how it adapts to changing conditions on the macroeconomic front.
