Union Pacific reports record financial results in 3Q

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Posted: Thursday, October 17, 2013 12:00 am

Union Pacific Corp. said Thursday that third-quarter profit rose 10 percent and that a warning earlier this month about lower coal shipments is no cause for alarm: Chief Executive Jack Koraleski said the company will continue to hire and expects modest growth consistent with the slow-growing economy.

Koraleski said the company — which warned Wall Street this month that its third-quarter results would lag estimates — plans to replace people who retire and, if freight volumes rise sufficiently, to add more workers to handle the loads.

“We are on track to hire 3,500 people this year, and we are planning to hire 3,500 to 4,000 people next year,” Koraleski said in an interview. “It is a slow economic environment, but people are still buying cars and building new houses.”

Union Pacific, which employs about 50,000 people nationwide and about 5,000 in the Omaha area, hauls cars, lumber and more of the stuff of life in 23 states west of Chicago and New Orleans. The Omaha-based operator of the largest U.S. railroad by 2012 operating revenue said Thursday that third-quarter net income was $1.15 billion, or $2.48 a share, compared with $1 billion, or $2.19 a share, a year earlier. Revenue rose 4percent to $5.6 billion.

Company executives said during a conference call with investors and Wall Street analysts that increases in the rates and prices charged to railroad customers contributed to the quarterly results, which the company said were the best in its history, which dates to 1862.

The price increases that led to the historic earnings per share are not likely to continue at the same pace in 2014, the company said.

“We will continue to generate real core pricing gains,” Chief Financial Officer Rob Knight said on the conference call. “However, we don't expect to match 2013 levels.”

Prices charged to shippers rose about 3.5 percent, the company said.

The volume of goods shipped was little changed.

Shares lagged on the news, falling 3.8 percent Thursday to close at $151.15; the shares had risen about 25 percent in the past year before Thursday.

Among the company's main freight categories:

• Agricultural volume fell 8 percent.

• Automotive rose 5 percent.

• Chemicals rose 8 percent.

• Coal fell 9 percent.

• Industrial products rose 3 percent.

• Intermodal, or the handling of containerized freight across multiple transport methods, was little changed.

Logan Purk, an industrial analyst at investment bank Edward Jones, said shares fell Thursday because they were high to begin with. Railroad stocks soared in 2009, when Omaha investor Warren Buffett acknowledged that he paid a premium price to acquire the stake in Fort Worth, Texas-based BNSF Railway not already owned by his Berkshire Hathaway Inc. for $44 billion, or $100 a share.

“Expectations are too high,” said Purk, who rates Union Pacific shares as a “hold,” after they have more than doubled from $60 since early December 2009.

“I don't view this as a miss,” Purk said. “Union Pacific is a high-level company, the best-run railroad in the United States.”

Koraleski said the company's revenue from transporting coal fell because of late blizzards at open-pit Wyoming mines and flooding at ones in Utah and Colorado. He said the company succeeded in rerouting rail traffic around the problems.

He also said that shipments of coal, which account for about 40 percent of the electricity generated in the country, will rebound and continue to be a key freight component for the company.

“At the end of the day, it's all part of running a railroad,” he said. “The men and women of Union Pacific ought to stand tall and be proud; they did a great job in a tougher economic environment than we had counted on.”

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