Union Pacific profit beats, boosted by volume and price gains

(Reuters) – Union Pacific Corp, one of the biggest U.S. railroads, on Thursday reported a higher-than-expected quarterly profit and said efficiency gains will bolster profits in 2019.

A Union Pacific rail car is parked at a Burlington National Santa Fe (BNSF) train yard in Seattle, Washington, U.S., February 10, 2017. REUTERS/Chris Helgren

Shares in the company, which connects 23 states in the western two-thirds of the United States by rail, jumped 2.5 percent to $158.18 in early trading.

Its operating ratio – a measure of operating expenses as a percentage of revenue and a key metric for Wall Street – improved 1.1 points to 61.6 percent in the fourth quarter from the same period last year, the company said.

A lower ratio means more efficiency and higher profitability.

The Omaha, Nebraska-based company this month hired former Canadian National Railway Co executive and turnaround expert Jim Vena as its chief operating officer, and said its operating ratio would fall below 60 percent by 2020.

“We expect (2019) operating margins will increase as a result of solid core pricing gains and significant productivity benefits,” Chief Executive Lance Fritz said in a statement.

Vena said the company is working to drive its operating ratio even lower.

“I know the railroad has a vision in place to get to a 55 operating ratio already, and we’ll be working aggressively towards that goal,” Vena said on a conference call with analysts.

Rival CSX Corp, the No. 3 U.S. railroad operator, earlier this month reported a fourth quarter operating ratio of 60.3 percent and said its 2019 operating ratio target would come in below 60 percent.

Net income fell to $1.55 billion, or $2.12 per share in the fourth quarter, from $7.28 billion, or $9.25 per share, a year earlier when the company received a boost from changes in U.S. tax laws.

Freight revenue in the quarter rose 6 percent, lifting total operating revenue to $5.76 billion from $5.45 billion.

Net core pricing was up 2.5 percent from the year-ago quarter.

Analysts, on average, expected a profit of $2.06 per share and revenue of $5.74 billion, according to IBES data from Refinitiv.

Terminal dwell, the amount of time rail cars sit idle in a terminal, was 26.7 hours for the quarter – an 18 percent improvement versus a year ago.

Union Pacific and Berkshire Hathaway-owned BNSF are the largest U.S. freight rail operators with annual revenue of more than $20 billion each.

Reporting by Lisa Baertlein in Los Angeles and Rama Venkat in Bengaluru; Editing by Shailesh Kuber and Steve Orlofsky

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