UP posts higher profit, lower expenses in Q2

Union Pacific Railroad reported today that 2019 second-quarter net income rose 4 percent to $1.6 billion, or $2.22 per diluted share, compared with $1.5 billion, or $1.98 per diluted share, in the same quarter a year ago.

UP's operating income rose 8 percent to $2.3 billion and the company's operating ratio (OR) improved to 59.6 percent from 63.0 percent compared with second-quarter 2018.

The improved income and earnings results occurred despite a decrease in freight revenue (down 2 percent to $5.2 billion) and traffic volume as a result of the railroad's efforts to cut operating expenses, which fell 7 percent to $3.3 billion.

"We delivered record second-quarter financial results driven by exceptional operating performance, including an all-time best quarterly operating ratio of 59.6 percent," Chairman, President and Chief Executive Officer Lance Fritz said in a press release. "These results are a testament to the dedication of the men and women of Union Pacific, who are embracing Unified Plan 2020 and who worked closely with our customers to overcome numerous weather challenges.”

Operating revenue during the quarter declined 1 percent to $5.6 billion, while business volumes — as measured by total revenue carloads — fell 4 percent. Growth in industrial volumes (up 4 percent) were offset by flat agricultural products shipments (up 4 percent), as well as declines in energy (down 13 percent) and premium (down 2 percent), UP officials said.

Looking ahead, Fritz said UP will build on the momentum from its Unified Plan 2020.

"We remain focused on driving increased shareholder returns by appropriately investing capital in the railroad and returning excess cash to our shareholders," he said.

UP's $2.22 EPS beat Robert W. Baird & Co. Inc.'s estimate of $2.13 per share and a recent consensus estimate of $2.15, according to Benjamin Hartford, a senior research analyst at Baird.

The Class I's Q2 results "were slightly above expectations given strong operational execution," Hartford wrote in a research report.