Core pricing gains helped Union Pacific achieve 9% earnings per share growth in the first quarter of 2015, but EPS would have been stronger had a sharp drop in volume not occurred. One effect: The 2015 capital program has been cut by $100 million, to approximately $4.2 billion, a 3% reduction.
“While we took actions during the quarter to adjust for the volume decline, we did not run an efficient operation,” said UP President and CEO Lance Fritz. “We are taking the steps to align our resources with current demand, while remaining agile in an ever-changing environment.”
Net income of $1.2 billion and diluted EPS of $1.30—below Wall Street consensus estimates—compared to the prior-year period’s $1.1 billion net income and $1.19 diluted EPS, produced relatively flat first-quarter 2015 financials for UP.
UP’s operating revenue of $4.6 billion was flat in the first-quarter 2015 vs. first-quarter 2014. First-quarter business volumes, as measured by total revenue carloads, declined 2% compared to 2014. And volume declines in coal, industrial products, intermodal and chemicals more than offset the growth in automotive and agricultural products.
Automotive rose 6% and agricultural grew 3%, while coal and intermodal dipped 5%, industrial contracted 1%, and chemicals remained flat.
Quarterly freight revenue decreased 1% compared to first-quarter 2014, as lower fuel surcharge revenue and the volume decline more than offset core pricing gains and a positive business mix, UP said.
On the plus side, UP’s first-quarter 2015 operating ratio of 64.8% was 2.3 points better than first-quarter 2014. The operating ratio benefited in the quarter about three points from lower fuel prices, including the lag impact of fuel surcharge, UP said. And the company’s operating income totaled $2 billion, up 7% from the previous year.
The $1.95 per gallon average quarterly diesel fuel price in the first-quarter 2015 was down 38% compared to first-quarter 2014. Quarterly train speed, as reported to the Association of American Railroads, was 24.6 mph, about flat when compared with first-quarter 2014.
UP also repurchased almost 6.9 million shares in first-quarter 2015 at an aggregate cost of $807 million.
“We’ve had some challenges to start off this year, but we’re taking the steps needed to work through those challenges and realize the opportunities we see ahead,” Fritz said. “We expect to see solid improvement in network performance and cost efficiency over the coming months. As we leverage the strengths of our diverse franchise, we continue to be intently focused on safety, service and shareholder returns.”
