Thursday, April 22, 2010

UP's 1Q earnings soar 43%; operating ratio sets record

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Union Pacific announced Thursday that its diluted earnings per share in this year's first quarter improved 40% to $1.01 on revenue of $4.0 billion, compared with the first quarter of 2009, exceeding Wall Street estimates of 95 cents a share and revenue of $3.8 billion.


Net income increased 43% to $516 million. Operating income totaled $988 million, up 47%, producing an operating ratio of 75.1%, a first-quarter record and 5.3 points better than first-quarter 2009.

“Union Pacific’s record first quarter was a strong start for the year,” said Jim Young, Union Pacific chairman and chief executive officer (pictured at left). “We saw quarterly volume growth on our railroad for the first time in two years, and we leveraged that volume by running a safe, service-focused, and efficient network. These efforts resulted in a best-ever first quarter operating ratio and generated strong cash from operations, setting a solid foundation for future opportunity and growth.”

First-quarter carload volumes grew 13% from the 2009 quarter. Five of six business groups reported quarterly growth, with only Energy volumes declining versus first-quarter 2009. Volume growth contributed to a 16% increase in first-quarter operating revenue of $4.0 billion versus $3.4 billion in the first quarter of 2009.

“ As we believe the case will be for all of the publicly traded railroads, first-quarter 2010 marked UP’s return to year-over-year volume growth,” said Dahlman Rose Director Equity Research and Railway Age Contributing Editor Jason Seidl. “For the western giant, this was the first reported quarterly growth in two years. While this is partly due to easy year-over-year comparisons, the magnitude of such effect has been decreasing, being progressively replaced by real strengthening in market demand. UP’s milestone achievements in volume growth did not occur at the expense of pricing. Core pricing was up 3% in the quarter . . . [and]  is already trending near 4% in the second quarter. As in the case of CSX, UP was able to translate a strong top line, which was the outcome of the strength in volumes and pricing, into robust operating profits. We believe this is largely due to UP, and the railroad industry as a whole, possessing a high degree of operating leverage that allows for taking on incremental business without the need for a significant ramp up in operating resources.”

Said Morgan Stanley analyst William Greene, “Both CSX and UP results confirm that our bullish rail thesis is on track. We've argued that rails with the most volume growth and significant (highly lucrative) export franchises (coal or grain) are best positioned to generate significant beats (EPS exceeding Wall Street estimates) during the first quarter.”

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