Union Pacific beats profit estimates but expects volume headwinds ahead

By Ananta Agarwal

(Reuters) -Railroad operator Union Pacific (NYSE:) on Thursday reported fourth quarter profit above estimates but said it expects some negative impact to freight volumes on lower coal demand and a muted and uncertain economy.

Its current quarter volumes were down 9% year-to-date due to harsh winters across its system, the company said during a post-earnings call with analysts.

Shares of the company were down nearly 2%.

Union Pacific saw a year-on-year gain in freight volumes in the quarter that ended December after a tough few months of muted freight demand and higher operating costs.

In response to these headwinds, the Omaha, Nebraska-based company has continued to price its services above inflation, mirroring a trend seen across sectors such as retail and industrials.

However, it does not expect higher pricing to lead to margin expansion in 2024.

Union Pacific reported operating revenue of $6.16 billion in the fourth quarter, flat year-on- year but above analysts’ average estimate of $6.05 billion.

Net income attributable to the company for the reported quarter was at $2.71 per diluted share, coming in above analysts’ average estimate of $2.57 per share, on lower costs.

Union Pacific, which runs through 23 states west of Chicago and New Orleans, reported fourth-quarter operating ratio – a key metric that indicates operating expenses as a percentage of revenue – mostly flat at 60.9%.

The operating ratio had risen over the last four quarters before declining this quarter in a sign of improving efficiency for the company.

The improvement comes after the company tapped veteran railroad executive Jim Vena to lead operations last July amid shareholder pressure to increase operational efficiency.

The company also reported improvements of 14% each in freight car velocity and locomotive productivity, for the second quarter in a row.