Union Pacific profit up as railroad delivery delays reduced

OMAHA, Neb. (AP) — Union Pacific’s second-quarter profit improved a bit, but the railroad’s expenses jumped as it tried to reduce the delivery delays that have left its customers waiting for trains at times.

The Omaha, Nebraska-based railroad said Thursday that its profit grew 2% to $1.84 billion, or $2.93 per share, in the quarter. That’s up slightly from last year’s $1.8 billion, or $2.72 per share.

The results beat Wall Street expectations even though Union Pacific’s performance disappointed with two key performance measures — the speed of its freight cars and locomotive productivity — down 12%. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of $2.82 per share.

The soaring price of diesel also weighed on the results although fuel surcharges and rate increases helped offset that. The railroad said its revenue grew 14% to $6.27 billion in the period, also topping Street forecasts. Five analysts surveyed by Zacks expected $6.11 billion. But expenses were up 25% at $3.8 billion.

UP CEO Lance Fritz said the railroad’s performance improved throughout the quarter after it imposed limits on the number of cars some customers could ship to help clear up the backlogs, and he expects that improvement to continue gradually as the railroad hires and trains more workers to handle the demand.

“What I’m expecting is continued steady improvement,” Fritz said.

Union Pacific said it has added 486 new train crew members so far this year to help move its trains, and it has another 504 in training. The railroad said it is on track to hire about 1,400 people this year, but hiring has been difficult amid ongoing worker shortages.

Businesses that rely on the railroads to deliver the raw materials they need and their finished products have been complaining for months about delays along Union Pacific and the other major freight railroads. At times, some companies have had to reduce production because they were waiting for trains.

The railroad hasn’t seen many signs of business slowing down, but even if the economy does slow down this year in the face of soaring inflation and rising interest rates, Union Pacific said it still expects volume to grow. The railroad predicted that volume will be up 4% to 5% overall this year as its operations continue to improve.

Edward Jones analyst Jeff Windau said the railroads will continue to see strong demand for shipments of containers of imported goods as more consumers keep buying online and ports work to clear up their backlog. Plus, auto production should keep growing as manufacturers get their hands on more computer chips even if the economy slows. And coal deliveries could be up because natural gas prices are likely to remain high.

The railroads hope to reach a contract agreement with their 12 unions over the next two months now that President Joe Biden has appointed a board of arbitrators to intervene in the deadlocked talks and make recommendations for a settlement. Because that board was appointed, any possible strike was delayed until at least mid September. A new contract could help with hiring because employees will get raises.

“I’m hoping that we get a reasonable recommendation for a settlement,” Fritz said about the board of arbitrators.

Union Pacific is one of the nation’s largest railroads with a network of 32,400 miles (52,000 kilometers) of track in 23 Western states.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on UNP at https://www.zacks.com/ap/UNP

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