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Union Pacific Chief Young Sees ‘Elongated’ Economic Rebound

U.S. railroads’ cargo volume has increased in the past year
Union Pacific Corp. chief executive officer James Young. Photographer: Ramin Talaie/Bloomberg

Union Pacific Corp., which transports Asian auto imports, expects an “elongated” economic recovery, Chief Executive Officer Jim Young said.

“We’ve still got a ways to go,” he said yesterday in an interview at Bloomberg’s New York office. “It’ll be a positive slope in terms of recovery, but I think it’s going to be very much elongated compared with anything we’ve seen before.”

U.S. railroads’ cargo volume has increased during the past year, after plummeting beginning in 2008’s fourth quarter. The rebound is an indicator of the wider rebound, Young said.

“We’re a darn good barometer of the economy,” said Young, whose Omaha, Nebraska-based company has the largest locomotive fleet among U.S. railroads.

Union Pacific’s shipments that move by a combination of rail, truck and ship, which include consumer goods such as furniture, have risen 24 percent this year, according to the Association of American Railroads. That’s the most among the four largest U.S. railroads.

The company’s volume of other goods has climbed 9.3 percent, including a 67 percent increase in automotive shipments, which account for 6 percent of sales.

Burlington Northern Santa Fe Corp., which competes with Union Pacific in the western half of the U.S., had increases of 0.6 percent for rail-truck-ship cargo and 5.3 percent for other shipments. Burlington Northern is owned by Warren Buffett’s Berkshire Hathaway Inc.

Young, 57, credited his company’s efforts to improve service for outpacing Burlington Northern in shipment gains. He has been chief executive since January 2006.

Share Performance

Union Pacific gained $2.41 or 3.3 percent, to $75.15 at 4:15 p.m. yesterday in New York Stock Exchange composite trading. The shares have risen 18 percent this year, the most among the three companies in the Standard & Poor’s rail index.

The rail index has advanced 16 percent, while the S&P 500 has increased less than 1 percent.

Young said that his company will use its cash for capital spending and that he’s not considering any acquisitions. Union Pacific raised its quarterly dividend 22 percent in May.

“When I think about investment, what you want to do with cash, for us it’s putting a lot of the dollars back into the business,” he said.

The company remains cautious about spending, Young said. Union Pacific still has about 3,300 laid-off employees, down from a peak of about 5,300, he said.

Credit Concern

Young said he doesn’t expect Union Pacific to be directly affected by the European economic crisis. He said his biggest concern is that it may tighten credit access for the railroad’s smaller customers.

“The credit availability to that mid-to-small customer has been a challenge for a long time,” Young said.

UBS Securities analyst Rick Paterson estimated in a June 10 report that about 10 percent to 15 percent of Union Pacific’s business is affected by overseas markets, primarily because of agriculture shipments. Paterson, who is based in New York, rates the company’s shares “neutral.”

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