Union Pacific Falls Most Since 2011 After Profit Drop Signal

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Union Pacific Corp., a company that doesn’t give profit forecasts, fell the most in almost four years after suggesting it would miss analysts’ estimates for an annual earnings gain as cargo shipments slump.

Profit is unlikely to grow after a year-earlier record, Chief Financial Officer Rob Knight said Thursday on a conference call. That comment implied that the largest U.S. railroad would trail the $5.82-a-share average estimate among analysts surveyed by Bloomberg, following 2014’s $5.75 figure.

“The outlook is cloudy,” Chief Executive Officer Lance Fritz said in an interview. “Given all the headwinds that appear to exist right now, it’s going to be a real stretch to exceed last year’s earnings.”

North American carriers grappled with a 2.3 percent decline in second-quarter freight, hurt the most by coal with utilities opting for cheaper, cleaner-burning natural gas. Shipments of farm products were crimped by low prices and a strong dollar that throttled exports.

The stock slid 5.7 percent to $92.12 at the close in New York, the biggest one-day pullback since September 2011. That also was the steepest drop on the Standard & Poor’s 500 Railroads Index, which has tumbled into a bear market since peaking in November.

Jason Seidl, an analyst with Cowen & Co., reduced his 2015 earnings per share estimate by 20 cents to $5.55 following Union Pacific’s results.

Furloughs, Locomotives

To cushion the drop in coal and grain shipments, the company has laid off workers and parked locomotives. About 1,200 employees were furloughed or placed in alternative work programs through June, followed by more this month, Fritz said. The railroad cut its active locomotive count by 8 percent from January.

“We made meaningful progress right sizing our resources to current volumes,” Fritz said in a statement. For the rest of 2015, “we will continue to reduce costs and improve productivity as we further align resources with demand.”

Second-quarter revenue dropped 9.7 percent to $5.43 billion, according to Omaha, Nebraska-based Union Pacific. Analysts had forecast sales of $5.6 billion. Coal carloads paced the railroad’s volume decline, tumbling 26 percent. Grain fell 19 percent.

Earnings of $1.38 a share exceeded the $1.35 average of analysts’ estimates compiled by Bloomberg. Profit was buoyed by an 8-cent gain from a land sale, Union Pacific said.

Coal’s decline may be near a bottom, and volumes could start growing again this quarter from the prior period, Fritz said. That assumes no further deterioration in natural gas prices and hot summer weather boosting demand for coal-fired electricity, he said.

“Regular seasonal demand is starting to show up, which is good,” Fritz said in the interview. “What we need to see now to really take the next step is a little relief from fuel switching between coal and natural gas.”

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