Union Pacific Tumbles to Lowest Since 2013 on Earnings Miss

Union Pacific Profit Disappoints, Shares Tumble
  • Railroad posts profit below estimates for third time in a year
  • This year's cargo may fall `slightly' after 2015 coal plunge

Union Pacific Corp. tumbled to the lowest in almost three years as a worsening freight slump caused the railroad to fall short of profit estimates for the third time in a year.

The cargo decline will continue this year, with volumes in the first quarter expected to drop in the “mid single digits,” Union Pacific said on a conference call Thursday. Freight numbers for all of 2016 will be “slightly down,” Chief Financial Officer Rob Knight said.

Coal will continue to drag on Union Pacific, with the railroad saying carloads of the fossil fuel would decrease 20 percent in the first quarter. Retail weakness and low labor-force participation are also raising questions about U.S. consumer strength, which has helped drive merchandise shipments in recent years, said Chief Executive Officer Lance Fritz.

Union Pacific dropped 3.6 percent to $71 at the close in New York, the lowest price since April 2013. Canadian Pacific Railways Ltd., which also missed analysts’ profit estimate because of the freight decline, fell 0.9 percent to C$149.84 in Toronto. Norfolk Southern Corp. also declined.

Fourth-quarter net income fell to $1.31 a share, 11 cents less than the average of 26 analysts’ estimates compiled by Bloomberg. Revenue decreased 15 percent to $5.21 billion compared with a forecast of $5.44 billion. It was the biggest profit miss in at least 10 years.

Union Pacific’s total rail traffic fell 5.8 percent in 2015 after the decline accelerated in the fourth quarter to 9.1 percent. In the quarter, coal declined 22 percent and industrial products dropped 16 percent. 

Vehicle shipments, the only bright spot for Union Pacific, rose 7.7 percent. The railroad cut expenses including furloughing workers and parking older locomotives, driving down operating costs by 13 percent from a year ago. Union Pacific plans capital expenditures of $3.75 billion this year, a $550 million reduction from 2015.

Operating ratio, a measure of efficiency in which a lower number is better, worsened to 63.2 percent from 61.4 percent a year earlier. In the third quarter, the measure hit a record quarterly low of 60.3 percent.

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