Union Pacific Beats Estimates as Economy Bolsters FeightKatherine Chiglinsky, Thomas Black and Frederic Tomesco
Union Pacific Corp. and Canadian Pacific Railway Ltd. reported fourth-quarter earnings that beat analyst estimates as economic growth spurred cargo shipments.
Union Pacific, the largest publicly traded railroad in North America, rose the most in almost three months after saying fourth-quarter revenue climbed 9.3 percent to $6.15 billion. Canadian Pacific, Canada’s second-largest railroad, said revenue climbed 10 percent to C$1.76 billion on higher oil shipments.
“These are strong results and should be well received,” Fadi Chamoun, an analyst at BMO Capital Markets, said today in a note to clients. He has outperform ratings on both stocks.
A booming U.S. economy, driven by housing construction that topped 1 million starts last year for the first time since 2007, has caused cargo to surge. Railroads are a good thermometer for growth because they haul a wide range of goods, such as lumber, cement, steel, home appliances and furniture for the housing market. Canadian Pacific forecast annual sales from carloads of forest products, chemicals, plastics and metals and minerals will all probably grow by at least 10 percent.
Traffic on all North American railroads grew 5.2 percent in the fourth quarter, according to Association of American Railroads data compiled by Bloomberg. Union Pacific’s total traffic rose 6.9 percent, the association reported.
“We actually see the economy in a nice, moderate growth as opposed to in the past we were saying slow growth,” Union Pacific Chief Executive Officer Jack Koraleski said in a telephone interview today. “After pretty remarkable volume growth in 2014, we’ll keep that and add a little bit more.”
Union Pacific shares rose 4.8 percent to close at $119.83 in New York, their biggest climb since Oct. 23. Canadian Pacific declined less than 1 percent to C$226.35.
Canadian Pacific’s profit per share for 2015 will rise 25 percent or more from last year’s C$8.50, the Calgary-based company said in a statement. Canadian Pacific’s forecast for this year is predicated in part on the company shipping 140,000 carloads of crude.
Union Pacific, which doesn’t provide forecasts for earnings or cargo demand, said housing starts may rise to 1.2 million in 2015 and auto sales may reach 16.9 million, underpinning consumer spending that’s spurring freight, Koraleski said. It’s too early to gauge the impact of oil at less than $50 per barrel, he said.
“You might have to temper that a little bit with the whole uncertainty associated with energy,” he said.
Union Pacific’s earnings rose 22 percent to $1.43 billion, or $1.61 a share, from $1.27 a year earlier, the Omaha, Nebraska-based company said in the statement. That exceeded the average estimate of $1.52 from 26 analysts surveyed by Bloomberg. The revenue gain was led by industrial products with a 15 percent increase and an 11 percent jump for intermodal.
Union Pacific “is tracking ahead of our projections in terms of their traffic numbers,” said Jason Seidl, an analyst with Cowen & Co. in New York, before today’s earnings statement.
Intermodal, or cargo hauled in containers that can travel by rail, truck or ship, rose 4.5 percent in the fourth quarter for the industry, according to the Association of American Railroads data compiled by Bloomberg. Intermodal is the largest category for Union Pacific, accounting for about a fifth of revenue and 37 percent of carloads in the quarter.
Canadian Pacific’s fourth-quarter earnings excluding some items were C$2.68 a share, exceeding the C$2.56 average of 27 estimates compiled by Bloomberg. Crude revenue jumped 20 percent to C$130 million, Canadian Pacific said.
Sales of Canadian grain, the company’s biggest line of business, advanced 2 percent to C$267 million as overall revenue climbed 10 percent to a record C$1.76 billion.
Union Pacific plans capital expenditures of $4.3 billion this year, up from $4.1 billion in 2014, and expects to buy 218 new locomotives after purchasing 261 last year. The railroad has been able to take older, less efficient locomotives off the tracks as its average trains speed has risen to 25 miles per hour now compared with 23.8 in the fourth quarter, Koraleski said.
To continue reading this article you must be a Bloomberg Professional Service Subscriber.
If you believe that you may have received this message in error please let us know.