No 1 US railroad Union Pacific Corp said on Thursday that rising freight volumes and strong pricing power helped drive a higher-than-expected third-quarter profit and said it expected a solid fourth quarter. "We are optimistic about the remainder of the year," chief executive Jack Koraleski said in a statement. "Assuming the economy and weather cooperate, we are well positioned to finish up the year with record results."
Freight revenue rose in all of the railroad's key commodity groups, with agricultural and industrial products both up 19 percent on the year. The major US railroads have struggled to cope with demand this year. A growing economy and demand for oil by rail plus a record harvest have all put strains on the rail network. Against a backdrop of customer complaints, earlier this month the US Surface Transportation Board, the top rail regulator, ordered the largest railroads to provide more detailed weekly reports with data on their performance.
In a sign of the constraints that the unexpected spike in demand has placed on its network this year, Union Pacific's quarterly train speed was down 10 percent from the same quarter in 2013. The Omaha, Nebraska-based company reported earnings per share of $1.53, up 23 percent from $1.24 in the same quarter last year. Analysts had expected earnings per share of $1.52. Revenue for the quarter rose to $6.2 billion, up 11 percent from $5.6 billion in the third quarter of 2013. That beat analyst expectations of $6.09 billion.
Core pricing at the railroad was up 2.5 percent in the third quarter. Union Pacific's operating ratio, or operating expenses as a percentage of revenue, improved to a record 62.3 percent, down from 64.8 percent a year earlier. Operating ratio is a key dynamic for analysts and the lower the figure the better a railroad's performance in Wall Street's eyes.
"The quarter was all around solid, with both a top line beat on yields and a better than expected (operating ratio)," Citi Research analyst Christian Wetherbee wrote in a note for clients. "While Union Pacific is a favoured stock, we believe good results...should result in a positive share price reaction." In pre-market trading, Union Pacific stock was up almost 3 percent from the previous day's close at $110.01.