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Pricing Lifts Union Pacific Quarterly Profit

Union Pacific, the biggest U.S. railroad, reported a better-than-expected rise in profit Thursday due to improved efficiency and strong pricing despite slower U.S. economic growth and bad weather.

"You have to take your hat off to Union Pacific, they delivered a great quarter in the face of a difficult economic environment," said Shawn Campbell, a principal of Chattanooga, Tennessee-based Campbell Asset Management, which manages assets of around $100 million and follows Union Pacific.

The Omaha, Nebraska-based company reported second-quarter net income of $446 million, or $1.65 a share, compared with $390 million, or $1.44 a share, a year earlier.

A Union Pacific steam.
David Zalubowski
A Union Pacific steam.

On average Wall Street analysts had expected earnings per share of $1.62, according to Reuters Estimates.

Revenue for the quarter rose to $4.05 billion from $3.92 billion a year earlier. Analysts had expected revenue of $4.04 billion. Revenue was up in four of Union Pacific's six freight hauling divisions, with flat sales in its automotive division and a 1% decline in its industrial products division.

"Although the economic outlook remains uncertain, our continued focus on yield and productivity improvements should driver better service for our customers and strong financial results for our shareholders in the second half of 2007," Chief Executive Officer Jim Young said in a statement.

Revenue per rail car was up 7%. Union Pacific said rail freight carloads for the quarter fell to 2.43 million from 2.51 million in the same quarter in 2006.

"This quarter's results were certainly driven by price, not by volume," said Donald Broughton, an analyst at AG Edwards.

The major U.S. railroads have seen their profits rise in the past few years on the back of higher demand for coal plus soaring U.S. imports, plus improved management. Freight volumes have been weak this year due to a slowdown in the housing sector and the woes of the domestic U.S. automakers in Detroit.

Despite that weakness, the rails have continued to post strong profits thanks to disciplined pricing policies.

"Union Pacific and the rest of the (rail) industry deserve to be complimented for their discipline so far in maintaining pricing despite declining freight volumes," AG Edwards' Broughton said. "The question is how long the company can continue to hold the line on pricing."

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