Union Pacific Corp.’s (UNP) fourth quarter earnings of $1.08 per share were ahead of the Zacks Consensus Estimate of $1.04. However, this compares unfavorably with earnings of $1.31 per share in the prior-year quarter.
The deterioration in Union Pacific’s results from the prior-year quarter was largely due to a decline in revenues from the weak global economy and a related decline in rail traffic. However, a decline in total operating expenses, pricing gains, lower diesel fuel prices and improved Customer Satisfaction Index were among the positives.
For full year 2009, Union Pacific’s net income came in at $1.9 billion or $3.75 per share, compared to $2.3 billion or $4.54 per share in 2008. Total operating revenues for the fiscal year were $14.1 billion, down 21% from $18.0 billion in the previous year.
Total operating revenues for the reported quarter dropped 12% year-over-year to $3.8 billion. This reflected a slump in revenue carloads of 5%, while average revenue per car decreased 9%, including a $320 million reduction in fuel surcharge revenues.
The company’s industrial products and energy operations were particularly hard hit, with revenues shrinking 28% to $513 million and 22% to $765 million, respectively.
Union Pacific continues to curtail operating expenses, which decreased 12% year-over-year in the reported quarter, aided by a 26% drop in fuel costs to $541 million, largely related to lower oil prices as well as a 17% decline in equipment and other rents. In addition, a 29% reduction in other expenses as a result of cost-cutting initiatives also contributed to lower costs.
As a result of ongoing efficiency initiatives, pricing gains and lower diesel fuel prices, the operating ratio improved to 73.3% from 73.4% in the fourth quarter of 2008. Union Pacific’s quarterly Customer Satisfaction Index improved to 88 from 85 in the year-ago quarter.
Average diesel fuel price in the reported quarter decreased 17% to $2.05 per gallon from $2.46 in the prior-year quarter.
Since 2009, Union Pacific management is no longer providing any earnings guidance.
We expect the company’s top line to benefit from strong pricing with the gradual recovery of the economy. Cost containment measures along with the initiatives to improve operating efficiency also augur well. However, a decline in volumes, expected labor cost inflation and increasing depreciation expense are expected to drag future profitability.
Since the announcement of the results, the share price of Union Pacific has increased 1.57%.
Read the full analyst report on “UNP”
Zacks Investment Research
