OMAHA, Neb. — Union Pacific expects muted traffic volume this year due to a combination of a slow economy, lower demand for coal, and the loss of an international intermodal contract to BNSF Railway.
UP executives discussed their outlook for the year while releasing fourth-quarter financial results this morning.
“The Union Pacific team is executing our multiyear strategy to lead the industry in safety, service, and operational excellence. Our fourth quarter shows a lot of what’s possible to demonstrate that we’re on the right path to achieving those goals,” CEO Jim Vena says. “We exited 2023 with strong momentum, which gives me great confidence that we have a winning strategy. There’s work to do, but we’re building the foundation for future success.”
For the quarter, operating income was flat, at $2.4 billion, on flat revenues of $6.1 billion. Earnings per share grew 1% to $2.71. The railroad’s operating ratio was 60.9%, up 0.1 points from a year ago.
Volume was up 3.5% in the quarter, with growth across all three of the railroad’s business segments. Bulk and industrial products traffic was up 3%, while premium traffic, which includes intermodal and automotive, was up 4%.
UP’s key operations and service metrics improved for the quarter, with freight car velocity, measured by car miles per day, up 14% to 217 thanks to higher average train speeds and lower terminal dwell. Intermodal trip plan compliance up 12 points to 85%, while manifest and auto trip compliance up 12 points to 70%. Hundreds of customer-specific performance metrics also improved during the quarter, says Eric Gehringer, executive vice president of operations.
UP’s train accident rate improved during the quarter, but the railroad did not provide specifics.
Chief Financial Officer Jennifer Hamann says there’s too much economic uncertainty to put a percentage figure on the railroad’s volume expectations for the year.
But the railroad has a negative outlook on coal, construction, and international intermodal; a neutral outlook on grain; and a positive outlook on fertilizer and biodiesel feedstocks, petroleum and petrochemicals, and automotive. Domestic intermodal is a question mark.
Effective Jan. 1 BNSF is now hauling APL international intermodal traffic previously handled by UP. The contract loss shows that UP is maintaining pricing discipline, Hamann said, without naming the customer.
UP will open its new intermodal terminal in Phoenix on Feb. 1, and is working with international intermodal customers to provide match-back load opportunities for empty containers, says Kenny Rocker, executive vice president of marketing and sales.
UP aims to spend $3.4 billion on capital projects this year, an 8% reduction from last year’s $3.7 billion. The budget breaks down into $1.9 billion for track work; $600 million for locomotive modernizations and freight cars; $600 million for capacity expansions such as intermodal terminals, siding extensions, and industrial leads; and $300 million for technology.
The company will not repurchase any of its shares during the first quarter.
All the railroads that recently reported their quarterly reports showed lower quarterly income and projected lower volume into the future . This is no surprise. Not many months ago Trucking firm YELLOW went out of business. Part of the reason was mismanagement. The other part was lower freight volume.
45 years ago when I was in college, an economics teacher told the class a sure fire way to tell if the economy is turning bad is to look at freight volume (both trucking & railroad). If volume declines for more than one quarter he said that we’re going into the crapper. Look what’s going on now and it’s a sign of where we are going to go.
Do you think that maybe the higher intermodal service quality of BNSF had something to do with the switch???
No, BNSF probably “bought” the business.
As a UP shareholder, I would say the answer is yes.
“UP aims to spend $3.4 billion on capital projects this year, an 8% reduction from last year’s $3.7 billion.”
Only 17.6% is for capacity, 74% for replacement of existing plant. Vena apparently needs the extra $300M for stock buybacks and bonuses. Why invest in the future if you can stuff your pockets today?
“Maintaining price discipline” is a hell of a way to justify losing a BIG customer.
Hehe, that was kind of my thought. My ’97 Pontiac is for sale for $5 million. Haven’t sold it yet, but by golly I’m maintaining my price discipline!
UP is so full of crap on how they say things to the public. BNSF is kicking their butt. UP better start thinking growth, but with Vena running things, it won’t happen.