For the quarter, operating income fell 5%, to $2.1 billion, as revenue decreased 9%, to $5.2 billion. Earnings per share slumped 5%, to $2.02, missing Wall Street analyst expectations.
UP’s operating ratio declined to 59.7%, a 1.9-point improvement over a year ago as the railroad cut expenses by 12%, thanks in large part to a 17% decline in employment levels.
For the full year, operating income was flat, at $8.5 billion, despite a 5% decline in revenue, to $20.2 billion. Earnings per share rose 6% to $8.38 due partly to the impact of share buybacks.
The railroad’s operating ratio for 2019 was a record low 60.6%, down from 62.7% in 2018. The quarterly operating ratio was 59.7%, the third straight quarter for a sub-60% operating ratio.
“That’s a remarkable achievement given the volume challenges we experienced in 2019,” CEO Lance Fritz told investors and analysts on the railroad’s earnings call. Fritz praised UP employees for helping to transform the railroad and improve its service as it adopts an operating plan based on the principles of Precision Scheduled Railroading.
The quarterly traffic decline was led by a 25% drop in coal volumes and a 15% drop in premium traffic, which includes intermodal and finished vehicles. International intermodal was down 23%, reflecting the impact of the surge in traffic a year ago as importers raced to beat tariff deadlines. Industrial products traffic was flat, while agricultural shipments declined 2%.
For 2020, UP expects slight volume growth despite continued headwinds for coal, frac sand, and automotive volumes. The railroad has a positive outlook for biofuels, food and beverage shipments, plastics, construction materials, and petroleum products.
UP was uncertain about the direction of grain and intermodal volumes, with grain and international intermodal dependent on global trade developments and domestic intermodal volume growth hinging on tightening of truck capacity later in the year.
Executives said the recent initial U.S.-China trade deal should benefit agricultural exports, especially soybeans, and help boost international intermodal volumes later in the year.
“The Phase I trade deal essentially takes China as a headwind and sets it up to be a potential tailwind,” CEO Lance Fritz told analysts and investors on the railroad’s earnings call.
Benefits of the trade deal are likely to be felt over the next two to three years, Fritz says.
It’s going to be another tough year for coal volumes if natural gas prices remain at near record lows, Fritz says.
UP will continue to reduce costs and sees productivity gains of at least $500 million for this year, which includes an 8% reduction in employment levels. The railroad aims for an operating ratio of around 59% for this year.
Overall, UP will spend $2.95 billion in capital expenses this year, down 8% from 2019. The spending plan includes $1.85 billion for infrastructure replacement, $620 million for capacity and commercial facility improvements, $295 million for new freight cars and locomotive modernizations, $95 million for technology, and $90 million for positive train control.
You can only go so far at cutting your way to gain profitability. At some point they will have to step up and realize the only way to gain volume is to gain customers by providing good end to end customer service.
And Fritz is proud of this performance!? It is all about money as the business is chased off. The UP has a lot of underutilized ROW now. Not a path for survival.
Yes the operating ratio can go to zero, and that’s where it’s headed. Then they’ll probably relent, mission accomplished.
Our cat Burlington had me read the blogpost to him. Then he flopped over and fell asleep. Neither one of us cares what happens to UPRR, whether that be good, bad, or indifferent.
Braden, the record OR was pretty much achieved through share buybacks, rate increases…oh pardon me…the warm and fuzzy “core pricing gains”…and cost cutting, mainly facilities and employees. I would have thought you would be cheering Braden, since there were fewer of those “evil contribute nothing union people” on the payroll.
@Branden Kayganich. UP will NEVER entice Matt Rose to join their ranks! BNSF, to UP people, is a dirty word not to be repeated.
Record operating ratio….. No record profits… UP … You need to dump Lance Fritz, and entice Matt Rose to come out of retirement..
HaHaHa….All the armchair railroad execs saw this coming!
when the goal of your company is to get rid of your customers then yup you won’t earn as much. there is alot of business that would love to be on rail but non of the class ones want it.
Well we will see if 2020 is any better. We will get past these volume declines and start building for the future with a much leaner railroad. But on a side note with volume increases I hope they will put back to work those they’ve furloughed. Alot of ppl are hurting right now.
Seems like some of that great Operating Ratio could have gone to lower rates, better service, more convenience to potential shippers.
Truckers are running the railroads they need this thing called railroads gone where trucks is the only alternative so they can tell the government where to stick their regulations.
And yet, UP stock was up $6 today.
UP’s new logo should be “Hindering America.”
“and domestic intermodal volume growth hinging on tightening of truck capacity later in the year.”
So, we would see intermodal customers come back to rail not because of a great service product, but rather there is no other alternative?