OMAHA, Neb. – Union Pacific today reported quarterly revenue and earnings records but lowered its outlook for the rest of the year as volume growth is slowing and costs are rising.
UP now expects full-year traffic growth of about 3%, down from the prior forecast of 4% to 5% volume growth. The operating ratio is expected to be 60% for the year, up from the previous outlook of 58%.
“While the year hasn’t played out as originally planned, our volumes have outpaced our peers, demonstrating the growth mindset we’re instilling within our organization,” CEO Lance Fritz told investors and analysts on the railroad’s earnings call.
UP’s volume was up 3% for the quarter, with gains in all three business segments. But executives said the railroad left volume on the table — particularly coal, grain, and rock — because it did not have enough train crews to meet demand.
The railroad has met its target of hiring 1,400 train and engine employees for the year. Nearly 900 conductors have graduated from training, with an additional 518 expected to graduate by January.
UP’s operating metrics — including car-miles per day, a key measure of fluidity — improved as the quarter progressed. Eric Gehringer, UP’s executive vice president of operations, said train crew availability was up thanks to increased hiring, reduced unplanned recrews, and better crew utilization.
On-time performance, as measured by trip plan compliance, fell compared to a year ago. Intermodal trip plan compliance was 62%, equal to the second quarter but down from 66% in last year’s third quarter. Manifest and automotive traffic met trip plans 58% of the time, down from 60% a year ago but up 2 points from the second quarter.
Fritz says he expects service to return to normal levels by the end of the year as the number of active train and engine employees reaches full strength and congestion eases.
UP remains focused on reducing train and engine crew attrition, Gehringer says, and is keeping an eye on the potential for crews to walk away after pocketing back pay and bonuses once new labor contracts are approved. “We’re going to react to that accordingly,” he says.
Shifts in consumer spending — more on experiences, less on goods — are showing up in UP’s volumes, says Kenny Rocker, executive vice president of marketing and sales. A 16% decline in parcel shipments contributed to a 3% decline in domestic intermodal volume, while reduced production of brown corrugated boxes dented forest products volume.
Automotive volumes may buck that trend, however, due to low dealer inventory and pent-up demand, Rocker says.
For the quarter, UP’s operating income grew 8%, to $2.6 billion, as revenue increased 18%, to $6.6 billion, thanks to a combination of rate increases and higher fuel surcharges. Earnings per share was up 18% to $3.05.
UP’s operating ratio rose 3.6 points, to 59.9% as fuel and other costs surged. Adjusted for the impact of one-time items — including reserves for wage increases — UP’s operating ratio was 58.2%.
An analyst noted that UP’s service has faltered when the railroad has cut costs over the past few years and asked whether UP should abandon its long-term 55% operating ratio target.
“We do believe that 55 is achievable. We don’t think it sacrifices the service product,” Fritz says, noting that the pandemic and UP’s self-inflicted crew shortages have been challenges over the past two years.
Merely focusing on an operating ratio number is the wrong way to look at the business, Fritz says. Instead, improving long-term sustainable profit margins and volume growth are key, he says.
ZZZZZZZZZ that story but me to sleep.
they just jacked up their rates which has cause some of our customers to switch back to trucks.