OMAHA, Neb. (AP) — Union Pacific said Thursday that its second-quarter net income surged 28 percent, as the nation's largest railroad collected higher prices and fuel surcharges and handled slightly more cargo. Its shares rose 3.5 percent by the afternoon after hitting an all-time high earlier.
Major freight railroads such as Union Pacific are watched closely because the cars, chemicals, crops, containers of imported goods and lumber they carry offer insight into the health of the economy. UP CEO Jack Koraleski said he still finds that shipment data encouraging.
"When we look at the economy we don't really see anything that tells us it's tanking. It continues on kind of a slow-growth trajectory," Koraleski said.
Omaha-based Union Pacific says volume and price increases in four of its six business sectors offset weakness in coal and agriculture shipments. The railroad says automotive, chemical, industrial and intermodal shipments all improved. Total freight volume increased less than 1 percent to 2.3 million carloads.
But a 17 percent drop in quarterly coal volume was a concern for Union Pacific.
The mild winter and extremely low natural gas prices reduced demand for coal in the first half of 2012, but the sweltering summer weather should mean stronger coal demand through the rest of the year if it stays hot because utilities will need more coal to keep air conditioners running.
Citi Research analyst Christian Wetherbee said Union Pacific calmed investors' coal worries because this quarter's results showed that a decline in coal volume doesn't have a profound impact on overall profit.
Union Pacific reported net income of $1 billion, or $2.10 per share in the quarter ended June 30, up from $785 million, or $1.59 per share, a year ago.
The results topped the $1.97 per share that analysts surveyed by FactSet were expecting, on average.
Stifel Nicolaus analyst John Larkin said he was impressed with the way Union Pacific offset the lower coal volume with other shipments and secured strong price increases.
Wetherbee said Union Pacific controlled costs well to deliver remarkable results, and he recommends buying the stock. The railroad's expenses rose only 1 percent to $3.5 billion in the quarter.
The average price Union Pacific paid for fuel declined 2 percent to $3.21 per gallon during the quarter as it consumed roughly the same amount as it did a year ago at 265 million gallons.
Revenue rose 7 percent to $5.22 billion from last year's $4.9 billion. That matched analysts' revenue expectations.
Shares gained $4.28, or 3.6 percent, to $122.88 in afternoon trading after rising as high as $123.56 earlier in the day — an all-time high, according to FactSet.
Union Pacific's outlook for the rest of the year depends upon the economy continuing to grow slowly, but railroad officials said Thursday that the economic outlook is clouded by Europe's debt woes and the looming U.S. fiscal problems.
Union Pacific operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts.
Union Pacific Corp.: www.up.com