By Angela Chen and Laura Stevens
Union Pacific Corp. said revenue stayed about flat in the first
quarter, as the company struggled to "run an efficient operation"
in the face of a 2% drop in volume.
Shares, which have been down about 7% this year, fell 2.4% in
premarket trading as results missed expectations.
"While we took actions during the quarter to adjust for the
volume decline, we did not run an efficient operation," Chief
Executive Lance Fritz said. Declines in coal, industrial products,
intermodal and chemicals offset growth in the automotive and
agricultural segments.
Freight revenue fell 1% as well.
Union Pacific spent most of 2014 trying to catch up with strong
demand, adding resources and hiring more people as volume grew a
total of 7%, executives said on a call with analysts Thursday. But
in the first quarter, volume dropped 2% due to weakness in coal and
industrial products, as well as its intermodal business, which was
heavily affected by congestion at the West Coast ports.
"Managing a network is a constant balancing act to ensure you
have the right resources at the right place at the right time,"
said Mr. Fritz. "This balancing act becomes more difficult during
significant volume swings."
The company has furloughed about 500 train engine and yard
employees into alternative work status and reduced planned hiring
for the year by about 400 workers. It has also stored 475
locomotives in response to the lower demand and is continuing to
actively evaluate reducing the fleet further. It reduced its
capital spending plans for the year by $100 million to $4.2
billion.
Executives warned that inefficiencies could continue into the
second quarter, but said they expect to see stronger growth for the
remainder of the year in its intermodal business as shippers
continue to switch from highways to rail for transporting
containers. They also expect to be able to continue to increase
prices, adding to core pricing gains of 4% in the first
quarter.
Executives also said they were bullish on the underlying
strength of the U.S. economy.
"Inventories are high right now, gas prices are low, energy
prices are low, affecting our [fracking] business," said Union
Pacific Chief Financial Officer Rob Knight. "We think longer term,
and the expectation still is, volume will be on the positive side
of the ledger."
Analysts have been expecting nearly all freight-rail companies
to post strong results despite a steep decline in prices for crude
oil--one of the fastest-growing parts of the rail business.
However, some analysts expect freight-rail operators could face
stiffer truck competition as lower fuel prices will trim the price
advantage trains have had over trucks in recent years. Average
quarterly diesel fuel prices fell 38% in the latest quarter.
While shipping crude oil isn't a big part of Union Pacific's
business, rail congestion has been an issue for the whole
sector.
Overall, Union Pacific reported a profit of $1.15 billion, or
$1.30 a share, up from $1.09 billion, or $1.19 a share, a year
earlier.
Revenue edged down slightly to $5.61 billion from $5.64
billion.
Analysts polled by Thomson Reuters expected per-share profit of
$1.37 and revenue of $5.7 billion.
Write to Angela Chen at angela.chen@dowjones.com
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