UPDATE 3-Union Pacific sees short-term recovery in coal shipments

Thu Apr 18, 2013 1:13pm EDT

* First-quarter earnings $2.03/share vs est $1.95/share

* Revenue $5.29 bln vs est $5.21 bln

* Freight revenue from chemicals up 14 pct, autos up 13 pct

* Core prices rise 4 percent

* Expects rates to rise through 2013

* Shares rise 4 percent

By Sagarika Jaisinghani

April 18 (Reuters) - Union Pacific Corp, the No.1 U.S. railroad, reported strong quarterly results helped by higher freight rates and forecast a short-term recovery in coal shipments as large utilities rebuild stocks they have run down over the past year.

Union Pacific shares were up 4 percent at $142.92 on Thursday afternoon on the New York Stock Exchange.

The company's coal shipments fell 19 percent in the quarter ended March, but it expects a slight pickup in the second quarter if natural gas prices remain high and stockpiles fall further.

That would be the first year-over-year increase in coal shipments since the fourth quarter of 2011. Coal accounted for 20 percent of Union Pacific's total freight revenue of $19.7 billion in 2012.

"Natural gas prices are running above $4 and at those rates customers who previously had slowed their coal intake to shift towards natural gas are now starting to shift back to coal," Chief Executive John Koraleski told Reuters.

Union Pacific said it still expected coal shipments for the full year to drop slightly as its customers' stockpiles remained above normal.

The company has consistently raised prices to make up for the fall in shipments caused by low natural gas prices since the mild winter of 2011-2012.

The railroad said it had raised overall rates by 4 percent in the first quarter, and sees price gains continuing in 2013.

"We expect that our pricing (growth) will be better than inflation (in 2013)," Koraleski said.

A colder winter that ate into stockpiles has also led to a pickup in demand for coal for the first time in more than a year.

The U.S. Energy

"We believe Union Pacific is poised to continue driving industry leading earnings growth given its solid franchise, core pricing gains, and productivity improvements," Deutsche Bank analyst Justin Yagerman wrote in a note to clients.

Shares of Union Pacific's publicly traded rivals CSX Corp , Norfolk Southern Corp and Kansas City Southern Corp also rose slightly on Thursday.

CSX, the No. 2 U.S. railroad, reported market-beating profit on Tuesday as it cut expenses and saw shipment volumes rise for some merchandise.

AGRICULTURE STILL DOWN

Union Pacific said it could be further hurt by the impact of last year's drought on grain crops and that shipments of agricultural products may be down in the low double digits in the current quarter.

Revenue from agricultural products had fallen 9 percent to $784 million in the first quarter.

"We suspect that the agricultural segment could improve later this year, assuming the new crop is above normal versus historical averages," BMO Capital Markets analyst Fadi Chamoun said.

Union Pacific has been shipping larger amounts of chemicals and autos to make up for the loss from coal and agriculture.

Freight revenue from chemical shipments jumped 14 percent to $873 million in the first quarter, while that from autos rose 13 percent.

Quarterly net income rose 11 percent to $957 million, or $2.03 per share, from $863 million, or $1.79 per share, a year earlier. Revenue rose 3.5 percent to $5.29 billion.

Analysts on average expected earnings of $1.95 per share on revenue of $5.21 billion, according to Thomson Reuters I/B/E/S.

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