Union Pacific Corp (UNP.N), the No. 1 U.S. publicly held railroad, reported above-forecast quarterly results driven by higher volume and pricing, and forecast record profit in 2012 on slow but steady economic growth.
The company's shares, up 45 percent from October's low, ran up to a split-adjusted lifetime high on Thursday.
Core pricing rose 5 percent as automotive, chemical, energy and industrial products helped push total revenue carloads up 3 percent in the fourth quarter from a year ago. Freight revenue rose in all six of the company's business segments.
"We expect continued slow but steady economic growth in 2012," Union Pacific Chief Executive Jim Young said in an interview.
The consumer is still a wild card, he told Reuters. "This is a consumer-driven economy, whether you're talking housing, electronics, imports, clothing -- that will be the difference-maker, on top of the energy play we have," he said.
Union Pacific plans to spend a record $3.6 billion this year, topping $3.2 billion in 2011, to replace aging equipment, put in more track and other infrastructure updates to improve productivity and safety and to meet expected volume growth, executives told analysts on a conference call.
They also said the company competed for and won about 90 percent of around $1 billion in legacy, or older contracts, that it renegotiated at higher prices, which will underpin profit this year.
"We've seen not only record earnings but repricing of legacy contracts and core pricing going up 5 percent despite a weak economy," said Josh Duitz, co-portfolio manager at Alpine Global Infrastructure Fund in Purchase, New York.
"Their outlook certainly isn't for a strong economy and they still project record earnings going further and there's a lot of upside if the economy improves more than expected," he said. The fund owns Union Pacific shares and would look at buying more on pullbacks, he said.
Revenue rose by double digits in all but the agricultural sector, with the five other groups posting revenue increases between 13 percent for intermodal shipments and 26 percent for auto-related shipments in the quarter.
Intermodal refers to the shipment of goods in containers that can be moved from one form of transportation to another, such as from train to truck or from train to ship.
International intermodal was softer and remains vulnerable to soft housing and related consumer demand for imported goods including appliances and electronics. Domestic intermodal will keep gaining this year as the railroad takes more share from relatively more expensive highway traffic, the company expects.
Euro zone turmoil is having a limited direct impact, Young said.
However, "it gets back to the consumer, and if they're reading about meltdowns in Europe, I get concerned that U.S. consumers get conservative and don't spend money and it has an impact then on us from a consumer spending perspective."
The company's shares were up 2.9 percent at $113.01 on Thursday afternoon, after reaching an adjusted lifetime high of $114.82 earlier in the session.
The Dow Jones Transportation average .DJT was up 1.7 percent on Thursday afternoon.
CHEMICALS, INDUSTRIAL PRODUCTS GAIN
Business related to oil and shale gas were other profit drivers.
The railroad's shipments of chemicals jumped 10 percent in the quarter, boosted by a 46 percent spike in petroleum volume that was mainly crude oil from the Bakken Shale in North Dakota and Eagle Ford in Texas.
"Shale gas and shale oil is going to be very strong," Young said. "We haul materials in to the drilling of the well -- frac sand, steel pipe and rock -- and then we're hauling crude oil and it is really going very nicely for us."
Coal shipments could be slow to negative this year, dulled by a warm winter and low natural gas prices, the company said.
Union Pacific's total "volume outlook is pretty well-known and planned for, but it's the way they are able to flow that to the bottom line without adding costs," as slow economic growth curbs volume gains, said Kevin Kirkeby, S&P Capital IQ analyst.
The Omaha, Nebraska-based company reported that net income rose to $964 million or $1.99 per share in the fourth quarter, from $775 million or $1.56 a share a year before. This topped the average forecast of $1.82 per share, according to Thomson Reuters I/B/E/S.
Quarterly operating revenue rose 16 percent to a record $5.1 billion from $4.4 billion. Analysts forecast $5.06 billion.
Earnings rose to $6.72 per share for full-year 2011 from $5.53 in 2010, beating analyst forecasts for $6.55 a share. The view for 2012 is $7.88 a share, according to Thomson Reuters I/B/E/S.
Union Pacific, which this year celebrates its 150th anniversary, is the first of the major U.S. railroads to report quarterly results.
Norfolk Southern Corp (NSC.N), CSX Corp CSX.N and Kansas City Southern (KSU.N) report next week.
U.S. railroads overall originated 15.2 million carloads in 2011, up 2.2 percent from the prior and up 9.7 percent from 2009, according to the Association of American Railroads.
Metallic ores and primary metal products had the biggest carload increases in 2011, while grain shipments had the biggest decline, the industry group said.
(Reporting By Lynn Adler in New York; Editing by Mark Porter, Tim Dobbyn and Matthew Lewis)