April 21, 2016 / 12:21 PM / in 2 years

Union Pacific profit beats expectations on cost cuts

CHICAGO (Reuters) - Union Pacific Corp (UNP.N) on Thursday posted an unexpectedly higher first-quarter profit as it cut costs to meet falling demand, but the No. 1 U.S. railroad said it remained challenged by low energy prices, a strong U.S. dollar and weak retail sales.

The company’s shares rose 4.3 percent to $87.42 in early trading.

Omaha, Nebraska-based Union Pacific reported an 8 percent decline in freight volumes from a year earlier, hurt by a 34 percent drop in coal volumes.

These volumes have been plunging on major U.S. railroads since early 2015 as low energy prices push utilities to burn cheaper natural gas and the strong dollar hurts coal exports.

Some analysts and investors had hoped the declines might ease this year, but so far the rout has continued.

Executives said in a conference call with analysts that they expected full-year 2016 freight volumes to be down by a mid-single-digit percentage rate.

Union Pacific posted core pricing gains of 2.5 percent, down from 4 percent a year earlier.

Chief Executive Officer Lance Fritz said the company was still challenged by energy market weakness, low commodity prices, the dollar’s drag in a soft global economy and muted domestic retail demand.

    In the first quarter, net income fell nearly 15 percent to $979 million, or $1.16 per share, from $1.15 billion, or $1.30 per share, a year earlier. Analysts had on average expected $1.10 a share.

    Revenue declined almost 14 percent to $4.83 billion from $5.61 billion, missing analysts’ estimates of $4.9 billion.

    Union Pacific’s operating ratio, a key metric in the sector, improved 0.3 percentage points to 65.1 percent.

    To adapt to falling demand, the railroad has furloughed almost 4,000, or 22 percent, of workers on its network, including engineers and conductors. The company has also mothballed 15 percent of its fleet of locomotives.

    Union Pacific posted declines in all its freight segments except for automotive, which rose 7 percent as U.S. demand for new cars remained strong, and chemical, which was flat.

    Reporting by Nick Carey; Editing by Chizu Nomiyama, Paul Simao and Lisa Von Ahn

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