Union Pacific reports strong Q4 and 2010 full-year earnings

In the latest example of how strong the freight railroad business is, Class I carrier Union Pacific announced today that fourth quarter and full-year earnings were up 44 percent at $1.56 per share and 48 percent at $5.53 per share, respectively, year-over-year.

Net income for UP for the fourth quarter was up 41 percent at $775 million, and for the full year it was up 47 percent at $2.8 billion. The company’s operating ratio for the fourth quarter was up 3.2 points at 70.2, marking a fourth quarter company record, and for the full year it was up 5.5 points at 70.6. Quarterly operating income at $1.3 billion was up 31 percent and represents the third straight quarter that UP’s operating income has been above $1 billion. And full year operating income at $5.0 billion was up 47 percent.

UP Chairman and CEO Jim Young said on an earnings call earlier today that along with a focus on safety and customer service, UP provides a great value proposition for its customers along with improving yields as demand strengthens.

“Better pricing, combined with improved efficiency, produced a record quarter operating ratio,” said Young. “UP’s strong fourth quarter results are indicative of the great performance we have achieved throughout 2010, setting numerous records as we report the most profitable year in our 150 year history.”

Volumes for UP in the fourth quarter, which are measured by total revenue carloads, were up 9 percent compared to the fourth quarter of 2009, with all six of its business groups reporting volume growth for the third straight quarter. Company officials added that each of the six business groups reported quarterly freight volume growth, with an 18 percent annual gain at $4.2 billion. Some of the primary factors for these gains, according to UP, were strong volume growth, increased fuel cost recoveries, and core pricing gains.

Looking at the individual business groups, revenues and revenue carloads saw the following increases:
-Industrial Products revenue was up 27 percent at $652 million, and revenue carloads were up 23 percent at 263,000;
-Intermodal revenue was up 25 percent at $852 million, and intermodal carloads were up 10 percent at 841,000;
-Energy was up 16 percent at $887 million, and energy carloads were up 4 percent at 519,000;
-Agricultural was up 14 percent at $840 million, and agricultural carloads were up 6 percent at 248,000;
-Chemicals were up 14 percent at $617 million, and chemical carloads were up 10 percent at 211,000; and
-Automotive was up 7 percent at $323 million, and automotive carloads were up 3 percent at 155,000.

Total average revenue per car for UP in the fourth quarter was up 8 percent at $1,865, ranging from $1,012 for Intermodal to $3,386 for Agricultural.

UP officials said that customer satisfaction levels remained at record levels in the fourth quarter, as evidenced by the company’s Customer Satisfaction Index up 2 points to 90 in the fourth quarter and up 1 point to 89 for the full year.

“Our strong value proposition and an improved economy combined to drive fourth quarter volumes,” said Jack Koraleski, UP executive vice president, marketing and sales, on the conference call. “Core price improved by about 5.5 percent…and along with increased fuel surcharge revenue and off-set by a little negative mix produced an 8 percent increase in average revenue per car, with total freight revenue up 18 percent at $4.2 billion.”

This earnings performance was described as “quite positive, with more visibility into the economic and thus volume outlook expected,” wrote Anthony B. Hatch, principal of New York-based ABH Consulting, in a research note.

Looking ahead, Chairman and CEO Young said in prepared remarks that UP is encouraged by signs of a slowly-strengthening economy and its well-positioned to serve the total transportation needs of its customers as it focuses on becoming a more fully-integrated part of its customers’ supply chains.

“Excellent service is the key to our future success, supporting our pricing initiatives and helping us improve asset utilization,” said Young. “This strategy will enable us to further increase our overall profitability, invest for the future, and drive strong shareholder returns.”