Union Pacific shares rise as CEO says U.S.-China trade pact should help end rail slump

FAN Editor
A Union Pacific rail car is parked at a Burlington National Santa Fe (BNSF) train yard in Seattle
FILE PHOTO: A Union Pacific rail car is parked at a Burlington National Santa Fe (BNSF) train yard in Seattle, Washington, U.S., February 10, 2017. REUTERS/Chris Helgren

January 23, 2020

(Reuters) – Union Pacific Corp <UNP.N> shares rose 1% after executives at the railroad operator said the U.S.-China trade pact should help reverse slumping volumes.

Shares gained $1.78 to $182.71 in early trade after executives forecast a slight uptick in 2020 volumes.

U.S. President Donald Trump and Chinese Vice Premier Liu last week signed a Phase 1 trade agreement that diffuses their 18-month-long trade war.

“It turns a headwind into a tailwind,” Union Pacific Chief Executive Lance Fritz said of the partial cease fire that will cut some U.S. tariffs on Chinese goods in exchange for Chinese pledges to buy more American farm, energy and manufactured goods.

President Trump’s tariff tiffs with China and other nations dented everything from soybean to steel shipments at a time when railroads were already grappling with competition from long-haul truckers and falling coal shipments.

Union Pacific’s volume fell 11% in the latest quarter, driven by declines in coal and sand, grains and fertilizer, and finished vehicles. Oil shipments rose due to lower crude prices during the latest quarter, and executives said that trend should continue during 2020. Union Pacific also expects agricultural shipments – which were hard hit by the China trade war – to recover.

The Omaha-based railroad’s fourth quarter operating ratio, a measure of operating expenses as a percentage of revenue and a key metric for Wall Street, fell 1.9 points to 59.7% from the year earlier period.

A lower ratio means higher profitability for railroads.

Net income fell to $1.40 billion, or $2.02 per share, from $1.55 billion, or $2.12 per share, a year earlier.

Total operating revenue fell 9.5% to $5.21 billion

Analysts on average expected a quarterly profit of $2.04 per share and revenue of $5.22 billion, according to IBES data from Refinitiv.

Union Pacific and Berkshire Hathaway-owned <BRKa.N> BNSF are the largest U.S. freight rail operators with annual revenues of more than $20 billion each.

(Reporting by Ankit Ajmera in Bengaluru and Lisa Baertlein in Culver City, Calfornia; Editing by Vinay Dwivedi)

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