(Reuters) – Union Pacific Corp (UNP.N), one of the biggest U.S. railroads, on Thursday reported higher-than-expected quarterly profit and said efficiency gains will bolster profits in 2019.
Shares in the company, which connects 23 states in the western two-thirds of the United States by rail, rose 3.3 percent to $159.37.
Its operating ratio – a measure of operating expenses as a percentage of revenue and a key metric for Wall Street – improved 1.1 points to 61.6 percent in the fourth quarter from the same period last year, the company said.
A lower ratio means more efficiency and higher profitability.
“We expect (2019) operating margins will increase as a result of solid core pricing gains and significant productivity benefits,” Chief Executive Lance Fritz said in a statement.
The Omaha, Nebraska-based company this month hired former Canadian National Railway Co (CNR.TO) executive and turnaround expert Jim Vena as its chief operating officer and said its operating ratio would fall below 60 percent by 2020.
Vena worked with Hunter Harrison, who led the revival of two Canadian railroads and died in 2017 after a short stint as CEO of CSX Corp (CSX.O), which recently set a 2019 target for a sub-60 percent operating ratio.
Union Pacific is cutting jobs, consolidating businesses and selling a corporate retreat to drive costs lower.
On a conference call on Thursday, Vena said “everything is on the table” as Union Pacific looks for further efficiency gains.
“I know the railroad has a vision in place to get to a 55 operating ratio already, and we’ll be working aggressively towards that goal,” Vena said.
Net income fell to $1.55 billion, or $2.12 per share in the fourth quarter, from $7.28 billion, or $9.25 per share, a year earlier when the company received a boost from changes in U.S. tax laws.
Freight revenue in the quarter rose 6 percent, lifting total operating revenue to $5.76 billion from $5.45 billion. Net core pricing was up 2.5 percent from the year-ago quarter.
Analysts, on average, expected a profit of $2.06 per share and revenue of $5.74 billion, according to IBES data from Refinitiv.
Terminal dwell, the amount of time rail cars sit idle in a terminal, was 26.7 hours for the quarter, an 18 percent improvement versus a year ago.
Union Pacific and Berkshire Hathaway-owned (BRKa.N) BNSF are the largest U.S. freight rail operators with annual revenue of more than $20 billion each.
(Reporting by Lisa Baertlein in Los Angeles and Rama Venkat in Bengaluru; Editing by Shailesh Kuber, Steve Orlofsky and Will Dunham)
Image from http://www.up.com
