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Researched by Industrial Info Resources (Sugar Land, Texas)--Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) was the latest North American railway to report a plunge in coal shipments had dented its bottom line in second-quarter 2015. Net income totaled $1.2 billion, a 7% decline from second-quarter 2014. Total operating revenue fell 10% to $5.4 billion.
Industrial Info is tracking 45 active Union Pacific projects worth $3.34 billion. A $400 million grassroot rail switching and classification yard in Hearne, Texas, is the largest of the projects. Union Pacific and HDR Engineering Incorporated (Omaha, Nebraska) are conducting the preliminary design. The rail yard would allow Union Pacific to sort cars where seven of its lines cross, serving the Houston, Dallas, Austin and San Antonio areas, as well as spots along the Gulf of Mexico and throughout eastern Texas. Construction kick-off is slated for third quarter 2015, with completion in first-quarter 2017.
The railway, which serves 23 states in the western U.S., reported 309,000 coal carloads for the quarter, down 26% from 417,000 carloads in second-quarter 2014. Coal revenue totaled $649 million in the quarter, down 31% from the same period last year.
Coal shipments across the rail industry have taken a beating as the Power Industry switches to cheaper natural gas to fuel more of its plants. Second-quarter coal shipments also were impacted by weak export markets and by torrential rainfall in parts of the U.S., which affected some coal mine operations, according to Union Pacific.
For the year to date, capital investments by Union Pacific have totaled more than $2.2 billion, compared with nearly $2.1 billion by this time last year, the railway reported.
Eric Butler, executive vice president-marketing and sales, said during Union Pacific's earnings conference call that the railway achieved a 4% increase in core pricing gains, but it was not enough to overcome a $400 million drop in fuel surcharge revenue and reduced shipping volumes.
Volumes for industrial products and agricultural products also fell significantly, offsetting growth in automotive and intermodal shipments, the railway said. Chemical volume was flat as a drop in crude oil shipments offset an increase in base chemicals carloads.
Union Pacific's net income also included $120 million from a land sale in Fremont, California.
Looking forward, Chief Financial Officer Robert Knight said shipping volumes are likely to be down for all of 2015, and the company is unlikely to see record earnings.
Butler said he expects shipments of construction products to rebound in the third quarter, after construction activities were dampened by adverse weather in the second quarter.
Regarding grain shipments, which were down 19% in the second quarter, crop conditions appear to be favorable, Butler said, but low commodity prices and an abundant supply create uncertainty. Ethanol plants are expected to pick up activity after extended downtimes, which should perk up grain product shipments.
Butler said shipments of automobiles and auto parts look positive for the remainder of the year. Automobile and auto parts shipments rose 8% and 5%, respectively, in the second quarter.
Lower natural gas prices, along with high coal inventories and lackluster exports, will dampen coal shipments for the rest of this year, Butler said. Likewise, crude-by-rail shipments will continue to face headwinds due to unfavorable prices.
For related information, see July 22, 2015, article - Canadian Freight Railways Ride on Second-Quarter Profit Gains, Expect Flat-to-Down Shipment Volumes for 2015; July 16, 2015, article - CSX Railway: Third-Quarter Domestic Coal Shipments to Continue to Fall; and January 23, 2015, article - Railroads Report Fourth-Quarter 2014 Profit Growth, Expect Lower Crude Shipments.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Industrial Info is tracking 45 active Union Pacific projects worth $3.34 billion. A $400 million grassroot rail switching and classification yard in Hearne, Texas, is the largest of the projects. Union Pacific and HDR Engineering Incorporated (Omaha, Nebraska) are conducting the preliminary design. The rail yard would allow Union Pacific to sort cars where seven of its lines cross, serving the Houston, Dallas, Austin and San Antonio areas, as well as spots along the Gulf of Mexico and throughout eastern Texas. Construction kick-off is slated for third quarter 2015, with completion in first-quarter 2017.
The railway, which serves 23 states in the western U.S., reported 309,000 coal carloads for the quarter, down 26% from 417,000 carloads in second-quarter 2014. Coal revenue totaled $649 million in the quarter, down 31% from the same period last year.
Coal shipments across the rail industry have taken a beating as the Power Industry switches to cheaper natural gas to fuel more of its plants. Second-quarter coal shipments also were impacted by weak export markets and by torrential rainfall in parts of the U.S., which affected some coal mine operations, according to Union Pacific.
For the year to date, capital investments by Union Pacific have totaled more than $2.2 billion, compared with nearly $2.1 billion by this time last year, the railway reported.
Eric Butler, executive vice president-marketing and sales, said during Union Pacific's earnings conference call that the railway achieved a 4% increase in core pricing gains, but it was not enough to overcome a $400 million drop in fuel surcharge revenue and reduced shipping volumes.
Volumes for industrial products and agricultural products also fell significantly, offsetting growth in automotive and intermodal shipments, the railway said. Chemical volume was flat as a drop in crude oil shipments offset an increase in base chemicals carloads.
Union Pacific's net income also included $120 million from a land sale in Fremont, California.
Looking forward, Chief Financial Officer Robert Knight said shipping volumes are likely to be down for all of 2015, and the company is unlikely to see record earnings.
Butler said he expects shipments of construction products to rebound in the third quarter, after construction activities were dampened by adverse weather in the second quarter.
Regarding grain shipments, which were down 19% in the second quarter, crop conditions appear to be favorable, Butler said, but low commodity prices and an abundant supply create uncertainty. Ethanol plants are expected to pick up activity after extended downtimes, which should perk up grain product shipments.
Butler said shipments of automobiles and auto parts look positive for the remainder of the year. Automobile and auto parts shipments rose 8% and 5%, respectively, in the second quarter.
Lower natural gas prices, along with high coal inventories and lackluster exports, will dampen coal shipments for the rest of this year, Butler said. Likewise, crude-by-rail shipments will continue to face headwinds due to unfavorable prices.
For related information, see July 22, 2015, article - Canadian Freight Railways Ride on Second-Quarter Profit Gains, Expect Flat-to-Down Shipment Volumes for 2015; July 16, 2015, article - CSX Railway: Third-Quarter Domestic Coal Shipments to Continue to Fall; and January 23, 2015, article - Railroads Report Fourth-Quarter 2014 Profit Growth, Expect Lower Crude Shipments.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
