Despite Lower Earnings, Union Pacific Holds Optimism for Future

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Researched by Industrial Info Resources (Sugar Land, Texas)--Rail and intermodal transport company Union Pacific Corporation (NYSE:UNP) (Omaha, Nebraska) has reported earnings for the fourth quarter of 2009, which ended December 31. Like transport company CSX Corporation (NYSE:CSX) (Jacksonville, Florida), earnings for the quarter were down from the previous year, falling from $651 million in 4Q08 to $551 million in 4Q09, a 17% decline. The company's largest drops in revenue came from the transport of industrial and energy products, which experienced revenue declines of 22% and 28%, respectively. Despite these year-over-year declines, the final quarter of 2009 presented somewhat of a lift in revenues from the rest of the year, suggesting that 2010 will be more profitable.

In a conference call, Union Pacific Chairman and CEO Jim Young said, "As we experienced throughout 2009, our quarterly results reflected the global recession, with total volume down 5% year over year. For the full year, our volumes declined 16%, producing our lowest business levels in over a decade. We finished 2009 in an upswing however, as fourth-quarter car loadings were the highest of the year, both in absolute terms and year over year."

A 15% decline in energy volumes was attributable to a 16% drop in volume of Powder River Basin coal and a 20% decline in coal sourced from Utah and Colorado. The decreased coal shipments were primarily caused by lower power demand from warm weather during the quarter and decreased industrial use. "We're not really counting much at this point on volume growth in coal, but the recent reports indicate that this severe cold weather, both here and around the world, may have put more of a dent in stockpiles than what we might be expecting. So if we see some improved industrial production and a more normal summer burn, then there may even be a little opportunity for us out there in the coal business," said Jack Koraleski, Executive VP - Marketing & Sales.

Industrial products volume was down 21%, which included the following volume declines:

• steel shipments, down 32%
• lumber, down 23%
• rock, down 29%
• cement shipments, down 37%

Despite these declines, freight revenues for all areas trended upward throughout 2009, despite a slight dip in the second quarter. Quarterly revenues for the combined agricultural, automotive, chemicals, energy, industrial and intermodal sectors were as follows:

• 1Q09 - $3.24 million
• 2Q09 - $3.12 million
• 3Q09 - $3.47 million
• 4Q09 - $3.54 million

Chief Financial Officer Rob Knight touched on Union Pacific's capital expenditure plans for the new year. "For 2010, we are still finalizing the budget, but our current thinking is that our base capital investment would be around $2.3 billion. On top of that, we will spend an additional $200 million on positive train control, bringing total capital to about 2.5 billion," said Knight. "We remain committed to making long-term investments in our company that support operating efficiencies, growth and returns. We must balance that, however, against the current economic environment. An example of this type of investment is our new Joliet intermodal terminal. This facility, which accounts for about $150 million of our 2010 budget, supports our plans to convert more business from highway to rail, driving both intermodal pricing and returns."

Construction of Union Pacific's grassroot intermodal terminal in Joliet, Illinois, is scheduled to be completed this summer. The estimated $370 million project will be able to handle 500,000 ocean-going containers per year and will employ approximately 1,600 people. The project is one of 13 U.S. currently facilities under construction, which, when operational, will employ more than 1,000 people. For additional information, see January 20, 2009, article - Great Lakes Region Leads U.S. in Plants With 1,000+ Employees. Detailed information on this and other projects is available in Industrial Info's North American Industrial Database.

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