Union Pacific share price up, posts better-than-expected quarterly profit

Union Pacific Corp, announced on Thursday its quarterly profit increased above analysts expectations as the largest US railroad operator continued to benefit from higher freight rates.

Net profit for the fourth quarter stood at $1.43 billion, up 22% compared to a year earlier. Earnings per share were $1.61, 27% better than the result posted in the fourth quarter of 2013 and also surpassed analysts estimates of $1.51.

Revenue for the three months was $6.1 billion, up 9% year-on-year and in line with analysts expectations.

Industry analysts have been projecting better performance for almost all freight-rail companies. Although analysts warn that the continued fall in crude prices could affect the industry as truck-using competitors will benefit from lower fuel prices.

However, UP also gained from falling crude prices, the company reported that the average price it paid for diesel dropped 6% to $2.97 per gallon versus last year.

“Robust volumes challenged our network for much of the year, and we remained focused on adding the necessary resources to safely improve service,” Chief Executive Jack Koraleski said in a statement. “We are encouraged with the progress we are making.”

Train speed for the quarter was 23.8 mph, UP said, 8% slower compared to the same period of 2013. Meanwhile, overall revenue carloads edged up 6%, driven by industrial products and intermodal, which increased 15% and 11% respectively. Automotive volumes were flat for the quarter.

UP also was more efficient during the three months to December, its operating ratio fell to 61.4% from 62.3% in the third quarter of 2014.

“Union Pacific achieved record quarterly financial results, driven by strong volumes, solid core pricing and productivity gains,” Mr. Koraleski said.

For the full year of 2014 the company reported net income of $5.2 billion, or $5.75 per share, compared with the $4.4 billion, or $4.71 a share, reported in 2013. Revenue reached a record of $24.0 billion versus $22.0 billion a year earlier.

UPs report follows CSX, which stated 15% increase in earnings driven by robust freight demand. Kansas City Southern is due to release its quarterly performance on Friday, while Norfolk Southern reports on Monday.

Union Pacific Corp gained 0.39% on Wednesday and closed at $114.40 in New York. On Thursday the stock climbed 3.86% to $118.82 at 15:42 GMT, marking a one-year increase of 41.03%. The company is valued at $101.71 billion.

According to the Financial Times, the 26 analysts offering 12-month price targets for Union Pacific have a median target of $130.00, with a high estimate of $138.00 and a low estimate of $110.00. The median estimate represents a 14.09% increase from the last close price.