Union Pacific's Second-Quarter Net Profit Slips 28%

Net profit for Union Pacific Corporation UNP in the second quarter fell 28% amid a 20% decline in volumes resulting from the economic impact of the coronavirus pandemic.

Second-quarter net income totaled $1.1 billion, or $1.67 per diluted share, compared with $1.6 billion, or $2.22 per diluted share, in the second quarter of 2019.

Operating revenue slipped 24% to $4.2 billion, with second quarter volumes falling 20% "due to deteriorating economic conditions brought on by the COVID-19 pandemic," Union Pacific (UP) said.

Of that operating revenue, freight revenue also fell 24% to $3.97 billion as core pricing gains were offset by lower volumes, a negative business mix and a decreased revenue coming from fuel surcharges, UP said. Revenue for UP's bulk segment slipped 17%, while revenues for UP's industrial and premium segments fell by 23% and 33%, respectively. UP's intermodal and automotive volumes are part of the premium segment. 

But UP trimmed expenses by 22% in the second quarter to $2.59 billion, with fuel expenses cut 56% to $247 million.

The railroad's operating ratio was 61%, up from 59.6% in the second quarter of 2019. Some investors use operating ratio, which is a company's expenses as a percentage of its revenue, to gauge the financial health of a company. A lower operating ratio implies improved financial health. 

(Union Pacific)

A number of service metrics for UP improved in the second quarter. Average train speeds rose 10% to 26.9 miles per hour, while average terminal dwell time dropped 16% to 21.6 hours.

Meanwhile, train lengths increased 13% to 8,664 feet.

(Union Pacific)

UP's outlook for 2020

UP expects carload volumes to be around 10% lower than 2019 even though headwinds remain, such as the uncertainty of the global economy and the lingering impact of the COVID-19 pandemic.

"Our first priority continues to be the health and safety of our employees during the pandemic, as they perform critical service to support economic recovery,"  said UP President and CEO Lance Fritz. "Our ability to be nimble and flexible in adjusting our resources to rapidly changing volumes, while providing a high level service product, demonstrates the strength of our service model.  We remain focused on providing our customers with a safe, reliable and efficient service product.

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