Union Pacific Cuts Costs, Raises Profit

By Paul Ziobro 

Union Pacific Corp.'s second-quarter profit rose even as it shipped less cargo, as the railroad operator got a boost from cost cuts tied to its new operating plan, including fewer jobs and lower fuel expenses.

The railroad will continue to slim down as it plans further job reductions -- as much as 10% for the full year -- and other productivity measures amid a weak freight shipping environment, in which volume is expected to fall 2% in the second half of 2019.

Union Pacific is in the midst of a significant overhaul where it is running fewer, longer trains, sorting railcars less frequently and reworking operations across its network. Other freight railroads, including Norfolk Southern Corp. and Kansas City Southern, are on similar paths, mirroring the changes that CSX Corp. made on its network in recent years.

The cost reductions are helping as the railroads confront less business. With trade uncertainty and a weak industrial economy, freight traffic remains depressed on the railroads, damping revenue.

Union Pacific's operating revenue declined 1% to $5.6 billion in the second quarter as shipping volume fell 4%. But operating expenses fell 7% as the company reduced its workforce by 8%, or about 3,500 people, from a year earlier.

Second-quarter business volumes, as measured by total revenue carloads, declined 4%. Industrial volumes increased, shipments of agricultural products were flat, and energy and agricultural products declined.

Profit rose to $1.57 billion, or $2.22 a share, from $1.51 billion, or $1.98 a share, a year earlier.

The changes resulted in an operating ratio -- a closely watched metric that measures the percentage of revenue consumed by expenses, where a lower figure represents an improvement -- of 59.6%. The performance came even as Union Pacific dealt with severe weather, including flooding that kept part of its network down.

While such changes, including idling hundreds of locomotives and deep job cuts, can be disruptive to railroads and their customers, Union Pacific says it continues to make changes carefully and by communicating closely with shippers.

"We're trying to do this in a systematic manner instead of blowing it up, " Union Pacific Chief Operating Officer Jim Vena said. "We're getting out in front of it. We tell the customer what we're doing."

--Aisha Al-Muslim contributed to this article.

(END) Dow Jones Newswires

July 18, 2019 12:23 ET (16:23 GMT)

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