October 25, 2018 / 12:20 PM / 24 days ago

Union Pacific profit beats, shares rise

(Reuters) - Union Pacific Corp (UNP.N) on Thursday posted a bigger-than-expected jump in quarterly profit and said it was working to run its trains more efficiently as new U.S. trade policies and economic softening in Europe threaten to slow business down.

FILE PHOTO: A Union Pacific rail car is parked at a Burlington National Santa Fe (BNSF) train yard in Seattle, Washington, U.S., February 10, 2017. REUTERS/Chris Helgren/File Photo

Shares of Union Pacific, which connects 23 states in the western two-thirds of the United States by rail, were up 2.2 percent at $143.52.

A strong economy, robust freight demand and a tight U.S. trucking market have buoyed the railroad sector, which reaped outsized benefits from President Donald Trump’s 2017 tax cuts.

Union Pacific executives said the current quarter was off to a good start, but signaled caution.

“I don’t think it’s all rosy on the horizon,” Chief Executive Lance Fritz said on a conference call.

“Chinese tariffs pose a risk and they can disrupt trade flow. We see international economies, particularly Europe, looking like they are slowing down a little bit,” Fritz added, echoing comments from UPS Corp (UPS.N) on Wednesday.

The United States and China have been in a trade skirmish since Trump slapped duties on a variety of Chinese goods. China struck back, hitting U.S. soybeans and other agriculture products hard.

“While volume growth is still strong, we are not seeing the normal seasonal ramp-up in our exports grain business due to tariffs and foreign competition,” Chief Financial Officer Robert Knight said.

Union Pacific’s third-quarter net income jumped 33 percent to $1.59 billion, or $2.15 per share, 5 cents more than analysts had expected, according to Refinitiv data.

Revenue rose 9.6 percent to $5.93 billion in the latest quarter.

Its operating ratio, a closely watched measure of operating expenses as a percentage of revenue, was flat at 61.7 percent, due in part to costs for crews who run trains.

Union Pacific aims to reduce operating ratio to at least 60 percent by the end of 2020. A lower ratio means more efficiency and higher profitability.

On Oct. 1 it rolled out a “Precision Scheduled Railroading” plan to improve efficiency and ease network congestion. On Tuesday it announced job cuts, business consolidations and plans to sell a corporate retreat.

Those efforts mirror a strategy that helped rival CSX Corp (CSX.O) reduce its operating ratio to 58.7 percent in the latest quarter.

Union Pacific and Berkshire Hathaway Inc’s (BRKa.N) BNSF are the largest U.S. freight rail operators, with annual revenues of more than $20 billion each.

Reporting by Sanjana Shivdas in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Maju Samuel, Matthew Lewis and Richard Chang

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