Union Pacific profit disappoints after costly winter storms

Union Pacific Corp. reported profit below analysts estimates as disruptions from winter storms drove up costs, even as the railroad hauled more goods from a year earlier and charged more per carload.

Earnings for the fourth quarter, buoyed by stock buybacks, were $2.67 a share, the Omaha, Nebraska-based railroad said Tuesday in a statement. Analysts had expected $2.79 on average, according to estimates compiled by Bloomberg. Revenue climbed 8% to $6.18 billion, narrowly missing analysts’ expectations.

“Revenue growth was more than offset by elevated operating expenses from operational inefficiencies and a higher inflationary environment,” Chief Executive Officer Lance Fritz said in the statement.

Union Pacific powered through storms that flooded California and dumped snow in northern states, boosting carloads even as trains were delayed. Automotive and containerized shipments rebounded after having dropped in 2021’s fourth quarter and carloads of sand and gravel also rose. Carloads grew 0.8%.

Shares fell 2.8% at 9:52 a.m. in New York after a brief halt at the open of trading. Union Pacific edged up 1.5% this year through Monday after dropping 18% last year. 

While per-share earnings rose by a penny from a year earlier, net income was $1.64 billion, a 4.3% decrease.

Operating costs jumped 14% from a year earlier on higher fuel and purchased services and materials. Revenue per carload increased 8% on the back on price increases and higher movements of goods, such as automobiles, that cost shippers more to transport. Investors will be watching to see if railroads can raise prices this year as demand weakens and truck rates fall. 

Volumes grew even as some shippers diverted cargo from rails on the threat of a nationwide rail strike during contract renewal negotiations. A strike was averted in early December when Congress forced the unions to accept terms brokered by the White House in September. 

Union Pacific expects carload this year to grow faster than US industrial production, which now is forecast to contract by 0.5%, the company said in a slide presentation. The railroad said it expects to keep pricing ahead of its inflation. Capital expenditures in 2023 are forecast at $3.6 billion. 

Union Pacific has taken intermodal market share from Warren Buffett’s BNSF Railway Co. after winning a contract with trucker Knight-Swift Transportation Holdings Inc. that began last year. Union Pacific also picked up a contract for the intermodal business of Schneider National Inc., which will start this year. 

Operating profit margin fell to 39% from about 43% a year earlier as the weather disruptions drove up costs. Union Pacific may face rising expenses this year as the railroad seeks to improve service after catching heat from the rail regulator over constant network congestion that resulted in Union Pacific limiting deliveries to some customers. 

The railroad spent $9.4 billion on dividends and share repurchases last year, a bit shy of the $10.1 billion it returned to shareholders in 2021.