Union Pacific's 4Q profit drops 22%

Union Pacific locomotives stand in a yard in Council Bluffs, Iowa, in this file photo. The railroad on Thursday reported a quarterly profit of $1.1 billion.
Union Pacific locomotives stand in a yard in Council Bluffs, Iowa, in this file photo. The railroad on Thursday reported a quarterly profit of $1.1 billion.

OMAHA, Neb. -- Union Pacific Corp.'s fourth-quarter profit fell 22 percent as the railroad hauled 9 percent less freight and worked to cut costs to match the reduced demand.

Its shares fell 3.6 percent Thursday.

The Omaha.-based railroad said its net income fell to $1.1 billion, or $1.31 per share, in the quarter. That's down from last year's $1.4 billion, or $1.61 per share.

The 12 analysts surveyed by Zacks Investment Research expected earnings of $1.42 per share on average.

Union Pacific says its revenue fell 15 percent to $5.2 billion in the quarter. That's also below the $5.54 billion analysts expected.

The railroad reduced its costs 13 percent to $3.29 billion, but it wasn't enough to offset the reduced revenue. Union Pacific finished the year with about 44,490 workers, down 7 percent from the previous year.

Union Pacific Chairman and Chief Executive Officer Lance Fritz said he doesn't think the economy is nearing a recession, but shipping volume has fallen dramatically, especially in energy products and exports.

Fritz said he expects that the economic uncertainty and strong U.S. dollar will continue to affect the railroad's business this year. Union Pacific expects that total volume will be down slightly in 2016.

The weakness in rail cargo probably will last this year as coal demand continues to drop and U.S. production lags, CSX Corp. Chief Executive Officer Mike Ward said last week. The industry is in a "freight recession" and his railroad's earnings are expected to decline, Ward said. CSX is the largest railroad in the eastern U.S., while Union Pacific operates in the West.

Union Pacific plans to invest $3.75 billion in capital projects and equipment this year, down from the $4.3 billion it spent in 2015.

Edward Jones analyst Logan Purk said the quarterly results fell well short of expectations, and investors should expect railroad struggles to continue this year.

"I think we'll probably see more of this for a couple quarters as Union Pacific tries to align resources with demand," Purk said.

The railroad's stock fell $2.61 to close Thursday at $71.

Union Pacific shares have fallen nearly 6 percent since the beginning of the year while the Standard & Poor's 500 index has declined 9 percent. The stock has dropped 35 percent in the past 12 months.

Union Pacific operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts. It also operates a large maintenance facility in North Little Rock.

Information for this article was contributed by Thomas Black of Bloomberg News.

Business on 01/22/2016

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