UP Sets Quarterly OR Record

Andrew Corselli Oct 17, 2019

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  1. Andrew Corselli

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    One-upping 2Q19, UP set an all-time best quarterly operating ratio of 59.5%. Also, UP’s operating revenue of $5.5 billion was down 7% in 3Q19, compared to third quarter 2018. Third quarter business volumes—measured by total revenue carloads—decreased 8% compared to 2018. Growth in industrial volumes was more than offset by declines in agricultural products, premium and energy shipments.

    “Given the challenging volume environment, we delivered solid third quarter financial results, including an all-time best quarterly operating ratio of 59.5%,” said Lance Fritz, UP Chairman, President and CEO. “The work our employees are doing as part of Unified Plan 2020 is foundational to the company’s success and I am confident there are additional improvement opportunities going forward for our customers and shareholders.”

    UP also noted:

    • Quarterly freight revenue declined 7%, compared to 3Q18, as core pricing gains were offset by lower volumes, decreased fuel surcharge revenue and negative mix.
    • UP’s 59.5% OR was an all-time best and improved 2.2 points, compared to 3Q18.
    • The $2.09 per gallon average quarterly diesel fuel price in 3Q19 was 12% lower than 3Q18.
    • Quarterly freight car velocity was 213 daily miles per car, a 10% improvement compared to the 3Q18.
    • Terminal dwell was 23.4 hours, a 20% improvement compared to 3Q18.
    • UP’s reportable personal injury rate was 0.82 per 200,000 employee-hours for the first three quarters 2019, compared to 0.77 for the same period 2018.
    • UP repurchased 6.4 million shares in 3Q19 at an aggregate cost of $1.1 billion. UP also received 3.2 million shares to complete a $2.5 billion Accelerated Share Repurchase program initiated in February 2019.

    Summary of 3Q Freight Revenues

    • Agricultural Products down 1%
    • Industrial down 1%
    • Premium down 9%
    • Energy down 20%

    “UNP reported third quarter EPS of $2.22, up 3% y/y but below our and consensus estimates of $2.30,” said Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Operating income decreased 2% to $2.23 billion, coming in short of our and Street forecasts of $2.33 billion and $2.34 billion, respectively. The company’s record OR of 59.5% was 220 bps better than last year, but 50 bps worse than our estimate and 80 bps worse than consensus. Quarterly revenues declined 7% to $5.51 billion, below our and consensus estimates of $5.68 billion and $5.66 billion, respectively.”

    “UP’s results continue to be a victim of the uncertain macroeconomic environment and cheap trucking rates, among other competitive pressures, as evidenced by their 8% volume decline in the quarter,” Seidl added. “As a result, UP now expects 4Q volumes to resemble 3Q volumes in the range of -8%, well below our -3% estimate at the time of the release. However, UP maintained their 2019 and 2020 OR guidance ratios of sub-61% by 2019 and below 60% by 2020. UP now expects their 2019 CAPEX to be $3.1 billion, down $100 million, and believes they will achieve $500 million in productivity savings in 2019.”

    Outlook

    “We look forward to building on our Unified Plan 2020 successes as we provide a highly consistent and reliable service product for our customers,” Fritz said. “We remain squarely focused on driving long-term shareholder value by appropriately investing in the railroad and returning excess cash to our shareholders.”

    UP’s entire earnings numbers can be found here.

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