Strong railroad profits show US economy growing
Friday, April 20, 2012
OMAHA, Neb. (AP) — Strong earnings reports from two of the nation’s biggest freight railroads show that the U.S. economy is continuing its long, slow recovery.
Union Pacific Corp. said Thursday its first-quarter net income jumped 35 percent as the railroad hauled more cars and crude oil. CSX said earlier this week that its net income jumped 14 percent. Both railroads were hauling more containers of consumer goods and both were able to increase rates enough to offset a decline in coal shipments after a mild winter.
“The economy is stable and slowly growing,” said Jack Koraleski, Union Pacific’s president and CEO. “We’re seeing some generally positive trends.”
Many people will be encouraged by the reports because the major freight railroads are considered indicators of the nation’s economic health. The amount of cars, chemicals, crops, lumber and containers of imported goods that railroads carry across the country offer insight into those industries.
“The railroad is a good leading indicator of how the economy will do,” said Sung Won Sohn, an economics professor at California State University.
Both Union Pacific and CSX reported a drop in coal shipments. Winter weather was mild and prices for natural gas, an alternative for power generation, are around 10-year lows. UP’s energy shipments declined 8 percent, and CSX reported a 14 percent drop in its coal shipments.
But shipments of more economically sensitive items like cars, lumber, industrial products and crude oil all increased in the quarter. That led officials at both Union Pacific and CSX to express confidence that their companies could offset the decline in coal shipments this year with growth in other areas of their business.
The 15 percent jump in automotive shipments that Union Pacific reported was particularly encouraging. That figure reflects the 13 percent increase in sales of cars and trucks in the first quarter. Analysts are predicting sales of 14.5 million or more this year, which would be the industry’s best performance since 2007.
Sohn said the railroads’ strong performance, combined with data on trucking and port traffic, all suggest the economy is doing just fine.
“They all indicate that the economy is moving in the right direction,” Sohn said.
That’s the trend railroad officials have been seeing although Koraleski said he worries that sustained high gasoline prices could slow the economic recovery. The national average for a gallon of regular gasoline is $3.89, up 62 cents since Jan. 1.
The U.S. government issues its initial estimate of first-quarter gross domestic product a week from Friday. Economists estimate the economy grew around 2.5 percent in the first three months of the year.
Omaha-based Union Pacific said Thursday that it generated $863 million in net income, or $1.79 per share, in the quarter that ended March 31. That’s up from $639 million, or $1.29 per share, a year earlier.
UP, which is the nation’s largest railroad, said it increased prices on many shipments and collected more fuel surcharge fees during the quarter to boost its revenue 14 percent to $5.11 billion.
CSX said price increases helped it increase profits 14 percent to $449 million, or 43 cents per share, in the first quarter. That’s up from $395 million, or 35 cents per share, a year ago.
Both railroads exceeded what Wall Street had been expecting.
Deutsche Bank analyst Justin Yagerman gives both UP and CSX a buy rating partly because he believes they’ll be able to continue increasing prices and improving their operations.
Union Pacific has 32,400 miles of track crossing 23 states from the Midwest to the West and Gulf Coasts.
CSX is based in Jacksonville, Fla., and has about 21,000 miles of track in 23 eastern states and two Canadian provinces.
Union Pacific Corp.: www.up.com
CSX Corp.: www.csx.com
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