Union Pacific posts profit gains in 4Q; cost cuts credited

Union Pacific Corp. on Thursday reported a fourth-quarter profit of $1.14 billion.
Union Pacific Corp. on Thursday reported a fourth-quarter profit of $1.14 billion.

OMAHA, Neb. -- Union Pacific' Corp.'s fourth-quarter profit grew 2 percent as cost cuts offset a 3 percent decline in shipments.

Net income reached $1.14 billion, or $1.39 per share, well above the per-share earnings of $1.34 that Wall Street was looking for, according to a survey by the data company Zacks Investment Research.

Revenue declined 1 percent to $5.17 billion, but that was also better than the $5.14 billion analysts expected.

The railroad reduced its expenses 3 percent to $3.2 billion in the quarter in response to the slower shipping volume.

Union Pacific Chairman and Chief Executive Officer Lance Fritz said higher energy prices, favorable agricultural markets and improving consumer confidence all suggest railroad shipping volumes will grow this year.

"We are fairly optimistic about some of the macroeconomic indicators that drive our core business," Fritz said.

Union Pacific shares rose $2.47, or 2.5 percent, to close Thursday at $106.24. Almost all shares in the railroad sector rose significantly, with new developments hinting at a new potential for consolidation of the industry.

Fritz said Union Pacific plans to spend $3.1 billion on capital projects and equipment this year. That would be down from the $3.5 billion spent last year as the railroad delays some planned locomotive purchases.

Union Pacific, based in Omaha, Neb., operates 32,400 miles of track in 23 states and operates a maintenance facility in North Little Rock.

Shares of competing railroad CSX Corp. jumped the most on record Thursday after news that outgoing Canadian Pacific Railway Chief Executive Officer Hunter Harrison is teaming up with an activist investor to shake up the least efficient U.S. railroad.

Paul Hilal, who worked for years with billionaire hedge fund manager Bill Ackman, is looking to install Harrison in a leadership position at CSX, according to people familiar with the matter. Harrison announced his retirement ahead of schedule Wednesday from Canadian Pacific, where he partnered with Ackman in an effort to combine with CSX and its eastern U.S. competitor, Norfolk Southern Corp.

A campaign led by Harrison and Hilal would create another industry boardroom drama less than a year after Harrison and Ackman abandoned their attempts to take over Norfolk Southern. Harrison made Canadian Pacific into one of the industry's best performers after taking over as CEO in 2012 and previously solidified Canadian National Railway Co.'s status as the leanest North American railroad before retiring in 2009. That followed an overhaul of Illinois Central.

"Hunter Harrison improves margins, and eastern rails CSX and NSC still have the weakest margins in the industry," Bascome Majors, an analyst at Susquehanna Financial Group, said in a note to clients.

CSX declined to comment. The railroad's shares surged $8.63, or 23 percent, to close Thursday at $45.51 in New York. Other carriers also rose, with Norfolk Southern advancing 4.1 percent and Canadian Pacific climbing 4.6 percent.

Information for this article was contributed by Frederic Tomesco, Scott Deveau and Thomas Black of Bloomberg News.

Business on 01/20/2017

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