Net income of $1.2 billion, compared with 2014 net income of $1.3 billion, combined with an operating revenue decrease of 10% and an operating income down 11%, resulted in a flat second-quarter 2015 for Union Pacific (UP), the railroad reported on July 23, 2015.
UP’s net income was $1.38 per diluted share, down 3% when compared with $1.43 per diluted share for second-quarter 2014. In addition, UP’s operating revenue of $5.4 billion was down 10% in the second-quarter 2015 vs. the second-quarter 2014. The railroad’s operating income of $1.9 billion for second-quarter 2015 dropped 11% and its operating ratio of 64.1% was up 0.6 points. UP says the operating ratio benefited just under a point from the net impact of lower fuel prices in the quarter.
Second quarter business volumes, as measured by total revenue carloads, declined 6% compared to 2014. Volume declines in coal (down 31%), industrial products (down 14%), and agricultural products (down 7%) more than offset the growth in automotive (up 3%) and intermodal (up 5%), UP says. Chemicals volume (down 1%) was flat compared to 2014 as growth in base chemicals carloads offset a decline in crude oil shipments.
“Solid core pricing gains were not enough to overcome a significant decrease in demand,” said Lance Fritz, UP President and CEO. “Total volumes in the second quarter were down 6%, led by a sharp decline in coal. Industrial products and agricultural products also posted significant volume decreases. However, we made meaningful progress right sizing our resources to current volumes, and I am encouraged to report that we made these improvements while posting strong safety performance.”
In addition, quarterly freight revenue decreased 10% compared to the second-quarter 2014, as the volume decline, lower fuel surcharge revenue, and negative business mix more than offset core pricing gains, UP says.
Other income of $142 million increased $120 million compared to the second-quarter 2014. Included this amount is the previously announced Fremont, Calif. Land sale, which contributed $113 million to pre-tax income, or 8 cents per diluted share to total earnings.
The $1.99 per gallon average quarterly diesel fuel price in the second-quarter 2015 was 36% lower than the second-quarter 2014; quarterly train speed, as reported by the Association of American Railroads (AAR), was 24.6 mph, about 3% faster compared with last year. The company also repurchased almost 8 million shared in the second-quarter 2015 at an aggregate cost of $834 million.
“While the volume outlook remains uncertain, we remain laser focused on operation safely and efficiently no matter what the market environment. We will continue to reduce costs and improve productivity as we further align resources with demand,” Fritz said. “Longer term, we continue to be optimistic about the strengths of our diverse rail franchise.”