Coal decline derails Union Pacific results

UP is the latest among a string of US railroad operators to reveal the impact of a sharp decline in coal traffic.

The company reported a Q2 2015 net income of US$1.2B, a decline of 7% on the US$1.3B achieved in Q2 2014. Operating income totalled US$1.9B, down 11%, while earnings per share of US$1.38 represented a decline 3%.

“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.

Declining coal volumes reflected the fall in the price of natural gas, fuelled by the shale gas boom, which has pushed out coal burning as a source of electricity generation. UP’s coal volumes fell 26%, dragging total volumes down 6%.

“Industrial products and agricultural products also posted significant volume decreases,” added Fritz. “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.”

UP’s operating revenue of US$5.4B was down 10% in Q2 2015 compared to Q2 2014.  Second quarter business volumes, as measured by total revenue carloads, declined 6% compared to 2014. 

Volume declines in coal, industrial products, and agricultural products more than offset the growth in automotive and intermodal. Chemicals volume was flat compared to 2014 as growth in base chemicals carloads offset a decline in crude oil shipments.