OMAHA, Neb. (AP) — When labor disputes disrupted operations at Canada’s two largest railroads and ports up and down the East Coast, many companies shifted more of their shipments to the West Coast forcing railroads like Union Pacific and the ports there to react quickly.
Union Pacific said Thursday that the result was an unanticipated 33% jump in the number of shipping containers filled with imports that it delivered in the third quarter, which helped drive a 6% increase in the railroad’s total volume and a 9% jump in profits.
The Omaha, Nebraska-based railroad had to scramble to handle the additional freight by quickly repositioning locomotives and other equipment while paying some workers more overtime. Union Pacific and the L.A./Long Beach ports in southern California handled the surge without significant delays in how quickly ships were unloaded.
“That’s a big jump at one time. It really is,” CEO Jim Vena said in an interview. “And I think it shows the way we are managing the railroad that we know we need to have some asset buffers.” For instance, he said the railroad tries to keep about 500 of its stored locomotives ready to go at any time to help handle unexpected shifts in shipments.
“I thought the railroads and the entire supply chain did a great job,” Vena said. The other major Western railroad, BNSF, would likely also have seen a big jump in shipments, but their results won’t be public until their parent company, Warren Buffett’s Berkshire Hathaway, reports its earnings on Nov. 2.
Even though those intermodal shipments are less profitable than some of the other goods Union Pacific hauls, the additional imports flowing into the West Coast before and after Canada’s major railroads and the East Coast ports all briefly shut down at different times helped the railroad. Union Pacific said it earned $1.67 billion, or $2.75 per share. That’s well ahead of the $1.53 billion, or $2.51 per share, Union Pacific earned a year ago, but just behind what Wall Street expected.
The analysts surveyed by FactSet Research expected the railroad to report earnings per share of $2.79. Shares remained down about 5% in afternoon trading after the report was released. Still, Vena was pleased with the results because of the way UP handled the surge in volume while maintaining good service.
The number of shipments Union Pacific delivered in the quarter was mixed across different sectors. Intermodal shipments of cargo containers led the growth. Coal continued its long-term decline, but metals, minerals and auto shipments were also down.
The railroad expects its fourth quarter profit will closely mirror the third quarter and top last year’s results. Union Pacific said it sees positive momentum in its profits as its service and efficiency and pricing all continue improving.
Edward Jones analyst Jeff Windau said in a research note that even while hauling more less-profitable freight and dealing with reduced fuel surcharges, Union Pacific managed to improve several key operating measures. The railroad said freight car velocity and locomotive productivity both increased 5%.
“Jim Vena, a CEO known for his ability to drive performance, should help the company to continue improving network efficiency and productivity, and drive improvements in profitability,” Windau wrote.
Union Pacific didn’t make any change in its plan to repurchase roughly $1.5 billion of its shares this year and invest $3.4 billion in capital improvements to its network.
Union Pacific’s expenses declined 2% to $3.68 billion as its fuel costs dropped 13% in the quarter with inflation easing.
Revenue was up 3% at $6.09 billion — just behind the $6.14 billion that analysts had predicted. In additional to helping lower expenses, the lower fuel prices also hurt revenue because the railroad couldn’t collect as much in fuel surcharges from its customers. But Union Pacific kept working to raise rates enough to more than offset inflation.
Union Pacific is one of the nation’s largest railroads with tracks crossing 23 western states.
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