The US road freight recession contributed to a modest fall in revenues and earnings at the North America based Union Pacific railroad company. Full year operating profit at the company was down 8% y-o-y to US$9.1bn on revenues that fell by 3% to $24.1bn.
Negative factors on revenues including a 3.7% drop in fuel surcharge revenue, a 5% drop in revenue per car in the Premium segment and a 9% drop in revenue per car in the Intermodal segment. Linked to the US road freight industry, the 12% y-o-y fall in revenues for Intermodal to $4,554m was of small surprise, and is linked to the wider US road freight recession.
Union Pacific is one of the largest overland coal carriers in the US, and demand for the fuel was down in 2023 in a large part due to competition from natural gas as a fuel. Looking into 2024, CEO Jim Vena said, “Coal demand… will impact our business – this is beyond our control”, adding “I’m confident that [the management team] will succeed in areas we can control!”
Those factors that the company can control include service and operations, which he said, “Showed a great improvement in the quarter.”
As a railway operator, Union Pacific has little control over the markets that it serves, and is exposed to the vagaries of the wider economy. The Union of Auto Workers strike at the major car OEMs in 2023 impacted business moving automobiles around the US, but Executive Vice President for Marketing and Sales Kenny Rocker pointed out that demand from car dealers balanced out the fall in car components. Rocker said that where, “We’re off to a poor start in 2024 with winter storms,” 2024 won’t necessarily be a tough one for the company. He added, “I’m excited about the year in front of us.” He projected a fall in international intermodal sales but growth in automotive transport ahead. Coal is still subject to overall demand and that isn’t so rosy – but the increased transport of biofuels as the US begins to transition from fossil fuels may well offset this longer term trend.
Among other vertical sectors, Bulk was down 2% to $7,358m and Energy (including biofuel transport) was up 6% y-o-y to $2,521m. Recognising that the operating profit margin is still just over 39%, Union Pacific remains a very profitable enterprise. Perhaps reflecting this, Vena concluded, “We enter 2024 with strong momentum, recognising we have plenty of opportunity to improve.”
Author: Richard Shrubb
Source: Union Pacific
