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The railroad kept up the good work on the heels of a similar record-setting 3Q, as its 59.7% operating ratio represented a 4Q record and the third consecutive quarter below 60%, improving 1.9 points compared to 4Q18.
UP’s operating revenue of $5.2 billion was down 9% in 4Q19, compared to 4Q18. Fourth quarter business volumes, as measured by total revenue carloads, decreased 11% compared to 2018. Industrial volumes were flat compared to 2018, while agricultural products, premium and energy shipments declined.
“Given the challenging volume environment, we leveraged strong productivity to deliver solid financial results including the third consecutive quarter with an operating ratio below 60%,” said Lance Fritz, UP Chairman, President and CEO. “The work our employees are doing as part of Unified Plan 2020 has been transformational and key to providing a safe, reliable and consistent service product for our customers.”
of Fourth Quarter Freight Revenues
For the full year 2019, UP reported net income of $5.9 billion or $8.38 per diluted share, which represents a 1% decrease and 6% increase, respectively, when compared to 2018.
Operating revenue totaled $21.7 billion compared to $22.8 billion in 2018. Operating income totaled $8.6 billion, which was flat compared to 2018.
“While we are pleased with our progress in providing a highly consistent, reliable and efficient service product for our customers, we must improve our safety results,” Fritz said. “As always, we remain focused on growing the business and improving margins while driving shareholder returns.”
“UP reported 4Q EPS of $2.02, down 5% year-over-year, above our $1.98 estimate, but below consensus’ estimate of $2.04 (which had been falling into the print),” said Cowen and Company Managing Director and Railway Age Wall Street Contributing Editor Jason Seidl. “Operating income also decreased 5% to $2.10 billion, above our $2.06 billion but below the Street’s forecast of $2.11 billion. 4Q record operating ratio (OR) of 59.7% was roughly 190bps better than last year, roughly 110bps better than our estimate, but slightly worse than consensus’ expectation. Quarterly revenues declined 9% to $5.21 billion, below our and consensus estimates of $5.25 billion and $5.22 billion, respectively. Relative to consensus, the revenue weakness was in UP’s Premium and Energy businesses, while their Industrial business beat and Agricultural Products was in line.”
“UP issued initial volume guidance and updated their existing OR guidance,” Seidl added. “Initial volume guidance for full-year 2020 is for volumes to be slightly positive yearly, while UP updated its OR guidance from ‘below 60% by 2021’ to expecting an OR of about 59% in 2021. However, this new guidance is in line with our 58.8% estimate and consensus’ expectation at the time of the release.”
“UP’s carloads in 1Q19 decreased by roughly 1.8% year-over-year,” he said. “This included a few weeks of increases to begin 2019 (including increases of nearly 10% in Weeks 2 and 3, and a roughly 4% increase in Week 4), followed by declines in most of the remaining weeks of the quarter. The first week of declines in 2019 was Week 5, which saw a 4.8% decline. As we approach Week 5, UP’s carloads will face an easier weekly comparison followed by increasingly easier comparisons as 2020 progresses.”
“With this in mind, we viewed UP’s slightly positive yearly volume guidance as conservative, given how easy the comps get,” he said. “That being said, the Class I’s PSR progress is encouraging, with management noting that they believe they aren’t even halfway done with implementation. The railroad noted it expects to achieve $500 million of productivity gains this year and that any increase in volumes would not curtail their benefits rather it would add to their overall outlook.”
The post UP Sets Quarterly OR Record, On Declining Revenues—Again appeared first on Railway Age.
This article first appeared on www.railwayage.com
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