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Union Pacific profit up, sees stronger second half

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Union Pacific Corp. (UNP-N), the largest publicly held U.S. railroad, reported higher quarterly earnings as freight volumes increased and it raised prices, and the company said it expected to perform even more strongly in the second half of the year.
    
Union Pacific said Thursday that operating income and cash from operations rose to a record-high in the second quarter despite severe flooding in the Midwest.
    
"Looking to the second half of the year, we expect stronger performance despite some economic uncertainties and ongoing flood challenges," CEO Jim Young said in a statement.
    
"I'm much more bullish now," said Josh Duitz, co-portfolio manager of the Alpine Global Infrastructure Fund, who had worried about a profit miss due to flood damage. Alpine Global holds Union Pacific shares.
    
Shippers remain cautious as the U.S. economic recovery stumbles along, which should lead to a compressed but intensified peak season when inventory is needed, Young told analysts on a conference call.
    
"There's some uncertainty, whether it's customers or employees out here, when they read in the media that because of issues in D.C. we're going to have a meltdown in this country, and my concern is that people stop spending," he said.
    
"We're not seeing that yet, and I do believe, again, we'll see volume growth second half of the year ... but no question, there's more uncertainty in the economy today than when we came in at start of the year," he said.
    
PULLING THE COST LEVERS
    
Union Pacific is ramping up hiring, partly to replace 4,000 jobs expected to be lost to attrition, but Young said it was prepared to scale back if the economy falters.
    
"They've shown during the downturn that they were able to pull levers on the cost side if the volumes aren't there," Duitz said. "If the economy does grow, they'll be able to grow even faster, so I like both sides of it."
    
Union Pacific, which also benefited from fuel cost recoveries in the quarter, said net income rose to $785 million, or a record $1.59 per share, from $711 million, or $1.40 per share, a year earlier.
    
Flood-related operating costs and lost coal revenue had reduced earnings by about 4 cents per share, the company said.
    
Core prices increased 4.5 percent in the quarter.
    
Revenue rose to $4.86 billion from $4.2 billion.
    
Analysts, on average, had expected earnings of $1.58 a share on revenue of $4.74 billion, according to Thomson Reuters I/B/E/S.
    
Volume as measured by total revenue carloads rose 3 percent, led by shipments of agricultural products and chemicals.
    
Volume slipped in the intermodal segment, which involves the shipment of goods in containers that can be shifted from one form of transport to another.
    
Union Pacific shares were up 4.2 percent at $104.01 in late morning trading. They have jumped nearly 13 percent this year, compared with a 7 percent rise in the Dow Jones Transportation average.
     
Earlier this week railroad company CSX Corp reported higher-than-expected quarterly profits and reiterated its outlook for record results this year
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