Where overall revenue was down 0.1% y-o-y to $6,027m in Q1, US rail freight giant Union Pacific’s operating income decreased by $1m y-o-y to $2,371m. According to CEO Jim Vena, “The team delivered a solid start to the year as we worked closely with out customers to meet their needs in an uncertain environment.”
Average revenue per car down
Average revenue per car was down 4.9% y-o-y to $2,714. Across the verticals this amounted to:
Bulk (covering grain, coal, fertiliser etc) was down 1.1% y-o-y
Industrial (covering chemicals, metals, minerals, forest products etc) was up $1 y-o-y to $3,887
Premium (covering automotive and intermodal) was down 7.5% y-o-y to $1,658
The uncertainty around tariffs seems to be impacting higher value freight like automotive industry finished vehicles and auto parts. Vice President of Marketing and Sales Kenny Rocker said, “Union Pacific Premium revenue for the quarter was up 5% on a 13% increase in volume and a 7% decrease in average revenue per car, reflecting the mix impact of increased intermodal shipments and lower fuel surcharges. Intermodal volumes remained strong based on International West Coast import demand. Additional positive domestic intermodal growth was further supported by business development efforts.”
Unfavourable freight mix
Volumes were up in lower value freight lines while volumes were down in higher value freight lines. CFO Jennifer Hamman said, “In addition to volume growth in our lower average revenue per car business lines, such as intermodal and coal, we had the additional dynamic of lower volumes in our higher arch businesses like petroleum, soda ash and finished vehicles,” adding, “Quarterly results were also challenged by reduced auto part shipments at a subsidiary and lower accessorial revenue.”
Rocker continued, “Starting with our Bulk segment, revenue for the quarter was up 1% compared to last year on a 2% increase in volume and a 1% decrease in average revenue per car as business mix and lower fuel surcharge revenue was more than offset by core pricing gains and volume. Coal saw strong customer demand due to favourable natural gas pricing. Grain products volume was up for the quarter, driven by increased demand for feedstocks. Lastly, food and beverage volume declined in the quarter, primarily driven by consumer preference. Turning to Industrial. Revenue was down 1% for the quarter on a 1% decrease in volume. Strong core pricing gains were offset by business mix, lower fuel surcharges and volume. Petroleum shipments decreased during the quarter due to business shifts, while soda ash was impacted by global demand.”
Uncertainty going forward
Union Pacific’s leadership is aware of uncertainties moving forward. The CEO said, “There are still a lot of unknowns related to volumes and the economy. But what I do know is that we are driving efficiency throughout our network and pricing for the strong value we provide our customers,” concluding, “The network is fluid, and we are meeting the demands of all our customers. We are in a good position, and we will be agile and responsive as we move forward.”
Author – Richard Shrubb
Source: Ti Insight
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