U.P. Optimistic About Earnings

By Joe Ruff, Omaha World-Herald, Neb.

Feb. 15–A slowing economy won’t prevent Union Pacific Corp. from improving earnings this year through better pricing and improved efficiency, the company’s chief financial officer said Thursday.

Rob Knight, speaking at a BB&T Capital Markets conference in Miami, said automobiles and industrial products will be challenging segments this year, chemicals and intermodal should be about neutral, and growth is expected in energy and agriculture. That segment is fueled by demand for coal, ethanol, corn and wheat, Knight said.

A slumping housing market has cut into shipments of lumber and other building materials, but demand for stone for highway construction and for steel and other oil-drilling supplies should help offset the downturn, Knight said.

Fertilizer demand is strong internationally, as countries such as China and India improve their diets and domestically as farmers plant corn for the ethanol market, Knight said.

Union Pacific’s auto shipping business has performed well despite a slowdown in that industry, he said. The Omaha-based railroad serves five of the top 10 states in auto sales, and it has increased its business in shipping automobile parts, Knight said.

Knight stayed with earlier company forecasts that earnings per share would grow 6 percent to 21 percent in the first quarter, to $1.50 to $1.70 a share, and for the year 12 percent to 19 percent to $7.75 to $8.25 per share.

Volume will be about even with last year, give or take about 1 percent, and fuel prices will remain high, Knight said. But productivity, measured in part by an ability to eliminate some jobs even while hiring to fill others, will continue to improve, he said.

Last year, U.P. had a 16 percent increase in profits to $1.85 billion, or $6.91 a share, on a 5 percent increase in revenue to $16.28 billion.

“The combination of better pricing and improved efficiency is driving higher returns,” Knight said.

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