- Rail shipments in the United States have fallen drastically this year, down more than 4% in the third quarter.
- Union Pacific saw volume fall 8%, causing its quarterly earnings to fall short of Wall Street expectations.
- That sluggishness was thanks to a lagging economy, executives said. The railroad also plans to cut some 200 jobs in Kansas City.
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A sluggish economy and falling shipment volumes ate into Union Pacific’s third quarter earnings
President Donald Trump’s trade war has wreaked havoc on railroads for months, and the latest victims are 200 employees of the US’ largest railroad.
In the same week as it disclosed an 8% drop in volumes thanks to a lagging economy – which in turn caused third-quarter earnings to fall short of Wall Street estimates – Union Pacific confirmed the job cuts as it combines switching operations at two yards in Kansas City, Missouri.
“The economy is what the economy is,” Robert Knight, the railroads chief financial officer, said on a conference call with investors an analysts on Thursday. “We deal with the hand that we’re dealt and we don’t use that as an excuse.”
And that hand hasn’t been a good one, by any means.
Rail traffic across the board fell by 4.2% in the second quarter, according to data from the American Association of Railroads, continuing a year of decline as cheap trucking rates invite more shippers to highways rather than rails. CSX, Union Pacific’s major competitor on the east coast, saw volume decline 5% in the quarter, it also told investors this week.
“UNP’s results continue to be a victim of the uncertain macroeconomic environment and cheap trucking rates, among other competitive pressures,” Jason Seidl, an analyst at Cowen, said in a note to clients. The firm lowered its estimates for Union Pacific following its disappointing results.
Shares of UNP, while down immediately following the earnings release, rose 0.75% in trading Thursday.
“If we can get a little cooperation from the economy, that would be very helpful,” Knight said on the earnings call.
As for the 200 jobs in Kansas City that are disappearing, Union Pacific said the changes “changes will improve operating efficiencies, helping us provide customers with safe and reliable rail service.”
Looking forward, executives appear to have some hope that economic growth can rebound, despite hitting its lowest global level since the great recession.
“As the economy strengthens, which it will at some point and as truck capacity tightens up, which it will at some point, we’re in a great place to take advantage of that,” Lance Fritz, Union Pacific’s chief executive, said.
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