Thursday, October 22, 2009

Union Pacific Not So Bullish

I always keep track of the railroad earnings as I still think they are a pretty good primer for the rest of the economy. I know there are others, but this is just one that I follow. So, Union Pacific reported this morning. More of the same...Revenues still down double digits, profits helped by cost cutting (release). I've highlighted a couple key areas.

Union Pacific Corp. said Thursday its third-quarter profit fell 26 percent
as shipping demand remained weak and the overall economy stabilized.

The nation's largest railroad couldn't offset lower shipping volumes,
though it benefited from significantly lower fuel costs, improved productivity
and other cost-cutting measures. Union Pacific operates 32,400 miles of track in
23 states from the Midwest to the West and Gulf coasts.

The Omaha company said Thursday it earned $517 million, or $1.02 per share,
down from $703 million, or $1.38 per share, last year. Analysts surveyed by
Thomson Reuters, on average, expected a profit of $1 per share.

Revenue fell 24 percent, to $3.67 billion.

"Business volumes seem to have stabilized, but at very low
for Union Pacific," said Jim Young, the company's chairman and

Union Pacific's fuel costs plummeted 59 percent, to $466
million, as the average price per gallon of diesel dropped to $1.87 from last
year's $3.70 and the railroad burned 19 percent less fuel.

Union Pacific's compensation costs and headcount fell 11

Union Pacific said it still had 4,100 employees furloughed, and it has
50,000 railcars and 1,700 locomotives stored. All those figures are down
slightly from July, suggesting that Union Pacific has started preparing for
higher shipping volumes, but Young said the economy hasn't shown much sign of

"In 2010, we don't expect a quick rebound and have positioned
ourselves for a slow recovery
," he said.

Union Pacific said its freight revenue again fell across all six of its
main business segments, and the number of carloads it carried fell 15

The biggest drop in freight revenue came in the industrial-products sector,
which fell 39 percent, to $557 million. Automotive revenue fell 30 percent, to
$227 million, even as the government's Cash for Clunkers program increased
vehicle sales.

Agricultural-shipping revenue fell 23 percent, intermodal revenue fell 22
percent, energy revenue fell 21 percent and chemicals revenue fell 16

Fuel costs obviously helped and play a big role for them. They do however, see some increase in volume when fuel prices spike as they are sometimes an alternative to shipping via other method. Still though, this is a "reality indicator" that can't be overlooked. While the market roars to new highs, look at the numbers of industrial goods and raw materials. They are showing no sign of recovery.

I'm still quite concerned about employment numbers and what they mean for the economy looking out a few quarters. We're still riding the oversold bounce and I'm not saying it won't continue. Fund managers are chasing performance as they will find themselves out of a job if they don't catch this rally after last year's situation. So while the dips will be bought, the question is when will the realities of the broad economy balance out with the market. There's your million dollar question. I wish I knew the answer.

Disclosure: None

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