Omaha, NE — Union Pacific’s first-quarter profit improved 6%, but the railroad expects shipping volume to plummet 25% in the second quarter because of the ongoing coronavirus outbreak.
The railroad said Thursday it earned $1.47 billion, or $2.15 per share, in the first quarter. That’s up from $1.39 billion, or $1.93 per share, a year ago.
The results topped Wall Street expectations. The seven analysts surveyed by Zacks Investment Research expected earnings of $1.86 per share, on average.
The railroad’s revenue declined 3% to $5.23 billion. Four analysts surveyed by Zacks expected $5.11 billion.
Union Pacific said the number of carloads of freight it delivered in the first quarter fell 7%, but the volume has declined sharply since then as automakers closed their plants and other manufacturers slowed production because of the virus outbreak.
“The depth of the decline in volume and the speed of it is unprecedented,” UP CEO Lance Fritz said.
The railroad cut its expenses 10% to $3.1 billion in the quarter in response to the decline in volume, but it withdrew its outlook for the full year because the economy is hard to predict. As part of the cost reductions, Union Pacific cut 15% of its workers during the quarter, and it will require its non-union employees to take one unpaid week off in each of the next four months.
“I’ve not run across anybody who feels they’ve got a good grip on what will occur,” Fritz said.
For instance, the economy could eventually recover quickly if consumers regain confidence, but the pace will likely be much slower if consumers remain uneasy about the virus. Fritz said it’s hard to tell which scenario is more likely at this stage.
In addition to the economic uncertainty, coal shipments dropped 19% in the first quarter because utility demand remained weak with natural gas prices remaining low.
Edward Jones analyst Jeff Windau said Union Pacific is responding well to the tough environment so far, and it is in good position to endure the downturn with roughly $2 billion cash on hand.
The Omaha, Nebraska-based company operates 32,400 miles of track in 23 Western states.