OMAHA, Neb. — Union Pacific Corp. increased rates enough to record a 10 percent jump in second-quarter profit, but railroad officials offered a cautious outlook on the economy.
Railroad CEO Jack Koraleski said the economy appeared weaker in the second quarter than it did at the beginning of the year, so he's not sure how much growth to expect.
The railroad was using all of its lumber cars during the first quarter, but Koraleski said some cars had to be put back into storage in the second quarter as demand for construction materials slowed.
"We think that the economy will be OK and we won't have any major bumps in the road," Koraleski said. "We're still counting on slow and steady continuing. It's just a question of how slow and how steady."
Investors watch railroads for clues about the economy because the number of carloads they carry of construction equipment, crude oil, agricultural products and cars hints at the health of those industries.
The Omaha, Neb.-based railroad said Thursday that it generated $1.11 billion in net income, or $2.37 per share, in the quarter that ended June 30. That's up from $1 billion, or $2.10 per share, in the same months last year.
Revenue rose 5 percent, to $5.47 billion.
Analysts surveyed by FactSet predicted Union Pacific would report earnings of $2.35 per share on $5.5 billion in revenue.
The rate increases Union Pacific imposed in the quarter offset the 1 percent decline in the number of carloads the railroad hauled.
Union Pacific shares rose $1.68 to close at $161.36 Thursday.
Edward Jones analyst Logan Purk said Union Pacific's results looked good overall, but shipping volume was a little weaker than expected.
Purk still expects Union Pacific to do well in the long term as the economy continues improving, but company officials didn't offer much to excite investors in the short term.
"Their guidance was somewhat vague," Purk said.
Coal volumes were roughly even with last year's weak levels, suggesting that demand may have bottomed out. Over the past two years, many utilities have cut back on coal purchases because of relatively cheap natural gas prices and environmental concerns.
The railroad reported stronger revenue in every area except agricultural products and intermodal containers.
Union Pacific said the volume of intermodal containers imported off of ships fell 8 percent in the quarter as activity at West Coast ports slowed. The number of containers moved off of trucks to the railroad increased 3 percent.
Union Pacific said revenue improved 12 percent in its automotive, chemical and coal businesses, and industrial products revenue grew 7 percent.
Citi Research analyst Christian Wetherbee said he thinks Union Pacific is in good shape heading into the second half of the year because crude oil shipments are booming, coal demand will likely strengthen if the summer is hot and agricultural shipments will grow if farmers deliver a healthy crop.
Union Pacific operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts.