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July 19, 2018 5:45 PM, EDT

Union Pacific 2Q Earnings Are Up, but Facing Efficiency Challenges

Union Pacific train at CenterPoint Intermodal Center in Elwood, Ill. CenterPoint Properties

Union Pacific Corp. on July 19 reported second-quarter net income of $1.51 billion, a 29% increase over $1.17 billion in the year-ago period.

Diluted earnings per share was $1.98, up 36% from $1.45 in the second quarter of 2017. Analysts’ estimates called for $1.94 a share.

The railroad’s revenue grew 8% to $5.67 billion, compared with $5.3 billion in 2017. That exceeded the $5.6 billion analysts expected.

Lance Fritz

Fritz

While earnings were better than anticipated, CEO Lance Fritz said there still is room for improvement. He pointed to a shortage of train crews, relay delays at switching yards and a collapsed tunnel in Oregon, which forced the railroad to reroute traffic through Utah.

“Overall, I am pleased with the effort put forth by the entire Union Pacific team,” Fritz said. “However, I recognize the results could have been better.”

Union Pacific’s operating ratio, an industry benchmark of efficiency, worsened to 63% in the first quarter of 2018, compared with 61.9% in 2017. A railroad’s operating ratio is calculated by dividing operating expenses by total revenue, with lower numbers indicating greater efficiency.

Union Pacific’s expenses increased to $3.6 billion. Fuel costs, which jumped 48% to $643 million, accounted for much of the increase.