Operating income declined 2%, to $2.2 billion, as revenue sank 7%, to $5.5 billion. Net income also fell 2%, to $1.5 billion. Earnings per share rose 3%, to $2.22, but missed Wall Street analyst expectations by 10 cents, according to I/B/E/S.
UP’s operating ratio improved 2.2 points to 59.5%, a company record.
“That’s quite an achievement when you consider the falloff in volume during the quarter,” CEO Lance Fritz told investors and analysts on the railroad’s earnings call.
Of UP’s four business segments, only industrial products showed volume growth. It was up 2% for the quarter thanks to strong demand for construction materials and plastics.
Energy was down 15%; premium, which includes intermodal and automotive traffic, was down 11%; and agriculture was down 2%. The railroad expects similar volume trends in the fourth quarter.
In the energy segment, frac sand volume was down 45% as oil and gas drillers turned to local sources of sand, and coal traffic was down 17% amid low natural gas prices, the retirement of coal-fired generating plants, and the loss of a contract to rival BNSF Railway.
But shipments of petroleum, liquefied petroleum gas, and renewables rose 18%. UP expects crude oil shipments to rise as Alberta eases production quotas and more Canadian crude is exported to U.S. refineries on the Gulf Coast.
UP’s domestic intermodal volume was off by 11% due to soft demand and loose trucking capacity. About 2% to 3% of UP’s intermodal volume decline this year is attributable to the elimination of service in low-density lanes, Fritz says.
International intermodal volume declined 12% due to the impact of tariffs and trade uncertainty. Finished vehicle traffic declined 4% amid declining auto production. UP was optimistic that the tentative agreement between General Motors and the United Auto Workers would help auto volume rebound somewhat in the fourth quarter.
Kenny Rocker, executive vice president of marketing and sales, says UP’s improving service ultimately will help it gain additional intermodal and merchandise volume. Trip plan compliance improved 10 points for the quarter, to 71%.
More substantial volume gains will have to wait for trucking capacity to tighten, trade headwinds to subside, and economic growth to accelerate, Fritz says.
UP scaled back its capital spending to $3.1 billion for the year, with represents a $100 million reduction in growth projects given current volume trends, Chief Financial Officer Rob Knight says.
The railroad maintained its guidance for a sub-61% operating ratio this year and a sub-60% operating ratio next year, however.
