Tags: Union Pacific | UNP | rail | railroads | transports | stocks

Union Pacific: The Big Engine that Could

By    |   Wednesday, 13 Jul 2011 04:08 PM

No matter how much the economy's landscape changes, and no matter how much technology improves our lives, people are still going to need stuff. They'll need clothes, food, and appliances, and trains will always be needed to haul that stuff to consumers. Railroad Union Pacific (UNP) is happy to fill that role.

Business is good thanks to a recovering economy. The company reported 2011 first quarter net income of $639 million, or $1.29 per diluted share, up from $516 million, or $1.01 per diluted share, a year earlier. Operating revenues totaled $4.5 billion, up 13 percent from the same period in 2010.

"We've started off strong in 2011 by achieving record results in the first quarter," says Chairman and CEO Jim Young.

"We saw volume growth in all commodities and effectively leveraged that growth by running a safe and efficient network despite spiking fuel prices and winter weather challenges across most of the nation's rail network."

Looking ahead, the company expects business to chug along. "The economy is showing signs of continued, gradual improvement, and we're optimistic about the growth opportunities ahead," said Young.

Many analysts like the company but aren't about to break out their pom-poms. Zacks Investment Research, for example, says first quarter revenue beat expectations although earnings per share did not.

"As the economy continues to grow gradually, demand for carriage also becomes robust and we believe this momentum will sustain in the long run," Zacks says.

"Nevertheless, sequential increases in operating ratio and slowing growth rate of business volume are the two near-term concerns. Meanwhile, the stock price has soared 53 percent in the last year."

Positive outlook

Railroads in general will see slowing margin growth in 2011, but the outlook for the industry remains positive, the ratings agency Moody's says in a recent report.

Economic recovery will help railroad companies, although higher fuel and other costs will offset the benefits.

"Our volume and pricing growth expectations remain intact, and we think the industry will continue to increase revenues at a rate higher than U.S. GDP growth. Nevertheless, increased headcount, railcar additions, fuel-price volatility and government safety mandates will all weigh on margin growth in the year ahead. The climate for railroads remains strong, but the rapid-growth phase of the recovery appears to be ending,” Moody’s analysts write.

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No matter how much the economy's landscape changes, and no matter how much technology improves our lives, people are still going to need stuff. They'll need clothes, food, and appliances, and trains will always be needed to haul that stuff to consumers. Railroad Union...
Union Pacific,UNP,rail,railroads,transports,stocks
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2011-08-13
Wednesday, 13 Jul 2011 04:08 PM
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