Union Pacific profit beats estimates, 'optimistic' about 2017

No. 1 U.S. railroad Union Pacific Corp (UNP.N) on Thursday reported a better-than-expected quarterly net profit and said 2017 looked like a better year for the railroad's business following two tough years of slumping coal freight volumes, sending its stock up nearly 5 percent.

The Omaha, Nebraska-based railroad said it expects "low single digit" growth in freight volumes in 2017 and productivity gains of between $350 million and $400 million.

"Looking to 2017, we are fairly optimistic about some of the macro-economic indicators that drive our core business," Chief Executive Lance Fritz said in a statement.

"Higher energy prices, favorable agricultural markets and improving business and consumer confidence all support a return to positive volume growth this year."

Union Pacific reported a higher fourth-quarter profit as improved efficiency offset a slight drop in revenue.

Like other major U.S. railroads, Union Pacific has battled a precipitous decline in coal freight volumes since early 2015 as utilities switched to burning cheaper natural gas and coal exports were hurt by a strong U.S. dollar.

In the fourth quarter, the railroad's coal volumes still declined 6 percent, but that was moderate compared with a full-year 2016 plunge of 25 percent.

During a conference call with analysts, executives said they expected coal volumes to stabilize in 2017.

Overall, freight volumes were down 3 percent in the quarter, an improvement over the 7 percent decline the railroad reported for the full year.

Union Pacific said it plans capital expenditure of around $3.1 billion, down from $3.5 billion in 2016.

The company reported fourth-quarter net income of $1.14 billion, or $1.39 per share, compared with $1.12 billion, or $1.31 a share, a year earlier.

Analysts had expected earnings per share of $1.33.

The railroad reported an improved operating ratio - or operating expenses as a percentage of revenue, a key metric of railroad profitability - of 62 percent, 120 basis points better than in the fourth quarter of 2015.

In early trading, Union Pacific shares were up 4.9 percent at $108.68.