Union Pacific growth held back by weaker coal and oil traffic

The months-long disruption in US West Coast ports and falling traffic in coal and crude oil held back first-quarter profit growth at Union Pacific, operator of the US's biggest rail network.

The figures initially sent shares in the company, which operates in the two-thirds of the US west of the Mississippi, down 3 per cent in New York, although by mid-morning they had recovered to be 0.8 per cent down at $109.81.

Lance Fritz, chief executive, said that 9 per cent growth in earnings per share to $1.30 had been offset by a "sharp drop in volume".

Overall traffic declined 2 per cent. Coal, which suffered from mild winter weather in the western US, low natural gas prices and weak export demand, was down 7 per cent by volume and 5 per cent in revenue.

Intermodal - shipping containers and truck trailers - fell 3 per cent by volume and 5 per cent by revenue. Domestic movements within the US grew 9 per cent but international volumes heading to and from ports fell 12 per cent because of severe disruption at ports hit by a labour dispute.

Chemicals traffic was down 1 per cent by volume but the figure concealed a 38 per cent decline in movements of crude oil after sharp oil price declines made expensively produced US crude oil less attractive.

"While we took actions during the quarter to adjust for the volume decline, we did not run an efficient operation," Mr Fritz said.

The company's operating ratio, the proportion of revenue eaten up by expenses, shrank from 67.1 per cent in last year's first quarter to 64.8 per cent. But the company attributed the improvement mainly to above-inflation price increases and the beneficial effects of a 38 per cent decline in the company's average fuel price. The network had still suffered from "operational inefficiencies" as declining volumes left assets such as locomotives underused.

UP is the second big US railway to announce disappointing figures for the first quarter. On April 13, Norfolk Southern, one of two big railways in the eastern US, warned that its first-quarter earnings per share - due to be announced next week - would be 15 per cent down on the same period last year. Norfolk Southern depends heavily on moving coal from the Appalachian coalfields.

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However, the railways are heavily dependent on coal and intermodal traffic and had been growing fast in crude oil. Many of the railroads - particularly Burlington Northern Santa Fe, the second-biggest, owned by Warren Buffett's Berkshire Hathaway - have had to invest heavily to relieve congestion.

UP's net income rose 6 per cent to $1.15bn, on revenue down 0.4 per cent to $5.61bn.

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