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Rails far exceed estimate
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October 21, 1999: 5:46 p.m. ET
Union Pacific back on track from earlier problems; CP 3Q profit sets record
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NEW YORK (CNNfn) - Two major rail stocks posted much better-than-expected earnings Thursday, as Union Pacific Corp. and Canadian Pacific Ltd.'s core rail operations easily overcame some problems in their other transportation divisions.
The third quarter may pose some challenges for the two major eastern U.S. railroads, CSX Corp. and Norfolk Southern Corp., which have had problems in consolidating former Conrail operations into their systems. But UP's own consolidation problems from its 1997 purchase of Southern Pacific appear to be behind it with the most recent report, and the company projects still stronger results ahead.
Union Pacific back on track
UP posted net income of $218 million in the quarter from continuing operations, or 86 cents a share diluted. Analysts surveyed by First Call had been expecting 82 cents. The company posted an additional $27 million in net income, or 10 cents a share, from an adjustment of liability from a former subsidiary, USPCI, a hazardous waste disposal company sold in 1994.
The third quarter results represent a 541 percent increase from the third quarter of 1998, when it had net income of $34 million, or 14 cents a share. Revenue at Union Pacific (UNP) was up 9 percent to $2.8 billion.
The company's core rail operations saw strong improvement in shipments of every product and a 10 percent gain in revenue to $2.5 billion, even though revenue per rail car rose a more modest 2 percent.
Customers still were finding other rail or truck alternatives to UP a year ago due to merger-related service problems. The return of business has led to a drastic improvement in the ratio of operating expenses to revenue, a key measure of a freight company's financial performance. It was 80.6 percent in the most recent quarter, compared to 91.6 percent a year ago.
"We're regaining our operating and financial momentum and returning to 'Union Pacific territory' with our third quarter results," said a statement from Dick Davidson, chairman and chief executive of the Omaha, Neb., corporation.
Strike threat not a big hit to trucking
At its trucking subsidiary, Overnite Transportation Co., net income dropped to $7.5 million from $9.1 million a year ago, due to $6 million in costs, pre-tax, to respond to a threatened and attempted strikes by the Teamsters union, which has been trying to organize employees at the company.
The union has been warning the company and its customers since August that it would soon wage a national strike but has yet to take to the picket lines. Revenue still rose 8 percent in the quarter to $277 million.
Without those strike-contingency costs, net income in the division would have risen 26 percent to $11.5 million from $9.1 million a year ago, and its operating ratio would have improved to 94.9 percent instead of rising to 97.1 percent, compared to 95.3 percent ratio a year ago.
For the first nine months of the year Union Pacific's net income from continuing operations was $541 million, or $2.17 a share diluted, compared to a loss of $182 million, or 74 cents a share, in the year ago period. Revenue increased 7 percent to $8.4 billion from $7.9 billion.
UP's stock closed up 3, or 6 percent, to 50-13/16 in trading Thursday.
CP posts record results
Canadian Pacific (CP) set a company record for third-quarter operating profit, with net income of $270 million Canadian, or $181.9 million U.S., in the quarter. That translates to 80 cents Canadian or about 54 cents U.S., and exceeds the 46 cents U.S. that analysts surveyed by First Call expected. It is also a 32 percent improvement from the C$205 million, or 61 cents Canadian, that the company posted a year ago. Revenue increased 17 percent to C$2.9 billion from C$2.5 billion a year ago.
The company's strongest gains were in its PanCanadian Petroleum subsidiary, where higher oil and natural gas prices meant net income rose 655 percent to C$83 million from C$11 million a year ago. Revenue there rose 54 percent to C$997.8 million.
The rail operations saw a 26 percent increase in net income to C$112 million from C$89 million a year ago. Its ratio of operating expenses to revenue improved to 76 percent from 78.5 percent, despite higher fuel prices and a greater proportion of high-expense non-bulk freight carried. Rail revenue was up 3.4 percent to C$874 million.
Its CP Ships division was hurt by continued weak rate environment in ocean shipping, and net income fell by a third to C$24 million in the quarter from C$36 million a year ago, despite a 4.5 percent growth in revenue to C$705.4 million. Net income from other operations, including coal, hotels and real estate, fell 26 percent to C$51 million from C$69 million, despite a 3.7 percent gain in revenue to C$454 million.
For the nine months of the year, the company had net income of C$586 million, or $1.74 a share, before a special charge for work force reduction. That is a gain of 9 percent from the C$538 million, or C$1.60 a share, it made a year ago. The C$501 million pre-tax charge reduced the current year-to-date results to C$284 million, or 83 Canadian cents a share. Revenue at the company is up 11 percent to C$8.1 billion from C$7.3 billion in the first three quarters.
CP's American depository receipts closed up 1-1/32, or 4.7 percent, at 23-3/16 in trading on U.S. markets.
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