Railroads say economy still growing steadily
The economy appears to be going strong for the major freight railroads that haul the products and raw materials companies rely on, but the lingering trade disputes could derail business.
Union Pacific, Norfolk Southern and CSX railroads all sounded optimistic about the economy when they reported hauling 3 percent more carloads of freight in the fourth quarter.
“Our customers in discreet markets are in large part doing OK,” Union Pacific CEO Lance Fritz said Thursday. Shipments of steel, construction products, intermodal containers and a few other categories look particularly strong. “We think there is still opportunity for modest growth in the United States.”
Edward Jones analyst Dan Sherman said the railroads’ results won’t add much to fears that the economy is slowing down.
“There hasn’t been any indication at all that the economy is slowing even slightly,” Sherman said.
Union Pacific said its fourth-quarter net income jumped 29 percent to $1.55 billion, or $2.12 per share, and topped Wall Street expectations. The Omaha, Nebraska-based railroad benefited from strong demand and efforts effort to streamline its operations that began in October. It has already stored 1,200 locomotives as it works to haul freight more efficiently.
The ongoing trade disputes create some uncertainty about certain products, but Union Pacific still expects volume will continue growing at a low-single-digit rate.
Nearly all the major U.S. railroads are implementing some of the operating principles that have led to dramatic improvements in the profitability of rival CSX over the last two years.
CSX reported $843 million in net income, or $1.01 per share, last week and promised to continue working to reduce costs and find ways to deliver more freight with fewer locomotives.
The number of carloads railroads carry is considered an indicator of the health of the overall economy because of the variety of goods rails deliver.
Norfolk Southern’s fourth-quarter profit surged 44 percent higher to $702 million, or $2.57 per share. The results topped the $2.30 per share that analysts surveyed by Zacks Investment Research expected.
Norfolk Southern is also planning to reform its operations, but railroad officials didn’t discuss many details Thursday. Instead, investors will have to wait until next month to hear what changes the railroad plans.