NEW YORK (Reuters) - Union Pacific Corp’s (UNP.N) chief executive said the steep slump in coal shipments has likely bottomed out and overall peak-season shipping volumes this year should be a little higher than in 2011.
Economic activity in the United States is slow but seems to be holding in a steady pattern, Jack Koraleski, chief executive of Union Pacific, the largest publicly traded U.S. railroad, said in an interview at the New York Stock Exchange.
“Right now, there’s really not anything that we could put our finger on to tell you that the economy is getting softer,” he said. “We see a slow, continual growth pattern.”
Declining coal volumes, the result of an unusually mild winter and decade-low natural gas prices, have been a top concern for railroads including Union Pacific, Kansas City Southern (KSU.N), Norfolk Southern Corp (NSC.N) and CSX Corp CSX.N as coal represents a significant portion of their revenue.
Coal represents about one-fifth of Omaha, Nebraska-based Union Pacific’s business.
Union Pacific, which also hauls freight from autos and lumber to crude oil and food products, recorded second-quarter gains in most other segments that offset slumping demand for coal, Koraleski said.
A series of economic indicators - the latest being the first drop in U.S. manufacturing in nearly three years - is adding to the evidence of uneven global economic growth.
About 40 percent of the railroad company’s business begins or ends outside of the United States, the chief executive said.
“We haven’t seen a lot of impact from the European discussions and disruptions that have been going on,” he said.
Increases in other segments, led by autos and intermodal shipments, have offset the drop in coal at Union Pacific. And now coal volume is beginning to turn upward.
“Coal looks like it has hit the bottom and is starting to come back up,” Koraleski said.
“We’re certainly encouraged by the temperatures outside,” as hot weather and greater air-conditioning usage could lead utilities to burn off coal stockpiles.
Intermodal refers to the shipment of goods in containers that can be moved from one form of transportation to another, such as from ship to train.
Lumber shipments are also building, reinforcing some U.S. housing indicators pointing to a turnaround from a long and deep slump.
Union Pacific’s lumber carloads peaked at 226,000 in 2005 before sinking 65 percent to 79,000 in 2009 and then rising to 89,000 in 2011.
“We’re not ready yet to declare victory, but by the time we get to the end of the year we’ll probably still be somewhere in the neighborhood of 50 percent below our best year ever with lumber,” or 113,000 carloads, Koraleski said. “That’s better than it has been and headed in the right direction.”
Union Pacific is pulling equipment out of storage for the first time since 2008 to move the increased volume of lumber.
Analysts on average expect Union Pacific to report second-quarter earnings of $1.93, up from $1.59 a year earlier, according to Thomson Reuters I/B/E/S.
They see revenue rising to $5.2 billion from $4.86 billion.
Union Pacific’s peak shipping season, which starts August 1, is also seen registering steady growth this year.
“We’re not really expecting it to be gangbusters, but we’re expecting it to be a little better than last year,” said Koraleski.
Separately, Koraleski said the company awaits word on the results of a National Transportation Safety Board investigation into the June 24 head-on collision of two of Union Pacific’s freight trains in the Oklahoma panhandle that killed three crew members.
Koraleski rang the closing bell at the New York Stock Exchange as part of Union Pacific’s 150th anniversary.
The company’s shares, which closed on Monday down 0.6 percent at $118.56, are up 12 percent this year. The S&P 500 is up about 9 percent this year.
Reporting by Lynn Adler in New York, additional reporting by Scott Malone in Boston; Editing by Gerald E. McCormick and Steve Orlofsky