By Abhijith Ganapavaram
(Reuters) -U.S. railroad operator Union Pacific Corp on Thursday cut its forecast for full-year volume growth, as worsening supply chain disruptions are expected to hit shipments across a sector considered critical in connecting most consumer and industrial businesses.
Supply problems have hit many company results in the third quarter and it was no different with North American Class I railroads, with three of them registering flat or a decline in volumes shipped.
Union Pacific’s intermodal and automotive shipments, which made up for nearly a third of quarterly freight revenue, were particularly hit with combined volumes falling 9%.
The fall in shipments forced the Nebraska-based company, which operates in 23 states and connects East Coast ports to key terminals like Chicago, to cut its 2021 volume growth outlook to 5% versus a 7% growth it had forecast earlier.
“Its not necessarily a slam dunk that the new guidance range will be hit as well” as fourth-quarter rail volumes have been “somewhat disappointing” so far, Evercore ISI analyst Jonathan Chappell said.
Union Pacific’s Chief Executive Officer Lance Fritz, however, was optimistic about next year’s overall volumes, projecting its growth “ahead of industrial production”.
“What we don’t know is when the automotive industry starts getting back to normal… and what’s going to happen with the intermodal supply chain,” Fritz told Reuters in an interview.
The company’s third-quarter business volumes were flat at 2.04 million. Operating ratio, a key profitability metric, improved to 56.3% from 58.7%.
Union Pacific’s net income rose nearly a quarter to beat expectations, as it took advantage of U.S. industrial demand to ship more chemicals, metals, minerals, paper and plastics at higher prices.
Operating revenue rose 13% to $5.57 billion for the quarter ended Sept. 30, beating average analysts’ estimate of $5.41 billion, according to Refinitiv I/B/E/S.
Shares of the company were up nearly 1% in afternoon trade.
(Reporting by Abhijith Ganapavaram in Bengaluru; Editing by Shailesh Kuber)