Union Pacific reports $1.7B Q1 profit, presses case for $85B Norfolk Southern deal

Union Pacific said Thursday its first-quarter earnings rose 5% as it worked to convince regulators to approve its planned $85 billion acquisition of Norfolk Southern, a deal that would reduce the number of major freight railroads to five.

The Omaha, Nebraska-based railroad said it earned $1.7 billion, or $2.87 per share, in the quarter. It said merger-related costs weighed down the results by 6 cents per share, while still topping last year’s $1.63 billion, or $2.70 per share. Union Pacific also said it beat analyst expectations surveyed by FactSet Research for $2.86 per share.

Union Pacific chief executive Jim Vena said the company continued to get more efficient during the quarter. He linked those operating gains to higher rates, even as Union Pacific prepared its regulatory case for the merger. Vena said he is “even more convinced now” that creating what he called the nation’s first transcontinental railroad would be good for customers and the country, because the combined railroad would deliver goods more quickly at lower cost.

Vena told reporters, “Service is going to be better. We provide more opportunity. We take trucks off of the highway and our employees are guaranteed jobs,” adding, “I think we’re more convicted now that this is good for country and good for Union Pacific. And financially, it is good for our shareholders.” He also tied the company’s efficiency and rates to what he said is a benefit to shippers and employees as it seeks regulatory approval.

Union Pacific said revenue grew 3% to $6.22 billion despite hauling about 1% fewer shipments. The company attributed the increase to continued rate growth and to fuel surcharge fees, while also reporting that expenses rose 3% to $3.76 billion.

The railroad affirmed its outlook for midsingle-digit growth in earnings per share for the year, consistent with its long-term plan. It said it plans to invest $3.3 billion in its operation.

On the regulatory front, Union Pacific said it plans to resubmit its application next week. The U.S. Surface Transportation Board rejected the railroad’s first request to approve the merger after regulators said they wanted more information, and the STB has not yet decided whether the deal would enhance competition.

Union Pacific’s merger effort has divided labor and shippers, the company said. Union Pacific is already one of the largest railroads serving the western United States, and the deal would expand its footprint eastward by combining with Norfolk Southern.

The planned merger has support from the nation’s largest rail union and from several smaller unions that backed it after Union Pacific promised workers would have jobs for life. At the same time, two of the other largest unions representing engineers and track maintenance workers oppose the transaction, and some shipper trade groups representing chemical makers and agricultural businesses have expressed concerns even as hundreds of other businesses lined up behind the deal.

The cluster did not specify those opposing unions or the particular shipper organizations, but it said President Donald Trump has also weighed in, saying the deal sounds good to him. Union Pacific has argued that a coast-to-coast railroad would help the economy by reducing handoffs between railroads in the middle of the country and moving shipments faster to compete more directly with trucking.