The CEO of Union Pacific (UNP) says the railroad business is feeling the heat from U.S. trade tensions.
“There [are] some unique impacts that are happening to the railroad that aren't reflective of the U.S. or global economy,” Lance Fritz, CEO of Union Pacific, the largest publicly-owned U.S. railroad tells Yahoo Finance.
“We definitely see a trade impact on our grain exports.” says Fritz. “So we need to get that right.”
Despite trade headwinds and the lasting effects of extreme weather in the Midwest in the first half of 2019, Union Pacific reported better than expected earnings before the bell Thursday. Shares of Union Pacific soared, and the railroad sector overall came along for the ride. CSX (CSX), Norfolk Southern (NSC) and Kansas City Southern (KSU) also got a lift on Union Pacific’s news.
But investors have been jittery about the freight rail sector overall. Union Pacific’s east-of-the-Mississippi River competitor, CSX, reported disappointing earnings on Tuesday, and a report out from the Association of American Railroads show U.S. rail traffic down around 3% from a year ago. The Cass Shipping Index, which measures North American freight moved by both trains and trucks, has also dropped seven straight months.
Fritz pointed to declines in the energy part of Union Pacific’s business, particularly coal which he calls “flat to long-term declining.”
“Our franchise is unique. We think it's the best in the industry. And it gives us exposure to a lot of markets that have lots of growth potential,” he says. “Right now we're growing strongly in plastics. Industrial chemicals is good. Our construction products in Texas are growing well. Our exposure to Mexico, typically, is a growth engine.”
Fritz says exposure to a variety of markets in the U.S. gives the company “optimism for the long, long run that our business model is sound, that we're in good shape.”
Union Pacific connects 23 states in the western two-thirds of the U.S. by rail. The company’s rails link in the global supply chain connecting the Canadian rail lines with the Gulf of Mexico. Union Pacific’s railroad currently covers nearly 32,000 miles.
Joanna Campione is a producer at Yahoo Finance