UP Expects 6-8 Percent Annual Revenue Growth

Union Pacific Railroad expects growing volume, higher rates and new pricing on expiring contracts with shippers to push annual revenue up 6 to 8 percent per year over the next five years, Chief Financial Officer Robert Knight told investment analysts.

The western railroad will achieve pricing gains above the rate of inflation and strong margins by re-pricing legacy contracts where possible, improving its operating ratio to between 65 and 67 percent, leveraging technology and increasing productivity, Knight said at the railroad’s annual meeting with analysts.

UP has $2 billion worth of business in contracts negotiated as far back as the 1990s. About 4 percent of that legacy business will be re-priced in 2011 when the contracts come up for renewal.

Because it has consistently improved service in recent years, UP believes it will be able to price its services “aggressively” while still holding on to most of the business, Knight said.

UP also will improve its margins through better operating ratios and enhanced productivity. UP reduced its operating expenses as a percentage of revenue to 76.1 percent in 2009 from 86.9 percent in 2005. Its goal is to achieve an operating ratio of 65 to 67 percent by 2015.

UP is improving productivity by carrying more revenue units per train, increasing train velocity, improving cargo handling at its terminals and similar measures.

The railroad also intends to maintain its capital investments to accommodate growth in freight volumes. It will stick with its historical ratio of spending 17 to 18 percent of revenue for capital improvements.

In 2011 UP plans to invest $3 billion to expand its infrastructure, purchase new equipment including about 100 locomotives, leverage technology and invest in technology enhancements such as positive train control.

UP, like other railroads, reduced its workforce during the 2009 recession, but continues to bring back workers as freight volumes increase. UP will add to its workforce as volumes grow, but it will not be a one-for-one increase, Knight said.
(Source:www.joc.com)