Union Pacific Q4 coal volumes drop 25% on low natural gas prices, driving decline in quarterly shipments

Houston — Union Pacific coal volumes dropped 25% in the fourth quarter year on year, driving the decline in total railroad shipments, executives said during the earnings call Thursday.

"If I could just invent the year that I would love to have in 2020 and have a stronger upside, it would be a great mix," Lance Fritz, president and CEO, said. "If I could magically make it happen, I'd like to see frac sand come back stronger. I'd like to see natural gas to go to $3.50/MMBtu or $4/MMBtu and take some of the pressure off coal.

"What we've expect out of coal this year is it's starting out pretty challenging," Fritz added. "If natural gas stays at the $2/MMBtu, $2.25/MMBtu level, it's going to be a tough year."

Energy freight revenues declined the most year on year, with fourth quarter revenues totaling $838 million in Q4, down 25%. Full-year energy revenues dropped 18% to $3.8 billion.

Total UP volumes fell 20% from 2018 Q4, largely driven by the drop in the energy segment.

Coal and coke volumes were down 25% from the year-ago period "due to weaker market conditions resulting from lower natural gas prices and soft export demand," Kenny Rocker, VP of marketing and sales, said.

Revenue per carload in the energy segment was $2,573 in Q4, compared with $2,748 in Q4 2018. Full year revenue per carload was $1,408, down from $1,650.

"For 2020, in our bulk segment, we expect coal to experience continued challenges with volume in the new year, and weather conditions will always be a factor for coal demand," Rocker said.

Rocker also noted exports, which make up 10% of total coal volumes, were impacted over the year.

"We'll wait to see what happens with both the weather and natural gas," she continued. "Natural gas plays a much larger role in how our customers are going to decide on what they want to do with coal."

Fourth-quarter net income was $1.4 billion, down 10% from the year-ago quarter.

Year on year, operating revenue dropped 9% to $5.2 billion in Q4.

Full-year net income was $5.9 billion, down 1% from 2018, while revenues were $21.7 billion, down 5%.

Freight revenue over 2019 was $20.2 billion, down 5% from the year-ago period, and carloadings dropped 6%, with a growth in industrial shipments more than offset by a drop in agricultural, premium and energy shipments.