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Union Pacific coal volumes climb to two-year high in Q3: company

Highlights

Coal volumes at 232,000 in Q3

'Coal continues to exceed expectations:' CFO

Union Pacific's third-quarter coal and renewable volumes rose 8.9% year on year to a two-year high on strong domestic coal demand, high natural gas prices, and an increase in coal exports, the railroad said Oct. 21.

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The Omaha, Nebraska-based company said in its Q3 earnings statement that coal and renewable carloads totaled 232,000 in Q3, up 17.2% from the prior quarter and up 8.9% from the year-ago quarter. It was the highest quarterly volume since 271,000 in Q3 2019.

CFO Jennifer Hamann said Oct. 21 on the earnings call that "coal continues to exceed expectations," while Kenyatta Rocker, executive vice president of marketing and sales, said the company's "efforts to switch customers to index-based contracts are supporting domestic coal demand, as a result of higher natural gas prices, coupled with increased coal exports."

Rocker added that moving its coal customers to index-based contracts "keeps them in the market" and "keeps them competitive."

"Especially when you have natural gas prices as high as they are, it puts them in the money, and we have a really strong service product that supports it," Rocker said. "We feel good about where that is in [Q4], probably feel good about where it is in[Q1]."

Generated revenues from the coal and renewables segment also climbed to a two-year high of $531 million in Q3, up from $423 million in Q2 and $387 million in the year-ago quarter.

The average revenue per unit for coal and renewables rose to $2,298/car in Q3, up from $2,134/car in Q2 and $1,820/car in the year-ago quarter.

The railroad no longer reports stand-alone volume and revenue metrics for its coal segment.

The NYMEX prompt-month natural gas futures contract averaged $4.316/MMBtu in Q3, up from $2.977/MMBtu in Q2 and $2.124/MMBtu in the year-ago quarter. It was the highest quarterly average since $4.579/MMBtu in Q2 2014.

Coal to remain strong for the remainder of the year

Through the first three quarters of the year, coal and renewable revenues are at $1.3 billion, up from $1.18 billion a year ago, while coal and renewable carloads are at 604,000, down from 607,000.

The average revenue per unit through the nine-month period is at $2,146/car, up from $1,938/car in the same period a year ago.

Rocker said the company expects "coal to remain strong for the remainder of the year based on our current natural gas futures, inventory replenishment, as well as export demand."

Net income in Q3 fell to $1.67 billion from Q2's $1.8 billion, but up from $1.36 billion in Q3 2020, while total operating revenues were at $5.57 billion, compared with $5.5 billion in Q2 and $4.92 billion a year ago.

Union Pacific reported an operating ratio — operating expenses divided by total revenue — of 56.3%, compared with 55.1% in Q2 and 58.7% in the year-ago quarter. Both net income and operating ratio were quarterly records for Q3.