Metals Hammer Union Pacific’s 1Q16 Industrial Shipments

Union Pacific's 1Q16 Earnings Show Mountains and Valleys Ahead

(Continued from Prior Part)

Union Pacific’s Industrial segment in 1Q16

Union Pacific’s (UNP) Industrial Product and Coal segments are largely responsible for the company’s revenue debacle in 1Q16. Industrial revenues fell to $834 million in the quarter, representing an 18% YoY (year-over-year) decline in 1Q16.

Industrial segmental volumes declined by 10% YoY in 1Q16. Mineral volumes dropped by 38% YoY, but this was mainly due to less drilling activity and the market’s shift toward the local ground sand.

Metal shipments also declined by 13% as a result of the strong US dollar, soft commodity pricing, reduced drilling, and higher imports. But there was good news on the construction front, with demand for construction products such as rock and cement strengthening by 5% in 1Q16. This was primarily due to favorable weather conditions, and the rise in dirt shipments saw waste volumes shoot up by 14% in 1Q16.

Management outlook

UNP anticipates weak mineral volumes for the rest of 2016. This is mainly due to weak drilling demand. However, UNP expects higher volumes of lumber and construction material, especially in rock. It further projects the robust US dollar to impact its metals market negatively.

Peer industrial freight prospects

Industrial products are vital to UNP’s peers as well. CSX Corporation (CSX) and Norfolk Southern (NSC) will likely be affected by manufacturing activity in the US over the next four quarters. Kansas City Southern (KSU) might get hit twice because it has operations in both the US and Mexico. Canadian National Railway’s (CNI) and Canadian Pacific’s (CP) industrial freight revenues depend on upon manufacturing activity in the US and Canada.

Investors interested in exposure to the transportation and logistics sector might check out the iShares US Industrials ETF (IYJ), which holds 4.8% in major US railroads.

In the next part, we’ll focus on Union Pacific’s Coal segment in 1Q16.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Union Pacific Surpasses Wall Street Earnings Estimate for 1Q16

• Part 2 - How the Widening of Panama Canal Could Affect Union Pacific

• Part 3 - Why Did Union Pacific’s Agricultural Shipment Revenues Slide in 1Q16?