(Recasts first sentence with expected impact of U.S. trade policies, adds executive comments, share price)
Oct 25 (Reuters) – Union Pacific Corp reported a bigger-than-expected jump in quarterly profit on Thursday and said it was redoubling efforts to run its trains more effectively amid looming risks from new U.S. trade policies and economic softening in Europe.
Shares of Union Pacific, which connects 23 states in the western two-thirds of the United States by rail, were up 2.1 percent at $143.33.
A strong economy, robust freight demand and a tight trucking market in the United States have buoyed the railroad sector, which reaped outsized benefits from President Donald Trump’s 2017 tax cuts.
Union Pacific executives said the current quarter was off to a good start, but signaled caution ahead.
“I don’t think it’s all rosy on the horizon,” Chief Executive Lance Fritz told analysts on a conference call.
“Chinese tariffs pose a risk and they can disrupt trade flow. We see international economies, particularly Europe, looking like they are slowing down a little bit,” Fritz added, echoing comments from UPS Corp on Wednesday.
The United States and China have been in a trade skirmish since Trump slapped duties on a variety of Chinese goods. China struck back, hitting U.S. agriculture products particularly hard.
“While volume growth is still strong, we are not seeing the normal seasonal ramp-up in our exports grain business due to tariffs and foreign competition,” Chief Financial Officer Robert Knight said.
Union Pacific’s third-quarter net income jumped 33 percent to $1.59 billion, or $2.15 per share – 5 cents better than analysts expected – according to Refinitiv data.
Revenue rose 9.6 percent to $5.93 billion in the latest quarter.
Its operating ratio, a closely watched measure of operating expenses as a percentage of revenue, was flat at 61.7 percent.
Union Pacific aims to reduce operating ratio to at least 60 percent by the end of 2020. A lower operating ratio means more efficiency and higher profitability.
On Oct. 1 it rolled out a “Precision Scheduled Railroading” plan to improve efficiency and ease network congestion. On Tuesday it announced job cuts, business consolidations and plans to sell a corporate retreat.
Those efforts mirror a strategy that helped rival CSX Corp reduce its operating ratio to 58.7 percent in the latest quarter.
Union Pacific and Berkshire Hathaway Inc’s BNSF are the largest U.S. freight rail operators, with annual revenues of more than $20 billion each.
(Reporting by Sanjana Shivdas in Bengaluru and Lisa Baertlein in Los Angeles Editing by Maju Samuel and Matthew Lewis)