By Abhijith Ganapavaram
(Reuters) -Union Pacific Corp on Thursday raised its forecast for annual volume growth after reporting better-than-expected quarterly results, as the top U.S. railroad operator benefits from a sustained recovery in industrial activity.
U.S. railroad companies have seen an improvement in demand as economic activity picks up in North America following a relaxation in lockdowns, with CSX Corp (NASDAQ:CSX) and Kansas City Southern (NYSE:KSU) also reporting higher revenue.
"We continue to be encouraged by the strength and the industrial production forecast for the rest of 2021" Executive Vice President Kenny Rocker said in a conference call with analysts.
Industrial shipments contributed to more than a third of Union Pacific (NYSE:UNP)'s freight revenue in the second quarter ended June 30.
The company also increased its share repurchase target by $1 billion to about $7 billion, sending its shares 2.2% higher.
Its quarterly profit jumped 59% to $1.798 billion, or $2.72 per share versus analysts' average profit estimates of $2.52, according to Refinitiv I/B/E/S data.
Union Pacific raised its volume growth forecast to 7% from about 6% earlier, on hopes that the recovery in industrial production will continue and high demand for lumber and refrigerated products will sustain. Its second-quarter volumes jumped 22%.
Revenue rose 29.7% to $5.504 billion from $4.24 billion a year ago, beating expectations of $5.34 billion, while operating ratio — a key profitability metric — improved to 55.1% from 61%.
The company also warned about congestion at U.S. ports, saying that the congestion at West Coast ports has spread to the East, impacting some of its inland terminals, including Chicago. Union Pacific mainly operates west of the Mississippi river.