By Claudia Assis, MarketWatch
Railroad stocks rose on Thursday after an earnings beat for Union Pacific Corp. helped allay recent concerns about the sector.
The S&P 500 Road & Rail industry index /zigman2/quotes/210600522/delayed XX:SP500.20304010 -0.82% gained 2%, its largest increase since June 4, when it rose 2.7%, and the Dow Jones Transportation Average /zigman2/quotes/210598063/realtime DJT +0.12% rose 72 points, or 0.7%. That bucked the selloff in the broader stock market, as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.95% shed 105 points, or 0.4%.
Shares of Union Pacific /zigman2/quotes/209717171/composite UNP -1.33% rose more than 5% after the railroad company reported second-quarter profit that beat expectations and revenue came in just a bit shy of the mark. The stock was on pace for its largest percent increase since Jan. 8 and it was the second best performer on the S&P 500 index. /zigman2/quotes/210599714/realtime SPX -0.39%
Among other more-active railroad stocks, Norfolk Southern Corp.’s /zigman2/quotes/200877725/composite NSC -0.98% rallied 2.0% and Kansas City Southern /zigman2/quotes/200211518/composite KSU +7.26% tacked on 0.5%.
Earlier this week, competitor CSX Corp. /zigman2/quotes/208536759/composite CSX -1.59% worried markets by reporting disappointing second-quarter earnings and casting doubt on the global economy. CSX shares lost 12% in two days, their biggest two-day drop since November 2008.
Union Pacific early Thursday reported earnings of $2.22 a share on sales of $5.6 billion. Analysts polled by FactSet had expected profit of $2.15 a share on $5.64 billion. Union Pacific pinned the revenue slip on its energy revenue falling more than expected. Its total freight revenue fell 2%, as lower volumes offset pricing gains.
Despite Thursday’s gains, Eric Ross at Cascend Securities said in a note he was downgrading the U.S. railroad sector to hold after more than three years of rating it a buy.
Intermodal traffic and carloads excluding intermodal are down since February and it doesn’t look like a mere pause, Ross said in a note. Industrial equipment imports into the U.S. have suddenly declined sharply, a sign of slower industrial output. Rail and truck customers see the market as a “buyer’s market” with more choice and lower prices coming, he said.
“Yes, this rail cycle was a bit ‘long in the tooth’ after three years, but with continued efficiencies and pricing may have lasted several more quarters,” Ross said in the note.
CSX late Tuesday reported second-quarter earnings that missed Wall Street expectations.
CSX’s Chief Executive James Foote said in a conference call with analysts following the results that the U.S. macroeconomic backdrop is “one of the most puzzling I have experienced in my career.”
Lower natural-gas prices are expected to continue to impact both domestic and export coal, so CSX’s intermodal business is showing little seasonal recovery, he said at the call.
In many cases, CSX’s “industrial customers’ volumes (are) continuing to show weakness with no concrete signs of these trends changing,” Foote said.