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For Union Pacific Corp., the second quarter was “exceptional by almost every measure,” said Executive Vice President and Chief Financial Officer Rob Knight during this morning’s earnings webcast and teleconference. Diluted earnings per share shot up 52 percent to $1.40, operating income skyrocketed 71 percent to $1.3 billion, net income soared 53 percent to $711 million, volume rose 18 percent to 2.2 million units and operating revenue jumped 27 percent to $4.2 billion compared with second-quarter 2009 figures. Analysts polled by Thomson Reuters had expected earnings of $1.21 per share and revenue of $4.08 billion.

However, the “real highlight” of the quarter was UP’s first-ever sub-70 operating ratio, said Chairman, President and Chief Executive Officer Jim Young. The railroad’s ratio improved 8 points to 69.4 primarily because of volume leverage, pricing gains (which averaged 5 percent in the quarter) and operating efficiency, said Knight.

“We demonstrated great volume leverage with little incremental cost,” said Young.

Also in the exceptional category: volume grew in each of UP’s six business groups in the same quarter for the first time in six years. Agricultural products volume rose 5 percent to 213,000 units and revenue increased 13 percent to $698 million; automotive volume ballooned 71 percent to 159,000 units and revenue skyrocketed 105 percent to $334 million; chemical volume went up 11 percent to 209,000 units and revenue rose 19 percent to $592 million; energy volume inched up 3 percent to 486,000 units and revenue increased 17 percent to $836 million; industrial products volume jumped 25 percent to 286,000 units and revenue soared 30 percent to $692 million; and intermodal volume leaped 24 percent to 827,000 units and revenue jumped 35 percent to $804 million.

Increased ethanol demand and stronger whole grain exports drove ag product traffic, while increased domestic vehicle production propelled automotive traffic, and higher imports and domestic highway conversions drove intermodal traffic, said EVP of Marketing and Sales Jack Koraleski. Increased Southern Powder River Basin coal shipments to Midwestern and southern utilities — including a new coal-fired plant in San Antonio — helped increase energy traffic, he added.

A key indicator of the value proposition UP is offering shippers is the Class I’s customer satisfaction index, which improved 2 points to a quarterly best 89 vs. second-quarter 2009’s index, said Koraleski.

The lone 2Q financial measure that didn’t measure up for UP: operating expenses, which increased 14 percent year over year to $2.9 billion. Compensation and benefit costs rose 8 percent to $1.1 billion, fuel costs jumped 64 percent to $608 million — primarily because the average diesel price per gallon rose from $1.57 in second-quarter 2009 to $2.29 in the last quarter — and purchased services and material costs increased 18 percent to $472 million, said Knight. Although volume jumped 18 percent in 2Q, UP’s workforce didn’t come close to matching that growth and wasn't a factor in driving up compensation and benefit expenses, he said. Instead, workforce levels actually dropped 3 percent year over year to 42,600, said Knight.

Looking ahead, UP execs expect the “slow trajectory” of economic growth to continue in 2010’s second half.

“We see slow and steady growth. [And] we still have significant upside,” said Young, adding that UP is poised to handle weekly carloads ranging from 190,000 to 200,000 units.

— Jeff Stagl