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After posting best-ever quarterly financial results in the second quarter, Union Pacific Corp. did it again in the third quarter despite stiff economic, coal and agricultural products headwinds. Chalk it up to solid core pricing gains, network efficiencies, high productivity and a diverse traffic mix, UP senior executives said during an earnings conference held this morning.

The best-ever results include five all-time quarterly records: $5.3 billion in operating revenue, up 5 percent year over year; $1.8 billion in operating income, up 13 percent; $2.19 per share in diluted earnings, up 18 percent; a 66.6 operating ratio, down 2.5 points; and a 94 customer satisfaction index, up 3 points. In addition, net income climbed 15 percent to an all-time best $1 billion.

Volume remained flat at 2.3 million units even though coal traffic fell 12 percent, and industrial products and ag products traffic each declined 2 percent. Excluding coal, volume rose 3 percent year over year.

"Despite a decline in coal volumes and significantly weaker steel and scrap metal markets, we generated best-ever financial results across the board," said UP President and Chief Executive Officer Jack Koraleski.

The primary traffic drivers were chemicals, which posted an 18 percent volume gain (to 275,000 units) and a 17 percent revenue gain (to $841 million), and automotive, which registered a 13 percent volume gain (to 181,000 units) and 15 percent revenue gain (to $436 million). In the chemicals sector, crude oil business leaped 300 percent and plastics business showed strength, said EVP of Sales and Marketing Eric Butler. Automotive volume was propelled by pent-up demand to replace aging vehicles and improved consumer credit availability, he said.

In other commodity groups, ag products revenue fell 4 percent to $783 million, industrial products revenue increased 2 percent to $879 million, intermodal revenue rose 8 percent to $1 billion and coal revenue dipped 5 percent to $1 billion. Southern Powder River Basin coal tonnage dropped 13 percent to 44.7 million primarily because of low natural gas prices and high utility stockpiles, said Butler. In the intermodal sector, successful highway conversions helped volume inch up 1 percent to 857,000 units.

In terms of costs, operating expenses totaled $3.5 billion, up 1 percent compared with third-quarter 2011's total. Compensation and benefits costs were flat at $1.2 billion even though UP's workforce expanded 1.5 percent to 46,205 due to increased capital and positive train control work, said Chief Financial Officer Rob Knight. Fuel costs dropped 4 percent to $880 million as the average price of diesel was flat at $3.19 per gallon.

Looking ahead to 2012's final quarter, volumes likely will be flat to modestly negative because of the uncertain economic environment, but the operating ratio should remain under 70, said Knight.

"We will play the hand the economy deals us," he said.

At best, the economy will hold steady in the fourth quarter, said Butler.

"The fourth quarter will look much like the third," he said.

For the full year, UP anticipates record earnings and a sub-70 operating ratio, which would mean registering a full-year ratio below 70 for the first time in the railroad's history, said Knight.

— Jeff Stagl