Union Pacific CEO Lance Fritz told CNBC on Wednesday that the railroad operator has reasons to be positive about its business as the U.S. economy recovers from its coronavirus-driven halt.
“Across our markets, we’re seeing a few signs of optimism,” Fritz said in a “Mad Money” interview.
He singled out the following areas: automotive, housing and grain, the last of which is related to the U.S.-China trade deal. “I’m seeing it a little bit in construction of things like road projects and rock,” added Fritz, who has been CEO and president since 2015.
The coronavirus pandemic and corresponding public health response sent shock waves across the globe, pushing the U.S. economy into a recession as business activity was sharply curtailed. But one area that saw an increase in activity was online shopping. Fritz said Union Pacific observed that, too.
“Our parcel business is up strong double digits right now,” he said. “We are seeing the e-commerce demand flow through to our rail business.”
A Union Pacific employee closes the entry door on a rail car at the company’s facility at the Port of Oakland in Oakland, California.
Ken James | Bloomberg | Getty Images
Shares of Omaha, Nebraska-based Union Pacific closed Wednesday’s session up slightly at $171.17 each. The stock hit its coronavirus-driven low of $105.08 on March 18, having risen nearly 63% since then as of Wednesday’s close. Overall for the year, the company’s shares are down about 5%.
Union Pacific reported its most recent quarterly results in late April, posting operating revenues that were down 3% compared with the same period a year earlier. It also projected a 25% decline in carload volumes for the current quarter, compared with the second quarter of 2019.
Due to that decrease, Fritz said, Union Pacific has had to furlough employees in roles such as train operators and car maintenance. Fritz said in an effort to share the burden across the company, management employees are required to take one unpaid week of absence per month for May, June, July and August. Executives and the board have taken a 25% pay cut, Fritz said.
“The whole idea was to make sure we maintain the flexibility to have the workforce we need when the economy comes back, but be prudent and react to be down 25% on volume,” Fritz said.
However, Fritz also was optimistic about the benefits of the new U.S.-Mexico-Canada trade agreement, which is set to go into effect July 1. The trade pact, a priority of the Trump administration, makes several adjustments to the North American Free Trade Agreement.
“For us, it means the supply linkage between the U.S. economy, the Mexican economy and the Canadian economy are going to continue to grow and become more and more powerful,” Fritz said. “We as a trading bloc are going to be much more competitive globally. It’s just a home run.”