Credit evaluator Standard & Poor's Ratings Services revised its outlook for Union Pacific Railroad to “positive” from “stable,” given the recovery under way in freight business and UP’s financial policies.
S&P also affirmed its previous ratings on UP debt, including a “BBB” rating on long-term corporate credit.
So far this year, UP’s weekly traffic in intermodal and bulk carloads has risen 13 percent, and the agency said the volume improvement should “bolster earnings growth and strengthen credit metrics over the next several quarters.”
Credit analyst Anita Ogbara said "in the near term we expect volumes to continue to improve, given the rebound in the U.S. economy and Union Pacific's diverse mix of traffic." The agency said it also expects UP to continue to benefit from “modest core pricing gains, effective cost management and improved operating efficiency.”
UP has a strong competitive position in the railroad industry and moderate financial policies, S&P said, which is somewhat offset by price competition from other railroads and by trucking companies in certain commodities plus the heavy capital needs of the industry.
"We could raise the ratings if credit metrics continue to improve,” Ogbara said, “such that funds from operations (FFO) to total debt rises above 30 percent and debt to capital falls below 45 percent on a sustained basis," she continued.
The ratings group could also move its outlook back to stable if the metrics deteriorate, but it said that was less likely.
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