UPDATE 4-Union Pacific CEO: Major rail mergers 'don't make sense'

Thu Oct 23, 2014 11:42am EDT
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(Adds comments on pricing, updates stock price)

By Nick Carey

CHICAGO Oct 23 (Reuters) - The chief executive of No. 1 U.S. railroad Union Pacific Corp said on Thursday that he does not think mergers of major railroads "make sense" because of the regulatory hurdles they face and the service issues they create.

"The (service and regulatory challenges) add a whole layer of concerns for me," the CEO, Jack Koraleski, told analysts in a conference call after Union Pacific reported a higher-than-expected third-quarter profit and said it expected a solid fourth quarter.

"I'm really not a fan (of mergers), I don't think it's a good solution," Koraleski said.

Canada's No. 2 railroad, Canadian Pacific Railway Ltd, recently made a failed bid for CSX Corp, the No. 3 U.S. railroad. The CEOs of CSX and Norfolk Southern Corp have made comments in the past week stressing that past mergers between large railroads have led to significant service disruptions.

The major U.S. railroads have struggled to cope with demand this year thanks to a growing economy, a boom in the transport of oil by rail, plus a record harvest. Against a backdrop of customer complaints, earlier this month the U.S. Surface Transportation Board, the top rail regulator, ordered the largest railroads to provide more detailed weekly reports on their performance.

Union Pacific on Thursday reported a 23 percent rise in third quarter earnings per share, of $1.53, from $1.24 in the same quarter last year. Analysts had expected earnings of $1.52.

Freight revenue rose in all of the railroad's key commodity groups, with agricultural and industrial products both up 19 percent on the year.   Continued...