Operating margin improved by 100 basis points to 36.4% as a result of the productivity enhancements, as well as cost control in compensation, purchased material, and "equipment and other rents." Fuel expense also dropped during the quarter due to a 3% decrease in average fuel price per gallon consumed.However, weather impacts were evident in a 6% reduction in average train speed to 23.3 miles per hour. Average freight car velocity improved by 7% to 185 daily miles per car, while average terminal dwell time dropped 19% to 26.6 hours.
Some of this progress is evident in Union Pacific's quarterly rail statistics.Management attributed the operating ratio improvement to continuing efforts to implement principles of precision scheduled railroading (PSR) as part of the company's "Unified Plan 2020" productivity initiative.In Q1, the company's operating ratio dipped by 1 percentage point to 63.6%. As expected, Union Pacific's operating ratio (a measure of operational efficiency calculated by dividing total expenses by total revenue) improved against a high prior-year reading.Management pointed to core pricing gains and higher fuel surcharges as factors softening the impact of the negative traffic trend and an unfavorable product mix.
Freight revenue fell 2%, a better-than-expected result given the impeded volume.Total volume slipped by 1%, as declines in energy and agricultural shipments were partially offset by increases in industrial and premium categories. As I discussed in my earnings preview, Union Pacific's volume was challenged by exceptionally bad weather during the last three months, from heavy winter snowstorms to widespread flooding in the Midwest in March.
What happened with Union Pacific this quarter?