By JOSH FUNK
OMAHA, Neb. (AP) -- Union Pacific's earnings report on Thursday will give investors a sense of how much the economy continued to grow during the first three months of 2012.
The railroad has generally been able to grow its profits by hauling more freight as the economy slowly recovers and by increasing prices when its long-term shipping contracts come up for renewal.
WHAT TO WATCH FOR: In addition to clues about the economy, investors will look for more information about Union Pacific's coal business and the shipments that the railroad expects.
Energy shipments, including coal, are an important part of the Omaha-based railroad's business. They accounted for 22 percent of Union Pacific's revenue last year.
Credit Suisse analyst Chris Ceraso said the decline in coal volume this year has many investors worried about the prospects for U.S. freight railroads. The mild winter and relatively low natural gas prices have undercut demand for coal to fuel power plants.
During the first quarter, coal volume in the western U.S. declined 7 percent. That should affect major haulers like Union Pacific and Burlington Northern Santa Fe. The picture was worse in the eastern states where coal shipments fell 15 percent.
But Ceraso said in a research note that he thinks coal volumes will decline only 3 to 5 percent in the next few years. And railroads will likely be able to continue imposing some price increases for coal as shipping contracts come up for renewal.
Ceraso said rail stocks may be worth buying because the market's focus on shrinking coal volume has knocked down share prices.
He's not the only one bullish on railroads. Last month, analysts from Barclays and Deutsche Bank upgraded Union Pacific's stock.
This will be the first earnings report since Jack Koraleski was named acting president and CEO last month. Koraleski, who had been UP's executive vice president for marketing and sales, is leading the railroad while Jim Young battles pancreatic cancer. Young remains chairman of the board.
WHY IT MATTERS: Union Pacific's results are watched closely, because major freight railroads are considered gauges of the nation's economic health. Railroads carry cars, chemicals, crops, containers of imported goods and lumber across the nation, so railroad profits are tied to the health of many industries. Union Pacific is the nation's largest railroad. It operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts.
WHAT'S EXPECTED: On average, analysts surveyed by FactSet expect Union Pacific to report earnings of $1.64 per share on $4.98 billion revenue.
LAST YEAR'S QUARTER: A year ago Union Pacific reported net income of $639 million, or $1.29 per share, on $4.49 billion in revenue.
Copyright 2012 The Associated Press.