Union Pacific Corp reported record quarterly results that topped estimates because of pricing gains and fuel surcharges, and said re-pricing older contracts will boost profit next year.

Shares rose as much as 5.5 percent after the No. 1 U.S. publicly held railroad operator said a core pricing increase of 4.5 percent and fuel surcharges helped offset higher fuel expenses and moderate volume.

A rebounding auto industry and pricing power helped the company's profit even though its lumber, cement and appliances businesses are 30 percent to 60 percent below record volumes, Union Pacific told analysts on a conference call.

We expect a continuation of what we have seen this year, relatively slow, positive economic growth, Chief Executive Officer Jim Young said in an interview.

Union Pacific will walk away from business on older contracts, known as legacy contracts, if it does not get the pricing it seeks, he said. I don't have a choice, needing to raise margins and justify to investors its record $3.3 billion capital spending plan this year for infrastructure.

Union Pacific ships everything from agricultural and auto products to household appliances and chemicals.

Volume as measured by revenue carloads rose 1 percent from a year earlier.

While carload growth for the rails continues to trend in the low single digits, we continue to expect core pricing in the 4 to 5 percent range -- driving double-digit (percent) earnings (per share) growth next year even in a muted macro backdrop, Jefferies & Co analyst Peter Nesvold wrote in a note.

Union Pacific said about $750 million in legacy contracts will have been renegotiated this year, and about $300 million comes up for renegotiation in the first quarter of next year.

The railroads are commanding higher rates even though economic growth is soft because comparably low-cost shipping options are limited, said Eric Marshall, research director at Hodges Capital Management in Dallas, which owns Union Pacific and Kansas City Southern shares.

Capacity is relatively tight among transports despite a lot of worries over the economy, he said, adding the investment story remains compelling. Shippers may pay higher rates than they are used to paying for rail, but they're probably still going to be less than what they would be paying if they were going to move (their goods) by truck.

Higher shipments of automotive and industrial products, energy and chemicals offset declines in agricultural products and intermodal business to boost volume slightly in the quarter, Union Pacific said.

Intermodal refers to the shipment of goods in containers that can be moved from one form of transport to another -- such as from train to truck, or train to ship. Domestic intermodal rose, while international traffic fell because of weak imports for the holiday shopping season.

Third-quarter net profit rose to $904 million, or a record $1.85 per share, from $778 million, or $1.56 per share, a year ago. Analysts, on average, expected the Omaha, Nebraska-based company to earn $1.81 per share, according to Thomson Reuters I/B/E/S.

Operating revenue rose 16 percent to a record $5.1 billion, topping Wall Street expectations for $5.01 billion.

The company bought back 4.7 million shares in the quarter at an average price of $91.45 a share for a total cost of $428 million.

The shares rose 3.9 percent to $94.48 in midday trading, putting them up 2 percent so far this year. The Dow Jones Transportation average is down 9 percent this year.

Earlier this week, railroad company CSX Corp reported a quarterly profit in line with estimates, and forecast moderate economic growth through 2012.