(The Associated Press circulated the following on October 23, 2009.)
HARTFORD, CONN. — Analysts said Friday that the nation’s two largest railroads could face even more difficulty squeezing out profits next year after turning in third-quarter earnings declines.
Shares of both Union Pacific Corp. and Burlington Northern Santa Fe Corp. fell more than 6 percent, a day after the companies posted double-digit declines in profit as they shipped fewer cars and clothing. Consumers remain reluctant to spend, and manufacturing lines are still slow.
Sterne Agee analyst Jeff Kauffman said in a note to investors that Union Pacific’s outlook is improving “at a gradual pace.” He credited better cost controls and a lower tax rate for helping the Omaha, Neb., company’s results.
Union Pacific, the nation’s largest railroad, said it expects a pickup in some industrial traffic in the spring. However, coal traffic has not improved and will weigh on 2010 results. But Kauffman said, “that is already widely reflected in expectations.”
Credit Suisse analyst Christopher J. Ceraso said Union Pacific’s earnings exceeded his expectations, mostly on better control of labor costs. He said Burlington Northern faces potential setbacks in the fourth quarter, including lower overhead credits and a higher interest expense. He cut his 12-month price target on the Forth Worth, Texas, company to $79, from $83.
Morgan Keegan analyst Art W. Hatfield said that he does not expect “meaningful volume and pricing growth” heading into next year. He maintained his “Market Perform” rating for Burlington Northern.
Shares of Burlington Northern fell $5.75, or 6.8 percent, to $78.87 in afternoon trading. Union Pacific dropped $3.65, or 6 percent, to $57.47.