(The Philadelphia Inquirer posted the following article on its website on June 15.)
PHILADELPHIA — The rebound in the nation’s economy is continuing to cause at least two problems for Union Pacific Corp., the nation’s biggest railroad.
The first involves its workforce and resulting shipping delays. The Omaha, Neb., company has been struggling with a crew shortage and rail congestion since last fall, when the economy began picking up. The railroad also was surprised by the number of engineers and conductors taking retirement under new federal rules.
At a meeting May 17 in San Francisco, Union Pacific customers complained about delays that in some cases almost doubled shipping time.
The other problem is the cost of diesel fuel, which is up about 30 percent from a year ago.
The twin troubles forced Union Pacific last week to forecast that second-quarter earnings would fall by more than one-third from a year ago.
Earnings will be 60 cents to 65 cents per share, compared with $1.05 per share from continuing operations in last year’s second quarter, the railroad said in a statement. Analysts surveyed by Thomson First Call had been predicting earnings of 96 cents a share.
“Union Pacific will eventually get fixed,” Morgan Stanley analyst James Valentine said, “but it’s not going to get fixed overnight.”
While earnings will be down, demand is up, the railroad said in last week’s announcement. Second-quarter commodity revenue is expected to rise about 5 percent to record levels.
Progress restoring normal service has been hampered by severe winter weather.
The railroad’s average train speed for April and May was 21.2 miles per hour, about 11 percent below last year’s second quarter and 3 percent below the first three months of this year, Union Pacific said. Train speed increased to 21.8 m.p.h. in the first week of June, officials said.
Meanwhile, diesel-fuel prices are expected to average about $1.15 per gallon in the second quarter, an increase of 27 cents per gallon over the same period last year, the railroad said.
“Although the return to network fluidity continues to be a slow process, we are confident we have the right initiatives under way to improve operations and restore our service quality,” Dick Davidson, Union Pacific’s chairman and chief executive officer, said.
In the first six months of this year, the railroad expects to graduate more than 2,000 conductors, with an additional 1,400 expected to graduate in the third quarter, Davidson said.
In addition, new locomotives are being brought on line, including accelerated delivery of 125 locomotives in the second half of this year instead of next year, Davidson said.
Those steps are expected to help the company keep more of its railcars in operation. The average time trains spent in terminals for April and May was 35.4 hours, about 18 percent worse than the second quarter of 2003.
The shipping delays already signal that the company would miss earnings estimates, said Kirk Schmitt, an analyst for Victory Capital Management.
“The magnitude is what surprised me,” he said.
The company’s shares are down 17 percent this year. They closed yesterday down 84 cents at $57.36.
Union Pacific’s rail lines cover 23 states in the western two-thirds of the country. It is a leading carrier of low-sulfur coal used in electrical power generation and has broad coverage of the large chemical-producing areas along the Gulf Coast.