(The following story by Grace Shim was published in the January 23 issue of the Omaha World-Herald.)
OMAHA, Neb. — Union Pacific Corp. on Wednesday announced record fourth-quarter earnings of $378 million and four straight years of improved earnings, but tempered the news with a warning that this year’s first-quarter profits may fall as much as 23 percent.
The company said rising fuel costs and the expense of firing workers would cut into financial results in the first quarter, which ends March 31.
“Earnings growth seems unlikely in the first quarter,” Union Pacific Railroad President Ike Evans said during a Wednesday conference call with analysts.
Despite the West Coast port shutdown that shaved off 10 cents a share, Union Pacific’s fourth-quarter profits of $378 million were up 37 percent from $275 million a year earlier. Per share, the earnings were $1.41, a 33 percent increase from $1.06 in the fourth quarter of 2001.
The results included one-time gains from a California land and track sale and from tax adjustments. Excluding the one-time gains, the company posted $1.10 a share.
U.P. beat analysts’ expectations of $1.08.
The parent company, whose largest unit is the railroad, reported fourth-quarter revenue of $3.17 billion, compared to $3.01 billion a year ago.
Results for the full year, including the one-time gains, showed earnings of $1.34 billion, or $5.05 a share. It was a 39 percent increase from 2001’s $966 million, or $3.77 a share.
Excluding the one-time items, the 2002 earnings were $4.30 a share – still a 14 percent increase from 2001.
“This is a remarkable year for Union Pacific,” Chairman and Chief Executive Dick Davidson said in a statement. “While it was a very difficult economic environment and the West Coast port disruption temporarily slowed our momentum, the men and women of Union Pacific answered every challenge.”
In December, U.P. announced an aggressive plan to cut costs as much as 20 percent in 2003. More than 100 people were let go this month, and more job cuts are anticipated.
In an e-mail sent to employees this month, Evans gave these reasons for the aggressive cost cutting: higher employee wages, double-digit percentage increases in health-care benefits, higher fuel prices resulting from the threat of war in the Middle East and political strife in Venezuela, and soaring insurance costs since the Sept. 11 terrorist attacks. In addition, Evans noted that the soft economy has been a continuing challenge.
Evans said in the e-mail that a bolder step is needed in 2003 because U.P. is not earning its cost of capital, which is the basic return that investors and lenders expect from their investment in the company.
Chief Financial Officer James Young said in the Wednesday conference call that Union Pacific plans to cut 400 management jobs. The $40 million in expenses linked to the firings will reduce first-quarter earnings by 10 cents a share, spokeswoman Kathryn Blackwell said.
In the fourth quarter, Union Pacific Corp., excluding Overnite Corp., reported operating income at $562 million, a 1.4 increase from a year ago. Revenue from railroad commodity shipping was $2.69 billion, up 3 percent.
Overnite Corp., a Richmond, Va.-based trucking unit of U.P., posted $16.8 million in operating income for the fourth quarter, compared to $14 million a year earlier.
Overnite reported year-end operating income of $71.2 million, compared to $63.9 million in 2001.
As for 2003, Davidson said, “the outlook for our core business remains strong.”
“We would expect moderately improved revenue growth throughout the year, but we’re concerned about the potential impact of an uncertain economy and high energy prices.”
U.P. stock closed Wednesday at $56.91 a share, down $2.59 from Tuesday’s closing price.
(This report includes material from Bloomberg News.)