(Reuters distributed the following article on June 10.)
MIAMI — Union Pacific Corp., the largest U.S. rail freight operator, on Wednesday said it was still struggling to get its network running right and slashed its quarterly profit forecast.
Shares of Union Pacific fell as much as 5 percent before recovering some. Other railroads’ shares were also down, with the Dow Jones U.S. Railroad index (.DJUSRR) off 2 percent, even as demand for cargo hauling has been improving along with the U.S. economy.
Union Pacific said its rail network in the western United States was performing sharply below par, with the average velocity of its trains in April and May running 11 percent behind the average in last year’s second quarter.
Slower speeds at a railroad raise costs and curb volumes and revenue. Other operational measures have also weakened at Union Pacific, which has been hurriedly hiring and training crew to meet booming demand for cargo transport.
“Although velocity has stabilized over the last few weeks, we have not yet seen the improvement necessary to reduce costs or drive stronger revenue growth,” Union Pacific Chief Executive Officer Dick Davidson said in a news release.
The Omaha, Nebraska, company said it expected to earn 60 cents to 65 cents a share in the current second quarter, down from $1.05 a year earlier and well below analysts’ average estimate of 97 cents, as compiled by Reuters Estimates.
Fuel was also boosting costs, despite some relief the company is getting from fuel surcharges paid by shippers, Davidson said.
Union Pacific said it expects the cost of diesel to increase more than 30 percent from a year earlier, to $1.15 a gallon in the second quarter. Davidson said Union Pacific was also adding locomotives to its system but said the timing of a bounce back to acceptable service levels could not be predicted.
The company is scheduled to report second-quarter results on July 22.
Union Pacific shares were off $1.64, or 2.7 percent, at $58.35 in late-morning trading on the New York Stock Exchange.