(Union Pacific Corp. issued the following on September 22.)
OMAHA, Neb. — Union Pacific Corporation (NYSE: UNP) today announced that lower diesel fuel costs and strong operating efficiency will more than offset the impact of recent hurricanes and lower volumes. As a result, third quarter 2008 earnings are expected to be in the range of $1.28 to $1.33 per share, or growth of 28 to 33 percent versus the third quarter 2007. This exceeds the Company’s original earnings projection of $1.10 to $1.20 per share.
Currently, third quarter volumes are close to 5 percent lower year-over-year, which is below the Company’s prior expectations of a 1 to 2 percent quarterly decline. Fewer shipments of finished vehicles, automotive parts and intermodal containers are key drivers of the year-over-year decrease. More recently, Hurricanes Gustav and Ike have significantly impacted volumes, particularly chemicals and industrial products.
Although UP’s infrastructure did not sustain significant damage from the hurricanes, widespread commercial power outages associated with Hurricane Ike have impacted operations and limited the ability of customers to resume production. The Company’s current estimate for third quarter 2008 earnings includes a reduction of approximately $.10 cents per share as a result of the hurricanes, primarily Ike.
“Our team did a great job of preparing for and responding to Hurricane Ike. We deployed additional management, engineering and train crew resources to the area in advance of the storm,” said Jim Young, Chairman and Chief Executive Officer. “This helped us to quickly restore rail service to the affected areas, and we are working with our customers on their plans to resume operations.”
The impact of the hurricanes, as well as generally weaker than anticipated volumes, is expected to be more than offset by lower quarterly diesel fuel prices, ongoing efficiency gains as well as a favorable business mix. Third quarter 2008 average diesel fuel price is expected to be roughly $3.70 per gallon, versus the originally forecasted price of $4.00 per gallon. This decline will add roughly $.10 per share to third quarter earnings.
“Since July, crude oil prices have dropped considerably, lowering our diesel fuel expense for the quarter,” said Rob Knight, Chief Financial Officer. “Because Union Pacific does not yet fully recover higher fuel costs through its various fuel surcharge programs, lower diesel fuel prices help our bottom line. This stronger than expected third quarter performance will change our full year earnings targets as well, but the magnitude is somewhat uncertain as we continue to review our outlook for fourth quarter volumes and fuel price.”
Operationally, Union Pacific continues to improve its performance, increasing network velocity and improving terminal dwell times. Third quarter 2008 average train speed is up more than 10 percent versus third quarter 2007.
“Our Company is making significant gains with its service efficiency, driving increased reliability for our customers and greater profitability for our shareholders,” said Young.