(Reuters circulated the following article by Daisuke Wakabayashi on October 27.)
BOSTON — Union Pacific Corp., the largest U.S. railroad, on Thursday said quarterly profit rose 83 percent, boosted by a one-time tax benefit and heavy traffic of consumer goods, while Hurricane Rita hampered the transport of chemical products.
While a strong economy continues to drive the demand for the transport of goods, the effect of hurricanes Katrina and Rita also hurt earnings from other rail operators, such as Norfolk Southern Corp. and CSX Corp.
Union Pacific, whose shares rose nearly 1 percent, posted a third-quarter net profit of $369 million, or $1.38 cents per share, versus $202 million or 77 cents per share a year earlier.
Operating revenue rose 13 percent to $3.5 billion.
Excluding a $118 million gain from a lower nontax cash expense, Union Pacific’s earnings totaled 94 cents per share. That beat analysts’ expectations of 91 cents a share and revenue also exceeded Wall Street estimates of $3.38 billion.
Union Pacific said last month that earnings would come in between the low end and middle of its previous earnings estimate range in the third quarter due to the impact of Hurricane Rita.
The impact from the hurricanes cost Union Pacific 7 cents per share, while higher fuel prices removed another 8 cents of EPS in the third quarter.
“Union Pacific’s exposure to the chemical industry is the highest of all the rails, so it had the most to lose from Hurricane Rita,” said Peter Smith, analyst at Morningstar.
For the fourth quarter, Union Pacific sees earnings at 95 cents to $1.00 per share, falling short of analysts’ estimates for $1.07 per share. The company targets revenue growth of 11 percent to 12 percent.
A severe storm in Kansas on Oct. 1 and the ensuing washout damaged some of its rail lines to the western part of its network. The effects of that storm could spill over into the fourth-quarter, Union Pacific said.
Railroads continue to thrive in the face of high oil prices, because fuel accounts for a smaller portion of operating costs for rail as compared to truckers, making it a cost-effective alternative for hauling goods.
“With the exception of autos, demand across the board continues to be remarkably strong,” Davidson said.
Agricultural revenue grew 27 percent in the third quarter, while industrial and intermodal — mainly, consumer goods — sales rose more than 10 percent and chemicals rose 9 percent.
The company targets average fuel prices to range between $2.10 and $2.15 per gallon in the fourth quarter versus $1.88 per gallon in the third quarter and $1.46 per gallon a year earlier.
Union Pacific, based in Omaha, Nebraska, is more exposed to fuel price fluctuations than its rivals because it has no hedges in place for this year.
Union Pacific and Burlington Northern Santa Fe Corp. are both coping with the effects of two major train derailments in the Powder River Basin, a region in Montana and Wyoming where most of the U.S. coal is mined.
Earlier this week, Burlington Northern said capacity out of the region should be greatly improved next year, but supply will still far outstrip demand from utility companies running low on coal inventory.
Shares of Union Pacific rose 42 cents to $69.17 on the New York Stock Exchange in midday trade. Year to date, shares of Union Pacific rose 3 percent, lagging behind an 11 percent rise on the S&P Railroads index.