(The following article by Dan Piller was posted on the Star-Telegram website on October 24.)
FORT WORTH, Texas — Union Pacific Corp. said its third-quarter earnings fell 23 percent and acknowledged congestion bottlenecks, primarily on the West Coast.
Profits dropped from $437 million in the third quarter of 2002 to $317 million in the most recent quarter. Fuel costs were up $50 million, or 19 percent.
The 2002 results included $44 million from a land sale as well as the results of Overnite Transportation, the trucking subsidiary which the company is selling.
Chairman Dick Davidson said that this year the Omaha-based railroad was too slow to replace the 2,000 workers who retire or quit each year, leaving it short of train crews on parts of the system. The result was $15 million to $20 million in extra costs during the third quarter, Davidson said, primarily to pay extra for recalled train crews and late charges to customers.
“This is not acceptable to us, and we are working to fix it,” Davidson said. He explained that UP had postponed hiring early in the year while waiting to see how the economy would develop.
Union Pacific said this month that it planned to hire at least 1,000 train-crew workers, some of them in Texas, by the end of this year and up to 2,000 more by the end of 2004. Some new hires will be at the Fort Worth Centennial Yard, although the railroad did not provide specific numbers.
The company reported about 1,200 local workers in April.
Davidson told analysts that he expects the railroad to be running fluidly by the end of this year. Union Pacific struggled through serious service problems in the year after its merger with Southern Pacific Railroad in 1997.
“Service problems have been off the radar screen for five or six years, partly during a time when the economy was down,” said analyst John Barnes of Deutsche Bank. “There should be worry that as the economy ramps up that service problems will return.”
Analyst James Valentine of Morgan Stanley said he was concerned that Union Pacific and its principal western rival, Fort Worth-based Burlington Northern Santa Fe Railway, would engage in a profit-reducing price war over coal contracts next year.