(Reuters circulated the following article on December 22.)
NEW YORK — Union Pacific Corp. (UNP.N), the nation’s largest railroad, raised its fourth-quarter earnings forecast on Tuesday, citing increased revenue from hauling commodities, sending its shares up 5 percent.
The company also said it would take a non-cash charge in the quarter to reflect an increase in its estimated liability for asbestos-related claims.
“They are seeing better-than-expected revenue and it’s not because of car loading growth (volumes),” said Avondale Partners analyst Jason Seidl, who has a “hold” rating on the stock. “It’s a combination of better pricing and higher fuel surcharge impact.”
Union Pacific said it now expects earnings, before special items, of 82 cents to 87 cents a share in the fourth quarter, up from a previous forecast of 65 cents to 75 cents a share.
Analysts, on average, had forecast 68 cents a share, according to Reuters Estimates.
The company, which has seen service disruptions this year amid robust shipping volumes, said commodity revenue growth was likely to be 8 percent in the quarter, compared with its previous forecast of 5 percent.
But the railroad said this growth would be offset by operating costs that remain high due to network inefficiencies.
For the fourth quarter, Union Pacific said it plans to take a non-cash charge of $153.6 million after taxes, or 58 cents a share, for estimated asbestos-claim liability.
Before this year, Union Pacific said it had recorded asbestos-related liabilities only after specific claims were made because it did not have enough history to estimate liabilities in advance. But now, after recently hiring a consulting firm with experience in making such estimates, it can reasonably estimate liability, the company said.
The charge does not impact cash flow, and the timing of claims payments is not affected. Seidl said the charge will likely be overlooked by investors.
Because of the new approach to asbestos-liability estimates, the company said asbestos-related expenses are expected to decrease beginning in 2005, slightly boosting annual earnings by about $8 million after taxes.
Union Pacific shares rose $3.05 to $65.30 in morning trade on the New York Stock Exchange after being as high as $66.52 earlier in the session.