(The following article by Dan Piller was posted on the Fort Worth Star-Telegram website on January 25.)
FORT WORTH — Union Pacific Corp. reported Monday that fourth-quarter profit dropped sharply from a year ago. The railroad, based in Omaha, Neb., which operates a major classification yard in Fort Worth, said it will raise shipping rates and become more selective about the business it takes.
The company’s fourth-quarter 2004 net income slipped to $79 million (30 cents per share) from $551 million ($2.12) a year ago. Fourth-quarter 2003 net income included $218 million from discontinued operations. Quarterly revenue rose to $3.22 billion from $2.97 billion.
For the full year, earnings dropped to $604 million ($2.30) from $1.6 billion ($6.04). Full-year 2003 net income included $529 million from discontinued operations and an accounting change. Revenue for 2004 rose to $12.2 billion from $11.6 billion.
Union Pacific has been bedeviled by service congestion for the past six months because of a shortage of crews and locomotives. Chairman Dick Davidson said service problems cost the railroad about $200 million in revenue. Rising diesel fuel prices added an additional $200 million to the company’s costs for the year.
“It just kills me,” Davidson said of the combination of problems in the face of record demand for transportation services. Service slowdowns generate late penalties and extra employee costs.
Jack Koraleski, the railroad’s executive vice president, said that to stanch the overflow of business the carrier will become “more selective about what business goes on the railroad.”
He also said, without specifying, that expiring service contracts will undergo “careful scrutiny” for possible rate increases.
Union Pacific has been troubled by congestion on its network, which covers Texas and the western half of the United States, since its 1997 merger with Southern Pacific Transportation Co.
In the first year of the merger, traffic tie-ups centered in Houston decreased average speed on the system from the normal 25 mph to 12 mph. The current problem is less severe, with the railroad averaging 21 mph in the fourth quarter.
The company is countering its service problems by hiring 1,000 more engineers and putting 315 new locomotives onto its system this year, Davidson said.
Davidson said that because of the disappointing year, he and other company executives will not get their customary bonuses.
“The last year was not up to expectations,” he said. “We left a lot of business on the table.”
Union Pacific: UNP, $58.94, down $1.47