(The following article by Dan Piller was posted on the Fort Worth Star-Telegram website on April 21.)
FORT WORTH, Texas — Union Pacific Corp. blamed January storms in California for a drop in first quarter profits, though the railroad company beat Wall Street expectations.
Quarterly net income fell from $165 million, or 63 cents per share in 2004 to $128 million, or 48 cents per share in the quarter ended March 31. UP chairman Dick Davidson said that the railroad’s system was virtually shut down in California for three weeks due to the heavy storms and mudslides in the areas where UP’s oceanside tracks run, costing the railroad about $34 million in operating profits.
Even so, UP (Ticker: UNP) beat the Wall Street analysts’ estimates of 47 cents for the first quarter earnings.
In his report, Davidson also cited average diesel fuel costs of $1.45 per gallon during the first quarter, 10 cents per gallon higher than forecast and well above the $1.02 per gallon average for the first quarter of 2004.
But the railroad is still dogged by service issues, stemming from a lack of crews and locomotives combined with record traffic levels. Average train speed on UP’s system was about 21 m.p.h. in the first quarter versus 24 m.p.h. in the 2003 first quarter. Davidson cited the 2003 period as the standard for UP’s performance.
“We still have work to do in getting our performance back to acceptable levels,” said Davidson.
Union Pacific operates a major classification yard in Fort Worth south of Vickery Boulevard.
Union Pacific forecast better profits for the rest of the year, with an estimate of earnings per share of 75-85 cents in the second quarter. Davidson said the railroad “continues to be selective about the new business we’re accepting on the system.”
Analyst Jordan Alleger of Deutsche Bank noted a gain of just 3 per cent in intermodal traffic, suggesting the figure was “on the low side.”
Railroad president Jim Young acknowledged that UP’s intermodal growth has been sluggish and said that was an area where the railroad’s service problems had hurt business growth. He also cited long-term contracts for much intermodal business, which has prevented Union Pacific from renegotiating higher rates needed to overcome higher fuel costs.