(The Union Pacific Railroad issued the following on December 19.)
OMAHA, Neb. — Union Pacific Corporation today announced that fourth quarter 2007 earnings are expected to be reduced by approximately $0.20 per diluted share, primarily reflecting rapidly rising diesel fuel costs and the corresponding lag in fuel surcharge recoveries. The Company has also been experiencing softer than anticipated volumes in recent weeks, which are largely related to recent weather events. As a result, the Company is now forecasting fourth quarter 2007 earnings in the range of $1.70 to $1.80 per diluted share, a reduction from the original forecast of $1.90 to $2.00 per diluted share. Full year 2007 earnings expectations are similarly impacted and are now in the range of $6.76 to $6.86 per diluted share, a more than 14 percent increase versus 2006 earnings of $5.91 per diluted share.
Fourth quarter 2007 diesel fuel costs should average roughly $2.60 per gallon. This would be a 34 percent increase from last year’s fourth quarter level. Diesel fuel costs averaged $2.43 per gallon in the month of October, increased to an average of $2.66 per gallon in November and are expected to be over $2.70 per gallon in December.
The Company’s fuel costs for the fourth quarter 2007 are expected to be over $200 million higher than the fourth quarter a year ago. In November and December alone, fuel costs will be approximately $65 million higher than originally anticipated. However, the fuel surcharges on these higher costs will not be recovered until 2008. On average, there is a two month lag in the Company’s fuel surcharge programs between diesel fuel expense and surcharge recovery.
“During our October 18th earnings release conference call, we cautioned investors that if fuel costs continued to rise, our financial guidance targets would be at risk,” said Rob Knight, Executive Vice President Finance and Chief Financial Officer. “Fourth quarter earnings will clearly be impacted by the combination of steep fuel cost increases and the recovery delay inherent in the surcharge programs.”
In addition, a recent unanticipated decline in volumes, which is largely the result of severe winter storms in December, has increased pressure on earnings. Carloadings in the past two weeks are about three percent lower than last year’s level, in contrast to the two percent year-over-year volume increase in the first two months of the fourth quarter. The Company now expects fourth quarter volume growth to be similar to third quarter 2007 growth of nearly one percent.
“Given the ongoing economic uncertainty, lingering weather challenges and the year-end holidays, it’s difficult to estimate volume growth in these last few weeks of the year,” said Jim Young, Chairman and Chief Executive Officer. “Despite these near-term challenges, Union Pacific’s long-term opportunities remain strong as our productivity and service initiatives continue to gain momentum.”
About Union Pacific
Union Pacific Corporation owns one of America’s leading transportation companies. Its principal operating company, Union Pacific Railroad, is the largest railroad in North America, covering 23 states across the western two-thirds of the United States. A strong focus on quality and a strategically advantageous route structure enable the company to serve customers in critical and fast growing markets. It is a leading carrier of low-sulfur coal used in electrical power generation and has broad coverage of the large chemical-producing areas along the Gulf Coast. With competitive long-haul routes between all major West Coast ports and eastern gateways, and as the only railroad to serve all six major gateways to Mexico, Union Pacific has the premier rail franchise in North America.