(Dow Jones circulated the following on April 24.)
CHICAGO — Union Pacific Corp. (UNP) on Thursday said the closure of factories in China around the time of the Beijing Olympics created a “wild card” for railroad demand in the third quarter.
The largest U.S. railroad by revenue said there could be some impact from the move on the level of Chinese exports the company carries on its domestic network.
Chinese authorities plan to close hundreds of factories around the capital in an effort to reduce air pollution for the Games.
Union Pacific Chairman and Chief Executive Jim Young said there was likely to be a slowdown in Chinese production in the run-up to the Games in August.
“The speculative question is whether they come back from the Olympics as strong,” he said during a conference call with analysts after Union Pacific reported record first-quarter earnings.
Young said he didn’t see an Olympics slowdown as “a big problem,” though it would add to the pressures from the U.S. economic slowdown that will leave the company’s volumes flat this year.
Union Pacific, which operates in the western U.S., reported flat volumes in its first quarter, though it outpaced industry rivals that have seen 2% declines in traffic.
A slowdown in transporting auto and construction materials has been countered by surging growth in commodities and coal that helped the company report a 15% rise in net profits for the March quarter despite soaring fuel costs.
The net income of $443 million, or $1.70 a share, compared with $386 million, or $1.41 a share a year earlier, and was at the top of the company’s prior guidance.
Revenue rose 11% to $4.27 billion, with gains across all of the company’s freight segments, led by agricultural products where sales grew 24%. Union Pacific’s revenue carload volumes were flat but revenue per car rose 11%.
Rising diesel costs will add a sequential $180 million to its fuel bill in the second quarter, when the company expects to report profits of $1.80 to $1.95 a share, just shy of the $1.96 consensus among analysts.
Young said Union Pacific still expects to boost prices by 5% to 6% this year, despite losing some business to trucking companies.
Like other railroads, Union Pacific has been adding fuel surcharges to cover record fuel prices and simultaneously boosting rates, driving earnings even when volume has declined. In the first quarter, average fuel costs jumped 47%.
The company has also been plowing money back into infrastructure. In February, Union Pacific’s board approved a $3.1 billion capital-spending program for 2008, including $1.6 billion for tracks and $840 million to increase network and terminal capacity.
Union Pacific shares were down 0.6% at $134.20 in recent trading.