(The following story by Joe Ruff of Midlands News Service appeared on the North Platte Telegraph website on May 17.)
OMAHA, Neb. — Union Pacific Corp. said Thursday that it expects earnings per share to grow by an average of more than 10 percent each year through 2012 based on its ability to charge higher prices, attract more business and improve efficiency.
More cash will be available for shareholders, as well, through dividends and share repurchases, Chief Financial Officer Rob Knight told analysts at a meeting on the company in Chicago.
“The percentage of total cash allocated to shareholders is expected to more than double,” Knight said.
Officials at Omaha-based Union Pacific talked about their business two weeks after announcing a two-for-one stock split. The nation’s largest railroad said it had seen its stock price rise to historic highs of more than $140 per share and it wanted its stock to be more accessible to investors.
The five-year plan, which includes 2008, was dubbed “Project Operating Ratio.” The title might earn a “D” for creativity, but it is clearly understood by Union Pacific’s more than 49,000 employees, said Jim Young, chairman and chief executive.
Operating ratio, a measure of efficiency that divides operating expenses by revenue, was projected to improve to the low-70s by 2012 from 79.3 in 2007 and 89.4 in 2004, Union Pacific officials said. Railroads generally strive for operating ratios of 80 percent or lower.
A slow economy has hurt Union Pacific’s automobile business this year, driving it 25 percent below year-ago levels, and it has cut into the railroad’s shipments of industrial products, Young said.
“I don’t see much recovery this year, maybe into part of next year,” Young said.
However, shipments of coal, agricultural products and chemicals have been doing pretty well, Young said.
Union Pacific has forecast 2008 earnings per share growth of 12 percent to 19 percent. Last year, Union Pacific’s net income increased 16 percent to $1.85 billion, or $6.91 a share.
Revenue on the railroad should grow by an average of 6 percent to 8 percent each year through 2012, volume by 2 percent to 3 percent, and what Union Pacific charges to haul goods by 5 percent to 6 percent, officials said. Earnings per share should grow in the “mid-teens” year-over-year, excluding the impact of share repurchases, railroad officials said.
Diesel fuel costs for the period were computed by estimating crude oil prices at about $100 a barrel. The earnings projections were conservative to help account for events that cannot be forecast with certainty, including higher fuel costs, Young said.
But unseen factors — including the potential for increased regulation or environmental concerns hurting demand for coal — could make the projected earnings difficult to meet, Young said.