(Reuters circulated the following on April 24.)
CHICAGO — No 1 US railroad Union Pacific Corp reported a better-than-expected profit on Thursday, citing strong pricing that offset flat freight volumes, and a lower tax rate.
But the railroad gave a second-quarter earnings outlook that fell below market expectations and said rising fuel costs were likely to affect results for the rest of the year.
“Although we expect continued challenges from a soft economy and high diesel fuel prices in the second quarter and beyond, we’re confident about our future,” Chief Executive Jim Young said in a statement.
The Omaha, Nebraska-based company reported first-quarter net income of $443 million, or $1.70 a share, compared with $386 million or $1.41 a share a year earlier.
Analysts on average had expected earnings per share for the quarter of $1.62, according to Reuters Estimates.
Union Pacific said its profit was boosted by a one-time after-tax gain of $16 million from a lower tax rate of 35.5 percent, down from 37.8 percent a year earlier.
The railroad reported revenue for the quarter of $4.27 billion, up from $3.85 billion a year earlier. Analysts had expected revenue for the quarter of $4.15 billion.
Union Pacific said that although carloads were flat at 2.3 million compared with the first quarter of 2007, average revenue per carload had increased to $1,738 from $1,566.
Like the other major U.S. railroads, Union Pacific has reported strong profits in the past few quarters despite weaker freight volumes thanks to strong pricing power.
Some analysts have questioned whether the railroads will be able to maintain that pricing power if the U.S. economy slides into a recession.
Union Pacific said it expects earnings per share for the current quarter in a range from $1.80 to $1.95, below analyst expectations of $1.96.
In a conference call with analysts, Chief Financial Officer Rob Knight warned that high fuel costs are likely to affect earnings during the rest of the year.
“Fuel costs will be a challenge to earnings throughout the year,” Knight said, adding that the railroad has been paying around $3.40 per gallon for fuel, up from $2.20 a year ago.
Like many other US transport companies, Union Pacific passes on fuel costs to customers via surcharges. The railroad’s surcharges, however, lag about two months behind actual price changes.
For the full year Union Pacific said it expects earnings per share in a range from $7.75 to $8.25. Analysts have forecast 2008 EPS of $8.16.
Union Pacific officials said in the conference call said that a strike by the United Auto Workers union strike against auto supplier American Axle & Manufacturing Holdings Inc is costing it around $15 million in lost revenue per month.
About 3,650 UAW-represented workers went on strike at five American Axle plants in the United States on Feb 26. That strike has forced General Motors Corp to at least partly idle around 30 plants in North America because of parts shortages.
In trade on the New York Stock Exchange, Union Pacific shares were down 74 cents at $134.40.