Union Pacific Shares Rise As Profit Tops Estimates

Union Pacific reported a better-than-expected quarterly profit as strong prices and fuel surcharges for the leading U.S. railroad offset an almost 12 percent decline in rail carloads, but the company gave no earnings forecast citing an uncertain economic outlook.

David Zalubowski / AP

"You might as well throw out the old models because they don't work in this environment," Chief Executive Jim Young told Reuters in a telephone interview when asked for more detail on the company's decision not to issue a forecast.

The Omaha-based company on Thursday reported fourth-quarter net income of $661 million, or $1.31 a share, versus $491 million or 93 cents a year earlier.

Analysts on average expected earnings per share for the quarter of $1.23, according to Reuters Estimates.

Union Pacific said revenue in the quarter rose to $4.29 billion from $4.20 billion in the fourth quarter of 2007.

Analysts had expected revenue for the quarter of $4.28 billion.

Even though the railroad did not provide an earnings forecast, it said it expected to raise its core freight prices between 5 percent and 6 percent for 2009.

While overall carloads fell nearly 12 percent in the fourth quarter, automotive carloads decreased 26 percent, industrial products were down 15 percent and agricultural products were down 5 percent.

Revenue per carload rose nearly 16 percent, to $3,472 from $3,006.

Young said the company was taking action to trim costs because of the recession. The company has idled 1,200 locomotives -- which cost around $2 million apiece -- and 48,000 rail cars and has furloughed around 3,100 hourly workers. The railroad's top 148 managers will not receive a salary increase in 2009 and the rest of the company's management will receive "about half" of the original pay raises they had been promised for 2009.

Like the other major U.S. railroads—Burlington Northern Santa Fe , CSX and Norfolk Southern —Union Pacific has reported robust profits in recent quarters due to strong pricing and improved management, despite falling freight volumes as the U.S. economy has weakened.

But analysts have warned that the railroads may not be able to maintain that pricing power if the United States remains in a prolonged economic slump.

"I respect the job that Union Pacific is doing, but eventually the laws of physics are going to kick in," said Shawn Campbell, principal of Campbell Asset Management, which sold its Union Pacific shares last year but still follows the stock. "They're not doing business in a vacuum, they're doing business in the U.S. economy and, pardon my French, but the U.S. economy sucks right now."

"I don't care how well you execute, you can't outrun this thing," he added.

BNSF and CSX have already reported solid profits for the fourth quarter and both have said their prices will go up for 2009.

CSX said overall prices for hauling freight on its network will rise between 5 percent and 6 percent, while BNSF said its prices will increase by "slightly less" than the 6 percent average increase in 2008.

"We think the (fourth-quarter earnings) beat and 2009 pricing growth guidance are positive for shares of Union Pacific," Goldman Sachs analyst David Feinberg wrote in a note for clients."

In early afternoon trade on the New York Stock Exchange, Union Pacific shares were up 2.6 percent to $41.57.

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