Union Pacific Shares Plunge on Lowered Forecast

No. 1 U.S. railroad Union Pacific Wednesday lowered its fourth-quarter outlook by roughly 20 cents per share due to rapidly rising fuel costs, sending its shares down as much as 6 percent.

Union Pacific also said a recent, unexpected decline in freight volumes - which it blamed on severe winter storms in December - would eat into earnings.

The Omaha, Nebraska-based company said earnings per diluted share would be in a range from $1.70 to $1.80, down from a previous forecast of $1.90 to $2.00.

Analysts had on average expected earnings per share for the quarter of $1.98.

The railroad's fourth-quarter diesel costs should average roughly $2.60 per gallon, up 34 percent increase from a year earlier. Union Pacific said diesel averaged $2.43 per gallon in October, then jumped to $2.66 per gallon in November and are expected to be over $2.70 per gallon in December.

In November and December alone this should mean fuel costs will be approximately $65 million higher than originally anticipated, the railroad said.

Like other U.S. transportation companies, Union Pacific levies fuel surcharges on customers to offset rising fuel costs. However, there is always a time lag before those surcharges take effect.

Union Pacific said the higher costs for November and December would not be recovered until 2008, as there is a two-month time lag in its fuel surcharge programs.

With the recent winter storms, it expects fourth-quarter freight volume growth of nearly 1 percent.

"Given the ongoing economic uncertainty, lingering weather challenges and the year-end holidays, it's difficult to estimate volume growth in the last few weeks of the year," Union Pacific Chief Executive Jim Young said in a statement.

In early trade on the New York Stock Exchange, Union Pacific shares were down $4.81 or 4 percent at $124.62, after falling to as low as $121.36 earlier in the session.