Union Pacific Stock Falls on Loss Warning

Union Pacific Corp. shares fell 2.5% on Friday after the largest U.S. railroad surprised analysts by warning it will report a second-quarter loss as track congestion persists and shippers’ claims mount.

Also Friday, Union Pacific lost a regulatory battle when the Surface Transportation Board allowed Amtrak to significantly expand its delivery of express packages and time-sensitive freight shipments.

Union Pacific and other railroads had sought to limit Amtrak’s service to small packages and shipments of no more than 8,000 pounds after learning that Amtrak was carrying express packages and freight over Union Pacific tracks that Amtrak uses primarily for passenger service.

The board denied the freight railroads’ request but said Amtrak must remain primarily a passenger service.

Union Pacific shares lost $1.25 to close at $48.38 on the New York Stock Exchange, after touching a 22-month low of $46.75. Its announcement came after the close of trading Thursday.

The warning--which did not estimate the size of the loss--follows the company’s much-publicized efforts to untangle a rail logjam that is hurting revenue and boosting costs. The second-quarter loss will be the railroad’s third in a row since it began absorbing its 1996 purchase of Southern Pacific Rail Corp., which led to a snarling of U.S. rail freight traffic.

“The company’s got serious problems,” said PNC Bank analyst Charles Vincent. “They haven’t resolved some basic issues.”

One problem is shippers’ claims. Union Pacific has logged millions of dollars in expenses during the last two quarters to pay off customers who said the railroad bungled their deliveries because of the congestion. Analysts weren’t expecting another major expense for claims this quarter.

“It appears that maybe they want to put their best foot forward with the shippers and show them that they’re doing what they can for them,” said Deutsche Morgan Grenfell rail analyst Terry Gardner, who expected a second-quarter profit of 15 cents a share.

Another problem is persistent congestion on parts of the railroad’s 35,000 miles of track in the Western U.S. The backup could be worsened by increasing grain and so-called intermodal, or truck-to-train, shipments, as well as by track maintenance, which is typically done in the summer.

The company is concerned it could be overwhelmed in coming months if grain prices rise and farmers ship two harvests--one from storage and the other from the fields, spokesman John Bromley said.

The railroad has also seen a recent pickup in imports from Asia in the ports of Los Angeles and Long Beach, which means more truck-to-train shipments moving east from California, Bromley said.

Also, trains have been delayed recently because Union Pacific’s crews have taken more time off, Gardner said. He expects more of that from workers who have earned extra overtime pay in the last year and are looking forward to summer vacations.

The logjam began early last summer in Texas when Union Pacific began trying to absorb Southern Pacific Rail, whose system included some of the nation’s most rundown track and equipment.

Vincent is concerned the congestion might simply be shifting around the company’s rail system.