Weather Batters Railroad

Union Pacific Corp. said Monday that its fourth-quarter profit plunged 86% from a year earlier, as the big railroad was beset by congestion and ugly weather.

Storms and heavy rainfall in the West caused even more havoc in the current quarter. The costs of mudslides and flooding in California and Nevada earlier this month may add up to about $200 million in repair bills and lost revenue, though insurance should cover part of the loss, Union Pacific said.

The financial hit, worse than some analysts realized, is expected to send Union Pacific’s first-quarter earnings well below Wall Street’s expectations.

Richard Davidson, Union Pacific’s chairman and chief executive, told a meeting of analysts that even now, “the railroad isn’t completely up to snuff or up to its pre-flood capacity. It will take some time before we get these lines back up to full speed.”

Four of Union Pacific’s five major routes in and out of the Los Angeles Basin were closed at various times after the storms struck. The last two were reopened Monday morning for limited service as repairs continued.

One of the two connects Los Angeles to the San Francisco Bay Area and also is used by Amtrak and the Metrolink commuter service; the other connects Southern California with Las Vegas, Salt Lake City and the Midwest.

Union Pacific is the nation’s largest railroad with 33,000 miles of track.

Even before the storms this month, it was grappling with surging demand from freight shippers and its own congestion problems.

The Omaha-based railroad aggressively hired more employees and acquired new equipment. But in the fourth quarter, the average speed of its trains -- a measure of its efficiency -- slipped and too many of its carloads sat idle because of bottlenecks. Wet weather in late December added to the problems.

“We really fell off in the fourth quarter,” Union Pacific President James Young told the analysts.

Net income in the quarter that ended Dec. 31 plummeted to $79 million, or 30 cents a share, from $551 million, or $2.12 a share, a year earlier.

The latest results included an after-tax charge of $154 million, or 58 cents a share, related to previously announced asbestos-related claims against the railroad. Union Pacific’s fourth-quarter revenue rose 8% to $3.22 billon from $2.97 billion.

Citing the costs of the storms and rising fuel prices, Union Pacific anticipates earnings for the current quarter to range from 25 cents to 35 cents a share. Wall Street had expected the railroad to earn 58 cents a share, according to analysts surveyed by Thomson First Call.

James Valentine, an analyst at Morgan Stanley & Co., said in a note to clients that he was looking for profit of 50 cents a share in the first quarter, because he “had assumed only a $25-million hit” to Union Pacific from the storms.

The $200-million estimate of the flood damage could be revised, Davidson said. “We’re still trying to sort through things.”

Union Pacific is benefiting from continued growth in freight traffic, which exceeds the number of trains available in many regions and has enabled the railroad to raise prices, Davidson said.

“The opportunities today are better, honestly, than at any time since deregulation” in 1980, he said. But he acknowledged that the railroad was struggling to cope with the rise in demand, saying: “We’re absolutely committed to turning our performance around this year.”

For all of 2004, Union Pacific’s profit fell 62% to $604 million, or $2.30 a share, from $1.59 billion, or $6.04 a share, the prior year. Its annual revenue rose 6% to $12.2 billion from $11.6 billion.

On Monday, its stock fell $1.47, or 2.4%, to $58.94 a share on the New York Stock Exchange.