Union Pacific Lifts Profit Forecast on Higher Rates, Lower Expenses

Union Pacific Corp., the largest U.S. railroad, raised its first-quarter profit forecast Tuesday because of higher rates and lower-than-expected costs from storms that halted service in Southern California in January.

Earnings per share are expected to be 43 cents to 48 cents, up from its previous forecast of 25 cents to 35 cents, the Omaha-based company said.

Shipments have increased for grains such as wheat and rice and building materials including rock for highways, it said.

Union Pacific shares climbed to their highest price in almost eight years on the news.

Railroads in general have raised rates as imports from Asia -- which increased 17% in January -- boosted demand.

Union Pacific also cut its estimate of storm-related costs to about $115 million from $200 million.

“Because we were able to restore normal service quicker” after the storms, “we were able to bring back business quicker than we thought possible,” Chief Executive Richard Davidson said in a conference call with analysts and reporters.

Jason Seidl, an analyst at Nashville-based Avondale Partners, said Union Pacific was “doing the right things” as it recovered from the rains and mudslides and from delays last year caused by crew shortages.

The new forecast “probably would be higher, but diesel fuel is cutting into their gains,” Seidl said.

For the quarter, the average estimate of 14 analysts surveyed by Thomson First Call was 35 cents a share. Net income in 2004’s first quarter was $165 million, or 63 cents a share.

Shipments from Asia are driving gains at ports in Los Angeles and Long Beach, which handle at least 40% of such goods. Long Beach, the nation’s second biggest after Los Angeles, said its business rose 58% in February from a year earlier.

Union Pacific in 2004 struggled with delays -- particularly in California -- as shipments rose and the company ran short of train crew workers. That contributed to a 43% drop last year in net income to $604 million, or $2.30 a share.

The company said revenue would rise about 8%, compared with an earlier estimate of 4% to 6%, mainly because of higher rates. Freight volume in carloads probably will rise 1% this quarter, with the rest of the revenue gain coming from rate increases and from extra charges to customers because of higher fuel prices. Union Pacific raised its estimate of diesel prices to an average of $1.43 a gallon from a range of $1.30 to $1.35.

Union Pacific said the storm damage would reduce operating income by about $55 million, down from an earlier estimate of $100 million, and would boost capital spending by $60 million, a drop from its initial $100-million projection.

Union Pacific shares rose $3.28, or 5%, to $69.35 on the New York Stock Exchange. They traded as high as $69.97, the highest since August 1997.