Union Pacific 4Q earnings fall but still beat Street

Union Pacific Corp. Thursday said its fourth-quarter profit fell 17% as volume declined 5%, with net income totaling $551 million, of $1.08 per share. UP notched $661 million, or $1.31 per share, in the fourth quarter of 2008. Revenue fell 12 percent to $3.75 billion from $4.29 billion.

But the largest U.S. Class I railroad’s earnings per share beat Wall Street estimates of $1.04 by four cents. Analysts had anticipated quarterly revenue of $3.78 billion.

“Union Pacific’s fourth-quarter earnings reflected the continued impact of the recession that began in 2008,” Chairman and CEO Jim Young said. UP has 4,200 employees furloughed, and 44,000 railcars and 1,600 locomotives stored. Freight revenue again fell across all six of its main businesssegments even though volume improved slightly in its intermodal,agricultural, and automotive sectors.

Young said the economic picture for 2010 looks somewhat more favorable than last year, though the railroad did not provide earnings guidance. UP’s capital expenditures for 2010 are expected to be $2.5 billion (largely in line with 2009), including $200 million allocated for PTC. UP said it would try to put the cost of PTC to chemical shippers, whichare going to require the bulk of the PTCcompliance expenses. Additionally, the railroad expects to spend $150 million of its capital budget on its new Joliet Intermodal Terminal, which is intended to facilitate the conversion of more business from highway to rail.

“Like its eastern counterpart CSX, UP spoke out against current rail legislation (STB reauthorization, a draft of which was recently releaed by the Senate Commerce Committee) and warned that it would cut capital expenditures if costs cannot be recouped,” commented Dahlman Rose & Company Director-Equity Research and Railway Age Contributing Editor Jason Seidl. ”UP believes that the rail bill needs to focus on the railroads’ ability to earn proper returns. We believe that this newly expressed criticism may stem from the company’s belief that some of the recent political events may present a favorable environment for resuscitating opposition to the bill or allow the rail industry to lobby for a new tax credit. In fact, recent events may push the actual passage of rail legislation to 2011 as it does not rank high on the proverbial totem pole on Capital Hill.”