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Congestion clogs UP's 1Q
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April 23, 1998: 1:04 p.m. ET
Railroad says traffic tie-ups, service woes cut earnings by $260 million
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NEW YORK (CNNfn) - Union Pacific Corp. posted a $62 million loss for the first quarter Monday, reflecting the impact of continued congestion at its railroad subsidiary and the costs of getting the company back on a profitable track.
Results for the quarter matched analysts' expectations of a 25 cent loss per diluted share. Union Pacific said the congestion problems reduced earnings by about $260 million, or $1.05 per diluted share.
A year earlier, UP earned $128 million, or 52 cents a diluted share.
Union Pacific, the largest rail company in North America, runs 36,000 route miles of track in 23 states, as well as in Canada and Mexico. The company, which acquired rival railroad Southern Pacific in 1996, provides rail freight transportation through its subsidiary, Union Pacific Railroad Co.
Digesting the Southern Pacific acquisition, however, has proven easier on paper than in practice, leading to widespread service delays and gridlock.
The congestion woes pushed revenues down 11 percent to $2.59 billion from $2.81 billion, as operating costs increased 1 percent to $2.53 billion.
Reflecting investor edginess, shares of Union Pacific (UNP) were off 7/16 at 55-11/16 in midday composite trading on the New York Stock Exchange, despite assurances from UP that the company is continuing its efforts to alleviate congestion and restore normal service.
(Click here to see Union Pacific's one-year intraday stock chart)
The results included an after-tax expense of $18 million, or 7 cents a diluted share, associated with the Southern Pacific merger.
"This has been another difficult quarter," said Dick Davidson, Union Pacific's chief executive officer.
Back on a smoother track?
Davidson added, however, that he believes the company had finally turned a bend.
"While congestion made the accomplishment of key merger milestones in the Gulf Coast region more difficult," he said, "we are cautiously optimistic that the railroad is making progress in its return to normal operations. To complete our recovery, we know that we must regain the confidence of our customers through sustained consistent quality service."
Analysts tended to concur.
"Over the last two to three weeks we've seen probably the most dramatic improvement" in clearing up the congestion, said Terrence Gardner, an analyst with Deutsche Morgan Grenfell.
Gardner cited a recent industry report indicating that Union Pacific's trains were moving at a faster clip, and that the frequency of so-called "blocked sidings" -- whereby one train must pull on to a siding to allow another to pass on a single-track line, wasting valuable time -- has improved substantially.
"I think what investors are starting to focus on," Gardner added, "is when the operations are going to turn and when Union Pacific can start to run more normal service levels."
Union Pacific said its secondary trucking business, Overnite Transportation Co., which specializes in less-than-truckload shipments, reported a 20 percent rise in revenues and a 13 percent jump in traffic.
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