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Railroads miss 3Q signal
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October 22, 1998: 2:14 p.m. ET
Union Pacific blames logjams on 84% profit slump; CSX also off track
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NEW YORK (CNNfn) - Two major railroad rivals posted disappointing quarterly earnings Thursday as they contended with a grab-bag of problems ranging from poor cargo flows to bottlenecks on heavily-trafficked routes.
Bedeviled by traffic slowdowns and service problems along its vital Southern California corridor, Union Pacific Corp., the nation's largest railroad, said Thursday its profits plummeted 84 percent in the third quarter but still managed to top Wall Street expectations.
Dallas, Tex.-based Union Pacific said its third-quarter net income fell to $38 million, or 15 cents a diluted share, from $240 million, or 96 cents a share in the year-ago quarter. Wall Street analysts surveyed by First Call had forecast earnings of 12 cents.
CSX Corp., a railroad and container-shipping transportation company that recently paid $4.1 billion for Conrail Inc. under a joint buyout with Norfolk Southern, blamed higher costs associated with the railroad purchase, weak demand, and imbalanced cargo flows for an 8 percent drop in profits for the third quarter ended Sept. 25.
CSX reported earnings of $187 million, or 87 cents a diluted share, down from $206 million, or 96 cents a share a year earlier. The results included a net investment gain of $90 million, or 42 cents a share. from the conveyance of American Commercial Lines to a venture formed with Vectura group.
Operating income fell to $270 million from $384 million, as revenue dipped from $2.6 billion to $2.4 billion.
Shares of Union Pacific (UNP) were up 13/16 at 47-1/4 in early afternoon trading on the New York Stock Exchange Thursday. CSX (CSX) stock slipped 1-1/8 to 40-1/16.
John Snow, CSX's chairman and chief executive officer, expressed dismay with the results, which he said "fell short of our expectations."
In May 1997, CSX and Norfolk Southern Corp., the two railroad powerhouses of the southeastern United States, announced a joint takeover of Conrail, which dominates railroading in the Northeast. Under the deal, CSX paid $4.1 billion in cash and shares for 42 percent of Conrail, while Norfolk ponied up $5.7 billion for a 58 percent stake.
Following the approval of the takeover by CSX's board of director in August, Snow said Thursday the company's priority "is to integrate these operations safely and efficiently into the CSX rail network in early 1999."
Excluding the Conrail investment and one-time items, CSX said net earnings were $118 million, or 56 cents a diluted share, compared with $230 million, or $1.06 a share a year earlier.
Union Pacific said its results were depressed by service problems in Southern California, and traffic delays due to track maintenance and expansion efforts along the company's central corridor, linking Chicago and Salt Lake City, mostly via Nebraska. UP said some of the logjams in its Los Angeles basin had been cleared up.
In August after a deluge of complaints from customers and employees, Union Pacific announced a sweeping overhaul of the railroad aimed at decentralizing operations and alleviating congestion.
The plan marked an effort to bring UP's business practices more in line with management structures already in place at rival companies.
Many of the beleaguered railroad's bottlenecks, analyst say, were brought about by the Asia crisis, which triggered a flood of imports to the United States by battered regions taking advantage of a stronger dollar.
Other worries, however, were caused by in-house turmoil stemming from Union Pacific's merger last year with Southern Pacific Transportation Co. UP's bottom line is yet to fully absorb the after-shocks from that takeover.
Operating revenue at the railroad declined from $2.58 billion to $2.40 billion.
"Financial and operating results are not where they need to be, but we believe we have turned the corner on profitability," said Dick Davidson, Union Pacific's chairman and chief executive officer.
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Union Pacific
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