RE Diesel - Union Pacific Cuts Outlook As Fuel Costs Hurt Profit
>>>I have slowly gotten short transportation - more the dropping demand than rising fuel, but both apply. Also a good hedge against the potential for oily equities to pull back on a broad market decline.<<<
By ANDREW EDWARDS
December 19, 2007 9:43 a.m.
Union Pacific Corp. cut its fourth-quarter earnings outlook, saying this fall's record fuel prices and declining December traffic have taken a toll on its bottom line.
The Omaha, Neb., railroad company now expects per-share earnings of $1.70 to $1.80, down from its October forecast of $1.90 to $2. The mean per-share earnings estimate of analysts polled by Thomson Financial was $1.98.
Costs for the diesel fuel that powers Union Pacific's trains have jumped 34% to $2.60 a gallon on average, surging from $2.43 in October to over $2.70 this month.
Chief Financial Officer Rob Knight noted Wednesday that the company cautioned investors two months ago "that if fuel costs continued to rise, our financial guidance targets would be at risk. Fourth-quarter earnings will clearly be impacted by the combination of steep fuel cost increases and the recovery delay inherent in the surcharge programs."
The company uses surcharges on its rates to recover some of the fuel costs, but there is usually a two-month lag in between paying for the fuel and booking the surcharges.
The company said severe winter storms have cut carloadings over the past two weeks by 3% compared with a year earlier. The first two months of the fourth quarter had shown a 2% increase.
"Given the ongoing economic uncertainty, lingering weather challenges and the year-end holidays, it's difficult to estimate volume growth in these last few weeks of the year," said Chairman and Chief Executive Jim Young. |
