UP suffers 86% fall in 4th quarter earnings

UP suffers 86% fall in 4th quarter earnings    Union Pacific Corp., the largest U.S. railroad, said that its fourth-quarter net earnings dropped 86 percent to $79 million from $551 million a year earlier, due to high fuel costs, service disruptions and the effect of an exceptional charge for asbestos claims.
   Despite an increase in revenue, UP’s operating income decreased to $204 million in the fourth quarter of 2004 from $589 million during the same period in 2003. Operating margin was 6.3 percent in the latest quarter, down substantially from 19.9 percent in the same quarter last year, with 7.7 points of the decline attributable to the asbestos charge.
   The asbestos charge amounted to $154 million after-tax in the fourth quarter.
   The railroad’s operating margin was also impacted by higher fuel costs and slower operational velocity. UP’s average quarterly fuel price rose to $1.46 per gallon in the fourth quarter, from 89 cents per gallon paid a year ago, increasing quarterly diesel fuel costs by $195 million.
   “High fuel prices and increased operating costs continued to impact earnings,” said Dick Davidson, chairman and chief executive officer of UP.
   Revenue in the fourth quarter increased 8 percent to $3.2 billion. Intermodal revenue in particular grew 11 percent to $607 million.
   UP was one of the West Coast railroads that struggled to cope with the volume of overseas maritime containers during the 2004 peak season.
   Davidson said UP expects the trend of rising revenue to continue “as demand for transportation service exceeds the available supply, giving us an opportunity to improve returns and grow with our customers.”
   For the full year 2004, UP’s net earnings fell 62 percent to $604 million from $1.6 billion in 2003. Operating income was $1.3 billion down 39 percent. Revenue rose 6 percent to $12.2 billion — the first time UP reached an annual revenue of more than $12 billion.
   UP also reported it made capital investments of $1.9 billion in 2004, up from $1.8 billion in the previous year.
   The railroad entered 2005 with a difficult start, with the recent severe storm in California and Nevada.
   “But we continue to believe that 2005 will be a better year for our company,” Davidson said. “As we put the weather challenges behind us, and our new network initiatives gain momentum, we expect to see improvements in both our service to customers and returns to our shareholders.”
   UP’s stock closed down 2.4 percent at $58.94 on the New York Stock Exchange Monday.