Union Pacific upgrades 3rd quarter outlook
Lower fuel costs have contributed to Union Pacific Corp., owners of Union Pacific Railroad, upgrading its third quarter earnings target.
The company is now expecting earnings to be in the range of $1.28 to $1.33 per share, or growth of 28 to 33 percent versus the third quarter 2007. The new forecast exceeds Union Pacific's original earnings projection of $1.10 to $1.20 per share.
“The impact of the hurricanes, as well as generally weaker than anticipated volumes, is expected to be more than offset by lower quarterly diesel fuel prices, ongoing efficiency gains as well as a favorable business mix,” Union Pacific said in a statement.
The average diesel fuel price for the third quarter is expected to be roughly $3.70 per gallon, versus the originally forecasted price of $4.00 per gallon, adding roughly 10 cents per share to Union Pacific's third quarter earnings.
'Since July, crude oil prices have dropped considerably, lowering our diesel fuel expense for the quarter,' said Rob Knight, chief financial officer. 'Because Union Pacific does not yet fully recover higher fuel costs through its various fuel surcharge programs, lower diesel fuel prices help our bottom line. This stronger than expected third quarter performance will change our full year earnings targets as well, but the magnitude is somewhat uncertain as we continue to review our outlook for fourth quarter volumes and fuel price.'
Union Pacific’s third quarter volumes are close to 5 percent lower year-over-year with the decline driven by fewer shipments of finished vehicles, automotive parts and intermodal containers. The company had anticipated a 1 percent to 2 percent quarterly decline.
The company added that although neither Hurricanes Gustav nor Ike caused significant infrastructure damage, its volumes were significantly impacted, particularly in the chemicals and industrial products sectors, as power outages associated with Hurricane Ike limited the ability of customers to resume production. The current third quarter earnings estimate includes a reduction of about 10 cents per share as a result of the hurricanes.