Fuel Costs Sink Union Pacific

The railroad operator slashes forecasts because of soaring diesel prices.
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Shares of Union Pacific (UNP) - Get Report skidded Wednesday after the railroad giant cut its fourth-quarter earnings forecast because of rising fuel costs and softer volumes.

The Omaha, Neb., company expects a fourth-quarter profit of $1.70 to $1.80, below its prior projection of $1.90 to $2. Analysts polled by Thomson Financial targeted earnings of $1.98 a share.

As a result of the shortfall, Union Pacific now sees full-year earnings $6.76 to $6.86, below analysts' mean estimate of $7.03.

The company said its diesel fuel costs for the fourth quarter are projected to be more than $200 million than a year ago. In November and December, fuel costs were some $65 million higher than originally expected, Union Pacific said.

"During our October 18th earnings release conference call, we cautioned investors that if fuel costs continued to rise, our financial guidance targets would be at risk," said CFO Rob Knight in a statement. "Fourth quarter earnings will clearly be impacted by the combination of steep fuel cost increases and the recovery delay inherent in the surcharge programs."

Union Pacific also said it experienced an unanticipated decline in volumes, which was largely the result of winter storms this month.

"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 Jim Young, chairman and chief executive.

Rising fuel costs and lower volumes have taken their toll on freight shippers in recent months.

FedEx

(FDX) - Get Report

, for one, recently slashed its guidance for the year

Shares of Union Pacific were sliding $5.22, or 4%, to $124.21. Fellow rail operator Norfolk Southern was down 1.2% to $49.43, while

Burlington Northern Santa Fe

(BNI)

was down 1.2% to $82.74.