reported strong quarterly results Thursday that surged past analysts' expectations, and the leading U.S. railroad effectively declared an end to protracted days of bottlenecked hubs and unreliable service that haunted a merger with
Southern Pacific Railways
Union Pacific said earnings for the quarter rose 143% to $242 million or 95 cents per share, from $96 million or 39 cents per share the year-earlier quarter. Consensus expectations for the quarter were 88 cents, according to
First Call/Thomson Financial
Shares of the stock rallied after the news but sank beneath the weight of the broader market, closing down 4%, or 1 5/8, to 42.
"Union Pacific has clearly turned the corner," said Peter Jacobs, an analyst at
, who rates the stock a buy and thinks it could rise to 60 in 18 months. "Productivity is up, while costs are coming down. Trains are running on time and revenue is growing."
Revenue for the quarter rose 7%, to $2.87 billion, from $2.68 billion a year ago.
Total operating income was impacted by the weak performance of
, the trucking arm of the business, which lost $13 milllion compared with a positive $16 million in the fourth quarter of 1998, excluding a charge for revaluing goodwill.
The railroad said that revenue from transporting commodities were up 8% to $2.5 billion, with lumber leading the group.
"In the upcoming year, Union Pacific will stay the course, with unrelenting focus on growing our business by providing high quality, reliable service," Dick Davidson, chairman and CEO, said in a statement. "We are committed to achieving our vision by translating the tremendous potential of our franchise into tangible results.''
Jacobs sees 2000 earnings in the $3.60 to $3.80 range depending on fuel prices. "In fact, if fuel prices come down to under $20 a barrel, we could see $3.80 to $4," he said.
Union Pacific's improvement was appreciated by some of its customers too.
"There has been remarkable improvement in service and the timeliness," said Alice Saylor, vice president and general counsel for the
American Short Line and Regional Railroad Association
. The organization represents more than 425 small railroads, a quarter of which use Union Pacific. "Many of our members had been significantly impacted last year because of the bottleneck situation."
At the end of 1998, Union Pacific railroad cars were more relics than shipping containers. Its merger with Southern Pacific was sloppy and created congestion. Grain growers from Texas to North Dakota were beaming over the tall chaffs of a bumper crop, ready to harvest and send it to market. But their happiness turned to outrage when they found out the wheat wouldn't be going to the market.
"A year ago the shippers couldn't get rail cars, so grain stayed on the ground and in grain elevators," said Jack Eberspacher, chief executive of the
National Association of Wheat Growers
. The growers have little choice of rail carriers for their crops, he said.
"To be honest with you we haven't heard complaints about U.P. like we did a year ago after the Southern Pacific merger. That's good news because we're basically down to two choices,
or Union Pacific."