Union Pacific also said a recent, unexpected decline in freight volumes -- which it blamed on severe winter storms this month -- would eat into earnings.
CHICAGO (Reuters) - Union Pacific Corp <UNP.N>, the No. 1 U.S. railroad, lowered its fourth-quarter earnings outlook by roughly 20 cents per share on Wednesday due to rapidly rising fuel costs, sending its shares down as much as 6 percent.
Union Pacific also said a recent, unexpected decline in freight volumes -- which it blamed on severe winter storms this month -- would eat into earnings.
The Omaha, Nebraska-based company said earnings would be in a range from $1.70 to $1.80 per diluted share, down from its previous forecast of $1.90 to $2.00.
Analysts, on average, had expected earnings for the quarter of $1.98 per share.
!ADVERTISEMENT!Thanks to continued strong pricing so far this year, the U.S. railroads have managed to post stronger profits despite the housing sector slowdown, weaker sales from U.S. domestic automakers and less-than-stellar retail sales.
But analysts have warned that the recent rapid rise in fuel costs will hurt earnings this quarter not only among railroads, but across the entire transport sector.
In a research note, Morgan Stanley analyst William Greene noted that the investment bank recently cut estimates for the railroads as well as package transport giants United Parcel Service Inc <UPS.N> and FedEx Corp <FDX.N> due to fuel costs.
"We would not be surprised if we got another preannouncement or two in freight transports," Greene wrote.
Union Pacific said fourth-quarter diesel costs should average roughly $2.60 per gallon, a 34 percent increase from a year earlier. Union Pacific said diesel averaged $2.43 per gallon in October, then jumped to $2.66 in November and is expected to top $2.70 in December.
In November and December alone, this should mean fuel costs will be approximately $65 million higher than originally anticipated, the railroad said.
Like other U.S. transportation companies, Union Pacific levies fuel surcharges on customers to offset rising fuel costs.
Union Pacific said the higher costs for November and December would not be recovered until 2008, as there is a two-month time lag in its fuel surcharge programs.
With the recent winter storms, it expects fourth-quarter freight volume growth of nearly 1 percent.
"Given the ongoing economic uncertainty, lingering weather challenges and the year-end holidays, it's difficult to estimate volume growth in the last few weeks of the year," Chief Executive Jim Young said in a statement.
Union Pacific shares were down $6.11, or 4.7 percent, at $123.32 on the New York Stock Exchange at midday, after falling as low as $121.36 earlier in the session.
Union Pacific reached a 52-week high of $137.56 on December 12 and a 52-week low of $89.58 on January 10. The company has been trading at 18.46 times estimated earnings, above the sector average of 17.72 times earnings.
Burlington Northern Santa Fe Corp <BNI.N>, the second largest U.S. railroad, has been trading at 16.10 times estimated earnings.
(Reporting by Nick Carey, editing by Derek Caney/Jeffrey Benkoe)
