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Post Info TOPIC: It was a good 2Q despite floods


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It was a good 2Q despite floods
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Railroads post solid 2Q profits despite floods
NEW YORK -- Despite rapidly accelerating fuel costs and Midwest floods putting a damper on profits, the nation's two largest railroad's second-quarter profits were boosted by demand for farm products, coal and improving operational efficiency.

Union Pacific Corp., the largest U.S. railroad, said Thursday its quarterly earnings jumped 19 percent from a year earlier and beat analysts' expectations. Burlington Northern Santa Fe Corp., meanwhile, reported a 19 percent decline in net income after the market closed, as costs related to an environmental cleanup overshadowed better pricing and strong segment revenue growth. Excluding one-time costs, BNSF's profit came in above Wall Street's views.

Both companies reported robust growth in shipments of agricultural products such as corn, grain and soybeans.

Revenue from agricultural product carloads jumped 29 percent at Union Pacific, and 36 percent at Burlington Northern.

Burlington Northern said coal revenue grew 16 percent, helped by a growing international appetite for the commodity. Union Pacific said carload revenue for energy-related products, which includes everything from coal to wind turbines, jumped 21 percent.

At Union Pacific, revenue in five out of six commodity segments posted gains in the quarter. Sales from its automotive segment fell 9 percent, reflecting declining U.S. auto production. Burlington Northern saw sales in its segment that includes vehicles, consumer products, rise 12 percent.

Union Pacific's fuel costs leaped 54 percent to $1.16 billion, while Burlington Northern paid 61 percent more for fuel in the quarter.

In an interview with the Associated Press, Union Pacific Chairman and Chief Executive Jim Young said he believes the company can combat high fuel prices and a softening U.S. economy through continued improvements in network efficiency. This includes everything from speeding up its trains to cutting the time they sit in a station.

Young also said that as productivity improves, more customers will flock to the railroad, providing an opportunity for further growth. Young also noted agreements with the eastern railroads -- Norfolk Southern Corp. and CSX Corp. -- as a key driver of future productivity. One-third of Union Pacific's business is through relationships with these railroads.

The executive also said that these improvements and the diversity of its business should offset an expected future decline in auto industry production.

"We don't see anything related to consumer spending -- including autos or the housing market -- to bounce back this year," he said. "That's where the strength of our business in agricultural products and fertilizer really start pay off."

For the third quarter, Union Pacific issued a profit forecast above what Wall Street currently expects, while Burlington Northern offered a guidance range mostly below analysts' forecasts. Both expect strong revenue growth, led farm products and coal, to continue.

Union Pacific shares fell 15 cents to close at $77.18. Burlington Northern Santa Fe shares rose $1.75 to $100.52 in the aftermarket. They closed at $98.77 in the regular session.

(The preceding article by Samantha Bomkamp was distributed July 24, 2008, by the Associated Press.)

July 25, 2008


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