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In the first quarter, Burlington Northern Santa Fe Corp. established a few unwanted firsts. Quarterly fuel expenses surpassed $1 billion and fuel became the Class I's largest expense category for the first time.

As a result, BNSF's first-quarter results were good, but not great. Although earnings jumped 18 percent year over year to a record $1.30 per diluted share, "fuel headwinds" decreased potential earnings by 11 cents per diluted share, said BNSF Chairman, President and Chief Executive Officer Matt Rose during the Class I's earnings conference this morning.

In the good news department, freight revenue increased 17 percent to $4.1 billion compared with first-quarter 2007's total as fuel surcharges totaled $280 million more than last year. Agricultural Products revenue jumped 38 percent to an all-time record $866 million primarily because of volume growth in wheat, soybeans, corn and ethanol, coupled with improved yields; coal revenue rose 26 percent to an all-time record $954 million because of volume and yield improvements; industrial products revenues increased 11 percent to a first-quarter record $939 million because strong demand for construction and petroleum products partially offset the weak housing market; and consumer products revenue rose 5 percent to $1.4 billion.

"Although we continue to see economic softness within the consumer products business group and commodities related to housing, clearly we are benefiting from our diverse franchise," said Rose, adding that a fluid network also helped drive results.

In addition, operating income increased 13 percent to $875 million and BNSF's operating ratio decreased 1.5 points to 78.9 compared with first-quarter 2007's totals. However, excluding the effects of high fuel costs, the operating ratio would have been 75, said Executive Vice President and Chief Financial Officer Tom Hund.

Fuel expenses, which jumped 55 percent (or by $357 million) to a little more than $1 billion, accounted for 30 percent of all costs. Total operating expenses rose 15 percent year over year to $3.4 billion.

BNSF execs expect fuel costs to remain a stiff headwind during the remainder of 2008, but higher fuel surcharges ultimately will help drive up revenue, said Rose. Expenses will rise by a mid-teens percentage in the second quarter, with fuel costs accounting for three-fourths of the increase, said Hund. Freight revenue is projected to grow in the mid-teens range in the second quarter despite flat volumes, and post growth in the low double-digits for all of 2008.

— Jeff Stagl