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Severe storms in Oregon and the Midwest and record-high fuel prices proved to be stiff headwinds for Union Pacific Corp. in the fourth quarter. But not stiff enough to prevent the Class I from setting a few financial records and posting solid quarterly results.

UP boosted operating revenue 6 percent to a record $4.2 billion and increased operating income 7 percent to an all-time-high $864 million compared with fourth-quarter 2006 totals.

"We reached some financial milestones in a difficult business environment," said UP Chairman, President and Chief Executive Officer Jim Young during the Class I's earnings conference this morning.

Chemical revenue rose 12 percent year over year to $584 million. The traffic segment was a bright spot in 2007 because it was the only one of UP's six commodity groups to post a gain in each quarter, said Executive Vice President of Marketing and Sales Jack Koraleski.

In addition, energy revenue increased 8 percent to $818 million; agricultural revenue rose 7 percent to $719 million; automotive revenue went up 4 percent to $374 million; intermodal revenue increased 4 percent to $755 million despite a 1 percent drop in volume; and industrial products revenue inched up 1 percent to $753 million compared with fourth-quarter 2006 totals.

Average revenue per carload increased 6 percent to $1,638 even though revenue carloads were flat at 2.4 million units.

"Our carloads were up 2.5 percent at the end of November," said Young, adding that weather issues slowed traffic in December.

UP also reported quarterly net income of $491 million, up 1 percent, and operating expenses of $3.3 billion, up 6 percent year over year. Fuel and utilities costs jumped 30 percent to $913 million as the quarterly average fuel price shot up 34 percent to $2.59 per gallon vs. $1.94 per gallon in fourth-quarter 2006.

Fuel costs prevented UP from registering a stellar operating ratio, said EVP and Chief Financial Officer Robert Knight Jr. The Class I's ratio did improve 0.2 points to 79.4 compared with fourth-quarter 2006, but fuel expenses added 3.6 points and storm-related traffic losses and costs added 0.5 points to the ratio, he said.

For the full year, UP set four records: operating revenue reached $16.3 billion (up 5 percent year over year), operating income totaled $3.4 billion (up 17 percent), net income grew to $1.86 billion (up 16 percent) and return on invested capital increased to 8.7 percent.

Revenue carloads decreased 1 percent to 9.7 million units compared with 2006. However, operating expenses rose only 2 percent to $12.9 billion and UP's operating ratio improved 2.2 points to 79.3.

"During the last two years, we've taken 7.5 points off our operating ratio," said Knight.

For a look at how UP's operational changes are driving financial performance, see the cover story in Progressive Railroading's January issue.

— Jeff Stagl