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Rising operational costs are catching up with Union Pacific Corp.'s earnings. Yesterday, railroad officials said they expect second-quarter earnings to range between 60 and 65 cents per diluted share compared with $1.05 and 63 cents per diluted share in second-quarter 2003 and first-quarter 2004, respectively.

Although second-quarter commodity revenue is expected to increase 5 percent, quarterly operating expenses — including train and engine-service employee hiring and training, and fuel and equipment costs — will hamper earnings.

"At our first-quarter earnings release in April, we advised investors to watch our network velocity, the price of fuel and our business volumes as the three key performance drivers for the second quarter and beyond," said UP Chairman and Chief Executive Officer Dick Davidson in a prepared statement. "Although velocity has stabilized over the last few weeks, we have not yet seen the improvement necessary to reduce costs or drive stronger revenue growth."

UP's average network velocity in April and May was 21.2 mph compared with 23.4 mph in second-quarter 2003, according to the Association of American Railroads. During the first week of June, velocity increased to 21.8 mph. Average terminal dwell time in April and May was 35.4 hours; during June's first week, average dwell time dropped to 33.8 hours.

"Although the return to network fluidity continues to be a slow process, we are confident we have the right initiatives under way to improve operations and restore our service quality," said Davidson. "We are graduating new trainmen into service at a steady pace … [and are] bringing additional locomotives onto the network almost daily, through a combination of both short- and long-term lease acquisitions."