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Escalating fuel costs are proving to be more of a headwind to Union Pacific Railroad's earnings than previously projected. Yesterday, the Class I announced its fourth-quarter earnings likely will be reduced by 20 cents per diluted share from earlier estimates primarily because of diesel expenses and partially due to softer-than-anticipated traffic volumes in recent weeks related to severe winter storms.

As a result, UP now is forecasting quarterly earnings ranging from $1.70 to $1.80 per diluted share. Full-year earnings also will be impacted and are projected to range from $6.76 to $6.86 per diluted share — still a more than 14 percent increase compared with 2006 earnings, UP said.

Fourth-quarter diesel costs are averaging about $2.60 per gallon, up 34 percent from last year's level. Total fuel costs will increase more than $200 million year over year.

"In November and December alone, fuel costs will be approximately $65 million higher than originally anticipated," UP officials said in a prepared statement. "However, the fuel surcharges on these higher costs will not be recovered until 2008."

In addition, carloadings the past two weeks are off about 3 percent from last year's level. UP now expects fourth-quarter volume growth to be similar to the third quarter's 1 percent increase.

Last week, Canadian Pacific Railway announced its full-year earnings might be at the bottom of, or below, a previously reported $4.30 to $4.45 per share range because of harsh weather conditions and a fuel recovery program lag.