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Union Pacific Corp. overcame a soft economy, soaring fuel costs and a line outage in Oregon to post solid first-quarter financial results.

Freight revenue increased 11 percent to a record $4.1 billion and operating revenue rose 11 percent to $4.3 billion compared with first-quarter 2007 totals. In addition, net income increased 15 percent to $443 million, operating income rose 10 percent to $788 million and diluted earnings per share jumped 21 percent to $1.70.

All six of UP's business groups set first-quarter revenue records and three — agricultural, chemical and energy — hit all-time highs. Agricultural revenue jumped 24 percent, with wheat and export grain volumes up 50 percent and 34 percent, respectively.

Energy revenue increased 17 percent, chemicals rose 11 percent, intermodal went up 5 percent — despite lower traffic and port volumes — industrial products increased 4 percent and automotive rose 3 percent. Although traffic volume was flat at 2.3 million units, revenue per car rose 11 percent year over year to a quarterly record $1,738.

The railroad's "strong fundamentals" — in the form of improved productivity, asset utilization and fluidity — and a diverse traffic base helped the Class I post record earnings despite the soft economic environment, said Chairman, President and Chief Executive Officer Jim Young during UP's earnings conference this morning.

However, quarterly operating expenses increased 11 percent year over year to $3.5 billion primarily because fuel costs jumped 45 percent to $957 million. UP paid an average quarterly fuel price of $2.84 per gallon, up 47 percent compared with first-quarter 2007's average fuel price. In addition, a January mudslide in Eugene, Ore., added $20 million to quarterly expenses, said Executive Vice President-Finance and Chief Financial Officer Robert Knight Jr.

UP's first-quarter operating ratio rose slightly (by 0.2 points) to 81.5 primarily because of fuel-related expenses, which added 3 points to the ratio, said Knight. However, UP did register its best-ever fuel consumption rate in the quarter at 1.283 gallons per thousand gross ton-miles vs. 1.302 last year.

Fuel costs and traffic volumes will be the two key business elements to monitor for the rest of 2008, said Knight. The average fuel price likely will reach $3.40 per gallon in the near term and traffic volumes will be flat or down about 1 percent, he said.

"It'll be difficult to show improvement in the operating ratio because of fuel," said Knight.

Relying on continued productivity gains and operating efficiencies, UP still anticipates second-quarter earnings between $1.80 and $1.95 per share, which would represent growth between 9 percent and 18 percent.

"The opportunities are within our control," said Young.

— Jeff Stagl