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Despite widespread flooding in the Midwest, escalating fuel costs and a soft economy, Union Pacific Corp. registered revenue and income gains, and lowered its operating ratio in the second quarter.

The Class I's operating revenue rose 13 percent to $4.6 billion, operating income increased 18 percent to $931 million, net income jumped 19 percent to $531 million and diluted earnings per share soared 24 percent to $1.02 compared with second-quarter 2007 levels.

"It was a solid quarter despite a number of obstacles," said UP Chairman, President and Chief Executive Officer Jim Young during the Class I's earnings conference held this morning. "Fuel became our largest expense item in the second quarter."

UP increased income primarily because of rate increases, higher fuel surcharges and productivity gains. The railroad registered a core pricing gain of 6 percent in the quarter, said Executive Vice President and Chief Financial Officer Rob Knight.

Freight revenue rose 13 percent year over year to a record $4.3 billion. UP set all-time revenue records in four of six business groups: agricultural (up 29 percent to $778 million), chemicals (up 14 percent to $654 million), energy (up 21 percent to $919 million) and industrial products (up 9 percent to $877 million).

"Energy became the first business group to top $900 million in a quarter," said EVP of Marketing and Sales Jack Koraleski.

Intermodal revenue rose 7 percent to a second-quarter record $769 million while automotive revenue tumbled 29 percent to $778 million compared with second-quarter 2007 totals.

The railroad drove up revenue despite lower traffic volume. Revenue carloads totaled 2.4 million units, down 3 percent year over year.

"We estimate the flooding cost us 40,000 loads," said Koraleski.

Although fuel prices jumped 64 percent to $3.60 per gallon compared with second-quarter 2007, UP reduced its quarterly operating ratio 0.9 points to 79.6 — the lowest second-quarter mark since 2002. Fuel expenses, which rose 54 percent to $1.2 billion, added 4.6 points to the ratio, said Knight.

Operating expenses in the quarter totaled $3.6 billion, up 12 percent compared with second-quarter 2007's total. Excluding fuel costs, expenses would have dropped 1 percent, said Knight.

— Jeff Stagl