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Higher levels of productivity and a fluid network helped Union Pacific Corp. make financial performance strides in the third quarter despite a traffic volume decline and record-high fuel prices.

Diluted earnings per share jumped 38 percent to $1.38, operating revenue increased 16 percent to a quarterly best $4.8 billion, operating income rose 21 percent to a record $1.2 billion and net income jumped 32 percent to $703 million compared with third-quarter 2007 figures.

Pricing gains, increasing fuel cost recoveries and “strong operating productivity” positively impacted UP’s third-quarter earnings, said Chairman, President and Chief Executive Officer Jim Young during the Class I’s earnings conference held this morning.

The railroad boosted average velocity in the quarter to 23.7 mph, up more than 2 mph compared with third-quarter 2007’s average velocity.

“It was out best network velocity in five years,” said Young.

In addition, average terminal dwell time in the quarter dropped to a best-ever 24.4 hours, cars on line decreased to a best-ever 300,000 units and trains starts fell by 5 percent.

Although traffic volume declined 5 percent to 2.4 million units, five of six business groups posted all-time record revenues. Energy revenue jumped 28 percent to $1 billion, agricultural revenue soared 27 percent to $848 million, industrial products revenue increased 15 percent to $906 million, chemical revenue rose 12 percent to $659 million and intermodal revenue went up 9 percent to $842 million compared with third-quarter 2007 totals. Automotive revenue dropped 7 percent to $324 million.

In addition, average revenue per car reached a quarterly record $1,931 and revenue ton-miles increased 1 percent to 145.8 billion.

UP also posted progress with its operating ratio, which improved 1.1 points to 74.9 — the Class I’s lowest post-merger ratio, said Executive Vice President and Chief Financial Officer Robert Knight Jr.

However, quarterly operating expenses rose 14 percent year over year to $3.6 billion primarily because fuel costs jumped 44 percent to $1.1 billion and other expenses increased 43 percent to $218 million. Excluding the fuel and other cost impacts, operating expenses would have risen by 2 percent, said Knight.

Although the average quarterly fuel price increased 59 percent to $3.70 per gallon, UP expects the price to drop to $2.95 per gallon in the fourth quarter, he said. The railroad registered success with fuel-saving initiatives by decreasing diesel consumption in the quarter from 329 million gallons a year ago to 297 million gallons.

Looking ahead to 2009, UP expects the economy to remain weak in the first half, then begin to strengthen slightly in the second, said Young. Earnings are projected to grow in the low double digits because of the “tough economic environment,” he said.

— Jeff Stagl