ANALYSTS: UP LOSS COULD BE DISASTROUS

ANALYSTS: UP LOSS COULD BE DISASTROUS

Union Pacific Railroad's well-publicized service problems have spawned an expensive guessing game on Wall Street, where industry analysts believe the railroad holding company's fourth-quarter financial results could range anywhere from break-even to a loss of nearly $100 million.

The answers will come Jan. 22 when UP reports its financial performance for a quarter when traffic levels declined sharply because of widespread congestion and delays.UP's results, for now, are a mystery. Some companies give analysts informal guidance about projected results as a quarter progresses, but UP has said only that results could range from near break-even to a substantial loss.

In the fourth quarter of 1996, UP earned $229 million, including a modest loss from its trucking unit, Overnite Transportation.

''The UP situation is well known,'' said Scott Flower, Paine Webber's rail analyst. ''The question is where we end up relative to expectations; it's a question of quality of earnings and operational performance. It's hard to know from the last couple of weeks (of 1997, when operating performance slipped). Some of the more recent data points are showing nice improvement.''

Mr. Flower is anticipating that UP will report close to break-even results.

But veteran rail analyst Tony Hatch believes UP could post a loss approaching $100 million.

Merrill Lynch analyst Michael Lloyd also sees a loss.

''Continued weak carloads at UP indicate that the likelihood of a substantial loss as opposed to break-even (results) has increased,'' he said.

UP's total carloads dropped 12 percent in the fourth quarter, with intermodal traffic dipping nearly 15 percent. December totals showed the loss of carload freight moderated to a 6 percent decline, but the intermodal volume reduction widened to nearly 17 percent.

''With a recrewing rate (for trains that require a costly second crew to reach destination), you have a significantly larger number of people pushing a significantly smaller amount of freight,'' Mr. Hatch said.

Mr. Hatch said he still believes UP can recover financially because it has a valuable franchise.

He estimates that UP's results would push down industrywide earnings by 9 percent in the fourth quarter, compared with 1996 levels.

Analysts were divided about the UP impact on earnings of its major rival, Burlington Northern and Santa Fe Railway.

Citing traffic growth as customers shifted freight between railroads, Mr. Hatch believes BNSF earnings could rise 15 percent.

BNSF boosted fourth-quarter carloads handled by 6 percent and intermodal traffic by 17 percent.

Mr. Flower maintains that BNSF's volume increases may have a different effect.

''Volumes in large quantities have not necessarily begat earnings,'' he said, since BNSF's operations were affected by competitors and were subject to capacity constraints.

He estimated BNSF's earnings would be reduced by 8 cents a share because of an inability to deliver grain cars for loading.

In the East, the Conrail acquisition should continue to dilute earnings for its buyers, CSX Corp. and Norfolk Southern Corp.

Mr. Lloyd said December traffic gains at CSX Transportation would help the company and possibly enable it to match last year's results, despite the additional expense for borrowing and acquisition-related costs. Others believe CSX earnings could be down as much as 10 percent.

An expected 15 percent decline in earnings at two other CSX units - Sea-Land Service Inc. and American Commercial Lines - will hurt results, Mr. Flower said.

''The continued, delayed recovery in grain exports is hurting the barge line, and ongoing rate problems are going to again depress earnings at Sea-Land,'' Mr. Lloyd said.

Norfolk Southern's profit is expected to increase marginally despite an expected 5-cents-a-share reduction in earnings resulting from the Conrail purchase.

Among smaller railroads, Kansas City Southern Railway should ride double-digit volume growth created by UP diversions to a record quarter.