June 17, 2008 / 6:10 PM / 10 years ago

Floods seen hitting transport company results

(Adds comment from Los Angeles, Long Beach ports)

By Nick Zieminski

NEW YORK, June 17 (Reuters) - The worst flooding in the U.S. Midwest in 15 years is expected to reduce second-quarter earnings at railroads, barge companies and trucking firms, but the full extent of the damage may not be clear for weeks.

Flooding has damaged unknown miles of railroad track and bridges. The magnitude of the damage to infrastructure will not be known until flood waters recede, and may require expensive repairs or replacement of track and signals.

Railroad Union Pacific Corp (UNP.N) said on Tuesday floods would reduce second-quarter earnings by about 5 cents per share to the bottom half of its forecast of 90 cents to 98 cents per share, below Wall Street target of 96 cents.

Spokesman Mark Davis said Union Pacific, the No. 1 U.S. railroad, has reopened its North-South line and could resume limited East-West service on Wednesday.

Shares of railroads CSX Corp CSX.N, Burlington Northern Santa Fe Corp (BNSF) BNI.N and Norfolk Southern Corp (NSC.N)all closed down more than 2.5 percent on the New York Stock Exchange. Union Pacific fell 4.7 percent.

"We expect the flooding that hit the Midwest to impact most transportation companies by a couple pennies (per share), mainly because of the increased costs associated with rerouted traffic," said Lee Klaskow, senior transportation and logistics analyst at Longbow Research in New York.

HISTORIC FLOODING

Nearly 300 miles (483 kms) of the Mississippi River are closed to commercial traffic, disrupting shipments of grain, coal and petroleum products as well as transcontinental shipments of goods from West Coast ports.

Some sections will reopen Wednesday, but the entire river will not reopen for at least two weeks. For more, see [ID:nN17367101]

Rail traffic has slowed across Iowa and at interchange points between Chicago and Memphis, Morgan Stanley analyst William Green said in a research note.

"An unprecedented run in fuel prices and a slowing economy were already limiting rails’ second-quarter earnings growth, but historic flooding in the Midwest should only add to the near-term troubles," Green wrote.

"While most effects will be temporary, we worry that damage to the corn crop and track signaling may have longer-term implications for the second half."

Damage to Midwest corn and soybean crops could reduce export shipments, he added.

Green said Union Pacific was hit hardest, followed by BNSF and Canadian National Railway Co (CNR.TO)(CNI.N).

Union Pacific and Norfolk Southern have enacted force majeure — a contract clause citing an unexpected event that removes contract liability — because of flooding, allowing extended deadlines for cargo delivery.

BNSF, which moves coal through Illinois and Iowa, can reroute trains at slower speeds and lower efficiency, cutting revenue by about $12 million a week, according to Merrill Lynch.

Norfolk Southern is not running trains on a 211-mile (340-km) stretch between Missouri and Illinois, said spokeswoman Susan Terpay, adding it is too early to know the impact that rerouting would have on operating costs.

"Customers can expect delays," she said.

QUICK RECOVERY

CSX, which operates rail lines east of the Mississippi, had washouts on its St Louis to Indianapolis route and trucked some shipments, spokesman Garrick Francis said. Traffic from West Coast ports may be affected, delaying goods to the East Coast.

"It’s not any one commodity or market you can point to," Francis added.

Still, companies can bounce back quickly from such disruptions, said Eric Marshall, portfolio manager at Hodges Capital Management, which includes BNSF and Union Pacific among its top 25 holdings.

"There will be a quarter or two with some impact, but then things will get back to normal," he said. "The long term fundamentals remain good."

Lisa Brumfield Hagen, a spokeswoman for Ryder System Inc (R.N), said it has about 16 locations in the affected areas but nontrucking operations have been unaffected so far. She was unable to comment on what shipments would be affected.

Water transportation companies American Commercial Lines Inc ACLI.O and Kirby Corp (KEX.N) were not available for comment. Stifel Nicolaus said closures on the upper Mississippi will erase second-quarter profits at American Commercial.

A spokesman for the ports of Los Angeles and Long Beach said there has been no disruption in moving cargo due to floods in Midwest and they were not expecting any.

Ports spokesman Lee Peterson said cargo from ports shipped to Chicago by rail or truck had been able to take routes unaffected by flooding. (Additional reporting by Scott Malone in Boston, Lisa Shumaker and Erin Zureick in Chicago, and Dan Whitcomb in Los Angeles) (Editing by Maureen Bavdek, Andre Grenon, Leslie Gevirtz)




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