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For the most part, BNSF Railway Co. successfully navigated through the recession’s choppy waters in the fourth quarter to post solid financial results.

Quarterly earnings jumped 23 percent to $1.79 per diluted share compared with fourth-quarter 2007 earnings. The gain can be attributed to “yields, cost control, productivity improvements and declining fuel prices,” said BNSF Chairman, President and Chief Executive Officer Matt Rose during an earnings conference held yesterday.

Fourth-quarter freight revenue increased 3 percent year over year to $4.25 billion primarily because of improved yields and higher fuel surcharges offset by lower volume. Traffic fell 7.3 percent to 2.4 million units.

Coal revenue jumped 19 percent to a record $1 billion while volume rose 1.3 percent to an all-time quarterly high 648,000 units, and agricultural products revenue increased 4 percent to a record $838 million. But industrial products revenue dropped 1 percent to $919 million as volumes dropped 14 percent and consumer products revenue fell 5 percent to $1.4 billion as volumes slipped 8 percent (including a 14 percent decline in automotive traffic).

Fourth-quarter operating income jumped 17 percent to $1.12 billion, operating expenses dropped 1 percent to $3.26 billion and BNSF’s operating ratio improved 3.2 points to 73.7 compared with fourth-quarter 2007 figures.

The drop in expenses can be attributed to a 4 percent decline in compensation and benefit costs (which totaled $937 million), and 4 percent decrease in fuel costs (which totaled $955 million), said Executive Vice President and Chief Financial Officer Tom Hund. The railroad’s fuel prices dropped from $4.01 per gallon in July to $1.94 per gallon in December, he said.

For the full year, revenue rose 14 percent to $18 billion and earnings jumped 19 percent to $6.08 per diluted share compared with 2007’s total. But operating expenses increased 14 percent to $14.1 billion and the operating ratio inched up 0.3 points to 77.6.

This year, all railroads are facing the most difficult economy ever in the United States, said Rose. To survive the recession, BNSF will adhere to four guiding principles: continue to maintain a strong railroad through a maintenance capital program, reduce expenses, maintain financial flexibility and position for an eventual recovery, he said.

One way to cut expenses is to reduce headcount. BNSF plans to slash its headcount 5 percent in the first quarter primarily through attrition and additional furloughs, said Rose.

To help maintain the railroad, the Class I has budgeted the 2009 capital program at $2.7 billion, down about $150 million vs. the 2008 program. BNSF plans to spend $1.9 billion to renew track, signal systems, structures and freight cars, and upgrade technologies. In addition, the railroad expects to acquire 350 locomotives at a cost of about $675 million.

— Jeff Stagl