* 2009 price gains seen at 5 pct vs previous 5-6 pct
* Sees fourth-quarter profitability gains
* Business volumes down 15 percent
* Beats analysts estimates with EPS of $1.02
* Shares down 3 percent (Adds details, comments, share activity)
By Carey Gillam
CHICAGO, Oct 22 (Reuters) - Union Pacific Corp (UNP.N) reported on Thursday that quarterly earnings fell 26 percent, and the No. 1 U.S. railroad said that while a year-long drop in freight volumes tied to the recession appears to have stabilized, a quick economic recovery is unlikely.
Results slightly beat expectations, and the company said continued profitability gains are expected for the fourth quarter, helped in part by movement of newly harvested U.S. corn and soybean crops and ethanol. But the company warned that the economy remains weak and there is much uncertainty about the timing of a recovery.
"As we enter the final quarter of 2009, business volumes seem to have stabilized, but at very low levels for Union Pacific," Union Pacific CEO Jim Young said.
Union Pacific shares were down $1.88 or 3 percent at $61.04 in late-morning trading on the New York Stock Exchange after the company offered a more conservative pricing outlook for the full year.
Previously Union Pacific had said 2009 core pricing would likely rise 5-6 percent, but now the company expects the increase over last year to be right at about 5 percent, said Young. Core pricing was about 4 percent for the third quarter.
The Omaha, Nebraska-based company reported third-quarter net income of $517 million, or $1.02 per diluted share, compared with $703 million, or $1.38 per diluted share in the third quarter of 2008.
Analysts had expected earnings for the quarter of $1.00 per share, according to Thomson Reuters I/B/E/S.
Quarterly operating revenue fell to $3.7 billion from $4.8 billion in 2008's third quarter.
The company said it was still suffering the effects of a lingering global economic downturn, and business volumes -- as measured by total revenue carloads -- were down 15 percent versus the third quarter a year ago.
In one bright spot for the rail company, seven-day car loadings did increase 9.5 percent in the third quarter from the second quarter.
Union Pacific benefited from a 59 percent drop in fuel costs to $466 million, as the average price per gallon of diesel dropped to $1.87 from $3.70 a year before. The company also burned about 19 percent less fuel.
The bottom line was helped by an 11 percent drop in headcount.
Dahlman Rose analyst Jason Seidl said the quarterly results held few surprises.
"These are some very, very solid numbers," Seidl said. "In terms of the economy, I think we're in for a slow go."
Union Pacific said its total number of rail carloads fell to 2.04 million from 2.40 million a year earlier. Average revenue per carload fell 12 percent to $1,706 from $1,931.
Freight volumes were down in all of the railroad's divisions, with the greatest carload decline of 29 percent reported for industrial products. Automotive carloads were down 19 percent and energy, or coal, carloads fell 14 percent.
A depressed U.S. construction industry is likely to persist until at least the second quarter of 2010, company officials said.
"The construction season has for all intents and purposes shut down," said Union Pacific's executive vice president of sales, Jack Koraleski. "It's going to be a tough first quarter." (Reporting by Carey Gillam, additional reporting by Nick Carey, editing by Gerald E. McCormick)