That's after a 1998 the industry would like to forget. Union Pacific's rebound is good news even for Burlington Northern Santa Fe Corp., which came in slightly lower than Wall Street estimates Tuesday. Like UP, CSX Corp. had a positive surprise Friday, outdoing First Call's estimates by 4 cents. For the quarter, the Richmond, Va.-based railroad earned 36 cents a diluted share, excluding an accounting charge.

Union Pacific (UNP), the largest U.S. railroad, "is back," according to Jim Higgins, an analyst with Donaldson Lufkin & Jenrette. It shifted into the black the fourth quarter of 1998. Now for the first quarter it cites "significant strides" in revenue and income.

The Dallas-based railroad earned net income of $129 million, or 52 cents a diluted share, on operating revenues of $2.7 billion comparedwith a year-ago loss of $62 million.

During 1998, it wrote off close to $340 million in claims, said Doug Rockel, an analyst with ING Baring Furman Selz. Trains idled on tracks, computer systems couldn't talk to each other and UP had labor concerns as it tried to combine its operations with Southern Pacific.

It seems to have solved those problems. Rockel expects "very easy" comparisons the rest of the year. Its positive first-quarter surprise contrasts with Burlington Northern Santa Fe Corp. (BNI), the second-biggest U.S. railroad. At 50 cents a share, its came in 2 cents light of First Call's consensus estimate Tuesday. It earned $236 million on revenues of $2.2 billion.

Fort Worth, Texas-based Burlington gained market share all last year from UP. For 1998, its railroad carloads grew 7 per cent, while Union Pacific's fell 5 per cent. That seems to have stopped. "Consensus moves markets, and UP certainly has the momentum now," Rockel said. But railroads are so interlocked, its rebound should help thewhole sector.

"A healthy UP is good for everyone." Burlington is still operating more efficiently than Union Pacific. For the first quarter, it spent just 78.1 cents on every dollar in revenue. UP's expenses ran 85.8 cents, Rockel said.

But UP has investors' attention. In afternoon trading Friday, it was up 10.7 percent for April, to 57 3/16. Burlington Northern fell 1.1 percent for the month.

Railroads "have been in their own little private recession for about a year now," according to Higgins. The trade imbalance with Asia is the main factor hurting them. Union Pacific's problems didn't help.

With railroad traffic heading back to normal, antitrust concerns over its merger are dissipating, Rockel said. He expects improved efficiency this year, helping win back business railroads lost to trucking last year.

Merrill Lynch analyst Michael Lloyd on Tuesday upgraded his 12-month recommendations on six railroad stocks. He shifted Burlington Northern from an accumulate to a buy and Union Pacific andNorfolk Southern from neutral to accumulate.

"The sector has underperformed terribly for the past three years," he said. "Virtually all the bad news that could happen, we think, has happened." Through April 22, the S&P rail index was down 17 per cent from July 31, 1997, when it peaked, he noted. He sees rail stocks as opportunities. "There's a lot of ground to make up."

Several factors fuel Lloyd's optimism. US corn and wheat exports are increasing, with Taiwan and South Korea boosting orders. Shipments of lumber, automobiles and international imports are healthy. Rail is running smoothly for the first time in two years, he said. "As UP gets better, the whole industry gets better."

That should ease antitrust worries in a consolidating industry. The next-largest U.S. railroads, CSX Corp. (CSX) and Norfolk Southern Corp. (NSC), are set to take possession of Conrail's tracks June 1, with 42 per cent and 58 per cent stakes, respectively.

Friday, CSX announced net earnings of $75 million on operatingrevenue of $2.54 billion. Its 36 cent earnings were knocked to 12 cents a share by an accounting change.

Rail earnings "are not satisfactory," CSX Chief Executive Officer John Snow said. But he thinks that will improve.

"The railroad is running well and costs are starting to come down."

Norfolk, Va.-based Norfolk Southern will likely announce first-quarter results April 28.

Analysts are watching the Conrail integration. If that goes smoothly, expect more mergers.

Lloyd figures Burlington Northern will force the issue, coming east to merge with either CSX or Norfolk Southern. "That would leave the other one to merge with Union Pacific."

But after the drama with Union Pacific-Southern Pacific, regulators will be watching the Conrail deal closely, Lloyd said.

"If they screw it up, there probably won't be another rail merger approved, at least in my career."