Union Pacific beat Wall Street estimates for third-quarter profit on Thursday, helped by core pricing gains, but flagged a hit from higher fuel prices.
The railroad’s shares were up about two per cent in early trading.
The Middle East conflict has pushed fuel prices higher, increasing costs for transportation companies and pressuring margins across sectors, including trucking, logistics and aviation. Prices of diesel, a key cost for freight carriers, surged to a record US$6.53 per gallon in September, according to AAA data.
Union Pacific said higher fuel costs hurt its operating ratio (OR) by 140 basis points during the quarter, although the ratio improved by 10 basis points to 59.1 per cent.
Operating revenue jumped 15 per cent from a year earlier, driven by higher fuel surcharges, alongside volume growth and core pricing gains. Freight revenue excluding fuel surcharges increased 6 per cent.
“Another quarterly beat by UNP should not be a big surprise, particularly given the relative strength of volumes and service throughout 3Q. Fuel is likely to remain an optical headwind to OR,” said Evercore ISI analyst Jonathan Chappell.
Meanwhile, the Omaha, Nebraska-based company is chasing an US$85 billion deal for Norfolk Southern, which would create the first coast-to-coast freight railroad in the U.S.
On an adjusted basis, Union Pacific earned a quarterly profit per share of US$3.53, ahead of analysts’ estimates of US$3.47, according to data compiled by LSEG.
The railroad operator’s total operating revenue for the quarter ended September 30 was US$7.2 billion, compared with US$6.24 billion a year earlier and beating analysts’ estimates of US$7.13 billion.
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Reporting by Apratim Sarkar in Bengaluru; Editing by Jonathan Ananda
