Union Pacific tops estimates on pricing strength, flags hit from high fuel costs

Oct 22 — 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 down about ‌1.1% in premarket 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 $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%.

Operating revenue jumped 15% from a year earlier, driven by higher fuel surcharges, alongside volume ‌growth and core pricing gains. Freight ​revenue excluding fuel surcharges increased 6%.

"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 $85 billion deal for Norfolk Southern, which would create the ‌first coast-to-coast freight ‌railroad in ⁠the US.

On an adjusted basis, Union Pacific earned a quarterly profit per share of $3.53, ahead of analysts' estimates of $3.47, according to data compiled by LSEG.

The railroad operator's total operating revenue for ‌the quarter ended September ​30 was $7.2 billion, compared with $6.24 ‌billion a year earlier ⁠and beating ​analysts' estimates of $7.13 billion.

(Reporting by Apratim Sarkar in Bengaluru; Editing by ​Jonathan Ananda)

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