(Reuters) – Union Pacific said on Thursday it expects a surge in fuel prices, triggered by the conflict in the Middle East, to pressure the railroad operator’s margins, especially in the current quarter.
Fuel prices skyrocketed after the U.S.-Israeli strikes on Iran, squeezing margins for companies across sectors ranging from trucking firms to airlines, making it one of the biggest disruptions since the COVID-19 pandemic.
“We’re paying a little north of $4 a gallon right now here in April. So that will certainly pressure margins, particularly here in the second quarter,” Union Pacific CFO Jennifer Hamann said on a post-earnings call with analysts.
Union Pacific’s operating expenses rose 2.8% to $3.76 billion during the quarter, partly driven by a 7% increase in fuel costs.
However, Union Pacific’s leaner structure and strong pricing helped it top first-quarter profit estimates and nudge away concerns related to higher labor costs and bumpy demand.
Shares of the company rose more than 5% in early trading.
MEGA RAIL MERGER STILL ON TRACK
The results come after Union Pacific signed an $85 billion agreement last year to buy smaller rival Norfolk Southern, a landmark deal to create the first coast-to-coast U.S. freight rail operator.
However, the deal hit a regulatory hurdle in January, when the U.S. Surface Transportation Board sent the deal proposal back for revision due to missing information.
Union Pacific executives on Thursday assured investors that they were on track to file a revised merger application by the end of the month.
“We’re hoping that they (regulators) can speed it up and get through the process,” Union Pacific executives said on a post-earnings call in regard to the deal.
The company reaffirmed its 2026 outlook for earnings per share of mid‑single‑digit growth, and that it was on track for compounded annual growth rate of a high‑single‑ to low‑double‑digit rise through 2027.
Union Pacific earned a first-quarter adjusted profit per share of $2.93, beating estimates of $2.86, according to data compiled by LSEG.
Total operating revenue for the first quarter rose 3.2% to $6.22 billion, meeting analysts’ estimates.
Reporting by Apratim Sarkar and Nathan Gomes in Bengaluru; Editing by Leroy Leo
