By Apratim Sarkar and Nathan Gomes
April 23 (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.
U.S. average gasoline prices rose above $4 a gallon in March for the first time in more than three years, capping the sharpest monthly rise in decades.
“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.
While some global companies retained their annual forecasts, executives flagged higher costs stemming from transport and raw material costs, particularly linked to disruption in the Strait of Hormuz.
Union Pacific followed suit and reaffirmed its 2026 outlook for earnings per share of mid‑single‑digit growth.
Its operating expenses rose 2.8% to $3.76 billion during the quarter, partly driven by a 7% increase in fuel costs.
Rand Ghayad, chief economist at trade group the Association of American Railroads, told Reuters in April that the higher fuel prices could pressure railroad operators’ margins in the near term, but viewed it as something manageable and temporary.
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.
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, Abhinav Parmar and Nathan Gomes in Bengaluru; Editing by Leroy Leo)
