Union Pacific warns of higher fuel costs, worker shortages
2022.07.21 19:34
FILE PHOTO: A Union Pacific rail car is parked at the Canadian Pacific Railway (CP Rail) Toronto Yard in Scarborough, Ontario, Canada March 20, 2022. REUTERS/Chris Helgren/File Photo
(Reuters) -Union Pacific Corp on Thursday trimmed its full-year operating ratio, while warning of staffing shortages and higher fuel costs, sending the U.S. railroad operator’s shares lower.
Rail congestion, limited crew availability and a slowdown of U.S. manufacturing activity impacted the company’s shipments in the second quarter.
Major U.S. railroad operators, including Berkshire Hathaway-owned BNSF, slashed jobs and mothballed equipment during the pandemic to help reduce costs.
That move is now affecting the railroad operators as they struggle to ship goods to consumers. Demand for commodities in North America continued to remain strong, fueling the need for Union Pacific (NYSE:UNP)’s shipments.
Union Pacific lowered its outlook for full-year operating ratio, a key profitability metric, to 58% from 55%, after it warned last month of missing annual margin targets due to staffing shortages and adverse weather.
“Most of the rails almost certainly cut too deep on labor so that there wasn’t any buffer for demand shocks or service disruptions when they did happen,” Stifel analyst Ben Nolan said.
Union Pacific’s operating ratio worsened to 60.2% from 55.1% in the second quarter.
“We also experienced record high fuel prices and increasing inflation, adding pressure to our total costs,” Union Pacific Chief Executive Officer Lance Fritz said.
“Inventory grew on us and we had to take some pretty significant measures to fix that.”
On an adjusted basis, the company earned $2.93 per share, beating estimates of $2.86, according to Refinitiv data.
The company posted total operating revenue of $6.27 billion, compared with estimates of $6.12 billion.
Union Pacific’s shares fell 1.5% to $211.25.
