Updated version 3 - Union Pacific exceeded market expectations thanks to strong pricing power, but noted that high fuel costs have impacted the company.

Updated stock data in paragraph 2

Reuters, October 22 - On Thursday, Union Pacific Railroad Company (UNP.N) reported third-quarter profits exceeding Wall Street expectations, thanks to stronger core pricing, but the company also noted that rising fuel prices had an impact.

The railroad company's stock price rose about 2% in early trading.

The conflict in the Middle East has driven up fuel prices, increasing costs for transportation companies and putting pressure on profit margins across industries including trucking, logistics, and aviation. According to the American Automobile Association (AAA), diesel prices (link)—one of the main costs for freight companies—soared to a record high of $6.53 per gallon in September.

Union Pacific Railroad Company stated that despite an improvement in this quarter's operating ratio ((OR)) by 10 basis points to 59.1%, a rise in fuel costs still worsened its operating ratio by 140 basis points.

Driven by higher fuel surcharges, increased freight volumes, and core pricing improvements, operating revenue jumped 15% year-on-year. Excluding fuel surcharges, freight revenue rose by 6%.

"It is not surprising that UNP again delivered quarterly results above expectations, especially given relatively robust freight volumes and service performance throughout the third quarter. Fuel costs may still create apparent pressure on operating revenue," said Evercore ISI analyst Jonathan Chappell.

Meanwhile, the Omaha, Nebraska-based company is seeking to acquire Norfolk Southern Railroad Company for $85 billion, a move that would create America’s first transcontinental freight rail company.

Based on data compiled by London Stock Exchange Group (LSEG), on an adjusted basis, Union Pacific reported earnings per share of $3.53 for the quarter, topping analysts’ forecast of $3.47.

The railroad operator's total operating income for the quarter ended September 30 was $7.2 billion, up from $6.24 billion a year earlier, also beating analysts’ expectations of $7.13 billion.

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