Union Pacific to miss margin forecast as costs mount

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A Union Pacific rail car is parked at the CP Rail Toronto Yard in Scarborough

(Reuters) -Union Pacific Corp on Tuesday warned it would miss full-year margin targets as the U.S. railroad operator battles rising fuel prices and network costs.

A labor crunch and weather-related outages also contributed to “choppy progress” over the last couple of weeks, the company said.

Staff shortages caused by COVID-19 cases are among the challenges facing North American railroad operators, as they struggle to meet higher shipping volumes following a rebound in manufacturing from pandemic lows.

“Inflationary pressures beyond fuel have increased since the beginning of the year, and we now expect our all-in inflation to be around 4% for the full year,” Chief Financial officer Jennifer Hamann said at the UBS Global Industrials and Transportation Conference.

The company is unlikely to meet its forecast for a full-year operating ratio beginning with 55%, but it would improve from the previous year, Hamann added.

Nebraska-based Union Pacific expects its incremental operating margin for the year to drop below the original forecast of mid-60%.

Higher recrew, overtime and locomotive maintenance are driving up network costs.

In April, Union Pacific flagged congestion on tracks that was hurting its ability to meet shipping demand and said cost per employee had increased 6%.

(Reporting by Kannaki Deka and Aishwarya Nair in Bengaluru; Editing by Devika Syamnath)