By Apratim Sarkar
April 24 (Reuters) – Norfolk Southern said on Friday that surging fuel prices will continue to pressure earnings in the coming quarters after higher fuel costs weighed on margins and pushed first-quarter profit lower.
Fuel prices have climbed sharply in the wake of the U.S.-Israeli war on Iran, adding pressure to margins across energy-intensive sectors including transportation and logistics.
“Fuel is obviously going to be a wild card the remainder of the year, and we anticipate it will be a headwind in the second quarter,” said chief financial officer Jason Zampi on a post-earnings call.
U.S. average gasoline prices rose above $4 a gallon in March for the first time in more than three years, marking the steepest monthly increase in decades.
Chief Executive Mark George said the company navigated the quarter but flagged impacts from a “dramatic rise” in fuel prices in March, severe winter weather and a rapidly shifting macroeconomic environment.
U.S. railroad operators have seen operating costs rise as labor and maintenance expenses remain high, safety spending increases and severe weather disrupts networks.
Zampi said fuel expenses were $31 million higher than last year and more than $40 million above expectations, surging late in March and continuing into the second quarter.
Company executives said fuel surcharge revenue was the most immediate offset to higher fuel costs.
Railway operating revenue for the first quarter remained flat at $3 billion compared with a year earlier.
Atlanta, Georgia-based Norfolk reported an adjusted profit of $2.65 per share for the quarter, compared with $2.69 per share a year earlier.
Union Pacific, which signed an $85 billion deal to buy Norfolk last year, 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.
Shares of the company were down nearly 1% in morning trading.
(Reporting by Apratim Sarkar in Bengaluru; Editing by Tasim Zahid)
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