Union Pacific seeks to rework some contracts; Flags affected by UAW strike By Reuters

By Ananta Agarwal and Amna Karimi

(Reuters) -Union Pacific is renegotiating some contracts to take into account inflation pressures, the rail operator said on Thursday, warning that it was beginning to feel the impact of the ongoing strike at the three Detroit automakers.

The company said it had taken a flexible approach in the talks as its customers also face similar cost inflation and weak consumer demand for goods.

“We know we have the ability to adjust prices with some of them,” CEO Jim Vena told Reuters.

Shares rose about 3% in afternoon trading as the company beat Wall Street estimates for third-quarter profit thanks to price increases implemented to offset lower volumes.

Vena said the strike’s impact on automakers was “pretty small” at this point, adding that it was present on both the parts and finished vehicle sides.

However, Union Pacific (NYSE:) estimated that the impact would be greater if the strike is prolonged. The United Auto Workers (UAW) union’s strike against Ford Motor (NYSE ), General Motors (NYSE and Chrysler parent Stellantis NV (NYSE ) entered its 35th day on Thursday with little sign of a breakthrough in the agreement.

Union Pacific reported a smaller-than-expected drop in earnings per share to $2.51, according to LSEG data.

Earnings in the quarter were pressured by a 3% drop in cargo volumes as elevated inflation and higher borrowing costs kept consumer demand for goods subdued and an increase in labor costs due to efforts to improve services.

Its operating ratio, a key metric that indicates operating expenses as a percentage of revenue, rose to 63.4% from 59.9% a year earlier. The proportion has increased in the last six quarters.

“I’m not going to sugarcoat our finances. Things cost more to make and move, and people are buying less,” Vena said in a letter to employees.

Quarterly operating income fell 10% to $5.94 billion. Analysts had estimated $5.99 billion.