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Union Pacific (UNP) Q4 Earnings: What Awaits the Stock?
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Leading railroad operator Union Pacific Corporation (UNP - Free Report) is slated to release fourth-quarter 2016 results on Jan 19, before the market opens.
Last quarter, the company reported lower-than-expected earnings. On a year-over-year basis, earnings, declined 9%. Revenues decreased 7% year over year to $5,174 million in the third quarter, edging past the Zacks Consensus Estimate of $5,141.8 million. The bulk of revenues at Union Pacific is derived from freight. A 7% decline in freight revenues hurt the top line. Declining coal shipments weighed on the company's results yet again. Volumes slipped 6%, with coal playing the biggest culprit.
In fact, the Union Pacific stock has underperformed the Zacks categorized Transportation-Rail industry over the last three months primarily due to coal-related headwinds. The stock gained 8.23% compared with the industry, which advanced 8.5% over the same period.
Earnings Whispers
Our quantitative model does not show conclusively that Union Pacific is likely to beat on earnings in the third quarter. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. However, this is not the case as highlighted below.
Zacks ESP: The Earnings ESP for Union Pacific is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.33 per share.
We expect Union Pacific’s fourth-quarter results to be hurt by coal-related headwinds yet again. At the Credit Suisse 4th Annual Industrials Conference, the company's CFO – Rob Knight – stated that overall volumes are expected to decline in the band of 6% to 8% in 2016. Coal is likely to pose the biggest threat in the fourth quarter as volumes of the commodity had declined 11% as of Nov 25. Knight further stated that overall volumes are expected to decrease in low single digits with coal being down in low teens.
Moreover, the opening of the expanded Panama Canal, in 2016, may hurt the company’s business. The train derailment in Oregon has also increased concerns about safety in the railroads industry.
We are, however, impressed with Union Pacific’s efforts to reward its investors through share buybacks and dividend payments. In Nov 2016, the company raised its quarterly dividend payout by 10%. Further, the company's board announced a new share buyback plan that allows it to repurchase up to 120 million common shares by the end of 2020. We are also encouraged by the company's prudent cost management. The company is on track to achieve its operating ratio guidance of around 60% by 2019.
Stocks to Consider
Investors interested in the transportation space may consider the following stocks as our model shows they possess the right combination of elements to post an earnings beat this quarter.
American Airlines Group (AAL - Free Report) has an Earnings ESP of +5% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 27, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 20.48%.
CSX Corp. (CSX - Free Report) has an Earnings ESP of +4.08% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 17, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 4.46%.
Canadian National Railway Company (CNI - Free Report) has an Earnings ESP of +4.55% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 24, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 5.6%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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Union Pacific (UNP) Q4 Earnings: What Awaits the Stock?
Leading railroad operator Union Pacific Corporation (UNP - Free Report) is slated to release fourth-quarter 2016 results on Jan 19, before the market opens.
Last quarter, the company reported lower-than-expected earnings. On a year-over-year basis, earnings, declined 9%. Revenues decreased 7% year over year to $5,174 million in the third quarter, edging past the Zacks Consensus Estimate of $5,141.8 million. The bulk of revenues at Union Pacific is derived from freight. A 7% decline in freight revenues hurt the top line. Declining coal shipments weighed on the company's results yet again. Volumes slipped 6%, with coal playing the biggest culprit.
In fact, the Union Pacific stock has underperformed the Zacks categorized Transportation-Rail industry over the last three months primarily due to coal-related headwinds. The stock gained 8.23% compared with the industry, which advanced 8.5% over the same period.
Earnings Whispers
Our quantitative model does not show conclusively that Union Pacific is likely to beat on earnings in the third quarter. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. However, this is not the case as highlighted below.
Zacks ESP: The Earnings ESP for Union Pacific is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.33 per share.
Zacks Rank: Union Pacific holds a Zacks Rank #3. Though the company has a favorable Zacks Racks, its 0.00% ESP complicates our surprise prediction. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Please note that the Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
Union Pacific Corporation Price and EPS Surprise
Union Pacific Corporation Price and EPS Surprise | Union Pacific Corporation Quote
Factors Likely at Play
We expect Union Pacific’s fourth-quarter results to be hurt by coal-related headwinds yet again. At the Credit Suisse 4th Annual Industrials Conference, the company's CFO – Rob Knight – stated that overall volumes are expected to decline in the band of 6% to 8% in 2016. Coal is likely to pose the biggest threat in the fourth quarter as volumes of the commodity had declined 11% as of Nov 25. Knight further stated that overall volumes are expected to decrease in low single digits with coal being down in low teens.
Moreover, the opening of the expanded Panama Canal, in 2016, may hurt the company’s business. The train derailment in Oregon has also increased concerns about safety in the railroads industry.
We are, however, impressed with Union Pacific’s efforts to reward its investors through share buybacks and dividend payments. In Nov 2016, the company raised its quarterly dividend payout by 10%. Further, the company's board announced a new share buyback plan that allows it to repurchase up to 120 million common shares by the end of 2020. We are also encouraged by the company's prudent cost management. The company is on track to achieve its operating ratio guidance of around 60% by 2019.
Stocks to Consider
Investors interested in the transportation space may consider the following stocks as our model shows they possess the right combination of elements to post an earnings beat this quarter.
American Airlines Group (AAL - Free Report) has an Earnings ESP of +5% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 27, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 20.48%.
CSX Corp. (CSX - Free Report) has an Earnings ESP of +4.08% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 17, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 4.46%.
Canadian National Railway Company (CNI - Free Report) has an Earnings ESP of +4.55% and a Zacks Rank #3. The company, which will release its fourth-quarter results on Jan 24, has an impressive history with respect to earnings per share. The company beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 5.6%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>