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Why Is Union Pacific (UNP) Down 1.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for Union Pacific (UNP - Free Report) . Shares have lost about 1.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Union Pacific due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at Union Pacific in Q1

The company’s earnings of $1.93 per share surpassed the Zacks Consensus Estimate by 4 cents. The bottom line also increased 15% on a year-over-year basis primarily due to lower costs. 

Operating revenues came in at $5,384 million, which fell short of the Zacks Consensus Estimate of $5,475.3 million. The figure also decreased 2% year over year due to sluggish freight revenues (down 2%). The downside was due to a 2% decline in business volumes. Bulk of revenues (93.1%) at Union Pacific was derived from freight in the reported quarter.

Operating income in the first quarter increased 1% year over year to $2 billion. Operating ratio (defined as operating expenses as a percentage of revenues) improved to 63.6% from 64.6% a year-ago. Notably, lower the value of the metric the better.

Moreover, Union Pacific bought back 18.1 million shares during the quarter for $3.5 billion. Effective tax rate during the first quarter of 2019 came in at 22.3% compared with 23.4% a year ago.

Segmental Performance

Freight revenues in the Agricultural Products were $1,067 million, down 3% year over year. Revenue carloads declined 7% year over year. However, average revenue per car increased 5%.

Freight revenues in the Energy division were $982 million, down 16% year over year. Also, revenue carloads fell 15% year over year. Moreover, average revenue per car decreased 2% year over year.

Industrial freight revenues totaled $1,410 million, up 5% year over year. Revenue carloads increased 4% year over year. Also, average revenue per car was up 1%.

Freight revenues in the Premium division were $1,551 million, up 3% year over year. Revenue carloads increased 2% year over year. Average revenue per car was flat year over year.

Other revenues improved 6% to $374 million in the first quarter of 2019.

Liquidity

The company exited the quarter with cash and cash equivalents of $1,059 million compared with $1,273 million at the end of 2018. Debt (due after one year) came in at $23,409 million at the end of the quarter compared with $20,925 million at the end of 2018. Debt-to-EBITDA ratio (on an adjusted basis) increased to 2.6 from 2.3 at 2018-end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Union Pacific has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Union Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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