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Why Is Union Pacific (UNP) Down 4.6% 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 4.6% in that time frame, underperforming 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 catalysts.

Earnings Beat at Union Pacific in Q2

United Pacific's second-quarter 2019 earnings of $2.22 per share surpassed the Zacks Consensus Estimate by 10 cents. The bottom line also increased 12.1% on a year-over-year basis primarily due to lower costs.

Operating revenues came in at $5,596 million, which edged past the Zacks Consensus Estimate of $5,576.7 million. The figure, however, decreased 1.3% year over year due to sluggish freight revenues (down 2%). The year over year decline was due to a 4% reduction in business volumes, measured by total revenue carloads. Notably, bulk of revenues (93.6%) at Union Pacific was derived from freight in the reported quarter.

Operating income in the second quarter increased 8% year over year to $2.3 billion. Operating expenses declined 7% to $3.3 billion. Operating ratio (defined as operating expenses as a percentage of revenues) improved to 59.6% from 63% a year-ago driven by the company's efforts to control costs.

Moreover, the company bought back 3.7 million shares during the quarter for $639 million. Effective tax rate during the second quarter of 2019 came in at 23.7% compared with 22.1% a year ago.

Segmental Performance

Freight revenues in the Agricultural Products were $1,155 million, up 4% year over year. Revenue carloads came in flat year over year. However, average revenue per car increased 4%.

Freight revenues in the Energy division were $966 million, down 13% year over year. Also, revenue carloads fell 9% year over year. Moreover, average revenue per car decreased 4% year over year.

Industrial freight revenues totaled $1,494 million, up 4% year over year. Revenue carloads increased 2% year over year. Also, average revenue per car was up 2%.

Freight revenues in the Premium division were $1,621 million, down 2% year over year. Revenue carloads decreased 5% year over year. Average revenue per car increased 4% year over year.

Other revenues inched up 1% to $360 million in the second quarter of 2019.

Liquidity

The company exited the quarter with cash and cash equivalents of $1,049 million compared with $1,273 million at the end of 2018. Debt (due after one year) came in at $22,955 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 2.5 from 2.3 at 2018-end.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

At this time, Union Pacific has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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

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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