Union Pacific Corporation (UNP - Free Report) is slated to release third-quarter 2020 results on Oct 22, before market open.
The railroad operator's earnings surpassed the Zacks Consensus Estimate in two of the last four quarters and lagged estimates on the remaining two occasions. The average beat is 3.9%.
Moreover, the Zacks Consensus Estimate for third-quarter earnings has been revised 6.3% upward in the past 60 days.
Against this backdrop, let’s take a look at the factors that might have shaped the company’s September-quarter performance.
We expect Union Pacific's third-quarter 2020 performance to have been dented by tepid freight revenues as was the case in the first two quarters of the year. The Zacks Consensus Estimate for freight revenues indicates a 10.7% decrease from the year-ago quarter’s reported figure.
Freight revenues are likely to have been stung, mainly by the coronavirus-induced depressed volumes. Weakness in the Bulk and Industrial divisions is likely to have weighed on the overall volume picture. The consensus mark for third-quarter overall carload volumes suggests a 4.6% fall from the figure reported in third-quarter 2019.
The bottom-line, however, is likely to have been aided by this railroad operator’s cost-cutting measures. Increased efficiency owing to the precision scheduled railroading model is further likely to have contained costs.
Owing to the cost cuts, the operating ratio (operating expenses as a % of revenues) might have improved in the to-be-reported quarter despite the soft revenue scenario. Notably, lower the value of the operating ratio, the better. The Zacks Consensus Estimate for the operating ratio hints at an uptick to 59% from the year-ago quarter’s reported number of 60%.
The proven Zacks model does not predict an earnings beat for Union Pacific this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. However, that is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings ESP: Union Pacific has an Earnings ESP of 0.00% as the Most Accurate Estimate is in line with the Zacks Consensus Estimate of $2.03. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Union Pacific carries a Zacks Rank #3, currently.
Highlights of Q2 Earnings
Union Pacific's earnings of $1.67 per share surpassed the Zacks Consensus Estimate of $1.61. However, the bottom line declined 24.8% on a year-over-year basis. Moreover, operating revenues of $4,244 million missed the Zacks Consensus Estimate of $4,399.3 million. The top line also fell 24.2% on a year-over-year basis due to sluggish freight revenues (down 24%). Business volumes, measured by total revenue carloads, contracted 20% year over year.
Stocks to Consider
Investors interested in the broader Transportation sector may consider Knight-Swift Transportation Holdings (KNX - Free Report) , United Parcel Service (UPS - Free Report) and C.H. Robinson Worldwide (CHRW - Free Report) as these stocks possess the right combination of elements to beat on earnings this reporting cycle.
Knight-Swift has an Earnings ESP of +6.79% and a Zacks Rank #2, presently. The company will release third-quarter 2020 results on Oct 21.
UPS has an Earnings ESP of +5.40% and a Zacks Rank of 2 at present. The company will release third-quarter 2020 results on Oct 28.
C.H. Robinson has an Earnings ESP of +1.35% and is currently a #2 Ranked player. The company will release third-quarter 2020 results on Oct 27.
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