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Union Pacific (UNP) Up 0.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Union Pacific (UNP - Free Report) . Shares have added about 0.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Union Pacific due for a pullback? 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 Q4

Union Pacific's earnings (excluding 31 cents from non-recurring items) of $2.36 per share beat the Zacks Consensus Estimate of $2.25. Moreover, the bottom line increased 16.8% on a year-over-year basis.

Operating revenues of $5,141 million marginally beat the Zacks Consensus Estimate. However, the top line declined 1% on a year-over-year basis due to the reduction in freight revenues (down 1% to $4,803 million). However, the decline in freight revenues was much less when compared to the 11% fall witnessed in third-quarter 2020. This reflects the improving freight conditions in the United States. Moreover, business volumes, measured by total revenue carloads, improved 3% year over year.

Operating income in the fourth quarter declined 4% year over year to $2,006 million. Operating expenses inched up 1% to $3,135 million. Meanwhile, operating ratio (operating expenses, as a percentage of revenues) came in at 61% in the final quarter of 2020 on a GAAP basis. However, when adjusted for the $278 million impairment charge, the metric improved 410 basis points on a year-over-year basis to 55.6%. Operating ratio in fourth-quarter 2020 was positively impacted to the tune of 90 basis points by lower fuel prices. Notably, lower the value of the metric the better.

Moreover, the company’s fourth-quarter effective tax rate declined to 23% from 25.3% a year-ago. In the fourth quarter, Union Pacific repurchased 3.8 million shares at an aggregate cost of $749 million.

Segmental Performance

Bulk (Grain & grain products, Fertilizer, Food & refrigerated, Coal & renewables) freight revenues were $1,562 million, up 1% year over year. Moreover, average revenue per car increased 1% year over year. Meanwhile, revenue carloads were flat year over year.

Industrial freight revenues totaled $1,661 million, down 7% year over year. Also, revenue carloads fell 6% and average revenue per car fell 2% on a year-over-year basis.

Freight revenues in the Premium division were $1,580 million, up 5% year over year. Moreover, revenue carloads rose 9% year over year. Average revenue per car, however, declined 4%.  

Meanwhile, other revenues slipped 6% to $338 million in the fourth quarter.

Liquidity

The company exited the fourth quarter with cash and cash equivalents of $1,799 million compared with $831 million at the end of 2019. Debt (due after a year) amounted to $25,660 million at the end of the quarter from $23,943 million at 2019-end. Debt-to-EBITDA ratio (on an adjusted basis) deteriorated to 2.9 from 2.5 at 2019-end.

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Union Pacific has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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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