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Union Pacific's (UNP) Q4 Earnings Miss Mark on Cost Woes

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Union Pacific Corporation’s (UNP - Free Report) fourth-quarter 2022 earnings of $2.67 per share fell short of the Zacks Consensus Estimate of $2.75 per share. However, despite being affected by high costs, the bottom line inched up 0.38% on a year-over-year basis.

Operating revenues of $6,180 million also missed the Zacks Consensus Estimate of $6,222.8 million. However,the top line climbed 8% on a year-over-year basis, owing to higher fuel surcharge revenues, volume growth and solid core pricing.

Freight revenues, accounted for 93.3% of the top line, increased 9% to $5,768 million. Business volumes, measured by total revenue carloads, were up 1%.

Operating income in the fourth quarter declined 1% year over year to $2,412 million.

Union Pacific Corporation Price, Consensus and EPS Surprise

Union Pacific Corporation Price, Consensus and EPS Surprise

Union Pacific Corporation price-consensus-eps-surprise-chart | Union Pacific Corporation Quote

Total operating expenses rose 14% to $3,768 million with fuel expenses increasing 43%. Expenses on purchased services and materials increased 18%. The other cost items that have increased year over year in double digits were compensation and benefits, with expense on that front rising 10%.

Operating ratio (operating expenses as a percentage of revenues) deteriorated by 360 basis points to 61% due to high operating expenses. 

Segmental Performance

Bulk (Grain & grain products, Fertilizer, Food & refrigerated, Coal & renewables) freight revenues were $1,933 million, up 7% year over year. Business volumes in the segment declined 3%.

Industrial freight revenues totaled $1999 million, up 5% year over year. Segmental business volumes were flat year over year.

Freight revenues in the Premium division were $1,836 million, up 15% year over year. Segmental business volumes increased 2% year over year.

Other revenues decreased 6% to $412 million in the fourth quarter.

Liquidity & Buyback

Union Pacific exited the fourth quarter of 2022 with cash and cash equivalents of $973 million compared with $960 million at the end of 2021 Debt (due after a year) increased to $31,648 million at the end of the fourth quarter from $27,563 million at 2021-end.

In the reported quarter, Union Pacific repurchased 3.5 million shares at an aggregate cost of $0.7 billion. 

Currently, Union Pacific carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

For full-year 2023, management expects operating ratio to improve. Carloads for 2023 are expected to exceed industrial production. Capital expenditure is expected to be around $3.6 billion (or less than 15% of revenues).

The company expects a dividend payout of approximately 45% (of earnings) in the long term. The excess cash will be used for share buyback program.

Q4 Results of Some Other Transportation Players: A Sneak Peek

Delta Air Lines’ (DAL - Free Report) fourth-quarter 2022 earnings (excluding 19 cents from non-recurring items) of $1.48 per share beat the Zacks Consensus Estimate of $1.29 per share. DAL reported earnings of 22 cents per share a year ago, dull in comparison to the current scenario, as air-travel demand was not so buoyant then.

Delta reported revenues of $13,435 million, which also surpassed the Zacks Consensus Estimate of $13,030.3 million. Driven by the high air-travel demand, total revenues increased more than 41.87% on a year-over-year basis.

United Airlines (UAL - Free Report) reported fourth-quarter 2022 earnings of $2.46 per share, which beat the Zacks Consensus Estimate of $2.07 per share. In the year-ago quarter, UAL had incurred a loss of $1.60 per share when air-travel demand was not as buoyant as in the current scenario.

Operating revenues of $12,400 million beat the Zacks Consensus Estimate of $12,230 million. UAL’s revenues increased 51.37% year over year due to upbeat air-travel demand.


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