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Union Pacific (UNP) Down 2.8% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Union Pacific Corporation (UNP - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the market.

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

Union Pacific Tops Earnings & Revenue Estimates in Q2

Union Pacific's second-quarter 2017 earnings of $1.45 beat the Zacks Consensus Estimate of $1.37 per share. The bottom line expanded 23.93% on a year-over-year basis. Results were aided by higher revenues.

Operating revenues of $5,250 million beat the Zacks Consensus Estimate of $5,162.7 million. Revenues increased 10.1% on a year-over-year basis. The bulk of revenues (93.4%) at Union Pacific were derived from freight in the reported quarter.

Freight revenues increased 11%, thereby boosting the top line. The uptick was owing to volume growth, increased fuel surcharge revenues among other factors.

Operating income in the second quarter rose 21% year over year to $2 billion. Operating ratio (defined as operating expenses as a percentage of revenues) came in at 61.8%, reflecting an improvement of 340 basis points on a year-over-year basis. The metric benefited from higher fuel prices.

During the quarter, the company bought back 7.8 million shares for $850 million. Union Pacific expects the scenario regarding business volumes to improve in the second half of the year.

Segment Details

Agricultural Products freight revenues were $907 million, up 7% year over year. Business volumes increased 3% year over year. Average revenue per car also climbed 3%.

Automotive accounted for $513 million of freight revenues, up 5% year over year. Business volumes were down 1% and average revenue per car climbed 6% year over year.

Chemicals contributed $898 million to freight revenues, up 4% year over year. Business volumes were down 2%, while average revenue per car improved 6%.

Coal revenues (freight) increased 25% year over year to $619 million. Business volumes increased 17% and average revenue per car improved 7% year over year.

Industrial Products generated freight revenues of $1,030 million, up 24% year over year on a 15% growth in business volumes. Average revenue per car was up 8%.

Intermodal segment freight revenues came in at $939 million, up 3% year over year. Business volumes were up 2%, while average revenue per car improved 1%.

Other revenues improved 1% to $344 million in the second quarter of 2017.

Liquidity

Union Pacific exited the quarter with cash and cash equivalents of $1,286 million compared with $1,277 million at the end of 2016. Debt (due after one year) came in at $15,229 million at the end of the quarter compared with $14,249 million at the end of 2016. Adjusted debt-to-capitalization ratio increased to 48.5% from 47.3% at 2016-end.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter.

Union Pacific Corporation Price and Consensus

 

VGM Scores

At this time, the stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a B. Charting the exact same path, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Our style scores indicate that the stock is equally suitable for value and momentum investors.

Outlook

While estimates have been moving upward, the magnitude of the revision is net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.


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