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Why Is Union Pacific (UNP) Up 7.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Union Pacific (UNP - Free Report) . Shares have added about 7.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Earnings Miss at Union Pacific in Q3

United Pacific's earnings of $2.22 per share fell short of the Zacks Consensus Estimate by 7 cents. However, the bottom line improved 3.3% on a year-over-year basis, primarily owing to lower costs. Meanwhile, operating revenues came in at $5,516 million, missing the Zacks Consensus Estimate of $5,623.2 million. The top line also declined 7% year over year due to sluggish freight revenues (down 7%).

Operating income in the third quarter dipped 2% year over year to $2.2 billion. Also, operating expenses declined 10% to $3.28 billion. Further, operating ratio (operating expenses as a percentage of revenues) improved to 59.5% from 61.7% a year ago, driven by this railroad operator’s efforts to control costs so as to offset the decline in shipments. Notably, lower the value of the metric, the better.

Moreover, the company bought back 6.4 million shares worth $1.1 billion during the quarter. Effective tax rate in the period came in at 23.1% compared with 23.3% a year ago.

Segmental Performance

Freight revenues in the Agricultural Products were $1,123 million, down 1% year over year. Revenue carloads too slid 2% year over year. However, average revenue per car inched up 2%.

Freight revenues in the Energy division were $975 million, down 20% year over year. Also, revenue carloads fell 15% year over year. Moreover, average revenue per car decreased 5% year over year.

Industrial freight revenues totaled $1,485 million, down 1% year over year. However, revenue carloads increased 2% year over year but average revenue per car slipped 3%.

Freight revenues in the Premium division were $1,563 million, down 9% year over year. Moreover, revenue carloads dropped 11% year over year. However, average revenue per car rose 2% year over year.

Meanwhile, other revenues were flat at $370 million in the third quarter of 2019.

Liquidity

The company exited the quarter with cash and cash equivalents of $1,250 million compared with $1,273 million at the end of 2018. Debt (due after one year) totaled $24,314 million at the end of the quarter compared with $20,925 million at last-year end. Debt-to-EBITDA ratio (on an adjusted basis) deteriorated to 2.6 from 2.3 at 2018 end.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -6.64% due to these changes.

VGM Scores

At this time, Union Pacific has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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