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Will Freight Softness Mar Union Pacific's (UNP) Q4 Earnings?

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Union Pacific Corporation (UNP - Free Report) is slated to release fourth-quarter 2019 results on Jan 23, before the market opens.

The Zacks Consensus Estimate for fourth-quarter earnings has been revised 2.1% downward in the past 60 days. Given this backdrop, let’s take a look at the factors that might have shaped the company’s fourth-quarter performance.

Lower volumes due to headwinds ranging from trade tensions to economic slowdown are expected to have dented the company’s top line in the fourth quarter. Per the company’s chief financial officer Robert Knight, overall volumes are expected to have declined more than 10% year over year in the fourth quarter. The Zacks Consensus Estimate for total volumes indicates a 10.8% decline from the year-ago reported figure.

With the anticipated slump in volumes, freight revenues (accounting for bulk of the top line) are also likely to have declined in the quarter. Notably, Union Pacific expects fourth-quarter total revenues to have decreased by a similar percentage as the fall in volumes.

Moreover, key segments like Premium and Energy are expected to have performed disappointingly in the fourth quarter. While decline in U.S. light vehicle sales are expected to have affected the Premium division, suppression in the coal market due to low natural gas prices and weak export demand is anticipated to have hampered the Energy division.

However, the company’s operating ratio is projected to have improved in the fourth quarter on the back of its stringent cost-control measures. Coupled with cost-reduction efforts and productivity savings (courtesy of the Unified Plan 2020), the company’s bottom line is likely to have risen in the soon-to-be-reported quarter.

Union Pacific Corporation Price and EPS Surprise


Union Pacific Corporation Price and EPS Surprise

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

Earnings Whispers

The proven Zacks model does not conclusively predict an earnings beat for Union Pacific in the fourth quarter of 2019. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. 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 -0.79% as the Most Accurate Estimate is pegged at $2.01, lower than 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.

Highlights of Q3 Earnings

In the last reported quarter, the company delivered a negative earnings surprise of 3.1%. However, the bottom line improved 3.3% on a year-over-year basis, primarily owing to lower costs. Meanwhile, operating revenues not only missed the Zacks Consensus Estimate but also declined 7% year over year due to sluggish freight revenues.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Alaska Air Group, Inc. (ALK - Free Report) , Canadian Pacific Railway Limited (CP - Free Report) and Spirit Airlines, Inc. (SAVE - Free Report) as these stocks possess the right combination of elements to come up with an earnings beat in their next releases.

Alaska Air Group has an Earnings ESP of +1.89% and a Zacks Rank of 3. The company will release fourth-quarter earnings numbers on Jan 28.

Canadian Pacific is a #3 Ranked stock and has an Earnings ESP of +0.39%. The company will announce fourth-quarter financial numbers on Jan 29.

Spirit Airlines has an Earnings ESP of +8.23% and is Zacks #3 Ranked. The company is set to report fourth-quarter earnings on Feb 5.

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