Union Pacific Corporation (UNP - Free Report) is slated to release first-quarter 2020 results on Apr 23, before the market opens.
The Zacks Consensus Estimate for first-quarter earnings has been revised 2.6% downward in the past 60 days. Against this backdrop, let’s take a look at the factors that might have shaped the company’s March quarter performance.
Weak freight environment, perhaps worsened by the coronavirus outbreak, is likely to have weighed on volumes in the first quarter. Notably, the Zacks Consensus Estimate for total volumes in the first quarter indicates a 4.4% decline from the sequential quarter’s reported figure. Consequently, freight revenues (accounting for bulk of the top line) are also expected to have been hurt. The consensus mark for freight revenues implies a 4.6% fall from that reported in the fourth quarter of 2019.
Moreover, key segments like Premium and Energy are expected to have performed disappointingly in the soon-to-be-reported quarter. While decline in U.S. light vehicle sales is 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. The Zacks Consensus Estimate for Premium revenues indicates an 11.7% decrease from the sequential quarter’s reported figure. The same for energy revenues suggests a 5.5% decline from the previous quarter’s reported number.
However, the company’s cost-reduction efforts are anticipated to have driven the bottom line. Cost savings might also reflect on the operating ratio (operating expenses as a percentage of revenues).
The proven Zacks model does not conclusively predict an earnings beat for Union Pacific this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. 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 +1.02% as the Most Accurate Estimate is pegged at $1.88, higher than the Zacks Consensus Estimate of $1.86. 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 #4 (Sell).
Highlights of Q4 Earnings
In the last reported quarter, the company witnessed a negative earnings surprise of 0.5%. Moreover, the bottom line decreased 4.7% on a year-over-year basis. Although operating revenues surpassed the Zacks Consensus Estimate, it declined 9% due to 10% decrease in freight revenues. Total business volumes dropped 11%.
Stocks to Consider
Investors interested in the broader Transportation sector may consider Covenant Transportation Group, Inc. , Valaris plc and Golar LNG Limited (GLNG - Free Report) as these stocks possess the right combination of elements to beat on earnings this reporting cycle.
Covenant Transportation has an Earnings ESP of +10.00% and a Zacks Rank #3.
Valaris has an Earnings ESP of +0.27% and aZacks Rank of 3.
Golar LNG has an Earnings ESP of +1,100.00% and is Zacks #3Ranked.
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