Union Pacific (UNP) Q1 Earnings: Surprise In Store?

Leading railroad operator, Union Pacific Corporation (NYSE:UNP) is slated to release first-quarter 2017 results on Apr 27, before the market opens.

In the fourth quarter of 2016, the company’s earnings of $1.39 beat the Zacks Consensus Estimate of $1.34 per share. Also the bottom line climbed 6.11% on a year-over-year basis, aided by lower costs. However, declining coal shipments weighed on the company's results. While, coal revenues (freight) decreased 6% year over year to $699 million, volumes declined 9%.

Lets see what awaits the company in the first quarter.

Earnings Whispers

Our quantitative model does not show conclusively that Union Pacific is likely to beat on earnings in the first quarter. According to our proven model, a company needs the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #3 (Hold) or better – to increase its odds of an earnings surprise. However, this is not the case as highlighted below.

Zacks ESP: The Earnings ESP for Union Pacific is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.23 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Union Pacific holds a Zacks Rank #3. Though the company has a favorable Zacks Rank, its 0.00% ESP complicates our surprise prediction. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Likely at Play

We expect the company’s first quarter results to benefit from improving coal volumes. At the 38th Raymond James Annual Institutional Investors Conference in March, the company's CFO – Rob Knight – stated that coal volumes had improved 15% as of Feb 28. Volumes of agricultural products had improved 3%.

Additionally, we are impressed with Union Pacific’s efforts to reward its investors through share buybacks and dividend payments. In fact, Union Pacific's prudent cost management also encourages us. We believe, the company is on track to achieve its operating ratio guidance of around 60% by 2019. Union Pacific’s peers like Canadian National (NYSE:CNI) and Norfolk Southern (NYSE:NSC) are also aiming to drive earnings growth by controlling costs.

However, other segments including the likes of intermodal and automotive might perform disappointingly in the first quarter. According to Knight, volumes of intermodal, automotive, industrial products and chemicals had declined as of Feb 28.

Another Stock to Consider

Investors interested in the broader transportation space may also consider American Airlines Group (NASDAQ:AAL) as our model shows it possesses the right combination of elements to post an earnings beat in the first quarter.

American Airlines has an Earnings ESP of +3.64% and a Zacks Rank #3. The company will report first-quarter 2017 results on Apr 27.

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