A month has gone by since the last earnings report for Union Pacific (NYSE:UNP). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Union Pacific due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Earnings Miss at Union Pacific in Q4
Union Pacific's earnings of $2.02 per share fell short of the Zacks Consensus Estimate by a penny. Moreover, the bottom line decreased 4.7% on a year-over-year basis.
Meanwhile, operating revenues of $5,212 million beat the Zacks Consensus Estimate of $5,165.1 million. However, the top line declined 9% year over year due to sluggish freight revenues (down 10%). The year-over-year contraction in the top line was due to an 11% reduction in business volumes, measured by total revenue carloads.
Operating income in the fourth quarter declined 5% year over year to $2.1 billion. Operating expenses declined 12% to $3.11 billion. As a result, operating ratio (operating expenses as a percentage of revenues) improved to 59.7% from 61.6% a year ago, driven by this railroad operator’s efforts to control costs so as to offset weak shipments. Notably, lower the value of the metric, the better.
Moreover, the company bought back 35 million shares worth $5.8 billion in 2019. Fourth-quarter effective tax rate came in at 25.3% compared with 22.9% a year ago. Total capital expenses were $3.2 billion in 2019.
Segmental Performance
Freight revenues in the Agricultural Products were $1.1 billion, down 2% year over year. Revenue carloads too slid 2% year over year. However, average revenue per car was flat year over year.
Freight revenues in the Energy division were $838 million, down 25% year over year. Also, revenue carloads fell 20% year over year. Moreover, average revenue per car decreased 6%.
Industrial freight revenues totaled $1.41 billion, flat year over year. Revenue carloads and average revenue per car were also unaltered year over year.
Freight revenues in the Premium division were $1.51 billion, down 14% year over year. Moreover, revenue carloads dropped 15% year over year. However, average revenue per car inched up 1% year over year.
Meanwhile, other revenues slipped 2% to $361 million in the fourth quarter of 2019.
Liquidity
The company exited the quarter with cash and cash equivalents of $831 million compared with $1,273 million at the end of 2018. Debt (due after a year) mounted to $23.94 billion at the end of the quarter from $20.93 billion at 2018 end. Debt-to-EBITDA ratio (on an adjusted basis) deteriorated to 2.5 from 2.3 at 2018 end.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months.
VGM Scores
At this time, Union Pacific has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Union Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Original post