Why Is Union Pacific (UNP) Up 8.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Union Pacific (UNP). Shares have added about 8.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat at Union Pacific in Q1

Union Pacific Corporation’s earnings of $2.15 per share surpassed the Zacks Consensus Estimate of $1.86. Operating revenues of $5,229 million also beat the Zacks Consensus Estimate of $5,105.9 million.

While the bottom line improved 11.4% on a year-over-year basis, primarily due to low costs, the top line declined 3% year over year due to sluggish freight revenues (down 3%). Business volumes, measured by total revenue carloads, declined 7%.

Operating income in the first quarter increased 9% year over year to $2,143 million. Operating expenses contracted 10% to $3,086 million. As a result, operating ratio (operating expenses as a percentage of revenues) improved to 59% from 63.6% a year ago, driven by efforts to control costs to offset weak shipments.

Moreover, the company bought back 14.3 million sharesworth $2.6 billion in the first quarter. First-quarter effective tax rate came in at 23.1% compared with 22.3% a year ago. Total capital expenses were $807 million in the first quarter.

Segmental Performance

Bulk (Grain & grain products, Fertilizer, Food & refrigerated, Coal & renewables) freight revenues were $1,534 million, down 5% year over year. Revenue carloads too slid 7%. However, average revenue per car increased 2% year over year.

Industrial freight revenues totaled $1,894 million, up 3% year over year. While revenue carloads rose 3%, average revenue per car was flat year over year.

Freight revenues in the Premium division were $1,452 million, down 6% year over year. Moreover, revenue carloads dropped 12% year over year. However, average revenue per car increased 6%.

Meanwhile, other revenues slipped 7% to $349 million in the first quarter.

Liquidity

The company exited the quarter with cash and cash equivalents of $1,130 million compared with $831 million at the end of 2019. Debt (due after a year) mounted to $26,365 million at the end of the quarter from $23,943 million at 2019-end. Debt-to-EBITDA ratio (on an adjusted basis) deteriorated to 2.7 from 2.5 at 2019-end.

Q2 Outlook

Union Pacific expects carload volumes to plunge approximately 25% year over year in the second quarter due to freight softness as a result of coronavirus.

How Have Estimates Been Moving Since Then?

Estimates review followed a downward path over the past two months. The consensus estimate has shifted -12.11% 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. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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

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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