Union Pacific’s UNP robust cost-cutting initiatives are boosting the company’s operations, backed by improved technology and automation. The shareholder-friendly approach bodes well for the company. However, softness in demand and reduced coal volumes are adversely impacting UNP’s prospects.
Factors Favoring UNP
Core pricing gains, enhanced operational efficiency and the sale of intermodal equipment are boosting Union Pacific’s financial performance.
Union Pacific’s efforts to expand are praiseworthy. In October, the company announced a four-year partnership with US Speedskating, highlighting UNP’s support for athletic achievement and workforce development.
The company's focus on technology and automation across its transportation, mechanical and engineering teams has boosted locomotive productivity in the September-end quarter of 2024 by 5%. These innovations enhance operational efficiency and improve safety. Overall, Union Pacific excels in performance, efficiency and safety, driving sustainable growth.
Moreover, Union Pacific’s bottom line is benefiting from its robust cost-cutting initiatives, boosting the company’s operational efficiency. In the third quarter of 2024, UNP’s operating expenses fell by 2% year over year. This fall was driven by reduced fuel costs and other expenses.
UNP’s safety focus is driving year-to-date improvements in derailments and injuries, positioning the company to become the safest railroad. In the third quarter of 2024, freight car velocity rose 5% year over year to 210 miles per day, with recent performance nearing 220 miles per day. The company also improved the Intermodal and Manifest Service Performance Index by 1 and 5 points, managing a 33% surge in international shipments while minimizing disruptions. UNP is delivering strong safety and operational results.
Union Pacific’s commitment to rewarding its shareholders through dividends and share repurchases is commendable. The company’s shareholders have received $3.2 billion through dividends and share repurchases year to date, including third-quarter repurchases of $738 million.
Shares of Union Pacific have rallied 17.5% in the past year compared with its industry’s growth of 10.5% in the same period.
Image Source: Zacks Investment Research
UNP: Key Risks to Watch
Union Pacific experienced an 18% fall in other revenues in the third quarter of 2024, down by $73 million, driven by several factors, including lower accessorial revenues from intermodal equipment sales, reduced demand for auto parts shipments at the company’s subsidiary, the ongoing transfer of metro operations and a one-time $12 million contract settlement.
Moreover, Coal volumes remain a challenge for UNP due to reduced demand, high inventories and competition from low natural gas prices. Automotive volumes dropped from unplanned production adjustments despite some new business wins.
UNP’s Zacks Rank
United Pacific currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include Ryanair RYAAY and SkyWest SKYW.
Ryanair currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. RYAAY has an expected earnings growth rate of 9.2% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average miss of 31.05%. Shares of RYAAY have risen 12.3% in the past year.
SKYW sports a Zacks Rank #1 at present andhas an expected earnings growth rate of 2.6% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 79.1%. Shares of SKYW have surged 156.5% in the past year.
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