Union Pacific (UNP) Issues Lackluster Guidance for Q4 Volumes

Union Pacific Corporation UNP issued a drab forecast for overall volumes (measured by total revenue carloads) at the Credit Suisse 7th Annual Industrial Conference, thanks to headwinds ranging from trade tensions to economic slowdown. The company’s chief financial officer, Robert Knight, stated that overall volumes for the fourth quarter of 2019 are expected to decrease a little more than 10% on a year-over-year basis.

Notably, the projection pertaining to volumes for the December quarter is worse than that issued by the company in October while releasing its third-quarter 2019 results. At that time, Union Pacific projected fourth-quarter volumes to decline 8% (similar to the drop witnessed in third-quarter 2019).

Given the weak volume projection, the outlook for revenues was obviously dim. At the same conference, Union Pacific stated that its top line for the December quarter was anticipated to decline by a similar percentage as volume. However, due to its pricing actions the magnitude of revenue decline is expected to be less. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $5.38 billion, reflecting a 6.5% year over year decline.

Union Pacific Corporation Price


Union Pacific Corporation Price

Union Pacific Corporation price | Union Pacific Corporation Quote

However, investors were not disappointed by Union Pacific’s projections for fourth-quarter volumes and revenues. Instead, they were apprehensive that the company would issue a worse outlook due to the prevalent tough conditions confronting railroads. As a result, the stock gained 2.1% on Dec 4 to close the trading session at $171.46.

Union Pacific expects its initiatives pertaining to pricing to yield dollars in excess of “rail inflation costs” in 2019. The company still expects to generate current-year productivity savings of at least $500 million through its G55 + 0 initiatives and Unified Plan 2020. Capital expenses for 2019 are projected to be around $3.1 billion.

Additionally, Union Pacific’s outlook with respect to operating ratio (operating expenses as a percentage of revenues) remained unchanged as it looks to check costs for countering revenue woes due to sluggish demand. For the current year, operating ratio is expected to be lower than 61%. By 2020, the metric is expected to be below 60%.

Zacks Rank & Stocks to Consider

Union Pacific carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Zacks Transportation sector are Allegiant Travel Company ALGT, Alaska Air Group ALK and Kansas City Southern KSU. While Allegiant sports a Zacks Rank #1 (Strong Buy), Alaska Air Group and Kansas City Southern carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Allegiant, Alaska Air Group and Kansas City Southern have rallied more than 68%, 9% and 56%, respectively, so far this year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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