It has been about a month since the last earnings report for Union Pacific (UNP). Shares have added about 9.5% 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 drivers.
Earnings Beat at Union Pacific in Q2
Union Pacific's earnings of $1.67 per share surpassed the Zacks Consensus Estimate of $1.61. However, the bottom line declined 24.8% on a year-over-year basis. Operating revenues of $4,244 million missed the Zacks Consensus Estimate of $4,399.3 million. The top line also declined 24.2% on a year-over-year basis due to sluggish freight revenues (down 24%). Business volumes, measured by total revenue carloads, declined 20% year over year.
Operating income in the second quarter declined 27% year over year to $1,654 million. Operating expenses contracted 22% to $2,590 million. As a result, operating ratio (operating expenses as a percentage of revenues) deteriorated to 61% from 59.6% in the year-ago quarter due to weak shipments.
Moreover, the company’s second-quarter effective tax rate came in at 24.3% compared with 23.7% in the year-ago quarter. Total capital expenses were$1,599 million in the second quarter.
Bulk (Grain & grain products, Fertilizer, Food & refrigerated, Coal & renewables) freight revenues were $1,386 million, down 17% year over year. Revenue carloads too slid 15%. Moreover, average revenue per car fell 3% year over year.
Industrial freight revenues totaled $1,500 million, down 23% year over year. Also, revenue carloads fell 18% and average revenue per car fell 6% on a year-over-year basis.
Freight revenues in the Premium division were $1,086 million, down 33% year over year. Moreover, revenue carloads dropped 23% year over year. Moreover, average revenue per car declined 13%.
Meanwhile, other revenues slipped 24% to $272 million in the second quarter.
The company exited the June end quarter with cash and cash equivalents of $2,706 million compared with $831 million at the end of 2019. Debt (due after a year) amounted to $26,439 million at the end of the quarter from $23,943 million at 2019-end. Debt-to-EBITDA ratio (on an adjusted basis) deteriorated to 2.9 from 2.5 at 2019-end.
Owing to the COVID-19 led uncertainty looming in the economy, Union Pacific expects its full year 2020 carload volumes to be approximately around 10% compared with 2019 levels.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
Currently, 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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