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Will Freight Revenues Aid Union Pacific's (UNP) Q1 Earnings?

Union Pacific Corporation UNP is slated to release first-quarter 2019 financial numbers on Apr 18, before the market opens.

Last reported quarter, the company delivered a positive surprise of 2.9%. Moreover, the bottom line improved 39% year over year. Quarterly revenues also surpassed the Zacks Consensus Estimate and increased 6% year over year as well. Higher freight revenues drove such impressive results in the period.
Let’s see, what awaits the company in the first quarter.

Factors Likely at Play

High operating expenses have been hampering Union Pacific’s bottom line for quite some time now and the first quarter is not likely to be any different. Moreover, escalated capital expenditures are further adding to the company’s costs.

However, robust freight revenues on the back of volume growth are expected to boost the top line in the soon-to-be-reported quarter. Notably, at the Stifel 2019 Transportation and Logistics Conference, the company's CFO — Rob Knight — stated that overall volumes for the first quarter rose 4% as of Feb 11. Volumes were especially strong at the premium and industrial segments with the same rising 8% and 9%, respectively.

The Zacks Consensus Estimate for first-quarter freight revenues in the Agricultural segment stands at $1,155 million, higher than $1,098 million reported in the year-ago period. The consensus mark for Industrial Products stands at $1,422 million, above $1,340 million reported in the first quarter of 2018. Meanwhile, the consensus estimate for total freight revenues is pegged at $5,400 million compared with $5,122 million reported in the year-earlier period.

Additionally, the company’s operating ratio (operating expenses as a percentage of revenues), a key measure of efficiency, is anticipated to improve owing to higher revenues. A lower value of operating ratio is more desirable.

Earnings Whispers

Our proven Zacks model shows that a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise. However, that is not the case as highlighted below.

Earnings ESP: Union Pacific has an Earnings ESP of -0.75% as the Most Accurate Estimate is pegged at $1.90 per share, lower than the Zacks Consensus Estimate of $1.91. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Union Pacific carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company’s negative ESP leaves our surprise prediction inconclusive.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Investors interested in the broader Transportation sector may consider Air Lease Corporation AL, Ryder System, Inc. R and SkyWest, Inc. SKYW as these stocks possess the right mix of elements to beat on earnings in the upcoming releases.

Air Lease has an Earnings ESP of +4.41% and is a Zacks #3 Ranked stock. The company will report first-quarter results on May 9.

Ryder is a #3 Ranked stock and has an Earnings ESP of +3.44%. The company is set to release first-quarter earnings numbers on Apr 30.

SkyWest has a Zacks Rank #2 (Buy) and an Earnings ESP of +0.83%. The company is scheduled to announce first-quarter financial figures on Apr 25. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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