Union Pacific’s Earnings To Rise Due To Cost Savings From Productivity Improvements
Union Pacific Corporation. (NYSE:UNP), the Omaha-based railroad company, is set to release its financial performance for the September quarter on 26th October 2017 ((Union Pacific Corporation Invites You To Join Its 3rd Quarter 2017 Earnings Release, Union Pacific News Release)). The market expects the company to post an annual as well as sequential improvement in its revenues, driven by the rebound in coal shipments due to favorable government policies and rising natural gas prices. Further, the impact of the company’s productivity improvement initiatives is likely to boost its earnings for the quarter.
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Key Trends Witnessed During 3Q’17
Unlike its peers who have witnessed strong growth in the coal shipments due to rising natural gas prices and favorable government policies, Union Pacific witnessed a drop of 2% in its coal shipments during the third quarter((Weekly Carloadings Report For Week 39 2017, Union Pacific Website)). However, increased construction activity, particularly of the non-residential variety, has translated into higher rail shipments of commodities such as crushed stone, sand, and gravel. Also, the company saw a rise in its farm and primary forest products, and metallic products in the last three months, which partially offset the impact of lower coal shipments. Thus, overall the company’s shipments remained flat for the quarter. But, since oil prices were higher compared to the same quarter of last year, we expect the company’s fuel surcharge revenue to rise, thereby contributing to overall revenue growth.
Similar to the last quarter, we expect Union Pacific’s productivity improvement initiatives, such as workforce rationalization, close matching of train length to demand((Union Pacific’s Q2 2017 Earnings Call Transcript, Seeking Alpha)), and the lowering of service and repair costs, to deliver cost savings of $100-$110 million in the current quarter. This will put the company on track to achieve its targeted savings of $350-$400 million by the end of the year and boost its bottom line.
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