Union Pacific To See A Surge In Profits Backed By Higher Shipments

by Trefis Team
Union Pacific Corporation
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Union Pacific Corporation (NYSE:UNP), the Omaha-based railroad company, is slated to release its financial performance for the December quarter and full year 2017 on 25th January 2018((Union Pacific Corporation Invites You To Join Its 4rd 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.

See Our Complete Analysis For Union Pacific Corporation Here

Key Trends Witnessed During 4Q’17

  • Increased construction activity, mostly non-residential, coupled with a rise in farm and primary forest products, and metallic products shipments((Weekly Carloadings Report For Week 52 2017, Union Pacific Website)), is expected to drive Union Pacific’s top-line growth for the quarter as well as the full year.
  • Unlike its peers, the railroad company continued to witness a decline in its coal shipments during the fourth quarter. However for the full year 2017, the company saw a rise of 6% in its overall coal shipments, which is expected to augment its revenues further.

  • Apart from this, the average Brent crude oil prices (calculated based on two-month lagged prices) for the December quarter increased almost 14% on a sequential basis, and 16.5% on an annual basis. On a full year basis, the oil prices improved over 25% on a y-o-y basis. As a result, the company is likely to experience a jump in its fuel surcharge revenue for the quarter as well as full year, which will boost its top-line performance.
  • Similar to the last quarter, we expect Union Pacific’s productivity improvement initiatives, such as workforce rationalization, close matching of train length to demand, and the lowering of service and repair costs, to deliver cost savings of $80-$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. Year-to-date, the company has realized savings of $270 million.

  • Lastly, the railroad company has increased its quarterly dividend by 10% to 66.5 cents per share. This indicates that the company’s cash flows and profitability is improving and it is willing to share this growth with its shareholders.

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