How Is Union Pacific Likely To Have Fared In Q2?

Union Pacific Corporation (NYSE: UNP) is set to release its Q2 financial performance on July 18. We expect the company to post a modest decline in revenues, primarily led by its Energy and Agriculture divisions, amid export headwinds, while Industrial and Premium could continue to see steady growth. However, earnings could grow in high single-digits, led by slight improvement in margins, and lower share count. You can look at our interactive dashboard analysis ~ What To Expect From Union Pacific’s Q2? ~ for more details. In addition, you can see more of our data for industrial companies here.

What are Union Pacific’s key sources of revenues?

• Union Pacific generates its revenues primarily from various commodities freight, including energy, industrial, premium, and agriculture.
• Premium segment includes intermodal freight, which refers to the shipment of containers that can be moved from one form of transport to another. The segment also includes automotive freight.
• Energy segment refers to shipments related to coal, crude oil, sand, and petroleum products.
• Industrial freight revenues are derived from the shipment of industrial commodities.
• Agriculture refers to grains, fertilizers, ethanol, and biofuel related shipments.

Union Pacific’s Revenues Have Largely Been Trending Higher In The Recent Quarters

• Total Revenues for Union Pacific have largely trended higher over the recent quarters, growing from $5.5 billion in Q4 2017 to $5.8 billion in Q4 2018, before declining slightly to $5.4 billion in Q1 2019.
• The growth in 2018 was largely led by capacity constraints in the trucking industry, which benefited railroad companies at large.

Union Pacific’s Revenue Growth In The Recent Quarters Has More Or Less Been Similar To That of Other Railroad Companies

• Union Pacific’s revenue grew at an average rate of 1.0% over the last 5 quarters.
• CSX Corporation’s revenue grew at an average rate of 1.1% during the same period.
• Norfolk Southern’s revenue grew at an average rate of 1.3% over the last 5 quarters.

Revenue Could See Modest Decline In Q2, Led By Energy Freight Segment

• Agricultural freight could decline in low single-digits in Q2, given the trade tensions between the U.S., and China in particular, as it has impacted the grain exports. In fact, the segment saw 7% volume decline in Q1, and this trend could continue in Q2 as well.
• Energy freight could decline in low double-digits in Q2, primarily led by coal, given the company lost one of its  contracts to a competitor. In fact, the segment revenues were down 16% in Q1 for the same reason, and this trend is expected for the full 2019.
• Premium segment, which includes intermodal and automotive freight, saw strong growth in 2018 due to capacity constraints in the trucking industry.  2019 could also turn out well for Union Pacific, as the driver shortage continues to be a headwind for the trucking industry. Looking at Automotive, the U.S. light vehicle sales are expected to decline 2% to 16.8 million units in 2019, and this could offset some of the growth from the intermodal side.
• Industrial freight could grow in mid-single digits, led by chemicals, plastics, and construction related shipments. In fact, the company saw a 12% uptick in construction carloads in the previous quarter, and this trend could continue in Q2 as well, given the growth in overall construction spending.

Earnings Will Likely Grow In High Single-Digits In Q2, Aided By Slight Improvement In Margins, And A Lower Share Count

• We expect the earnings to be $2.13 per share in Q2.
• This reflects 8% growth to the prior year quarter.
• The growth in earnings will likely be led by a slight improvement in margins, along with a lower share count.
• The company last year launched Unified Plan 2020 aimed at better efficiency. This plan should help improve margins and create more reliability for customers, and aid the company’s overall earnings growth in the coming years.
• Our earnings estimate is slightly below the consensus estimate of $2.16 per share.

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