Union Pacific Delivers in 3Q17 Results, But What's Next?

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Union Pacific Delivers in 3Q17 Results, But What's Next? PART 1 OF 7

Union Pacific Beats 3Q17 Earnings Estimates, Stock Zooms 5.6%

UNP’s 3Q17 earnings

On October 26, 2017, dominant Western US railroad Union Pacific (UNP) released its 3Q17 results. The company posted adjusted EPS (earnings per share) of $1.5, just beating the analyst estimate by 0.6%.

Compared with its 3Q16’s earnings of $1.36 per share, Union Pacific reported 10.3% EPS (earnings per share) growth on a YoY (year-over-year) basis. Unlike Class I railroad peer Norfolk Southern (NSC), the Omaha-headquartered rail giant disclosed the impact of recent hurricanes on its 3Q17 EPS.

Union Pacific Beats 3Q17 Earnings Estimates, Stock Zooms 5.6%

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UNP’s stock price reaction

After Union Pacific’s 3Q17 earnings, the stock zoomed 5.6% to close at ~$161.5 per share. In the Western US, the company faces stiff competition from rival BNSF Railway (BRK-B). AAR’s (Association of American Railroads) weekly US rail freight data suggests that UNP has been losing some of its volumes to Berkshire Hathaway’s private Class I railroad.

BNSF Railway posted 6.1% overall freight volume gains for the first nine months of 2017, compared with Union Pacific’s growth rate of 2% during the same period.

Meanwhile, NAFTA (North American Free Trade Agreement) renegotiation concerns remain. President Trump’s views on the trade agreement have raised worries of US railroads (KSU) operating in Mexico. According to UNP CEO (chief executive officer) Lance Fritz, “the impact of the US pulling out of NAFTA would be disastrous.” Fritz added the following: “The conversation we need to be having is how we enhance the NAFTA trading bloc’s capability of competing globally and specifically America’s ability to compete globally.”

Peer group stock returns

In 2017, Union Pacific has returned 12.3%. Its peers railroads have delivered the following returns during the same time frame:

  • Norfolk Southern: 23.3%
  • CSX (CSX): 45.7%
  • Canadian National Railway (CNI): 20.6%
  • Canadian Pacific Railway (CP): 22.1%
  • Genesee & Wyoming (GWR): 5.3%
  • Kansas City Southern (KSU): 23.4%

The Industrial Select Sector SPDR Fund ETF (XLI), which has 8.8% in US railroads and 11.3% airlines, has risen 16.2% since January 1, 2017.

Keep reading this series (below) for a closer look at the company’s revenue and segmental performances. We’ll also look at what the analysts polled by Thomson Reuters say about UNP and its peers.


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