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Union Pacific Stock Falls by 20% in 6 Months on Lower Volumes

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Updated

Misses the estimates

As of June 2015, Union Pacific Corporation (UNP) stock has fallen by about 20% over the past six months and by 4% over the last year. The company’s market capitalization has declined to $84 billion.

Union Pacific reported its 1Q15 earnings with EPS (earnings per share) growth of 9% when compared with the first quarter of the previous year. The company missed analysts’ estimates by $0.07 and reported adjusted EPS of $1.30. It posted quarterly net earnings of $1.2 billion, compared to $1.1 billion a year ago.

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In an April 23 company press release, Lance Fritz, Union Pacific president and CEO (chief executive officer), noted, “Union Pacific achieved 9 percent earnings per share growth in the first quarter, as solid core pricing gains were partially offset by a sharp drop in volume. While we took actions during the quarter to adjust for the volume decline, we did not run an efficient operation. We are taking the steps to align our resources with current demand, while remaining agile in an ever-changing environment.”

Railroad

Union Pacific (UNP) and its principal operating company, Union Pacific Railroad, link 23 states by rail in the western two-thirds of the United States. They’re a critical link in the global supply chain.

Union Pacific operates nearly 9,000 locomotives over 31,974 route miles spread throughout 23 states. It has a variety of businesses:

  • Automotive
  • Agricultural Products
  • Chemicals
  • Coal
  • Industrial Products
  • Intermodal

The company operates from all major West Coast and Gulf Coast ports to eastern gateways. It connects with Canada’s rail systems and is the only railroad company that serves all six major Mexico gateways.

Here are the two major questions we’ll be investigating in this series:

  • Can Union Pacific increase volumes in the upcoming quarters?
  • Is there more downside to the company’s stock price?

Other railroad players

Union Pacific’s revenue increased by 9% in the past 12 months. Let’s compare this to revenues generated by Union Pacific’s peers:

  • CSX (CSX) – 5%
  • Norfolk Southern (NSC) – 3.37%
  • Kansas City Southern (KSU) – 8.77%
  • Genesee & Wyoming (GWR) – 4.49%
  • Canadian Pacific Railway (CP) – 7.94%
  • Canadian National Railway (CNI) – 14.74%

Together, these companies form 7.59% of the Industrial Select Sector SPDR Fund (XLI).

For more on Union Pacific, read Union Pacific: An Investor’s Look at the Largest US Railroad.

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