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Union Pacific Gains ~4% after Q4 Earnings Beat Estimates

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Earnings beat estimates

Union Pacific (UNP) stock was trading ~4% higher during the pre-market trading session today after the company reported better-than-expected results for the fourth quarter of 2018. Also, the US railroad company’s top-line and bottom-line results increased significantly on a YoY basis.

Union Pacific’s fourth-quarter EPS of $2.12 surpassed analysts’ estimate of $2.06 and also marked 38.6% growth YoY. Strong revenue growth, efficient cost management, and reduced outstanding shares due to the company’s aggressive share repurchase program mainly drove its fourth-quarter earnings. The company registered strong double-digit earnings growth in all four quarters of 2018.

Revenues for the quarter came in at $5.76 billion, marginally higher than Wall Street analysts’ estimate of $5.74 billion. Quarterly revenues also marked YoY growth of 6% mainly driven by a 3% rise in volumes, higher fuel recoveries, and pricing gains across all major markets.

Due to its efficient cost management, Union Pacific managed to improve its operating ratio (operating expenses as a percentage of total revenues) by 110 basis points to 61.6% compared with 62.7% in the year-ago quarter. As a result, fourth-quarter operating income increased 9% YoY to $2.21 billion.

For the full year, Union Pacific reported revenues of $22.83 billion, which surpassed analysts’ expectations of $22.81 billion and grew 7% YoY as well. EPS of $7.91 beat the consensus estimate by four cents and marked a YoY improvement of 37%.

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The company seems very optimistic about its prospect in 2019. In the earnings release, Lance Fritz, Union Pacific chair, president, and the chief executive officer said, “We are optimistic that continued economic growth, improving service performance and the strength of our diverse franchise will drive positive volume and revenue growth in 2019.” He further added, “We expect operating margins will increase as a result of solid core pricing gains and significant productivity benefits from our G55 + 0 initiatives, including Unified Plan 2020.”

Peers’ performances

In the transportation sector (IYT), CSX (CSX), Kansas City Southern (KSU), and J.B. Hunt Transport (JBHT) recently reported their fourth-quarter 2018 results. CSX’s fourth-quarter adjusted EPS of $1.01 grew ~58% YoY on 10% higher revenues, lower costs, and reduced taxes. KSU reported adjusted EPS of $1.56, 13% higher than the year-ago quarter. JBHT’s adjusted EPS of $1.78 was 70% higher than the year-ago quarter.

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