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Will Supply Chain Woes Mar Union Pacific's (UNP) Q4 Earnings?

Union Pacific's (UNP) Q4 performance is expected to have been hurt by lower volumes due to supply chain disruptions.

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This story originally appeared on Zacks

Union Pacific Corporation UNP is slated to release fourth-quarter 2021 results on Jan 20, before market open.

The Zacks Consensus Estimate for Union Pacific’s fourth-quarter earnings has been revised downward by 2.6% in the past 60 days.

Let’s take a look at the factors that are expected to have influenced the company’s fourth-quarter performance:

Strong freight demand is expected to have aided Union Pacific’s fourth-quarter performance. The Zacks Consensus Estimate for freight revenues in the fourth quarter indicates an 8.3% rise from the year-ago quarter’s reported number.

However, supply chain disruptions are likely to have hurt Union Pacific’s volumes in the to-be-reported quarter. The company said that overall volumes for the fourth quarter (through Nov 25, 2021) have declined 5% year over year, with the premium segment being an underperformer, Premium segment volumes decreased 15%. The Zacks Consensus Estimate for carloads (volumes) in the Premium segment shows a 14.2% drop from the fourth-quarter 2020 reported number. The same for total carloads suggests a 3.7% slip from the year-ago period’s reported number.

Escalating operating expenses, primarily due to rising fuel costs, are expected to have dented Union Pacific’s bottom line in the fourth quarter. The Zacks Consensus Estimate for average fuel price per gallon for the fourth quarter implies a 71.7% surge from the year-ago quarter’s reported number. The same hints at a 5.1% increase from the sequential quarter’s reported number.

High operating expenses are also expected to have led to a deterioration in Union Pacific’s operating ratio (operating expenses as a percentage of revenues) in the fourth quarter. The Zacks Consensus Estimate for the December quarter’s operating ratio indicates a deterioration to 57% from 56% reported in the September quarter. Lower the value of the metric, the better.

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Union Pacific Corporation Price and EPS Surprise

Union Pacific Corporation Price and EPS Surprise

Union Pacific Corporation price-eps-surprise | Union Pacific Corporation Quote

What Does the Zacks Model Say?

The proven Zacks model does not conclusively predict an earnings beat for Union Pacific this time around. The combination of a positive  Earnings ESP  and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates, which is not the case here. You can see  the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP:  Union Pacific has an Earnings ESP of -0.80% as the Most Accurate Estimate is pegged at $2.61, while the Zacks Consensus Estimate is poised at $2.63. You can uncover the best stocks to buy or sell before they are reported with our  Earnings ESP Filter.

Zacks Rank: Union Pacific currently carries a Zacks Rank #3.

Highlights of Q3 Earnings

Union Pacific’s third-quarter 2021 earnings of $2.57 per share surpassed the Zacks Consensus Estimate of $2.48. The bottom line surged 27.9% on a year-over-year basis. Operating revenues of $5,566 million also beat the Zacks Consensus Estimate of $5,381.7 million. The top line increased 13.2% on a year-over-year basis due to uptick in freight revenues.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide CHRW, Southwest Airlines LUV and Landstar System LSTR, as these stocks possess the right combination of elements to beat on earnings this reporting cycle.

C.H. Robinson currently has an Earnings ESP of +7.82% and a Zacks Rank #3. The company will report fourth-quarter 2021 results on Feb 2.

Favorable pricing and higher volumes, owing to improved freight market conditions are expected to have aided C.H. Robinson’s fourth-quarter performance.

Southwest Airlines has an Earnings ESP of +172.73% and is currently a Zacks #3 Ranked player. The company will release fourth-quarter 2021 results on Jan 27.

Southwest Airlines expects to be profitable in the fourth quarter of 2021 owing to a strong Thanksgiving holiday travel period, higher fares and benefits from the co-brand credit card agreement with Chase.

Landstar System has an Earnings ESP of +3.19% and is Zacks #3 Ranked, presently. The company will release fourth-quarter 2021 results on Jan 26.

Landstar’s fourth-quarter performance is expected to have benefited from higher truck rates and strong freight demand.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.



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