Union Pacific Corporation (UNP) reported robust second-quarter 2011 financial results with both revenue and earnings per share (EPS) exceeding the Zacks Consensus Estimate.
Second Quarter Highlights
Quarterly net income was a record high of $785 million or $1.59 per share compared with a net income of $711 million or $1.40 per share in the year-ago quarter. The second-quarter EPS of $1.59 beats the Zacks Consensus Estimate by a penny.
Total operating revenue, in the second quarter of 2011, was $4,858 million, up 16% year over year, better than the Zacks Consensus Estimate of $4,727 million.
Quarterly operating ratio (operating expenses as a percentage of total revenue) of 71.3% was worse than the year-ago quarter of 69.4% while improved significantly from the previous quarter level of 74.7%. The year-over-year decline is mainly attributable to higher fuel price that was up 44%.
Agreements of Analysts
Of the 26 analysts covering the stock in the last 7 days, none raised their estimates while 1 analyst reduced its estimate for the third quarter of 2011. For the fourth quarter of 2011, out of the 25 analysts covering the stock, none revised their estimates.
For fiscal 2011, during the last 7 days, out of the 28 analysts covering the stock, none revised their estimates upward while 1 analyst moved in the opposite direction. Likewise, for fiscal 2012, out of the 28 analysts, none revised their estimates during the last 7 days.
The current Zacks Consensus EPS Estimate for the third quarter of 2011 is pegged at $1.86 with the projected annual growth rate of 18.93%. Similarly, for the fourth quarter of 2011, the current Zacks Consensus EPS Estimate of $1.81 indicates a gain of 16.31% year over year.
Magnitude of Estimate Revisions
For the third and fourth quarter of 2011, the current Zacks Consensus Estimate remains unchanged at $1.86 and $1.81, respectively, with respect to the current estimate during the last 7 days. Likewise, for fiscal 2011 and 2012, during the last 7 days, the Zacks Consensus Estimate was in line with the current estimate of $6.55 and $7.89, respectively.
Earning Surprises
With respect to earnings surprises, the company has produced an average earnings surprise of 2.13% in the trailing four quarters. The ongoing quarter reported a downside potential of (essentially a proxy for future earnings surprises) 0.54% while fourth quarter reflects 0.00% upside potential.
Fiscal 2011 holds a downside potential of 0.15%, while fiscal 2012 reflects an upside potential of 0.13%.
Our Recommendation
Poor economic growth coupled with competition from other freight railroad operators in the U.S., such as KansasCitySouthern(KSU), CSX Corp. (CSX), and Norfolk Southern Corp. (NSC), will act as headwinds for the company. Moreover, higher operating ratio and slowdown in business volume growth will hurt profitability going forward.
We, thus, maintain our long-term Neutral recommendation for Union Pacific Corporation. Currently, Union Pacific Corporation has a Zacks#3 Rank, implying a short-term Hold rating on the stock.
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