We reaffirm our long-term Neutral recommendation on Union Pacific Corp. (UNP). The company reported mixed financial results in the first quarter of 2011. Revenue easily beats the Zacks Consensus Estimate, while EPS fell below it. In the last quarter, Union Pacific improved year over year on several metrics including operating ratio, business growth, pricing gain, and cost control.
An improving U.S. economy, significant surge in automotive and intermodal shipments, together with a sharp rebound in many of the company’s end markets are expected to fuel growth of Union Pacific in the near future. As the economy continues to grow gradually, demand for carriage also becomes robust and we believe this momentum will sustain in the long run. Nevertheless, sequential increase in operating ratio and slowing growth rate of business volume are the two near-term concerns. Meanwhile, the stock price has soared 53% in the last year.
First-quarter 2011 operating ratio was 74.7% compared with 75.1% in the prior- year quarter. Quarterly Consumer Satisfaction Index was 91% compared with 87% in the year-ago quarter. This is the best ever quarterly performance by the company. First-quarter 2011 business volume (total revenue carloads) was 2.189 million, up 5% year over year. Management estimated full-year 2011 capital expenditure of $3.3 billion compared with $2.5 billion in 2010.
Union Pacific competes with other freight railroad operators in the U.S. such as KansasCity Southern (KSU), CSX Corp. (CSX), and Norfolk Southern Corp. (NSC).In first-quarter 2011, core pricing of Union Pacific improved 4.5% year-over-year. This resulted in an increase of 8% year over year in average revenue per car. This strong pricing environment was primarily driven by a significant improvement of Intermodal segment pricing. We believerail transportation companies will continue to push price increase toward their customers throughout 2011.
CSX CORP (CSX): Free Stock Analysis Report
KANSAS CITY SOU (KSU): Free Stock Analysis Report
NORFOLK SOUTHRN (NSC): Free Stock Analysis Report
Be the first to comment