Union Pacific (ticker: UNP), one of the largest railroads in the United States, posted impressive third-quarter numbers that surpassed Wall Street estimates. While this is undoubtedly good news for the company, the same cannot be said for the overall economy.
In the third quarter, Union Pacific reported earnings per share of $2.51 from sales amounting to $5.9 billion. This exceeded analysts’ projections of $2.41 per share and just under $6 billion in sales. However, it is important to note that compared to the same period last year, both sales and earnings have declined. The company recorded earnings per share of $3.19 from sales of $6.6 billion in the third quarter of 2019.
The decrease in sales and earnings can be attributed to declining pricing and volumes. Bulk shipments of fertilizers and grain, for example, experienced a 4% decline year over year, while the average revenue per carload dropped by 6%. The industrial carloads, which include chemicals and metals, remained flat, but the revenue per carload decreased by 6%. Moreover, shipments of vehicles and other retail goods fell by 4%, with the average revenue per carload down by 9%.
Looking ahead to the fourth quarter, the volume outlook appears mixed, suggesting minimal to no growth in volume amidst an industrial economy that is not experiencing significant expansion.
Despite the decline in sales, Union Pacific managed to increase pricing due to higher inflation. It is worth noting that some of the revenue declines can be attributed to lower fuel prices, which are subsequently reflected in the charges passed on to customers. Overall, these figures indicate a relatively weak economy.
In conclusion, Union Pacific’s third-quarter performance exceeded market expectations. Nonetheless, the decline in sales and earnings, coupled with a challenging economic landscape, suggests that there may be greater obstacles ahead for both the company and the overall economy.
Union Pacific Faces Challenges in Q3
CEO Jim Vena of Union Pacific expressed concerns over the challenges they faced during the quarter, which included inflationary pressures and a drop in carloads. However, he also highlighted that the company is making significant improvements in operating and safety metrics, focusing on increasing asset utilization.
Impact on the Broader Economy
The performance of Union Pacific serves as an indicator of the overall health of the economy. Unfortunately, the results suggest that the patient isn’t in the best condition. Consequently, Union Pacific is now concentrating on cost management and finding ways to improve efficiencies wherever possible.
Despite the gloomy news for the economy, investors have shown confidence in Union Pacific. In premarket trading, the company’s stock witnessed a 3.2% increase, while futures for both the S&P 500 and Dow Jones Industrial Average saw a slight decline of around 0.1%.
Recent Stock Performance
Union Pacific’s shares have faced significant challenges recently. Over the past 12 months, its stock has only increased by approximately 3%, falling behind the S&P 500 by about 14 percentage points.
Conference Call and Investor Expectations
To provide further insights into Union Pacific’s performance and the outlook for both the company and the U.S. economy, management will be hosting a conference call at 8:45 a.m. Eastern time. Analysts and investors are eager to gain more details during this discussion.