OMAHA, Neb. (AP) — Union Pacific’s earnings report on Thursday should help investors determine whether the economy is continuing to gradually recover from the depths of the recession.
The railroad’s second-quarter report may also offer clues about whether coal shipments have started to rebound at all after being hurt by the mild winter and cheap natural gas.
WHAT TO WATCH FOR: Deutsche Bank analyst Justin Yagerman said weak coal demand is likely to be a drag on railroad profits throughout the year, but more shipping in other categories could offset that. If the weather remains hot this summer, utility demand for coal may increase as well.
Union Pacific managed to record a slight increase in the total number of carloads it hauled in the quarter, although Yagerman estimated that coal shipments declined by 14 percent from a year ago.
The analyst expects Union Pacific and other transportation companies to benefit in the quarter from fuel surcharges because there is a lag between when fuel prices change and when the surcharge adjusts for that. The price of fuel fell in the second quarter, but railroad surcharges remained at a higher level for a couple of months after the drop.
Yagerman said in a research note that he thinks Wall Street underestimates Union Pacific’s earnings power, so he recommends buying the stock.
WHY IT MATTERS: Union Pacific’s results are watched closely, because major freight railroads are considered gauges of the nation’s economic health. Railroads carry cars, chemicals, crops, containers of imported goods and lumber across the nation, so their earnings reflect the health of many industries. Union Pacific is the nation’s largest railroad. It operates 32,400 miles of track in 23 states from the Midwest to the West and Gulf coasts.
WHAT’S EXPECTED: On average, analysts surveyed by FactSet expect Union Pacific to report earnings of $1.96 per share on revenue of $5.22 billion.
LAST YEAR’S QUARTER: A year ago Union Pacific’s net income improved by 10 percent to $785 million, or $1.59 per share. Revenue rose 16 percent to $4.86 billion. Last year the railroad dealt with significant flooding throughout the Midwest, while this year the weather has generally been less of a factor.
