It has been about a month since the last earnings report for Union Pacific (UNP Quick QuoteUNP - Free Report) . Shares have lost about 4.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Union Pacific due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Miss at Union Pacific in Q4

Union Pacific’s earnings of $2.67 per share fell short of the Zacks Consensus Estimate of $2.75 per share. However, despite being affected by high costs, the bottom line inched up 0.38% on a year-over-year basis.

Operating revenues of $6,180 million also missed the Zacks Consensus Estimate of $6,222.8 million. However,the top line climbed 8% on a year-over-year basis, owing to higher fuel surcharge revenues, volume growth and solid core pricing.

Freight revenues, accounted for 93.3% of the top line, increased 9% to $5,768 million. Business volumes, measured by total revenue carloads, were up 1%.

Operating income in the fourth quarter declined 1% year over year to $2,412 million. Total operating expenses rose 14% to $3,768 million with fuel expenses increasing 43%. Expenses on purchased services and materials increased 18%. The other cost items that have increased year over year in double digits were compensation and benefits, with expense on that front rising 10%. Operating ratio (operating expenses as a percentage of revenues) deteriorated by 360 basis points to 61% due to high operating expenses.

Segmental Performance

Bulk (Grain & grain products, Fertilizer, Food & refrigerated, Coal & renewables) freight revenues were $1,933 million, up 7% year over year. Business volumes in the segment declined 3%.

Industrial freight revenues totaled $1999 million, up 5% year over year. Segmental business volumes were flat year over year.

Freight revenues in the Premium division were $1,836 million, up 15% year over year. Segmental business volumes increased 2% year over year.

Other revenues decreased 6% to $412 million in the fourth quarter. Union Pacific exited the fourth quarter of 2022 with cash and cash equivalents of $973 million compared with $960 million at the end of 2021 Debt (due after a year) increased to $31,648 million at the end of the fourth quarter from $27,563 million at 2021-end. In the reported quarter, Union Pacific repurchased 3.5 million shares at an aggregate cost of $0.7 billion.

For full-year 2023, management expects operating ratio to improve. Carloads for 2023 are expected to exceed industrial production. Capital expenditure is expected to be around $3.6 billion (or less than 15% of revenues).

The company expects a dividend payout of approximately 45% (of earnings) in the long term. The excess cash will be used for share buyback program.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Union Pacific has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Union Pacific has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.