Coal news and updates

Union Pacific Slides to 52-Week Low on Persistent Coal Woes

What Led to the Drop?

The Omaha, NE-based railroad operator has been undergoing turbulent times, courtesy weak domestic coal shipments. Coal is a key revenue generating commodity at Union Pacific. No wonder, soft coal revenues are hurting the company big time. This can be gauged from the fact that the stock has lost 25% of its value since the start of the year.

Soft coal revenues were primarily responsible for the railroad operator reporting lower-than-expected revenues in the second quarter of 2015. Quarterly earnings declined 3% on a year-over-year basis.

The company said, while revealing the second quarter numbers last month that revenues decreased 10% year over year to $5.43 billion falling short of the Zacks Consensus Estimate of $5.58 billion. Bulk of the revenues came from freight revenues. A 10% decline in freight revenues hurt the top line. Declining coal shipments hurt the railroad operator's results for the second successive quarter. Volumes slipped 6%, with coal being the biggest culprit. In fact coal volumes were down 26% year over year. Apart from coal, decreasing volumes of industrial products and agricultural products also led to the decline.

Struggle to Continue

What is worse is that coal related headwinds are expected to hurt Union Pacific for the rest of the year as well. Union Pacific stated at a conference in May that weak coal shipments will continue to hurt the company for the rest of the year with no improvement expected in the near term.

With declining coal shipments hurting results for the second successive quarter and with no quick respite in sight, Union Pacific is looking to trim its workforce significantly (apparently at the management level), according to a report appearing in the Associated Press.

According to the U.S. Energy Information Administration, coal exports have declined mainly due to low fuel prices and soft global fuel demand. Increased output from other coal-exporting nations has also played spoilsport. According to the monthly report released by the Association of American Railroads, rail traffic declined in July due to the downward momentum in oil and coal shipments. Coal shipments declined 12.5% in terms of volume, according to the report. Furthermore, the 13.6% year over year decline in car loads carrying petroleum and oil products reaffirmed the gloomy picture for railroads including Union Pacific.

Earnings Estimates on the Downswing

Following the dismal second quarter results and the gloomy outlook, earnings estimates for this Zacks Rank #4 (Sell) stock have been on the downswing. Over the last 60 days, the 2015 Zacks Consensus Estimate of earnings has gone down 46 cents to $5.66 per share on the back of downward revisions by 14 analysts. Likewise, the estimate for 2016 has moved south by 61 cents over the same time frame to $6.36 per share, with 12 analysts slashing their respective earnings estimates.

source: http://www.nasdaq.com