Union Pacific (NYSE:UNP) is scheduled to report fourth-quarter 2018 earnings on Jan. 24 before the markets open. While the railroad doesn't provide quantitative earnings guidance, understanding key operational themes helps to put its quarterly releases in proper context. Let's review four items investors should watch when the rail titan issues its report on the final three months of the 2018 year.

1. A favorable pricing trend

In the third quarter of 2018, Union Pacific notched year-over-year revenue growth of nearly 10%, thanks to strong volume growth in its industrial and premium shipping categories. The railroad was also able to capitalize on continuing brisk demand for freight services, and it increased pricing in conjunction with the higher volumes.

Competitor CSX (NASDAQ:CSX) released its own fourth-quarter 2018 earnings on Wednesday, reporting year-over-year revenue growth of 9.8%, fueled by continued aggressive pricing in the face of higher demand. Thus, shareholders can expect that Union Pacific likely continued to enjoy both higher volumes and revenue leverage in the fourth quarter.

2. Progress on a new operating plan

In September, Union Pacific announced its Unified Plan 2020, which seeks to improve the company's operating ratio (i.e., total expenses divided by total revenue, a barometer of a railroad's efficiency). As I discussed at the time, the plan adopts many principles of a typical "precision scheduled railroad" model, while avoiding some of the more drastic changes (like aggressive personnel cuts) that have been undertaken by competitor CSX in its own recent scheduled-railroad implementation. 

At year-end, Union Pacific began implementing this plan in its Mid-America Corridor, which encompasses north-south routes in the eastern half of the U.S. The railroad's management says that roughly 50% of the company's daily carloads touch this corridor. 

While CSX has been able to improve its operating ratio by several percentage points in 2018, ending the year with a reading of 60.3% (which leads all large railroads in its class), Union Pacific's recent progress on improving efficiency has stalled. Thus, investors expect that scheduled-railroad tactics will jump-start a lower (i.e. more efficient) ratio in the coming quarters. Union Pacific achieved an operating ratio of 61.7% in the third quarter of 2018, a flat result against the prior-year period.

3. More metrics to absorb

In conjunction with its Unified Plan 2020, Union Pacific advised investors last quarter that it would begin to track and publish additional metrics alongside traditional measures like average train velocity and terminal dwell (idle) time. 

According to Thomas Lischer, executive vice president for operations, investors can expect to see the following metrics discussed in the company's earnings release and/or earnings conference call next week:

  • Freight car velocity measured in daily miles per car.
  • Operating inventory, excluding cars in storage and cars placed at customer facilities.
  • Cars per carload (will fluctuate seasonally).
  • Locomotive productivity measured in gross-ton miles per horsepower day.
  • Workforce productivity measured in daily car miles per full-time employee.
  • Car plan compliance (a measure of customer service based on actual results against planned scheduling).

In my recap of next week's earnings, I'll be sure to include any information related to the new measures above that management chooses to share.

4. Changes at the top

As my Fool.com colleague Dan Caplinger reported earlier this month, Union Pacific stock soared 8% on Jan. 8 after the company announced the hiring of former Canadian National Railway executive Jim Vena as its new chief operating officer.

Luring a well-regarded operations veteran out of retirement pleased investors immensely, as it further signaled the railroad's intent to boost earnings per share through improved efficiency.

As I explained at year-end, the current economic climate is somewhat precarious, and Union Pacific may continue to outperform the broader market as it did in 2018 even if the U.S. economy loses some steam. After reaping revenue opportunities throughout last year, the company is poised to keep nudging earnings forward through operational improvements. Shareholders may see the first inkling of this bottom-line strategy when the railroad reports next week.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Canadian National Railway. The Motley Fool recommends Union Pacific. The Motley Fool has a disclosure policy.