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Factors Likely to Shape ZTO Express' (ZTO) Q1 Earnings

Zacks Equity Research

ZTO Express (Cayman) ZTO is scheduled to release first-quarter 2019 results on May 15, after market close.

In the last reported, the company delivered better-than-expected earnings backed by increased demand for express delivery services. However, the bottom line declined year over year owing to high costs.

In fact, ZTO Express has a decent earnings surprise history, having surpassed the Zacks Consensus Estimate in two of the trailing four quarters, the average beat being 3.9%.

ZTO Express (Cayman) Inc. Price and EPS Surprise

 

ZTO Express (Cayman) Inc. Price and EPS Surprise

ZTO Express (Cayman) Inc. price-eps-surprise | ZTO Express (Cayman) Inc. Quote

 

Let’s delve deep to unearth the factors likely to influence this Shanghai-based company’s results in the soon-to-be-reported quarter.

As in the past few quarters, we expect this Chinese company’s express delivery services division to perform well and aid its quarterly performance. Also, improvement in parcel volumes are anticipated to boost segmental revenues in the soon-to-be-reported quarter.

Rapid growth of China’s e-commerce industry has aided parcel volume growth. Inclusion of Freight forwarding services (acquired during the fourth quarter of 2017) results should also boost results in the first quarter. Increased sales of thermal paper used for printing digital waybills are too anticipated to favour the company.

However, total operating expenses are likely to increase in the to-be-reported quarter, hurting the bottom line. Higher selling, general and administrative (SG&A) expenses are likely to bump up operating costs. Although ZTO Express’ investments to expand its portfolio are impressive, these are likely to increase costs and be a drag on the bottom line in the first quarter.

What Does the Zacks Model Say?

Our proven model does not indicate earnings beat for ZTO Express in first-quarter 2019. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as elaborated below.

Earnings ESP: ZTO Express has an Earnings ESP of 0.00% as the Most Accurate Estimate of 19 cents is in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: ZTO Express carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP in the combination complicates its surprise prediction this reporting cycle. You can see the complete list of today’s Zacks #1 Rank stocks here.

We caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Upcoming Releases

Investors interested in the broader Zacks Transportation sector are keenly awaiting the first-quarter 2019 earnings report of LATAM Airlines LTM and Golden Ocean Group Limited GOGL on May 16 and 31, respectively.

Key Pick

Investors interested in transportation sector may consider Teekay Tankers TNK as it possesses the right combination of elements to beat on earnings in its next quarterly release.

Teekay Tankers, scheduled to release first-quarter 2019 results on May 23, has an Earnings ESP of +33.33% and a Zacks Rank of 3.

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