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Will Low International Package Volumes Mar UPS' Q3 Earnings?

Zacks Equity Research

United Parcel Service, Inc. UPS is scheduled to report third-quarter 2019 earnings numbers on Oct 22, before the market opens.

The company has an unimpressive earnings history, having outperformed the Zacks Consensus Estimate in only two of the last four quarters. Given this disappointing backdrop, let’s delve into the factors that might have influenced the company’s performance in the third quarter.

UPS has been incurring heavy capital expenses for facilities’ upgrade to meet the surge in demand following rapid e-commerce growth. Although aimed at realizing long-term benefits, the significant expenses are weighing on the company’s bottom line and the third quarter is not likely to have been any different.

Moreover, with UPS’ substantial exposure in China, the Sino-US trade tussle might have induced some sluggishness in international package volumes as was the case in the second quarter.

Additionally, going by the last reported quarter’s results, the trade-related uncertainty is expected to have hurt the performance of the Supply Chain and Freight segment in the third quarter as well. Evidently, the Zacks Consensus Estimate for revenues at the Supply Chain and Freight unit indicates an approximate 1% dip from the year-ago reported figure.

However, solid e-commerce growth is likely to have boosted the top line in the soon-to-be-reported quarter. Expanded package volumes at the U.S. Domestic Package segment are anticipated to have aided the segment’s results. Notably, the Zacks Consensus Estimate for revenues at the U.S. Domestic Package segment implies a 7.7% rise from the number reported in the third quarter of 2018.

United Parcel Service, Inc. Price and EPS Surprise


United Parcel Service, Inc. Price and EPS Surprise

United Parcel Service, Inc. price-eps-surprise | United Parcel Service, Inc. Quote

Highlights of Q2 Earnings

Last reported quarter, the company delivered a positive earnings surprise of 1.6%. Total revenues also surpassed the Zacks Consensus Estimate. Moreover, both the top and the bottom-line improved year over year on greater efficiencies and higher demand for domestic shipments from e-commerce shippers.

Earnings Whispers

Our proven model does not conclusively show a beat for UPS this earnings season. The odds of a beat increase with a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). However, that is not the case here as highlighted below.

Earnings ESP: UPS has an Earnings ESP of -1.38% as the Most Accurate Estimate is pegged at $2.03, lower than the Zacks Consensus Estimate of $2.06. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UPS has a Zacks Rank #3 (Hold) but a negative Earnings ESP makes surprise prediction difficult.

We caution against all Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Expeditors International of Washington, Inc. EXPD, Allegiant Travel Company ALGT and Southwest Airlines Co. LUV as these stocks possess the right mix of elements to beat on earnings in their next releases.

Expeditors has an Earnings ESP of +0.74% and a Zacks Rank of 3. The company will report third-quarter 2019 results on Nov 5. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Allegiant has an Earnings ESP of +6.14% and a Zacks Rank #3. The company will announce third-quarter earnings results on Oct 24.

Southwest has an Earnings ESP of +0.31% and is Zacks #3 Ranked. This company will release third-quarter financial numbers on Oct 24.

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