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UPS Q3 Earnings: Is a Beat Likely on E-commerce Growth?

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United Parcel Service, Inc. UPS is scheduled to report third-quarter 2018 results on Oct 24, before the market opens.

Last reported quarter, the company delivered a positive earnings surprise of 1%. Apart from an earnings outperformance, the company generated better-than-expected revenues. Both metrics also improved substantially year over year. Results were aided by strong demand for UPS solutions among other factors.

Let’s see how things shape up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that UPS is likely to beat on earnings in the third quarter as well, courtesy of a perfect combination of the following two key ingredients:

Earnings ESP:UPS has an Earnings ESP of +0.69% as the Most Accurate Estimate currently stands at $1.83 per share while the Zacks Consensus Estimate is pegged lower at $1.82. A positive Zacks ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UPS carries a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

United Parcel Service, Inc. Price and EPS Surprise


United Parcel Service, Inc. Price and EPS Surprise | United Parcel Service, Inc. Quote

Factors Likely at Play

UPS’ third-quarter results are likely to benefit from strong growth in e-commerce. Increased package volumes at the U.S. Domestic Package segment are anticipated to boost segmental results.Notably, the Zacks Consensus Estimate for third-quarter U.S. Domestic Package revenues stands at $10,296 million, higher than $9,649 million reported a year ago.

Additionally, robust growth in export volumes is expected to boost results in the International Package segment. The Zacks Consensus Estimate for third-quarter International Package revenues is pegged at $3,677 million, above $3,364 million in the year-ago period. Moreover, the same for Supply Chain and Freight segment stands at $3,465 million, comparing favorably with $2,965 million in the prior-year quarter.

Echoing the past few quarters’ scenario, earnings in the third quarter are likely to be lifted by the reduced tax rate from the Tax Cuts and Jobs Act. Huge savings from the low effective tax rate are expected to bolster free cash flow and in turn, aid the company’s bottom-line growth.

However, high capital expenditures and delivery costs might weigh on the bottom line in the soon-to-be-reported quarter.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider Union Pacific Corporation UNP, Old Dominion Freight Line, Inc. ODFL and C.H. Robinson Worldwide, Inc. CHRW as these stocks too possess the right combination of elements to come up with an earnings beat in their next releases.

Union Pacific has an Earnings ESP of +0.33% and a Zacks Rank #2.  The company will report third-quarter earnings on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Old Dominion Freight Line has an Earnings ESP of +0.26% and a Zacks Rank #2. The company will release third-quarter 2018 results on Oct 25.

C.H. Robinson has an Earnings ESP of +0.56% and a Zacks Rank of 2. The company will announce third-quarter financial figures on Oct 30.

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