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UPS Q3 Earnings Top, Rise Y/Y on Higher Domestic Volumes

Zacks Equity Research

United Parcel Service’s UPS third-quarter 2019 earnings (excluding 6 cents from non-recurring items) of $2.07 per share surpassed the Zacks Consensus Estimate by a penny. The bottom line also increased 13.7% year over year, courtesy of an impressive performance by the U.S. Domestic Package segment. The company’s transformation initiatives also aided results.

UPS generated revenues of $18,318 million in the quarter, which edged past the Zacks Consensus Estimate of $18,303.3 million. Moreover, the top line improved 5% on a year-over-year basis. Results were backed by higher domestic average daily volumes.

Segmental Details

U.S. Domestic Package revenues climbed 9.8% year over year to $11,455 million in the third quarter, driven by more than 9% volume growth across all products. The greatest increase (up nearly 24%) was in UPS Next Day Air volume. Results were aided by higher demand for air services, primarily from customers in the healthcare, retail and high-tech sectors. Segmental operating profit improved approximately 26% on an adjusted basis to $1,216 million in the quarter, mainly owing to the sharp increase in demand for the company’s next-day services. Additionally, unit costs (on an adjusted basis) declined 2.5%, leading to positive operating leverage.
 
Revenues at the International Package division came in at $3,494 million, up 0.5%. The international segment benefited from export volume growth on intra-European trade lanes. Domestic revenue per piece declined slightly. However, the measure inched up 2.3% on a currency-adjusted basis. Segmental operating profit came in at $693 million in the reported quarter on an adjusted basis, reflecting an increase of 20.3%.

Supply Chain and Freight revenues decreased 4.5% to $3,369 million due to trade-related sluggishness. Driven by its focus on small and medium-sized businesses, the UPS Freight unit registered an approximate 4% increase in revenue per LTL (less-than-truckload) hundredweight in the reported quarter. Operating profits in the segment slipped 1.5% on an adjusted basis to $256 million in the third quarter.

United Parcel Service, Inc. Price, Consensus and EPS Surprise

 

United Parcel Service, Inc. Price, Consensus and EPS Surprise

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


Other Details

Cash from operations were $5.7 billion at the end of the third quarter. UPS, carrying a Zacks Rank #3 (Hold), generated free cash flow of nearly $3.2 billion on an adjusted basis in the same period. The company spent $4.5 billion as capital expenditures in the first nine months of the year. We are also impressed with the company’s efforts to reward shareholders consistently through buybacks and dividend payouts. On a year-to-date basis, dividend per share increased 5.5%. Moreover, the company repurchased 7 million shares for roughly $753 million. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

UPS still expects 2019 adjusted earnings per share between $7.45 and $7.75. The mid-point of the guided range ($7.60 per share) is above the Zacks Consensus Estimate of $7.51. Tax rate in 2019 is anticipated between 22% and 23% (past view: 22-24%). Adjusted free cash flow for 2019 is estimated to be more than $4 billion (previously: $3.5-$4 billion). The company slashed capital expenditures by $500 million for 2019 as well as 2020.

Upcoming Releases

Investors interested in the Zacks Transportation  sector are keenly awaiting third-quarter 2019 earnings reports from key players like C.H. Robinson Worldwide, Inc. CHRW, Southwest Airlines LUV and Norfolk Southern Corporation NSC. While Norfolk Southern and Southwest will report earnings numbers on Oct 23 and Oct 24, respectively, C.H. Robinson will release the same on Oct 29.

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