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UPS Q4 Earnings Beat, Revenues Lag, 2020 EPS Guidance Soft

Zacks Equity Research

United Parcel Service’s UPS fourth-quarter 2019 earnings (excluding $2.23 from non-recurring items) of $2.11 per share edged past the Zacks Consensus Estimate by a penny. The bottom line also increased 8.8% year over year, primarily due to impressive volume growth in the U.S. Domestic segment.

UPS generated revenues of $20,568 million in the quarter, which fell short of the Zacks Consensus Estimate of $20,578.5 million. However, the top line improved 3.6% on a year-over-year basis. Results were aided by higher average daily volumes. Operating profit increased 13.7% on an adjusted basis in the final quarter of 2019.

Segmental Details

U.S. Domestic Package revenues increased 6.6% year over year to $13,408 million in the fourth quarter, driven by more than 8% volume growth across all products. The greatest increase (up nearly 26%) was in UPS Next Day Air volume. Results were aided by increased automated capacity and introduction of new planes to the fleet. Segmental operating profit improved more than 20% on an adjusted basis to $1,207 million in the quarter. Additionally, unit costs (on an adjusted basis) declined 3.2%, leading to positive operating leverage.

Revenues at the International Package division came in at $3,762 million, down 1.7%. Export volumes declined due to sluggishness in the Asia-U.S. trade lane among other factors. Segmental operating profit came in at $809 million in the reported quarter on an adjusted basis, reflecting an increase of 3.6%. Results were aided by UPS’ cost management initiatives among other factors.

Supply Chain and Freight revenues decreased more than 1% to $3,398 million. Operating profits in the segment increased 17% on an adjusted basis to $262 million in the fourth quarter. Prudent cost management and efforts to increase its customer base for Small- and Medium-sized Businesses (SMB) aided results.

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 $8.6 billion at the end of 2019. UPS, carrying a Zacks Rank #3 (Hold), generated free cash flow of more than $4.1 billion on an adjusted basis in the same period. The company spent $6.5 billion as capital expenditures (adjusted) in 2019. We are also impressed with the company’s efforts to reward shareholders consistently through buybacks and dividend payouts. In 2019, the company paid $3.3 billion as dividends, reflecting an increase of 5.5% on a year-over-year basis. Moreover, the company repurchased more than 9 million shares for roughly $1 billion in 2019. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2020 Outlook

The package delivery company expects 2020 adjusted earnings per share between $7.76 and $8.06. The Zacks Consensus Estimate for 2019 currently stands at $7.98 per share, above the mid-point ($7.91) of the guided range. Cash from operations is anticipated to be around $10 billion. Adjusted free cash flow is expected to be between $4.3 billion and $4.7 billion. Effective tax rate is expected between 22.5% and 23.5% for 2020. Capital expenditure is expected to be around $6.7 billion for 2020.

Upcoming Releases

Investors interested in the broader Transportation sector await fourth-quarter 2019 earnings reports from key players like Air Lease Corporation AL, Expeditors International of Washington EXPD and Hertz Global Holdings HTZ .

Air Lease and Expeditors will announce results on Feb 14 and Feb 18, respectively. Hertz will release fourth-quarter earnings on Feb 24.

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