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It has been about a month since the last earnings report for United Parcel Service (UPS). Shares have added about 0.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UPS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Earnings Beat at UPS in Q4
UPS' earnings (excluding $6.41 from non-recurring items) per share of $2.66 surpassed the Zacks Consensus Estimate of $2.11. The bottom line also improved 26.1% year over year. Results were aided by a boom in online shopping during the holidays with the coronavirus pandemic continuing to restrict people to their homes.
Driven by the e-commerce surge, quarterly revenues at UPS climbed 21% year over year to $24,896 million, surpassing the Zacks Consensus Estimate of $22,785.6 million. Results were aided by a 10.6% rise in consolidated average daily volumes. Also, overall operating profit rose 26% on an adjusted basis in the fourth quarter, boosted by double-digit growth in adjusted operating profit across all segments.
U.S. Domestic Package revenues increased 17.4% year over year to $15,744 million in the fourth quarter, driven by growth from small and medium-sized businesses. Revenue per piece ascended 7.8%. Segmental operating profit (adjusted) was up 14.3% to $1,379 million in the quarter. Adjusted operating margin in the December quarter was 8.8%.
Revenues at the International Package division summed $4,770 million, up 26.8% on the back of strong demand from Asia and Europe. Average daily volumes rose 21.9%, led by export growth from all regions. Segmental operating profit (adjusted) totaled $1,160 million in the reported quarter, up 43.4%.
Supply Chain and Freight revenues jumped 29% to $4,382 million driven by higher demand for freight forwarding. Operating profits (on an adjusted basis) increased 26.3% to $331 million in the December quarter.
For the full year, UPS’ earnings (on an adjusted basis) came in at $8.23 per share. Revenues increased 14.2% year over year to $84.6 billion. The Zacks Consensus Estimate for earnings was of $7.68 per share while the same for revenues was $82.55 billion.
UPS generated free cash flow of $5.1 billion in 2020. The company’s capital expenditures (adjusted) were $5.6 billion at the end of 2020. During the year, UPS paid dividends to the tune of $3.6 billion to its shareholders, up 5.2% from the 2019 levels.
Due to the coronavirus-led uncertainty, the company did not provide a 2021 guidance for revenues and earnings per share. However, the current-year projection for capital allocation was announced by UPS. Capital expenditures are expected at around $4 billion. Dividends, subject to the board’s clearance, are expected to grow in 2021. Effective tax rate is predicted to be 23.5%. Moreover, UPS has no plans to buy back shares or tap the debt capital market in 2021.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 7.03% due to these changes.
At this time, UPS has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.