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What's in the Offing for UPS Stock This Earnings Season?

Zacks Equity Research

United Parcel Service, Inc. UPS is scheduled to report second-quarter 2019 earnings numbers on Jul 24, before the market opens.

Last quarter, the company witnessed a negative earnings surprise of 2.1%. Also, total revenues, which though increased marginally, missed the Zacks Consensus Estimate. Moreover, the bottom line declined on a year-over-year basis. Unfavorable weather conditions in the United States impacted the company’s results in the quarter.

Things do not look up for the company this soon-to-be-reported quarter as well with the Zacks Consensus Estimate for earnings being revised 4.4% downward in the last 90 days.

Factors Likely at Play

With UPS investing heavily in upgrading facilities to meet the surge in demand following the rapid e-commerce growth, its capital expenses are on the rise. The high capital expenditures in turn, have been hampering the company’s bottom-line growth. The scenario is not likely to be any different in the second quarter.

Moreover, with UPS having a substantial exposure in China, the ongoing trade tension between the United States and China might impact results in the to-be-reported quarter. Notably, UPS joined forces with SF Holding in 2017 to strengthen its footprint in China.

However, akin to the last few quarters, solid e-commerce growth should boost the company’s top line in the second quarter. Expanded package volumes at the U.S. Domestic Package segment are anticipated to aid the segmental results. Notably, The Zacks Consensus Estimate for average daily package volume at the U.S. Domestic Package segment shows an approximate 2.9% growth from the figure reported in second-quarter 2018. Also, the consensus mark for revenues in the segment stands at $10,741 million, higher than $10,354 million reported in the year-ago quarter.

International Package revenues are also envisioned to rise in the quarter to be reported, further lifting the company’s top line. The Zacks Consensus Estimate for International Package revenues is pinned at $3,615 million, higher than $3,602 million reported in the second 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

Earnings Whispers

Our proven model clearly indicates that a company needs to have the right combination of the following two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #3 (Hold) or better — to increase the odds of a positive earnings surprise. However, that is not the case here as highlighted below.

Earnings ESP: UPS has an Earnings ESP of -0.47% as the Most Accurate Estimate is pegged at $1.92, lower than the Zacks Consensus Estimate of $1.93. 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 of 3, which increases the predictive power of ESP. However, the company’s negative ESP leaves surprise prediction inconclusive.

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 American Airlines Group Inc. AAL, Canadian National Railway Company CNI and Golar LNG Limited GLNG as these stocks possess the perfect mix of elements to beat on earnings this reporting cycle.

American Airlines has an Earnings ESP of +0.85% and is a Zacks #3 Ranked player. The company will report second-quarter 2019 results on Jul 25. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Canadian National stock is a #3 Ranked player and has an Earnings ESP of +0.25%. The company will post second-quarter 2019 earnings numbers on Jul 23.

Golar LNG has an Earnings ESP of +5.91% and a Zacks Rank #3. This company is scheduled to announce second-quarter 2019 financial numbers on Aug 22.

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