A month has gone by since the last earnings report for United Parcel Service (UPS). Shares have lost about 16.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is UPS due for a breakout? 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 drivers.
Earnings Beat at UPS in Q4
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.
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.
Cash from operations were $8.6 billion at the end of 2019. UPS 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. 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.
The company expects 2020 adjusted earnings per share between $7.76 and $8.06. 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.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -8.03% due to these changes.
At this time, UPS has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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