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Why Is UPS (UPS) Down 2.6% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for United Parcel Service (UPS). Shares have lost about 2.6% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at UPS in Q2

The company's earnings (excluding 2 cents from non-recurring items) of $1.96 per share surpassed the Zacks Consensus Estimate by 3 cents. The bottom line also increased on a year-over-year basis driven by greater efficiencies.

UPS recorded revenues of $18,048 million in the quarter, which edged past the Zacks Consensus Estimate of $17,956.5 million. Moreover, the top line increased 3.4% on a year-over-year basis. Results were aided by an uptick in demand pertaining to domestic shipments from e-commerce shippers.

Segmental Details

U.S. Domestic Package revenues climbed 7.7% year over year to $11,150 million in the second quarter driven by volume growth in all products. The greatest increase (up in excess of 30%) was in UPS Next Day Air volume. Results were aided by increased demand for air services from customers in healthcare and retail. Segmental operating profit improved 8% on an adjusted basis to $1,226 million in the quarter mainly due to the sharp increase in demand for the company’s next-day services. Additionally, growth in cost per piece was reduced by network efficiencies.

Revenues at the international package division came in at $3,505 million, down 2.7%. International volumes declined marginally due to global macroeconomic pressures. Total revenue per piece declined slightly. However, the measure improved nearly 2% on a currency-adjusted basis. Segmental operating profit came in at $665 million in the reported quarter on an adjusted basis, reflecting an increase of 1.7%.

Supply Chain and Freight revenues decreased 3.1% to $3,393 million due to trade-related sluggishness. Driven by its focus on revenue quality, the UPS Freight unit registered a 3.9% increase in revenue per LTL (less-than-truckload) hundredweight in the reported quarter. Operating profits in the segment increased 10.5% on an adjusted basis to $273 million in the second quarter aided by prudent cost management actions.

Other Details

Cash from operations were $4.2 billion. UPS generated free cash flow of nearly $2.2 billion on an adjusted basis.  The company spent $2.9 billion as capital expenditures in the first half of the year.

Outlook

UPS still expects 2019 adjusted earnings per share between $7.45 and $7.75. Tax rate in 2019 is anticipated between 22% and 24%. Adjusted free cash flow for 2019 is projected between $3.5 and $4 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, UPS has a great 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 second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, 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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