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ZTO Express (Cayman) Inc. (ZTO) Up 11.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for ZTO Express (Cayman) Inc. (ZTO). Shares have added about 11.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is ZTO Express (Cayman) Inc. 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 drivers.

Earnings Beat at ZTO Express in Q2

The company's second-quarter 2019  adjusted earnings of 25 cents per share (RMB 1.74) beat the Zacks Consensus Estimate by a penny. Moreover, the bottom-line improved year over year. Results benefited from impressive parcel volume growth. Notably, the company’s parcel volume expansion was higher than the industry average by 18.5 percentage points.

The top line also rose substantially year over year to $790 million (RMB 5,423.6 million), driven by a 30% year-over-year surge in revenues from the company’s express delivery services unit.

Segmental revenues were boosted by a 46.8% jump in parcel volume to 3,106.6 million. Freight forwarding services (acquired during the fourth quarter of 2017) contributed 6.5% to the top line. Further, the 39.8% rise in revenues from sales of accessories was primarily owing to increased sales of thermal paper used for printing digital waybills.

Meanwhile, total operating expenses at this China-based company inched up 2.8% to RMB 275.8 million. Increase in selling, general and administrative (SG&A) expenses induced this rise in operating expenses. Apart from other factors, rise in salary and accrued bonus escalated SG&A expenses during the reported quarter. Gross margin contracted to 32.6% in the second quarter compared with 34.7% a year ago. This downside was due to expansion in parcel volumes, volume incentives and cost productivity gain. As of Jun 30, 2019, ZTO Express repurchased 7.5 million ADSs at average price of $17.32 per ADS.

2019 Guidance Intact

The company reiterates its outlook for full-year parcel volumes and adjusted net income. Parcel volumes are anticipated in the range of 11.51-11.93 billion for the current year, implying a 35-40% improvement from the year-ago reported figure. Additionally, adjusted net income is predicted in the band of RMB 4.8-RMB 5.2 billion, indicating an ascent of 14.3-23.8%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

At this time, ZTO Express (Cayman) Inc. has a strong 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 D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

ZTO Express (Cayman) Inc. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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