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ZTO Express (Cayman) Inc. (ZTO) Up 6.9% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for ZTO Express (Cayman) Inc. (ZTO). Shares have added about 6.9% 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 catalysts.

Earnings Beat at ZTO Express in Q3

ZTO Express' third-quarter 2019 earnings (excluding a penny from non-recurring items) of 24 cents per share (RMB 1.69) beat the Zacks Consensus Estimate by 2 cents. The bottom line also improved significantly year over year. Results benefited from impressive parcel volume growth. Notably, the company’s parcel volume expansion was higher than the industry average by 18.4 percentage points.

The top line also rose substantially year over year to $736.7 million (RMB 5,265.8 million), driven by a 26.8% year-over-year rise in revenues from the company’s express delivery services unit.

Express delivery services revenues were boosted by a 45.9% jump in parcel volume to 3,057.9 million. Freight forwarding services (acquired during the fourth quarter of 2017) revenues contributing 5.2% to the top line decreased 5.8% year over year.  However, revenues from sales of accessories surged 38.2%, primarily owing to increased sales of thermal paper used for printing digital waybills.

Meanwhile, total operating expenses at this China-based company declined approximately 16% to RMB 196.4 million despite a 16.6% rise in selling, general and administrative (SG&A) expenses. Apart from other factors, higher salary and accrued bonus escalated SG&A expenses during the reported quarter. Gross margin contracted to 30.3% in the third quarter from 31.3% a year ago. This downside was due to expansion in parcel volumes, volume incentives and cost productivity gain. As of Sep 30, 2019, ZTO Express repurchased 7.7 million ADSs at average price of $17.33 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% from the prior-year reported number.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, ZTO Express (Cayman) Inc. has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 trending upward for the stock, and the magnitude of this revision looks promising. Notably, ZTO Express (Cayman) Inc. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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