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Surge in Parcel Volume Aids ZTO Express (ZTO), Costs Hurt

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We recently issued an updated report on ZTO Express (Cayman) Inc. (ZTO - Free Report) .

ZTO Express is gaining from increased parcel volumes and strong performance of the company's express delivery services unit. Notably, total revenues rose 14.7% year over year during the June-end quarter. The upside can be attributed to increase in revenues at the core express delivery services unit, which contributed significantly to the top line. Revenues in Express delivery services increased 16.3% year over year, owing to 47.9% rise in parcel volume. ZTO Express now expects parcel volumes in the range of 16.2-17 billion for 2020 (previously guided in the range of 15.9-16.4 billion).

Performance of the Freight forwarding services unit in the second quarter was impressive. Segmental revenues increased 33.4% year over year owing to increase in cross-border e-commerce demand amid coronavirus concerns. Also, revenues from sales of accessories increased 9.8% year over year.

However, high selling, general and administrative (SG&A) expenses are limiting bottom-line growth. During the second quarter, the metric rose 2.3% year over year. Gross margin deteriorated to 27.6% in the second quarter from 32.6% in the year-ago quarter.

Zacks Rank & Key Picks

ZTO Express currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Transportation sector are Canadian Pacific Railway Limited (CP - Free Report) , TFI International (TFII - Free Report) and Werner Enterprises (WERN - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings (three to five years) growth rate for Canadian Pacific, TFI International and Werner is estimated at 8%, 5.7% and 8.5%, respectively.

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