It has been about a month since the last earnings report for United Parcel Service (UPS Quick QuoteUPS - Free Report) . Shares have lost about 8.9% 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 its most recent earnings report in order to get a better handle on the important drivers.

Earnings Beat at UPS in Q4

United Parcel Service reported fourth-quarter 2021 earnings (excluding 7 cents from non-recurring items) of $3.59 per share, beating the Zacks Consensus Estimate of $3.11. The bottom line jumped 35% year over year with strong performances across all segments.

Quarterly revenues of $27,771 million also outperformed the Zacks Consensus Estimate of $27,179.6 million. The top line increased 11.5% year over year, driven by higher shipping rates and upbeat e-commerce demand.

The outperformance apart, UPS’ board of directors cleared a 49% dividend increase to $1.52 per share on all outstanding Class A and Class B shares. The dividend will be paid out on Mar 10, 2022, to its shareholders of record on Feb 22.

Overall adjusted operating profit rose 37.7% year over year to $3,952 million in the fourth quarter, boosted by double-digit growth in the adjusted operating profit across all segments. In 2021, UPS generated free cash flow of $10,889 million, up more than 100% year over year. UPS’s capital expenditures were $4,194 million at the end of the same period.

Segmental Details for Q4

U.S. Domestic Package revenues increased 12.4% year over year to $17,697 million. Segmental operating profit (adjusted) jumped 57% year over year to $2,165 million in the quarter. Revenue per piece increased 10.5%. Adjusted operating margin in the December quarter was 12.2%.

Revenues at the International Package division summed $5,397 million, up 13.1%.  Revenue per piece increased 16.4%. The segment’s performance was driven by strong growth in all regions. Segmental operating profit (adjusted) totaled $1,331 million in the reported quarter, up 14.7%. Adjusted operating margin was 24.7%.

Supply Chain Solutions revenues augmented 6.7% to $4,677 million, aided primarily by the upbeat performances of Forwarding and Logistics businesses. Operating profit (on an adjusted basis) soared 37.8% to $456 million in the December quarter.

2022 Outlook

UPS expects consolidated revenues of about $102 billion, an adjusted operating margin of approximately 13.7% and an adjusted return on invested capital to be above 30%. UPS expects to achieve its 2023 targets for consolidated revenues and operating margin in 2022 itself.

The company expects capital expenditures to be 5.4% of revenues (approximately $5.5 billion). Dividends and share buybacks are anticipated to be around $5.2 billion and at least $1 billion, respectively. Effective tax rate of around 23% is expected by UPS for the current year. Free cash flow of around $9 billion is expected to be generated in 2022.

 

How Have Estimates Been Moving Since Then?

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

VGM Scores

At this time, UPS has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 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 looks promising. Notably, UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.