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What's in the Cards for UPS Stock This Earnings Season?

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United Parcel Service (UPS - Free Report) is scheduled to report third-quarter 2017 results on Oct 26, before the market opens.

In the last quarter, the company reported earnings of $1.58 surpassing the Zacks Consensus Estimate of $1.46 per share. The top-line also increased 11% on a year-over-year basis. Results were aided by higher revenues.

Revenues improved 7.7% to $15,750 million from the year-ago quarter, beating the Zacks Consensus Estimate of $15,477.3 million. The upside was driven by growth across all the key segments of the company.

Factors Likely to Influence This Quarter

We expect the company’s bottom line to be hurt by escalated costs in the to-be-reported quarter. In fact, high package delivery costs have been hurting UPS for some time and the third quarter is likely to be no different. Moreover, UPS is working hard to expand its presence. Though positive on such efforts, we believe that expansion related expenses might also drag down third-quarter earnings.

Additionally, foreign currency-related headwinds are expected to hurt the quarter’s results as well. The third-quarter Zacks Consensus Estimate for revenues — international package — is pegged at $3,076 million, lower than the $3,163 million reported in the second quarter of 2017. Moreover, unfavorable product mix and weakness in industrial production might dampen the company’s performance.

We are, however, impressed by the company’s efforts to reward shareholders consistently through buybacks and dividends. An update on the subject will be awaited on the conference call. Also, UPS is leaving no stone unturned to perform well in the upcoming holiday season like its rival FedEx (FDX - Free Report) . The company expects to benefit from growth in ecommerce. We expect a detailed commentary on the issue on the third-quarter conference call.

Earnings Whispers

Our proven model does not conclusively show that UPS will beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks Rank: UPS carries a Zacks Rank #3 (Hold).

Zacks ESP: UPS has an Earnings ESP of -0.06%, which acts as a spoiler. The Zacks Rank combined with a negative Earnings ESP leaves the surprise prediction inconclusive. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Note that we caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.


Stocks to Consider

Investors interested in the broader Transportation sector may consider Norfolk Southern Corporation (NSC - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) as these stocks comprise the right combination of elements to beat on earnings in their next releases.

Norfolk Southern has an Earnings ESP of +0.59%. This Zacks Rank #3 company will reportthird-quarter 2017 resultson Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Expeditors is also a Zacks Rank #3 company with an Earnings ESP of +1.68%. The company will reportthird-quarter 2017 financial numbers on Nov 7.

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