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United Parcel Service (UPS) Q2 Earnings: A Beat in Store?

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United Parcel Service, Inc. (UPS - Free Report) is scheduled to report second-quarter 2018 results on Jul 25, before the market opens.

In the first quarter of 2018, the company posted earnings of $1.55, which surpassed the Zacks Consensus Estimate by a penny. The bottom line also increased 17.4% on a year-over-year basis. Results were aided by strong performances by the International and Supply Chain, and the Freight segments. Revenues improved 10% to $17,113 million from the year-ago quarter, outpacing the Zacks Consensus Estimate of $16,443.6 million.

Let’s see how things shape up for this announcement.

We expect e-commerce growth to boost the company’s second-quarter results. Moreover, revenues at the company’s U.S. Domestic Package unit are likely to benefit from increased package volumes. Strong performances primarily by the Deferred Air and Ground units are likely to boost segmental results. At the U.S. Domestic Package segment, the Zacks Consensus Estimate for second-quarter revenues is pegged at $10,377 million, higher than $9,745 million reported a year ago.

Furthermore, the company’s International Package division is anticipated to perform well in the second quarter on the back of robust growth in export volumes. The Zacks Consensus Estimate for revenues at this segment is pegged at $3,602 million, higher than $3,163 million reported a year ago.

The reduction in effective tax rate due to the new tax law should aid the bottom line in the second quarter. However, the company’s earnings are likely to be hurt by escalated costs in the soon-to-be-reported quarter.  In fact, high package delivery costs have been hurting UPS for some time, and the to-be-reported quarter is likely to be no different. Moreover, an update on the labor-front is expected on the second-quarter conference call.

Notably, UPS, like its rival FedEx Corporation (FDX - Free Report) , is leaving no stone unturned to expand its global presence. Though positive on such efforts, we believe that expansion related expenses might drag down second-quarter earnings.

United Parcel Service, Inc. Price and EPS Surprise

 

United Parcel Service, Inc. Price and EPS Surprise | United Parcel Service, Inc. Quote

 

What Does Our Model Unveil?

Our proven model too shows that UPS is likely to beat on earnings in the second quarter. This is because it has the perfect combination of the following two key ingredients:

Earnings ESP: UPS has an Earnings ESP of +0.62%, as the Most Accurate Estimate currently stands at $1.93 per share while the Zacks Consensus Estimate is pegged a penny lower. A positive Zacks ESP serves as an important indicator for a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UPS carries a Zacks Rank #3 (Hold). Notably, stocks with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of UPS’ favorable Zacks Rank and a positive ESP makes us reasonably confident of an earnings beat.

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like Expeditors International of Washington, Inc. (EXPD - Free Report) and Canadian National Railway Company (CNI - Free Report) asthese too possess the right combination of elements to come up with an earnings beat in their next releases.

Expeditors has an Earnings ESP of +1.54% and a Zacks Rank #1. The company will report second-quarter earnings on Aug 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Canadian National has an Earnings ESP of +1.83% and a Zacks Rank of 3. The company will report second-quarter earnings on Jul 24.

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