It has been about a month since the last earnings report for United Parcel Service (UPS - Free Report) . Shares have lost about 8.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.
Earnings Miss at UPS in Q1
The company's first-quarter 2019 earnings (excluding 11 cents from non-recurring items) of $1.39 per share fell short of the Zacks Consensus Estimate by 3 cents. The bottom line also declined 10.3% on a year-over-year basis. Unfavorable weather conditions in the United States negatively impacted first-quarter 2019 earnings by 7 cents.
UPS recorded revenues of $17,160 million in the quarter, which missed the Zacks Consensus Estimate of $17,793.7 million. However, the top line marginally increased on a year-over-year basis.
U.S. Domestic Package revenues climbed 2.5% year over year to $10,480 million in the first quarter driven by a 2.9% increase in revenue per piece. Impressive growth in commercial Ground products aided segmental results. Average daily volume for air products increased nearly 8% on the back of impressive demand for faster delivery options. Segmental operating profit declined in the quarter mainly due to harsh winter weather.
Revenues at the international package division came in at $3,459 million. Revenue per piece decreased 1.2%. However, the same increased 2.3% on a currency-adjusted basis, driven by a 3.9% gain in domestic products. Segmental operating profit came in at $528 million in the reported quarter. On an adjusted basis, segmental operating profit was $612 million. Factors like prudent cost management and impressive revenue yields aided results. Segmental operating margin expanded 90 basis points to 17.7% on an adjusted basis.
Supply Chain and Freight revenues decreased in excess of 3% to $3,221 million. Operating profits in the segment increased in excess of 24% on an adjusted basis to $211 million in the first quarter aided by prudent cost management actions.
UPS generated free cash flow of around $760 million in the first quarter of 2019. Cash from operations were $2.3 billion. The company spent $1.5 billion as capital expenditure in the reported quarter. Moreover, UPS paid approximately $867 million as dividend to shareholders in the quarter, up 5.5%. Additionally, it bought back 2.4 million shares for $250 million. We are impressed with the company’s efforts to reward shareholders consistently through buybacks and dividend payouts.
UPS still expects 2019 adjusted earnings per share between $7.45 and $7.75. Tax rate in 2019 is anticipated between 23% and 24%. Adjusted free cash flow for 2019 is projected between $3.5 and $4 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, UPS has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.