It has been about a month since the last earnings report for United Parcel Service (UPS - Free Report) . Shares have added about 3.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is UPS due for a pullback? 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 Beat at UPS in Q3
UPS' third-quarter 2019 earnings (excluding 6 cents from non-recurring items) of $2.07 per share surpassed the Zacks Consensus Estimate by a penny. The bottom line also increased 13.7% year over year, courtesy of an impressive performance by the U.S. Domestic Package segment. The company’s transformation initiatives also aided results.
UPS generated revenues of $18,318 million in the quarter, which edged past the Zacks Consensus Estimate of $18,303.3 million. Moreover, the top line improved 5% on a year-over-year basis. Results were backed by higher domestic average daily volumes.
U.S. Domestic Package revenues climbed 9.8% year over year to $11,455 million in the third quarter, driven by more than 9% volume growth across all products. The greatest increase (up nearly 24%) was in UPS Next Day Air volume. Results were aided by higher demand for air services, primarily from customers in the healthcare, retail and high-tech sectors. Segmental operating profit improved approximately 26% on an adjusted basis to $1,216 million in the quarter, mainly owing to the sharp increase in demand for the company’s next-day services. Additionally, unit costs (on an adjusted basis) declined 2.5%, leading to positive operating leverage.
Revenues at the International Package division came in at $3,494 million, up 0.5%. The international segment benefited from export volume growth on intra-European trade lanes. Domestic revenue per piece declined slightly. However, the measure inched up 2.3% on a currency-adjusted basis. Segmental operating profit came in at $693 million in the reported quarter on an adjusted basis, reflecting an increase of 20.3%.
Supply Chain and Freight revenues decreased 4.5% to $3,369 million due to trade-related sluggishness. Driven by its focus on small and medium-sized businesses, the UPS Freight unit registered an approximate 4% increase in revenue per LTL (less-than-truckload) hundredweight in the reported quarter. Operating profits in the segment slipped 1.5% on an adjusted basis to $256 million in the third quarter.
Cash from operations were $5.7 billion at the end of the third quarter. UPS generated free cash flow of nearly $3.2 billion on an adjusted basis in the same period. The company spent $4.5 billion as capital expenditures in the first nine months of the year. We are also impressed with the company’s efforts to reward shareholders consistently through buybacks and dividend payouts. On a year-to-date basis, dividend per share increased 5.5%. Moreover, the company repurchased 7 million shares for roughly $753 million.
UPS still expects 2019 adjusted earnings per share between $7.45 and $7.75. Tax rate in 2019 is anticipated between 22% and 23% (past view: 22-24%). Adjusted free cash flow for 2019 is estimated to be more than $4 billion (previously: $3.5-$4 billion). The company slashed capital expenditures by $500 million for 2019 as well as 2020.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, UPS has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 looks promising. Notably, UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.