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United Parcel Service (UPS) Q3 Earnings Beat, Revenues Lag

United Parcel Service, Inc.UPS reported third-quarter 2015 earnings of $1.39 per share, beating the Zacks Consensus Estimate by 2 cents. Earnings were also up 5.3% on a year-over-year basis. Strong international growth boosted results.

United Parcel Service Inc. - Earnings Surprise | FindTheBest

On the other hand, revenues declined 0.4% from the year-ago quarter to $14.2 billion, also shy of the Zacks Consensus Estimate of $14.35 billion. Foreign currency movements and lower fuel surcharges negatively impacted sales in the quarter. The below-par sales disappointed investors. Consequently, shares of the company were down in early trading.

The company delivered 1.1 billion packages in the third quarter, up 1.9% year over year.

Segments in Detail

U.S. Domestic Package revenues rose 1.9% year over year to $8.9 billion in the reported quarter. Segmental operating profit declined 1.6% to $1.3 billion. Lower fuel surcharges hurt results.

Daily shipments witnessed growth of 0.6%, on the back of 13% growth at Deferred Air and 4% improvement at UPS Next Day Air. Revenue per package declined 0.3% year over year.

International Package revenues fell 7% to $2.95 billion. However, segmental revenues improved 0.4% on a currency adjusted basis. Export shipments climbed 1.2%. Growth in Europe transborder and U.S. inbound shipments led to the increase. Segmental operating profit grew 10% in the third quarter to $507 million. Revenue quality enhancements and network improvements, apart from export volume expansion, contributed to the improvement. Revenue per piece fell 7.3%. Lower fuel surcharges also hurt segmental results.

Supply Chain and Freight revenues increased marginally to $2.4 billion. Segmental results were aided by the acquisition of Coyote Logistics, which was completed in the reported quarter. Distribution revenue exhibited growth while UPS Freight revenues declined 8.6%, hurt by lower fuel surcharges and sluggish market growth. Operating profit for the segment rose 1.9% to $219 million.

Liquidity

UPS generated free cash flow of $4.6 billion and spent $1.65 billion as capital expenditure in the first nine months of 2015. The package delivery company bought back more than 20 million shares for approximately $2 billion in the period.

Moreover, UPS shelled out $1.9 billion in dividend payments to its shareholders, reflecting a 9% improvement over the year-ago quarter's payout. We are impressed by the company's efforts to reward shareholders consistently through buybacks and dividends.

Guidance

The package delivery company expects 2015 adjusted earnings at the higher end of the previously projected range of $5.05 to $5.30. The projection reflects 6% to 12% growth over the comparable 2014 figure. The Zacks Consensus Estimate for 2015 currently stands at $5.27, which is closer to the top end of the company's guidance range.

Our Take

Even though the revenue miss in the third quarter renders disappointment, we believe a booming healthcare segment, healthy shipments and yield growth as well as productivity improvements will continue to drive growth at UPS. Moreover, the company's strategic investments, technology-backed operations and enhanced global network will strengthen its market position and safeguard shareholder value against unfavorable market dynamics.

However, factors like labor unionization, competitive threats from players like FedEx Corp. FDX and Radiant Logistics, Inc. RLGT , and economic weaknesses continue to pose significant threat to UPS' growth in the near term.

Zacks Rank

Currently, UPS carries a Zacks Rank #3 (Hold). A better-ranked stock in the transportation space is Diana Containerships DCIX sporting a Zacks Rank #1 (Strong Buy).

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UTD PARCEL SRVC (UPS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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