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United Parcel (UPS) Beats on Q3 Earnings and Revenues

United Parcel Service, Inc.UPS reported third-quarter 2016 earnings of $1.44 per share that beat the Zacks Consensus Estimate by a penny. Earnings increased 3.6% year over year.

Revenues improved 4.9% year over year to $14.9 billion and also beat the Zacks Consensus Estimate of $14.7 billion in spite of foreign currency movements and lower fuel surcharges negatively impacting sales in the quarter.

We note that other players in the transportation space, such as United Continental Holdings UAL , have also reported better-than-expected earnings and revenues in the third quarter.

Segmental Details

U.S. Domestic Package revenues climbed 4.8% year over year to $9.3 billion in the reported quarter. Segmental operating profit declined marginally to $1.3 billion. Operating margin came in at 13.5% in the third quarter compared with 14.2% a year ago.

Segmental average daily package volumes climbed 5.7% driven by a 5.2% rise in Ground products and 5.9% growth in Next Day Air services. Deferred Air products were up 10.4%. Average revenue per piece increased marginally in spite of lower fuel surcharges. Changes in product and customer mix were offset by a rise in base rates.

International Package revenues improved 2.2% to $3 billion despite foreign currency movements hurting the top line. Segmental revenues were impacted by 70 basis points due to a decline in fuel surcharges. Export shipments improved 7.1% in the third quarter on the back of growth in Europe and Asia. Average daily package volume for the segment (international and domestic) grew 7.5%.

Segmental operating profits grew in excess of 13% in the quarter to $576 million. Disciplined pricing coupled with gains from network efficiency and volume expansion contributed to the improvement. Revenue per piece declined 2.8% hurt by lower fuel surcharge rates. Changes in trade lane and customer mix nullified the upside in base rates.

Supply Chain and Freight revenues increased over 8% to $2.6 billion. Segmental results were aided by the acquisition of Coyote Logistics, which was completed in the third quarter of 2015. Operating profits in the segment declined 5.9% to $206 million in the quarter under review, hurt by weaknesses in the Air Freight Forwarding and less than truckload (LTL) markets.

UTD PARCEL SRVC Price, Consensus and EPS Surprise

UTD PARCEL SRVC Price, Consensus and EPS Surprise | UTD PARCEL SRVC Quote

Liquidity

United Parcel, which like rival FedEx Corp. FDX is gearing up to meet the surge in demand during the upcoming holiday season, generated free cash flow of $3.6 billion and spent $1.84 billion as capital expenditure in the first nine months of the year. Moreover, United Parcel paid approximately $2 billion as dividend to shareholders in the third quarter. Additionally, it bought back 19.5 million shares for $2 billion. We are impressed with the company's efforts to reward shareholders consistently through buybacks and dividend payouts.

Guidance

The package delivery company maintains its adjusted earnings per share projection for 2016 in the band of $5.70 to $5.90. The range reflects an increase of 5-9% from $5.43 in 2015. The Zacks Consensus Estimate for 2016 currently stands at $5.80, well within the company's guided range.

Zacks Rank & a Key Pick

Currently, United Parcel Servicehas a Zacks Rank #4 (Sell). A better-ranked stock in the transportation space is Copa Holdings CPA , which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

For 2016, the Zacks Consensus Estimate for Copa Holdings has climbed 18 cents to $4.63 per share over the last month.

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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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