United Parcel Service (NYSE:UPS) Reports Sales Below Analyst Estimates In Q2 Earnings, Stock Drops
Parcel delivery company UPS (NYSE:UPS) missed analysts' expectations in Q2 CY2024, with revenue down 1.2% year on year to $21.8 billion. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $93 billion at the midpoint. It made a non-GAAP profit of $1.79 per share, down from its profit of $2.54 per share in the same quarter last year.
Is now the time to buy United Parcel Service? Find out in our full research report.
United Parcel Service (UPS) Q2 CY2024 Highlights:
Revenue: $21.8 billion vs analyst estimates of $22.24 billion (2% miss)
EPS (non-GAAP): $1.79 vs analyst expectations of $1.99 (10.1% miss)
The company lowered its revenue and operating margin guidance for the full year
Free Cash Flow of $1.05 billion, down 54.4% from the previous quarter
Market Capitalization: $124.2 billion
“I want to thank all UPSers for their hard work and efforts in the second quarter,” said Carol Tomé, UPS chief executive officer.
Trademarking its recognizable UPS Brown color, UPS (NYSE:UPS) offers package delivery, supply chain management, and freight forwarding services.
Air Freight and Logistics
The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
A company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, United Parcel Service grew its sales at a weak 4.3% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. United Parcel Service's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.5% annually. United Parcel Service isn't alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
This quarter, United Parcel Service missed Wall Street's estimates and reported a rather uninspiring 1.2% year-on-year revenue decline, generating $21.8 billion of revenue. Looking ahead, Wall Street expects sales to grow 7.2% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Read More Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
United Parcel Service has managed its expenses well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.1%. This was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it's a show of strength if they're high when gross margins are low.
Analyzing the trend in its profitability, United Parcel Service's annual operating margin decreased by 1.5 percentage points over the last five years. Even though its margin is still high, shareholders will want to see United Parcel Service become more profitable in the future.
In Q2, United Parcel Service generated an operating profit margin of 8.9%, down 3.7 percentage points year on year. This contraction shows it was recently less efficient because its expenses increased relative to its revenue.
EPS
Read MoreWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
United Parcel Service's flat EPS over the last five years was below its 4.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of United Parcel Service's earnings can give us a better understanding of its performance. As we mentioned earlier, United Parcel Service's operating margin declined by 1.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For United Parcel Service, its two-year annual EPS declines of 24.2% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, United Parcel Service reported EPS at $1.79, down from $2.54 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street expects United Parcel Service to grow its earnings. Analysts are projecting its EPS of $7.26 in the last year to climb by 27.2% to $9.23.
Key Takeaways from United Parcel Service's Q2 Results
We struggled to find many strong positives in these results. Its EPS missed and its revenue fell short of Wall Street's estimates. The company slightly lowered full year revenue guidance. It lowered full year operating margin guidance by a more significant amount. Overall, this was a mediocre quarter for United Parcel Service. The stock traded down 6.4% to $135.94 immediately after reporting.
United Parcel Service may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.