A month has gone by since the last earnings report for United Parcel Service (UPS). Shares have added about 3.7% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Earnings Miss at UPS in Q1
UPS' first-quarter 2020 earnings (excluding 4 cents from non-recurring items) per share of $1.15 lagged the Zacks Consensus Estimate by 6 cents. The bottom line also decreased 17.3% year over year. Results were hurt by the coronavirus-induced supply-chain disruptions.
Due to the uncertainty over the coronavirus pandemic, UPS withdrew its previously-issued 2020 projections for revenues and earnings per share. With dividends remaining a top priority for the company, it is suspending share buybacks for the current year. Moreover, capital expenditures for 2020 are expected to be reduced by roughly $1 billion from the previous projection.
However, performance on the top-line front was encouraging despite the coronavirus woes. UPS generated revenues worth $18,035 million in the quarter, surpassing the Zacks Consensus Estimate of $17,420.3 million. Moreover, the top line improved 5.1% on a year-over-year basis. Results were aided by higher average daily volumes. However, operating profit decreased 26.4% on an adjusted basis in the first quarter due to the domestic package segment’s disappointing operating profit.
U.S. Domestic Package revenues increased 9.3% year over year to $11,456 million in the first quarter, driven by 8.5% volume growth across all products. Notably, UPS Next Day Air volumes were up 20.5%. This uptrend was attributable to gains pertaining to automated hubs and other transformation investments. Segmental operating profit plunged more than 40% on an adjusted basis to $401 million in the quarter.
Revenues at the International Package division came in at $3,383 million, down 2%. International cost per piece dipped 0.5%, mainly owing to currency-related impact. Segmental operating profit came in at $558 million in the reported quarter on an adjusted basis, reflecting an8.8% decrease.
Supply Chain and Freight revenues fell marginally to $3,196 million. Operating profits in the segment dropped 25.1% on an adjusted basis to $158 million in the first quarter. Results were hurt by the sluggishness in economic activity due to the pandemic.
Cash from operations were $2.6 billion at the end of the reported quarter. UPS generated free cash flow of $1.6 billion on an adjusted basis in the same period. The company’scapital expenditures (adjusted) were $939 million in the quarter.020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -26.09% due to these changes.
Currently, UPS has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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. It's no surprise UPS has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
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