UPS Q3 Earnings Top, Rise Y/Y On Higher Domestic Volumes

United Parcel Service’s (NYSE: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.

Segmental Details

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.

United Parcel Service, Inc. Price, Consensus and EPS Surprise

United Parcel Service, Inc. price-consensus-eps-surprise-chart | United Parcel Service, Inc. Quote

Other Details

Cash from operations were $5.7 billion at the end of the third quarter. UPS, carrying a Zacks Rank #3 (Hold), 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. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Outlook

UPS still expects 2019 adjusted earnings per share between $7.45 and $7.75. The mid-point of the guided range ($7.60 per share) is above the Zacks Consensus Estimate of $7.51. 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.

Upcoming Releases

Investors interested in the Zacks Transportation sector are keenly awaiting third-quarter 2019 earnings reports from key players like C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW) , Southwest Airlines (NYSE:LUV) and Norfolk Southern Corporation (NYSE:NSC) . While Norfolk Southern and Southwest will report earnings numbers on Oct 23 and Oct 24, respectively, C.H. Robinson will release the same on Oct 29.

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