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UPS (UPS) Up 8.2% Since Last Earnings Report: Can It Continue?

Zacks.com logo Zacks.com 11/24/2022

It has been about a month since the last earnings report for United Parcel Service (UPS). Shares have added about 8.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Earnings Beat at UPS in Q3

United Parcel Service's earnings (third-quarter 2022 earnings (excluding 3 cents from non-recurring items) of $2.99 per share, beating the Zacks Consensus Estimate of $2.84. The earnings beat was primarily owing to higher delivery prices. Favorable pricing more than offset the downside caused by declining shipping volumes. The bottom line increased 10.33% year over year.

Quarterly revenues of $24,161 million, however, fell short of the Zacks Consensus Estimate of $24,319.8 million. The top line increased 4.2% year over year, driven by the uptick in revenue per piece shipped.

Shipping volumes declined 2.1% year over year to 22.9 million. The decline in the volume of packages shipped indicates weakening demand due to the economic slowdown.

Overall adjusted operating profit rose 8.6% year over year to $3,224 million in the third quarter, boosted by growth in the adjusted operating profit in the U.S. domestic package segment. In the first nine months of 2022, UPS generated a free cash flow of $8,472 million compared with $9,265 million in the first nine months of 2021. UPS’ capital expenditures were $2,278 million in the first nine months of 2022.

Segmental Details

U.S. Domestic Package revenues increased 8.2% year over year to $15,374 million in the third quarter, driven by a 9.8% increase in revenue per piece. Segmental operating profit (adjusted) jumped 19.2% year over year to $1,686 million in the quarter. Adjusted operating margin for the segment was 11% in the September quarter. Average daily volume in the segment declined 1.5% year over year in the reported quarter.

Revenues at the International Package division summed $4,799 million, up 1.7% year over year. The segment’s performance was driven by a 6.4% increase in revenue per piece. Segmental operating profit (adjusted) totaled $1,004 million in the reported quarter, down 2% year over year. Consolidated average daily volume in the segment declined 5.2% year over year in the reported quarter. On the domestic front, average daily volume fell 9.4%. Average daily volume (export) was down 0.6%

Supply Chain and Freight revenues declined 6.3% to $3,988 million due to softness in the air and ocean freight forwarding operations. Operating profit (on an adjusted basis) inched up 0.9% to $459 million in the September quarter.

2022 OutlooK

UPS still expects consolidated revenues of about $102 billion, an adjusted operating margin of 13.7% and an adjusted return on invested capital to be above 30%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, UPS has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, UPS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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