What To Expect From UPS’ Q3 Results

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Logistics giant UPS (NYSE:UPS) is set to announce its third quarter results on Thursday, October 27th, before the opening of markets. In the second quarter of the current fiscal year, the company recorded a marginal 3.8% growth in its top line, driven by a 14% increase in revenues from Supply Chain & Freight. The growth in the company’s top line, reduced fuel costs and the company’s ORION program resulted in its bottom line improving 3% over the prior year quarter, with net income reported at $1.3 billion for the quarter. Additionally, the company’s net cash from operations grew 11% over the prior year quarter to $4.6 billion. The company also reaffirmed its full year earnings per share guidance of $5.70 to $5.90.

Screen Shot 2016-10-25 at 12.51.26

E-Commerce To Drive Growth

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Per the latest report of the U.S. Department of Commerce, in the second quarter of 2016, online retail sector grew at 15.8% on year-over-year basis to $97.3 billion. [1] The growth in online retail is expected to continue in the upcoming quarters as well. This bodes well for UPS, given its significant market penetration in deliveries for e-commerce companies. Additionally, continued low fuel prices and the ORION program will positively impact the company’s bottom line. Despite the e-commerce driven growth in the domestic market, the international markets are expected to show moderate growth due to continued global slowdown. We expect the revenues from International Package to show low single digit growth.

In the third quarter results of the current fiscal year, per the Reuters complied analyst estimates, the company is expected to show a 3.2% uptick in revenues to $14.7 billion while the net earnings per share are expected to grow at 2.9% over the prior year quarter to $1.44.

Screen Shot 2016-10-25 at 12.46.26

In the last quarter, UPS has made significant investments aimed at upgrading its facilities in Europe and U.S. The company has plans to invest $2 billion by 2019 to cope with the challenges of FedEx-TNT merger. It has strengthened its ground network in Europe and opened a new facility in Germany. In U.S., the company has opened facilities in California and Louisville in order to cater to the demands of the upcoming holiday season.

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Notes:
  1. U.S. Census Bureau Quarterly E-commerce Report, www.census.gov, August 16 2016 []