Package delivery and global supply chain management company UPS (NYSE:UPS) will report its second quarter earnings Tuesday, July 24. The company has been reporting consistent revenue upside driven by solid domestic volume growth, better pricing and international expansion. These trends are expected to continue this quarter as well with better yields and double digit earnings growth. UPS faces stiff competition from FedEx (NYSE:FDX) and national postal services agency USPS (United States Postal Service).
Revenue Growth Driven by Domestic Package Volume and Higher Pricing
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UPS posted solid volume growth last quarter supported by its U.S. business and improved yields due to better pricing. Its revenues grew 4.4% last quarter mainly through increased daily package volumes, particularly Deferred Packages, whose volume increased 10%. The company has also increased its freight rates for small-parcel shipping, which is likely to positively impact the yield. Overall, the growth is expected to resonate with the U.S. GDP growth, although there have been some adverse trends of customers shifting from premium services to slower or deferred products and sea-borne shipping while seeking lower expenses.
The earnings would also provide an update on international demand trends, including Europe. Last quarter, UPS reported some softening of international growth, particularly in Asia. The trend resonated in the results of rival FedEx whose international priority shipments volumes from Asia to North America and Europe declined last quarter.
Despite weakness in Europe, UPS has been bullish about its growth prospects in the region and acquired big consumer delivery companies like Kiala and Dutch-based TNT Express (market cap of $5 billion) this year. The strategy is in contrast to that of its competitor FedEx, which has been penetrating deeper into international markets with smaller acquisitions like TATEX in France, Opek in Poland, and Rapidao Cometa in Brazil.
We currently have a $86 Trefis price estimate for the UPS stock.