What To Expect From UPS’s Q3 Earnings

by Trefis Team
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UPS (NYSE:UPS) is all set to report earnings for Q3 on October 26. The company has had a pretty good year thus far. In the previous quarter, the postal giant reported heavy increases in both the top and bottom lines. That said, management has been cautious in announcing their expectations for Q3. They believe the third quarter is up for a relatively flat earnings growth. Tougher year-over-year comparisons, currency headwinds, and one less calendar day in the quarter are all expected to take a toll on the bottom line. However, many analysts are of the opinion that UPS is selling itself short.

Points To Note:

  • UPS is expected to witness steady revenue growth across all major segments in Q3, driven by improved demand and pricing conditions. With the U.S. experiencing steady economic and jobs growth, consumer confidence is at a fifteen year high. Favorable demand conditions should translate into another quarter of robust growth in e-commerce shipments, particularly B2C sales. This should boost the top line of the U.S. Domestic Package segment this time around.
  • In addition to core pricing gains, driven by general inflation, increase in operating costs and improved demand conditions, the company’s revenue per package will get an additional boost from higher fuel surcharge revenues. Crude oil prices have averaged considerably higher this year (with Brent Crude prices expected to average around 16% higher year-over-year in 2017), which has translated into higher fuel prices, and hence, higher fuel surcharge revenues.
  • As with most logistics companies, the upcoming quarter, for UPS, is one of the most challenging, and if played correctly, most profitable quarter in the year. It is a make-or-break quarter that investors are most interested in. In preparation, the company has announced that it will be hiring around 95,000 seasonal workers, and offset the expense by charging a 27 cent surcharge for ground packages in the busiest times during the holidays. In comparison, FedEx has maintained that it will not be charging any surcharges.
  • That said, in the recent quarter, Amazon announced its intentions to set up a delivery service in order to take care of all its delivery needs, thereby eliminating a chance for third party error entirely. Given that Amazon is one of UPS’s biggest clients, this comes as terrible news. We can expect to learn more about this on the upcoming earnings call.

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