What To Expect From UPS’ Q1 Earnings

UPS (NYSE:UPS) is all set to report earnings for Q1 this Thursday. In the previous quarter, the company managed to beat both the earnings and revenue expectations, comfortably. However, earnings were offset by increased costs in the quarter on heavy system bottlenecks and delayed deliveries. Given the heavy surge in package volume, UPS has also decided to spend heavily in the immediate future to upgrade its delivery network. Therefore, we expect the company’s bottom line to be hurt similarly in Q1. That said, in terms of revenues, we expect the heavy influx of e-commerce shipments to greatly benefit the packaging giant.

• Probably the most worrying news to investors would be the heavy costs the company expects to incur. Over the last few quarters, high package delivery costs have taken quite a toll on UPS’s bottom line, and we expect this momentum to carry into Q1 as well. Further, with the massive surge in package volumes, UPS has decided to up its investment in its delivery network. Additionally, the company is also working hard to expand its presence globally. While this move will benefit the shipping mammoth in the long run, in the short run, we expect these additional costs to drag on earnings.
• On the positive end, e-commerce has grown at a significant rate in the recent past. According to the National Retail Federation, e-commerce shipments grew by around 8-12% last year, which is more than double the overall increase for all of retail. This, as expected, translated to notably higher shipments through the holiday season. In this respect, we expect revenues across most divisions, notably the U.S. Domestic Package unit to continue gaining from this trend. Analysts estimate sales at the division to come in around $10.117 billion, notably higher than $9.535 billion in Q1 2017.
• Further, the company’s international package division is expected to benefit from a high growth in export volumes across the globe. According to analysts, we can expect the division to post revenues to the tune of about $3.339 billion, in comparison to $3.058 billion in the same period a year ago.