What To Expect From UPS' Earnings?

UPS ( UPS ) is scheduled to announce its first quarter earnings on April 27 before the markets open. The last quarter was a challenging one for the company, with higher than expected operating expenses, flat revenue per package and a continued industrial slowdown negatively impacting the company’s performance. For fiscal year 2016, the company’s revenue grew a moderate 4% to $60.9 billion while adjusted EPS was $5.75, an increase of 8% from the previous year and an all time high.

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Market Expectations

In the upcoming results, UPS is expected to post revenues of $15.1 billion, which would imply growth of 5% over the prior year period and EPS of $1.29, which would imply growth of 1.6% over the prior year period.

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Revenue Growth

The growth in the e-commerce sector shows no sign of slowing down, something that bodes well for UPS. The continued growth in e-commerce shipments is likely to benefit the company’s domestic packages and positively impact its top line. Additionally, to counter the decline in revenue per package, the company increased its shipping charges across all segments by almost 5%. This should augment the company’s top line growth. For the full year, the company expects domestic revenues to register mid single digit growth, aided by a 3% to 5% increase in average daily volumes.

UPS expects its revenues from International packages to increase by 2-4%, driven by an increase in volumes, partially offset by currency headwinds. The strategic investments made by the company in Europe – to counter the challenge posed by the combined FedEx-TNT entity – over the past years should help it grow, both organically and inorganically. Additionally, the company took network improvement measures to improve its efficiency in the international markets, which impacted its bottom line. The company is expected to continue with similar measures this year, which should help the company moderately improve its margins.

The Supply Chain Freight segment is also expected to grow during the year. The acquisition of Freightex and its subsequent integration in the business line could lead to revenue growth of 8-10%.

Last year, UPS made significant investments in improving its existing facilities and fleet, both in the U.S. and Europe. Moreover, the company ordered 14 new planes from Boeing, with an aim to improve its fleet. This year, the company has already announced its plans to build a $200 million facility in Texas and a $275 million operational hub in Salt Lake City. This trend is likely to continue in the current year as well, as the company plans to allocate $4 billion for its capital expenditures.

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