United Parcel Service (UPS) Q2 Earnings: A Beat In Store?

We expect United Parcel Service, Inc. (NYSE:UPS) to report better-than-expected earnings in the second quarter of 2016. Results will be revealed on Jul 29, before the opening bell.

In the first quarter of 2016, United Parcel Service reported a positive earnings surprise of 4.10%. Results were buoyed by a rise in ecommerce packages in the company’s U.S. Domestic Package unit. The company has an impressive track record with respect to earnings, having posted higher-than-expected earnings in each of the past four quarters, with an average beat of 6.01%.

Our quantitative model hints at an earnings beat in the second quarter as well. Here’s why.

United Parcel Service has the right combination of the two key ingredients – positive Earnings ESP and a Zacks Rank #3 (Hold) or better – for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for United Parcel Service is +1.40%. This is because the Most Accurate estimate of $1.45 is 2 cents higher than the Zacks Consensus Estimate.

Zacks Rank: United Parcel Service carries a Zacks Rank #3.

The company’s Zacks Rank #3 and positive ESP make us confident of an earnings beat in the second quarter of 2016.

As a caution, we advise investors not to consider Sell-rated stocks (Zacks Rank #4 and 5) going into an earnings announcement.

UTD PARCEL SRVC Price and EPS Surprise

UTD PARCEL SRVC Price and EPS Surprise | UTD PARCEL SRVC Quote

What's Driving the Better-than-Expected Earnings?

We expect the company’s U.S. Domestic Package unit to continue to drive growth in the second quarter. The Supply Chain and Freight segment is expected to perform well in the quarter on the back of the Coyote Logistics acquisition, which was completed in the third quarter of 2015. The company expects its 2016 adjusted earnings per share in the band of $5.70 to $5.90. The range reflects 5% to 9% growth over the comparable 2015 figure of $5.43.

We are also impressed with the company’s efforts to reward shareholders consistently through buybacks and dividends. In the first quarter of 2016, United Parcel Service shelled out approximately $670 in dividend payments to its shareholders, reflecting a 6.8% improvement over the year-ago payout. The company bought back 6.8 million shares for approximately $680 million in the first quarter. We expect an update on the shareholder friendly activities during the second-quarter conference call. An update on the recent five year provisional deal inked with pilots is also awaited.

However, we expect revenues at the company’s international package unit to suffer due to adverse foreign currency movements in the second quarter. Lower fuel surcharges are also expected to hurt results.

Stocks to Consider

Here are some other transportation companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat in the upcoming quarter:

Expeditors International of Washington (NASDAQ:EXPD) with an earnings ESP of +3.45% and a Zacks Rank #3. The company is slated to report second-quarter earnings on Aug 2.

American Railcar Industries, Inc. (NASDAQ:ARII) has a Zacks Rank #3 and an earnings ESP of +2.02%. The company is scheduled to report second-quarter earnings on Jul 28.

Costamare Inc. (NYSE:CMRE) has a Zacks Rank #3 and an earnings ESP of +2.44%. The company is scheduled to report second-quarter earnings on Jul 27.