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United Parcel (UPS) Q1 Earnings Top, Sales Lag; View Intact

United Parcel Service, Inc. UPS reported first-quarter 2016 earnings of $1.27 per share, beating the Zacks Consensus Estimate by 5 cents. Earnings were also up 13.4% on a year-over-year basis. Results were boosted by a rise in ecommerce packages in the company’s U.S. Domestic Package unit.

Revenues also improved 3.2% over the year-ago quarter to $14.42 billion but fell short of the Zacks Consensus Estimate of $14.58 billion. Foreign currency movements and lower fuel surcharges impacted sales in the quarter.

Segmental Details

U.S. Domestic Package revenues inched up 3.1% year over year to $9.1 billion in the reported quarter. Segmental operating profits improved 7.6% to $1.1 billion. Results were boosted by a 1.9% year-over-year decline in cost per unit.

Segmental average daily package volumes climbed 2.8% driven by a 3.3% rise in Ground products and 3% growth in Next Day Air services. Average revenue per piece declined 1.3% due to lower fuel surcharges and changes in product and customer mix.

International Package revenues fell 1.9% to $2.91 billion. Segmental revenues were impacted to the tune of 200 basis points by the decline in fuel surcharges. Export shipments improved marginally in the first quarter of 2016 on the back of growth in Europe and Asia.

Segmental operating profits grew in excess of 15% in the quarter to $574 million. Disciplined pricing coupled with gains from network efficiency contributed to the improvement. Revenue per piece increased 1.6% (on a currency neutral basis). Improvements in base rates were witnessed across all regions in the reported quarter.

Supply Chain and Freight revenues increased over 10% to $2.4 billion. Segmental results were aided by the acquisition of Coyote Logistics, which was completed in the third quarter of 2015. Operating profits in the segment declined 2.6% to $147 million in the quarter under review, hurt by weaknesses in the Air Freight Forwarding and less than truckload (LTL) markets.

Liquidity

United Parcel generated free cash flow of $2.2 billion and spent $427 million as capital expenditure in the reported quarter. Notably, the package delivery company bought back 6.8 million shares for approximately $680 million in the quarter.

Moreover, in the first quarter of 2016, United Parcel shelled out approximately $670 in dividend payments to its shareholders, reflecting a 6.8% improvement over the year-ago payout. We are impressed with the company’s efforts to reward shareholders consistently through buybacks and dividend payouts.

Guidance

The package delivery company maintains its 2016 adjusted earnings per share projection in the band of $5.70 to $5.90. The range reflects 5% to 9% growth over the comparable 2015 figure of $5.43. The Zacks Consensus Estimate for 2016 currently stands at $5.76, well within the company’s guided range.

Zacks Rank & Other Key Picks

Currently, United Parcel carries a Zacks Rank #2 (Buy). Investors interested in the transportation space may also consider Canadian Pacific Railway Ltd. CP, Student Transportation STB and International Consolidated Airlines Group S.A. ICAGY. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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INTL CONS AIRLN (ICAGY): Free Stock Analysis Report
 
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STUDENT TRANSPT (STB): Free Stock Analysis Report
 
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