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United Parcel Service (UPS) Q1 Earnings: Surprise in Store?

United Parcel Service, Inc. UPS is slated to report its first-quarter 2016 financial results on Apr 28, before the opening bell.

Last quarter, UPS reported a positive earnings surprise of 11.35%. The company has an impressive track record with respect to earnings, having delivered higher-than-expected earnings in each of the past four quarters with an average beat of 5.68%.

Let’s see how things are shaping up for this announcement.

Factors at Play

We expect a strong dollar to exert pressure on UPS’ top line in the first quarter. Revenues at the company’s international package unit are likely to suffer due to adverse foreign currency movements. Lower fuel surcharges are also expected to hurt results.

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 2016 adjusted earnings in the band of $5.70 to $5.90 per share, reflecting 5% to 9% growth over the comparable 2015 figure.

Furthermore, we are impressed with the package delivery company’s consistent efforts to reward shareholders through dividends and share repurchases. The company paid $2.5 billion through dividends in 2015. In terms of share buybacks, the company repurchased 27 million shares at $2.7 billion in 2015. We expect an update on the above mentioned shareholder friendly activities on the first quarter conference call.

Earnings Whispers

Our proven model does not conclusively show that UPS is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP for the company currently stands at 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are currently pegged at $1.22.

Zacks Rank: UPS’ Zacks Rank #3 increases the predictive power of ESP. However, that alone is not sufficient to secure an earnings beat.

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

Stocks to Consider

Here are some 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:

Canadian National Railway Company CNI, with an earnings ESP of +1.47% and a Zacks Rank #1. The company will report first-quarter 2016 results on Apr 25.

Copa Holdings CPA, with an earnings ESP of +8.70% and a Zacks Rank #3. The company is scheduled to report first-quarter earnings on May 5.

Allegiant Travel Company ALGT, with an earnings ESP of +0.47% and a Zacks Rank #3. The company is scheduled to report first-quarter results on Apr 27.

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