United Parcel Service Inc. is set to release its third-quarter results early Thursday, marking a crucial moment for the company’s performance.
Anticipation of Low Expectations
It is evident that expectations surrounding the release are at an all-time low owing to several reasons. The labor negotiations during the summer months resulted in anxious customers seeking alternative delivery options. Additionally, concerns arose following the July labor deal, causing apprehension regarding the impact of increased wages on earnings. Adding to the apprehension is the fact that consumers have become more cautious due to rising interest rates and a slowing economy.
Downward Stock Trend
In light of these uncertainties, UPS’s stock has taken a hit. At present, the stock has declined by 1.7% during Wednesday’s afternoon trading, coming dangerously close to its lowest closing point since Aug. 6, 2020. Over the past three months, UPS shares have experienced a significant decline of 20.5%. In comparison, rival FedEx Corp. has seen its shares drop by 8.9%, while the S&P 500 has declined by 8.3%.
Even with UPS’s efforts to regain lost market share in the first half of 2023, Evercore ISI analyst Jonathan Chappell remains cautious about the pricing environment amidst macro headwinds and increased competition. In a recent note to clients, Chappell expressed his belief in UPS’s ability to recover but acknowledged the challenging landscape ahead.
Potential Revenue Guidance Cut
In light of UPS’s cut in revenue guidance during its second-quarter report in early August, it is anticipated that another reduction may be imminent. Christian Wetherbee from Citi suggests that most analysts share this expectation.
Wall Street Sets a Low Bar
Despite the uncertainties, there is a glimmer of hope for UPS as Wall Street has already adjusted its earnings expectations downward over the past few months. This means that UPS has a lower hurdle to overcome in meeting or exceeding these expectations.
Wetherbee suggests that expectations are now “substantially lower” and consensus estimates have been relatively well-calibrated, creating an opportune situation for UPS to outperform.
Overall, the forthcoming third-quarter results will shed light on UPS’s ability to navigate these challenges successfully.
UPS Third-Quarter Analyst Estimates
- Adjusted earnings per share: $1.52 (down from $2.99 a year ago)
- Revenue: $21.4 billion (11.4% decrease from a year ago)
- Domestic package revenue: $13.74 billion (down from $15.37 billion a year ago)
- International package revenue: $4.29 billion (16.4% decrease)
- Supply-chain and freight revenue: $3.37 billion (17.4% decrease)
The third-quarter analyst estimates for UPS, compiled by FactSet, paint a concerning picture for the company’s financial performance. Adjusted earnings per share are projected to be $1.52, a significant drop from $2.99 in the previous year. The FactSet EPS consensus has also decreased from $2.63 since the end of June. This anticipated EPS would be the lowest reported by UPS since the first quarter of 2020 when the company last missed EPS expectations.
Furthermore, revenue is expected to experience a substantial decline of 11.4%, reaching $21.4 billion for the quarter. This estimation reflects a decline from $23.3 billion at the end of June. The alarming trend continues with UPS missing revenue expectations for the past four consecutive quarters.
When examining the breakdown of revenue sources, domestic package revenue is projected to fall to $13.74 billion, down from $15.37 billion in the same period last year, and below the estimate of $15.13 billion at the end of July. On the international front, package revenue is expected to decrease by 16.4% to $4.29 billion, and supply-chain and freight revenue is set to decline by 17.4% to $3.37 billion.
Looking ahead to 2023, UPS has expressed its expectations for revenue, targeting approximately $93 billion compared to the current FactSet consensus of $92.87 billion. The company also anticipates an adjusted operating margin of approximately 11.8% in 2023. Additionally, capital expenditures are forecasted to be around $5.3 billion, while dividend payments and share repurchases are projected to amount to approximately $5.4 billion and $3 billion, respectively.
Reviewing the stock’s response to previous earnings reports, it is worth noting that UPS has historically lost ground after five out of the last six reports. On average, the stock has experienced a decrease of 3.6% (median 3.4%) in value following these announcements.
Despite the challenges that lie ahead, UPS remains committed to navigating these obstacles and focusing on the company’s long-term growth potential.
