UPS: e-Commerce Growth Could to Drive Its Q4 Earnings Higher



Fourth-quarter expectations

UPS (UPS) is scheduled to report its fourth-quarter results on January 31. The company has an impressive record of beating earnings estimates. The stock has beat analysts’ expectations in the past seven quarters with an average earnings surprise of 1.7%.

For the fourth quarter, analysts expect the company to report strong double-digit earnings growth. UPS registered double-digit earnings growth in the other three quarters in 2018.

For the fourth quarter, analysts expect UPS to have an adjusted EPS of $1.90, which implies a YoY (year-over-year) rise of 13.8%. Analysts expect UPS’s revenues to rise 6% on a YoY basis to $19.97 billion.

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What’s driving the optimism?

Analysts think that UPS’s fourth-quarter results could continue to benefit from its extensive delivery network and rising e-commerce sales. The company’s broad international presence and fast and secure delivery services give it a competitive edge over large companies like FedEx (FDX) and XPO Logistics (XPO) and local players like Saia (SAIA).

Currently, UPS has operations in 220 countries. UPS covers all of the major airports and railway stations. UPS owns over 45,000 containers and 119,000 motorized vehicles, which help it make fast and timely deliveries.

Strong e-commerce growth is expected to boost UPS’s fourth-quarter top and bottom-line results. For 2018, eMarketer expected global online retail sales to grow 21.6% YoY to $2.86 trillion. eMarketer expected online retail sales to expand the total global retail sales by 150 basis points to 11.5%.

UPS’s fourth-quarter bottom-line results are expected to benefit from a lower tax rate. Analysts expect the fourth-quarter tax rate to be 23.6%, which is substantially lower than the rate of 33.6% in the second quarter.

Higher costs due to increased investments in facility upgrades and increased delivery costs might offset the benefits of the factors mentioned above in UPS’s fourth-quarter bottom-line results.

Investors could get exposure to UPS by investing in the iShares Transportation Average ETF (IYT), which holds ~6.5% in the stock.


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