Market Overview

UPS Earnings Preview: EPS and Revenue Growth Expected

United Parcel Service (NYSE: UPS), the world's largest package company - and ostensibly a bellwether of the state of U.S. and global economic activity - is scheduled to report second-quarter 2012 results Tuesday, July 23, before the U.S. market opens.

Expectations

Analysts on average predict that UPS will report per-share earnings of $1.17 for the three months that ended in June, as well as say that its revenue totaled about $13.7 billion. In the same period of last year, the company reported $1.07 per share and $13.2 billion in revenue. Note that the EPS estimate has slipped by a penny in the past 60 days. UPS fell short of earnings estimates in the first quarter, ending a streak of eight consecutive quarterly positives surprises.

The company attributed the first-quarter earnings miss to a shift among customers toward lighter packages and slower shipping methods, as well as the effects of China's cooling economy and some European countries sliding back toward recession. Shares fell 1.8% on the disappointing report.

Looking ahead to the current quarter, year-over-year EPS and revenue growth is expected, though the revenue estimate is about the same as in the second quarter. So far, analysts expect full-year per-share earnings growth of more than 12 percent, and revenue to be more than 4 percent higher than in the previous year.

The Company

Atlanta-based package delivery company United Parcel Service operates in the following segments: the U.S. Domestic Package segment, which delivers packages domestically; the International Package segment, which provides delivery services to approximately 220 countries and territories; and the Supply Chain & Freight segment, which offers forwarding and logistics services. It is an S&P 500 component with a market capitalization of near $75 billion. That is greater than the market cap of rival FedEx (NYSE: FDX), which missed revenue estimates in its most recent quarterly report and said it would raise prices to offset higher costs.

During the three months that ended in June, UPS launched a new ground freight service to Mexico, pursued the acquisition of Dutch competitor TNT Express, approved a new share buyback program and announced a rate hike of nearly 6 percent on some shipments.

Performance

UPS's long-term EPS growth forecast is about 13 percent. Its price-to-earnings (P/E) ratio is higher than the industry average, but so is its operating margin. The return on equity is nearly 50 percent, much higher than that of FedEx. The UPS dividend yield of about 2.9% is also more generous than that of FedEx. Of analysts surveyed by Thomson/First Call, 17 out of 25 recommend buying shares. Their mean price target, a sign of where they think the share price will go, is more than 12 percent higher than the current share price.

The share price is now about 7 percent higher than at the beginning of the year, despite pulling back a bit in the past week. It is above the 50-day and 200-day moving averages. Over the past six months, the stock has outperformed FedEx and the Dow Jones Industrial Average.

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