United Parcel Service, Inc. UPS reported first-quarter 2015 earnings of $1.12 per share, beating the Zacks Consensus Estimate of $1.09. Earnings were also up 14% on a year-over-year basis. The earnings beat seems to have pleased the investors. Consequently, shares have gained in early trading.
Revenues grew 1.4% over the year-ago quarter to $13.98 billion. Growth was witnessed across all three divisions of the company. Revenues, however, were shy of the Zacks Consensus Estimate of $14.32 billion. The revenue growth can be attributed to UPS increasing its base rates, which offset the weakness in fuel surcharges.
Foreign currency movements negatively impacted sales in the quarter. The company delivered 1.1 billion packages in the first quarter of 2015, up 2.8%.
Revenue Segments
U.S. Domestic Package revenues rose 3.8% year over year to $8.8 billion in the reported quarter. Segmental operating profit climbed 11% to $1 billion.
Daily package volume witnessed growth of 2.4%, on the back of 12% growth at Deferred Air and a 7% improvement at UPS SurePost. However, shipment growth rates witnessed a slow down. Revenue per package improved 1.3% year over year.
International Package revenues rose 2.4% year over year (on a currency neutral basis) to $3 billion. However, segmental revenues declined 5% on a foreign exchange adjusted basis due to a strong dollar. Export shipments climbed 6.7% on the back of 9.4% growth from Europe. Segmental operating profit grew 14% in the first quarter to $498 million backed by strong volumes, favorable pricing and lower fuel costs. Revenue per piece fell 1.4%.
Supply Chain and Freight revenues climbed 1.3% to $2.2 billion. Growth in the Distribution and UPS Freight units led to the increase. Foreign currency movements and lower fuel surcharge revenues, however, hurt segmental results. Operating profit for the segment rose 2% to $151 million.
Liquidity
UPS generated free cash flow of $2.4 billion and spent $365 million as capital expenditure in the first quarter of 2015. The package delivery company bought back more than 6.7 million shares for approximately $680 million in the quarter.
Moreover, UPS shelled out $636 million in dividend payments to its shareholders during the period, reflecting a 9% improvement over the year-ago quarter payout. We are impressed by the company’s efforts to reward investors consistently through share buybacks and dividends.
Guidance
UPS has reiterated its 2015 earnings guidance. It still expects 2015 adjusted earnings in the band of $5.05 to $5.30, reflecting 6% to 12% growth over the comparable 2014 figure. The Zacks Consensus Estimate for 2015 currently stands at $5.16 per share, within the company’s guidance range. Furthermore, the company reaffirmed its confidence in duly achieving its long-term financial goals.
Our Analysis
We believe a booming health care segment,healthy shipments and yield growth as well as productivity improvements will continue to drive growth at UPS. Moreover, the company’s strategic investments, technology-backed operations and enhanced global network will strengthen its market position and safeguard shareholder value against unfavorable market dynamics.
However, factors like labor unionization, competitive threats from players like FedEx Corp. FDX and Radiant Logistics, Inc. RLGT as well as economic weaknesses continue to pose significant threats to UPS’ growth in the near term.
Zacks Rank
Currently, UPS carries a Zacks Rank #3 (Hold). A better-ranked transportation stock is Atlas Air Worldwide Holdings Inc. AAWW. The stock carries a Zacks Rank #2 (Buy).
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