The package and freight delivery giant, United Parcel Service Inc. (UPS, Financial), is expected to report its first-quarter earnings of the fiscal year 2015 today before the bell, and the Street is highly positive on the expected results with respect to the top and bottom line. Since the company has been expanding the fleet size from the past year, it seems that it might even report numbers that exceed the analyst estimates. It is to be noted that the package delivery company has remained profitable for the past eight quarters, but in the past four quarters its income has dropped by an average of 27% year over year. In fact the company was the hardest hit in the second quarter of the past fiscal year when its bottom line fell by a whopping 58%. But as the company has devised strategies to remain in profits in the near future, it would be better to have a glance at what is being expected at the earnings call to be held today morning.
The analysts opine
Out of 31 analysts, 9 have rated the UPS stock as a buy and the rest have rated it a Hold. The analysts have also estimated the 12-month target stock price at $106.64, though the stock has not shown any peak in growth since the past one year having grown only 0.74% over the last year.
Analysts are hoping that the fall in crude oil prices would act as a boon upon the company and positively impact its profits. In fact, they have estimated that the company would have $0.12 per share year-over-year growth directly from the reduced fuel expenses that would in turn reduce its truck operational expenses.
As on date, analysts are expecting profit at $1.09 a share, a rise from $0.98 a share reported a year earlier. In fact, it is notable that the consensus estimate has fallen from $1.20 a share over the past three months. Analysts are projecting revenue to be up about 4% year over year to $14.27 billion for the quarter. Net income is expected to be close to $995 million for the quarter, down from $1.1 billion reported in the fourth quarter of the fiscal year 2014.
The company’s plan of action might start paying off
The package delivery giant has been improving on its fleet size for expansion of its parcel services. In the past year, the company had announced upon the acquisition of 1,400 new trucks that would be equipped with CNG-based fuelling system. Recently to counter the competition from FedEx Corporation (FDX, Financial) in Europe, it has announced the investment of $1.06 billion in the region for expansion of its operations. In fact, this announcement came on the heels of the declaration provided by FedEx on its acquisition of TNT Express NV (TNTEY, Financial), a prominent player in the European region.
The dimensional weight pricing model implemented in December last year should help in boosting the company’s top line and revenue per package. In fact, it is being stated that the change in pricing mechanism could lead to 30%-50% improvement in revenue per package for bulky yet light items such as toilet paper rolls, towels, shoes and purses. Since companies like Amazon have employed UPS services in order to provide their customers with speedy delivery of online products, the package delivery company could possible see a surge in package revenue and volume after being promoted by online retailers.
Last word
It remains to be seen if the package and freight delivery player is able to sustain its top and bottom line at decent level in the presence of competition which is intensifying from the past few quarters. Today, before the market opens, the results will be out and the investor reaction would need to be studied through the movement in the stock. Let’s stay tuned.
