United Parcel Service Inc. is due to report third-quarter results early Thursday, well ahead of the opening bell.
It’s safe to say expectations are about as low as they can be, for a number of reasons. The distractions caused by labor negotiations over the summer prompted some worried customers to go elsewhere, while the labor deal reached in July raised concerns over how higher wage costs would impact earnings. There are also signs that consumers have grown more cautious as rising interest rates slow the economy.
UPS’s stock
UPS,
sank 1.7% in afternoon trading Wednesday, toward the lowest close since Aug. 6, 2020. It has tumbled 20.5% over the past three months, while shares of rival FedEx Corp.
FDX,
have lost 8.9% and the S&P 500
SPX
has declined 8.3%.
“[A]lthough we believe that UPS will be successful in winning back most lost share from [the first half of 2023], the pricing backdrop may be more challenging given ongoing macro headwinds and a more competitive landscape,” Evercore ISI analyst Jonathan Chappell wrote in a recent note to clients.
UPS cut its 2023 revenue guidance when it reported second-quarter results in early August, and Citi’s Christian Wetherbee said most analysts expect that another cut is coming.
On the bright side, as earnings expectations have already fallen sharply over the past few months, Wall Street has set a pretty low bar, which will be easier for UPS to hurdle.
Wetherbee said expectations are now “substantially lower,” and consensus estimates now seem to be “fairly well calibrated.”
Here are the average third-quarter analyst estimates compiled by FactSet for a number of UPS’s closely watched financial metrics:
- Adjusted earnings per share of $1.52, down from $2.99 a year ago. The FactSet EPS consensus has dropped from $2.63 at the end of June. The company hasn’t reported EPS that low since the first quarter of 2020, which coincidentally was the last time UPS missed EPS expectations.
- Revenue to fall 11.4% from a year ago, to $21.4 billion. That consensus estimate has fallen from $23.3 billion at the end of June. UPS has missed revenue expectations the past four quarters.
- Domestic package revenue of $13.74 billion, down from $15.37 billion a year ago, and down from an estimate of $15.13 billion at the end of July.
- International package revenue to fall 16.4% to $4.29 billion, and supply-chain and freight revenue to decline by 17.4% to $3.37 billion.
For 2023, the company has said it expects revenue of about $93 billion, compared with the current FactSet consensus of $92.87 billion.
The company also expects a 2023 adjusted operating margin of around 11.8%, capital expenditures of about $5.3 billion, dividend payments of around $5.4 billion and share repurchases of around $3 billion.
In terms of the stock’s reaction to past earnings reports, it has lost ground after five of the past six reports, by an average of 3.6% (median 3.4%).
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