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United Parcel Service, Inc. (UPS) Q4 Earnings Preview: What Will Brown Do For You – Probably Not Much

 January 30, 2013 12:20 PM
 


(By Rich Bieglmeier) United Parcel Service, Inc. (UPS) will announce its fourth quarter results on Thursday, January 31, 2013 at approximately 7:45 a.m. Eastern Standard Time. At 8:30 a.m. EST, UPS Chairman and CEO Scott Davis and Chief Financial Officer Kurt Kuehn will conduct an investor conference call. Wall Street anticipates that UPS will earn $1.38 for the quarter. iStock expects the Air Delivery & Freight Services company to report earnings that will exceed Wall Street's consensus number. The iEstimate is $1.39 –  a 1 cent upside surprise.

United Parcel Service is a package delivery company, provides transportation, logistics, and financial services in the United States and internationally. It operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight.

[Related -Upside Calls Active On United Parcel Service, Inc. (UPS) And Put Options Active In Crocs, Inc. (CROX)]

The Dow member has struggled with the Street's estimate of late. Last time out, UPS hit analysts' consensus after missing the previous two quarters.  However, the misses were slight, falling short by $0.02 both times. In fact, United Parcel rarely strays too far of the scripts. Seven cents is UPS biggest bullish surprise and coming in a nickel under is the largest miss. In 12 of the last 16 reports, Big Brown has been plus or minus 3 cents from the consensus. Overall, UPS has produced 10 upside surprises, four misses, and two on target results in the last 16 quarterly checkups.

[Related -C.H. Robinson Worldwide, Inc. (CHRW): $500 Million In Share Buybacks Could Send This Stock Soaring]

As one might expect with earnings that hug the consensus estimate, UPS price performance in the days surrounding earnings has been a flip of the coin, up eight times and down eight times. Much like results, the Dow member's performance is on a short leash, gaining an average of 2.94% or losing 3.25% on average.  

In the third quarter, management started the discussion in the 10-Q with, "The U.S. economic expansion has continued at a slow-to-moderate pace through the third quarter of 2012. Continued growth in retail sales, particularly among e-commerce retailers, has provided for expansion in the overall U.S. small package delivery market; however, recent weakness in manufacturing activity, combined with the uneven nature of the overall economic recovery, has negatively impacted the small package delivery market. Given these trends, our products most aligned with business-to-consumer shipments have experienced the strongest growth while our business-to-business volume continues to be pressured. We expect these trends to continue for the remainder of 2012.

Outside of the U.S., economic growth has slowed considerably due to volatility in world markets and fiscal austerity measures, particularly in Europe. This slower economic growth has created an environment in which customers are more likely to trade-down from premium express products to standard delivery products."

Do you think any of that has changed? Fourth Quarter US GDP contracted to less than zero; although, consumers managed to be a plus. Online orders were the strongest part of holiday sales, growing sharply while bricks and mortars struggled. According to the National Retail Federation, online sales increased 11.1% in 2012 versus 2011.

Durable goods orders showed promise earlier this week increasing 4.6% versus 1.6% expectations; however, Non-defense Capital Goods excluding Aircraft only rose by a 0.2% month over month. In other words, take out Boeing and the results aren't as sexy.

Google European Union and you'll find headline after headline that reads something like this:

  • Instant View: UK Q4 GDP falls more than expected
  • Spanish Economy Sinks Further Into Recession, Q4 GDP Down 0.6
  • Germany's Federal Statistics Office estimates German GDP contracted by 0.5% in Q4

We'll stop, it's getting depressing.

Overall, iStock agrees that previous trends will continue into the fourth quarter for United Parcel Service, Inc. (UPS); small package deliveries will be up thanks to increasing online sales while the US and European economies continue to pressure business-to-business volume. Analysts and management have done an excellent job of managing expectations for the past four years, and we don't anticipate that changing Thursday morning. We should see another result that hugs the consensus estimate and most likely dull stock performance afterwards. UPS owners might think about selling call options to gobble up any unwarranted, priced-in volatility.
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