UPS Delivers Strong Results; Guides Third-Quarter Lower

United Parcel Service (NYSE: UPS – $107.94) reported a higher quarterly net profit due largely to a jump in e-commerce deliveries in its U.S. domestic package service. The Atlanta-based company posted second-quarter net income of $1.4 billion or $1.58 per share, up nearly 8% from $1.3 billion or $1.43 per share a year earlier and beating analysts’ estimates of $1.47. Revenues were $15.8 billion, compared to $14.6 billion a year ago, driven largely by domestic e-commerce activity and higher than estimates of $15.35 billion. The world’s largest package delivery company said quarterly revenue at its core U.S. domestic package service rose 8% to $9.7 billion. Revenue per package in the domestic unit was up 3%, reflecting raised prices. The company said revenue in its international segment was up 2.8% thanks to export growth in Asia and Europe, but operating profit fell nearly 5%. Revenue in the supply chain and freight segment was up 12%, reflecting improving market conditions.

        Management, however, reined in third quarter earnings estimates to ” relatively flat” versus last year, when UPS reported earnings of $1.44 a share. Analysts were at $1.48 a share and, thus, the shares are trading lower by about 4% in today’s trading. UPS still expects to hit its fiscal 2017 goals, and full year earnings per share, barring any unforeseen December delivery issues, should still reach $5.90 – $5.95 and Street estimates for next year are at $6.47. Conservative, patient investors may still find the shares, yielding 3%, suitable. UPS may need more time for investments to pay off, but I have confidence that it will ultimately benefit from more e-commerce activity both here and abroad.

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