Conservative · Stocks to Consider and Updates

UPS Beats Estimates; Reaffirms Guidance

United Parcel Service, Inc. (NYSE: UPS – $114.17), the world’s largest package delivery provider, announced second-quarter adjusted earnings per share of $1.96 compared to $1.94 in the second quarter of 2018 and $0.03 ahead of Street consensus. The company turned the rising demand for next-day service into strong financial results in the U.S. and leveraged asset-light and proven cost management strategies in the International and Supply Chain and Freight segments. Total operating profit grew nearly 21%, and 6.3% on an adjusted basis, with growth in all segments. Revenue – slightly better than Street estimates – increased 3.4% to $18.048 billion, driven by gains in average daily volume in the U.S. and higher-quality, currency-neutral revenue in the International business.

       The U.S. Domestic segment generated significant volume growth in all products, led by a more than 30% surge in UPS Next Day Air volume driven by accelerated delivery requirements from e-commerce shippers. The International segment benefited from its highly flexible network and by targeting growth markets within the company’s diverse revenue base. The segment generated its best second-quarter profit in history and expanded adjusted operating margins while navigating areas of trade uncertainty. The Supply Chain and Freight segment grew operating profit to more than $270 million, a double-digit increase for the quarter. Successful cost management enabled by the company’s asset-light strategies delivered strong financial results while revenue was pressured by softer trade.

       For all of 2019, management reaffirmed earnings guidance of $7.45 to $7.75 per share, on the upper end of Wall Street estimates of $7.45. Investors liked what they heard from these results bidding the shares up over 8% in early trading. Positions in UPS are a solid all-around choice. I like the company’s decision to focus on small and mid sized businesses in growing markets like healthcare and e-commerce. By providing these companies with the ability to outsource fulfillment and shipping to UPS should help them better compete with the likes of Amazon. Although U.S.-China trade relations add uncertainty, the shares can continue to be held in a well-diversified conservative portfolio. The stock pays $3.84 per share in annual dividends, yielding 3.65%.

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