UPS Earnings and Holiday Forecast Had Better Deliver

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UPS (UPS) earnings land Tuesday, but all eyes will be on the shipper’s outlook for the critical holiday selling season.

ups-stock-earningsOrdinarily, UPS and rival FedEx (FDX) are seen as bellwethers of global economic growth, but as has been the case for a while now, they’re not going to tell us anything we didn’t already know.

The strong dollar and slowdown in China remain headwinds with no end in sight. Helpfully, however, the drop in oil prices is benefiting fuel costs, and operating costs are something UPS needs to bottle up.

Those issues should be adequately priced in to UPS stock. More uncertain is whether UPS can get off the schneid after two terrible holiday seasons in a row. Because of its importance, the market will be looking more at what UPS says about the current quarter than the one that just passed.

Nailing the Holiday Rush

In 2013, bad weather and higher-than-expected volume meant that millions of packages didn’t get to their destinations. Determined not to repeat the same mistake, last year UPS pledged to add as many as 95,000 temporary workers to handle the holiday rush, but that turned out to be overkill when the increase in volume didn’t materialize as forecast.

UPS has a chance to get this holiday selling season right.

As for 2015, FDX delivered an upbeat holiday forecast Monday. Indeed, at 12.4%, holiday shipments are expected to post their strongest growth in three years. That’s largely a reflection of the increase in e-commerce shopping, but the relatively healthy U.S. economy should do its part too.

The National Retail Federation predicts a 3.7% rise in retail sales to $630.5 billion, excluding auto, fuel and restaurant sales. That would be slower than the year-ago figure of 4.1%, but it should be more than adequate to drive better results for UPS — especially since it’s coming up against easy comparisons.

UPS had better deliver. The company has missed Wall Street’s top-line estimate multiple times the past two years. True, UPS beat analysts’ average estimate in 2014, but only because it slashed its outlook ahead of time.

Separately, the union that represents UPS pilots gave the executive board the right to call a strike should the situation warrant. Given that the company and the union have been trying to hammer out a new contract for five years, the strike vote looks like a boilerplate tactical moves.

Street Sees Modest Growth for UPS

The bottom line is that the Street expects the bottom line to provide at least modest growth.

On average, analysts forecast UPS earnings to come in at $1.37 a share, or a nickel better than last’s years profit per share. Revenue is projected to grow 1% to $14.43 billion. If FDX’s holiday forecast proves right, UPS should beat on the top line for a change.

At 18 times forward earnings, UPS isn’t really all that expensive compared to its long-term growth rate of 10%, but neither is it on sale. That said, UPS stock has languished all year — it’s now down 4% year-to-date — but has been rising smartly in anticipation of the holidays.

If sales forecasts are right — and UPS doesn’t blow it again — should finally regain levels it lost after last year’s disaster. In the short term, UPS looks pretty good.

As of this writing Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/ups-earnings-stock/.

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