Currency exchange rates and lower fuel surcharges slowed down revenue growth for United Parcel Services
The Country Caller takes a closer look at United Parcel Service, Inc. (NYSE:UPS) stock following its second quarter results for fiscal year 2016. United Parcel reported its Q2FY16 financial results last Thursday, July 29. The company met the Street’s expectations on its bottom line and was able to beat the Street on its top line by a small margin. Oppenheimer restated an Outperform rating on the stock. It also raised the price target by 3.57% to $116 following the company’s Q2 results.
United Parcel Services reported stronger earnings for the second quarter by announcing earnings per share of $1.43 in Q2FY16. It met the Street’s expectations on its bottom line. Analyst Scoot Schneeberger also noted that the company was able to beat his estimate of $1.41 in EPS. The company experienced a 6% year-over-year growth in its EPS. Furthermore, the world’s largest package delivery company posted $14.63 billion in revenues. It managed to surpass the Street expectations by a total of $24 million. The revenues posted by the company led to witness 3.8% YoY increase in its top line. Mr. Schneeberger believes that this revenue growth was in line with his expectations and the estimate issued by him and his team at Oppenheimer.
Not only this, the international operating profits of the company increased by 11% YoY to $613 million. This marked the sixth consecutive quarter to experience double-digit growth in international market. The company’s net income also rose by 3.2% YoY to $1.27 billion in this season. To quote more figures, its operating profits were raised by 4% YoY for the same period and the US Domestic Package segment saw a rise of 2.7% YoY in its operating profits.
However, the Supply Chain and Freight segment saw a decline of 7.2% in its operating profit this season. Despite this decline, the division reported impressive growth in revenues of more than 13% YoY to $2.5 billion. The company credits this increment to recent acquisition of Coyote Logistics during 3QFY15. UPS earnings were impressive in LTL and Air Freight Forwarding markets.
The $94.78 billion company blames its hampered revenue growth to currency exchange rates and lower fuel surcharges. According to the company officials, revenue increased by 4% if currency-neutral basis was assumed. Also, the lower fuel surcharges had harmed the revenue growth and cut it by approximately 120 basis points.
Despite this hampered revenue growth, the company was able to post strong results. The company credits this to e-commerce growth marked by growth in their B2C segment.
Furthermore, the company also experienced healthy export volumes along Europe-to-US trade lane market by double digits growth. Due to this, the international package division was able to expand its operating margin on YoY basis through pricing, network efficiencies and overall growth in volume.
Also, the domestic package segment showed improvements in its margins. This was mainly driven by improvements in productivity due to better technology. These improvements were translated into lower costs per unit.
However, the Supply Chain and Freight department is a bit of concern for the company and remains to be challenging. Despite this, UPS restated its EPS FY16 guidance with the range of $5.70-5.90 compared to the Street’s expectations of $5.80. This would lead to 5-9% growth in its EPS YoY.
While Oppenheimer maintains its Outperform rating on the stock, other analysts also continue with their bullish stance over the stock of supply chain management solutions provider. According to FactSet Fundamentals, analysts uphold seven Buy, two Overweight, 15 Hold, and one Sell ratings on the stock. The 12-month average target price is set at $109.53, an increase of 1.41% over the last close.