United Parcel Service, Inc. (NYSE: UPS) stock lost over 6.9% on 25th April, 2019 (As of 1:02 pm GMT-4; Source: Google finance) as the firm posted a lower-than-expected profit for the first quarter of FY 19. Net income fell more than 17 percent to $1.1 billion from the year-earlier quarter, this includes a 7 cent per share hit from severe storms in the U.S. Northeast and Midwest. Operating profit in its U.S. domestic business, its biggest, dropped to $666 million in the quarter ended March 31, from $756 million a year earlier, largely due to an $80 million hit from weather-related disruptions.
Meanwhile, UPS is working to attract more business-to-business shipments to offset lower-profit deliveries of shoppers’ online purchases from retailers like Amazon.com and Walmart Inc. It invested nearly $7 billion in 2018 under a three-year plan to automate package-sorting hubs, make routes more efficient and to upgrade airplanes and other equipment. That initiative includes construction of eight regional “super hubs” in the United States. UPS has already opened these more flexible facilities in Georgia, Indiana, Arizona, and Utah, and will open two more, in Texas and Washington State, this year.
UPS in the first quarter of FY 19 has reported the adjusted earnings per share of $1.39, beating the analysts’ estimates for the adjusted earnings per share of $1.41, according to IBES data from Refinitiv. The company had reported the adjusted revenue growth of 0.3 percent to $17.2 billion in the first quarter of FY 19, missing the analysts’ estimates for revenue of $17.8 billion. The revenue growth is driven by gains in average daily volume and higher-quality revenue.
For FY 19, The company reaffirms adjusted diluted EPS will be in the range of $7.45 to $7.75. Adjusted free cash flow for the year is projected to be between $3.5 and $4 billion with potential additional upside from the working capital initiatives. The effective tax rate for 2019 is estimated to be between 23% and 24%.
In the second quarter, UPS will open about 30% of the planned 2019 capacity; no facilities were opened during the same period last year. Thus onboarding costs will weigh on the second-quarter results. Overall operating profit in the second quarter is expected to grow. Adjusted EPS is anticipated to be relatively flat to last year driven by planned pension financing costs.
Third-quarter adjusted EPS is expected to benefit from numerous items including one additional operating day and year-over-year International benefits from 2018 commodities headwinds that should not repeat.