Here’s What To Anticipate From UPS’ Q1

United Parcel Service (NYSE: UPS) is scheduled to report its Q1 2024 results on Tuesday, April 23. We expect UPS to post revenue of $22 billion and earnings of $1.38 on a per-share and adjusted basis, slightly above the street expectations. The company will likely see a tough comparison in Q1, weighing on the overall volume growth as well as profitability. Increased labor costs will likely further dampen the profitability. Not only do we expect UPS to see a tough Q1, we believe its stock has little room for growth. Our interactive dashboard analysis of UPS’ Earnings Preview has more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive UPS’ results?

Firstly, let us look at UPS’ stock performance in recent years. UPS stock has seen a decline of 15% from levels of $170 in early January 2021 to around $145 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the decrease in UPS stock has been far from consistent. Returns for the stock were 27% in 2021, -19% in 2022, and -10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UPS underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including CAT, GE, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UPS face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, we think UPS has little room for growth. We estimate UPS’ Valuation to be $156 per share, which is less than 10% above its current market price. At its current levels, UPS stock is trading at 17x forward EPS estimate of $8.36 for 2024, aligning with its average over the last five years.

Looking at the previous quarter, UPS’s revenue of $24.9 billion in Q4 was down 8% y-o-y, and the company stated that challenging macroeconomic conditions weighed on the overall demand. The company’s operating margins have also been weighed down in the recent past, primarily due to the impact of the labor deal with the Teamsters Union that was ratified in August last year. The adjusted operating margin slid 290 bps to 11.2% in Q4. Lower revenues and margin contraction resulted in a 32% fall in the bottom line to $2.47 on an adjusted basis.  UPS expects its 2024 revenue to be in the range of $92 billion to $94.5 billion.

While the labor deal may weigh on Q1 profitability, the operating margin is expected to improve in the second half of the year. Overall, Q1 is not expected to be cheerful for UPS, and its stock will likely remain range bound, in our view. Note that UPS has missed consensus revenue estimates in all four quarters of 2023.