FedEx Vs. UPS: What's The Better Buy?

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Earnings season has taken center stage this week, with a wide variety of companies delivering quarterly results. So far, the period has been positive, with many exceeding top and bottom line expectations.

And next week, one notable company on the reporting docket includes transportation titan United Parcel Service (UPS - Free Report). How do expectations stack up heading into the release? We can use results from a peer, FedEx (FDX - Free Report), as a guide.

As shown below, FDX shares have widely outperformed in 2023, penciling in a 40% gain compared to the -9% decline within UPS shares.

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FedEx FY24 Q1

FedEx reported adjusted EPS of $4.55, exceeding the Zacks Consensus Estimate handily by 23% and improving 32% year-over-year. Quarterly revenue totaled $21.7 billion, marginally below consensus expectations and slipping 6% from the year-ago period as the company continued to face soft demand.

As we can see below in the quarterly revenues chart, the pandemic-fueled boom has faded.

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Still, despite ongoing demand weakness, the company’s DRIVE program has allowed it to achieve meaningful cost-saving measures, explaining the sizable bottom line beat. In fact, the program is expected to deliver $4 billion in cost savings for its next fiscal year (FY25), with margins expected to expand nicely.

The company provided somewhat mixed updated guidance for its fiscal 2024, expecting adjusted EPS in a band of $17.00-$18.50 per share (previously $16.50-$18.50 per share). The original revenue forecast saw a downward adjustment, with FDX now expecting flat year-over-year growth vs. prior views of flat to low-single-digit growth.

Undoubtedly a positive for shareholders, the company’s DRIVE program is expected to result in $1.8 billion of permanent cost reductions for FY24. Analysts raised their expectations across nearly all timeframes following the release. FedEx is currently a Zacks Rank #2 (Buy).

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United Parcel Service

United Parcel Service is scheduled to reveal its quarterly results on Oct. 26 before the market’s open. UPS has also been experiencing a soft demand environment, with its U.S. Domestic and International segments seeing average daily volumes down 9.9% and 6.6%, respectively, throughout its latest quarter.

Analysts have taken their earnings expectations lower for the quarter to be released, with the $1.60 Zacks Consensus EPS Estimate down 40% since July of this year, reflecting a 46% decline year-over-year.

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Revenue expectations have also seen negative revisions, with the $21.6 billion quarterly revenue estimate down 7.6% from the $23.4 billion expected in late July. The estimated figure suggests an 11% pullback from year-ago sales of $24.2 billion.

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It’s worth noting that the company lowered its current year revenue and margin forecasts following its successful labor negotiations back in August, expecting an adjusted operating margin of 11.8% and sales of $93 billion. This is a driver behind the negative top and bottom line revisions.


Bottom Line

A positive report from United Parcel Service (UPS - Free Report) could break shares out of their current downtrend, particularly if the company boasts improved profitability as FedEx (FDX - Free Report) did in its quarterly report. It’s also reasonable to assume that volumes will be down, again reflected within FDX’s release.

From a nearer-term perspective, FDX shares look like the better buy, supported by positive earnings estimate revisions stemming from successful cost-saving initiatives. In addition, FDX shares are more reasonably priced given the company’s forecasted growth, with the current 12.4X forward 12-month earnings multiple well beneath 15.2X of UPS.

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