UPS Earnings Poised to Rise on Lower Fuel Prices--Earnings Preview

By Laura Stevens

United Parcel Service Inc. (UPS) is scheduled to announce its third-quarter earnings before the market opens Friday. Here's what you need to know:

EARNINGS FORECAST: Net income of $1.28 a share is the consensus of analysts surveyed by Thomson Reuters, compared with $1.16 reported a year earlier. The company hasn't provided guidance for the third quarter, but in July said it expects per-share earnings to rise between 7% and 9% for the year to between $4.90 and $5.

REVENUE FORECAST: Revenue of $14.2 billion is forecast, compared with $13.52 billion reported the year earlier.

WHAT TO WATCH:

--LOWER FUEL PRICES: Fuel prices fell during the quarter, an important factor for a transportation company that has nearly 100,000 vehicles on the road, plus more than 500 airplanes it owns and charters. "Declining fuel prices is such a tailwind for them," says Kevin Sterling, an analyst with BB&T Capital. Rival FedEx Corp. (FDX) also benefited from lower fuel prices when the company reported higher-than-expected earnings in September.

--PEAK SPENDING: While reporting second-quarter earnings, UPS said it would boost its spending for its holiday peak season to $175 million, from a projected $100 million, to invest in new technology, expand capacity and add more seasonal workers. Cost savings through investments in technology such as hub automation and Orion, the company's dynamic routing system, could already start to show up in the third quarter, analysts say. Orion "should continue to pay off as it gets rolled out," says David Vernon, a Bernstein analyst.

--EUROPE VS. US: One thing that could weigh on gains is the recent economic weakness in Europe. UPS is heavily invested in Europe, and about 15% of UPS's revenue stem from its business there, estimates Stephens analyst Jack Atkins. The recent problems there -- combined with the lower value of the euro -- could result in a headwind, he says. Analysts will keep a close eye on the company's international numbers, as well as its currency hedging.

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