United Parcel Service, Inc. (UPS - Analyst Report) reported second-quarter 2015 earnings of $1.35 per share, beating the Zacks Consensus Estimate by 9 cents. Earnings were also up 12% on a year-over-year basis.Strong international growth boosted results.

The earnings beat seems to have pleased the company’s investors. Consequently, shares have gained in early trading. 

United Parcel Service Inc. - Earnings Surprise | FindTheBest

On the other hand, revenues declined 1.2% from the year-ago quarter to $14.1 billion, also shy of the Zacks Consensus Estimate of $14.49 billion. Foreign currency movements and lower fuel surcharges negatively impacted sales in the quarter.

The company delivered 1.1 billion packages in the second quarter, up 2.1% year over year.

Segments in Detail

U.S. Domestic Package revenues rose 1.6% year over year to $8.8 billion in the reported quarter. Segmental operating profit climbed 3% to $1.2 billion. Lower fuel surcharges caused a drop in yield.

Daily package volume witnessed growth of 1.8%, on the back of 14.6% growth at Deferred Air and over 8% improvement at UPS SurePost. Revenue per package declined 0.2%% year over year.

International Package revenues fell 6.4% to $3.04 billion. However, segmental revenues improved 1.5% on a currency adjusted basis. Export shipments climbed 5.5%. The increase was due to 8.5% growth in intra-Europe shipments. Segmental operating profit grew 17% in the second quarter to $552 million backed by strong volumes, favorable pricing and lower fuel costs. Revenue per piece on a currency neutral basis fell 2.4%. Lower fuel surcharges also hurt segmental results.

Supply Chain and Freight revenues declined 4.5% to $2.2 billion. Distribution revenue exhibited growth while UPS Freight revenues declined 2.5% hurt by lower fuel surcharges and a drop in tonnage on the back of changes in customer mix and sluggish market growth. Operating profit for the segment rose 18% on an adjusted basis.

Liquidity  

UPS generated free cash flow of $3.3 billion and spent $958 million as capital expenditure in the first half of 2015. The package delivery company bought back more than 13.5 million shares for approximately $1.4 billion in the period.

Moreover, UPS shelled out $1.3 billion in dividend payments to its shareholders, reflecting a 9% improvement over the year-ago quarter’s payout. We are impressed by the company’s efforts to shareholders consistently through buybacks and dividends.

Guidance

UPS has reiterated its full year 2015 earnings guidance. It continues to expect 2015 adjusted earnings in the band of $5.05 to $5.30 per share, reflecting 6% to 12% growth over the comparable 2014 figure. The Zacks Consensus Estimate for 2015 currently stands at $5.18, within the company’s guidance range. In fact, 2015 EPS growth is projected at the higher end of the 6% to 12% range driven by its international business.

Our Analysis

We believe a booming health care segment, healthy shipments and yield growth as well as productivity improvements will continue to drive growth at UPS. Moreover, the company’s strategic investments, technology-backed operations and enhanced global network will strengthen its market position and safeguard shareholder value against unfavorable market dynamics.

However, factors like labor unionization, competitive threats from players like FedEx Corp. (FDX - Analyst Report) and Radiant Logistics, Inc. (RLGT - Snapshot Report), and economic weaknesses continue to pose significant threat to UPS’ growth in the near term.

Zacks Rank

Currently, UPS has a Zacks Rank #3 (Hold). A better-ranked stock in the transportation space is Diana Containerships (DCIX - Snapshot Report) sporting a Zacks Rank #1 (Strong Buy).