Yahoo Finance United Parcel Service's (NYSE:UPS) Conservative Accounting Might Explain Soft Earnings
Investors were disappointed with the weak earnings posted by United Parcel Service, Inc. (NYSE:UPS ). However, our analysis suggests that the soft headline numbers are getting counterbalanced by some positive underlying factors.
View our latest analysis for United Parcel Service
The Impact Of Unusual Items On Profit
To properly understand United Parcel Service's profit results, we need to consider the US$1.2b expense attributed to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If United Parcel Service doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On United Parcel Service's Profit Performance
Because unusual items detracted from United Parcel Service's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Based on this observation, we consider it likely that United Parcel Service's statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. If you want to do dive deeper into United Parcel Service, you'd also look into what risks it is currently facing. Be aware that United Parcel Service is showing 3 warning signs in our investment analysis and 1 of those doesn't sit too well with us...
This note has only looked at a single factor that sheds light on the nature of United Parcel Service's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
