A Look At Tuesday’s Market Events

A Look At Tuesday’s Market Events

$UPS, $BA

Tuesday morning the market will see lots of earnings report, along with some important economic data: the Durable Orders report for September.

Below is a look at the importance of that report and the earnings news from leading industrial company UPS (NYSE:UPS), as follows:

I. The Durable Orders Report for September 27 October at 8:30a EDT

Why it is important

1. It sheds light on business activity for US manufacturers
2. It enables economists and participants to develop a sense of business spending levels
3. The relevant line item in the report is new orders for non-defense capital goods, excluding aircraft
4. Durable orders can be volatile due to aircraft orders. Accordingly, the underlying impression of manufacturing activity flows out of the level of new durable orders, ex-transportation.
5. This report will factor in to Q-3 GDP computations
6. The relevant line item in the report pertaining to the GDP outlook is shipments of non-defense capital goods, ex-aircraft

A closer look

The Numbers: Tuesday 27 October Time of Release Forecast Consensus Prior
Durable Orders 8:30a EDT                       -2.0%        -1.3%     -2.3%
Durable Orders, ex-Trans 8:30 EDT        -0.5%        0.2%     -0.2%

What is in play

1. Industrial Select Sector SPDR ETF (XLI)
2. iShares U.S. Industrials ETF (IYJ)
3. Industrials/Producer Durables AlphaDEX Fund (FXR)
4. Vanguard Industrials ETF (VIS)
5. Boeing (BA)
6. US Treasuries
7. S&P futures
8. Fed funds futures

II. UPS Earnings Report before the open

Why it is important

1. UPS is the world’s largest package delivery company, delivering packages in over 220 countries and territories
2. With its global reach the market looks at UPS as a messenger of economic activity and prospects, yet it offers the market a more important sight line into economic activity in the US
3. The US is the company’s most important geographic segment, accounting for 75.3% of Y 2014 revenue
4. Company’s US Domestic Package business produced 61.6% of Y 2014 revenue and 57.6% of operating profit
5. International Package business was 22.3% of Y 2014 revenue and 33.8% of operating profit
6. Supply Chain & Freight business was 16.1% of Y 2014 revenue and 8.7% of operating profit
7. With the rapid growth in e-Commerce sales and commensurate package delivery needs, the results from UPS provide market insight into consumer spending activity
8. The trend in business for its higher-yielding air products will be studied carefully. A slowdown there could create market concerns that customers are getting more price-conscious and are in less hurry to have deliveries made, which generally fits with slower economic activity
9. The company will help shape market expectations for holiday spending with its view on package delivery needs

What UPS said after its Q-2 report in July

1. Q-3 EPS is expected to be up modestly due to tough comparisons with the same frame last year
2. US domestic operating profit should be flat with last year due to tough comparisons created by lower Workers Compensation cost in Y 2014
3. International segment expected to see positive momentum continue in 2-H of the year with operating profits at the high end of a 6%-12% range
4. F-Y 2015 diluted EPS expected to be 5.05 to 5.30, up 6% to 12% over adjusted Y 2014 results

What is in play?

1. UPS (NYSE)
2. FedEx (FDX)
3. Dow Jones Transportation Average
4. iShares Transportation Average (IYT) UPS is 2nd-largest holding at 8.12% of assets
5. Industrial Select Sector SPDR ETF (XLI) UPS is 7th-largest holding at 3.92% of assets
6. Amazon.com (AMZN)
7. Wal-Mart (WMT)

Stay tuned…

HeffX-LTN

Paul Ebeling

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