ZTO Express Cayman Inc. (ZTO) Down 10% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for ZTO Express Cayman Inc. (ZTO). Shares have lost about 10% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is ZTO Express Cayman Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Earnings Miss at ZTO Express in Q2

ZTO Express' earnings of 26 cents per share missed the Zacks Consensus Estimate of 28 cents. Nevertheless, the bottom line increased 4% year over year. Results were driven by rise in parcel volume market share by 1.6 percentage points to 21.5%.

Total revenues of $906.2 million also rose 14.7% year over year. The upside can be attributed to increase in revenues at the core express delivery services unit, which contributed significantly to the top line.

Detailed Operational Statistics

Revenues in Express delivery services increased 16.3% year over year, owing to 47.9% rise in parcel volume. Favorable pricing also drove segmental results. Freight forwarding services revenues, inched up 33.4% year over year, owing to increase in cross-border e-commerce demand amid coronavirus concerns. Also, revenues from sales of accessories increased 9.8% year over year.

Meanwhile, total operating expenses of this China-based company declined 55.5% to RMB 122.6 million. Selling, general and administrative expenses increased 2.3% year over year. Gross margin deteriorated to 27.6% in the second quarter from 32.6% in the year-ago quarter. As of Jun 30, 2020, ZTO Express repurchased 7.7 million ADSs at average price of $17.33.

Liquidity

ZTO Express exited the quarter with cash and cash equivalents of RMB 5.26 billion compared with RMB 5.27 billion at the end of 2019.

Outlook

ZTO Express now expects parcel volumes in the range of 16.2-17 billion for 2020 (previous guidance: 15.9-16.4 billion). The increased annual parcel volume projection indicates 33.7-40.3% increase on a year-over-year basis. Additionally, adjusted net income is anticipated between RMB 4.8 billion and RMB 5.2 billion, which indicates 1.7-9.3% fall year over year.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -21.43% due to these changes.

VGM Scores

At this time, ZTO Express Cayman Inc. has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise ZTO Express Cayman Inc. has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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