Foolish Forecast: UPS Rolling In

Look out the window. Clap and jump for joy. UPS (NYSE:UPS) has arrived, and Brown has a big ol' passel of earnings news ready to drop at your doorstep on the morrow.

Wall Street Wisdom:

• General consensus. Like a pack of stray dogs chasing and yelping after one of its eponymous brown trucks, 18 analysts follow UPS -- and there isn't a bear in the bunch. Every one of them calls the company either a buy or, at worst, a hold.
• Revenues. Analysts think that UPS had a mighty fine fourth quarter last year and are positing 17% growth in revenues to $11.56 billion.
• Earnings. They think profits will be even sweeter, with the consensus centering on 25% earnings growth to $0.95 per share.

Margin watch:
Ever heard that the generally accepted accounting principles (GAAP) are malleable? That they're subject to being interpreted in different ways by different companies? UPS provides an excellent case study in this regard. As you can see in the chart below, GAAP occasionally bends sufficiently to permit UPS to claim gross margins of 100%. Does that mean it's a better company than archrival FedEx (NYSE:FDX), whose gross margins hover around 70%? Hardly. And no, it doesn't mean UPS is worse than FedEx, either; merely that it crunches its numbers differently. Just a word to the Foolish -- the public service announcement ends here.

What the numbers also show you is that UPS has stemmed the tide of declining margins we saw through December of 2004 and is moving back northward on both the operating and net margin fronts.

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-months performance for the quarters ended in the named months.

Foolish lookout:
Probably the single greatest factor affecting UPS's ability to succeed in fiscal 2006 (aside from a potential strike by its union employees) is the price of fuel. As a courier service, UPS runs on fuel. Last quarter, with gas prices skyrocketing after Hurricane Katrina, UPS boldly predicted 11% to 16% growth in earnings per share next year. Now that ultra-high gas prices have given way to merely high gas prices, we'll want to listen carefully tomorrow, for a potential upward revision to UPS's 2006 guidance.

FedEx is aMotley Fool Stock Advisorselection. For more stock ideas from David and Tom Gardner, click here. If you subscribe to any of our newsletters for a year, you'll get a free copy ofStocks 2006, our analysts' top picks for the year ahead.

Fool contributor Rich Smith does not own shares of any company named above.