International Distributions Services (LON: IDS) share price has retreated in the past few days as investors wait for the upcoming interim results. The stock bottomed at the crucial support level of 233.9p last week, lower than the year-to-date high of 275p. Despite the retreat, Royal Mail (LON:IDSI) shares are over 24% from the lowest level this year.
IDS interim earnings ahead
This will be a big week for IDS, the parent company of Royal Mail and Global Logistics Systems (GLS). The FTSE 250 company will publish its interim results on Thursday, November 16th.
Historically, stocks tend to show some volatility ahead and after publishing their financial results. Recently, fintech stocks like Worldline and CAB Payments plunged by more than 30% after their earnings missed estimates.
These results will be important for IDS since they come a few months after the company reached an agreement with Royal Mail’s employees. As part of the deal, the company pledged to boost their wages over time and improve their working conditions.
They are also important because IDS is going through major headwinds. Demand for both letters and parcels has dipped after peaking during the Covid-19 pandemic. The cost of doing business has jumped as inflation in the UK sits above the 2% target.
Additionally, retail sales have moved sideways in the past few months as the cost of living crisis continues. IDS does well when the retail and e-commerce sector is booming since it is a leading logistics partner.
We saw all these headwinds in the recent financial results. IDS revenue for the three months to June rose slightly to £3 billion, helped by the GLS segment. Royal Mail’s parcels, domestic parcels, international, and letters revenue dropped to £923 million, £767 million, £153 million, and £886 million, respectively.
My expectation is that IDS’s business remained under pressure in the second quarter as the UK economy stalled. Data published on Friday revealed that the UK GDP stalled in Q3 even as it avoided a recession.
Royal Mail is still facing more headwinds. For one, the company has now lost its parcel market share from companies like Evri and DPD. Overall, customer satisfaction with Royal Mail has been falling because of the recent strikes. Royal Mail also received a £5.6 million fine from Ofcom for missing its delivery targets.
IDS share price forecast
IDS chart by TradingView
Turning to the daily chart, we see that the Royal Mail share price formed a double-top pattern at about 272.5p. In technical analysis, this pattern is one of the most accurate bearish signs in the market.
Notably, the stock is hovering slightly above the important support at 233.90, the neckline of the double-top pattern. The shares have also moved below the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, the outlook for the stock is bearish, with the next important support level to watch being at 220p. This view will be confirmed if the shares move below the support at 233p. The alternative scenario is where the stock rebounds as buyers target the upper side of the double-top at 272p.
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