) has registered record breaking sales with 19 million packages
on Monday this week. As the holiday season has begun,
freight-forwarding companies like FedEx and
United Parcel Service, Inc.
) are hopeful of a significant turnaround in their sales.
FedEx expects shipments to rise further from its peak level
during the rest of the holiday season. It estimates sales to hit
280 million packages through Christmas, representing 13% growth
from the previous year. In 2011, the company recorded highest
one-day shipment of 17 million packages on December 12.
FedEx' biggest rival UPS has also started gearing up for the
peak season sales. Last year, UPS' fourth quarter saw record
sales owing to the holidays. The company expects similar figure
this year from daily average shipment of about 15 million to 28
million packages on the peak day.
Moreover, an increase in e-commerce activities will also
contribute to this growth story. The company is also counting on
Black Friday and Cyber Monday sales alongside the conventional
Christmas and Thanksgiving days. Given the estimated surge in
fourth quarter sales, the company expects earnings in the range
of $4.55 to $4.65 per share, up 5% to 7% year over year.
Apart from the hiring, both companies have also raised their
freight rates. Recently, FedEx announced a hike in its shipping
rates for ground and home delivery. The company increased rates
by an average of 4.9%, effective January 7, 2013.
The average rates of FedEx Ground and FedEx Home Delivery will
go up by 5.9%. However, the 1% drop in fuel surcharge will
mitigate the effects to some extent. The rates of FedEx SmartPost
are also expected to change.
In September, the company raised its shipping rates for FedEx
Express by an average of 3.9% for U.S. domestic, U.S. export and
U.S. import services. These changes will also be implemented from
January 7, 2013.
Rate hikes have also been announced by UPS. The new rates will
reflect a 4.5% hike for all UPS Air and U.S. origin international
services. Further, UPS' Ground services will now be costlier by
4.9%. The new service rates for 2013 will be effective from
December 31, 2012.
Despite a looming economic outlook, FedEx and UPShave remained
successful in implementing rate hikes given the strengthening of
freight market fundamentals. We expect both these companies to
benefit from rising volume and favorable pricing in the upcoming
days. Subsequently, the rate hikes would also help in countering
the current economic slump to some extent.
We are currently maintaining our long-term Neutral
recommendation on FedEx and UPS. For the short term, both the
companies have a Zacks #3 Rank (Hold).
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis
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