On Nov 22, we maintained our Neutral recommendation on
United Parcel Service, Inc.
). While the company's third quarter 2013 earnings were in line
with the Zacks Consensus Estimate, revenues fell short of our
expectation. Currently, the Zacks Consensus Estimate for the
company is pegged at $1.43, representing an annualized growth
rate of 8.03%.
UPS is currently looking forwarded to business growth during
the holiday season. It expects its peak season sale to exceed
beyond Christmas and continue to mid Jan 2014. The company
expects to pick up over 34 million packages globally on its peak
day, Dec 16. UPS is focusing on enhancing its offering with
freight solutions like UPS My Choice, UPS SurePost and UPS
Ground, which provide better freight transportation alternatives
to its customers during the hectic holiday schedule. The company
strongly banks on the rapid growth in e-commerce and expects
prolonged holiday shopping for using gift cards, sending return
gifts and end-of-the-year sale to result in more freight
shipments, translating into higher revenues. Overall, UPS expects
peak season daily volume to increase 8% year over year in 2013.
For the remainder of the year, the company expects earnings
growth to accelerate to a rate of 4% to 13%.
The optimism underpins the company's strength with respect to
its market position and its ability to safeguard shareholders'
value despite unfavorable market dynamics. The company's
financial strength drives growth through planned investments,
technology-backed operations and enhanced worldwide network.
However, UPS expects a significant portion of pension headwind
in 2013. The company expects pension and health care
expenses to increase this year from last year. This will result
in substantial cost pressure in 2013. Further, the company
expects yield pressure to continue due to the changing business
mix resulting from customer shift from premium products as they
seek more cost effective logistic solutions. Tax rates are
expected to remain at higher levels equating to approximately 36%
in the fourth quarter. Further, UPS expects earnings for the
yearto be affected by the macroeconomic conditions surrounding
the domestic business and its premium B2B business. Headwinds due
to currency fluctuations are also expected to cost around $100
million, hurting operating profits in 2013.
In addition,on the international front, the company expects
the Euro zone to remain sluggish. Given the heavy expansion plans
through acquisition as well as organic growth, we remain wary of
the strategies the company is undertaking in terms of its
European business. In Asia, economic uncertainty has increased,
as China's GDP and industrial production growth have slowed a
Given these near-term pros and cons, we continue to have a
neutral outlook on UPS' performance.
UPS, which operates with freight forwarding carriers like
Radiant Logistics, Inc.
Expeditors International of Washington Inc.
), has a Zacks Rank #3 (Hold).
EXPEDITORS INTL (EXPD): Free Stock Analysis
FEDEX CORP (FDX): Free Stock Analysis Report
RADIANT LOGIST (RLGT): Free Stock Analysis
UTD PARCEL SRVC (UPS): Free Stock Analysis
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