United Parcel Service Inc.
), the leading package delivery company, has announced the
expansion of its health care distribution facilities in North
America. The company is seeking expansion in five major
markets including Burlington, Ontario, Louisville, Mira Loma,
Atlanta, and Reno that brings its total global health care
network to 37 dedicated facilities.
The company's accelerated health care investment positions it
well to tap market opportunity in this rapidly expanding health
care business for shipping companies.
Over the years, the company has established various distribution
facilities dedicated to health care in key markets like
Singapore, the Netherlands, Canada, Latin America, Australia and
the U.S. It sees further opportunities in emerging markets like
China, India, Japan and Brazil.
As a result, UPS extended its 8-year long partnership in 2011
with pharma company
Merck & Co. Inc.
) to expand its distribution and logistics services to certain
Asian and Latin American markets. Further, in 2012, the company
acquired Italian pharma logistics provider Pieffe Group to
enhance its health care distribution networks in North and South
America, Europe and Asia.
In the same year, the company announced the opening of
facilities in China and Australia to cater to health care
distribution in the Asia-Pacific region.
Besides expanding its health care business, the company plans to
invest about $500 million toward new technology and facility
expansion over the next few years in markets including France,
Latin America, Vietnam, China and Korea. In sync with this
expansion spree, the company augmented phase 1 of its European
hub operations at Cologne/Bonn Airport in Germany to increase
capacity by 65%.
The expansion would cost about $200 million, with the entire
project slated to be completed at year-end 2013. Overall, UPS
projects capital expenditures of $2.4 billion for the year, which
is concurrent with its capital spending target of 4% of revenues
over the next five years.
We believe these accelerated investment plans arise from the
company's optimism in its earnings power and revenue generating
capabilities even in a difficult operating environment. Despite
the disappointing end of the $6.8 billion mega acquisition of
Dutch shipping company, TNT Express and an economic setback that
affected demand trend, UPS managed to grow with top and bottom
line increases driven by operational efficiency and an enhanced
However, we remain concerned about the volatile economic
conditions that continue to restrict market demand. Further, the
company is also exposed to unionized workforce and intense
competition from giants like
Air Transport Services Group, Inc.
), which has a Zacks Rank #2 (Buy) is another stock worth
considering in this sector.
UPS has a Zacks Rank #3 (Hold).
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