Leading package delivery company,
United Parcel Service Inc.
) announced a dividend increase for its outstanding Class A and
Class B shares. The board of directors announced an increase of
8.8% to 62 cents per share payable on Mar 12, to shareholders of
record on Feb 25, 2013.
Further, the company has announced a share repurchase program
of $10 billion that replaces the existing program that began in
2012. The new share repurchase program is without an expiration
UPS continues to return cash to shareholders in the form of
increased dividends and share repurchases. It projects return on
invested capital of at least 25% by 2014 and free cash flow to
exceed 100% of net income each year. The company raised its
quarterly dividend by 9.6% to 57 cents per share for fiscal 2012
from 52 cents in 2011. With respect to buybacks, the company
raised its target for 2013 from $1.5 billion to $4.0 billion.
Despite the disappointing end to the $6.8 billion mega
acquisition of Dutch shipping company, TNT Express and an
economic setback that affected the demand trend, an increase in
shareholders return underpins the company's strength with respect
to its market position and ability to safeguard shareholders'
value despite unfavorable market dynamics. As a result, the
company continues to remain optimistic over its 2013 earnings
results, which are expected to grow in the range of $4.80 to
$5.06 per share, representing an increase of 6-12% from the 2012
The company's financial strength drives growth through
strategic investments, technology-backed operations and an
enhanced worldwide network. UPS seems to look beyond the failure
of the TNT deal and banks on smaller acquisitions that it carried
out in Europe to expand its global footprint. In Dec 2011, the
company acquired Italian pharma logistics provider Pieffe Group
to enhance its position in North and South America, Europe and
Asia. Following this, it acquired a Belgian e-commerce company,
Kiala in Feb 2012.
Moreover, we are encouraged by the company's positive outlook
on most of its segments, for the year. United Parcel Service
expects revenue growth in the mid single-digit range in its
domestic package business, buoyed by 2-3% volume growth.
International business is estimated to account for a mid
single-digit revenue growth with higher domestic and export daily
Further, Supply Chain and Freight businesses would see
mid-to-high single-digit revenue growth and reap profits of
approximately 10%. In addition, the segment is expected to
sustain a margin growth of at least 8% despite significant
investments in business expansion in the health care markets.
However, we remain concerned about 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.
Deutsche Post AG
), both with a Zacks Rank #2 (Buy), are the other stocks worth
considering in this sector.
UPS has a Zacks Rank #3 (Hold).
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