Leading package delivery company
United Parcel Service, Inc.
(
UPS
) has increased its freight rate by 5.9% on non-contractual
shipments in the U.S., Canada and Mexico. The increase is effective
July 16, 2012.
The company offers a variety of less-than-truckload (LTL) and
truckload (TL) services to customers through its Freight segment,
which remains a significant source of revenue with approximately
20% contribution in total revenue as of the first quarter 2012
UPS remains well positioned to benefit from firming
industrial fundamentals and the LTL industry pricing discipline
despite the prevailing economic volatility in the global market.
The current price hike should support UPS' long-term goal of robust
revenue and margin expansion plus earnings improvement.
Continued focus on pricing improvement signifies UPS' initiative
to better its revenue and margins along with earnings improvement
over the next several years. Earlier, UPS hiked its general rate by
4.9% for ground packages, air express and the U.S. origin
international shipments, effective January 2012.
Apart from the routine rate hikes, UPS has a series of
initiatives underway that is expected to deliver industry leading
margin and earnings growth over the long term. Key among these is
renewed focus on yield improvement in the U.S. Domestic Package
division.
Other drivers include increased export volumes, operating
leverage benefits and capacity expansion plans. Further, the
company continues to expand its footprint in emerging markets such
as health care, which could be a larger contributor to growth in
the future. The business wins are expected to expand the
distribution reach further to Asian and Latin American markets as
well as emerging countries like China and Brazil.
We believe the growth initiatives will aid the company to deal
with near-term headwinds such as rising fuel prices, substantial
capital investment and high labor unionization. These would give
UPS a competitive advantage over its peers like
FedEx Corporation
(
FDX
).
We are currently maintaining our long-term Neutral
recommendation on UPS. The stock retains a Zacks #4 Rank
(Sell) for the short term (1-3 months).
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