UPS in New Markets - Analyst Blog


United Parcel Services ( UPS ) added six new locations to its Atlantic Canadian network, expanding its business base further.

The company will introduce its services in Moncton and Halifax in April 2012, followed by Saint John, Fredericton, New Brunswick; Sydney and New Glasgow, Nova Scotia; Charlottetown, Prince Edward Island; St. John's, Newfoundland and Labrador in the latter half of 2012.

Tapping new opportunities in the Atlantic Canadian region would not only foster the company's market share, but also benefit the region socio-economically by creating approximately 250 new jobs. However, the amount invested in these expansion plans are yet to be disclosed. The company has already invested approximately $215 million in expanding its Canadian network over the last six years.

Apart from the Canadian market, UPS continues to expand its footprint in France, Latin America, Vietnam, China and Korea. UPS plans to invest about $500 million for new technology and facility expansion over the next few years.

In keeping with this expansion spree, the company intends to augment its European hub operations at Cologne/Bonn Airport in Germany to increase its capacity by 65%. The expansion would cost about $200 million, with the entire project slated for a 2013-end completion. Overall, the company projects capital spending at 4% of revenue over the next five years.

Over the long term, UPS will primarily focus on health care markets, which could be a significant contributor to future growth. The company continues to expand its health care distribution presence in Singapore, the Netherlands, Canada, Latin America and the US. It sees further opportunities in emerging markets like Brazil, China, India, Japan and other Asian countries for international growth.

In June, UPS inked a deal with health care giant Merck ( MRK ) to expand its distribution and logistics services to certain Asian and Latin American markets, in addition to the U.S., China and Brazil. The company has profound expertise in logistics to deliver Merck's products to several small, mid-sized and large businesses.

We believe that the company's plan to enter new markets would remain accretive to its sales despite the sluggish economy weighing on demand. However, consumer spending gradually picked up during last Christmas and New Year and UPS registered steep growth in shipments.The company delivered over 100 million parcels globally during the Christmas week, representing an approximately 6% year-over-year increase. The growth in the holiday season is expected to uplift the company's fourth quarter results, which are yet to be released. 

We are currently maintaining our long-term Neutral recommendation on UPS supported by a Zacks #3 Rank (short-term Hold rating).

MERCK & CO INC ( MRK ): Free Stock Analysis Report
UTD PARCEL SRVC ( UPS ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: MRK , UPS

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