United Parcel Service, Inc.
) reported first quarter 2012 earnings per share of $1.00, just a
penny below the Zacks Consensus Estimate. However, earnings per
share grew 10% from the year-ago quarter earnings of 91 cents. The
year-over-year growth was primarily based on higher freight rates
and fuel surcharges.
Total revenue for the quarter grew 4.4% year over year to $13.1
billion, but fell shy of the Zacks Consensus Estimate of $13.3
billion. The year-over-year increase in revenue was a result of the
company's growing e-commerce business coupled with its improving
shipping solutions. In the reported quarter, consolidated volume
grew 4.3% year over year and revenue per piece inched up 0.9% year
Adjusted operating profit increased 6.7% year over year to $1.6
billion, reflecting an operating margin of 11.9%, up 20 basis
points (bps) from 11.7% in the year-ago quarter. The growth was
primarily backed by higher profits from the U.S. Domestic, and
Supply Chain and Freight segments.
US Domestic Package
revenue rose 6.1% year over year to $8 billion in the reported
quarter. Operating profit leaped 13.1% year over year to $995
million, and consequently operating margin expanded 70 bps to
Average daily volume increased 3.8% due to a growth in online
shopping. Revenue per piece improved 4.5% year over year driven by
higher rates and fuel surcharges that offset lower package weight
and changes in customers and products mix.
revenue climbed 2.4% year over year to $3 billion driven by higher
trades in Europe, Mexico and intra-Asia routes. Operating profit
fell 9.9% year over year to $408 million in the reported quarter
and operating margin contracted to 13.8% from 15.6% in the year-ago
quarter. Lackluster margin performance was due to higher fuel
expenses as well as unfavorable product and trading trends.
Average daily volume enhanced 2.8% year over year on a 5.4%
growth in export average daily volumes. Domestic average daily
volumes inched up 1.1% year over year. Revenue per piece was
down 0.1% from the year-ago quarter due to weaker Asian
Supply Chain and Freight
revenue inched up 1.3% to $2.2 billion and operating profit climbed
a substantial 19.4% to $166 million from the year-ago quarter.
Operating margin expanded 120 bps year over year to 7.7%, primarily
attributable to strong growth in the Freight business.
During the first quarter, UPS generated free cash flow of $1.8
billion and its capital expenditure was $417 million. The company
repurchased 7.1 million shares for approximately $550 million in
the first quarter.
Based on strong performance in the first quarter, UPS reiterated
its adjusted earnings guidance of $4.75 to $5.00 per share for
fiscal 2012, reflecting a growth of 9-15% over fiscal 2011 adjusted
We believe that a healthy performance in the Supply Chain and
Freight segment, strong export volumes in International Package as
well as improved margins in Domestic Package will fuel continue to
UPS' future profitability.
Additionally, the proposed acquisition of TNT Express, a Dutch
shipping company, is also expected to be accretive to the company
growth. The deal, which represents the largest acquisition in the
history of UPS, will likely boost annual revenues to more than €45
billion ($60 billion). However, labor unionization, large European
exposure and competitive threats, particularly from
) keep us cautious on the stock.
We, currently, have a long-term Neutral rating on UPS. For the
short term (1-3 months), the stock retains a Zacks #3 Rank
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