UPS to Buy Back, Revises TNT Terms - Analyst Blog


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United Parcel Service , Inc . ( UPS ) has announced buyback plans for $5 billion worth shares. The company did not provide any timeline for the completion of the new share repurchase program. However, it will invest approximately $1.5 billion this year and   next on its buyback plans.

The company repurchased $800 million of shares in 2010 and $2.7 billion in 2011, representing a massive jump. For 2012, UPS expects its buyback to be level with 2011 and targets repurchasing shares worth at least $8 billion from 2012 to 2014. The company projected return on invested capital of at least 25% by 2014 and free cash flow to exceed 100% of net income each year.

Additionally, UPS raised the cash payment by $2 billion to $5 billion in its $6.8 billion purchase deal for TNT Express. The rest of the amount will be raised through a $1.8 billion debt issuance. However, the timeline for the debt maturity is yet to be disclosed.

We believe that the increased shareholder returns and cash investment in acquisition deals reflect the company's growing financial strength.

Despite the challenging economic growth, UPS generated record top and bottom-line results on an annualized basis. Healthy performance in the Supply Chain and Freight segment, strong export volumes in International Package as well as improved margins in Domestic Package will continue to fuel the company's profitability. As a result, UPS expects earnings per share to grow 9-15% year over year to reach another record level this year. Additionally, the company's increasing freight and general rates could lead to yield expansion in all its segments, and in turn higher revenue.

Over the long term, UPS plans to invest about $500 million in new technology and facility expansion in emerging markets including France, Latin America, Vietnam, China and Korea. We believe the company's continued investment in technology and network enhancements, and its integrated sales approachfor future growth will support its industry-leading margins and provide a competitive edge over peers like FedEx Corporation ( FDX ).

In terms of shareholder returns, United Parcel continues to return cash in the form of increased dividends and share repurchases. In February, the company boosted its quarterly dividend by 9.6% to 57 cents per share for fiscal 2012 from 52 cents last year. On an annualized basis, United Parcel's dividend equates to $2.28 per share compared with $2.08 a year earlier. The rise marks a three-fold increase from the introductory dividend of 17 cents per share paid in 2000 and a two-fold hike from the annual dividend paid in 2004.

We, currently, have a long-term Neutral rating on United Parcel . For the short term (1-3 months), the stock retains a Zacks #3 Rank (Hold).

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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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: FDX , UPS

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