United Parcel Services (UPS), the world's largest package delivery company, set its revenue and earnings growth goal for the next three-to-five years at its investor day. The company estimates its revenue and earnings to grow respectively 6–8% and 10–15% annually from 2011 to 2016.
United Parcel continues to return cash to shareholders in the form of increased dividends and share repurchases. United Parcel started the year with an 11% hike in its quarterly dividend to 52 cents per share from 47 cents. This move tripled the dividend from 17 cents a share in 2000, when it was introduced.
At its investor day, United Parcel boosted its buyback capacity by 35% to $2.7 billion for the year. In addition, the company targets repurchasing a minimum of $8 billion stocks from 2012 to 2014. The company projects return on invested capital of at least 25% by 2014 and free cash flow to exceed 100% of net income each year.
Last year, the company distributed $1.8 billion in dividends and repurchased $800 million shares. In the first half, dividend payments and share repurchases were $1 billion and $1.1 billion, respectively.
Further, UPS continues to invest about $500 million in new technology and expanded facilities over the next two years. It plans to expand its European hub operations at Cologne/Bonn Airport in Germany. Capital spending is estimated at 4% of revenue over the next five years.
Despite the sluggish economy, UPS expects to deliver healthy revenue and earnings above previous peak levels. The company reaffirmed its adjusted earnings guidance of $4.15 to $4.40 per share for fiscal 2011.
However, the company’s near-term results will be restricted by surging fuel prices, labor unionization, large European exposure, and intense competition particularly from FedEx Corporation (FDX).
We are currently maintaining our long-term Neutral recommendation on UPS. For the short term (1–3 months), the stock retains a Zacks #3 Rank (Hold).
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