United Parcel Services (UPS) has announced its plan to hire approximately 55,000 seasonal workers including 1,000 in the Phoenix region, anticipating a demand surge during the holiday season.
The company is gearing up for a demand peak during Christmas and New Years, estimating around 120 million packages as opposed to 113 million delivered last year. On average, UPS strikes business of approximately 15 million package deliveries daily, but expects this to go up to 25 million in the week of Christmas.
We believe that the peak seasonal demand will aid UPS’s revenue and earnings targets of 6–8% and 10–15% per annum, respectively, from 2011 to 2016. The company projects 2011 as a record year in terms of profits. Despite the sluggish economy, UPS is expected to deliver healthy revenue and margin expansion, driving earnings per share above previous peak levels through improved demand.
Additionally, UPS hiked its general rate by 4.9% for ground packages, air express and U.S. origin international shipments, effective January 2011. The company also raised its freight rates by 6.9% on non-contractual shipments in the U.S., Canada and Mexico from August 1. This rate increase is expected to enhance yield across all segments, which in turn will generate higher revenue for the company.
Apart from increasing headcount, UPS continues to invest in technology, network enhancements, and its integrated sales approachfor future growth given its industry-leading margins and financial strength. The company plans to target emerging markets with about $500 million in investments planned toward new technology and facility expansion over the next two years. Further, the company intends to expand its European hub operations at Cologne/Bonn Airport in Germany to increase capacity by 65% and expects capital spending to be 4% of revenue over the next five years.
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 United Parcel. For the short term (1–3 months), the stock retains a Zacks #3 Rank.
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