United Parcel Service, Inc. (UPS) reported second-quarter 2014 adjusted earnings per share of $1.21, missing the Zacks Consensus Estimate $1.24. However, the bottom line grew 7.1% from $1.13 earned per share in the corresponding quarter last year. The growth was driven by rise in e-commerce shipping in the U.S. and strong international export growth.
Total revenue for the quarter grew 2.6% year over year to $14,268 million, ahead of the Zacks Consensus Estimate of $14,070 million. Total adjusted operating profit climbed 4.1% year over year to $1,813 million.
Revenue Segments
US Domestic Packagerevenues rose 5.2% year over year to $8,688 million in the reported quarter. Operating profit grew $1.2 billion, up 3.0% from the year-ago quarter.
Average daily volume increased 7.4% on Deferred, Ground and Next Day Air volume expansion. Revenue per piece dipped 2.0% year over year given unfavorable changes in product and customer mix that offset pricing improvements.
International Package revenues rose 6.2% year over year to $3,252 million given growth in the U.S. export products. Operating profit grew $471 million, up 4.1% from the year-ago quarter. Average daily volume grew 6.6% year over year on strong international shipments in Europe and the Asia-to-Europe trade lane. Revenue per piece remained flat year over year at $18.97.
Supply Chain and Freight revenues grew 6.5% year over year at $ 2,348 million due to growth in the Forwarding and Distribution business units. Adjusted operating profit rose 10.7% to $176 million.
Liquidity
UPS generated free cash flow of $1 billion and spent $813 million at the end of the second quarter. The company repurchased 13.7 million shares worth $1.4 billion and paid dividends of $1.2 billion at the end of the reported quarter.
Guidance
The company plans to increase operating expenses to $175 million in 2014 to address capacity issues and peak-season related operational requirements. As a result, it has lowered the 2014 adjusted earnings per share projection to $4.9 to $5 (7%–9% growth over 2013 adjusted figures), from the previously estimated $5.1 to $5.3 (11%–16% growth over 2013 adjusted earnings per share).
Our Analysis
We believe that the booming health care segment, shipment and yield growth as well as productivity improvements will help UPS fuel profitability in the future. Moreover, the company’s strategic investments, technology-backed operations and enhanced worldwide network will strengthen its market position and safeguard shareholder value despite unfavorable market dynamics.
However, factors like labor unionization, competitive threats from players like FedEx Corp. (FDX) and Radiant Logistics, Inc. (RLGT) as well as economic upheaval continue to pose significant threats to UPS’ growth.
Currently, UPS carries a Zacks Rank #3 (Hold).
Other Stocks
Better-ranked stocks in this sector include Atlas Air Worldwide Holdings Inc. (AAWW), which has a Zacks Rank #1 (Strong Buy).
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