On Sep 6, 2014, we updated our research report on United Parcel Service (UPS).
The company’s second-quarter bottom line missed the Zacks Consensus Estimate but grew on a year-over-year basis. The improvement was driven by rise in e-commerce shipping in the U.S. and strong international export growth. On the other hand, the top line exceeded our expectation and also witnessed growth over the corresponding quarter last year.
UPS remains hopeful of a change in the scenario in the U.S. and global economy. While markets in the U.S. are likely to pick up growth trends, the European economy is showing signs of recovery. However, political disturbances in Ukraine may impede growth in Europe. The company foresees mid-single-digit growth in Asia, which will prove accretive to its business.
Further, Latin American markets are projected to witness increased demand for merchandise exports. The overall momentum building up in emerging and established markets should prove beneficial to companies with global operations, like UPS.
UPS is optimistic about growth across most of its businesses. In U.S. domestic package, the company expects average daily volume to grow in the range of 4%–5%. Revenue is expected to improve at a slightly faster pace than volume. Base rate increase is estimated between 2% and 3%. In addition, operating margin is expected to be around 14%.
UPS has undertaken a number of initiatives to improve its performance level. The company introduced route optimization software called ORION, which will offer On-Road Integrated Optimization and Navigation. The company plans to have 45% of the drivers’ network using the technology by the end of 2014, optimizing delivery routes, saving fuel and reducing carbon dioxide emissions. Further, it is planning to implement Hub Automation to enhance its ability to recover and maintain services during natural calamities.
UPS currently has a Zacks Rank #3 (Hold).
Key Picks in the Sector
Air Transport Services Group, Inc. (ATSG), Atlas Air Worldwide Holdings, Inc. (AAWW) and FedEx Corporation (FDX) are some Zacks Rank #2 (Buy) stocks worth considering in this sector.
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