United Parcel Service, Inc. (UPS) reported third-quarter 2014 adjusted earnings per share of $1.32, beating the Zacks Consensus Estimate of $1.28. The bottom line also grew 13.8% from $1.16 earned per share in the corresponding quarter last year.
Total revenue for the quarter grew 5.7% year over year to $14,290 million, ahead of the Zacks Consensus Estimate of $14,203 million. Total adjusted operating profit climbed 8.3% year over year to $1,954 million.
Revenue Segments
US Domestic Package revenues rose 5.3% year over year to $8.7 billion in the reported quarter. Operating profit grew $1.3 billion, up 7.8% from the year-ago quarter.
Average daily volume increased 6.9% 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 5.5% year over year to $3.2 billion given growth in U.S. export products. Operating profit grew $460 million, up 10.3% from the year-ago quarter. Operating margin grew 70 basis points year over year to 14.5%. Average daily volume grew 6.7% year over year on strong international shipments in Europe and the Asia-to-Europe trade lane. Revenue per piece declined year over year at $17.98.
Supply Chain and Freight revenues grew 7.4% year over year at $2.4 billion due to growth in the Freight and Distribution business units. Adjusted operating profit rose 7% to $215 million, resulting in an operating margin of 8.9%.
Liquidity
UPS generated free cash flow of $2.7 billion and spent $1.4 million at the end of the third quarter. The company repurchased 20.6 million shares worth $2.1 billion and paid dividends of $1.8 billion (8.1% higher compared to year ago) over the nine month-period ending Sep 30, 2014.
Guidance
UPS expects shipments in December to grow 11% year over year, owing to holiday season sales.
Further, the company maintains its plan to increase operating expenses by $175 million and to incur $500 million in capital expenditures in 2014 to address capacity issues and peak-season related operational requirements.
UPS retains its adjusted earnings per share projection to $4.90 to $5.00, representing 7%–9% growth over 2013 adjusted figures.
Our Analysis
We believe a 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 against 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 #4 (Sell).
Other Stocks
A better-ranked stock in this sector is Atlas Air Worldwide Holdings Inc. (AAWW), carrying a Zacks Rank #2 (Buy).
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