The National Retail Federation expects holiday sales to increase 4.1% compared to the 10-year average of 3.5% and eMarketer predicts online holiday sales growth of 16.8%. With shipping companies able to capitalize on both increased sales and future returns, it is safe to say that the United Parcel Service (UPS) will have a busy season. FedEx has also estimated handling 280 million packages from Thanksgiving to Christmas, up 13% from last year.
Even with high potential opportunities for this holiday season, the street has been pessimistic on the industry due to the global slowdown. However, UPS has shown their resilience with growth over 3Q in ground shipping and next day air by 3% and 5.7%. More importantly, UPS saw a growth in international exports by 1.2% with 1% surprisingly sustained in Europe by the small package market.
UPS is also expanding into what could prove to be a $12 billion market in same-day deliveries. Amazon (AMZN) and eBay (EBAY) are currently testing same-day delivery in order to help compete with traditional retailers. As shippers continue to asses what price customers are willing to pay for this service, they are sure that the instant gratification of delivery will be greater than the cost to shoppers.
The successful acquisition of TNT Express NV (TNTE) for $6.1 billion will help UPS broaden its portfolio of services to customers and lower supply chain costs. Although the deal has received a Statement of Objections from the European Commission, both UPS and TNT have urged that this is a normal part of the second phase of the transaction. The EC has until January 15th, 2012 to continue its investigation and make a decision.
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UPS’s ability to grow its current services while expanding into the same-day delivery market are both positive signs. Analyst have also anticipated Q4’12 and Q1’13 earnings per share of $1.35 and $1.11, which are 5% and 26% higher than prior year EPS results for the same quarter. With an operating margin of 10.17% compared to the industry average of 5.73%, UPS is performing its core business better than competitors. The acquisition of TNT also offers some great growth opportunities and synergies that can help boost the future bottom line.
United Postal Service: UPS is stock to watch out for, especially with a 3.09% dividend yield while trading on the lower half of its 52 week high/low spread.
Written by Nick Sousa