Updated Research Report on UPS - Analyst Blog

On Jun 5, 2014, we issued an updated research report on United Parcel Service, Inc. UPS. The company's first-quarter 2014 earnings per share missed the Zacks Consensus Estimate and also deteriorated from the year-ago number. Meanwhile, revenues grew year over year but fell short of the Zacks Consensus Estimate.

Currently, the Zacks Consensus Estimate for second quarter earnings is pegged at $1.23, representing annualized growth of 8.7%.

For 2014, the company remains hopeful about the changing scenario of the U.S. and global economy. While markets in the U.S. are likely to pick up growth trends, in Europe, the economy is already showing signs of recovery. However, political disturbances in Ukraine may slow down growth in Europe. In Asia, the company is witnessing mid single-digit growth, in support of business concerns.

Further, Latin American markets are projected to have increased demand for merchandise exports. Overall, there is a positive momentum catching in every emerging and established market, which remains beneficial for global companies like UPS.

Going forward, UPS is also banking upon the prospective enactments of the trade promotion authority (TPA) bill. Through TPA, Congress expects to offer guidelines to be used during trade negotiations, which once approved can support global trade.  

UPS increases its freight and general rates from time to time. For 2014, the company increased rates for Ground, Air and International, and Air Freight within the U.S., Canada, and Puerto Rico and between these markets by 4.9%. It also increased general rates by 4.4% for non-contractual shipments in the U.S., Canada and Mexico.

The rate hikes remain a key driver for the company's yield expansion in the current market scenario of low demand trends, which would ultimately propel profitability going forward and also provide competitive edge against rivals like FedEx Corporation FDX and Expeditors International of Washington Inc. EXPD.

For 2014, the company expects earnings per share to be close to the lower end of its previous guidance range of $5.05 to $5.30. This is due to the weather disruption that the company faced in the first quarter, which is likely to have a trailing impact on the yearly financial numbers. In addition, the company expects operating expenses to increase by $100 due to accelerated deployment of project ORION. This would impact second and third quarters earnings by 2 cents and 3 cents, respectively.         

UPS currently has a Zacks Rank #4 (Sell).

Stocks That Warrant a Look

A better-ranked stock in this sector is Air Transport Services Group, Inc. ATSG with a Zacks Rank #2 (Buy).

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