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UPS Shares Gain as Results Show Some Bright Spots

Tuesday, 23 October 2012 08:11 AM

Shares of United Parcel Service Inc. rose in the face of Tuesday's market sell-off after the delivery company posted third-quarter earnings that matched analysts’ estimates, buoyed by higher export shipments in Asia and a gain in U.S. deliveries.

Full-year profit will be $4.55 to $4.65 a share, UPS said, narrowing an earlier range of $4.50 to $4.70. That compares with a $4.55 average estimate among analysts in a Bloomberg survey. Quarterly earnings excluding some costs were $1.06 a share.

The world’s largest package delivery company is considered an economic bellwether because it moves goods as varied as electronics and financial papers. International exports, defined as goods crossing a border, rose 1.2 percent as Asia volumes climbed “for the first time in several quarters,” UPS said.

“The Asia Pacific region is doing better than people think it is,” said David Campbell, an analyst at Thompson Davis & Co. in Richmond, Virginia, who recommends buying the shares.

UPS shares gained $2.17 to $73.73 at the close in New York, for the biggest advance since March 19. That made the shares a bright spot in the Standard & Poor’s 500 Index as most stocks in the benchmark gauge retreated.

Net income fell 56 percent to $469 million, or 48 cents a share, from $1.07 billion, or $1.09, a year earlier. UPS said the quarter included a $559 million after-tax, non-cash charge to restructure some pension liabilities. Sales slid 0.7 percent to $13.1 billion, the first quarterly drop since the final three months of 2009, according to data compiled by Bloomberg.

CFO’s View

Asia exports rose about 2 percent, and Europe’s increased 1 percent, helped by network changes that allow for later pickup times and new service to certain cities, Chief Financial Officer Kurt Kuehn said in a telephone interview.

“Demand was a little better than it has been, and we were pleased to see the rebound,” Kuehn said.

U.S. domestic shipments rose 3.7 percent, UPS said, a total that beat Campbell’s estimate for a 1 percent gain. He projects a full-year profit of $4.62 a share. That’s 2 cents more than the midpoint of UPS’s new range.

The stock’s jump “largely reflects the company’s guidance, which was a little more positive than the Street was expecting, and also hopes that we’re going to see a nice holiday shipping season,” said James Corridore, an S&P Capital IQ equity analyst in New York.

Holiday Shipping

Package shipments during the holiday peak from Thanksgiving through Christmas will total about 500 million, according to UPS. There is still “some uncertainty around the magnitude of the holiday shipping season,” Kuehn said in a statement.

FedEx Corp., operator of the world’s biggest cargo airline, said Monday that it expects to handle 280 million packages in the same period, 13 percent more than a year earlier. The Memphis, Tennessee-based company said it expects to hire 20,000 seasonal workers, about the same as in 2011. UPS hasn’t given a projection for its holiday workforce.

Lower industry expectations helped drive Tuesday's UPS rally, said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia.

“The feeling out there was that they were going to miss expectations, and so a lot of bad news had already been priced into the stock,” he said. UPS’s more favorable tone on international business compared with previous quarters also came as a surprise, he said.

‘Slight Improvement’

“Not that they’re jumping up and down doing back flips, but you’re at least seeing a slight improvement,” he said. “According to them, the world’s not coming to an end.”

UPS said its volume growth rate remained positive in Europe even as business slowed.

“The economy there has contracted, but the small-package market has not,” Chief Executive Officer Scott Davis said on a conference call with analysts and investors.

UPS is still awaiting clearance from European Union regulators to proceed with the 5.16 billion-euro ($6.7 billion) acquisition of TNT Express NV announced in March. It received a so-called statement of objections last week and hasn’t specified what steps are needed to resolve the complaint.

UPS has said the statement regarding the purchase of Hoofddorp, Netherlands-based TNT was a “normal step” in the review of such transactions, and doesn’t prejudice the final decision.

There were “no big surprises” in the objections statement, Kuehn said Tuesday in the interview, while declining to elaborate on the issues raised by regulators. UPS and TNT are “working very closely and in-depth” with European officials and will respond within a few weeks, he said.

One business that must be divested is TNT’s airline, because EU rules bar air-carrier ownership by foreign companies. Kuehn declined to comment on whether a buyer is lined up yet.

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Shares of United Parcel Service Inc. rose in the face of Tuesday's market sell-off after the delivery company posted third-quarter earnings that matched analysts' estimates, buoyed by higher export shipments in Asia and a gain in U.S. deliveries.
Tuesday, 23 October 2012 08:11 AM
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